Denison Mines Inc.
TSX : DEN

Denison Mines Inc.

May 15, 2006 07:30 ET

Denison Mines Reports First Quarter Results

TORONTO, ONTARIO--(CCNMatthews - May 15, 2006) -

Not for distribution to United States newswire services or for dissemination in the United States

Denison Mines Inc. (TSX:DEN) today reported its financial results for the three months ended March 31, 2006. All amounts in this release are in Canadian dollars unless otherwise indicated.

Consolidated net earnings were $6,000 or $0.00 per share for the three month period ended March 31, 2006 compared with consolidated net loss of $1,421,000 or $0.06 per share for the same period in 2005. The 2006 results are after expensing $1,443,000 in exploration costs compared to $367,000 expensed for exploration costs in the first quarter of 2005.

Cash flow from operations, after funding of exploration expense, was $2,550,000 for the three months ended March 31, 2006 compared to $2,939,000 for the three months ended March 31, 2005. On a fully diluted per share basis, cash flow from operations was $0.09 for the three months ended March 31, 2006 compared to $0.11 for the same period in 2005.

Revenue was $5,508,000 for the three months ended March 31, 2006 compared with $3,183,000 for the comparable period in 2005.

Significant events in the first quarter include:

- Sales of U3O8 for the quarter were 122,500 pounds which represents about 12% of our expected annual sales volume. Average sales price for the quarter was $36.89 (US$31.61).

- Production of U3O8 at the McClean Lake processing facility was 284,000 pounds of which Denison's share was 64,000 pounds. Denison now expects that it will be difficult for the joint venture to achieve production for the full year of 4,000,000 pounds given the first quarter production. The year's production will be weighted towards the second half of the year as ore from test mining of McClean North, Sue E mining and the Sue C stockpile become available.

- The spot price of U3O8 continued to increase and was US$40.50 at March 31, 2006, an increase of 80% from the March 31, 2005 level of US$22.50. The stronger Canadian dollar reduced the impact of the price increases as exchange rates were 1.167 at March 31, 2006 compared to 1.210 at March 31, 2005.

- Denison issued 4,450,000 equity units at a price of $17.00 per unit for gross proceeds of approximately $75,650,000. Each unit consisted of one common share and one-half of a common share purchase warrant. Each whole warrant is exercisable at an exercise price of $30.00 per share for a period of five years from March 1, 2006.

- Denison announced very encouraging results from the winter drilling program carried out by operator COGEMA Resources Inc. ("COGEMA") at the Mae zone on the Midwest property. Drilling intersected strong mineralization and further drilling is scheduled to delineate the zone.

- Denison received a new Technical Report on the Mineral Resources and Mineral Reserves on its 22.5% owned McClean Lake property in the Athabasca Basin in northern Saskatchewan related to the Sue D deposit. The technical report, which is available on SEDAR, identified Indicated Mineral Resources for the Sue D deposit totaling 2.8 million pounds of U3O8 of which Denison's share is 0.6 million pounds and Inferred resources of 0.2 million pounds U3O8 of which Denison's share is 0.05 million pounds.

- Denison entered into a strategic alliance with Energy Metals Limited, a dedicated Australian uranium exploration company listed on the Australian Stock Exchange under the symbol EME. As part of the alliance Denison purchased 3,000,000 common shares of Energy Metals at an issue price of AUS$1.50 per share for a total cost of $3,773,000, giving Denison approximately a 12% interest (on an undiluted basis) and making Denison the second largest shareholder of Energy Metals.

- At a special shareholders meeting on March 27, 2006, Uranium Participation Corporation received approval to invest in uranium hexafluoride (UF6) in addition to uranium oxide in concentrates (U3O8). It also received approval to lend U3O8 or UF6 and to amend the Management Agreement with Denison to provide compensation for financings and special initiatives. This will positively impact Denison's future compensation under the management agreement.

Subsequent Event

On April 17, 2006, Denison Mines terminated the credit facility with COGEMA. As part of the termination agreement, COGEMA and Denison agreed to cancel certain rights COGEMA had in the event of a sale of Denison by way of a merger, take-over bid, amalgamation, plan of arrangement, wind-up, joint venture agreement or other business combination of Denison.



SEGMENTED INFORMATION
---------------------------------------------------------------------
Three Months ended
March 31
(in thousands) 2006 2005
---------------------------------------------------------------------

Revenue
Uranium Production $ 4,519 $ 1,731
Uranium Exploration - -
Environmental Services 676 1,452

Corporate and Other 313 -
---------------------------------------------------------------------
$ 5,508 $ 3,183
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Net Earnings (Loss)
Uranium Production 1,372 (147)
Exploration (1,443) (367)
Environmental Services (100) 64
Corporate and Other 177 (971)
---------------------------------------------------------------------
$ 6 $ (1,421)
---------------------------------------------------------------------


Uranium Production

The uranium production segment recorded income of $1,372,000 for the three months ended March 31, 2006 compared to loss of $147,000 for the three months ended March 31, 2005.

The increased earnings of the segment for the quarter versus the comparable period last year was the result of higher sales volumes and higher average sales prices offset in part by Canadian/US dollar exchange rates that were unfavourable compared to last year. Sales in the quarter were 122,500 pounds U3O8 versus 98,000 pounds in the first quarter last year. US dollar sales prices for the quarter averaged US$31.61 versus US$14.60 in 2005. US/Canadian dollar exchange rates averaged $1.167 in the first quarter of 2006 compared to $1.210 in the same period last year. The resulting average sales price in Canadian currency was $36.89 for the first quarter in 2006 versus $17.66 for the same period last year.

Denison's uranium sales in 2006 will be under contracts with various durations and which contain a variety of pricing formulas. Timing of delivery under these contracts is at the option of the customer. Uranium sales in 2006 are contracted at about 1,000,000 pounds U3O8. About 33% of these volumes will be sold under legacy contracts at prices well below current market. The balance will be sold at prices in excess of US$30.00 per pound resulting in realized average US dollar prices being significantly higher than in 2005. Denison expects its sales volumes for the year to be apportioned 12%, 22%, 50% and 16% in the first, second, third and fourth quarters.

The McClean Lake Joint Venture produced 284,000 pounds of uranium during the three months ended March 31, 2006 compared with 1,363,000 pounds during the same period in 2005. Denison's 22.5% share of production totalled 64,000 pounds during the first quarter 2006 compared to 307,000 pounds in the comparable period in 2005. The primary reasons for lower production in the first quarter of 2006 were plant shutdowns of nearly three weeks for construction and maintenance, lower grade ore feed and reduced throughput resulting from variances in the arsenic concentration of the ore feed that resulted in temperature problems in the leach circuit and a shortage of reagents, primarily hydrogen peroxide. Average mill feed grade for the period was 0.45% U3O8 compared to 1.58% for the comparable 2005 period.

Unit production costs increased significantly in the quarter compared to the same period last year due to the lower volumes produced. As production for the year increases, unit production costs will decline and are expected to average about $8.00 per pound higher than average production costs in 2005. This increase is expected to be reduced by about $2.00 per pound with the addition of a ferric sulphate plant, scheduled to go into service in late 2006 and eliminated when processing of Cigar Lake ores begins in late 2007.

Production for the year is now expected to be 3,500,000 to 4,000,000 pounds U3O8 of which Denison's share will be 787,500 to 900,000 pounds. Actual production levels will depend on the quantity and grade of ore available from mining activities during the year. Mining of the Sue A deposit was completed in the first quarter of 2006 and mining of the Sue E deposit is currently underway and will continue throughout 2006 and 2007. Processing of the ore from Sue A is underway. It is expected that ore from the Sue E deposit will be available in the second half of the year. The mining of the McClean North deposit using the "blind-boring/jet boring" technique has commenced. Production will also come from the remainder of the Sue C stockpile and the ability of the operator to recover any of the high-grade ore contained in the stockpile will impact actual production levels.

COGEMA is planning to undertake an infill drilling program this summer to determine if over 7 million pounds of deep mineralization below and south of the planned Sue E pit, currently in inferred resources, can be brought into the reserve category.

Construction has commenced on the expansion required to receive and process ore from Cigar Lake with the scheduled completion by the end of 2006. Processing of the Cigar Lake ores is now not expected to commence until late 2007 subject to the Cigar Lake Joint Venture obtaining the required regulatory approvals.

Uranium Exploration

Denison is engaged in uranium exploration as part of the McClean and Midwest joint ventures and as a participant in the Wheeler River, Wolly and Waterfound joint ventures. Denison's share of exploration spending totaled $1,625,000 for the three months March 31, 2006 compared to $516,000 for the three months ended March 31, 2005. Of these amounts, $1,443,000 and $367,000 was expensed for the three months ended March 31, 2006 and 2005 respectively, as it related to exploration on properties without ore reserves. The 2006 exploration expenditures included $182,000 at the McClean and Midwest properties, $872,000 at Wheeler, $480,000 at Wolly and $39,000 at Waterfound.

Denison's share of exploration spending for 2006 is expected to total nearly $5,000,000 of which $3,100,000 will be spent at the Wheeler River uranium project where Denison is the operator. Denison also expects to spend over $800,000 at the Wolly uranium project. The balance of the exploration spending will be at Midwest, McClean Lake, Waterfound and on a new project in Mongolia. The majority of the exploration spending will be expensed during the year.

Denison has recently further strengthened its exploration team with the addition of Roger Wallis, a renowned geologist with extensive uranium exploration experience in the Athabasca Basin, as a consultant.

Environmental Services

Revenue from environmental services was $676,000 for the three months ended March 31, 2006 compared to $1,452,000 for the comparable period in 2005. Loss from the division was $100,000 for the three months March 31, 2006 compared to earnings of $64,000 for the same period in 2005.

During the three months ended March 31, 2006, Denison Environmental Services ("DES") provided services under its contract for environmental monitoring and maintenance of the closed mine site of Rio Algom Ltd. at Elliot Lake, under its contract to operate the Kam Kotia water treatment facilities and under its new three-year contract for environmental monitoring and maintenance at the INCO Shebandowan mine site. In 2005, DES completed a demolition project at the Bicroft minesite which accounts for the variance in revenue and income between 2006 and 2005.

Corporate and Other

Uranium Participation Corporation

Effective March 30, 2005, Denison entered into an agreement to act as Manager of Uranium Participation Corporation ("Uranium Corp."). Denison receives management fees for the provision of management services and 1.5% commission on the purchase and sale of uranium oxide in concentrates (U308) and uranium hexafluoride (UF6) made on behalf of Uranium Corp. Denison earned $313,000 in management fees and commissions for the three months March 31, 2006.

Corporate Expenses

General corporate expenses totaled $1,006,000 for the three months ended March 31, 2006 compared to $992,000 for the comparable period in 2005.

Non-cash stock compensation expense relating to stock options granted during the year to employees and directors totaled $288,000 for the three months ended March 31, 2006 compared to $234,000 for the comparable period in 2005.

Other Income

Other income includes $428,000 of interest earned on invested cash, $461,000 realized recovery on an investment previously written down and $117,000 gain on foreign exchange.

Liquidity

On March 1, 2006, Denison issued 4,450,000 equity units each consisting of one common share and one-half warrant to purchase one common share at a price of $30.00 exercisable for five years. Each unit was priced at $17.00 and raised gross proceeds of $75,650,000. Net proceeds were approximately $72,000,000.

On April 17, 2006, Denison Mines terminated the credit facility with COGEMA. As part of the termination agreement, COGEMA and Denison agreed to cancel certain rights COGEMA had in the event of a sale of Denison by way of a merger, take-over bid, amalgamation, plan of arrangement, wind-up, joint venture agreement or other business combination of Denison. The agreement also required Denison to provide its pro-rata share of financial assurances provided under the Mineral Industry Environmental Protection Regulations (1996) in connection with the McClean and Midwest Joint Ventures. As a result, Denison has provided Letters of Credit from a Chartered Bank totaling $8,063,775.

Corporate Objectives

During 2006, Denison's objectives are to accomplish the following:

- Expand uranium resources by investing $5,000,000 in exploration in 2006, and through acquisitions;

- Sell at least 1,000,000 pounds of U3O8;

- Production of at least 4,000,000 pounds U3O8 at the McClean processing facility of which Denison's share will be 900,000 pounds;

- At least maintain uranium production earnings at 2005 levels;

- Complete the mining of the Sue A deposit, make substantial progress toward the mining of the Sue E deposit, and mine a portion of the McClean North deposit through the blind-boring/jet-boring mining techniques;

- Complete the expansion of the McClean mill to allow for processing of Cigar Lake ore in 2007;

- Progression of the development of Midwest through the regulatory process towards commencement of stripping the deposit by 2008;

- Development of the process to recover the nickel and cobalt reserves associated with the uranium at Midwest and at Sue E;

- Complete further drilling at the Sue E deposit to move the inferred resources into reserves.

Management believes it is on track to meet these objectives except for production levels which we now believe will be between 3,500,000 and 4,000,000 pounds U3O8.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This press release contains certain forward-looking statements and forward-looking information that are based on the Company's current internal expectations, estimates, projections, assumptions and beliefs. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intent", "estimate", "anticipate", "plan", "should", "believe" or "continue" or the negative thereof or variations thereon or similar terminology.

By their very nature, forward-looking statements involve numerous factors, assumptions and estimates which factors, assumptions and estimates are described in more detail under the heading "2006 Outlook" in Denison Mines Inc. management discussion and analysis ("MD&A") for the year ended December 31, 2005. A variety of factors, many of which are beyond the control of Denison Mines Inc., may cause actual results to differ materially from the expectations expressed in the forward-looking statement. These factors include, but are not limited to, changes in commodity prices, unanticipated reserve and resource grades, imprecision in production, adverse mining conditions, unexpected geological or hydrological conditions, operating performance, risks associated with the transportation of uranium and chemicals and fuel used in the production process, natural phenomena including inclement weather, fire, flood, earthquakes, pit wall failures and cave-ins and other development risks, results of exploration activities, timeliness of government approvals, economic risk, actual performance of plant, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. See "RISK FACTORS" included in Denison Mines Inc. annual MD&A for a further description of the principal risks to Denison Mines Inc.

These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements. Although management reviews the reasonableness of its assumptions and estimates, unusual and unanticipated events may occur which render them inaccurate. Under such circumstances, future performance may differ materially from those expressed or implied by the forward-looking statements. Except where required under applicable securities legislation, Denison Mines Inc. does not undertake to update any forward-looking information statement.

Conference Call

Denison is hosting a conference call on May 15, 2006 starting at 4:00 p.m. (Toronto time) to discuss the First Quarter 2006 results. The webcast conference call will be available live through a link on Denison's website www.denisonmines.com. A recorded version of this conference call will be available on Denison's website or by calling 416-695-5275 from approximately two hours after the call until 5:00 p.m. on May 29, 2006.

About Denison

Denison Mines Inc. is a uranium exploration, development and production company whose principal assets are a 22.5% interest in one of the world's largest uranium facilities at McClean Lake in Northern Saskatchewan and its 25.17% interest in the Midwest Uranium Project. It is actively engaged in exploration activities in Canada's Athabasca Basin and in Mongolia, and through its 12% interest in Energy Metals in Australia. It is also engaged in mine decommissioning and environmental services through its Denison Environmental Services division and provides management services to Uranium Participation Corporation.

Additional Information

Additional information on Denison is available on SEDAR at www.sedar.com and on the Company's website at www.denisonmines.com.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management's discussion and analysis (MD&A) should be read in conjunction with the Denison Mines Inc. consolidated financial statements for the three months ended March 31, 2006. This MD&A is current as of May 12, 2006. All amounts are in Canadian dollars unless otherwise indicated.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This MD&A contains certain forward-looking statements and forward looking information that are based on the Company's current internal expectations, estimates, projects, assumptions and beliefs. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intent", "estimate", "anticipate", "plan", "should", "believe" or "continue" or the negative thereof or variations thereon or similar terminology.

By their very nature, forward-looking statements involve numerous assumptions and estimates. A variety of factors, many of which are beyond the control of Denison Mines Inc., may cause actual results to differ materially from the expectations expressed in the forward-looking statement. These factors include, but are not limited to, changes in commodity prices, unanticipated reserve and resource grades, imprecision in production, adverse mining conditions, unexpected geological or hydrological conditions, operating performance, risks associated with the transportation of uranium and chemicals and fuel used in the production process, natural phenomena including inclement weather, fire, flood, earthquakes, pit wall failures and cave-ins and other development risks, results of exploration activities, timeliness of government approvals, economic risk, actual performance of plant, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. See "RISK FACTORS" included in the MD&A accompanying Denison's December 31, 2005 financial statements for a further description of the principal risks to Denison Mines Inc.

These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements. Although management reviews the reasonableness of its assumptions and estimates, unusual and unanticipated events may occur which render them inaccurate. Under such circumstances, future performance may differ materially from those expressed or implied by the forward-looking statements. Except where required under applicable securities legislation, Denison Mines Inc. does not undertake to update any forward-looking information statement.

OVERVIEW

Denison Mines Inc. ("Denison") is primarily a uranium production and exploration company and is also engaged in mine decommissioning, environmental services and the management of Uranium Participation Corporation ("Uranium Corp."). Denison is one of only two Canadian publicly traded companies that are primarily involved in the uranium mining and production business in Canada. Denison's production is through its 22.5% ownership of the McClean Lake joint venture which includes both uranium reserves and one of the largest uranium processing facilities in the world. Denison is a 25.17% owner of the Midwest joint venture which also contains substantial reserves of uranium. Denison is also carrying on substantial exploration programs at several properties in Canada, including McClean Lake and Midwest which have untapped resource potential, and at the Wheeler River, Wolly and Waterfound uranium exploration projects. Internationally, Denison is a joint venture partner with a subsidiary of AREVA in the exploration for uranium in Mongolia and has a 12% ownership interest in Energy Metals Limited, an Australian uranium exploration company.



CONSOLIDATED RESULTS
---------------------------------------------------------------------
For the Three Months Ended March 31, 2006
---------------------------------------------------
Environ- Corporate
(in thousands of Uranium Uranium mental and
Canadian dollars) Production Exploration Services Other Total
---------------------------------------------------------------------
Revenue $ 4,519 $ - $ 676 $ 313 $ 5,508
---------------------------------------------------------------------

Expenses
Operating expenses 2,773 - 776 - 3,549
Royalties and
provincial capital
tax 337 - - 35 372
Exploration
expenses - 1,443 - - 1,443
General corporate
expense - - - 1,006 1,006
Stock option
expense - - - 288 288
Interest expense 37 - - - 37
Other expense
(income) - - - (1,006) (1,006)
---------------------------------------------------------------------
$ 3,147 $ 1,443 $ 776 $ 323 $ 5,689
---------------------------------------------------------------------
Earnings (loss)
before income taxes 1,372 (1,443) (100) (10) (181)

Income tax
expense (recovery)
Current - - - 51 51
Future - - - (238) (238)
---------------------------------------------------------------------
Earnings (loss)
for the period $ 1,372 $ (1,443) $ (100) $ 177 $ 6
---------------------------------------------------------------------



---------------------------------------------------------------------
For the Three Months Ended March 31, 2005
---------------------------------------------------
Environ- Corporate
(in thousands of Uranium Uranium mental and
Canadian dollars) Production Exploration Services Other Total
---------------------------------------------------------------------
Revenue $ 1,731 $ - $ 1,452 $ - $ 3,183
---------------------------------------------------------------------

Expenses
Operating expenses 1,686 - 1,388 - 3,074
Royalties and
provincial capital
tax 131 - - 9 140
Exploration expenses - 367 - - 367
General corporate
expense - - - 992 992
Stock option
expense - - - 234 234
Interest expense 61 - - - 61
Other expense
(income) - - - (37) (37)
---------------------------------------------------------------------
$ 1,878 $ 367 $ 1,388 $ 1,198 $ 4,831
---------------------------------------------------------------------
Earnings (loss)
before income taxes (147) (367) 64 (1,198) (1,648)

Income tax expense
(recovery)
Current - - - 35 35
Future - - - (262) (262)
---------------------------------------------------------------------
Earnings (loss)
for the period $ (147) $ (367) $ 64 $ (971)$(1,421)
---------------------------------------------------------------------


DISCUSSION OF CONSOLIDATED RESULTS

Consolidated revenue for the three months ended March 31, 2006 was $5,508,000 and consolidated net income was $6,000 or $0.00 per share. This compares with revenues of $3,183,000 and a consolidated net loss of $1,421,000 or $0.06 per share for the three months ended March 31, 2005.

Results by segment are discussed below:

URANIUM PRODUCTION DIVISION RESULTS

Denison's uranium division consists of its 22.5% interest in the producing McClean Lake mine and mill operation and 25.17% interest in the Midwest uranium property in Saskatchewan. Uranium division results also include reclamation expense of the former Elliot Lake uranium mine.

Results for the three months ended March 31, 2006

The uranium production division recorded income of $1,372,000 for the three months ended March 31, 2006 compared to a loss of $147,000 for the three months ended March 31, 2005.

The increase in earnings for the quarter versus the comparable period last year was the result of higher sales volumes and higher average sales prices offset in part by Canadian/US dollar exchange rates that were unfavourable compared to last year. Sales in the quarter were 122,500 pounds U3O8 versus 98,000 pounds in the first quarter last year. US dollar sales prices for the quarter averaged US$31.61 versus US$14.60 in 2005. US/Canadian dollar exchange rates averaged $1.1671 in the current quarter compared to $1.2096 in the same period last year. The resulting average sales price in Canadian currency was $36.89 for the first quarter in 2006 versus $17.66 for the same period last year.

The McClean Lake Joint Venture produced 284,000 pounds of uranium during the three months ended March 31, 2006 compared with 1,363,000 pounds during the same period in 2005. Denison's 22.5% share of production totalled 64,000 pounds during the first quarter 2006 compared to 307,000 pounds in the comparable period in 2005. The primary reasons for lower production in the first quarter of 2006 were plant shutdowns of nearly three weeks for construction and maintenance, lower grade ore feed, variances in the arsenic concentration of the ore feed that resulted in temperature problems in the leach circuit and a shortage of reagents, primarily hydrogen peroxide. Average mill feed grade for the period was 0.45% compared to 1.58% for the comparable 2005 period.

Unit production costs increased significantly in the quarter compared to the same period last year due to the lower volumes produced. As production for the year increases, unit production costs will decline and are expected to average about $8.00 per pound higher than average production costs in 2005. This increase is expected to be reduced by about $2.00 per pound with the addition of a ferric sulphate plant, scheduled to go into service in late 2006 and eliminated when processing of Cigar Lake ores begins in late 2007.

Production for the year is now expected to be 3,500,000 to 4,000,000 pounds U3O8 of which Denison's share will be 787,500 to 900,000 pounds. Actual production levels will depend on the quantity and grade of ore available from mining activities during the year. Mining of the Sue A deposit was completed in the first quarter of 2006 and mining of the Sue E deposit is currently underway and will continue throughout 2006 and 2007. Processing of the ore from Sue A is underway. It is expected that ore from the Sue E deposit will be available in the second half of the year. The mining of the McClean North deposit using the "blind-boring/jet boring" technique has commenced. Production will also come from the remainder of the Sue C stockpile and the ability of the operator to recover any of the high-grade ore contained in the stockpile will impact actual production levels.

COGEMA is planning to undertake an infill drilling program this summer to determine if over 7 million pounds of deep mineralization below and south of the planned Sue E pit, currently in inferred resources, can be brought into the reserve category.

Construction has commenced on the expansion required to receive and process ore from Cigar Lake with the scheduled completion by the end of 2006. Processing of the Cigar Lake ores is now not expected to commence until late 2007 subject to the Cigar Lake Joint Venture obtaining the required regulatory approvals.

Denison pays a Saskatchewan basic uranium royalty of 4% of gross uranium sales after receiving the benefit of a 1% Saskatchewan resource credit. Denison also pays Saskatchewan capital taxes based on the greater of 3.6% of gross uranium sales and capital tax otherwise computed under the Act. For uranium production after July 1, 2006, the factor applied to gross uranium sales for Saskatchewan capital tax purposes will be reduced to 3.3% with further reductions scheduled in 2007 and 2008. The Saskatchewan government also imposes a tiered royalty which ranges from 6% to 15% of gross uranium sales after recovery of mill and mine capital allowances which approximate capital costs. Denison has not paid tiered royalties in the past and has sufficient mill and mine capital and expansion allowances available or anticipated to shelter it from the tiered royalty at current uranium prices for several years.

Interest expense attributed to uranium production totalled $37,000 in the first quarter of 2006 compared to $61,000 in the same period in 2005. The amount represents line of credit standby fees paid to secure the obligation for reclamation at the McClean Lake and Midwest projects.

Expenses related to the former Elliot Lake Uranium Mine

Denison continues to absorb certain liabilities associated with the decommissioned Elliot Lake uranium mine and the retirees from the Elliot Lake operations.

In the first quarter of 2006, Denison spent $120,000 primarily on monitoring and water treatment activities at its former Elliot Lake sites compared to $106,000 in the comparable period in 2005. In 2006, Denison expects to spend about $630,000 on these activities. All spending is paid for from the Elliot Lake Reclamation Trust, which had a balance of $1,767,000 at March 31, 2006. This balance, with interest earned thereon, is expected to be adequate to fund all monitoring and treatment costs through to December 31, 2011. This spending is expected to decline marginally over the next few years. The balance of the total provision for $4,575,000 represents the estimated present value of ongoing maintenance, monitoring and water treatment.

A group of retirees from Denison's Elliot Lake mine are entitled to certain medical and dental benefits and life insurance. At March 31, 2006 the post employment benefits liability recorded in the consolidated balance sheet was $9,043,000. The actuarial report on this liability as at October 1, 2005 estimated that the actuarial liability is approximately $4,554,000. The transitional surplus is being credited to income at a rate of $393,000 per year. An experience gain of $864,000 established at the time of the October 2005 actuarial valuation is also being credited to income at a rate of $71,000 per year.

2006 Outlook

Uranium sales in 2006 are contracted at about 1,000,000 pounds U3O8. About 33% of these volumes will be sold under legacy contracts at prices well below current market. The balance will be sold at prices in excess of US$30.00 per pound resulting in realized average US dollar prices being significantly higher than in 2005. Denison expects its sales volumes for the year to be apportioned 12%, 22%, 50% and 16% in the first, second, third and fourth quarters.

Production at the McClean Lake mill is now expected by Denison to be 3,500,000 to 4,000,000 pounds U3O8 of which Denison's share is 787,500 to 900,000 pounds. This represents a reduction from the levels of recent years as a result of lower grade ore being processed that contains more arsenic and planned mill shutdowns totalling four to six weeks required for scheduled maintenance and to tie in mill expansion facilities being constructed to process ore from the Cigar Lake joint venture, which is scheduled to commence in late 2007. Actual production levels will depend on the quantity and grade of ore available from mining activities during the year.

As a result of lower grade ore and lower production volumes, milling costs per pound are estimated to increase by an average of about $8.00 per pound U3O8 in 2006. Production shortfalls will amplify this increase.

Uranium prices are expected to continue to strengthen, although less dramatically than in 2005, and as a result uranium margins are expected to be stronger than in 2005. However, U.S. dollar exchange rates will partially offset this gain if the Canadian dollar remains strong. A change of $1.00 per pound in the spot price of uranium is expected to affect 2006 cash flow by $600,000. A change of 3% in the exchange rate of the Canadian dollar versus the U.S. dollar is expected to affect cash flow by about $900,000.

In 2002 definitive agreements were signed enabling the Cigar Lake joint venture to process its ore at the McClean Lake mill. All Cigar Lake ore will be leached at the McClean Lake mill following which the pregnant aqueous solution will be divided between the McClean Lake and Rabbit Lake facilities for processing into uranium concentrates. It is anticipated that toll milling will begin at McClean Lake in late 2007 subject to receipt by the Cigar Lake joint venture of the required regulatory approvals. Construction is continuing on the expansion of the JEB mill at McClean Lake to increase the capacity required to receive and process ore from Cigar Lake with the scheduled completion by the end of 2006.

The project description of the Midwest project was submitted to the Canadian Nuclear Safety Commission, the Environmental Assessment Branch of Saskatchewan Environment and the Canadian Environmental Assessment Agency on December 28, 2005. It is proposed that the Midwest deposit be mined as an open pit with further expansion of the JEB mill at McClean where the Midwest ore will be processed. The Midwest Project was previously considered and recommended to proceed, with conditions, in 1997 by the Joint Federal-Provincial Panel on uranium mining developments in Northern Saskatchewan. The Project was approved by the Federal and Provincial Governments in 1998, based on the Panel's recommendation. It is expected that an environmental assessment will be required. Denison anticipates that the environmental assessment and subsequent licensing will be completed in time to commence stripping of the Midwest deposit in 2008.

In 2006, Denison, in conjunction with COGEMA and OURD, proposes to continue evaluating two mining technologies: blind shaft mining (also called blind boring) and hydraulic borehole mining (also known as jet boring). Both of these technologies involve drilling an access hole through the sandstone and glacial overburden and extracting the underlying ore material from surface. Briefly, blind shaft mining uses a mechanical device (a reaming head) to cut material and enlarge the mining cavity in the ore horizon, whereas hydraulic borehole mining utilizes a high-pressure water jet. The primary purpose of the evaluation is to improve the economics of these mining technologies as a technique for recovering uranium ore, particularly from smaller deposits. In 2005 testing was conducted which successfully commissioned and to some extent tested in the sandstones, the specialty equipment (namely the mining tools and the mining pipes, engineered and manufactured exclusively for the Pilot Test Program). The achievements of the test mining in 2005 were significant enough to convince Denison to support COGEMA's recommendation that the test mining should proceed and, pending regulatory approval, to drill and test mine from 20 holes in 2006 with anticipated production of 1,000,000 pounds of U3O8. Drilling on an initial five holes has commenced.

URANIUM EXPLORATION DIVISION RESULTS

Results for the three months ended March 31, 2006

Denison is engaged in uranium exploration as part of the McClean and Midwest joint ventures and as a participant in the Wheeler River, Wolly and Waterfound joint ventures. Denison's share of exploration spending totalled $1,625,000 for the three months ended March 31, 2006, $1,443,000 of which was expensed as it related to exploration on properties without ore reserves. The Denison exploration expenditures included $182,000 at the McClean and Midwest properties, $872,000 at Wheeler, $480,000 at Wolly and $39,000 at Waterfound. In the comparable period in 2005, Denison's exploration expenditures totalled $516,000 of which $149,000 was spent at McClean and Midwest and $367,000 was spent at Wheeler, Wolly and Waterfound.

Outlook for 2006

Denison's share of exploration spending for 2006 is expected to total nearly $5,000,000 of which $3,100,000 will be spent at the Wheeler River uranium project where Denison is the operator. Denison also expects to spend over $800,000 at the Wolly uranium project. The balance of the exploration spending will be at Midwest, McClean Lake, Waterfound and in Mongolia. The majority of the exploration spending will be expensed during the year.

DENISON ENVIRONMENTAL SERVICES DIVISION RESULTS

During the three months ended March 31, 2006, Denison Environmental Services ("DES") provided services under its contract for environmental monitoring and maintenance of the closed mine site of Rio Algom Ltd. at Elliot Lake, under its contract to operate the Kam Kotia water treatment facilities and under its new three-year contract for environmental monitoring and maintenance at the INCO Shebandowan mine site. Other smaller contracts and consulting projects were also completed.

Results for the three months ended March 31, 2006

Revenue from environmental services was $676,000 for the three months ended March 31, 2006 compared to $1,452,000 for the comparable period in 2005. The division incurred a loss of $100,000 for the three months ended March 31, 2006 compared to income of $64,000 for the same period in 2005. In 2005, DES completed a demolition project at the Bicroft minesite which accounts for the variance in revenue and income between 2006 and 2005.

2006 Outlook

In 2006 DES will work to expand its client base offering mine decommissioning services including demolition, hazardous materials abatement, shaft capping, tailings relocation, dam construction and long- term care, maintenance and monitoring services.

CORPORATE AND OTHER

Uranium Participation Corporation

For the three months ended March 31, 2006, Denison earned $313,000 in management fees and commissions under its Management Services Agreement with Uranium Corp. For more details on the contract, refer to the "Related Parties" section below.

Corporate Expenses

General corporate expenses totalled $1,006,000 for the three months ended March 31, 2006 compared to $992,000 for the comparable period in 2005.

Non-cash stock compensation expense relating to stock options granted during the year to employees and directors as described in the notes to the financial statements totalled $288,000 for the three months ended March 31, 2006 compared to $234,000 for the comparable period in 2005.

2006 Outlook

Revenue from Uranium Participation Corporation is expected to be at least $1,200,000 in 2006. Corporate and stock option compensation expense is expected to be comparable to the levels in 2005.



SUMMARY OF QUARTERLY RESULTS

---------------------------------------------------------------------
(in thousands of Canadian dollars, except per share amounts)
---------------------------------------------------------------------
2004 2005 2006
---------------------------------------------------------------------
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
---------------------------------------------------------------------
Revenue 10,619 10,458 9,826 3,183 12,281 8,549 12,979 5,508
---------------------------------------------------------------------
Net
earnings
(loss) (749) (52) 3,565 (1,421) 2,519 (891) 60 6
---------------------------------------------------------------------
-Per
share ($0.04) - $ 0.16 ($0.06)$ 0.10 ($0.04) - -
---------------------------------------------------------------------
Cash
provided
by (used
in) -
operations 4,373 2,261 1,870 2,939 (2,387) 5,202 1,766 2,550
---------------------------------------------------------------------


LIQUIDITY AND CASH RESOURCES

Cash Generated by Operations

Consolidated cash flow generated by operating activities was $2,550,000 for the three months ended March 31, 2006 compared to $2,939,000 for the comparable period in 2005.

Financing Activities

For the three months ended March 31, 2006, cash flow generated by financing activities was $71,990,000, primarily attributable to net proceeds from the issue of common equity. On March 1, 2006, Denison Mines issued 4,450,000 equity units at a price of $17.00 per unit for gross proceeds of $75,650,000. Each unit consisted of one common share and one-half of a common share purchase warrant (each whole warrant, a "Warrant"). Each whole Warrant is exercisable at an exercise price of $30.00 per share for a period of five years from March 1, 2006.

Investing Activities

For the three months ended March 31, 2006, cash flow used in investing activities was $5,444,000. Capital expenditures of $1,257,000 for the three months ended March 31, 2006 included $827,000 at McClean for mine and mill equipment and property development, $228,000 at Midwest for property development, $56,000 by the DES division for equipment, and $146,000 for exploration for equipment.

During the quarter, Denison also purchased 3,000,000 shares of Energy Metals Limited ("EML"), a public company on the Australian Stock Exchange, for an aggregate purchase price of $3,773,000. At the time of the purchase, Denison owned approximately 12% of EML. At March 31, 2006, the market value of Denison's holding in EML is $5,551,000.

Cash balances

At March 31, 2006 Denison had unrestricted cash resources of $85,578,000.

Credit Facilities

As at January 1, 2006, COGEMA has made available to Denison Mines a credit facility of $22,000,000. On April 17, 2006, Denison Mines terminated the credit facility with Cogema Resources Inc. As part of the termination agreement, Cogema and Denison agreed to cancel certain rights Cogema had in the event of a sale of Denison by way of a merger, take-over bid, amalgamation, plan of arrangement, wind-up, joint venture agreement or other business combination of Denison. The agreement also required Denison to provide its pro-rata share of financial assurances provided under the Mineral Industry Environmental Protection Regulations (1996) in connection with the McClean and Midwest Joint Ventures. As a result, Denison has provided Letters of Credit from a Chartered Bank totaling $8,063,775.

A Canadian chartered bank has provided Denison Mines with a credit facility pursuant to a credit agreement dated effective November 2, 2005. The credit facility is a revolving $500,000 facility with a one year term (subject to renewals) secured by all present and future assets of Denison Mines and its subsidiaries. Interest under the credit facility is incurred based on bankers' acceptances plus 2% or the lender's prime rate plus 1%. To date, Denison Mines has not incurred any indebtedness under the facility.

OFF-BALANCE SHEET FINANCING ARRANGEMENTS

Denison does not have any off-balance sheet financing arrangements.

SHARE CAPITAL

As at May 12, 2006, Denison had an aggregate of 30,650,388 Common Shares issued and outstanding. In addition, the Company has 3,324,151 warrants outstanding to purchase common shares The warrants are convertible to common shares at prices ranging between $15.00 and $30.00.

RELATED PARTY TRANSACTIONS

Effective March 30, 2005, Denison entered into an agreement to act as Manager of Uranium Corp. This agreement is for an initial term of five years. The terms of the agreement were subsequently amended pursuant to a special shareholders meeting of Uranium Corp on March 27, 2006. Under the terms of the amended agreement, Denison Mines will receive the following fees from Uranium Corp: a) a commission of 1.5% of the gross value of any purchases or sales of uranium completed at the request of the Board of Directors of Uranium Corp; b) a minimum annual management fee of $400,000 (plus reasonable out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon Uranium Corp's net asset value between $100,000,000 and $200,000,000 and 0.2% per annum based upon Uranium Corp's net asset value in excess of $200,000,000; c) a fee of $200,000 upon the completion of each equity financing where proceeds payable to Uranium Corp exceed $20,000,000; d) a fee of $200,000 for each transaction or arrangement (other than the purchase or sale of uranium) of business where the gross value of such transaction exceeds $20,000,000 ("an initiative"); and e) an annual fee up to a maximum of $200,000, at the discretion of the Board, for on-going maintenance or work associated with an initiative.

During the three months ending March 31, 2006 Denison received $167,000 in management fees (including out-of-pocket expenses) and $146,000 in commissions on the purchase of uranium.

RISKS AND UNCERTAINTIES

Denison's business risks remain substantially unchanged since December 31, 2005. For a more detailed discussion of risk factors, reference should be made to the MD&A accompanying Denison's financial statements for December 31, 2005 and to the Company's 2005 Annual Information Form.

ADDITIONAL INFORMATION

Additional information related to Denison Mines Inc., including the Consolidated Financial Statements of Denison for the Years ended December 31, 2005 and 2004 and the Company's Annual Information Form for 2005 are available at www.denisonmines.com and on SEDAR at www.sedar.com.

Additional information about Denison can also be obtained by contacting the Corporate Secretary at:



Denison Mines Inc.
595 Bay Street
Suite 402
Toronto, Ontario
M5G 2C2
Telephone 416-979-1991 Extension 366
Fax 416-979-5893



DENISON MINES INC.
CONSOLIDATED BALANCE SHEETS

---------------------------------------------------------------------
(unaudited - in thousands of Canadian dollars) As at As at
March 31 December 31
2006 2005
---------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 85,578 $ 16,482
Accounts receivable 5,907 10,689
Inventories (note 3) 15,734 12,637
Prepaid expenses and other assets 654 873
---------------------------------------------------------------------
107,873 40,681
---------------------------------------------------------------------

Investments (note 4) 3,773 -
Property, plant and equipment (note 5) 104,865 104,057
Restricted cash and cash equivalents (note 6) 2,251 1,837
Future income taxes 768 -
---------------------------------------------------------------------
111,657 105,894
---------------------------------------------------------------------
$ 219,530 $ 146,575
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 5,168 $ 4,881
Current portion of long term liabilities
Long-term debt (note 7) 125 158
Post-employment benefits (note 8) 400 400
Provision for site restoration (note 9) 630 630
---------------------------------------------------------------------
6,323 6,069
---------------------------------------------------------------------

Provision for post-employment benefits
(note 8) 8,643 8,784
Provision for site restoration (note 9) 5,027 5,032
Future income taxes - 818
---------------------------------------------------------------------
19,993 20,703
---------------------------------------------------------------------

EQUITY
Shareholders Equity (note 10)
Common stock 182,493 119,175
Warrants 12,398 2,345
Contributed surplus 1,839 1,551
Retained earnings 2,807 2,801
---------------------------------------------------------------------
199,537 125,872
---------------------------------------------------------------------
$ 219,530 $ 146,575
---------------------------------------------------------------------
---------------------------------------------------------------------

Contingent liabilities and commitments (note 15)

The accompanying notes are an integral part of these financial
statements.



DENISON MINES INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS

---------------------------------------------------------------------
(unaudited - in thousands of Three months ended
Canadian dollars) March 31
---------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------

Revenue $ 5,508 $ 3,183
---------------------------------------------------------------------

Expenses
Operating expense 3,549 3,074
Royalties and provincial capital tax 372 140
Exploration expense 1,443 367
General corporate expense 1,006 992
Stock option expense 288 234
Interest expense 37 61
Other expense (income) (note 12) (1,006) (37)

---------------------------------------------------------------------
5,689 4,831
---------------------------------------------------------------------
Earnings (loss) before income taxes (181) (1,648)

Income tax expense (recovery)
Current 51 35
Future (238) (262)
---------------------------------------------------------------------
Earnings (loss) after income taxes $ 6 $ (1,421)
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Retained earnings - beginning of period 2,801 2,534
---------------------------------------------------------------------
Retained earnings - end of period $ 2,807 $ 1,113
---------------------------------------------------------------------

Earnings (loss) per common share (note 10)
- Basic and diluted $ 0.00 $ (0.06)

---------------------------------------------------------------------
---------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.



DENISON MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

---------------------------------------------------------------------
(unaudited - in thousands of Three months ended
Canadian dollars) March 31
2006 2005
---------------------------------------------------------------------

Operating Activities
Net income (loss) for the period $ 6 $ (1,421)

Adjustments for non-cash items:
Depreciation, amortization and
reclamation accretion 504 1,365
Drawdown of ore from stockpiles 378 1,067
Change in future taxes (238) (262)
Stock option expense 288 234
Changes in non-cash balances relating
to operations
Change in receivables, inventories,
prepaids and other assets 1,526 2,651
Change in accounts payable and
accrued liabilities 167 (603)
Other
Funding of post employment benefits (81) (92)
---------------------------------------------------------------------
Net cash from operating activities 2,550 2,939
---------------------------------------------------------------------

Investing Activities
Additions to property, plant and equipment (1,257) (426)
Change in restricted cash (414) (1,116)
Change in investments (3,773) -
---------------------------------------------------------------------
Net cash used in investing activities (5,444) (1,542)
---------------------------------------------------------------------

Financing Activities
Additions to long-term debt - 4,189
Repayments of long-term debt (33) (4,223)
Common share and warrant issues net
of issue costs 72,023 5,176
---------------------------------------------------------------------
Net cash from financing activities 71,990 5,142
---------------------------------------------------------------------

Increase in cash and cash equivalents 69,096 6,539
---------------------------------------------------------------------
Cash and cash equivalents - beginning
of period $ 16,482 $ 2,394
---------------------------------------------------------------------
Cash and cash equivalents - end of period $ 85,578 $ 8,933
---------------------------------------------------------------------
---------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.


Denison Mines Inc.

Notes to Consolidated Financial Statements

(unaudited - in thousands of Canadian dollars except for per share amounts)

1. NATURE OF OPERATIONS

Denison Mines is engaged in uranium mining and related activities, including exploration and acquisition of uranium-bearing properties, extraction, processing, selling and reclamation. The environmental services division of the Company provides mine decommissioning and decommissioned site monitoring services for third parties.

Denison Mines's uranium production and exploration activities are carried out principally in Canada through the use of joint ventures. Uranium, the Company's primary product, is produced in the form of uranium oxide in concentrates and sold to various customers around the world for further processing.

Denison Mines is also the manager of Uranium Participation Corporation ("Uranium Corp."), a publicly listed investment holding company formed to invest substantially all of its assets in uranium. Denison Mines has no ownership interest in Uranium Corp. but receives various fees for management services and commissions from the purchase and sale of uranium by Uranium Corp.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Estimates

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). Interim financial statements do not include all information required by GAAP for annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates are related to the economic lives and recoverability of mining assets, the provisions for site restoration and post-employment benefits and future income taxes, and the evaluation of contingent liabilities. Actual results could differ materially from those estimates. The results of operations for the interim period are not necessarily indicative of the operating results for the full year, primarily due to the timing of deliveries to customers.

These unaudited interim consolidated financial statements and notes should be read in conjunction with the consolidated financial statements of Denison Mines for the year ended December 31, 2005.

Consolidation Principles

These consolidated financial statements include the accounts of the Company and its subsidiaries. Denison also has interests in unincorporated ventures and jointly-controlled companies and exercises joint control over these interests through agreements which require that material changes to the policies, objectives and procedures of the joint venture be approved by a percentage of the participating interest sufficiently high enough to prevent any participant from exercising unilateral control over the joint venture. Where Denison has an interest in a jointly-controlled company, or has an interest in an unincorporated venture, the Company recognizes its share of revenues, expenses, assets and liabilities proportionate to its percentage ownership or participating interest.

At March 31, 2006, Denison Mines's significant uranium joint venture ownership interests are as follows:



---------------------------------------------------------------------
Joint Venture Interest Ownership
---------------------------------------------------------------------

McClean Lake Producing 22.50 %
Midwest Non-producing 25.17 %
Wheeler (1) Non-producing 40.00 %
Wolly (2) Non-producing -%
Waterfound Non-producing 15.32 %

---------------------------------------------------------------------
---------------------------------------------------------------------

(1) In October 2004, Denison Mines entered into an option agreement
with its joint venture partners to earn a further 20% ownership
interest in the project by funding $7,000,000 in exploration
expenditures over the next 6 years.
(2) In October 2004, Denison Mines entered into an option agreement
with its joint venture partners to earn a 22.5% ownership
interest in the project by funding $5,000,000 in exploration
expenditures over the next 6 years. The first phase of this
agreement requires Denison to fund $1,500,000 of expenditures
over fiscal years 2005 and 2006 to earn a 6.5% ownership
interest.


Comparative Numbers

Certain classifications of the comparative figures have been changed to conform to those used in the current period.



3. INVENTORIES

The inventories balance consists of:

---------------------------------------------------------------------
(in thousands of Canadian dollars) March 31 2006 December 31 2005
---------------------------------------------------------------------

Uranium concentrate $ 7,196 $ 6,147
Inventory of ore in stockpiles 6,878 4,933
Mine supplies and equipment for resale 1,660 1,557
---------------------------------------------------------------------
15,734 12,637
---------------------------------------------------------------------
---------------------------------------------------------------------


4. INVESTMENTS

On March 24, 2006, Denison purchased 3 million shares of Energy Metals Limited ("EML"), a public company listed on the Australian Stock Exchange, for an aggregate purchase price of $3,773,000. Immediately after the purchase, Denison owned approximately 12% of EML. At March 31, 2006, the market value of Denison's holding in EML is $5,551,000.



5. PROPERTY, PLANT AND EQUIPMENT

The net property, plant and equipment balance consists of:

---------------------------------------------------------------------
(in thousands of Canadian dollars) March 31 2006 December 31 2005
---------------------------------------------------------------------

Cost
Mining and exploration $ 141,389 $ 140,188
Environmental services and other 2,173 2,117
---------------------------------------------------------------------
143,562 142,305

Accumulated Depreciation and
Amortization
Mining and exploration 37,978 37,576
Environmental services and other 719 672
---------------------------------------------------------------------
38,697 38,248

Net Book Value
Mining and exploration 103,411 102,612
Environmental services and other 1,454 1,445
---------------------------------------------------------------------
$ 104,865 $ 104,057
---------------------------------------------------------------------
---------------------------------------------------------------------


6. RESTRICTED CASH AND CASH EQUIVALENTS

The balance in restricted cash and cash equivalents consists of:


---------------------------------------------------------------------
(in thousands of Canadian dollars) March 31 2006 December 31 2005
---------------------------------------------------------------------

Elliot Lake reclamation trust fund $ 1,767 $ 1,366
Letter of credit collateral 484 471
---------------------------------------------------------------------
$ 2,251 $ 1,837
---------------------------------------------------------------------
---------------------------------------------------------------------


7. LONG-TERM DEBT

The balance in long-term debt consists of:

---------------------------------------------------------------------
(in thousands of Canadian dollars) March 31 2006 December 31 2005
---------------------------------------------------------------------

COGEMA loan $ - $ -
Capital lease obligation 125 158
---------------------------------------------------------------------
125 158
---------------------------------------------------------------------
---------------------------------------------------------------------

Long-term debt:
Current $ 125 $ 158
Long-term - -
---------------------------------------------------------------------
$ 125 $ 158
---------------------------------------------------------------------
---------------------------------------------------------------------


COGEMA Loan / Credit Facility

Subsequent to March 31, 2006, Denison terminated the COGEMA loan and credit facility (see note 16).

Line of Credit

A Canadian chartered bank has provided Denison Mines with a credit facility pursuant to a credit agreement dated effective November 2, 2005. As at March 31, 2006, Denison Mines has not incurred any indebtedness under the facility.

8. POST EMPLOYMENT BENEFITS

The movement in the liability for post employment benefits for the three month period ended March 31, 2006 is as follows:



---------------------------------------------------------------------
(in thousands of Canadian dollars)
---------------------------------------------------------------------

Post employment benefits liability - beginning of period $ 9,184
Benefits paid (81)
Interest cost 56
Amortization of experience gain (18)
Amortization of initial transitional surplus (98)
---------------------------------------------------------------------
Post employment benefits liability - end of period $ 9,043
---------------------------------------------------------------------
---------------------------------------------------------------------

Post employment benefits liability comprised of:
Accrued benefit obligation $ 4,725
Unamortized experience gain 846
Unamortized initial transitional surplus 3,472
---------------------------------------------------------------------
$ 9,043
---------------------------------------------------------------------
---------------------------------------------------------------------

Post employment benefits liability:
Current $ 400
Long-term 8,643
---------------------------------------------------------------------
$ 9,043
---------------------------------------------------------------------
---------------------------------------------------------------------


9.

SITE RESTORATION

The movement in the liability for site restoration for the three
month period ended March 31, 2006 is as follows:

---------------------------------------------------------------------
(in thousands of Canadian dollars)
---------------------------------------------------------------------

Site restoration liability - beginning of period $ 5,662
Accretion of liability 115
Spending (120)
---------------------------------------------------------------------
Site restoration liability - end of period $ 5,657
---------------------------------------------------------------------
---------------------------------------------------------------------

Site restoration liability comprised of:
Elliot Lake $ 4,575
McClean Lake and Midwest Joint Ventures 1,082
---------------------------------------------------------------------
$ 5,657
---------------------------------------------------------------------
---------------------------------------------------------------------

Site restoration liability:
Current $ 630
Long-term 5,027
---------------------------------------------------------------------
$ 5,657
---------------------------------------------------------------------
---------------------------------------------------------------------


Site Restoration - Elliot Lake

Spending on restoration activities at the Elliot Lake site are funded from the Elliot Lake Reclamation Trust fund (see note 6).

Site Restoration - The McClean Lake Joint Venture and the Midwest Joint Venture

For the three months ended March 31, 2006, Denison Mines incurred interest expense of $37,000 as a result of standby fees charged by the operator for arranging and collaterizing the Letters of Credit securing future decommissioning and reclamation liabilities (see note 16).

10. COMMON STOCK, WARRANTS, CONTRIBUTED SURPLUS AND EARNINGS PER SHARE

Common Stock

The movement in common stock for the three month period ended March 31, 2006 is as follows:



---------------------------------------------------------------------
(in thousands of Canadian dollars,
except share numbers) Shares
---------------------------------------------------------------------

Common stock - beginning of period 26,200,388 $ 119,175
Shares issued pursuant to:
New Issues:
Gross proceeds 4,450,000 75,650
Fair value allocation to warrants (10,053)
Gross issue costs (3,627)
Issue cost tax asset 1,348
---------------------------------------------------------------------
Common stock - end of period 30,650,388 $ 182,493
---------------------------------------------------------------------
---------------------------------------------------------------------


Common share financings

On March 1, 2006, Denison Mines issued 4,450,000 equity units at a price of $17.00 per unit for gross proceeds of $75,650,000. Each unit consisted of one common share and one-half of a common share purchase warrant (each whole warrant, a "Warrant"). Each whole Warrant is exercisable at an exercise price of $30.00 per share for a period of five years from March 1, 2006.

Flow-Through Share Isses

During the three months ended March 31, 2006, Denison spent the remaining $2,696,000 required to meet its flow-through share expenditure obligations pursuant to flow-through shares that were issued in fiscal 2004 and 2005.

Warrants

The movement in the issued and outstanding warrants for the three month period ended March 31, 2006 is as follows:



---------------------------------------------------------------------
(in thousands of Canadian dollars,
except warrant numbers) Warrants
---------------------------------------------------------------------

Warrants - allocated fair value
beginning of period 1,099,151 $ 2,345
Warrants issued during period 2,225,000 10,053
Warrants exercised during the period - -

---------------------------------------------------------------------
Warrants - allocated fair value end
of period 3,324,151 $ 12,398
---------------------------------------------------------------------
---------------------------------------------------------------------

Warrant allocated fair value comprised of:
November 2004 Issue 1,099,151 $ 2,345
March 2006 Issue 2,225,000 10,053
---------------------------------------------------------------------
3,324,151 $ 12,398
---------------------------------------------------------------------
---------------------------------------------------------------------


The fair value allocated to warrants for the March 2006 equity unit issue was calculated using the Black-Scholes model using assumptions as described in note 11.

Contributed Surplus

The movement in contributed surplus for the three month period ended March 31, 2006 is as follows:



---------------------------------------------------------------------
(in thousands of Canadian dollars)
---------------------------------------------------------------------

Contributed surplus - beginning of period $ 1,551
Add: Stock option expense for the period 288
Less: Fair value of stock option exercises for the period -
---------------------------------------------------------------------
Contributed surplus - end of period $ 1,839
---------------------------------------------------------------------
---------------------------------------------------------------------


Earnings Per Share

The calculation of basic earnings (loss) per share is based on the weighted average number of shares outstanding during the three month periods ended March 31, 2006 and 2005 of 27,683,721 and 25,087,255 respectively.

11. STOCK-BASED COMPENSATION

Stock option transactions for the three month period ended March 31, 2006 is as follows:



---------------------------------------------------------------------
Options
---------------------------------------------------------------------

Options outstanding - beginning of period 830,029
Granted 20,000
Exercised -

---------------------------------------------------------------------
Options outstanding - end of period 850,029
---------------------------------------------------------------------
---------------------------------------------------------------------


As at March 31, 2006, an additional 1,769,000 shares are available for granting as options under this plan.

Denison Mines has used the Black-Scholes option pricing model to establish the fair value of stock options (and to establish the fair value of warrants associated with unit offerings - see note 10). Total compensation expense related to the new stock option grants in the three months ended March 31, 2006 is estimated to be $124,000.

The following assumptions were used in the Black-Scholes option pricing model to determine fair value:



---------------------------------------------------------------------
---------------------------------------------------------------------

Dividend yield Nil
Risk-free interest rate 4.04% - 4.08%
Expected life of options 3 - 5 years
Expected volatility factor of future expected
market prices 50%

---------------------------------------------------------------------
---------------------------------------------------------------------

12. OTHER EXPENSE (INCOME)

The elements of other expense (income) for the three month periods
ended March 31, 2006 and 2005, respectively, are as follows:

---------------------------------------------------------------------
(in thousands of Canadian dollars) Three months ended
March 31
---------------------------------------------------------------------
2006 2005
---------------------------------------------------------------------

Interest income $ (428) $ (48)
Foreign exchange
Transactional (117) (194)
Derivative related - 204
Other (461) 1
---------------------------------------------------------------------
$ (1,006) $ (37)
---------------------------------------------------------------------
---------------------------------------------------------------------


13. SEGMENTED FINANCIAL INFORMATION

Denison Mines operates in three primary operating segments - uranium production, uranium exploration and environmental services. The uranium segments consist of the exploration for, mining, milling and sale of uranium concentrate. The environmental services segment consists of mine decommissioning services and monitoring of decommissioned sites for third parties. Revenue in the corporate segment represents management fees and commission income earned from Uranium Corp. and expenses include general corporate expenses not allocated to the other segments.

Substantially all of the Company's operations in the uranium production and exploration segments are conducted through the use of unincorporated joint ventures. Uranium joint ventures allocate uranium production and exploration expenses to each joint venture participant and the joint venture participant derives revenue directly from the sale of such product. Mining and milling expenses incurred by the joint venture are included in the cost of inventory.



Business Segments

For the three months ended March 31, 2006, segment results were as
follows:

---------------------------------------------------------------------
Corporate
(in thousands of Uranium Uranium Environ. and
Canadian dollars) Production Exploration Services Other Total
---------------------------------------------------------------------
Revenue $ 4,519 $ - $ 676 $ 313 $ 5,508

Expenses
Operating expenses 2,773 - 776 - 3,549
Royalties and
provincial capital
tax 337 - - 35 372
Exploration expense - 1,443 - - 1,443
General corporate
expense - - - 1,006 1,006
Stock option expense - - - 288 288
Interest expense 37 - - - 37
Other expense (income) - - - (1,006) (1,006)

---------------------------------------------------------------------
3,147 1,443 776 323 5,689
---------------------------------------------------------------------
Earnings (loss) before
income taxes 1,372 (1,443) (100) (10) (181)
Income tax expense
(recovery)
Current - - - 51 51
Future - - - (238) (238)
---------------------------------------------------------------------
Earnings (loss) for
the period $ 1,372 $ (1,443) $ (100) $ 177 $ 6
---------------------------------------------------------------------
---------------------------------------------------------------------

For the three months ended March 31, 2005, segment results were as
follows:

---------------------------------------------------------------------
Corporate
(in thousands of Uranium Uranium Environ. and
Canadian dollars) Production Exploration Services Other Total
---------------------------------------------------------------------
Revenue $ 1,731 $ - $ 1,452 $ - $ 3,183

Expenses
Operating expenses 1,686 - 1,388 - 3,074
Royalties and
provincial capital
tax 131 - - 9 140
Exploration expense - 367 - - 367
General corporate
expense - - - 992 992
Stock option
expense - - - 234 234
Interest expense 61 - - - 61
Other expense (income) - - - (37) (37)

---------------------------------------------------------------------
1,878 367 1,388 1,198 4,831
---------------------------------------------------------------------
Earnings (loss)
before income taxes (147) (367) 64 (1,198) (1,648)
Income tax expense
(recovery)
Current - - - 35 35
Future - - - (262) (262)
---------------------------------------------------------------------
Earnings (loss) for
the period $ (147) $ (367) $ 64 $ (971) $(1,421)
---------------------------------------------------------------------
---------------------------------------------------------------------


Major Customers

Denison Mines relies on a small number of customers to purchase a significant portion of its uranium concentrate product. During the three months ended March 31, 2006 and 2005, the aggregate revenue from customers each representing more than 10% of Denison Mines total revenues was $4,519,000 (82%) and $2,622,000 (82%), respectively. In 2006, one customer (2005 - two customers) each accounted for more than 10% of the Company's gross revenues.

14. RELATED PARTY TRANSACTIONS

On March 30, 2005, Denison Mines entered into a management services agreement with Uranium Corp. and are considered to be related parties. The terms of the agreement were subsequently amended pursuant to a special shareholders meeting of Uranium Corp on March 27, 2006. Under the terms of the amended agreement, Denison Mines will receive the following fees from Uranium Corp: a) a commission of 1.5% of the gross value of any purchases or sales of uranium completed at the request of the Board of Directors of Uranium Corp; b) a minimum annual management fee of $400,000 (plus reasonable out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon Uranium Corp's net asset value between $100,000,000 and $200,000,000 and 0.2% per annum based upon Uranium Corp's net asset value in excess of $200,000,000; c) a fee of $200,000 upon the completion of each equity financing where proceeds payable to Uranium Corp exceed $20,000,000; d) a fee of $200,000 for each transaction or arrangement (other than the purchase or sale of uranium) of business where the gross value of such transaction exceeds $20,000,000 ("an initiative"); and e) an annual fee up to a maximum of $200,000, at the discretion of the Board, for on-going maintenance or work associated with an initiative.

The following transactions were incurred with Uranium Corp during the three month periods ended March 31, 2006 and 2005:



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(In thousands of Canadian dollars) Three months ended
March 31
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2006 2005
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Fees earned from Uranium Corp:
Management fees ( and out-of-pocket expenses) $ 167 $ -
Commission fees on purchase and sale of uranium 146 -

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Total fees earned from Uranium Corp $ 313 $ -
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At March 31, 2006, accounts receivable includes $61,000 of amounts due from Uranium Corp with respect to the fees indicated above.

15. CONTINGENT LIABILITIES AND COMMITMENTS

Specific Legal Matters

Elliot Lake Property Tax Complaint

The City of Elliot Lake (the "City") filed complaints with the Ontario Assessment Review Board (the "Board"), alleging that the Municipal Property Assessment Corporation ("MPAC") had: (i) understated the current value which the City is required to use in determining the annual property taxes attributable to the tailings management areas at the Company's decommissioned Elliot Lake mine site and those of other closed uranium mines in Elliot Lake; and (ii) incorrectly categorized these tailings management areas as vacant commercial land, rather than occupied industrial land.

In November 2004, the Board determined that MPAC had used the correct assessed values for the mines sites. However, the Board changed the categorization of the tailings management area to commercial occupied land as opposed to vacant commercial land. The result of the change in categorization will be additional tax that the Company has estimated to be about $5,000 per year.

The City of Elliot Lake has made an Application for Leave to Appeal the above decision to the Divisional Court. The Company believes that the City's Application for Leave is without merit and is unlikely to be successful. The Company intends to oppose the Application. No hearing date has been scheduled. The dollar value of any additional taxes arising from this Appeal, in the event the City were to be successful on its Application and on the Appeal itself, cannot be determined but could be material. No provision has been made for such amounts.

Blue Hill, Maine

The Company is a defendant in an action filed by the State of Maine against Kerramerican, Inc., ("Kerramerican") a subsidiary of Noranda Inc., Black Hawk Mining Ltd. ("Black Hawk") and the Company, regarding potential liability for clean-up costs at a zinc mining site in the state of Maine known as Blue Hill. In addition, Black Hawk and Kerramerican have each asserted cross-claims against Denison for contribution. Denison intends to defend these actions and has counter-claimed against Black Hawk and Kerramerican for indemnity. The activities of Denison Mines Limited ("DML"), a predecessor to Denison, at this site consisted only of limited exploration that did not involve the disposal of any waste and which occurred prior to 1964. Mining activities at the site occurring between 1964 and 1970 were conducted by Black Hawk, a public company in which Denison had a financial interest but did not control. Black Hawk entered into a joint venture with Kerramerican in 1970. Kerramerican was the operator of the joint venture, built processing facilities and operated the mine until it was closed in 1977. Kerramerican was responsible for the decommissioning and reclamation of the site, which was completed in 1983. The site is now the source of some heavy metal contamination of the ground water in the area and further reclamation work is required.

DML has an indemnity from Kerramerican and Black Hawk in an agreement among the parties dated July 1, 1971. The Company has thoroughly examined this issue and believes it has no liability related to the costs of any clean up of the contamination and has made no provision for any costs other than those incurred to date to investigate the matter. Furthermore, the Company believes that, to the extent that liability is determined, Kerramerican and Black Hawk are liable therefore pursuant to the July 1, 1971 indemnity agreement. Notwithstanding the Company's belief that it has no liability, future litigation of the matter cannot be ruled out and as a result, the Company cannot determine the outcome of this matter at this time.

General Legal Matters

The Company is involved, from time to time, in various other legal actions and claims in the ordinary course of business. In the opinion of management, the aggregate amount of any potential liability is not expected to have a material adverse effect on the Company's financial position or results.

Third Party Indemnities

Pursuant to the Denison Arrangement described in note 1 of the 2005 Annual Report of Denison Mines Inc., the Company has agreed to indemnify Denison Energy against any future liabilities it may incur related to the assets or liabilities transferred to Denison Mines on March 8, 2004.

Performance Bonds and Letters of Credit

In conjunction with various contracts and other performance obligations, the Company may be required to issue performance bonds and letters of credit as security to creditors to guarantee the Company's performance. Any potential payments which might become due under these items would be related to the Company's non-performance under the applicable contract. As at March 31, 2006, the Company had outstanding bonds and letters of credit of $501,000 of which $484,000 was collateralized by restricted cash (see note 6).

16. SUBSEQUENT EVENTS

On March 28, 2006, Denison Mines entered into an agreement with Uranium Corp. to provide a temporary revolving credit facility not to exceed $25,000,000. The temporary facility exists to ensure that Uranium Corp has sufficient cash on hand to meet its purchase commitments. The credit facility expires on June 28, 2006 and is secured by the uranium investments of Uranium Corp. Interest under the credit facility is based on Canadian bank prime plus 2%. Standby fees also apply at a rate of 1% of the committed facility amount. No amounts were drawn under the facility as at March 31, 2006. On April 12, 2006, Uranium Corp drew $10,000,000 under the facility.

On April 17, 2006, Denison Mines terminated the credit facility with COGEMA Resources Inc. As part of the termination agreement, COGEMA and Denison agreed to cancel certain rights COGEMA had in the event of a sale of Denison by way of a merger, take-over bid, amalgamation, plan of arrangement, wind-up, joint venture agreement or other business combination of Denison. The agreement also required Denison to provide its pro-rata share of financial assurances provided under the Mineral Industry Environmental Protection Regulations (1996) in connection with the McClean and Midwest Joint Ventures. As a result, Denison has provided Letters of Credit from a Chartered Bank totaling $8,063,775.

Contact Information

  • Denison Mines Inc.
    E. Peter Farmer
    President and Chief Executive Officer
    (416) 979-1991 Extension 231
    or
    Denison Mines Inc.
    James R. Anderson
    Executive Vice President and Chief Financial Officer
    (416) 979-1991 Extension 372
    www.denisonmines.com