Denison Mines Corp. Nuclear Style Growth

In a very short period of time, we have seen the spot price of uranium drop by over a half after massive speculation had pushed the price up. There was a time when uranium producers could barely make a profit, as only those companies with high grade uranium could sell for a profit. Uranium producers were among the agricultural companies as they had trouble breaking even. With countries like China leading the way, and current countries like Japan and France showing the viability in the market, these companies could see a great profit going forward. I do like CCJ at this point as they are a huge producer and have great holdings with respect to yellow cake. This company is a buy now as it has pulled back on bad news about their Cigar Lake holdings and the constant flooding slowing its ability to begin producing. CCJ is a much more conservative holding based on their legacy contracts, and should be looked at hard at these prices. If you are looking for growth DNN seems to be a very nice pick going forward. When looking at these companies be careful as many are speculative names that are currently not producing anything or have any plans to start new mines for production. These companies move higher and lower based on the price of uranium alone. DNN is a production company and their growth numbers look good going forward.
DNN has been in the industry for over 50 years. They have assets in the United States and Canada, plus holdings in Zambia and Mongolia. The US and Canadian holdings are comprised of seven operational mines and two uranium mills. Last years production was 683 thousand pounds of U3O8, this years production will fall somewhere between 1.7 and 1.9 million pounds. Looking forward, the company has plenty of growth. Their estimates have 2011 possibly being a huge year. Low estimates have the company producing 3.6 million pounds, but high estimates have their production at 6 million. The main reason for the increase will be the start of production of their Zambian and Mongolian mines.
The largest reason the uranium producers will benefit is the nuclear renaissance that is under way. Supply and demand will increase the price over time as production continues to be less than demand. Due to the length of time it takes to get a mine up and running, it could be a long time before production will actually meet demand. Currently, 15% of world electricity is produced by nuclear and this percentage will increase a the current 439 reactors will increase as there are 34 under construction and over 90 are in the planning phase. Looking at India, they have six reactors under construction and their goal is to have half of their electricity generated by nuclear within by 2050. India will be a completely new market for uranium sometime in 2009 and they are working on contracts to purchase United State's uranium.
If we are to compare nuclear costs to other means we find that nuclear is much cheaper than other sources. Many people disagree with the different sources sited, but mostly because in the United States we have no nuclear reactors of advanced technology. Our current reactors are old and out of date and with this comes extra cost. When the US Congressional Budget Office did their study in May of 2008 they found that operating costs including fuel, operations and maintenance were much cheaper when advanced nuclear technologies were used. When using US dollars per MWh they found that innovative clean natural gas technologies were $55. Conventional natural gas was $41, innovative clean coal was $23, conventional coal was $20 and advanced nuclear was $16. This being the case, it is believed that many other countries will continue to pursue nuclear, further tightening supply.
DNN is interesting as they have started doing contracts with floor prices, $45 per pound being the floor. These new US contracts are quite good as it was not long ago that uranium was selling for less than $10 a pound. Even more impressive is that their sales are 95% of the current long term price, which has been constant for some time even as the spot price has decreased dramatically. DNN has stated that all future contracts will be set this way with appropriate floor prices and close to the current market, which takes much of the fluctuation out of the price of the commodity.
DNN has also made some interesting investments in other uranium exploration companies with decent sized assets. The first is URZ as they have a 9.9% interest. URZ has current properties in Saskatchewan and Wyoming. These sites are currently under review by the NRC for licensing. They also own a 10% equity interest in Energy Metals Limited (ASX:EME).
In Summary, DNN will have increased their uranium production by over 200% from 2007 to the end of this year. Their combined uranium and vanadium sales will double revenue year over year. By 2011, they will have their Zambian mine producing and probably their Mongolian mine. All of this will produce impressive growth going forward at much better prices then were seen just a couple of years ago. I would look for this company to be a great long term investment.