Denison Mines Inc.
TSX : DEN

Denison Mines Inc.

August 11, 2005 17:24 ET

Denison Mines Reports Second Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 11, 2005) - Denison Mines Inc. (TSX:DEN) reports its results for the second quarter and six months ended June 30, 2005. All amounts are in Canadian dollars unless otherwise specified.

Consolidated net income was $2,519,000 or $0.10 per share for the three month period and $1,098,000 or $0.04 for the six month period ended June 30, 2005 compared with consolidated net loss of $749,000 or $0.04 per share and a consolidated net loss of $1,520,000 or $0.08 per share for the same periods last year. Revenue was $12,281,000 and $15,464,000 for the three months and six months ended June 30, 2005 respectively compared with $10,619,000 and $16,840,000 for the comparable periods in 2004.

Cash provided from (used in) operations, after working capital changes, for the three months ended June 30, 2005 totaled $(1,792,000) or $(0.07) per share and for the six months ended June 30, 2005 totaled $31,000 or $0.00 per share. This compares to cash flow of $4,381,000 or $0.23 per share for the three month and $9,744,000 or $0.51 per share for the six month comparable periods last year.

Significant events in the second quarter included:

- The spot price for uranium (U3O8) increased to US$29.00 from US$22.50 at March 31, 2005.

- The McClean Lake operating licence was renewed by the Canadian Nuclear Safety Commission for four years.

- Construction commenced on an expansion of the JEB mill at McClean Lake to increase capacity required to receive and process ore from Cigar Lake.

- Denison's share of proven and probable reserves at the Midwest uranium project increased to 10.48 million pounds U3O8, 8.38 million pounds nickel and 0.64 million pounds cobalt.

- Uranium Participation Corporation, of which Denison is the manager, commenced operations in May 2005 providing $657,000 in management fees and commission revenue to Denison in the quarter.

- Exploration drilling at Wheeler River uranium project, of which Denison is the operator, commenced in June 2005.



SEGMENTED INFORMATION (1)
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Three months ended Six Months Ended
June 30 June 30
(unaudited - in thousands) 2005 2004 2005 2004
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Revenue
Uranium $ 10,731 $ 9,445 $ 12,462 $ 13,950
Environmental Services 893 1,174 2,345 2,890
Corporate Services 657 - 657 -
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$ 12,281 $ 10,619 $ 15,464 $ 16,840
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Net Earnings (Loss)
Uranium $ 3,165 $ 1,180 $ 2,651 $ 610
Environmental Services (11) 49 53 144
Corporate and taxes (635) (1,978) (1,606) (2,274)
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$ 2,519 $ (749) $ 1,098 $ (1,520)
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(1) Following completion of a restructuring of Denison Energy Inc. ("Denison Energy") on March 8, 2004, the mining and environmental services businesses of Denison Energy were transferred to Denison Mines Inc. ("Denison" or the "Company"), pursuant to a plan of arrangement effective on that date. To allow shareholders to compare results going forward with historical results, Denison has reported the operations of the mining and environment services business as if the Company had owned these businesses for the entire period covered by this report.

Uranium

Earnings from the uranium division increased to $3,165,000 and $2,651,000 for the three months and six months ended June 30, 2005 from $1,180,000 and $610,000 in the comparable periods in 2004. When compared to the second quarter of 2004, the average price for uranium sales in the second quarter of 2005 increased by 26%, sales volumes were 10% less and changes in US/Canadian dollar exchange rates were unfavourable.

Sales of uranium in the second quarter represented approximately 30% of the uranium sales target for the year. Year-to-date sales represent 38% of the uranium sales target. The Company delivers uranium under a variety of contracts with various pricing formulas, the timing and mix of which varies from quarter to quarter. The timing of contracted deliveries is at the selection of the customer. The Company sold a significant volume on a short-term contract basis during the quarter, substantially above existing long-term contract prices. As a result, the average sales price realized during the second quarter was US$22.12 and for the six month period was US$20.63. Sales from the remainder of the year will be primarily under long-term contracts and at lower historical average selling prices. Sales volumes for the remainder of the year are expected to be 23% in the third quarter and 39% in the fourth quarter with about 5% expected to be on a short-term basis with prices approximating current market.

The realized Canadian dollar exchange rate relative to the US dollar for the conversion of the US dollar proceeds from uranium sales averaged $1.23 in the second quarter of 2005 versus $1.34 in the same period in 2004. This reduced revenue in the quarter by $1,003,000 compared with that which would have been realized using the exchange rate prevailing in the second quarter of 2004.

The spot price of uranium was US$29.00 at June 30, 2005 compared to US$18.50 at June 30, 2004. Denison expects the escalation of prices to continue over the next few years as excess inventories are consumed and the supply-demand balance tightens further. The increasing prices will be reflected in new sales contracts that will replace existing long-term contracts expiring in 2005 and beyond. An anticipated 22% of Denison's expected sales volume in 2005 will approximate market prices.

The McClean uranium facilities produced 1,562,000 pounds of uranium during the three months ended June 30, 2005, of which Denison's share was 351,000 pounds compared with 335,000 pounds in the same period in 2004. Production from McClean is scheduled to be 6,000,000 pounds for the year, approximately the same as 2004.

Stripping of the Sue A deposit has commenced. Mining of the ore will commence and be completed in October 2005. Stripping of the Sue E deposit using a contractor is scheduled to commence in August.

Unit production costs decreased by about $1.15 per pound for the six months ended June 30, 2005 compared to the six months ended June 30, 2004. Decreases in depletion and depreciation rates of $1.79 per pound were partially offset by increases in operating expenses of $0.64 per pound.

The Canadian Nuclear Safety Commission (the "CNSC") has renewed the operating licence for McClean Lake for four years. The renewed licence allows modifications to the JEB mill to receive and process uranium ore from Cigar Lake. Actual Cigar ore processing, scheduled to begin in 2007, will require further approval from the CNSC. Construction to expand the mill for the Cigar Lake ore has begun.

The licence was also amended to allow development and testing of alternative mining techniques conducted from the surface for small underground deposits. Testing of the blind-boring/jet-boring mining methodology has commenced at the McClean North deposit. This testing will allow evaluation and development of this technique as an economically viable methodology of mining uranium. The technique may be particularly applicable to smaller high-grade deposits.

Uranium Exploration(2)

Denison is aggressively pursuing its exploration program in the Athabasca Basin. For the six months ended June 30, 2005, exploration spending reached $1,239,000 compared to $325,000 in the comparable period of 2004. The Company expects that it will spend at least $3,500,000 on its exploration program in 2005. Plans for 2006 are currently being prepared and a substantial increase in activity and spending is anticipated in 2006, particularly at Midwest and Wolly.

As operator of the 40% owned Wheeler project, situated between the world-class Key Lake and McArthur operations of Cameco, Denison will be earning an additional 20% interest by funding the exploration work. Drilling at the Wheeler site commenced in June on conductive targets proximal to a through-going quartzite ridge, and three holes have been completed so far. This quartzite ridge is one of the major geological controls of the mineralization at McArthur River, and represents a priority target at this early stage of this intensive drilling campaign. Results of the first hole in an area of previous drilling has indicated an unconformity offset of approximately 200 vertical metres. Further drilling will follow up this zone once all geochemical results are in.

As a result of the very positive drilling results from last winter's exploration program at Midwest, further drilling to define the limits of the mineralization is warranted. A significant drilling program is anticipated next winter in this area together with drilling into the basement below the existing deposit.

At the Wolly project which surrounds the McClean mining lease, Denison is earning a 22.5% interest from Operator COGEMA. Work will be concentrated on strike along the favourable JEB trend on the basis of very favourable geological conditions and proximity to an operating mill. The exploration program includes geochemical sampling of archival drill core and geophysical interpretation in preparation for a winter drill program. Work is actively underway on compilation of the 30 years of exploration work in preparation for this upcoming drilling. A state-of-the-art airborne gravimetric survey has recently been completed over the entirety of the property, and it is anticipated that results of this survey will aid in locating hitherto unknown unconformity offsets near conductive zones which must be priority targets. A major winter drill program will commence in early January, and it is anticipated that enough quality targets can be generated to enable drilling operations to continue through much of the drilling season.

(2) This information is reported by William C. Kerr, Director, Resource Evaluations, Denison Mines Inc., who is a qualified person as defined in National Instrument 43-101.

Environmental Services

Earnings (loss) from the environmental services business was $(11,000) for the three months and $53,000 for the six months ended June 30, 2005 compared to earnings of $49,000 and $144,000 for the comparable periods in 2004. Work has recently commenced on a contract with Domtar to dismantle equipment at its plant in Chapleau. Work on Phase II of the decommissioning of the Cluff Lake uranium facilities in northern Saskatchewan will be completed in the third and fourth quarters.

Corporate

Denison is the manager of Uranium Participation Corporation which is an investment holding company created to invest substantially all of its assets in uranium oxide in concentrates (U3O8), with the primary investment objective of achieving appreciation in value of its U3O8 holdings. Denison has no ownership interest in Uranium Participation Corporation, but receives a management fee and commissions on the purchase of U3O8. During the quarter, Denison earned $657,000 for its services to Uranium Participation Corporation.

General corporate expenses totalled $964,000 for the three months ended June 30, 2005 compared to $1,282,000 in the comparable quarter last year. In addition, the Company recorded expenses related to the issue of employee stock options of $447,000 for the three months ended June 30, 2005 compared to $673,000 in the comparable quarter last year.

Liquidity

At June 30, 2005, Denison had the ability to redraw $26,739,000 from the COGEMA loan facility. In addition, Denison had cash resources of $6,261,000 at June 30, 2005.

Corporate Objectives

The Company set the following objectives for 2005:

- Conserve inventory, to take advantage of rapidly rising prices, by reducing U3O8 sales volumes by up to 17% below 2004 levels with a reduction in revenue of less than 10%;

- Increase uranium division earnings by at least 100%;

- Expand uranium reserves by spending $3,000,000 on exploration in 2005, and through acquisitions;

- Complete the evaluation of the blind-boring/jet-boring mining techniques to improve its economic viability;

- Evaluate the feasibility of producing the nickel and cobalt resources associated with the uranium at Midwest; and

- Reduce general corporate expenses by at least 10%.

We believe we are on track to meet these objectives except that the general corporate expense reduction objective may not be met but expenses have been offset by revenue generation from the Uranium Participation Corporation management contract.

Conference Call

Denison is hosting a conference call on August 12, 2005 starting at 8:30 a.m. (Toronto time) to discuss the Second Quarter 2005 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 August 26, 2005.

Additional Information

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

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 also engaged in mine decommissioning and environmental services through its Denison Environmental Services division and provides management services to Uranium Participation Corporation. Additional information on Denison is available on SEDAR at www.sedar.com and on Denison's website at www.denisonmines.com.

Some disclosures included in this release respecting production, capital spending, development schedules, expenses, markets, and milling arrangements represent forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intent", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Such statements are based on assumptions and estimates related to future market conditions. These statements involve risks and uncertainties relating to, among other things, changes in commodity prices, unanticipated reserve and resource grades, 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. While 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.



DENISON MINES INC.

SECOND QUARTER REPORT

2005


These Financial Statements have not been subject to a review by the
Company's Auditors



DENISON MINES INC.
CONSOLIDATED BALANCE SHEETS

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(unaudited - in thousands of Canadian dollars) As at As at
June 30 December 31
2005 2004

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ASSETS
Current Assets
Cash and cash equivalents $ 6,261 $ 2,394
Accounts receivable 12,482 9,339
Inventories (note 3) 15,059 12,991
Prepaid expenses and other assets 567 922
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34,369 25,646
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Inventory of ore in stockpiles (note 3) - 1,678
Property, plant and equipment (note 4) 103,245 104,212
Restricted cash and cash equivalents
(note 5) 1,935 1,414
Future income taxes 564 1,872
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$ 140,113 $ 134,822
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LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 3,655 $ 3,572
Current portion of long term liabilities
Long-term debt (note 6) 128 128
Post-employment benefits (note 7) 400 400
Provision for site restoration (note 8) 500 500
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4,683 4,600
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Long-term debt (note 6) 99 167
Provision for post-employment benefits (note 7) 9,026 9,252
Provision for site restoration (note 8) 5,355 5,402
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19,163 19,421

EQUITY
Shareholders Equity (note 9)
Common stock 113,284 108,995
Warrants 2,704 2,754
Contributed surplus 1,330 1,118
Retained earnings 3,632 2,534
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$ 140,113 $ 134,822
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Contingent liabilities and commitments (note 14)

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


DENISON MINES INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

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(unaudited - in thousands of Canadian dollars)

Three months ended Six months ended
June 30 June 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------

Revenue $ 12,281 $ 10,619 $ 15,464 $ 16,840
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Expenses
Operating expense 7,029 8,049 10,103 13,730
Royalties and provincial
capital tax 848 718 988 1,083
Exploration expense 571 103 938 157
General corporate expense 964 1,282 1,956 1,824
Stock option expense 447 673 681 673
Interest expense 55 522 116 1,131
Other expense (income)
(note 11) (100) (175) (137) (324)

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9,814 11,172 14,645 18,274
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Earnings (loss) before
income taxes 2,467 (553) 819 (1,434)
Income tax expense (recovery)
Current 30 41 65 56
Future (82) 155 (344) 30
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Earnings (loss) for the period $ 2,519 $ (749) $ 1,098 $ (1,520)
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Earnings (loss) per common
share (note 9)
- Basic and diluted $ 0.10 $ (0.04) $ 0.04 $ (0.08)

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


DENISON MINES INC.
CONSOLIDATED STATEMENTS OF DIVISIONAL EQUITY AND DEFICIT

---------------------------------------------------------------------
(unaudited - in thousands of Canadian dollars) Six months ended
June 30
2005 2004
---------------------------------------------------------------------
Divisional Equity (note 1):
At beginning of period $ - $ 71,520
Net earnings (loss) to March 8, 2004 - (541)
Funding of other divisions of
Denison Energy Inc. to March 8, 2004 - (344)
Reclassification of divisional equity
to share capital on March 8, 2004 - (70,635)

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Divisional Equity - end of period $ - $ -
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Retained earnings (deficit):
At beginning of period $ 2,534 $ -
Net earnings (loss) for the period (1) 1,098 (979)
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Retained earnings (deficit) - end of period $ 3,632 $ (979)
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(1) For the six months ended June 30, 2004, the retained earnings
(loss) period begins on March 9, 2004 and extends to June 30,
2004. See Note 1.

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


DENISON MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

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(unaudited - in thousands of Canadian dollars)

Three months ended Six months ended
June 30 June 30
2005 2004 2005 2004
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Operating Activities
Net earnings (loss) for
the period $ 2,519 $ (749) $ 1,098 $ (1,520)
Adjustments for non-cash items:
Depletion, amortization
and reclamation 1,313 1,897 2,678 3,830
Drawdown of ore from stockpiles 1,223 1,199 2,290 2,427
Change in future taxes (82) 155 (344) 30
Stock option expense 447 673 681 673
Changes in non-cash balances
relating to operations
Change in receivables,
inventories, prepaids and
other assets (8,119) 1,653 (5,468) 4,511
Change in accounts payable
and accrued liabilities 413 (493) (190) (109)
Other
Funding of post employment
benefits (101) (101) (193) (190)
Change in restricted cash 595 147 (521) 92
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Net cash from (used in)
operating activities (1,792) 4,381 31 9,744
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Investing Activities
Additions to property, plant
and equipment (1,091) (161) (1,517) (688)
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Net cash used in investing
activities (1,091) (161) (1,517) (688)
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Financing Activities
Additions to long-term debt 4,312 4,087 8,501 7,841
Repayments of long-term debt (4,346) (17,344) (8,569) (24,624)
Common share and warrant issues
net of issue costs 245 9,270 5,421 9,270
Interdivision funding for
Denison Energy Inc. - - - (344)
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Net cash from (used in)
financing activities 211 (3,987) 5,353 (7,857)
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Increase (decrease) in cash
and cash equivalents (2,672) 233 3,867 1,199
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Cash and cash equivalents
- beginning of period $ 8,933 $ 2,091 $ 2,394 $ 1,125
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Cash and cash equivalents
- end of period $ 6,261 $ 2,324 $ 6,261 $ 2,324
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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. DENISON MINES INC.

Denison Mines Inc. ("Denison Mines" or "the Company") was incorporated in September 2003. Effective March 8, 2004 Denison Mines acquired the mining and environmental services divisions ("the Division") of its then parent, Denison Energy Inc. (now Calfrac Well Services Inc.) ("Denison Energy") as a result of the implementation of a plan of arrangement (the "Denison Arrangement"), pursuant to section 182 of the Business Corporations Act (Ontario) involving Denison Energy, Denison Mines, Tenwest Uranium Limited ("Tenwest"), Denison Oil Corporation, Denison Resources Inc., Denison Resources Partnership, Denison Mines Holding Corporation and E. Peter Farmer. Denison Mines had no operations prior to March 8, 2004. The acquisition by Denison Mines of the Division was accounted for using the continuity of interests method and recorded at book value. Amounts shown prior to March 8, 2004 are those of the Division.

Under the terms of the Denison Arrangement, Denison Mines acquired the mining and environmental services assets of Denison Energy and its subsidiary Tenwest and assumed all liabilities, including environmental liabilities, related to the acquired assets. Pursuant to the Denison Arrangement, each Denison Energy shareholder received in exchange for each common share of Denison Energy held prior to the completion of the Denison Arrangement, one common share of Denison Mines, 1/5 of one common share of Denison Oil (the parent of Denison Resources) and 1/21 of one new common share of Denison Energy. As a result on March 8, 2004, 18,670,769 shares of Denison Mines were issued and traded publicly on the Toronto Stock Exchange under the symbol DEN.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Estimates

The accompanying consolidated financial statements are prepared 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. Comparative data presented in these financial statements comprises the assets and liabilities of Denison Mines as at December 31, 2004, and the revenues, expenses and cash flows of Denison Mines and the Division for the three month period and six month period ended June 30, 2004 (see Note 1). 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, 2004.

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 June 30, 2005, Denison Mines's significant uranium joint venture ownership interests are as follows:



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Joint Venture Interest Ownership
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McClean Lake Producing 22.50 %
Midwest Non-producing 25.17 %
Wheeler(1) Non-producing 40.00 %
Wolly(1) Non-producing - %
Waterfound Non-producing 14.76 %

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(1) Ownership interest does not reflect impact of arrangements
entered into that provide for additional ownership interest to be
earned upon meeting various exploration spending targets
contractually agreed to. Refer to Denison Mines Annual Report for
fiscal 2004 for more details on earn-in arrangements for each
joint venture interest.


Revenue Recognition

Management fees earned from Uranium Participation Corporation are recognized as earned on a monthly basis. Commission revenue earned on acquisition or sale of uranium oxide in concentrates on behalf of Uranium Participation Corporation is recognized at date title passes.

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:

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June 30 December 31
2005 2004

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Uranium concentrate $ 9,224 $ 7,091
Inventory of ore in stockpiles 4,475 6,216
Mine supplies and equipment for resale 1,360 1,362
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$ 15,059 $ 14,669
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Inventories:
Current $ 15,059 $ 12,991
Long-term - ore in stockpiles - 1,678
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$ 15,059 $ 14,669
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4. PROPERTY, PLANT AND EQUIPMENT

The net property, plant and equipment balance consists of:

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June 30 December 31
2005 2004

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Mining and Exploration
Cost $ 137,297 $ 136,008
Accumulated depletion and amortization 35,602 33,243
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Net 101,695 102,765

Environmental Services and Other
Cost 2,666 2,438
Accumulated depletion and amortization 1,116 991
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Net 1,550 1,447

Total
Cost 139,963 138,446
Accumulated depletion and amortization 36,718 34,234
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Net $ 103,245 $ 104,212
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5. RESTRICTED CASH AND CASH EQUIVALENTS

The balance in restricted cash and cash equivalents consists of:

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June 30 December 31
2005 2004

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Elliot Lake reclamation trust fund $ 1,464 $ 1,414
Letter of credit collateral 471 -
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$ 1,935 $ 1,414
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As at June 30, 2005, Denison Mines had $471 of cash and cash equivalents restricted as collateral for certain letters of credit associated with performance obligations under a contract of its environmental services division.



6. LONG-TERM DEBT

The balance in long-term debt consists of:

June 30 December 31
2005 2004

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McClean Lake loan $ - $ -
Capital lease obligation 227 295
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$ 227 $ 295
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Long-term debt:
Current $ 128 $ 128
Long-term 99 167
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$ 227 $ 295
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McClean Lake Loan

As at June 30, 2005, Denison Mines has the ability under the terms of the loan agreement to redraw $26,739 (December 31, 2004 - $31,574) upon 45 days' notice, at an interest rate of Canadian bank prime plus 1%.

7. POST EMPLOYMENT BENEFITS

The movement in the liability for post employment benefits for the six month period ended June 30, 2005 is as follows:



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Post employment benefits liability - beginning of period $ 9,652
Benefits paid (193)
Interest cost 163
Amortization of initial transitional surplus (196)
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Post employment benefits liability - end of period $ 9,426
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Post employment benefits liability comprised of:
Accrued benefit obligation $ 5,659
Unamortized initial transitional surplus 3,767
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$ 9,426
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Post employment benefits liability:
Current $ 400
Long-term 9,026
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$ 9,426
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8. SITE RESTORATION

The movement in the liability for site restoration for the six month
period ended June 30, 2005 is as follows:

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Site restoration liability - beginning of period $ 5,902
Accretion of liability 227
Spending (274)
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Site restoration liability - end of period $ 5,855
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Site restoration liability comprised of:
Elliot Lake $ 4,830
McClean Lake and Midwest Joint Ventures 1,025
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$ 5,855
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Site restoration liability:
Current $ 500
Long-term 5,355
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$ 5,855
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9. COMMON STOCK, WARRANTS, CONTRIBUTED SURPLUS AND EARNINGS PER SHARE

Common Stock

The movement in common stock for the six month period ended June 30,
2005 is as follows:

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(in thousands, except share numbers)
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Shares
---------------------------------------------------------------------

Common stock - beginning of period 24,882,838 $ 108,995
Shares issued pursuant to:
Common share financings
Proceeds - gross 184,000 4,002
Less: Issue Costs - net of $73 in taxes (117)
Less: Flow-through share future tax
liabilty (1,725)
Stock option exercises
Proceeds - gross 211,636 1,208
Add: Transfer from contributed surplus 469
Warrant exercises
Proceeds - gross 74,350 402
Add: Transfer from warrants 50
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Common stock - end of period 25,352,824 $ 113,284
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Common share financings

On March 16, 2005, Denison Mines issued 184,000 flow-through common shares at a price of $21.75 per share for gross proceeds of $4,002 less pre-tax issue costs of $190.

Warrants

The movement in respect to the issued and outstanding warrants for the six month period ended June 30, 2005 is as follows:



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(in thousands, except share numbers)
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Shares
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Warrants - allocated fair value
beginning of period 1,714,950 $ 2,754
Warrants exercised during the period
May 2004 Private Placement (73,500) (48)
November 2004 Private Placement (850) (2)

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Warrants - allocated fair value
end of period 1,640,600 $ 2,704
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Warrant value comprised of:
May 2004 Private Placement 541,450 360
November 2004 Private Placement 1,099,150 2,344
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1,640,600 $ 2,704
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Contributed Surplus

The movement in contributed surplus for the six month period ended
June 30, 2005 is as follows:

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(in thousands)
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Contributed surplus - beginning of period $ 1,118
Add: Stock option expense for the period 681
Less: Fair value of stock option exercises for the period (469)
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Contributed surplus - end of period $ 1,330
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Earnings Per Share

The calculation of basic earnings (loss) per share is based on the weighed average number of shares outstanding during the three month and six month period ended June 30, 2005 of 25,320,287 and 25,203,771 respectively.

10. STOCK-BASED COMPENSATION

Stock option transactions for the six month period ended June 30, 2005 is as follows:



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Options
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Options outstanding - beginning of period 997,999
Granted 125,500
Exercised (211,636)

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Options outstanding - end of period 911,863
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As at June 30, 2005, an additional 1,859,000 shares are available for granting as options under this plan.

Denison Mines determined compensation expense associated with new option grants during the six month period ended June 30, 2005 using the Black-Scholes option-pricing model with the following assumptions:



Dividend yield - nil
Risk-free interest rate - 3.32% to 3.54%
Expected life of the options - 4 years
Expected volatility factor of future expected market prices - 50%


Total compensation expense related to the newly granted options is estimated to be $782 and will be recognized into income over the vesting period of the options. The options vest one-third at the date of grant, one-third on the first anniversary date and one-third at the second anniversary date of the grant.

11. OTHER EXPENSE (INCOME)

The elements of other expense (income) for the three month and six month periods ended June 30, 2005 and 2004, respectively, are as follows:



---------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------

Interest income $ (67) $ (24) $ (115) $ (49)
Foreign exchange
Transactional (43) (151) (237) (275)
Derivative related - - 204 -
Other 10 - 11 -
---------------------------------------------------------------------
$ (100) $ (175) $ (137) $ (324)
---------------------------------------------------------------------
---------------------------------------------------------------------


12. SEGMENTED FINANCIAL INFORMATION

Denison Mines operates in two primary operating segments - uranium mining and environmental services. The uranium mining segment consists of the exploration for, mining, milling and purchase 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 Participation Corporation and expenses include general corporate expenses not allocated to the other segments.

Substantially all of the Company's operations in the uranium mining segment are conducted through the use of unincorporated joint ventures. Uranium joint ventures allocate uranium production 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 Segment Results

For the three month period ended June 30, 2005 and 2004 respectively, segment results were as follows:



---------------------------------------------------------------------
Environmental
Uranium Services Corporate Total
---------------------------------------------------------------------
June June June June June June June June
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------

Revenue 10,731 9,445 893 1,174 657 - 12,281 10,619
---------------------------------------------------------------------

Expenses
Operating
expenses 6,125 6,924 904 1,125 - - 7,029 8,049
Royalties/
provincial
capital
tax 815 716 - - 33 2 848 718
Exploration
expense 571 103 - - - - 571 103
General
corporate
expense - - - - 964 1,282 964 1,282
Stock
option
expense - - - - 447 673 447 673
Interest
expense 55 522 - - - - 55 522
Other
expense
(income) - - - - (100) (175) (100) (175)

---------------------------------------------------------------------
7,566 8,265 904 1,125 1,344 1,782 9,814 11,172
---------------------------------------------------------------------
Earnings
(loss)
before
taxes 3,165 1,180 (11) 49 (687)(1,782) 2,467 (553)
Income tax
expense
(recovery)
Current - - - - 30 41 30 41
Future - - - - (82) 155 (82) 155
---------------------------------------------------------------------
Earnings
(loss)
for the
period 3,165 1,180 (11) 49 (635)(1,978) 2,519 (749)
---------------------------------------------------------------------
---------------------------------------------------------------------

For the six month period ended June 30, 2005 and 2004 respectively,
segment results were as follows:

---------------------------------------------------------------------
Environmental
Uranium Services Corporate Total
---------------------------------------------------------------------
June June June June June June June June
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------

Revenue 12,462 13,950 2,345 2,890 657 - 15,464 16,840
---------------------------------------------------------------------

Expenses
Operating
expenses 7,811 10,984 2,292 2,746 - - 10,103 13,730
Royalties/
provincial
capital
tax 946 1,068 - - 42 15 988 1,083
Exploration
expense 938 157 - - - - 938 157
General
corporate
expense - - - - 1,956 1,824 1,956 1,824
Stock
option
expense - - - - 681 673 681 673
Interest
expense 116 1,131 - - - - 116 1,131
Other
expense
(income) - - - - (137) (324) (137) (324)

---------------------------------------------------------------------
9,811 13,340 2,292 2,746 2,542 2,188 14,645 18,274
---------------------------------------------------------------------
Earnings
(loss)
before
taxes 2,651 610 53 144 (1,885)(2,188) 819 (1,434)
Income tax
expense
(recovery)
Current - - - - 65 56 65 56
Future - - - - (344) 30 (344) 30
---------------------------------------------------------------------
Earnings
(loss)
for the
period 2,651 610 53 144 (1,606)(2,274) 1,098 (1,520)
---------------------------------------------------------------------
---------------------------------------------------------------------


Major Customers

Denison Mines relies on a small number of customers to purchase a significant portion of its uranium concentrate product. During the six months ended June 30, 2005 and 2004, the aggregate revenue from customers representing more than 10% of Denison Mines' total revenues was $11,269 (2 customers) and $9,550 (3 customers), respectively.

13. RELATED PARTY TRANSACTIONS

During the three month period ended June 30, 2005, Denison Mines entered into a management services agreement with Uranium Participation Corporation ("Uranium Corp").and, as a result, are considered to be related parties. Under the terms of the 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 U3O8 completed at the request of the Board of Directors of Uranium Corp; and b) a minimum annual management fee of $400 (plus reasonable out-of-pocket expenses) plus an an additional fee of up to 0.3% per annum based upon Uranium Corp's assets in excess of $100,000.

The following transactions were incurred with Uranium Corp during the three month period ended June 30, 2005:



---------------------------------------------------------------------
Three months ended
June 30
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Fees earned from Uranium Corp:
Management fees (and out-of-pocket expenses) $ 105 $ -
Commission fees on purchase and sale of U308 552 -

---------------------------------------------------------------------
Total fees earned from Uranium Corp $ 657 $ -
---------------------------------------------------------------------


At June 30, 2005, accounts receivable includes $398 of amounts due from Uranium Corp with respect to the fees indicated above.


14. CONTINGENT LIABILITIES AND COMMITMENTS

Contingent Liabilities

(a) McClean Lake Operating Licence

On June 4, 2004, the Federal Court of Appeal issued a unanimous decision overturning a September 2002 decision of the Trial Division that quashed the original McClean Lake facility operating license issued in 1999 on the basis that the Canadian Environmental Assessment Act had not been complied with. The Court of Appeal found that the facility's license was properly issued. On March 24, 2005, the Supreme Court of Canada dismissed the Plaintiff's application for leave to appeal. As a result, any uncertainty concerning the validity of the McClean Lake facility's operating license has been eliminated.

(b) 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.

(c) 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. Denison's activities 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.

Denison Mines Limited, a predecessor company of Denison Energy Inc., 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.

(d) General Contingencies

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.

(e) Indemnities

Pursuant to the Denison Arrangement described in note 1, Denison Mines 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.

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 and six months ended June 30, 2005. This MD&A is current as of August 11, 2005.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

Some disclosures included in this MD&A respecting production, capital spending, development schedules, expenses, markets, and milling arrangements represent forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intent", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Such statements are based on assumptions and estimates related to future market conditions. These statements involve risks and uncertainties relating to, among other things, changes in commodity prices, unanticipated reserve and resource grades, 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. While 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.

OVERVIEW

Denison Mines Inc. ("Denison") is primarily a uranium production and exploration company and is also engaged in mine de-commissioning and environmental services. Effective March 8, 2004 Denison Energy Inc. ("DEI") reorganized its businesses resulting in Denison acquiring all of DEI's uranium and environmental services operations, assets and liabilities. These mining division assets and liabilities constituted a substantial part of DEI's total assets prior to the reorganization. With the reorganization, Denison became one of only two Canadian publicly traded companies that are primarily involved in the uranium mining and production business. Denison's production is through its 22.5% ownership of the McClean Lake joint venture which includes both uranium reserves and the sixth largest uranium processing facility in the world. Denison is also 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, including McClean Lake and Midwest which have untapped resource potential, and at the Wheeler River, Wolly and Waterfound uranium exploration projects and is involved in uranium exploration in Mongolia through a Joint Venture with COGEMA. Denison is also the Manager of Uranium Participation Corporation, a separate public company formed to buy and hold uranium oxide in concentrates.



CONSOLIDATED RESULTS
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
For the Three Months Ended June 30, 2005
---------------------------------------------------------------------
(in thousands of
Canadian dollars) Environmental
Uranium Services Corporate Total
---------------------------------------------------------------------
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ 10,731 $ 9,445 $ 893 $ 1,174 $ 657 $ - $12,281 $10,619
---------------------------------------------------------------------

Expenses
Operating
expenses 6,125 6,924 904 1,125 - - 7,029 8,049
Royalties
and
provincial
capital
tax 815 716 - - 33 2 848 718
Exploration
expense 571 103 - - - - 571 103
General
corporate
expense - - - - 964 1,282 964 1,282
Stock
option
expense - - - - 447 673 447 673
Interest
expense 55 522 - - - - 55 522
Other
expense
(income) - - - - (100) (175) (100) (175)
---------------------------------------------------------------------
7,566 8,265 904 1,125 1,344 1,782 9,814 11,172
---------------------------------------------------------------------
Earnings
(loss)
before
income
taxes 3,165 1,180 (11) 49 (687)(1,782) 2,467 (553)
Income
tax
expense
Current - - - - 30 41 30 41
Future - - - - (82) 155 (82) 155
---------------------------------------------------------------------
Earnings
(loss)
for the
period $ 3,165 $ 1,180 $ (11) $ 49 $ 635 $1,978 $2,519 $ (749)
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
For the Six Months Ended June 30, 2005
---------------------------------------------------------------------
(in thousands of Canadian dollars)

Environmental
Uranium Services Corporate Total
---------------------------------------------------------------------
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ 12,462 $13,950 $2,345 $2,890 $ 657 $ - $15,464 $16,840
---------------------------------------------------------------------

Expenses
Operating
expenses 7,811 10,984 2,292 2,746 - - 10,103 13,730
Royalties
and
provincial
capital
tax 946 1,068 - - 42 15 988 1,083
Exploration
expense 938 157 - - - - 938 157
General
corporate
expense - - - - 1,956 1,824 1,956 1,824
Stock
option
expense - - - - 681 673 681 673
Interest
expense 116 1,131 - - - - 116 1,131
Other
expense
(income) - - - - (137) (324) (137) (324)
---------------------------------------------------------------------
9,811 13,340 2,292 2,746 2,542 2,188 14,645 18,274
---------------------------------------------------------------------
Earnings
(loss)
before
income
taxes 2,651 610 53 144(1,885)(2,188) 819 (1,434)
Income
tax
expense
Current - - - - 65 56 65 56
Future - - - - (344) 30 (344) 30
---------------------------------------------------------------------
Earnings
(loss)
for the $ 2,651 $ 53 $ (1,606) $ 1,098
period $ 610 $ 144 $(2,274) $(1,520)
---------------------------------------------------------------------
---------------------------------------------------------------------


DISCUSSION OF CONSOLIDATED RESULTS

Consolidated revenue for the three month and six month periods ended June 30, 2005 was $12.3 million and $15.5 million respectively. Consolidated net income for the three and six month periods ended June 30, 2005 was $2.5 million and $1.1 respectively.

This compares with consolidated net revenue of $10.6 million and $16.8 million and consolidated net loss of $0.7 million and $1.5 million for the three months and six months ended June 30, 2004 respectively.

Results are discussed below, first for the uranium and environmental services divisions, following which the corporate and other expense items are discussed.

URANIUM 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. In addition, Denison is involved in uranium exploration as part of the above joint ventures and as a participant in the Wheeler River, Wolly and Waterfound joint ventures.

Results for the three months and six months ended June 30, 2005

The uranium division recorded income of $3.2 million and $2.7 million for the three months and six months ended June 30, 2005 respectively. This compares to income of $1.2 million and $0.6 million for the three months and six months ended June 30, 2004 respectively. Results for the quarter were driven by increased prices realized on uranium sales offset by slightly lower sales volumes than in the comparable quarter last year and Canadian/US dollar exchange rates which were unfavourable compared to last year. Denison's uranium sales are under seven different long-term contracts with utilities in the United States and the Far East. These contracts have various durations and contain a variety of pricing formulas. Timing of delivery under these contracts is at the option of the customer. Denison also sells some uranium under short-term delivery contracts. The Company sold a significant volume on a short-term contract basis during the quarter substantially above existing long-term contract prices. As a result, overall sales price realized during the second quarter was US$22.12 and for the six month period was US$20.63.

The Canadian dollar appreciated relative to the US dollar such that the average realized Canadian dollar exchange rate for the conversion of US dollar sales declined from $1.34 in the first half of 2004 to $1.23 in the first half of 2005.

The McClean Lake Joint Venture produced 1,562,000 pounds of uranium during the three months ended June 30, 2005 compared with 1,490,000 pounds during the same period in 2004. Denison's 22.5% share of production totalled 351,000 pounds in 2005, compared with 335,000 pounds in 2004. Unit production costs decreased $1.15 per pound for the six months ended June 30, 2005 compared to the six months ended June 30, 2004. Lower depletion and depreciation expenses of $1.79 per pound were partially offset by higher operating costs of $0.64 per pound. A 22% reduction in the average mill feed grade (1.61% U308 compared during the first half of 2005 compared with 1.96% in the same period in 2004) contributed to the higher operating costs.

In February 2002 the mining of the Sue C pit was completed and the ore stockpiled. Denison's share of inventory in the ore stockpile at June 30, 2005 was about 1.15 million pounds, sufficient to feed the mill at current rates through to mid 2006. Mine development plans for other deposits have been approved by the McClean Lake Joint Venture and mining of the Sue A and Sue E deposits will commence in third quarter 2005, in time to provide ore to the mill prior to depletion of the current stockpiles. Stripping of the Sue A deposit has commenced. Mining of the ore will commence and will be completed in October 2005. Stripping of the Sue E deposit using a contractor is scheduled to commence in August 2005.

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. 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 many years.

Exploration spending totalled $0.7 million and $1.2 million for the three months and six months ended June 30, 2005 respectively, $0.6 million and $0.9 million of which was expensed for the three months and six months ended June 30, 2005, respectively, as it related to exploration on properties without ore reserves. The spending amount includes exploration at the McClean and Midwest properties, as well as the Wheeler, Wolly and Waterfound exploration projects.

2005 Outlook

Uranium sales volumes in 2005 are planned to be about 17% less than in 2004 to conserve inventory levels in the current rising market. Sales volume in the first quarter and second quarter represent 8% and 30% respectively of the total years expected sales volumes. It is anticipated that sales volumes for the remainder of the year will be primarily under existing long-term contracts and at lower historical average selling price. As a percentage of total year's expected volumes, sales will be 23% in the third quarter and 39% in the fourth quarter, with about 5% of these sales expected to be on a short-term basis at prices approximating current market.

Production for the McClean Lake Joint Venture is targeted for 6,000,000 pounds in 2005, of which Denison's share is about 1,350,000 pounds.

During 2004, Denison significantly increased its exploration activities. In 2005, Denison is expecting to spend at least $3.5 million in exploration activities on its various properties including, Wheeler River, Wolly, McClean Lake, Midwest and Waterfound, the majority of which will be expensed.

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. Construction of the expansion of the McClean Lake mill to allow for the acceptance of the Cigar Lake ores has commenced. It is anticipated that toll milling of the Cigar Lake ores will begin at McClean Lake in 2007.

In 2005, two mining technologies are being evaluated at McClean: 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. The test mining has commenced at the McClean North deposit.

DENISON ENVIRONMENTAL SERVICES DIVISION RESULTS

During the six months ended June 30, 2005, 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, completed decommissioning work at the Bicroft mine/mill site in Ontario, and continued to operate the Kam Kotia water treatment facilities.

Results for the three months and six months ended June 30, 2005

Revenue from environmental services was $0.9 million and $2.3 million for the three months and six months ended June 30, 2005 respectively compared to $1.2 million and $2.9 million for the same periods in 2004. Earnings (loss) from the division were $(0.01) million and $0.05 million for the three months and six months ended June 30, 2005 compared to $0.05 million and $0.14 million for the same periods in 2004.

2005 Outlook

In 2005, Denison entered into a new site care and maintenance agreement with Rio Algom for its closed mine sites at Elliot Lake. This new agreement, with a six-year term ending in 2011, increases the scope of work and the resulting revenue and earnings. The Rio Algom contract will continue to provide a base, with any additional contracts assisting to generate earnings. DES will also continue to operate the facilities at Kam Kotia and will complete demolition services at the Cluff Lake mine site in northern Saskatchewan. DES has also commenced work on a project for Domtar to dismantle equipment at its Chapleau plant.

CORPORATE

Effective March 30, 2005, Denison entered into an agreement to act as Manager of Uranium Participation Corporation ("Uranium Corp."). This agreement is for an initial term of five years. Denison receives a fee of at least $0.4 million annually for the provision of management services and 1.5% commission on the purchase and sale of uranium oxide in concentrates ("U3O8") made on behalf of Uranium Corp. During the period ended June 30, 2005, Denison earned $0.7 million in management fees and commissions.

CORPORATE EXPENSES

General corporate expenses totalled $1.0 million and $2.0 million for the three months and six months ended June 30, 2005 respectively compared to $1.3 million and $1.8 million in the same periods in 2004. In addition, expenses related to the issue of employee stock options amounted to $0.4 million and $0.7 million for the three and six months ended June 30, 2005 compared to $0.7 million for the three and six month periods to June 30, 2004.

INTEREST EXPENSE

Interest expense on the McClean loan was nil for the three months and six months ended June 30, 2005 compared to $0.6 million and $1.0 million in the three month and six month period in 2004, reflecting the reduction in the loan balance. Interest expense also includes fees paid to secure the obligation for reclamation at the McClean Lake site.

EXPENSES RELATED TO THE FORMER ELLIOT LAKE URANIUM MINE

As part of the Plan of Arrangement, Denison assumed and accrued certain liabilities of DEI in connection with the decommissioned Elliot Lake uranium mine and the retirees from the Elliot Lake operations.

In the six months ended June 30, 2005, Denison spent $0.3 million (six months ended June 30, 2004 - $0.3 million) primarily on monitoring and water treatment at the Elliot Lake tailings management facility. In 2005, Denison expects to spend about $0.4 million on monitoring and an additional $0.1 million on capital at the Stanrock area. All spending is paid for from the Elliot Lake Reclamation Trust, which had a balance of $1.464 million at June 30, 2005. This balance, with interest earned thereon, is expected to be adequate to fund all monitoring and treatment costs through to December 31, 2010. Future expenditures will consist of ongoing site monitoring of both the Denison and Stanrock Tailings Management Facilities including treating the water runoff from the Stanrock property. This spending is expected to decline marginally over the next few years. The balance of the total provision for $4.830 million 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 June 30, 2005 the post employment benefits liability recorded in the consolidated balance sheet was $9.4 million. The actuarial report on this liability as of December 31, 2002 estimated that the actuarial liability is approximately $5.7 million. The surplus of $4.0 million, net of interest accreting on the unfunded $5.7 million liability, is being credited to income over the 12.5 year average life expectancy (as of September 30, 2002) of this retiree group.

LIQUIDITY AND CASH RESOURCES

Cash Generated by Operations

The uranium division generated (used) cash of $(2.3) million and $1.4 million for the three and six months ended June 30, 2005 respectively and the environmental services division generated cash of $1.3 million and $0.2 million for the same periods. The corporate division used cash of $0.8 million and $1.6 million for the three and six month periods. Consolidated, operations generated (used) cash of ($1.8) million and $0.03 million for the three and six months ended June 30, 2005 respectively compared to $4.4 million and $9.7 million in the comparable periods in 2004.

Financing Activities

For the three months ended June 30, 2005, net proceeds from the issue of common equity totalled $0.2 million (including stock option and warrant exercises) and $4.3 million was borrowed under the terms of the COGEMA loan to fund uranium production costs and capital at the McClean and Midwest mine site. Draws on the COGEMA loan were immediately repaid in full.

For the six months ended June 30, 2005, net proceeds from the issue of common equity totalled $5.4 million (including stock option and warrant exercises) of which $3.8 million was related to the issue of flow-through shares in March 2005. During the six month period, $8.5 million was borrowed under the terms of the COGEMA loan to fund uranium production costs and capital at the McClean and Midwest mine sites. Draws on the COGEMA loan were immediately repaid
in full.

Investing Activities

Capital expenditures in the three months ended June 30, 2005 of $1.1 million included $0.9 million at the McClean property, $0.1 million at the Midwest property and $0.1 million for the environmental services division for equipment. Capital expenditures at McClean and Midwest were primarily related to mining equipment purchases, pit and mining process development costs and exploration activities.

Capital expenditures in the six months ended June 30, 2005 of $1.5 million included $1.1 million at the McClean property, $0.2 million at the Midwest property and $0.1 million for the environmental services division. An additional $0.1 million was spent on leasehold improvements associated with the Company's head office relocation.

Cash balances

At June 30, 2005 Denison had cash resources of $6.3 million and the ability to redraw $26.7 million on the COGEMA loan.

Debt

The outstanding balance under the loan facility from COGEMA Resources Inc. was nominal at June 30, 2005. However, at June 30, 2005 the Company has the ability to redraw up to $26.7 million on this loan for general corporate purposes upon giving 45 days' notice. The Company's share of future cash flow from uranium sales is dedicated to the repayment of any outstanding balance.

This loan is currently scheduled to mature on December 31, 2005 but will be extended to December 31, 2010 if, prior to December 31, 2005, a production decision is made to develop the Midwest uranium project. Any principal balance outstanding at maturity is repayable at 20% per annum.

Share Capital

As of June 30, 2005, Denison had an aggregate of 25,352,824 Common Shares issued and outstanding.

Reclamation Trust

At June 30, 2005 Denison had $1.464 million on deposit in the Elliot Lake Reclamation Trust Fund. This amount together with interest earned thereon represents estimated Elliot Lake reclamation spending to December 31, 2010. A description of Denison's ongoing obligations under its Reclamation Funding Agreement with the Governments of Canada and Ontario is included in note 7 of the financial statements of Denison Mines Inc. Annual Report for the year ended December 31, 2004. Future funding requirements into the Reclamation Trust are expected to be less than $0.4 million annually, plus any requirements for capital which are expected to be minimal.

RELATED PARTY TRANSACTIONS

During the three month period ended June 30, 2005, Denison Mines entered into a management services agreement with Uranium Participation Corporation ("Uranium Corp").and, as a result, are considered to be related parties. Under the terms of the 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 U3O8 completed at the request of the Board of Directors of Uranium Corp; and b) a minimum annual management fee of $0.4 million (plus reasonable out-of-pocket expenses) plus an additional fee of up to 0.3% per annum based upon Uranium Corp's assets in excess of $100 million.

The following transactions were incurred with Uranium Corp during the three month period ended June 30, 2005:



---------------------------------------------------------------------
(in thousands of Canadian dollars) Three months
ended June 30
---------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------

Fees earned from Uranium Corp:
Management fees (and out-of-pocket expenses) $ 105 $ -
Commission fees on purchase and sale of U308 552 -

---------------------------------------------------------------------
Total fees earned from Uranium Corp $ 657 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------


At June 30, 2005, accounts receivable includes $0.4 million of amounts due from Uranium Corp with respect to the fees indicated above.

CRITICAL ACCCOUNTING POLICIES

The preparation of financial statements requires the selection of appropriate Canadian accounting policies in accordance with generally accepted accounting principles. To do so, management is required to make various estimates and judgments to determine the amount reported for assets, liabilities, revenues and expenses and the disclosure of commitments and contingencies.

Management believes that the following are the more significant accounting estimates used in preparing these consolidated financial statements.

Depletion and amortization of property, plant and equipment in the uranium division is primarily calculated on a unit of production basis. This method allocates the cost of an asset to production cost based on current period production in proportion to total anticipated production from the facility. Mining costs are amortized based on total estimated uranium in the ore body. The milling facility is being amortized based on all the Company's reserves, which it is anticipated will be processed through the mill. Mill costs to be amortized are reduced by anticipated reimbursements of capital costs to be received from third parties through toll milling arrangements. If Denison's actual reserves or estimated amounts to be received from toll milling prove to be significantly different from estimates, there could be a material adjustment to the amounts of depreciation and amortization to be recorded in the future.

Denison adopted CICA Handbook section 3110, Asset Retirement Obligations in the first quarter of 2004, applied retroactively. Under the accounting policy previously applied, the unit of production method was used to accrue the reclamation liability over the project life. The new standard requires that the fair value of the full decommissioning cost of an asset be capitalized as part of property, plant and equipment when the asset is initially constructed. In subsequent periods, Denison then is required to recognize "interest" on the liability, to amortize the capital costs in a rational and systematic manner, and to adjust the carrying value of the asset and liability for changes in estimates of the amount or timing of underlying future cash flows.

Denison has accrued, in accordance with CICA Handbook Section 3110, its best estimate of the ongoing reclamation liability in connection with the decommissioned Elliot Lake mine site and is currently accruing its best estimate of the cost to decommission its other mining properties, the McClean tailings management facility and the McClean mill. The costs of decommissioning are subject to inflation and to government regulations, which are subject to change and often not known until mining is substantially complete. A significant change in either the estimated costs of decommissioning or recoverable reserves may materially change the amount of the reclamation liability accrual.

Denison assesses the carrying value of its property, plant and equipment annually to determine that asset values can be recovered. Recoverability is dependent on assumptions with respect to future commodity prices, costs of production, replacement capital requirements, reserves and mineral recovery factors. Significant changes in any of these factors could result in a determination that impairment has occurred and a charge would be required against earnings.

Denison has assumed an obligation to pay retiree medical and dental benefits and life insurance as set out in a plan to a group of former employees. Denison has made certain assumptions and will retain an actuary at least once every three years to estimate the anticipated costs related to this benefit plan. The actual cost to Denison of this plan will be influenced by changes in health care practices and actuarial factors. While the plan contains certain limits, changes in assumptions could affect earnings.

Denison has recorded stock based compensation expense in accordance with the CICA handbook section 3870, using the Black - Scholes option pricing model, based on its best estimate of the expected life of the options, the expected volatility factor of the share price, a risk-free rate of return and expected dividend yield. The use of different assumptions regarding these factors could have a significant impact on the amount of stock-based compensation expense charged to income over time. Changes in these estimates will only apply to future grants of options and the amounts amortized over the vesting period of existing options should not change as a result.

RISK FACTORS

The risk factors included in our annual MD&A are unchanged.

ADDITIONAL INFORMATION

Additional information related to Denison Mines Inc., including the Consolidated Financial Statements of Denison for the Years ended December 31, 2004 and 2003 and the Company's Annual Information Form for 2004 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



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