Korean utility to buy stake in Denison

15 April 2009

Correction - An earlier version of this story incorrectly stated that KEPCO would buy 20% of Denison's uranium production over the next six years. Denison has pointed out that KEPCO will buy a specified minimum amount of its uranium between 2010 and 2015, and then 20% in subsequent years.

Denison Mines has agreed to sell a 20% stake in the company to Korea Electric Power Corp (KEPCO), and has entered into an offtake agreement with the South Korean utility.
In a statement, Canada-based Denison said that the companies have entered into a non-binding memorandum of understanding (MoU) under which KEPCO will purchase one-fifth of Denison's U3O8 production under an offtake agreement and acquire a 19.9% stake in Denison for C$75.4 million ($62.2 million).
The offtake agreement will provide for deliveries commencing in 2010 with minimum deliveries of 690,000 pounds U3O8 (315 tonnes U3O8) annually between 2010 and 2015. Under the agreement, the purchase price of the uranium that KEPCO buys from Denison will be on "industry standard terms."
By acquiring the 20% stake in Denison, KEPCO will also have the right to appoint two directors to Denison's board of directors. In addition, Denison's chairman, Lukas Lundin, will also acquire 15 million common shares for an additional C$19.5 million ($16.1 million).
Denison said that the transactions are subject to the completion of due diligence by KEPCO, execution and delivery of definitive agreements on or before 15 June 2009 and receipt of certain regulatory approval.
Proceeds from the sale of the equity stake will be used to reduce bank debt and to advance development projects, Denison said.
Last month, when reporting its 2008 results, Denison said that it had "initiated a process to consider and respond to various strategy opportunities which may be available to the company over the next few months including, but not limited to, entering into offtake contracts with utility customers which may involve a strategic investment in Denison, asset sales, purchases and joint ventures, investment by private equity investors and potential corporate transactions with other uranium producers."
Denison mines uranium in Saskatchewan, Canada, and in southwest USA. It also has ownership interests in two of the four conventional uranium mills currently operating in North America. In addition, the company is exploring properties in Mongolia and Zambia.
Setbacks for Denison
In November 2008, the partners in the Midwest joint venture in Saskatchewan, Canada - Areva Resources Canada (69.16%), Denison (25.17%) and OURD Canada Co (5.67%) - announced their decision to postpone the uranium mine project due to current economic conditions. Denison said the postponement was due to the "current economic climate, delays and uncertainties associated with the regulatory approval process, the increasing capital and operating costs and the current market for uranium."
At the same time, Denison also decided to temporarily close its Tony M mine in the US state of Utah. Again, the company attributed the move on the "current economic situation, including the current uranium market."
In March, Bluerock Resources pulled out of a toll milling and ore purchase agreement with Denison saying that it is unable to meet its obligations under the agreement due to current market conditions. The agreement was signed by Bluerock and Denison for toll milling at Denison's White Mesa mill in January 2008. Under the agreement, Bluerock was to deliver 25,000 tonnes of ore per year into Denison's ore purchase program.

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