Denison unbundles mining and oil interests

Diversified energy company Dension Energy (DEN-T) will split into three separate companies under a reorganization plan announced Wednesday.

The company’s uranium and other mining interests will be transferred into a resurrected Denison Mines, while a new company, to be named Denison Resources, will take over the company’s oil and gas assets. The parent company will take over a private company in the well services business and be significantly refinanced.

Denison’s principal mining interest is a 22.5% stake in the McClean Lake uranium mine in the Wollaston Lake area of northern Saskatchewan. McClean, operated by 70%-owner Cogema Canada, produced 778 tonnes U₃O₈ in the third quarter of 2003 and had reserves of 1.25 million tonnes grading 1.7% U₃O₈ at the end of 2002. (Overseas Uranium Resource Development, a consortium of Japanese power utilities, holds the remaining interest in McClean.)

The new Denison Mines will also hold a 20% interest in the Midwest Lake uranium deposit, also in northern Saskatchewan, and a portfolio of uranium and gold exploration projects in Canada. It also will take up Denison’s consulting unit, Denison Environmental Services, which operates mine-reclamation projects.

Denison Resources, the oil and gas unit, is in exclusive negotiations with a private hydrocarbon producer. Denison management says the negotiations are meant to lead to a business combination.

Under the plan, Denison Energy will distribute shares in both Denison Mines and Denison Resources, with each Denison Energy share entitling the holder to one share in each of the new companies. All three will trade separately.

Denison Energy — which would be left with no operating assets once the two new companies were spun off — has lined up a private placement with an investment group led by Matco Capital. Following the distribution of the new companies’ shares, the group would receive a 45% interest in the rest of Denison Energy for $5.4 million. Denison then has an option to purchase a private well-services company based in Calgary, Calfrac Well Services, for $227.5 million including some assumed debt.

The plan of arrangement requires the approval of Denison Energy shareholders, and management plans to call a shareholders’ meeting for early March. It will also need court approval and listing agreements from the Toronto Stock Exchange.