Denison Mines Inc.
TSX : DEN

Denison Mines Inc.

November 09, 2006 17:32 ET

Denison Mines Reports Third Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Nov. 9, 2006) -

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

Denison Mines Inc. (TSX:DEN) today reported its financial results for the three months and nine months ended September 30, 2006. All amounts in this release are in Canadian dollars unless otherwise indicated.

Consolidated net loss was $714,000 or $0.02 per share for the three months and $169,000 or $0.01 per share for the nine months ended September 30, 2006. This compares with consolidated net loss of $891,000 or $0.04 per share for the three months and consolidated net earnings of $207,000 or $0.01 per share for the nine months ended September 30, 2005. The 2006 results are after expensing exploration costs of $1,328,000 for the three months and $4,131,000 for the nine months in 2006 compared to $1,130,000 and $2,068,000 expensed for exploration costs in the same periods in 2005.

Cash flow from (used in) operations, after funding exploration costs was $(6,582,000) for the three months and $714,000 for the nine months ended September 30, 2006 compared to $5,202,000 for the three months and $5,754,000 for the nine months ended September 30, 2005. On a fully diluted per share basis, cash flow from operations was ($0.22) for the three months and $0.02 per share for the nine months ended September 30, 2006 compared to $0.20 and $0.22 for the same periods in 2005.

Revenue was $11,733,000 for the three months and $28,590,000 for the nine months ended September 30, 2006 compared with $8,549,000 and $24,013,000 for the comparable periods in 2005.

Significant events in the third quarter include:

- On September 18, 2006, Denison and International Uranium Corporation entered into an agreement to combine the two companies by way of a Plan of Arrangement. Special meetings of the shareholders of each company to consider and, if deemed appropriate, approve the arrangement will be held at the Design Exchange, 234 Bay Street, Toronto, Ontario on November 20, 2006.

- Sales of U3O8 for the quarter were 286,500 pounds. The majority of sales in the quarter were under legacy contracts which resulted in an average sales price for the quarter of US$26.93.

- Production of U3O8 at the McClean Lake processing facility was 455,000 pounds of which Denison's share was 102,000 pounds.

- The blind boring/jet boring program has proceeded slower than anticipated but the first three holes have been completed to the top of the ore horizon and extraction of the ore has commenced. As a result of this delay and lower ore grades being fed into the mill, Denison now expects the full year 2006 production at McClean to be about 2,100,000 pounds of which Denison's share would be 472,500 pounds.

- The spot price of U3O8 continued to increase and was quoted at US$54.00 per pound by Ux Consulting LLC at September 30, 2006, an increase of 73% from the September 30, 2005 level of US$31.25. At October 31, 2006, the spot price was quoted at US$60.00 per pound. The stronger Canadian dollar reduced the impact of price increases as exchange rates were $1.1177 at September 30, 2006 compared to $1.1627 at September 30, 2005.

- On September 15, 2006, the Ontario Superior Court of Justice (Divisional Court) dismissed an application for leave to appeal made by the City of Elliot Lake of a decision made by the Ontario Assessment Review Board regarding the assessed value of Denison's decommissioned Elliot Lake mine site. The decision of the Ontario Superior Court of Justice finally resolves this matter.



SEGMENTED INFORMATION
----------------------------------------------------------------------
Three Months ended Nine Months ended
September 30 September 30
(in thousands) 2006 2005 2006 2005
----------------------------------------------------------------------

Revenue
Uranium Production $ 8,636 $ 5,614 $ 22,120 $ 18,076
Uranium Exploration - - - -
Environmental Services 1,234 2,060 3,046 4,405
Corporate and Other 1,863 875 3,424 1,532
----------------------------------------------------------------------
$ 11,733 $ 8,549 $ 28,590 $ 24,013
----------------------------------------------------------------------
Net Earnings (Loss)
Uranium Production (1,066) 569 2,551 4,158
Exploration (1,328) (1,130) (4,131) (2,068)
Environmental Services 168 390 57 443
Corporate and Other 1,512 (720) 1,354 (2,326)
----------------------------------------------------------------------
$ (714) $ (891) $ (169) $ 207
----------------------------------------------------------------------


Uranium Production

The McClean Lake Joint Venture produced 455,000 pounds of uranium during the three months ended September 30, 2006 compared with 1,532,000 pounds during the same period in 2005. Denison's 22.5% share of production totaled 102,000 pounds during the third quarter 2006 compared to 370,000 pounds in the comparable period in 2005. Production for the first nine months of the year has been well below our expectations due to lower grade ore feed, the absence of higher grade ore from the blind boring/jet boring operations, reduced throughput caused by variances in the arsenic concentration of the ore feed that resulted in elevated temperatures in the leach circuit and a shortage of reagents due to road closures caused by forest fires. To address these problems, a new drilling contractor has been engaged for the blind boring/jet boring, one of the storage pachucas is being converted into an additional leach tank to increase throughput capacity and cooling coils are being added to most of the leach tanks to control the high temperatures caused by the high arsenic content. Average mill feed grade for the third quarter 2006 was 0.58% U3O8 compared to 1.73% U3O8 for the comparable 2005 period.

Production for the year is now expected to be about 2,100,000 pounds U3O8 of which Denison's share will be about 472,500 pounds. Actual production levels will depend on the quantity, quality and grade of ore available from mining activities during the remainder of the year. Mining of the Sue A deposit was completed in the first quarter of 2006 and mining of the Sue E commenced in September and will continue throughout 2006 and 2007. Processing of the ore from Sue A and Sue E is underway. The extraction of ore from the McClean North deposit using the "blind-boring/jet boring" technique commenced in October, 2006. Production from this test mining activity in 2006 will be significantly less than originally anticipated. However, the early results of the operations are encouraging. The lower production volumes in 2006 will impact the volume of sales for the remainder of the year.

The uranium production segment recorded a loss of $1,066,000 for the three months and earnings of $2,551,000 for the nine months ended September 30, 2006 compared to earnings of $569,000 for the three months and $4,158,000 for the nine months ended September 30, 2005.

The decrease in earnings of the production segment for the quarter versus the comparable period last year was primarily the result of significantly increased unit production costs and, to a lesser extent, the result of lower sales volumes, Canadian/US dollar exchange rates that were unfavourable compared to last year, offset in part by higher average sales prices. Sales in the quarter were 286,500 pounds U3O8 versus 299,000 pounds in the third quarter last year. Sales for the year to date in 2006 are 631,500 pounds compared to 792,000 pounds for the comparable period in 2005. US dollar sales prices for the quarter averaged US$26.93 versus US$15.98 in the third quarter 2005. Approximately 57% of the sales volumes in the quarter were under legacy contracts. US/Canadian dollar exchange rates averaged $1.12 in the third quarter of 2006 compared to $1.17 in the same period last year. The resulting average sales price in Canadian currency was $30.15 for the third quarter in 2006 versus $18.76 for the same period last year.

Unit production costs increased significantly in the quarter compared to the same period last year due to the lower volumes produced. As the production rate increases in the fourth quarter, unit production costs will decline and are expected to average about $20.00 per pound higher than average production costs in 2005. This increase is expected to be reduced by about $2.00 per pound with the addition of a ferric sulphate plant, scheduled to go into service in late 2006. Fixed costs for the McClean operations approximate $40 million per year so as production volumes increase, the cost per pound decreases. The increase in unit production costs is expected to be eliminated when the production rate returns to 5.5 million pounds per year.

Midwest is currently scheduled to commence production in 2010 and is planned to increase to a rate of about 9 million pounds per year. The processing of Cigar Lake ore in excess of 5.5 million pounds per year was scheduled to commence at the McClean mill in early 2008 until the recent flooding of the Cigar Lake mine. The timing of commencement of production of Cigar Lake ore is unknown at this time. The expansion required to receive and process ore from Cigar Lake is expected to be complete by the end of 2006. The McClean Joint Venture will have the benefit of the Cigar Lake expansion until it is utilized for processing Cigar Lake ore.

The flooding of the Cigar Lake underground development project was a significant event in the uranium industry. After the announcement of the flood and the resulting delay in the mining of Cigar, the quoted spot uranium price increased by US$4.00 to US$60.00 per pound U3O8. The delay in Cigar Lake production will delay the production increases through the McClean mill and the receipt of the toll milling revenue that were scheduled for 2008 but will permit additional production utilizing the Cigar Lake expansion at McClean and will create additional opportunity for the joint venture to fill the excess production capacity in the interim. All of Denison's share of production at McClean will be from open pits at McClean and Midwest that are not susceptible to the type of flooding incident which could occur in an underground mine.

AREVA has completed an infill drilling program to determine if over 7,000,000 pounds of mineralization south of the planned Sue E pit, currently in inferred resources, can be brought into the reserve category and incorporated into the Sue E mining plan. Results of the drilling program are pending.

Uranium Marketing

Denison markets its uranium from the McClean joint venture jointly with AREVA. Generally, sales are made under several long-term contracts with nuclear utilities with a variety of pricing mechanisms. Denison's share of current contracts sales volumes is set out in the table below:



Current Contracted Sales Volumes (Note 1)
(pounds U3O8 x 1000)

2006 2007 2008 2009 2010 Pricing
---- ---- ---- ---- ---- -------

Market Related 590 590 590 440 0 80% to 85% of Spot
Legacy Base Escalated 240 220 220 0 0 US$12.50 to $25.50
Legacy Market Related 0 0 140 175 0 96% of Spot

Notes:

1. Assumes customers take maximum quantities permitted by contract

2. Average price of Legacy Base contracts in 2006 is US$16.25.


Agreements with AREVA call for production to be allocated first to the market related contracts with any shortfall to be apportioned evenly over the legacy contracts. The legacy base-escalated contracts have pricing formulas that result in sales prices well below current market prices. As a result of lower than scheduled production in 2006, Denison will have lower sales volumes than expected for the year but average sales prices will be higher than forecast. Sales volumes for the year are now expected to be 830,000 pounds U3O8.

Uranium Exploration (1)

Denison is engaged in uranium exploration as part of the McClean and Midwest joint ventures and as a participant in joint ventures in Saskatchewan at Wheeler River, Wolly, Waterfound, Russell Lake and in Mongolia. Denison also owns a minority equity interest in Energy Metals Limited which owns a high quality exploration project in Australia where over 8 million pounds of resources of U3O8 have been estimated and classified in accordance with the JORC Code. Through its joint ventures with industry leaders AREVA and Cameco, Denison maintains a significant land interest in the most geologically prospective part of the southeast part of the Athabasca basin. Denison's share of exploration spending totaled $1,603,000 for the three months and $4,799,000 for the nine months ended September 30, 2006 compared to $1,175,000 and $2,415,000 for the comparable periods in 2005. Of these amounts, $1,328,000 and $4,131,000 was expensed for the three months and nine months ended September 30, 2006 and $1,130,000 and $2,068,000 was expensed for the comparable periods in 2005, as the spending related to exploration on properties without ore reserves. The 2006 year-to-date exploration expenditures included $668,000 at the McClean and Midwest properties, $2,620,000 at Wheeler, $639,000 at Wolly, $83,000 at Waterfound, $69,000 at Russell Lake and $502,000 in Mongolia.

Denison's share of exploration spending for 2006 is expected to total about $5,500,000 of which $3,100,000 will be spent at the Wheeler River uranium project where Denison is the operator. Denison also expects to spend over $800,000 at the Wolly uranium project. The balance of the exploration spending will be at Midwest, McClean Lake, Waterfound, Russell Lake and in Mongolia. The majority of the exploration spending will be expensed during the year.

All of Denison's exploration projects in Canada are located in the prolific southeast part of the Athabasca basin with proximity to existing, licensed mills. All the Athabasca interests are currently the subject of significant exploration activity, either by Denison or its joint venture partner AREVA as operator. At the 40% owned Wheeler River Joint Venture, where Denison is operator and is earning a further 20% interest to total 60% by funding expenditures to $7 million, diamond drilling continued through the summer. The Wheeler property contains similar geological conditions to that of McArthur River, and the quartzite ridge remains a high-priority target. As previously announced, WR-204, the last hole drilled in 2005, intersected the first uraniferous intersection associated with the strongly geochemically altered quartzite ridge. Follow up drilling this summer, by WR-214, located 10 metres across strike along a fence to the northwest, intersected 3.8 metres of 0.857% eU308, based on downhole radiometric probing, at an approximate depth of 300 metres below surface at the unconformity. This area has not been drilled on a line spacing less than 100 metres; further drilling will close up the line spacing to permit Denison to assess whether this intersection represents a cross cutting structure. The diamond drill program was recently completed for the 2006 field season, and plans are currently underway for a renewed drill campaign in the early winter of 2007. Targets are expected to be a combination of follow up holes in the central anomalous quartzite ridge area and high priority conductors located near the southwest part of the property. In addition, several areas are being prepared for ground resistivity surveys, which are expected to begin later in the winter.

At the 22.5% owned McClean project, all field work has been completed for the 2006 exploration year. Earlier ground resistivity surveys have located several new targets in the McClean North and South areas. The McClean North area is currently the focus of the blindshaft boring extraction and mining test on the high grade ore. These newly recognized high priority targets are on strike with drill defined uraniferous mineralization and are expected to be the focus of drill testing as soon as the ground conditions permit in mid-January.

At Midwest, a 25.17% owned project operated by joint venture partner AREVA, field work has been completed for the year. As Denison announced earlier this year, a summer land based drill program, which targeted the western strike extension of the Mae zone, has confirmed an area of new uraniferous mineralization. The strike extent of this mineralization has not been drill defined. This new area is located approximately 200 metres west of the previously disclosed eastern strike limit of the high grade mineralization located under the lake. A major delineation drill program, anticipated to total 10,000 metres using two drill rigs, is scheduled for the winter of 2007 and will attempt to demonstrate continuity and confirm grade for an initial scoping study to estimate mineral resources on the Mae zone. It is noted that mineral reserves at the main Midwest deposit, located three kilometres to the southwest and scheduled for pre-production stripping in 2008, are estimated to total 41.7 million pounds U3O8.(2)

Field work on the Wolly project, where Denison can earn a 22.5% interest by funding exploration expenditures to $6,000,000, has been completed for the year. Resistivity surveys are currently planned for a number of high potential areas which are anomalous in uranium from previous work. Drill testing of the anomalies therefrom will be undertaken during this winter's drill program. It should be noted that Wolly represents one of the premier exploration projects remaining in the Athabasca basin, with unconformity depths to only 100 metres and very few holes penetrating more than 10 metres below the unconformity.

For a description of the quality assurance program and quality control measures applied by Denison during the above described work, please see Denison's "Annual Information Form" filed March 7, 2006 on the SEDAR website at www.sedar.com.

(1) (This information is reported and verified by William C. Kerr, Vice President, Exploration and Development, Denison Mines Inc., who is a "qualified person" as defined in National Instrument 43-101 of the Canadian Securities Administrators.)

(2) (Reference is made to the "Technical Report on the Midwest Uranium Deposit Mineral Resource and Mineral Reserve Estimates, Saskatchewan, Canada" dated June 1, 2005, revised on February 14, 2006, which is available on the Sedar website at www.sedar.com)

Environmental Services

Revenue from environmental services was $1,234,000 for the three months and $3,046,000 for the nine months ended September 30, 2006 compared to $2,060,000 and $4,405,000 for the comparable periods in 2005. Earnings from the division were $168,000 for the three months and $57,000 for the nine months ended September 30, 2006 compared to $390,000 and $443,000 for the same periods in 2005.

During the nine months ended September 30, 2006, Denison Environmental Services ("DES") provided services under its contract for environmental monitoring and maintenance of the closed mine site of Rio Algom Ltd. at Elliot Lake, under its contract to operate the Kam Kotia water treatment facilities and under its three-year contract for environmental monitoring and maintenance at the INCO Shebandowan mine site.

Corporate and Other

Uranium Participation Corporation

Denison acts as Manager of Uranium Participation Corporation ("Uranium Corp.") and receives management fees for the provision of management services and 1.5% commission on the purchase and sale of uranium oxide in concentrates (U308) and uranium hexafluoride (UF6) made on behalf of Uranium Corp. Denison earned $1,863,000 and $3,424,000 in management fees and commissions for the three months and nine months ended September 30, 2006 compared with $875,000 and $1,532,000 in the comparable periods in 2005.

Corporate Expenses

General corporate expenses were $1,065,000 for the three months and $3,240,000 for the nine months ended September 30, 2006 compared to $734,000 and $2,690,000 for the comparable periods in 2005.

Non-cash stock compensation expense relating to stock options granted during the year to employees and directors was $309,000 for the three months and $926,000 for the nine months ended September 30, 2006 compared to $252,000 and $933,000 for the comparable periods in 2005.

Other Income (Expense)

Other income (expense) for the nine months ended September 30, 2006 includes $2,335,000 of interest earned on invested cash, $459,000 realized recovery on an investment previously written down and a ($245,000) loss on foreign exchange.

Merger with International Uranium Corporation ("IUC")

On September 18, 2006, Denison and IUC announced that they have entered into an agreement to combine the two companies by way of a Plan of Arrangement. As part of the Plan of Arrangement, Denison will amalgamate with a wholly owned subsidiary of IUC, and holders of Denison common shares will exchange each of their Denison common shares for 2.88 IUC common shares. IUC shareholders will continue to hold their existing common shares. Existing IUC and Denison shareholders will each own approximately 50% of the new company. The transaction is conditional upon the approval of 66-2/3% of Denison shareholders and optionholders and a majority of the IUC shareholders as well as other customary conditions and regulatory approvals. Special meetings of the shareholders of each company to consider and, if appropriate, approve the transaction will be held on November 20, 2006. Denison's meeting will be held at the Design Exchange, 234 Bay Street, Toronto, Ontario commencing at 9:30 a.m. Upon completion of the Arrangement, IUC will be renamed Denison Mines Ltd.

The Arrangement provides Denison with immediate growth and diversification. As a result of the Arrangement, Denison will be the only intermediate uranium producer in North America, with expected annual production of approximately five million pounds of U3O8 by 2010. Denison will immediately have an expanded and complementary management team, an interest in two of the four licensed and operating uranium mills in North America, along with five active uranium mining projects and a global portfolio of world-class exploration projects. The uranium mining projects in Canada are mainly open pits and the mining projects in the United States are primarily shallow with very little water associated with them. Denison will be well financed with working capital of approximately $130 million and virtually no debt, and its shareholders will have the benefit of increased market liquidity.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

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

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

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

Conference Call

Denison is hosting a conference call on November 10, 2006 starting at 8:30 a.m. (Toronto time) to discuss the Third Quarter 2006 results. The webcast conference call will be available live through a link on Denison's website www.denisonmines.com. A recorded version of this conference call will be available on Denison's website or by calling 416-695-5275 from approximately two hours after the call until 5:00 p.m. on November 24, 2006.

About Denison

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

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



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

This management's discussion and analysis (MD&A) should be read in conjunction with the Denison Mines Inc. consolidated financial statements for the nine months ended September 30, 2006. This MD&A is current as of November 9, 2006. All amounts are in Canadian dollars unless otherwise indicated.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

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

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

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

OVERVIEW

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

On September 18, 2006, Denison and International Uranium Corporation entered into an agreement to combine the two companies by way of a Plan of Arrangement. Special meetings of the shareholders of each company to consider and, if deemed appropriate, approve the merger have been scheduled for November 20, 2006.



CONSOLIDATED RESULTS
---------------------------------------------------------------------------
---------------------------------------------------------------------------
For the Three Months Ended September 30, 2006
-----------------------------------------------------------
(in thousands Environ-
of Canadian Uranium Uranium mental Corporate
dollars) Production Exploration Services and Other Total
---------------------------------------------------------------------------
Revenue $ 8,636 $ - $ 1,234 $ 1,863 $ 11,733
---------------------------------------------------------------------------

Expenses
Operating
expenses 9,083 - 1,066 - 10,149
Royalties and
provincial
capital tax 619 - - 21 640
Exploration
expenses - 1,328 - - 1,328
General
corporate
expense - - - 1,065 1,065
Stock option
expense - - - 309 309
Interest
expense - - - - -
Other expense
(income) - - - (1,037) (1,037)
---------------------------------------------------------------------------
$ 9,702 $ 1,328 $ 1,066 $ 358 $ 12,454
---------------------------------------------------------------------------
Earnings (loss)
before income
taxes (1,066) (1,328) 168 1,505 (721)
Income tax
expense
(recovery)
Current - - - - -
Future - - (7) (7)
---------------------------------------------------------------------------
Earnings (loss)
for the period $ (1,066) $ (1,328) $ 168 $ 1,512 $ (714)
---------------------------------------------------------------------------



For the Three Months Ended September 30, 2005
-----------------------------------------------------------
(in thousands Environ-
of Canadian Uranium Uranium mental Corporate
dollars) Production Exploration Services and Other Total
---------------------------------------------------------------------------
Revenue $ 5,614 $ - $ 2,060 $ 875 $ 8,549
---------------------------------------------------------------------------

Expenses
Operating
expenses 4,552 - 1,670 - 6,222
Royalties and
provincial
capital tax 427 - - 21 448
Exploration
expenses - 1,130 - - 1,130
General
corporate
expense - - - 734 734
Stock option
expense - - - 252 252
Interest
expense 66 - - - 66
Other
expense
(income) - - - 438 438
---------------------------------------------------------------------------
$ 5,045 $ 1,130 $ 1,670 $ 1,445 $ 9,290
---------------------------------------------------------------------------
Earnings (loss)
before income
taxes 569 (1,130) 390 (570) (741)
Income tax
expense
(recovery)
Current - - - 57 57
Future - - - 93 93
---------------------------------------------------------------------------
Earnings (loss)
for the period $ 569 $ (1,130) $ 390 $ (720) $ (891)
---------------------------------------------------------------------------



CONSOLIDATED RESULTS
---------------------------------------------------------------------------
---------------------------------------------------------------------------
For the Nine Months Ended September 30, 2006
-----------------------------------------------------------
(in thousands Environ-
of Canadian Uranium Uranium mental Corporate
dollars) Production Exploration Services and Other Total
---------------------------------------------------------------------------
Revenue $ 22,120 $ - $ 3,046 $ 3,424 $ 28,590
---------------------------------------------------------------------------

Expenses
Operating
expenses 17,987 - 2,989 - 20,976
Royalties and
provincial
capital tax 1,545 - - 77 1,622
Exploration
expenses - 4,131 - - 4,131
General
corporate
expense - - - 3,240 3,240
Stock option
expense - - - 926 926
Interest
expense 37 - - - 37
Other expense
(income) - - - (2,549) (2,549)
---------------------------------------------------------------------------
$ 19,569 $ 4,131 $ 2,989 $ 1,694 $ 28,383
---------------------------------------------------------------------------
Earnings (loss)
before income
taxes 2,551 (4,131) 57 1,730 (207)
Income tax
expense
(recovery)
Current - - - 22 22
Future - - - 354 354
---------------------------------------------------------------------------
Earnings (loss)
for the period $ 2,551 $ (4,131) $ 57 $ 1,354 $ (169)
---------------------------------------------------------------------------



For the Nine Months Ended September 30, 2005
-----------------------------------------------------------
(in thousands Environ-
of Canadian Uranium Uranium mental Corporate
dollars) Production Exploration Services and Other Total
---------------------------------------------------------------------------
Revenue $ 18,076 $ - $ 4,405 $ 1,532 $ 24,013
---------------------------------------------------------------------------

Expenses
Operating
expenses 12,363 - 3,962 - 16,325
Royalties and
provincial
capital tax 1,373 - - 63 1,436
Exploration
expenses - 2,068 - - 2,068
General
corporate
expense - - - 2,690 2,690
Stock option
expense - - - 933 933
Interest
expense 182 - - - 182
Other
expense
(income) - - - 301 301
---------------------------------------------------------------------------
$ 13,918 $ 2,068 $ 3,962 $ 3,987 $ 23,935
---------------------------------------------------------------------------
Earnings (loss)
before income
taxes 4,158 (2,068) 443 (2,455) 78
Income tax
expense
(recovery)
Current - - - 122 122
Future - - - (251) (251)
---------------------------------------------------------------------------
Earnings (loss)
for the period $ 4,158 $ (2,068) $ 443 $ (2,326) $ 207
---------------------------------------------------------------------------


DISCUSSION OF CONSOLIDATED RESULTS

Consolidated revenue for the three months ended September 30, 2006 was $11,733,000 and consolidated net income (loss) was ($714,000) or ($0.02) per share. This compares with revenues of $8,549,000 and consolidated net income (loss) of ($891,000) or ($0.04) per share for the three months ended September 30, 2005.

Consolidated revenue for the nine months ended September 30, 2006 was $28,590,000 and consolidated net income (loss) was ($169,000) or ($0.01) per share. This compares with revenues of $24,013,000 and consolidated net income of $207,000 or $0.01 per share for the nine months ended September 30, 2005.

Results by segment are discussed below:

URANIUM PRODUCTION DIVISION RESULTS

Denison's uranium division consists of its 22.5% interest in the producing McClean Lake mine and mill operation and 25.17% interest in the Midwest uranium property in Saskatchewan. Both McClean and Midwest are operated by AREVA Resources Canada Inc. (formerly COGEMA Resources Inc.) ("AREVA"). Uranium division results also include reclamation expense of the former Elliot Lake uranium mine.

Results for the three and nine months ended September 30, 2006

The uranium production division recorded income (loss) of ($1,066,000) for the three months and $2,551,000 for the nine months ended September 30, 2006 compared to income of $569,000 for the three months and $4,158,000 for the nine months ended September 30, 2005.

The decrease in earnings of the production segment for the quarter versus the comparable period last year was primarily the result of significantly increased unit production costs and, to a lesser extent, the result of lower sales volumes, Canadian/US dollar exchange rates that were unfavourable compared to last year, offset in part by higher average sales prices. Sales in the quarter were 286,500 pounds U3O8 versus 299,000 pounds in the third quarter last year. US dollar sales prices for the quarter averaged US$26.93 versus US$15.98 in the third quarter 2005. Approximately 57% of the sales volumes in the quarter were under legacy contracts. US/Canadian dollar exchange rates averaged $1.12 in the third quarter of 2006 compared to $1.17 in the same period last year. The resulting average sales price in Canadian currency was $30.15 for the third quarter in 2006 versus $18.76 for the same period last year.

For the nine months ended September 30, 2006, the decrease in earnings versus the comparable period last year was primarily the result of increased unit production costs, as well as lower sales volumes and Canadian/US dollar exchange rates that were unfavourable compared to last year, offset by higher average sales prices. Sales in the period were 631,500 pounds U3O8 versus 792,000 pounds in the same period last year. US dollar sales prices for the nine months averaged US$31.11 versus US$18.87 in 2005. US/Canadian dollar exchange rates averaged $1.13 in the current period compared to $1.21 in the same period last year. The resulting average sales price in Canadian currency was $35.03 for the nine months in 2006 versus $22.82 for the same period last year.

The McClean Lake Joint Venture produced 455,000 and 1,121,000 pounds of uranium during the three months and nine months ended September 30, 2006 compared with 1,532,000 and 4,457,000 pounds during the same periods in 2005. Denison's 22.5% share of production totalled 102,000 pounds during the three months and 252,000 pounds during the nine months ended September 30, 2006 compared to 370,000 pounds and 1,028,000 pounds in the comparable periods in 2005. The primary reasons for lower production in 2006 were lower grade ore feed, the absence of higher grade ore from the blind boring/jet boring operations, reduced throughput caused by variances in the arsenic concentration of the ore feed that resulted in elevated temperature in the leach circuit and a shortage of reagents due to road closure caused by forest fires. Average mill feed grade for the nine month period was 0.66% U3O8 compared to 1.63% U3O8 for the comparable 2005 period.

Unit production costs increased significantly in the quarter compared to the same period last year due to the lower volumes produced. As the production rate increases in the fourth quarter, unit production costs will decline and are expected to average about $20.00 per pound higher than average production costs in 2005. This increase is expected to be reduced by about $2.00 per pound with the addition of a ferric sulphate plant, scheduled to go into service in late 2006. Fixed costs for the McClean operations approximate $40 million per year so as production volumes increase, the cost per pound decreases. The increase in unit production costs is expected to be eliminated when the production rate returns to 5.5 million pounds per year.

Midwest is currently scheduled to commence production in 2010 and is planned to increase to a rate of about 9 million pounds per year. The processing of Cigar Lake ore in excess of 5.5 million pounds per year was scheduled to commence at the McClean mill in early 2008 until the recent flooding of the Cigar Lake mine. The timing of commencement of production of Cigar Lake ore is unknown at this time. The expansion required to receive and process ore from Cigar Lake is expected to be complete by the end of 2006. The McClean Joint Venture will have the benefit of the Cigar Lake expansion until it is utilized for processing Cigar Lake ore.

The flooding of the Cigar Lake underground development project was a significant event in the uranium industry. After the announcement of the flood and the resulting delay in the mining of Cigar, the quoted spot uranium price increased by US$4.00 to US$60.00 per pound U3O8. The delay in Cigar Lake production will delay the production increases through the McClean mill and the receipt of the toll milling revenue that were scheduled for 2008 but will permit additional production utilizing the Cigar Lake expansion at McClean and will create additional opportunity for the joint venture to fill the excess production capacity in the interim. All of Denison's share of production at McClean will be from open pits at McClean and Midwest that are not susceptible to the type of flooding incident which could occur in an underground mine.

AREVA has completed an infill drilling program to determine if over 7,000,000 pounds of mineralization south of the planned Sue E pit, currently in inferred resources, can be brought into the reserve category and incorporated into the Sue E mining plan. Results of the drilling program are pending.

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

Uranium Marketing

Denison markets its uranium from the McClean joint venture jointly with AREVA. Generally, sales are made under several long-term contracts with nuclear utilities with a variety of pricing mechanisms. Denison's share of current contracts sales volumes is set out in the table below:



Current Contracted Sales Volumes (Note 1)
(pounds U3O8 x 1000)

2006 2007 2008 2009 2010 Pricing
---- ---- ---- ---- ---- -------

Market Related 590 590 590 440 0 80% to 85% of Spot
Legacy Base Escalated 240 220 220 0 0 US$12.50 to $25.50
Legacy Market Related 0 0 140 175 0 96% of Spot

Notes:

1. Assumes customers take maximum quantities permitted by contract

2. Average price of Legacy Base contracts in 2006 is US$16.25.


Expenses related to the former Elliot Lake Uranium Mine

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

In the nine months ended September 30, 2006, Denison spent $423,000 primarily on monitoring and water treatment activities at its former Elliot Lake sites compared to $405,000 in the comparable period in 2005. In 2006, Denison expects to spend about $540,000 on these activities. All spending is paid for from the Elliot Lake Reclamation Trust, which had a balance of $1,918,000 at September 30, 2006. This balance, with interest earned thereon, is expected to be adequate to fund all monitoring and treatment costs through to December 31, 2011. This spending is expected to decline marginally over the next few years. The balance of the total provision of $4,462,000 represents the estimated present value of ongoing maintenance, monitoring and water treatment.

A group of retirees from Denison's Elliot Lake mine are entitled to certain medical and dental benefits and life insurance. At September 30, 2006 the post employment benefits liability recorded in the consolidated balance sheet was $8,738,000. An actuarial report on this liability as at October 1, 2005 estimated that the actuarial liability is approximately $4,554,000. The transitional surplus is being credited to income at a rate of $393,000 per year. An experience gain of $864,000 established at the time of the October 2005 actuarial valuation is also being credited to income at a rate of $71,000 per year.

2006 Outlook

Production for the year is now expected to be about 2,100,000 pounds U3O8 of which Denison's share will be about 472,500 pounds. Actual production levels will depend on the quantity, quality and grade of ore available from mining activities during the remainder of the year. Mining of the Sue A deposit was completed in the first quarter of 2006 and mining of the Sue E ore commenced in September and will continue throughout 2006 and 2007. Processing of the ore from Sue A and Sue E is underway. The extraction of ore from the McClean North deposit using the "blind-boring/jet boring" technique commenced in October, 2006. Production from this test mining activity in 2006 will be significantly less than originally anticipated. However, the early results of the operations are encouraging.

As a result of lower grade ore and lower production volumes, milling costs per pound are estimated to increase by an average of about $20.00 per pound U3O8 in 2006.

The lower production volumes in 2006 will impact the volume of sales for the remainder of the year.

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 is continuing on the expansion of the McClean Lake mill to increase the capacity required to receive and process ore from Cigar Lake with the scheduled completion by the end of 2006. The development of the Cigar Lake Project recently encountered problems and the development schedule has been significantly delayed. The expected date for the commencement of production of Cigar Lake ore and the associated toll milling at McClean Lake is not known at this time.

Denison, in conjunction with AREVA and OURD, is evaluating two mining technologies: blind shaft mining (also called blind boring) and hydraulic borehole mining (also known as jet boring). Both of these technologies involve drilling an access hole through the sandstone and glacial overburden and extracting the underlying ore material from surface. 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. Three holes have been completed and the extraction of ore commenced in October, 2006.

URANIUM EXPLORATION DIVISION RESULTS

Results for the three months and nine months ended September 30, 2006

Denison is engaged in uranium exploration as part of the McClean and Midwest joint ventures as a participant in joint ventures in Saskatchewan at Wheeler River, Wolly, Waterfound, Russell Lake and in Mongolia. Denison's share of exploration spending totalled $1,603,000 for the three months and $4,799,000 for the nine months ended September 30, 2006, of which $1,328,000 and $4,131,000 respectively was expensed as it related to exploration on properties without ore reserves. The Denison exploration expenditures year-to-date included $668,000 at the McClean and Midwest properties, $2,620,000 at Wheeler, $639,000 at Wolly, $83,000 at Waterfound, $69,000 at Russell Lake and $502,000 in Mongolia. In the comparable nine month period in 2005, Denison's exploration expenditures totalled $2,415,000 of which $347,000 was spent at McClean and Midwest and $2,068,000 was spent at Wheeler, Wolly and Waterfound.

Outlook for 2006

Denison's share of exploration spending for 2006 is expected to total $5,500,000 of which $3,100,000 will be spent at the Wheeler River uranium project where Denison is the operator. Denison also expects to spend over $800,000 at the Wolly uranium project. The balance of the exploration spending will be at Midwest, McClean Lake, Waterfound, Russell Lake and in Mongolia. The majority of the exploration spending is being expensed during the year.

DENISON ENVIRONMENTAL SERVICES DIVISION RESULTS

During the nine months ended September 30, 2006, Denison Environmental Services ("DES") provided services under its contract for environmental monitoring and maintenance of the closed mine site of Rio Algom Ltd. at Elliot Lake, under its contract to operate the Kam Kotia water treatment facilities and under its three-year contract for environmental monitoring and maintenance at the INCO Shebandowan mine site. Other smaller contracts and consulting projects were also completed.

Results for the three months and nine months ended September 30, 2006

Revenue from environmental services was $1,234,000 for the three months and $3,046,000 for the nine months ended September 30, 2006 compared to $2,060,000 and $4,405,000 for the comparable periods in 2005. Earnings from the division were $168,000 for the three months and $57,000 for the nine months ended September 30, 2006 compared to $390,000 and $443,000 for the same periods in 2005.

2006 Outlook

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

CORPORATE AND OTHER

Uranium Participation Corporation

For the three months and nine months ended September 30, 2006, Denison earned $1,863,000 and $3,424,000 in management fees and commissions under its Management Services Agreement with Uranium Corp. compared to $875,000 and $1,532,000 for the comparable periods in 2005. For more details on the contract, refer to the "Related Parties" section below.

Corporate Expenses

General corporate expenses totalled $1,065,000 for the three months and $3,240,000 for the nine months ended September 30, 2006 compared to $734,000 and $2,690,000 for the comparable periods in 2005.

Non-cash stock compensation expense relating to stock options granted during the year to employees and directors as described in the notes to the financial statements totalled $309,000 for the three months and $926,000 for the nine months ended September 30, 2006 compared to $252,000 and $933,000 for the comparable periods in 2005.

2006 Outlook

Revenue from Uranium Corp. is expected to be at least $4,000,000 in 2006.



SUMMARY OF QUARTERLY RESULTS

---------------------------------------------------------------------------
(in thousands of Canadian dollars, except per share amounts)
---------------------------------------------------------------------------
2004 2005 2006
---------------------------------------------------------------------------
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
---------------------------------------------------------------------------
Revenue 9,826 3,183 12,281 8,549 12,979 5,508 11,349 11,733
---------------------------------------------------------------------------
Net earnings
(loss) 3,565 (1,421) 2,519 (891) 60 6 539 (714)
---------------------------------------------------------------------------
-Per share $ 0.16 ($0.06) $ 0.10 ($0.04) -- -- 0.02 (0.02)
---------------------------------------------------------------------------
Cash provided
by (used in)
operations 1,870 2,939 (2,387) 5,202 1,766 2,550 4,746 (6,582)
---------------------------------------------------------------------------


LIQUIDITY AND CASH RESOURCES

Cash Generated by Operations

Consolidated cash flow generated by (used in) operating activities was ($6,582,000) for the three months and $714,000 for the nine months ended September 30, 2006 compared to $5,202,000 and $5,754,000 for the comparable periods in 2005.

Financing Activities

Cash generated by (used in) financing activities for the three months ended September 30, 2006 was ($19,000). For the nine months ended September 30, 2006, cash generated by financing activities was $69,576,000, primarily attributable to net proceeds from the issue of common equity. On March 1, 2006, Denison Mines issued 4,450,000 equity units at a price of $17.00 per unit for gross proceeds of $75,650,000. Each unit consisted of one common share and one-half of a common share purchase warrant (each whole warrant, a "Warrant"). Each whole Warrant is exercisable at an exercise price of $30.00 per share for a period of five years from March 1, 2006. In June 2006, Denison purchased for cancellation 200,000 common shares on the open market at a total cost of $2,490,640 or about $12.45 per share pursuant to a normal course issuer bid.

Investing Activities

For the three months ended September 30, 2006, cash used in investing activities was $1,610,000. Capital expenditures of $1,324,000 included $1,012,000 at McClean for mine and mill equipment and property development and $312,000 at Midwest for property development.

For the nine months ended September 30, 2006, cash used in investing activities was $8,168,000. Capital expenditures of $3,830,000 for the nine months ended September 30, 2006 included $2,709,000 at McClean for mine and mill equipment and property development, $807,000 at Midwest for property development, $112,000 by the DES division for equipment, and $202,000 for exploration equipment. Denison also purchased 3,000,000 shares of Energy Metals Limited ("EML"), a public company on the Australian Stock Exchange, for an aggregate purchase price of $3,773,000. At the time of the purchase, Denison owned approximately 12% of EML. At September 30, 2006, the market value of Denison's holding in EML is $4,499,000.

Cash balances

At September 30, 2006 Denison had unrestricted cash resources of $78,604,000.

Credit Facilities

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

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

OFF-BALANCE SHEET FINANCING ARRANGEMENTS

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

SHARE CAPITAL

As at November 9, 2006, Denison had an aggregate of 30,485,486 Common Shares issued and outstanding. In addition, the Company has 1,099,051 warrants outstanding to purchase common shares at $15 each and 2,225,000 warrants to purchase common shares at $30.00 each.

RELATED PARTY TRANSACTIONS

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

During the three months and nine months ending September 30, 2006 Denison received $524,000 and $1,210,000 in management fees (including out-of-pocket expenses) and $1,339,000 and $2,214,000 in commissions on the purchase of uranium. During the nine months ended September 30, 2006, Denison also earned $118,000 in interest and standby fees from temporary credit facilities granted to Uranium Corp. On September 10, 2006, Denison entered into an agreement with Uranium Corp. to provide a temporary revolving credit facility not to exceed $15,000,000. The credit facility expires on May 10, 2007 and is secured by the uranium investments of Uranium Corp. Interest under the facility is at Canadian bank prime plus 1%. Standby fees also apply at the rate of 1% of the committed facility amount. No amount has yet been drawn on this facility.

COMBINATION WITH INTERNATIONAL URANIUM CORPORATION ("IUC")

On September 18, 2006, Denison and IUC announced that they have entered into an agreement to combine the two companies by way of a Plan of Arrangement. As part of the Plan of Arrangement, Denison will amalgamate with a wholly owned subsidiary of IUC, and holders of Denison common shares will exchange each of their Denison common shares for 2.88 IUC common shares. IUC shareholders will continue to hold their existing common shares. Existing IUC and Denison shareholders will each own approximately 50% of the new company. The transaction is conditional upon the approval of 66-2/3% of Denison shareholders and optionholders and a majority of the IUC shareholders as well as other customary conditions and regulatory approvals. Special meetings of the shareholders of each company to consider and, if appropriate, approve the transaction will be held on November 20, 2006. Denison's meeting will be held at the Design Exchange, 234 Bay Street, Toronto, Ontario commencing at 9:30 a.m. Upon completion of the Arrangement, IUC will be renamed Denison Mines Ltd.

The Arrangement provides Denison with immediate growth and diversification. As a result of the Arrangement, Denison will be the only intermediate uranium producer in North America, with expected annual production of approximately five million pounds of U3O8 by 2010. Denison will immediately have an expanded and complementary management team, an interest in two of the four licensed and operating uranium mills in North America, along with five active uranium mining projects and a global portfolio of world-class exploration projects. Denison will be well financed with working capital of approximately $130 million and virtually no debt, and its shareholders will have the benefit of increased market liquidity.

RISKS AND UNCERTAINTIES

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

ADDITIONAL INFORMATION

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

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



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




DENISON MINES INC.

THIRD QUARTER REPORT

2006

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



DENISON MINES INC.
CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------
(unaudited - in thousands of Canadian dollars) As at As at
September 30 December 31
2006 2005
--------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 78,604 $ 16,482
Accounts receivable 11,387 10,689
Inventories (note 3) 13,218 12,637
Prepaid expenses and other assets 646 873
--------------------------------------------------------------------------
103,855 40,681
--------------------------------------------------------------------------

Investments (note 4) 3,773 --
Property, plant and equipment (note 5) 106,561 104,057
Restricted cash and cash equivalents (note 6) 2,402 1,837
--------------------------------------------------------------------------
112,736 105,894
--------------------------------------------------------------------------
$ 216,591 $ 146,575
--------------------------------------------------------------------------
--------------------------------------------------------------------------

LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 4,734 $ 4,881
Current portion of long term liabilities
Long-term debt (note 7) - 158
Post-employment benefits (note 8) 400 400
Provision for site restoration (note 9) 540 630
--------------------------------------------------------------------------
5,674 6,069
--------------------------------------------------------------------------
Long-term debt (note 7) - -
Provision for post-employment benefits (note 8) 8,338 8,784
Provision for site restoration (note 9) 5,044 5,032
Future income taxes 54 818
--------------------------------------------------------------------------
19,110 20,703
--------------------------------------------------------------------------
EQUITY
Shareholders' Equity (note 10)
Common stock 181,319 119,175
Warrants 12,398 2,345
Contributed surplus 2,432 1,551
Retained earnings 1,332 2,801
--------------------------------------------------------------------------
197,481 125,872
--------------------------------------------------------------------------
$ 216,591 $ 146,575
--------------------------------------------------------------------------

Contingent liabilities and commitments (note 15)

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



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

--------------------------------------------------------------------------
(unaudited - in thousands of Three months ended Nine months ended
Canadian dollars) September 30 September 30
--------------------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------
Revenue $ 11,733 $ 8,549 $ 28,590 $ 24,013
--------------------------------------------------------------------------

Expenses
Operating expense 10,149 6,222 20,976 16,325
Royalties and provincial
capital tax 640 448 1,622 1,436
Exploration expense 1,328 1,130 4,131 2,068
General corporate expense 1,065 734 3,240 2,690
Stock option expense 309 252 926 933
Interest expense - 66 37 182
Other expense (income)
(note 12) (1,037) 438 (2,549) 301
--------------------------------------------------------------------------
12,454 9,290 28,383 23,935
--------------------------------------------------------------------------
Earnings (loss) before income
taxes (721) (741) 207 78

Income tax expense (recovery)
Current - 57 22 122
Future (7) 93 354 (251)
--------------------------------------------------------------------------
Earnings (loss) after income
taxes $ (714) $ (891) $ (169) $ 207
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Retained earnings:
At beginning of period $ 2,046 $ 3,632 $ 2,801 $ 2,534
Earnings (loss) after income
taxes (714) (891) (169) 207
Share repurchases - - (1,300) -
--------------------------------------------------------------------------
Retained earnings - end of
period $ 1,332 $ 2,741 $ 1,332 $ 2,741
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings per common share
(note 10)
Basic and diluted $ (0.02) $ (0.04) $ (0.01) $ 0.01
--------------------------------------------------------------------------

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



DENISON MINES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
--------------------------------------------------------------------------
Three months ended Nine months ended
(unaudited - in thousands of September 30 September 30
Canadian dollars) 2006 2005 2006 2005
--------------------------------------------------------------------------

Operating Activities
Net income (loss) for the period $ (714) $ (891) $ (169) $ 207

Adjustments for non-cash items:
Depreciation, amortization and
accretion 512 1,297 1,490 3,975
Drawdown of ore from stockpiles 616 1,200 1,508 3,490
Loss on disposal of assets - 19 - 19
Change in future taxes (7) 93 354 (251)
Stock option expense 309 252 926 933
Changes in non-cash balances
relating to operations
Change in receivables,
inventories, (2,595)
prepaids and other assets (2,624) 2,873 (2,560)
Change in accounts payable and
accrued liabilities (4,593) 483 (570) 293
Other
Funding of post employment
benefits (81) (124) (265) (317)
--------------------------------------------------------------------------
Net cash from (used in) operating
activities (6,582) 5,202 714 5,754
--------------------------------------------------------------------------

Investing Activities
Additions to property, plant and
equipment (1,324) (1,477) (3,830) (2,994)
Change in restricted cash (286) (101) (565) (622)
Change in investments - - (3,773) -
--------------------------------------------------------------------------
Net cash used in investing
activities (1,610) (1,578) (8,168) (3,616)
--------------------------------------------------------------------------

Financing Activities
Additions to long-term debt - 6,408 - 14,909
Repayments of long-term debt (90) (6,442) (158) (15,011)
Share and warrant issues, net of
issue costs 71 908 72,225 6,329
Share repurchases - - (2,491) -
--------------------------------------------------------------------------
Net cash from (used in) financing
activities (19) 874 69,576 6,227
--------------------------------------------------------------------------

Increase (decrease) in cash and
cash equivalents (8,211) 4,498 62,122 8,365
--------------------------------------------------------------------------
Cash and cash equivalents -
beginning of period $ 86,815 $ 6,261 $ 16,482 $ 2,394
--------------------------------------------------------------------------
Cash and cash equivalents - end
of period $ 78,604 $ 10,759 $ 78,604 $ 10,759
--------------------------------------------------------------------------
--------------------------------------------------------------------------

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


DENISON MINES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. NATURE OF OPERATIONS

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

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Estimates

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

These unaudited interim consolidated financial statements and notes should be read in conjunction with the consolidated financial statements of Denison Mines for the year ended December 31, 2005. These statements have not been subject to a review by the Company's auditors.

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

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

McClean Lake Producing 22.50%
Midwest Non-producing 25.17%
Wheeler (1) Non-producing 40.00%
Wolly (2) Non-producing -%
Waterfound Non-producing 15.32%
Mongolia Non-producing 25.00%

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

(1) In October 2004, Denison Mines entered into an option agreement with
its joint venture partners to earn a further 20% ownership interest in the
project by funding $7,000,000 in exploration expenditures over the next 6
years. As at September 30, 2006, Denison has spent $5,541,000 against this
option.

(2) In October 2004, Denison Mines entered into an option agreement with
its joint venture partners to earn a 22.5% ownership interest in the
project by funding $5,000,000 in exploration expenditures over the next 6
years. The first phase of this agreement requires Denison to fund
$1,500,000 of expenditures over fiscal years 2005 and 2006 to earn a 6.5%
ownership interest. As at September 30, 2006, Denison has spent $1,161,000
against this option.

Comparative Numbers

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


3. INVENTORIES

The inventories balance consists of:

-----------------------------------------------------------------
(in thousands of Canadian dollars) September 30 December 31
2006 2005

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

Uranium concentrate $ - $ 6,147
Inventory of ore in stockpiles 11,217 4,933
Mine supplies and equipment for resale 2,001 1,557
-----------------------------------------------------------------
13,218 12,637
-----------------------------------------------------------------
-----------------------------------------------------------------


4. INVESTMENTS

On March 24, 2006, Denison purchased 3 million shares of Energy Metals Limited ("EML"), a public company listed on the Australian Stock Exchange, for an aggregate purchase price of $3,773,000. Immediately after the purchase, Denison owned approximately 12% of EML. At September 30, 2006, the market value of Denison's holding in EML is $4,499,000.



5. PROPERTY, PLANT AND EQUIPMENT

The net property, plant and equipment balance consists of:

-----------------------------------------------------------------------
(in thousands of Canadian dollars) September 30 December 31
2006 2005
-----------------------------------------------------------------------

Cost
Mining and exploration $ 143,906 $ 140,188
Environmental services and other 2,229 2,117
-----------------------------------------------------------------------
146,135 142,305
Accumulated Depreciation and Amortization
Mining and exploration 38,686 37,576
Environmental services and other 888 672
-----------------------------------------------------------------------
39,574 38,248
Net Book Value
Mining and exploration 105,220 102,612
Environmental services and other 1,341 1,445
-----------------------------------------------------------------------
$ 106,561 $ 104,057
-----------------------------------------------------------------------
-----------------------------------------------------------------------


6. RESTRICTED CASH AND CASH EQUIVALENTS

The balance in restricted cash and cash equivalents consists of:

-----------------------------------------------------------------------
(in thousands of Canadian dollars) September 30 December 31
2006 2005
-----------------------------------------------------------------------
Elliot Lake reclamation trust fund $ 1,918 $ 1,366
Letters of Credit collateral 484 471
-----------------------------------------------------------------------
$ 2,402 $ 1,837
-----------------------------------------------------------------------
-----------------------------------------------------------------------

7. LONG-TERM DEBT

The balance in long-term debt consists of:

-----------------------------------------------------------------------
(in thousands of Canadian dollars) September 30 December 31
2006 2005
-----------------------------------------------------------------------

AREVA loan $ - $ -
Capital lease obligation - 158
-----------------------------------------------------------------------
$ - $ 158
-----------------------------------------------------------------------
-----------------------------------------------------------------------

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


AREVA Loan / Credit Facility

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

Line of Credit

A Canadian chartered bank has provided Denison Mines with a credit facility pursuant to a credit agreement dated effective November 2, 2005. As at September 30, 2006, Denison Mines has not incurred any indebtedness under the facility.



8. POST EMPLOYMENT BENEFITS

The movement in the liability for post employment benefits for the nine
month period ended September 30, 2006 is as follows:

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

Post employment benefits liability - beginning of period $ 9,184
Benefits paid (265)
Interest cost 167
Amortization of experience gain (53)
Amortization of initial transitional surplus (295)
----------------------------------------------------------------------
Post employment benefits liability -- end of period $ 8,738
----------------------------------------------------------------------
----------------------------------------------------------------------

Post employment benefits liability comprised of:
Accrued benefit obligation $ 4,652
Unamortized experience gain 811
Unamortized initial transitional surplus 3,275
----------------------------------------------------------------------
$ 8,738
----------------------------------------------------------------------
----------------------------------------------------------------------

Post employment benefits liability:
Current $ 400
Long-term 8,338
----------------------------------------------------------------------
$ 8,738
----------------------------------------------------------------------
----------------------------------------------------------------------


9. SITE RESTORATION

The movement in the liability for site restoration for the nine month
period ended September 30, 2006 is as follows:

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

Site restoration liability - beginning of period $ 5,662
Accretion of liability 345
Spending (423)
-------------------------------------------------------------------
Site restoration liability - end of period $ 5,584
-------------------------------------------------------------------
-------------------------------------------------------------------

Site restoration liability comprised of:
Elliot Lake $ 4,462
McClean Lake and Midwest Joint Ventures 1,122
-------------------------------------------------------------------
$ 5,584
-------------------------------------------------------------------
-------------------------------------------------------------------

Site restoration liability:
Current $ 540
Long-term 5,044
-------------------------------------------------------------------
$ 5,584
-------------------------------------------------------------------
-------------------------------------------------------------------


Site Restoration - Elliot Lake

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

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

For the nine months ended September 30, 2006, Denison Mines incurred interest expense of $37,000 as a result of standby fees charged by the operator for arranging and collaterizing the Letters of Credit securing future decommissioning and reclamation liabilities. As a result of the termination of the AREVA Loan / Credit Facility, Denison has provided these financial assurances directly (see note 7).

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

Common Stock



The movement in common stock for the nine month period ended
September 30, 2006 is as follows:

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

Common stock - beginning of period 26,200,388 $ 119,175
Share movements pursuant to:
New issues
Gross proceeds 4,450,000 75,650
Fair value allocation to warrants (10,053)
Gross issue costs (3,540)
Issue cost tax asset 1,118
Stock option exercises
Gross proceeds 14,165 115
Fair value transfer from contributed surplus 45
Share repurchases
Gross repurchase (200,000) (2,491)
Allocation to retained earnings 1,300
--------------------------------------------------------------------------
Common stock - end of period 30,464,553 $ 181,319
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Common share activities

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

During June 2006, Denison Mines repurchased an aggregate 200,000 common shares on the Toronto Stock Exchange at an average cost of approx $12.45 per share for a total cost of $2,491,000 pursuant to a normal course issuer bid. The amount in excess of the average book value of Denison's common stock has been allocated to retained earnings.

Flow-Through Share Issues

During the nine months ended September 30, 2006, Denison spent the remaining $2,696,000 required to meet its flow-through share expenditure obligations pursuant to flow-through shares that were issued in fiscal 2004 and 2005.



Warrants

The movement in the issued and outstanding warrants for the nine month
period ended September 30, 2006 is as follows:

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

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

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

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


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



Contributed Surplus

The movement in contributed surplus for the nine month period ended
September 30, 2006 is as follows:

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

Contributed surplus - beginning of period $ 1,551
Add: Stock option expense for the period 926
Less: Fair value of stock option exercises for the period (45)
------------------------------------------------------------------------
Contributed surplus - end of period $ 2,432
------------------------------------------------------------------------
------------------------------------------------------------------------


Earnings Per Share

The calculation of basic earnings per share is based on the weighted average number of shares outstanding during the three month periods ended September 30, 2006 and 2005 of 30,462,331 and 25,440,660 respectively.

The calculation of basic earnings per share is based on the weighted average number of shares outstanding during the nine month periods ended September 30, 2006 and 2005 of 29,588,119 and 25,282,734 respectively.



11. STOCK-BASED COMPENSATION

Stock option transactions for the nine month period ended September 30,
2006 is as follows:

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

Options outstanding - beginning of period 830,029
Granted 694,250
Exercised (14,165)
Cancelled (11,833)
---------------------------------------------------------------
Options outstanding - end of period 1,498,281
---------------------------------------------------------------
---------------------------------------------------------------


As at September 30, 2006, an additional 1,106,583 shares are available for granting as options under this plan.

Denison Mines has used the Black-Scholes option pricing model to establish the fair value of stock options (and to establish the fair value of warrants associated with unit offerings -- see note 10). Total compensation expense related to the new stock option grants in the nine months ended September 30, 2006 is $3,502,000. Unamortized stock option compensation expense is $3,575,000 at September 30, 2006.



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

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

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

Dividend yield Nil
Risk-free interest rate 3.86% - 4.09%
Expected life of options and warrants 2.5 - 5 years
Expected volatility factor of future expected market
prices 48% - 50%

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


12. OTHER EXPENSE (INCOME)

The elements of other expense (income) for the three month and nine month
periods ended September 30, 2006 and 2005, respectively, are as follows:

--------------------------------------------------------------------------
(in thousands of Canadian Three months ended Nine months ended
dollars) September 30 September 30
--------------------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------

Interest income $ (959) $ (97) $ (2,335) $ (212)
Foreign exchange
Transactional (81) 534 245 297
Derivative related - - - 204
Other 3 1 (459) 12
--------------------------------------------------------------------------
$ (1,037) $ 438 $ (2,549) $ 301
--------------------------------- ----------------------------------------
----------------------------------------


13. SEGMENTED FINANCIAL INFORMATION

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

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



Business Segments

For the three months ended September 30, 2006, segment results were as
follows:

--------------------------------------------------------------------------
(in thousands of Uranium Uranium Environ. Corporate
Canadian dollars) Production Exploration Services and Other Total
--------------------------------------------------------------------------
Revenue $ 8,636 $ - $ 1,234 $ 1,863 $ 11,733

Expenses
Operating expenses 9,083 - 1,066 - 10,149
Royalties and
provincial capital
tax 619 - - 21 640
Exploration expense - 1,328 - - 1,328
General corporate
expense - - - 1,065 1,065
Stock option
expense - - - 309 309
Interest expense - - - - -
Other expense
(income) - - - (1,037) (1,037)

--------------------------------------------------------------------------
9,702 1,328 1,066 358 12,454
--------------------------------------------------------------------------
Earnings (loss)
before income taxes (1,066) (1,328) 168 1,505 (721)
Income tax expense
(recovery)
Current - - - - -
Future - - - (7) (7)
--------------------------------------------------------------------------
Earnings (loss) for
the period $ (1,066) $ (1,328) $ 168 $ 1,512 $ (714)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


For the three months ended September 30, 2005, segment results were as
follows:

--------------------------------------------------------------------------
(in thousands of Uranium Uranium Environ. Corporate
Canadian dollars) Production Exploration Services and Other Total
--------------------------------------------------------------------------
Revenue $ 5,614 $ - $ 2,060 $ 875 $ 8,549

Expenses
Operating expenses 4,552 - 1,670 - 6,222
Royalties and
provincial capital
tax 427 - - 21 448
Exploration
expense - 1,130 - - 1,130
General corporate
expense - - - 734 734
Stock option
expense - - - 252 252
Interest expense 66 - - - 66
Other expense
(income) - - - 438 438

--------------------------------------------------------------------------
5,045 1,130 1,670 1,445 9,290
--------------------------------------------------------------------------
Earnings (loss)
before income
taxes 569 (1,130) 390 (570) (741)
Income tax expense
(recovery)
Current - - - 57 57
Future - - - 93 93
--------------------------------------------------------------------------
Earnings (loss)
For the period $ 569 $ (1,130) $ 390 $ (720) $ (891)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


For the nine months ended September 30, 2006, segment results were as
follows:

--------------------------------------------------------------------------
(in thousands of Uranium Uranium Environ. Corporate
Canadian dollars) Production Exploration Services and Other Total
--------------------------------------------------------------------------
Revenue $ 22,120 $ - $ 3,046 $ 3,424 $ 28,590

Expenses
Operating expenses 17,987 - 2,989 - 20,976
Royalties and
provincial capital
tax 1,545 - - 77 1,622
Exploration
expense - 4,131 - - 4,131
General corporate
expense - - - 3,240 3,240
Stock option
expense - - - 926 926
Interest expense 37 - - - 37
Other expense
(income) - - - (2,549) (2,549)

--------------------------------------------------------------------------
19,569 4,131 2,989 1,694 28,383
--------------------------------------------------------------------------
Earnings (loss)
before income
taxes 2,551 (4,131) 57 1,730 207
Income tax expense
(recovery)
Current - - - 22 22
Future - - - 354 354
--------------------------------------------------------------------------
Earnings (loss)
for the period $ 2,551 $ (4,131) $ 57 $ 1,354 $ (169)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


For the nine months ended September 30, 2005, segment results were as
follows:

--------------------------------------------------------------------------
(in thousands of Uranium Uranium Environ. Corporate
Canadian dollars) Production Exploration Services and Other Total
--------------------------------------------------------------------------
Revenue $ 18,076 $ - $ 4,405 $ 1,532 $ 24,013

Expenses
Operating expenses 12,363 - 3,962 - 16,325
Royalties and
provincial capital
tax 1,373 - - 63 1,436
Exploration
expense - 2,068 - - 2,068
General corporate
expense - - - 2,690 2,690
Stock option
expense - - - 933 933
Interest expense 182 - - - 182
Other expense
(income) - - - 301 301
--------------------------------------------------------------------------
13,918 2,068 3,962 3,987 23,935
--------------------------------------------------------------------------
Earnings (loss)
before income
taxes 4,158 (2,068) 443 (2,455) 78
Income tax expense
(recovery)
Current - - - 122 122
Future - - - (251) (251)
--------------------------------------------------------------------------
Earnings (loss)
for the period $ 4,158 $ (2,068) $ 443 $ (2,326) $ 207
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Major Customers

Denison Mines relies on a small number of customers to generate its revenues, especially in its uranium production and corporate and other segments. During the nine months ended September 30, 2006 and 2005, the aggregate revenue from customers each representing more than 10% of Denison Mines total revenues was $22,424,000 (78%) and $15,827,000 (66%), respectively. In 2006, three customers (2005 -- three customers) each accounted for more than 10% of the Company's gross revenues.

14. RELATED PARTY TRANSACTIONS

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

On March 28, 2006, Denison Mines entered into an agreement with Uranium Corp to provide a temporary revolving credit facility not to exceed $25,000,000 to ensure that Uranium Corp had sufficient cash on hand to meet its purchase commitments. The credit facility was terminated on May 24, 2006. Interest under the credit facility was based on Canadian bank prime plus 2%. Standby fees also applied at a rate of 1% of the committed facility amount. During the three month period ending June 30 30, 2006, Uranium Corp drew $10,000,000 under the facility and subsequently repaid it.

On September 10, 2006, Denison Mines entered into an agreement with Uranium Corp to provide a temporary revolving credit facility not to exceed $15,000,000 to ensure that Uranium Corp has sufficient cash on hand to meet its purchase commitments. The credit facility expires on May 10, 2007 and is fully secured by the uranium investments of Uranium Corp. Interest under the credit facility is based on Canadian bank prime plus 1%. Standby fees also apply at a rate of 1% of the committed facility amount. Uranium Corp has not drawn any amounts under this facility.



The following transactions were incurred with Uranium Corp during the three
month and nine month periods ended September 30, 2006 and 2005:

--------------------------------------------------------------------------
(In thousands of Canadian dollars) Three months ended Nine months ended
September 30 September 30
--------------------------------------------------------------------------
--------------------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Fees earned from Uranium Corp in
revenue:
Management fees ( and out-of-pocket
expenses) $ 524 $ 106 $ 1,210 $ 211
Commission fees 1,339 769 2,214 1,321
Fees earned from Uranium Corp in
other income:
Interest on loan receivable - - 88 -
Standby fees on line of credit 8 - 30 -

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total fees earned from Uranium Corp $ 1,871 $ 875 $ 3,542 $ 1,532
--------------------------------------------------------------------------
--------------------------------------------------------------------------


At September 30, 2006, accounts receivable includes $1,605,000 of amounts due from Uranium Corp with respect to the fees indicated above.

15. CONTINGENT LIABILITIES AND COMMITMENTS

Specific Legal Matters

Elliot Lake Property Tax Complaint

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

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

The City of Elliot Lake filed an Application for Leave to Appeal the above decision to the Ontario Superior Court of Justice (the "Divisional Court"). On September 15, 2006, the Divisional Court denied the City of Elliot Lake's application for Leave to Appeal. The decision of the Divisional Court finally resolves this matter.

Blue Hill, Maine

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

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

General Legal Matters

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

Third Party Indemnities

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

Performance Bonds and Letters of Credit

In conjunction with various contracts and other performance obligations, the Company may be required to issue performance bonds and letters of credit as security to creditors to guarantee the Company's performance. Any potential payments which might become due under these items would be related to the Company's non-performance under the applicable contract. As at September 30, 2006, the Company had outstanding bonds and letters of credit of $8,565,000 of which $484,000 was collateralized by restricted cash (see note 6).

16. BUSINESS COMBINATION

On September 18, 2006, Denison and International Uranium Corporation ("IUC") announced that they have entered into an agreement to combine the two companies by way of a Plan of Arrangement. As part of the Plan of Arrangement, Denison will amalgamate with a wholly-owned subsidiary of IUC, and holders of Denison common shares will exchange each of their Denison common shares for 2.88 IUC common shares. IUC shareholders will continue to hold their existing common shares. Existing IUC and Denison shareholders will each own approximately 50% of the new company. The transaction is conditional upon the approval of 66-2/3% of Denison shareholders and optionholders and a majority of the IUC shareholders as well as other customary conditions and regulatory approvals. Special meetings of the shareholders of each company to consider and, if appropriate, approve the transaction will be held on November 20, 2006.

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
    Website: www.denisonmines.com