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Denison Mines: ISR Field Test Success; Time to Re-Examine Wheeler River

DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. Visitors to this site are encouraged to conduct their own due diligence.


On back of Denison Mines’ (DML, DNN) successful Phoenix deposit metallurgical test results as released earlier this week, we take the time to re-examine the Wheeler River project in detail, while also rolling out our 12-month price objective following an extensive model refresh and review. Given the metallurgical testing success, our overall confidence in Wheeler River production (particularly from Phoenix) has been reinforced. Using our base LT uranium price forecast of $70/lb, we establish our 1.1x NAV8% target of C$3.75/$3.00 per share. We view Denison Mines as not only a good proxy to leverage uranium upside but also increasingly as a development play which will transition to meaningful near- term production.



As announced on October 17, the successful recovery of uranium bearing solution was achieved from the Phoenix ISR Feasibility Field Test (FFT) which was conducted on the 95% owned Wheeler River Project.

The successful recovery of uranium bearing solution at the targeted rates and grades is a testament to the 2018 Pre-Feasibility Study (PFS) which proposed the ISR mining method. At the time, conventional thought was that the Phoenix deposit would be advanced as a standard underground mining operation, as the ISR method was never yet seen before (let alone proposed) for any Athabasca Basin uranium deposit. As per the FFT, the leaching phase began in September with flow and recovery characteristics meeting expectations. Moreover, it was announced that the hydrogeological systems have responded as expected with pH trends. The final phase two FTT phases (neutralization phase and recovered solution management phase) should be completed by the summer of 2023. This will ensure the full success of the ISR trials ranging from permeability, leachability and successful application of containment parameters.

We figure that now is a good time to re-examine the estimates from the 2018 PFS:

Given at least 10 years of consistent production at or above 6.0M lbs/year, Wheeler River’s Phoenix and Gryphon deposits represent the only significant uranium projects in North America apart from NexGen Energy’s (NXE) Arrow Project, and potentially Fission Uranium’s (FCU) Triple R, (which both happen to be located at the other end of the Athabasca Basin, also known as the “infrastructure-light”, western end of the Basin.


Taking a more conservative stance when compared to the PFS, we estimate that commercial production from Phoenix may likely begin in 2025 (PFS, 2024) followed by conventional underground production from Gryphon in 2030. Phoenix production is expected to have a LOM of 10 years with an average cash cost below $4.00/lb while Gryphon is expected to have a LOM of 6 years at an average cash cost below $12.00/lb. Our production ramp up for both Phoenix and Gryphon is displayed below. We also include the related sensitivities on a NAVPS basis for both Wheeler River and Waterbury as well. Though much smaller in scope than Wheeler River, Waterbury is also a high-grade Athabasca Basin deposit (12.8M lbs Indicated at 2.00% U3O8 - 100%) which is currently at the PEA level (2020). As an aside, the very same ISR technique which is being fashioned for Phoenix may also serve to mine Waterbury's Tthe Heldeth Túé (THT) deposit as well.



We value both Wheeler River and Waterbury (attributable) using an 8% discount rate while we apply a 7% discount to Denison's 22.5% ownership in the McClean Lake Mill. All other Athabasca and JCU properties are given an in-situ value of $1.00/lb to the global resource. Needless to say, exposure to Denison Mines is predominantly driven by developments at Wheeler River. Using our base LT uranium price forecast of $70/lb, we establish our 1.1x NAV8% target of C$3.75/$3.00 per share. Denison shares in Toronto currently trade at a 0.49x P/NAV. Though a financing will most likely will be conducted following the conclusion of the FFT tests next summer, we do note that Denison is well positioned to partially use the 2.5M lbs of uranium it currently has in inventory (currently valued at $162.7M using current spot prices) to backstop any equity or debt (likely 2:1) financing package. Note that the initial capex requirement for Phoenix was earmarked at $322M.

We view Denison Mines as not only a good proxy to leverage uranium upside but also increasingly as a development play which will transition to meaningful near- term production. We stress that apart from NexGen's Arrow project and potentially Fission Uranium's Triple R, no other meaningful uranium project is expected in North America at the same size and scope of Wheeler River.





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