Denison Mines: Its Official - FID Approved for the Phoenix ISR Project

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Denison Mines (DML, DNN) announced after the close on Tuesday (February 24th) that its Board of Directors has made a Final Investment Decision (FID) to proceed with construction of the Phoenix ISR uranium mine, located in the Athabasca Basin. Site preparation and construction activities are expected to commence in a matter of days. First ISR uranium production is expected by mid-2028. We maintain our positive view on the company and congratulate management on all the milestone achievements spanning nearly a decade (since the Phoenix ISR decision was taken) and culminating with this final FID project approval. Last month we previously fine-tuned our model assumptions using the updated project cost estimates as a guide. Increasing our LT uranium price to $100/lb, (from $90 previously) we maintain our targeted NAV multiple of 1.40x. Factoring in corporate adjustments we increase our 12-month price objective to C$5.80 per share (rounded), from C$4.95 previously. Our price objective equates to downside of -1% from the most recent close on February 24. Given YTD performance of +62% (topping all peers in the largecap uranium space), we feel that Denison shares are currently fairly valued as much of the FID decision was incrementally getting factored in over the course of this year.

PHOENIX TO BEGIN ISR PRODUCTION IN MID-2028

Given the Board’s approval of the project, Denison's nearly decade long journey with the Phoenix ISR Project has officially entered the construction phase. With all the necessary provincial and federal approvals in-hand and with the necessary materials procured, site preparation and construction is expected to begin in March. Following an expected two year construction period, ISR uranium production from Phoenix is expected in mid-2028. The Phoenix Project will become one of the more significant uranium mines globally, we estimate 56M lbs to be produced over a 10 year LOM. Longer term, we expect the Gryphon underground mine to begin production in 2034. Phoenix will be the first operating ISR mine located in the Athabasca Basin.

PHOENIX CAPITAL COST UPDATE ANNOUNCED IN JANUARY

Last month, Denison provided an updated initial capital cost update for the Phoenix project. After accounting for increases in inflation, cost increases, and project refinements, the company now estimates the total post-FID initial capital estimate for the Project to be approximately $600M at a Class 2 cost estimate level of precision. When adjusting for inflation, updated initial capital costs have increased by 20% relative to the 2023 Phoenix Feasibility Study. Note that the updated capital cost estimate includes $65M in contingency funds and owners' reserves. Just as importantly, the construction timeline has been maintained at ~24 months.

A notable refinement to the 2023 Phoenix FS is the planned installation of large diameter wells throughout the Phase 1 mining area to enable each well to act as an injection or recovery well.  The 2023 Phoenix FS was based on approximately half of the wells in Phase 1 being large diameter and the other half being smaller diameter wells for injection only.  While this modification increases initial capital costs, it is expected to improve the operational flexibility of the wellfield, and optimize recovery rates. Though management is targeting initial production in mid-2028, we maintain our more conservative estimates (below) with commercial production achieved in 2029.

VALUATION & CONCLUSION

We maintain our positive view on the company and congratulate management on all the milestone achievements spanning nearly a decade (since the Phoenix ISR decision was taken) and culminating with this final FID project approval. We have previously fine-tuned our model assumptions using the updated project cost estimates as a guide. Increasing our LT uranium price to $100/lb, (from $90 previously) we maintain our targeted NAV multiple of 1.40x. Factoring in corporate adjustments we increase our 12-month price objective to C$5.80 per share (rounded), from C$4.95 previously. Our price objective equates to downside of -1% from the most recent close on February 24. Given YTD performance of +62% (topping all peers in the largecap uranium space), we feel that Denison shares are currently fairly valued as much of the FID decision was incrementally getting factored in over the course of this year. Shares of Denison Mines currently trade at a 1.43x P/NAV multiple.