Denison Mines Inc.
TSX : DEN

Denison Mines Inc.

November 07, 2005 17:37 ET

Denison Mines Reports Third Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Nov. 7, 2005) - Denison Mines Inc. (TSX:DEN) reports its results for the third quarter and nine months ended September 30, 2005. All amounts are in Canadian dollars unless otherwise specified.

Consolidated net income (loss) was ($891,000) or ($0.04) per share for the three month period and $207,000 or $0.01 for the nine month period ended September 30, 2005 compared with consolidated net income (loss) of ($52,000) or $0.00 per share and ($1,572,000) or ($0.08) per share for the same periods last year. Revenue was $8,549,000 and $24,013,000 for the three months and nine months ended September 30, 2005 respectively compared with $10,458,000 and $27,298,000 for the comparable periods in 2004.

Cash provided from operations, after working capital changes, for the three months ended September 30, 2005 totaled $5,101,000 or $0.20 per share and for the nine months ended September 30, 2005 totaled $5,132,000 or $0.20 per share. This compares to operating cash of $2,207,000 or $0.10 per share for the three month and $11,951,000 or $0.61 per share for the nine month comparable periods last year.

Significant events in the third quarter included:

- The spot price for uranium (U3O8) increased to US$31.25 at September 30, 2005 from US$29.00 at June 30, 2005.

- The value of United States currency, relative to Canadian currency, declined significantly during the quarter. The exchange rate declined from $1.2254 at June 30, 2005 to $1.1627 at September 30, 2005. The average realized exchange rate on uranium sales in the third quarter of 2005 declined to $1.1738 from $1.2925 average for the third quarter in 2004.

- The summer exploration drilling program at the Wheeler River uranium project, of which Denison is the operator, commenced in June 2005 and continued throughout the quarter.

- The test mining program at McClean Lake was carried out during the quarter and is now complete for the year. The specialty equipment, namely the mining tools and the mining pipes, engineered and manufactured exclusively for the Pilot Test Program, has been successfully commissioned and to some extent tested in the sandstones.

- Mining of the Sue A and Sue E uranium deposits commenced during the quarter.

- Denison completed the purchase of 1,500,000 pounds of U3O8 on behalf of Uranium Participation Corporation, of which it is the manager, and earned $875,000 in commissions and management fees.

- Denison strengthened its geology team with the addition of Blair Needham, HBA, as geologist and Don Carriere, BASc, MASc, as geophysicist.



SEGMENTED INFORMATION (1)
---------------------------------------------------------------------
Three months ended Nine Months Ended
September 30 September 30
(unaudited-in thousands) 2005 2004 2005 2004
---------------------------------------------------------------------

Revenue
Uranium $ 5,614 $ 9,254 $ 18,076 $ 23,204
Environmental
Services 2,060 1,204 4,405 4,094
Corporate
Services 875 - 1,532 -
---------------------------------------------------------------------
8,549 10,458 24,013 27,298
---------------------------------------------------------------------
Net Earnings (Loss)
Uranium (550) 1,324 2,101 1,934
Environmental
Services 390 (49) 443 95
Corporate
and taxes (731) (1,327) (2,337) (3,601)
---------------------------------------------------------------------
$ (891) $ (52) $ 207 $ 1,934
---------------------------------------------------------------------

(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 (loss) from the uranium division were ($550,000) and $2,101,000 for the three months and nine months ended September 30, 2005 compared to $1,324,000 and $1,934,000 in the comparable periods in 2004. These amounts are after deduction of exploration expenses of $1,130,000 for the three months and $2,068,000 for the nine months ended September 30, 2005 which is significantly increased from 2004.

Sales of uranium in the third quarter represented approximately 23% of the uranium sales target for the year while the nine month sales to September 30, 2005 represent 61% 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. Sales volumes were 299,000 pounds for the three months and 792,000 pounds for the nine months ended September 30, 2005 compared to 432,000 pounds for the three months and 1,116,000 pounds for the nine months ended September 30, 2004. The average sales price realized during the third quarter was US$16.02 and for the nine month period was US$18.89. Sales during the quarter were made under long-term contracts with negotiated prices or legacy pricing formulae including price ceilings. Some of these contracts are expiring in 2005 and 2006 or the pricing is being renegotiated in accordance with the contract. Sales for the remainder of 2005 will be primarily under these long term contracts. In 2006, we expect that overall sales volumes will be within 10% of 2005 volumes. Of these volumes, approximately one-third will be sold at prices significantly below the current market due to the legacy contracts. The pricing of our largest contract, which represents approximately one-third of the currently anticipated 2006 sales volume, is currently being negotiated, as provided for in the contract, and we expect a substantial price increase to result from these negotiations. The remaining one-third of our expected 2006 sales volumes will be at or near market prices.

The impact of the strengthening of the Canadian currency relative to the US currency was substantial during the third quarter. The month-end exchange rate decreased to $1.1627 at September 30, 2005 from $1.2254 at June 30, 2005. The realized Canadian dollar exchange rate for the conversion of the US dollar revenue from uranium sales averaged $1.1738 in the third quarter of 2005 versus $1.2925 in the same period in 2004. This reduced revenue in the quarter by $568,000 compared with that which would have been realized using the exchange rate prevailing in the third quarter of 2004. In addition, the Company recorded a foreign exchange loss, in its corporate expenses, of $534,000 on US dollar denominated monetary assets during the quarter.

The spot price of uranium was US$31.25 at September 30, 2005 compared to US$20.00 at September 30, 2004, and is now US$33.25. Denison expects prices to continue to increase moderately over the next eighteen months. The increasing prices will be reflected in new sales contracts that will replace existing long-term contracts expiring in 2005 and beyond.

The McClean uranium facilities produced 1,532,000 pounds of uranium during the three months ended September 30, 2005, of which Denison's share was 345,000 pounds compared with 331,000 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. For 2006, we expect production to decline to approximately 4,000,000 pounds reflecting the decline in the Sue C stockpile, reduced grades coming from the Sue A and E pits and plant shutdowns to tie in the mill expansion required to treat Cigar Lake ore starting in 2007.

Stripping of the Sue A deposit has commenced. Mining of the ore will be completed prior to the end of the year. Stripping of the Sue E deposit using a contractor has commenced and will continue throughout 2006.

Mill production costs decreased by about $1.22 per pound for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. Decreases in depletion and depreciation rates of $1.71 per pound were partially offset by increases in operating expenses of $0.49 per pound.

The collective bargaining agreement with the workforce at the McClean mill has expired and negotiations are underway to complete a new agreement.

Testing of the blind-boring/jet-boring mining methodology was conducted at the McClean North deposit during the quarter. This testing was conducted to allow evaluation and development of this technique as an economically viable methodology of mining uranium. The technique will be particularly applicable to smaller high-grade deposits which may be uneconomical with traditional mining methods. The testing conducted during the quarter was hampered by drilling problems but much was achieved and the decision has been made to proceed further and, pending regulatory approval, to drill and test mine from 15 holes in 2006 with anticipated production of 1 million pounds of U3O8 next year.

Denison is pursuing its significant exploration program in the Saskatchewan's Athabasca Basin. Exploration spending totalled $1,175,000 ($1,130,000 of which is expensed) and $2,415,000 ($2,068,000 of which is expensed) for the three months and nine months ended September 30, 2005 respectively, compared to ($13,000) and $325,000 ($144,000 of which was expensed) in the comparable periods last year. The Company estimates that it will spend about $3,880,000 on its share of exploration at its various properties in 2005. Although formal approval of the exploration budgets for 2006 is not completed, it is expected that Denison's share of exploration spending at its various properties in 2006 will be about $5,000,000. Total exploration spending on these properties is expected to be $5,245,000 in 2005 and about $7,000,000 in 2006.

Environmental Services

Earnings (loss) from the environmental services business was $390,000 for the three months and $443,000 for the nine months ended September 30, 2005 compared to $(49,000) and $95,000 for the comparable periods in 2004. Work was completed on a contract with Domtar to dismantle equipment at its plant in Chapleau and work on Phase II of the decommissioning of the Cluff Lake uranium facilities in northern Saskatchewan was largely completed in the third quarter.

Corporate

Denison is the manager of Uranium Participation Corporation, an investment holding company formed in 2005 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. Denison earned $875,000 in the three months and $1,532,000 in the nine months ended September 30, 2005, for its services to Uranium Participation Corporation.

General corporate expenses totalled $734,000 for the three months ended September 30, 2005 compared to $597,000 in the comparable quarter last year. In addition, the Company recorded expenses related to the issue of employee stock options of $252,000 for the three months ended September 30, 2005 compared to $238,000 in the comparable quarter last year.

Liquidity

At September 30, 2005, Denison had the ability to redraw $21,221,000 from the COGEMA loan facility on 45 days notice and had cash resources of $10,759,000. In addition, on November 2, 2005, Denison concluded arrangements for a $500,000 line of credit with the Bank of Nova Scotia secured by all of its assets, excluding those over which COGEMA has a prior claim pursuant to the COGEMA loan facility.

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 before exploration expenses by at least 100%;

- Expand uranium reserves by spending at least $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; however, general corporate expenses have been offset by revenue generation from the Uranium Participation Corporation management contract.

Conference Call

Denison is hosting a conference call on November 8, 2005 starting at 8:00 a.m. (Toronto time) to discuss the Third 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 November 22, 2005.

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 engaged in uranium exploration activities in Canada's Athabasca basin and in Mongolia. 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, volatility and sensitivity to market prices for uranium, the impact of changes in foreign currency, unanticipated reserve and resource grades, results of exploration activities, changes in the demand for nuclear power, 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.

THIRD QUARTER REPORT

2005

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


DENISON MINES INC.
CONSOLIDATED BALANCE SHEETS

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

ASSETS
Current Assets
Cash and cash equivalents $ 10,759 $ 2,394
Accounts receivable 8,319 9,339
Inventories (note 3) 15,124 12,991
Prepaid expenses and other assets 592 922
---------------------------------------------------------------------
34,794 25,646
---------------------------------------------------------------------

Inventory of ore in stockpiles
(note 3) - 1,678
Property, plant and equipment (note 4) 103,503 104,212
Restricted cash and cash
equivalents (note 5) 2,036 1,414
Future income taxes 471 1,872
---------------------------------------------------------------------
$ 140,804 $ 134,822
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES
Current Liabilities
Accounts payable and accrued
liabilities $ 4,270 $ 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
---------------------------------------------------------------------
5,298 4,600
---------------------------------------------------------------------

Long-term debt (note 6) 65 167
Provision for post-employment
benefits (note 7) 8,885 9,252
Provision for site restoration
(note 8) 5,337 5,402
---------------------------------------------------------------------
19,585 19,421
EQUITY
Shareholders Equity (note 9)
Common stock 114,499 108,995
Warrants 2,692 2,754
Contributed surplus 1,287 1,118
Retained earnings 2,741 2,534
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$ 140,804 $ 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)

---------------------------------------------------------------------
(unaudited - in thousands
of Canadian dollars) Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------

Revenue $ 8,549 $ 10,458 $ 24,013 $ 27,298
---------------------------------------------------------------------

Expenses
Operating expense 6,222 8,079 16,325 21,809
Royalties and provincial
capital tax 448 717 1,436 1,800
Exploration expense 1,130 (13) 2,068 144
General corporate expense 734 597 2,690 2,421
Stock option expense 252 238 933 911
Interest expense 66 414 182 1,545
Other expense (income)
(note 11) 438 132 301 (192)
---------------------------------------------------------------------
9,290 10,164 23,935 28,438
---------------------------------------------------------------------
Earnings (loss) before
income taxes (741) 294 78 (1,140)
Income tax expense (recovery)
Current 57 59 122 115
Future 93 287 (251) 317
---------------------------------------------------------------------
Earnings (loss) for the period $ (891) $ (52) $ 207 $ (1,572)
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings (loss) per common
share (note 9)
- Basic and diluted $ (0.04) $ (0.00) $ 0.01 $ (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 Nine months ended
of Canadian dollars) September 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)

---------------------------------------------------------------------
Divisional Equity - end of period $ - $ -
---------------------------------------------------------------------
---------------------------------------------------------------------

Retained earnings (deficit):
At beginning of period $ 2,534 $ -
Net earnings (loss) for the period(1) 207 (1,031)
---------------------------------------------------------------------
Retained earnings (deficit)
- end of period $ 2,741 $ (1,031)
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---------------------------------------------------------------------

(1) For the nine months ended September 30, 2004, the retained
earnings (loss) period begins on March 9, 2004 and extends to
September 30, 2004. See Note 1.

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


DENISON MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
---------------------------------------------------------------------
(unaudited - in thousands
of Canadian dollars) Three months ended Nine months ended
September 30 September 30
2005 2004 2005 2004
---------------------------------------------------------------------

Operating Activities
Net earnings (loss) for
the period $ (891) $ (52) $ 207 $ (1,572)
Adjustments for non-cash items:
Depletion, amortization
and reclamation 1,297 1,898 3,975 5,728
Drawdown of ore from
stockpiles 1,200 950 3,490 3,377
Loss on disposal of assets 19 - 19 -
Change in future taxes 93 287 (251) 317
Stock option expense 252 238 933 911
Changes in non-cash balances
relating to operations
Change in receivables,
inventories, prepaids and
other assets 2,873 (1,257) (2,595) 3,254
Change in accounts payable
and accrued liabilities 483 274 293 165
Other
Funding of post employment
benefits (124) (76) (317) (266)
Change in restricted cash (101) (55) (622) 37
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Net cash from (used in)
operating activities 5,101 2,207 5,132 11,951
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Investing Activities
Additions to property, plant
and equipment (1,477) (1,365) (2,994) (2,053)
---------------------------------------------------------------------
Net cash used in investing
activities (1,477) (1,365) (2,994) (2,053)
---------------------------------------------------------------------

Financing Activities
Additions to long-term debt 6,408 5,653 14,909 13,994
Repayments of long-term debt (6,442) (11,562) (15,011) (36,686)
Common share and warrant
issues net of issue costs 908 5,052 6,329 14,322
Interdivision funding for
Denison Energy Inc. - - - (344)
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Net cash from (used in)
financing activities 874 (857) 6,227 (8,714)
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Increase (decrease) in cash
and cash equivalents 4,498 (15) 8,365 1,184
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Cash and cash equivalents
- beginning of period $ 6,261 $ 2,324 $ 2,394 $ 1,125
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Cash and cash equivalents
- end of period $ 10,759 $ 2,309 $ 10,759 $ 2,309
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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 nine month period ended September 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 September 30, 2005, Denison Mines's significant uranium joint venture ownership interests are as follows:



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

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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September 30 December 31
2005 2004
---------------------------------------------------------------------

Uranium concentrate $ 9,566 $ 7,091
Inventory of ore in stockpiles 4,173 6,216
Mine supplies and equipment for resale 1,385 1,362
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$ 15,124 $ 14,669
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Inventories:
Current $ 15,124 $ 12,991
Long-term - ore in stockpiles - 1,678
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$ 15,124 $ 14,669
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4. PROPERTY, PLANT AND EQUIPMENT

The net property, plant and equipment balance consists of:

---------------------------------------------------------------------
September 30 December 31
2005 2004
---------------------------------------------------------------------

Mining and Exploration
Cost $ 138,755 $ 136,008
Accumulated depletion and amortization 36,734 33,243
---------------------------------------------------------------------
Net 102,021 102,765

Environmental Services and Other
Cost 2,666 2,438
Accumulated depletion and amortization 1,184 991
---------------------------------------------------------------------
Net 1,482 1,447

Total
Cost 141,421 138,446
Accumulated depletion and amortization 37,918 34,234
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Net $ 103,503 $ 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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September 30 December 31
2005 2004
---------------------------------------------------------------------

Elliot Lake reclamation trust fund $ 1,565 $ 1,414
Letter of credit collateral 471 -
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$ 2,036 $ 1,414
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As at September 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:

September 30 December 31
2005 2004
---------------------------------------------------------------------

McClean Lake loan $ - $ -
Capital lease obligation 193 295
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$ 193 $ 295
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Long-term debt:
Current $ 128 $ 128
Long-term 65 167
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$ 193 $ 295
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---------------------------------------------------------------------


McClean Lake Loan

As at September 30, 2005, Denison Mines has the ability under the terms of the loan agreement to redraw $21,221 (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 nine month period ended September 30, 2005 is as follows:



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Post employment benefits liability - beginning of period $ 9,652
Benefits paid (317)
Interest cost 245
Amortization of initial transitional surplus (295)
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Post employment benefits liability - end of period $ 9,285
---------------------------------------------------------------------
---------------------------------------------------------------------

Post employment benefits liability comprised of:
Accrued benefit obligation $ 5,617
Unamortized initial transitional surplus 3,668
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$ 9,285
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Post employment benefits liability:
Current $ 400
Long-term 8,885
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$ 9,285
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---------------------------------------------------------------------


8. SITE RESTORATION

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

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Site restoration liability - beginning of period $ 5,902
Accretion of liability 341
Spending (406)
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Site restoration liability - end of period $ 5,837
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Site restoration liability comprised of:
Elliot Lake $ 4,793
McClean Lake and Midwest Joint Ventures 1,044
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$ 5,837
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---------------------------------------------------------------------

Site restoration liability:
Current $ 500
Long-term 5,337
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$ 5,837
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9. COMMON STOCK, WARRANTS, CONTRIBUTED SURPLUS AND EARNINGS PER SHARE

Common Stock

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

---------------------------------------------------------------------
(in thousands, except share numbers)
---------------------------------------------------------------------
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 360,136 2,023
Add: Transfer from contributed surplus 764
Warrant exercises
Proceeds - gross 91,800 495
Add: Transfer from warrants 62
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Common stock - end of period 25,518,774 $ 114,499
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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 nine month period ended September 30, 2005 is as follows:



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

Warrants - allocated fair value
beginning of period 1,714,950 $ 2,754
Warrants exercised during the period
May 2004 Private Placement (90,950) (60)
November 2004 Private Placement (850) (2)

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Warrants - allocated fair value
end of period 1,623,150 $ 2,692
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Warrant value comprised of:
May 2004 Private Placement 524,000 348
November 2004 Private Placement 1,099,150 2,344
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1,623,150 $ 2,692
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Contributed Surplus

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



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(in thousands)
---------------------------------------------------------------------
---------------------------------------------------------------------

Contributed surplus - beginning of period $ 1,118
Add: Stock option expense for the period 933
Less: Fair value of stock option exercises for the period (764)
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Contributed surplus - end of period $ 1,287
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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 and nine month period ended September 30, 2005 of 25,440,660 and 25,282,734 respectively.

10. STOCK-BASED COMPENSATION

Stock option transactions for the nine month period ended September 30, 2005 is as follows:



---------------------------------------------------------------------
Options
---------------------------------------------------------------------
Options outstanding - beginning of period 997,999
Granted 125,500
Exercised (360,136)
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Options outstanding - end of period 763,363
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---------------------------------------------------------------------


As at September 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 nine month period ended September 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 nine month periods ended September 30, 2005 and 2004, respectively, are as follows:



---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------

Interest income $ (97) $ (21) $ (212) $ (70)
Foreign exchange
Transactional 534 157 297 (118)
Derivative related - - 204 -
Other 1 (4) 12 (4)
---------------------------------------------------------------------
$ 438 $ 132 $ 301 $ (192)
---------------------------------------------------------------------
---------------------------------------------------------------------


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 September 30, 2005 and 2004 respectively, segment results were as follows:



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

Revenue 5,614 9,254 2,060 1,204 875 - 8,549 10,458
---------------------------------------------------------------------

Expenses
Operating
expenses 4,552 6,826 1,670 1,253 - - 6,222 8,079
Royalties
/provincial
capital
tax 427 703 - - 21 14 448 717
Exploration
expense 1,130 (13) - - - - 1,130 (13)
General
corporate
expense - - - - 734 597 734 597
Stock option
expense - - - - 252 238 252 238
Interest
expense 55 414 - - 11 - 66 414
Other
expense
(income) - - - - 438 132 438 132
---------------------------------------------------------------------
6,164 7,930 1,670 1,253 1,456 981 9,290 10,164
---------------------------------------------------------------------
Earnings
(loss)
before
taxes (550) 1,324 390 (49) (581) (981) (741) 294
Income tax
expense
(recovery)
Current - - - - 57 59 57 59
Future - - - - 93 287 93 287
---------------------------------------------------------------------
Earnings
(loss) for
the
period (550) 1,324 390 (49) (731) (1,327) (891) (52)
---------------------------------------------------------------------
---------------------------------------------------------------------

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

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

Revenue 18,076 23,204 4,405 4,094 1,532 - 24,013 27,298
---------------------------------------------------------------------

Expenses
Operating
expenses 12,363 17,810 3,962 3,999 - - 16,325 21,809
Royalties
/provincial
capital
tax 1,373 1,771 - - 63 29 1,436 1,800
Exploration
expense 2,068 144 - - - - 2,068 144
General
corporate
expense - - - - 2,690 2,421 2,690 2,421
Stock option
expense - - - - 933 911 933 911
Interest
expense 171 1,545 - - 11 - 182 1,545
Other
expense
(income) - - - - 301 (192) 301 (192)
---------------------------------------------------------------------
15,975 21,270 3,962 3,999 3,998 3,169 23,935 28,438
---------------------------------------------------------------------
Earnings
(loss)
before
taxes 2,101 1,934 443 95 (2,466) (3,169) 78(1,140)
Income tax
expense
(recovery)
Current - - - - 122 115 122 115
Future - - - - (251) 317 (251) 317
---------------------------------------------------------------------
Earnings
(loss) for
the
period 2,101 1,934 443 95 (2,337) (3,601) 207(1,572)
---------------------------------------------------------------------
---------------------------------------------------------------------


Major Customers

Denison Mines relies on a small number of customers to purchase a significant portion of its uranium concentrate product. During the nine months ended September 30, 2005 and 2004, the aggregate revenue from customers representing more than 10% of Denison Mines' total revenues was $15,827 (3 customers) and $13,404 (3 customers), respectively.

13. RELATED PARTY TRANSACTIONS

On March 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 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 and nine month period ended September 30, 2005:



---------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------

Fees earned from Uranium Corp:
Management fees (and
out-of-pocket expenses) $ 106 $ - $ 211 $ -
Commission fees on purchase
and sale of U308 769 - 1,321 -
---------------------------------------------------------------------

Total fees earned from
Uranium Corp $ 875 $ - $ 1,532 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------


At September 30, 2005, accounts receivable includes $42 of amounts due from Uranium Corp with respect to the fees indicated above.

14. CONTINGENT LIABILITIES AND COMMITMENTS

Specific Legal Matters

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.

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. 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.

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, 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.

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 September 30, 2005, the Company had outstanding bonds and letters of credit of $501 of which $471 was collateralized by restricted cash.

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 nine months ended September 30, 2005. This MD&A is current as of November 7, 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, volatility and sensitivity to market prices for uranium, the impact of changes in foreign currency, unanticipated reserve and resource grades, results of exploration activities, changes in demand for nuclear power, 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 significant 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, in which Denison has no ownership, formed to buy and hold uranium oxide in concentrates.



CONSOLIDATED RESULTS
---------------------------------------------------------------------
---------------------------------------------------------------------
For the Three Months Ended September 30
---------------------------------------------------------------------
(in thousands
of Canadian Environmental
dollars) Uranium Services Corporate Total
---------------------------------------------------------------------
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
Revenue 5,614 9,254 2,060 1,204 875 - 8,549 10,458
---------------------------------------------------------------------
Expenses
Operating
expenses 4,552 6,826 1,670 1,253 - - 6,222 8,079
Royalties
and
provincial
capital
tax 427 703 - - 21 14 448 717
Exploration
expense 1,130 (13) - - - - 1,130 (13)
General
corporate
expense - - - - 734 597 734 597
Stock
option
expense - - - - 252 238 252 238
Interest
expense 55 414 - - 11 - 66 414
Other
expense
(income) - - - - 438 132 438 132
---------------------------------------------------------------------
6,164 7,930 1,670 1,253 1,456 981 9,290 10,164
---------------------------------------------------------------------
Earnings
(loss)
before
income
taxes (550) 1,324 390 (49) (581) (981) (741) 294
Income
tax
expense
Current - - - - 57 59 57 59
Future - - - - 93 287 93 287
---------------------------------------------------------------------
Earnings
(loss)
for the
period (550) 1,324 390 (49) (731)(1,327) (891) (52)
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
For the Nine Months Ended September 30
---------------------------------------------------------------------
(in thousands
of Canadian Environmental
dollars) Uranium Services Corporate Total
---------------------------------------------------------------------
2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
Revenue 18,076 23,204 4,405 4,094 1,532 - 24,013 27,298
---------------------------------------------------------------------
Expenses
Operating
expenses 12,363 17,810 3,962 3,999 - - 16,325 21,809
Royalties
and
provincial
capital
tax 1,373 1,771 - - 63 29 1,436 1,800
Exploration
expense 2,068 144 - - - - 2,068 144
General
corporate
expense - - - - 2,690 2,421 2,690 2,421
Stock
option
expense - - - - 933 911 933 911
Interest
expense 171 1,545 - - 11 - 182 1,545
Other
expense
(income) - - - - 301 (192) 301 (192)
---------------------------------------------------------------------
15,975 21,270 3,962 3,999 3,998 3,169 23,935 28,438
---------------------------------------------------------------------
Earnings
(loss)
before
income
taxes 2,101 1,934 443 95(2,466)(3,169) 78 (1,140)
Income
tax
expense
Current - - - - 122 115 122 115
Future - - - - (251) 317 (251) 317
---------------------------------------------------------------------
Earnings
(loss)
for the
period 2,101 1,934 443 95(2,337)(3,601) 207 (1,572)
---------------------------------------------------------------------
---------------------------------------------------------------------


DISCUSSION OF CONSOLIDATED RESULTS

Consolidated revenue for the three month and nine month periods ended September 30, 2005 was $8.5 million and $24.0 million respectively. Consolidated net income (loss) for the three and nine month periods ended September 30, 2005 was ($0.9 million) and $0.2 million, or ($0.04) and $0.01 per share, respectively.

This compares with consolidated net revenue of $10.5 million and $27.3 million and consolidated net income (loss) of ($0.1 million) and ($1.6 million) for the three months and nine months ended September 30, 2004, or ($0.00) and ($0.08) per share, 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 engaged in uranium exploration as part of the above joint ventures and as a participant in the Wheeler River, Wolly and Waterfound joint ventures. Uranium division results also include reclamation expense of the former Elliot Lake uranium mine.

Results for the three months and nine months ended September 30, 2005
The uranium division recorded income (loss) of ($0.5 million) and $2.1 million for the three months and nine months ended September 30, 2005 respectively. This compares to income of $1.3 million and $1.9 million for the three months and nine months ended September 30, 2004 respectively. Results for the quarter were driven by much higher exploration expenses, 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 formulae. Timing of delivery under these contracts is at the option of the customer. Denison also sells some uranium under short-term delivery contracts. Sales volumes were 299,000 pounds for the three months and 792,000 pounds for the nine months ended September 30, 2005 compared to 432,000 pounds for the three months and 1,116,000 pounds for the nine months ended September 30, 2004. The average sales price realized during the third quarter of 2005 was US$16.02 and for the nine month period was US$18.89 compared to US$16.57 and US$15.87 in the comparable periods in 2004. All of the sales during the quarter were made under long-term contracts with legacy pricing formulae including price ceilings. Sales for the remainder of the year will be primarily under long term contracts. Some of these contracts are expiring or the pricing is being renegotiated for 2006.

The impact of the strengthening of the Canadian currency relative to the US currency was substantial during the third quarter. The month-end exchange rate decreased to $1.1627 at September 30, 2005 from $1.2254 at June 30, 2005. The realized Canadian dollar exchange rate relative to the US dollar for the conversion of the US dollar sales from uranium averaged $1.1738 in the third quarter of 2005 versus $1.2925 in the same period in 2004. This reduced revenue in the quarter by $568,000 compared with that which would have been realized using the exchange rate prevailing in the third quarter of 2004. In addition, the Company recorded, in corporate expenses, a foreign exchange loss of $534,000 on US dollar denominated monetary assets during the quarter.

Exploration spending totalled $1.2 million and $2.4 million for the three months and nine months ended September 30, 2005 respectively, $1.1 million and $2.1 million of which was expensed for the three months and nine months ended September 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.

The McClean Lake Joint Venture produced 1,532,000 pounds of uranium during the three months ended September 30, 2005 compared with 1,470,000 pounds during the same period in 2004. Denison's 22.5% share of production totalled 345,000 pounds during the three months ended September 30, 2005, compared with 331,000 pounds in the comparable period of 2004. Unit production costs decreased $1.22 per pound for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. Lower depletion and depreciation expenses of $1.71 per pound were partially offset by higher operating costs of $0.49 per pound. An 11% reduction in the average mill feed grade (1.63% U308 during the nine month period in 2005 compared with 1.82% 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 September 30, 2005 was sufficient to feed the mill at current rates through to the latter part of the first quarter of 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 commenced in third quarter 2005, in time to provide ore to the mill prior to depletion of the current stockpile. Mining of the Sue A ore will be completed prior to the end of 2005. Stripping of the Sue E deposit is underway and will continue through 2006.

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 several years.

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 volumes in the first three quarters represent 61% 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 an average selling price that exceeds the average sales price in the third quarter. As a percentage of the years expected total volumes, sales will be 39% in the fourth quarter, with about 5% 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.

As a result of significantly increasing its exploration activities in 2005, Denison is expecting to spend about $3.9 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 was conducted at the McClean North deposit during the third quarter. The testing was hampered by problems with drilling but much was achieved and the decision has been made to proceed further and, pending regulatory approval, to drill and mine from 15 holes in 2006 with anticipated production of 1 million pounds of U3O8 next year.

DENISON ENVIRONMENTAL SERVICES DIVISION RESULTS

During the nine months ended September 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, continued to operate the Kam Kotia water treatment facilities, completed decommissioning work at the Bicroft mine/mill site in Ontario, completed an equipment dismantling contract for Domtar at Chapleau and substantially completed phase II of the decommissioning contract at the Cluff Lake uranium mill site.

Results for the three months and nine months ended September 30, 2005

Revenue from environmental services was $2.1 million and $4.4 million for the three months and nine months ended September 30, 2005 respectively compared to $1.2 million and $4.1 million for the same periods in 2004. Earnings (loss) from the division were $0.4 million and $0.4 million for the three months and nine months ended September 30, 2005 compared to ($0.05 million) and $0.1 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.

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 (U308) made on behalf of Uranium Corp. Denison earned $0.9 million and $1.5 million in management fees and commissions for the three months and nine months ended September 30, 2005.

CORPORATE EXPENSES

General corporate expenses totalled $0.7 million and $2.7 million for the three months and nine months ended September 30, 2005 respectively compared to $0.6 million and $2.4 million in the same periods in 2004. In addition, expenses related to the issue of employee stock options amounted to $0.3 million and $0.9 million for the three and nine months ended September 30, 2005 compared to $0.2 million and $0.9 for the three and nine month periods to September 30, 2004.

INTEREST EXPENSE

Interest expense on the McClean loan was nil for the three months and nine months ended September 30, 2005 compared to $0.4 million and $1.4 million in the three month and nine 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 reorganization of DEI, 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 nine months ended September 30, 2005, Denison spent $0.4 million (nine months ended September 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 $1.565 million at September 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 $4.793 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 September 30, 2005 the post employment benefits liability recorded in the consolidated balance sheet was $9.285 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 cash of $5.5 million and $6.9 million for the three and nine months ended September 30, 2005 respectively and the environmental services division used cash of ($0.3 million) and ($0.1 million) for the same periods. The corporate division used cash of ($0.1 million) and ($1.7 million) for the three and nine month periods. Consolidated, operations generated cash of $5.1 million and $5.1 million for the three and nine months ended September 30, 2005 respectively compared to $2.2 million and $12.0 million in the comparable periods in 2004.

Investing Activities

Capital expenditures in the three months ended September 30, 2005 of $1.5 million included $1.4 million at the McClean property and $0.1 million at the Midwest property. 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 nine months ended September 30, 2005 of $3.0 million included $2.5 million at the McClean property, $0.3 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.

Financing Activities

For the three months ended September 30, 2005, net proceeds from the issue of common equity totalled $0.9 million (including stock option and warrant exercises) and $6.4 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 nine months ended September 30, 2005, net proceeds from the issue of common equity totalled $6.3 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 nine month period, $14.9 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.

Cash balances

At September 30, 2005 Denison had cash resources of $10.8 million and the ability to redraw $21.2 million on the COGEMA loan.

Debt

The outstanding balance under the loan facility from COGEMA Resources Inc. was nominal at September 30, 2005. However, at September 30, 2005 the Company has the ability to redraw up to $21.2 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 from the company's share of future cash flow from uranium sales subject to a minimum repayment of 20% per annum.

Share Capital

As of September 30, 2005, Denison had an aggregate of 25,518,774 Common Shares issued and outstanding.

Reclamation Trust

At September 30, 2005 Denison had $1.565 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 not to exceed $150,000 in 2006.

RELATED PARTY TRANSACTIONS

On March 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 and nine month period ended September 30, 2005:



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(in thousands of Three Months Nine Months
Canadian dollars) ended September 30 ended September 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------

Fees earned from
Uranium Corp:
Management fees
(and out-of-pocket
expenses) $ 106 $ - $ 211 $ -
Commission fees on
purchase and sale
of U308 769 - 1,321 -

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Total fees earned from
Uranium Corp $ 875 $ - $ 1,532 $ -
---------------------------------------------------------------------
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At September 30, 2005, accounts receivable includes $0.042 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