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Maurice Jackson of Proven and Probable conducts site visits and interviews with the CEO’s and their respective Geologists listed on the New York, Toronto, Frankfurt, and Australian Stock Exchanges.  We have earned the trust of the most respected names to deliver you the ... more

Denison Mines Interview: Investors – We Are The Next Uranium Producer In The Making!

Date: Tuesday, March 15, 2016 1:45 PM EST



Maurice Jackson:  Welcome to Proven & Probable. I’m your host, Maurice Jackson, and joining us today is the president and CEO of Denison Mines (DNN), Mr. David Cates. David, thank you for joining us today.

David Cates:  Yeah, thanks Maurice. My pleasure.

Maurice Jackson:  You know, David, under your tenure at Denison Mines, it has become one of the most highly regarded names in the natural resource space specifically with your company’s contributions and success in uranium. Offline, I’ve had discussions with some of the biggest names in the natural resource space and they basically agree that Denison Mines is going to be the next producer in the making, so it’s quite an honor to have you here with us. So thank you again.

David Cates:  Of course, my pleasure, Maurice.

Maurice Jackson:  Since we last spoke at the Sprott-Stansberry conference, can you please share with listeners what is uranium used for and what are the current supply and demand fundamentals of uranium.

David Cates:  Sure. I mean this is a question we get all the time. Everyone wants to know from Denison what do we think about the uranium space. You know, right now, you’ve got 489 reactors that are operating around the world across 30 countries, but the most exciting part of the story is that we’ve got 69 new reactors that are under construction. These are reactors where we’ve actually got concrete being poured and dollars being put in to the ground. And then we’ve got another 158 reactors that are either ordered or planned.

And ordering and planning a reactor, that’s just not, you know, wishing that you build one. There’s a process involved here with permitting and licensing and all of this stuff requires significant amount of capital. So when we see those reactors being in queue to come to the market, it’s not that—it’s pretty realisable I guess is what I would say that these reactors will actually be built because of the investment that goes into it in all stages.

Maurice Jackson:  Okay. With that being said as well, have the reactors in Fukushima, Japan, have they come online?

David Cates:  Yeah. So we are starting to see the recovery in Japan. 2015 was actually quite a milestone year for the industry. We did see the first reactors come back online and achieve commercial production in Japan after Fukushima and we’ve seen additional reactors come online already in 2016. So at the end of the day, we’re looking like we’ll see another 5 units or so later within the next year or so out of Japan and ultimately, you know, 20 to 30 of these reactors were expecting to come back online at the end of the day once Japan is fully reembracing nuclear energy.

Maurice Jackson:  Now with Japan coming back online, how will that impact the supply and demand of uranium?

David Cates:  Yeah, it’s interesting. You know, Japan has been an overhung for a while in the space because they haven’t been in the market. And obviously them coming back to the market means that they’re going to be using some of their inventories and using material. But at the end of the day, Japan is not really the story when you look at the fundamentals in the space. The story is really China because as much as Japan will be coming back to, you know, say half of their fleet, China is adding hundreds of reactors, right? So, Japan really is less relevant than people might think when it comes to the grand scheme of things.

Maurice Jackson:  You know, thank you for clarifying that. As well with—speaking with supply and demand, how does oil and gas affect the price of uranium? Or does it at all?

David Cates:  Well, it shouldn’t and it doesn’t seem to affect the actual price of uranium, but oil and gas does have significant bearing on uranium equities and that’s a bit of an inadvertent result but, you know, there really isn’t a connection other than oil and gas being a source of energy and uranium being a source of energy, but they’re not really competing with each other because nuclear power is all about base load energy. It’s about keeping the lights on 24 hours a day. It’s about hospitals, you know, things that need power all times, large infrastructure.

And people and countries commit to nuclear energy for the reliability of it and the relatively low cost. And when they commit, they spent billions of dollars in infrastructure. Now, oil and gas is more of a variable energy source and so when you do see sort of the regular consumption from, say, global economic activity change and it makes sense that oil and gas also is affected and it moves up and down.

But, uranium really isn’t in that variable space and so they don’t really compete with each other outside of being sources of energy. Now if you contrast that to what’s going on in the equities, you see that uranium stocks often trade with the price of oil, and we actually were looking at Denison just in a 2-year analysis of Denison in Canadian dollar terms and we looked at oil in Canadian dollar terms.

And over the 2 years, the two have traded very closely together by the end of this 2-year window and both are down significantly, you know, there’s no surprise with that. But by comparison, the price of uranium in Canadian dollar terms is up. And so there’s been this tremendous divergence between uranium equities and Denison is not alone. I mean Cameco and other players have had similar trajectories.

These uranium companies have basically diverged from what’s happening in uranium and the price of uranium. And that’s where it all seems very interesting because if you’re a value investor, there really is an opportunity there because at the end of the day, the uranium market will dictate the uranium price, not oil and gas. But right now, it seems like oil and gas has dictated the price of the uranium equities.

Maurice Jackson:  Well, thank you for that clarification. You know, David, based on your analysis, the price of uranium should be significantly higher right now specifically with the supply and demand fundamentals as you just presented with us. Conversely, though, investors very seldom buy low and sell high. In your experience, is this where the astute investors deploy capital to companies that have proven management large high-grade deposits and a solid balance sheet such as Denison Mines?

David Cates:  Yeah, Maurice, I mean that’s 100% online with what I’m talking about. We’ve basically got a situation where the uranium equities including Denison are undervalued. You look at where you want to put your money to take advantage of this fundamental rise in the price of uranium that we believe will happen. And really, what choices do you want to make? I think you do want to look for reliable and trusted management teams. I think Denison is unmatched in that area because of our connection with Lukas Lundin. He’s our executive chairman and there’s few in the mining space that have had the success of Lukas Lundin.

And then I think you also want to look at the quality of assets in the jurisdiction you’re investing in. And I think Canada and the assets that Denison has in the eastern part of the Athabasca basin are also difficult to rival. We’ve got the Phoenix deposit and the Gryphon deposit and I’m sure we’re going to talk more about those on the Wheeler River property. You know, this is a property that’s amongst tremendous amounts of infrastructure from the existing uranium mines and mills in the eastern part of the basin that are operated by Cameco and AREVA.

And really, when you want to look at investing in this space, right? You can be investing on the speculative side or you can be investing on the torque side, and I think what Denison is going to offer better than anyone in the space in the coming months and years is torque because when this price rises, right, the big investors or the institutional investors, what they want to buy into is the company that will be able to take advantage of it the most. And the company that typically takes advantage of a rising price environment the most from a share price standpoint is the developer. It’s the company that is going to be the producer. It’s not always the producers because they just don’t offer the same leverage and it’s not always the exploration or junior companies because they really may not be able to develop their assets in order to take advantage of the rise in price.

So it’s that producer in the making that stands to maximize return for shareholders and that’s really what Denison has to offer is that path to production, and I think you’re right the astute investor could see that as quite an apparent opportunity right now.

Maurice Jackson:  David, you touched on several subjects there that I definitely want to delve into a little bit further. Geographically, let’s share with the listeners where is Denison Mines? Where your projects right now?

David Cates:  Yeah, absolutely. I mean Denison has been a diversified company before and we used to be in the U.S. and we used to be in Mongolia. We’ve sold both of those interests. Right now, the company is focused in Saskatchewan in a district called the Athabasca basin and we’re specifically focused in the eastern part of the Athabasca basin. And the reason why we’re there is because we think the infrastructure in that district has a meaningful impact on the economics of projects and being able to leverage the milling and mining infrastructure in that district is critical.

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