Denison Mines (TSX: DML; NYSE-MKT: DNN) has taken the final step that will help it focus on its uranium assets in Canada’s Athabasca basin and in particular its flagship Wheeler River project.
In a deal with GoviEx Uranium (CSE: GXU), the two companies will combine their African uranium assets and create an Africa-focused uranium-development company.
GoviEx will get all of Denison’s African uranium assets — Mutanga in Zambia, Falea in Mali and Dome in Namibia — in exchange for 56.1 million shares, and another 22.4 million in share purchase warrants.
Upon closing, Denison will hold 25% of GoviEx’s outstanding shares or 28% of GoviEx’s shares on a fully diluted basis. Denison can also appoint one director to GoviEx’s board, as long as it has more than a 5% stake in the company.
“It was an obvious transaction for both parties,” Daniel Major, GoviEx’s CEO, said in a telephone interview from London. “They wanted to focus on what they’re doing in Canada and we wanted to focus on Africa. We also wanted to see a diversification of our assets in Africa with quality assets.”
When the transaction closes, GoviEx will control one of the largest uranium resource bases among publicly listed developers, with combined measured and indicated resources of 124.3 million lb. U3O8, plus another 73.1 million lb. U3O8 of inferred.
In addition, Denison’s 100% owned Mutanga project in Zambia is permitted, while Denison’s wholly owned Falea uranium-silver-copper project is at an advanced exploration stage. Denison also holds a 90% stake in the Dome project in Namibia.
Rob Chang, a mining analyst who follows the uranium industry at Cantor Fitzgerald, describes the agreement as “a great move.”
He said in an email to The Northern Miner that “Denison was getting zero value for those assets in the portfolio. Now both Wheeler and Africa can be advanced, with Denison benefitting from both.”
David Sadowski, a mining analyst in the Vancouver office of Raymond James — GoviEx’s financial advisor — said in a research note that the disposition of Denison’s African assets “has been telegraphed by Denison for years,” and “should come as no surprise to investors.”
It’s a “symbolic move that completes the company’s transition to a solely Canadian-focused uranium junior after last year’s Mongolian asset divestment.”
The deal will give Denison shareholders ownership in GoviEx’s 100% owned and fully permitted Madaouela project in central Niger, not far from Areva’s Somair and Cominak mines in the Agadez region. Madaouela hosts 99.1 million lb. grading 0.1% U3O8 in the measured and indicated category and 18.3 million lb. grading 0.1% U3O8 of inferred.
As part of the transaction, Denison will make sure that DML Africa is capitalized with minimum working capital of $700,000, which can be used for GoviEx’s 2016 exploration budget.
It has also agreed to subscribe for 25% of GoviEx’s upcoming $2-million non-brokered private placement.
GoviEx’s Major noted that Denison has been supportive. “They’ve said whatever we need from them, they can help. So we see it as much a partnership going forward as anything else.”
Major pointed out that the Mutanga and Falea projects have seen a lot of technical work.
“We’re not acquiring exploration properties … Mutanga is already mine permitted and since then, they’ve increased the size of their resource substantially.”
Edward Sterck of BMO Capital Markets in London said the transaction “appears to be a sensible one from Denison’s perspective: retaining an interest in its African assets and gaining an interest in GoviEx’s Madaouela project, while reducing the outgoings and management oversight requirements associated with the African operations.”
At Haywood Securities, which acts as Denison’s financial advisor, Colin Healey commented in a research note that the deal bolsters GoviEx’s already strong investor base. “Adding Denison [and executive chairman Lukas Lundin] to the list of key shareholders should improve exposure, and place GoviEx on the radar of a wider range of investors,” he wrote.
Healey added that as of Nov. 30 2015, shareholders of GoviEx included Govind Friedland, 18.6%; Toshiba Corp., 16.9%; Robert Friedland of Ivanhoe Mines (TSX: IVN), 9.7%; and, according to a Haywood estimate, Cameco (TSX: CCO; NYSE: CCJ), 7.4%.
David Cates, Denison’s president and CEO, says that while GoviEx has a low profile — in part because it trades on the Canadian Security Exchange — it nevertheless “has a really solid group of big shareholders,” and “there is a lot of value in their assets.”
He says in a phone interview that “I don’t think people can look at the share price of GoviEx and think that it reflects the true value of the company … there’s a lot of value in their assets, and now with the combination of our assets and a larger resource base, GoviEx will have an even more attractive story. We see them as a story that has been underappreciated by the market, but as the uranium space heats up, people will realize they are probably the most compelling uranium story in Africa.”
Cates said the transaction makes Denison an Athabasca basin uranium producer.
Denison owns 60% of the Wheeler River project in the Athabasca, with Cameco owning 30% and JCU 10%.
The partners expect to complete a preliminary economic assessment on Wheeler in the first half of 2016.
The project is made up of the Gryphon and Phoenix uranium deposits, which sit within 3 km of each other. The company plans 47,000 metres of drilling there this year, and has already found mineralization 100 metres north of Gryphon.
Gryphon has an inferred resource of 834,000 tonnes grading 2.3% U3O8 for 43 million lb. U3O8.
Indicated resources at Phoenix stand at 166,000 tonnes grading 19.1% U3O8 for 70.2 million lb. U3O8, and inferred resources add 9,000 tonnes grading 5.8% U3O8 for 1.1 million lb. U3O8.
At Gryphon there is potential for a conventional and low-cost underground mining operation of high-grade, basement-hosted mineralization, while Phoenix offers high-grade, unconformity-hosted mineralization.
Over the last year, Denison’s shares have traded in a range of 47.5¢ to $1.20 per share, and at press time traded at 71¢ apiece.
BMO’s Sterck has a 70¢ target price on Denison’s shares, while Sadowski of Raymond James has a $1.50 target, and Chang of Cantor Fitzgerald, $2.05 per share.
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