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Denison Mines Corp. Reports Third Quarter 2010 Results

TORONTO, ONTARIO--(Marketwire - 11/04/10) - Denison Mines Corp. ("Denison" or the "Company") (TSX:DML - News)(AMEX:DNN - News) today reported its financial results for the three months and nine months ended September 30, 2010. All amounts in this release are in U.S. dollars unless otherwise indicated. For a more detailed discussion of the Company's financial results, see management's discussion and analysis ("MD&A"), a copy of which is attached to this release.Financial Highlights

 

-- Revenue was $39.9 million for the three months and $89.1 million for the
nine months ended September 30, 2010.

-- Net loss was $9.5 million or $0.03 per share for the three months and
$1.9 million or $0.01 per share for the nine months ended September 30,
2010.

-- Cash flow from operations was $14.1 million for the three months and
$28.5 million for the nine months ended September 30, 2010.

-- At the period end, Denison was essentially debt-free and had a cash
balance of $33.1 million, working capital of $78.0 million and portfolio
investments with a market value of $2.3 million.


Operating Highlights

 

-- Uranium production for the quarter totaled 373,000 pounds and vanadium
production for the quarter totaled 1,045,000 pounds.

-- Uranium sales in the quarter were 706,000 pounds U3O8 at an average
price of $44.22 per pound.

-- Vanadium sales in the quarter totaled 114,000 pounds of vanadium
blackflake ("V2O5") at an average price of $6.28 per pound.
Ferrovanadium ("FeV") sales totaled 226,000 pounds at an average price
of $13.63 per pound.

-- At September 30, 2010, the Company had 303,000 pounds U3O8 and 1,143,000
pounds V2O5 and 107,000 pounds FeV in inventory available for sale.
Based on spot market prices at September 30, 2010, this inventory had a
value of $22.7 million.

-- The Wheeler River summer drilling program was completed. This program
expanded the two zones of known mineralization and successfully
identified two new zones in the highly prospective Phoenix trend.


Financial Summary

 

Three Months Ended Nine Months Ended
September 30 September 30
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2010 2009 2010 2009

Revenue ($000s) $ 39,883 $ 12,748 $ 89,088 $ 48,118

Net Loss ($000's) (9,521) (91,343) (1,938) (110,885)

Loss Per Share ($) (0.03) (0.27) (0.01) (0.41)

Cash Provided By
(Used By) Operations
($000's) 14,107 (15,429) 28,502 (48,057)

Exploration
Expensed(1)($000's) 2,528 2,988 5,979 7,567

(1) The Company expenses exploration expenditures on mineral properties not sufficiently advanced to identify their development potential.RevenueUranium sales revenue for the third quarter was $31,228,000. Sales were 706,000 pounds U3O8 at an average price of $44.22 per pound. Uranium sales revenue for the same period in 2009 was $7,493,000. Sales were 128,000 pounds U3O8 at an average price of $54.82 per pound.During the third quarter the Company sold 114,000 pounds of V2O5 at an average price of $6.28 per pound and 226,000 pounds of FeV at an average price of $13.63 per pound. In the third quarter of 2009, the Company sold 3,300 pounds of V2O5 at an average price of $5.83 per pound and 69,000 pounds FeV at an average price of $11.96 per pound. Total vanadium sales revenue for the third quarter 2010 was $3,794,000 compared to $846,000 in the third quarter of 2009.Revenue from Denison's environmental services division was $4,116,000 for the three months ended September 30, 2010 compared to $4,054,000 for the three months ended September 30, 2009. Revenue from the management contract with Uranium Participation Corporation was $409,000 for the three months ended September 30, 2010 compared to $344,000 in the same period in 2009.Operating ExpensesCanadian OperationsThe McClean Lake Joint Venture produced 745,000 pounds U3O8 for the three months ended September 30, 2010 compared with 906,000 pounds U3O8 for the three months ended September 30, 2009. Denison's 22.5% share of production totaled 17,000 pounds compared to 204,000 pounds for the corresponding 2009 period. The McClean Lake joint venture completed processing of ore in June, 2010. The circuits were cleaned out and the mill was put on stand-by in August.Production costs(2) were $48.58 per pound U3O8 for the three months ended September 30, 2010. For the comparable period in 2009, the production costs were $26.73 per pound U3O8.Inventory available for sale from Canadian production was 64,000 pounds U3O8 at September 30, 2010.U.S. OperationsAt the White Mesa mill the Company produced 356,000 pounds U3O8 and 1,045,000 pounds V2O5 in the third quarter.At September 30, 2010 a total of 102,000 tons of conventional ore was stockpiled at the mill containing approximately 480,000 pounds U3O8 and 1,758,000 pounds V2O5. The Company also has approximately 372,000 pounds U3O8 contained in alternate feed material stockpiled at the mill at September 30, 2010.Production costs(2) for the three months ended September 30, 2010 were $37.42 per pound U3O8. For the comparable period in 2009 production costs were $39.69 per pound U3O8.Inventory available for sale from U.S. production was 239,000 pounds U3O8, 1,143,000 pounds V2O5 and 107,000 pounds FeV at September 30, 2010.(2) Production costs include the costs of mining the ore fed to the mill in the period plus the costs of milling the ore less a credit for vanadium produced in the period and excluding depreciation and amortization, which is a non-GAAP measure.OtherOperating costs for the third quarter include a recovery of $5,712,000 relating to the net realizable value of the Company's uranium and vanadium inventory. Operating expenses also include costs relating to Denison's environmental services division amounting to $3,484,000 in the three month period ended September 30, 2010 and $3,641,000 in the comparable period in 2009.Mineral Property ExplorationDenison is engaged in uranium exploration, as both operator and non-operator of joint ventures and as operator of its own properties in Canada, the U.S., Mongolia and Zambia. For the three months ended September 30, 2010 exploration expenditures totaled $2,528,000 compared to $2,988,000 for the three months ended September 30, 2009.A majority of the exploration expenditures during the period were spent in the Athabasca Basin region of northern Saskatchewan. Denison is engaged in uranium exploration as part of the McClean and Midwest joint ventures operated by AREVA Resources Canada Inc. ("ARC"), as well as on 29 other exploration projects including the Company's 60% owned Wheeler River project. Denison's share of exploration expense on its Canadian properties totaled $1,728,000 for the three months ended September 30, 2010.The 2010 summer drill program at the Phoenix uranium deposit on the 60% owned Wheeler River property has discovered two new mineralized zones on the northeast and southwest edges of the presently defined Phoenix trend. Both of these zones are open along strike and the results confirm Denison's belief that the Phoenix discovery is a major deposit with at least four discrete zones of mineralization. The favourable horizon has only been tested on 1.3 kilometres out of approximately 18 kilometres of favourable geology. The summer exploration program concentrated on delineation drilling of known Zones A and B. Delineation drilling of Zone C and D and further drill testing along the prospective trend was deferred until winter 2011. An NI 43-101 compliant resource report is currently in preparation and scheduled to be completed in the fourth quarter of 2010.LiquidityThe Company had cash and cash equivalents of $33,106,000 at September 30, 2010 and trade and other receivables of $13,431,000. Portfolio investments had a market value of $2,310,000. The Company has in place a revolving credit facility of $60,000,000. The facility expires on June 30, 2011. Bank indebtedness under the facility at September 30, 2010 was nil; however, $9,425,000 of the line is used as collateral for certain letters of credit.Outlook for 2010The Company has chosen to change its production schedule in the fourth quarter to allow for toll milling of a third party's ore during November. Production guidance is unchanged at 1.6 million pounds even with the change in milling schedule due to better than planned mill performance and higher Arizona 1 head grade. Vanadium production is however expected to decline to 2.4 million pounds V2O5 from 2.8 million.Uranium sales volumes are expected to remain at 1.8 million pounds U3O8. Vanadium sales are now expected to be 2.1 million pounds V2O5 versus the original sales volume of 3.2 million pounds due to lower than anticipated demand. The Company expects to achieve an average realized price of $47.09 per pound U3O8 sold and $6.53 per pound V2O5.The McClean Lake joint venture shut down the McClean Lake mill in August 2010 until new feed sources are available. The stand-by costs to Denison are expected to be negligible as most of them will be paid for by the Cigar Lake joint venture. The cost of production in the U.S. is expected to be $37.07 per pound U3O8 net of vanadium credits. The cost of production is calculated using the costs of mining the ore fed to the mill in the period plus the costs of milling the ore less a credit for vanadium produced in the period and excludes amortization and depreciation.Conference CallDenison is hosting a conference call on Friday November 5, 2010 starting at 10 A.M. (Toronto time) to discuss the 2010 third quarter results. The call will be available live through a webcast link on Denison's website www.denisonmines.com and by telephone at 416-340-2218. A recorded version of the conference call will be available by calling 416-695-5800 (password: 8054524) approximately two hours after the conclusion of the call. The presentation will also be available at www.denisonmines.com.Additional InformationAdditional information on Denison is available on SEDAR at www.sedar.com and on the Company's website at www.denisonmines.com.About DenisonDenison Mines Corp. is an intermediate uranium producer in North America, with mining assets in the Athabasca Basin region of Saskatchewan, Canada and the southwest United States including Colorado, Utah, and Arizona. Further, the Company has ownership interests in two uranium mills in North America. Denison also has a strong exploration and development portfolio including the Phoenix discovery in the Athabasca basin as well as large land positions in the United States, Canada, Mongolia and Zambia.(i)Cautionary StatementsCertain information contained in this press release constitutes "forward-looking information", within the meaning of the United States Private Securities Litigation Reform Act of 1995 and similar Canadian legislation concerning the business, operations and financial performance and condition of Denison.Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur", "be achieved" or "has the potential to".Forward looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Denison to be materially different from those expressed or implied by such forward-looking statements. Denison believes that the expectations reflected in this forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this press release should not be unduly relied upon. This information speaks only as of the date of this press release. In particular, this press release may contain forward-looking information pertaining to the following: the estimates of Denison's mineral reserves and mineral resources; uranium and vanadium production levels; capital expenditure programs, estimated production costs, exploration expenditures and reclamation costs; expectations of market prices and costs; supply and demand for uranium and vanadium; possible impacts of litigation on Denison; exploration, development and expansion plans and objectives; Denison's expectations regarding raising capital and adding to its mineral reserves through acquisitions and development; and receipt of regulatory approvals and permits and treatment under governmental regulatory regimes.There can be no assurance that such statements will prove to be accurate, as Denison's actual results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading "Risk Factors" in Denison's Annual Information Form dated March 19, 2010, available at http://www.sedar.com, and in its Form 40-F available at http://www.sec.gov, as well as the following: global financial conditions, the market price of Denison's securities, volatility in market prices for uranium and vanadium; ability to access capital, changes in foreign currency exchange rates and interest rates; liabilities inherent in mining operations; uncertainties associated with estimating mineral reserves and resources; failure to obtain industry partner and other third party consents and approvals, when required; delays in obtaining permits and licenses for development properties; competition for, among other things, capital, acquisitions of mineral reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; and geological, technical and processing problems, the ability of Denison to meet its obligations to its creditors, the potential influence of or reliance upon a business partner, and the adequacy of insurance coverage.Accordingly, readers should not place undue reliance on forward-looking statements. These factors are not, and should not be construed as being, exhaustive. Statements relating to "mineral reserves" or "mineral resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral reserves and mineral resources described can be profitably produced in the future. The forward-looking information contained in this press release is expressly qualified by this cautionary statement. Denison does not undertake any obligation to publicly update or revise any forward-looking information after the date of this press release to conform such information to actual results or to changes in Denison's expectations except as otherwise required by applicable legislation.Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: This news release may use the terms "Measured", "Indicated" and "Inferred" Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. "Inferred Mineral Resources" have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.Qualified PersonThe disclosure of scientific and technical information regarding Denison's properties in this press release was prepared by or under the supervision of William C. Kerr, the Company's Vice-President, Exploration and Terry Wetz, Director of Project Development who are Qualified Persons in accordance with the requirements of National Instrument 43-101.

 


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DENISON MINES CORP.
Management's Discussion and Analysis
Nine Months Ended September 30, 2010
(Expressed in U.S. Dollars, Unless Otherwise Noted)
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INTRODUCTIONThis Management's Discussion and Analysis ("MD&A") of Denison Mines Corp. and its subsidiary companies and joint ventures (collectively, "Denison" or the "Company") provides a detailed analysis of the Company's business and compares its financial results with those of the previous year. This MD&A is dated as of November 4, 2010 and should be read in conjunction with, and is qualified by, the Company's unaudited consolidated financial statements and related notes for the nine months ended September 30, 2010. The financial statements are prepared in accordance with generally accepted accounting principles in Canada. All dollar amounts are expressed in U.S. dollars, unless otherwise noted.Other continuous disclosure documents, including the Company's press releases, quarterly and annual reports, Annual Information Form and Form 40-F are available through its filings with the securities regulatory authorities in Canada at www.sedar.com and the United States at www.sec.gov/edgar.shtml.CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSCertain information contained in this MD&A constitutes "forward-looking information", within the meaning of the United States Private Securities Litigation Reform Act of 1995 and similar Canadian legislation concerning the business, operations and financial performance and condition of Denison.Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur", "be achieved" or "has the potential to".Forward looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Denison to be materially different from those expressed or implied by such forward-looking statements. Denison believes that the expectations reflected in this forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this MD&A should not be unduly relied upon. This information speaks only as of the date of this MD&A. In particular, this MD&A may contain forward-looking information pertaining to the following: the estimates of Denison's mineral reserves and mineral resources; uranium and vanadium production levels; capital expenditure programs, estimated production costs, exploration expenditures and reclamation costs; expectations of market prices and costs; supply and demand for uranium and vanadium; possible impacts of litigation on Denison; exploration, development and expansion plans and objectives; Denison's expectations regarding raising capital and adding to its mineral reserves through acquisitions and development; and receipt of regulatory approvals and permits and treatment under governmental regulatory regimes.There can be no assurance that such statements will prove to be accurate, as Denison's actual results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading "Risk Factors" in Denison's Annual Information Form dated March 19, 2010, available at http://www.sedar.com and its Form 40-F available at http://www.sec.gov, as well as the following: volatility in market prices for uranium and vanadium; changes in foreign currency exchange rates and interest rates; liabilities inherent in mining operations; uncertainties associated with estimating mineral reserves and resources; failure to obtain industry partner and other third party consents and approvals, when required; delays in obtaining permits and licenses for development properties; competition for, among other things, capital, acquisitions of mineral reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; and geological, technical and processing problems.Accordingly, readers should not place undue reliance on forward-looking statements. These factors are not, and should not be construed as being, exhaustive. Statements relating to "mineral reserves" or "mineral resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions that the mineral reserves and mineral resources described can be profitably produced in the future. The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. Denison does not undertake any obligation to publicly update or revise any forward-looking information after the date of this MD&A to conform such information to actual results or to changes in Denison's expectations except as otherwise required by applicable legislation.Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: "This MD&A" may use the terms "Measured", "Indicated" and "Inferred" Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. "Inferred Mineral Resources" have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.OVERVIEWDenison is a reporting issuer in all of the Canadian provinces. Denison's common shares are listed on the Toronto Stock Exchange (the "TSX") under the symbol "DML" and on the NYSE Amex LLC ("Amex") under the symbol "DNN".Denison is a diversified, intermediate uranium producer with uranium production in both the U.S. and Canada and development projects in the U.S., Canada, Zambia and Mongolia. Denison's assets include its 100% ownership of the White Mesa uranium mill in Utah and its 22.5% ownership of the McClean Lake uranium mill in Saskatchewan. The Company also produces vanadium ("V2O5") as a co-product from some of its mines in Colorado and Utah and processes uranium-bearing waste materials, referred to as "alternate feed materials", for the recovery of uranium, alone or in combination with other metals, at the Company's White Mesa mill.Denison owns interests in a portfolio of exploration projects, including the Wheeler River property along with other properties in close proximity to the Company's mills in the Athabasca Basin in Saskatchewan and in the Colorado Plateau, Henry Mountains and Arizona Strip regions of the southwestern United States.Denison is the manager of Uranium Participation Corporation ("UPC"), a publicly traded company which invests in uranium oxide in concentrates ("U3O8") and uranium hexafluoride ("UF6"). Denison is also engaged in mine decommissioning and environmental services through its Denison Environmental Services ("DES") division.SELECTED QUARTERLY FINANCIAL INFORMATIONThe following selected financial information was obtained directly from or calculated using the Company's consolidated financial statements for the three months and nine months ended September 30, 2010 and 2009.

 

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Three Months Three Months Nine Months Nine Months
ended ended ended ended
SeptemberSeptemberSeptember September
(in thousands) 30, 2010 30, 2009 30, 2010 30, 2009
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Results of
Operations:
Total revenues $ 39,883 $ 12,748 $ 89,088 $ 48,118
Net income (loss) (9,521) (91,343) (1,938) (110,885)
Basic and diluted
loss per share (0.03) (0.27) (0.01) (0.41)

As at As at
September December 31,
30, 2010 2009
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Financial Position:
Working capital $ 77,960 $ 75,578
Investments 2,310 10,605
Property, plant and
equipment 701,535 691,039
Total assets 879,115 867,981
Total long-term
liabilities $ 127,622 $ 127,931

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RESULTS OF OPERATIONSGeneralThe Company recorded net loss of $9,521,000 ($0.03 per share) for the three months ended September 30, 2010 compared with a net loss of $91,343,000 ($0.27 per share) for the same period in 2009. For the nine months ended September 30, 2010 the Company recorded net loss of $1,938,000 or $0.01 per share compared to a net loss of $110,885,000 or $0.41 per share for the same period in 2009.RevenuesUranium sales revenue for the third quarter was $31,228,000 from the sale of 706,000 pounds U3O8 at an average price of $44.22 per pound. Uranium sales for the same period in 2009 were 128,000 pounds U3O8 at an average price of $54.82 per pound resulting in revenue of $7,493,000. Uranium revenue in the third quarter of 2009 also included amortization of the fair value increment related to Denison Mines Inc. ("DMI") sales contracts of $599,000.Uranium sales revenue for the nine months ended September 30, 2010 totaled $65,218,000. Sales were 1,390,000 pounds U3O8 at an average price of $46.93 per pound. For the nine months ended September 30, 2009, uranium sales revenue was $35,089,000 from the sale of 579,000 pounds U3O8 at an average price of $57.82 per pound. Uranium revenue in the nine months of 2009 also included amortization of the fair value increment related to DMI sales contracts of $1,691,000.During the third quarter the Company sold 114,000 pounds of V2O5 at an average price of $6.28 per pound and 226,000 pounds of ferrovanadium ("FeV") at an average price of $13.63 per pound. In the third quarter of 2009, the Company sold 3,300 pounds of V2O5 at an average price of $5.83 per pound and 69,000 pounds FeV at an average price of $11.96 per pound. Total vanadium sales revenue for the third quarter 2010 was $3,794,000 compared to $846,000 in the third quarter of 2009.During the nine months ended September 30, 2010, the Company sold 617,000 pounds of FeV at an average price of $13.84 per pound or $6.52 per pound V2O5 equivalent and 227,000 pounds V2O5 at an average price of $6.59 per pound. Total vanadium sales revenue was $10,038,000. During the nine months ended September 30, 2009, the Company sold 509,000 pounds of V2O5 at an average price of $3.69 per pound and 87,000 pounds as FeV at an average price of $11.29 per pound. Total vanadium sales revenue was $2,864,000.Revenue from the environmental services division for the three months and nine months ended September 30, 2010 was $4,116,000 and $11,271,000 compared to $4,054,000 and $8,241,000 in the same periods in 2009. Revenue from the management contract with UPC for the three months and nine months ended September 30, 2010 was $409,000 and $2,089,000 compared to $344,000 and $1,886,000 in the same periods in 2009.Operating ExpensesMilling and Mining ExpensesThe McClean Lake joint venture produced 745,000 pounds U3O8 and 1,709,000 pounds U3O8 for the three and nine months ended September 30, 2010 compared with 906,000 pounds U3O8 and 2,675,000 pounds U3O8 for the three months and nine months ended September 30, 2009. Denison's 22.5% share of production totaled 17,000 and 385,000 pounds for the 2010 periods and 204,000 and 602,000 pounds for the 2009 periods.The feeding of ore to the McClean mill was completed in June and the mill was placed on stand-by in August.Canadian production costs(1) for the third quarter were $48.58 (CDN$50.49) per pound U3O8 compared to $26.73 (CDN$29.36) per pound U3O8 for the third quarter of 2009. The increase is due to the shutdown of operations during the quarter. Canadian production costs for the nine months ended September 30, 2010 were $30.85 (CDN$31.96) per pound compared to $26.83 (CDN $31.39) per pound for the nine months ended September 30, 2009.Inventory from Canadian production was 64,000 pounds U3O8 at September 30, 2010.On June 30, 2009, the Canadian Nuclear Safety Commission ("CNSC") renewed the operating licence for the McClean Lake operation for a period of eight years to June 30, 2017. The Athabasca Regional Government (the "ARG"), which is comprised of three First Nations and four provincial communities from the Athabasca Basin, launched an application for a judicial review of CNSC's decision to grant the McClean Lake operating licence. ARG challenged the legality of the licence renewal on the basis of issues related to the Federal and Provincial Governments' duty to consult with Aboriginal people. The initial hearing on this matter was held on June 8, 2010 and the judge issued his decision in September 2010, dismissing the application. ARG has launched an appeal of this decision.At the White Mesa mill, production during the quarter totaled 356,000 pounds U3O8 and 1,045,000 pounds V2O5 and totaled 824,000 pounds U3O8 and 1,956,000 pounds V2O5 for the nine months ended September 30, 2010.At September 30, 2010, a total of 102,000 tons of conventional ore was stockpiled at the mill containing approximately 480,000 pounds U3O8 and 1,758,000 pounds V2O5. The Company also had approximately 372,000 pounds U3O8 contained in alternate feed material stockpiled at the mill at September 30, 2010.Production costs(1) at White Mesa for the three months ended September 30, 2010 were $37.42 per pound U3O8 and for the nine months ended September 30, 2010 were $38.22. Production costs were $39.69 per pound U3O8 in the three months ended September 30, 2009 and $66.14 for the nine months ended September 30, 2009.Inventory available for sale from U.S. production was 239,000 pounds U3O8, 1,143,000 pounds V2O5 and 107,000 pounds FeV at September 30, 2010.On November 16, 2009, as amended on February 1, 2010, the Center for Biological Diversity, Grand Canyon Trust, Sierra Club, Kaibab Band of Paiute Indians and Havasupai Tribe (the "Plaintiffs") filed a lawsuit against the U.S. Secretary of the Interior and the U.S. Bureau of Land Management ("BLM") (together, the "Defendants") seeking an order declaring that the Defendants have violated environmental laws in relation to the Company's Arizona 1 mine, by not requiring a new Plan of Operations in connection with the start of mining activities. The Plaintiffs are also claiming that, if a new Plan of Operations is not required, the Defendants failed to conduct a review of potential environmental impacts from the mine since the existing Plan of Operations for the mine was approved by BLM in 1988. The Plaintiffs further claim that all required permits have not been obtained for the mine under the Clean Air Act, and that, as a result, BLM failed to take all actions necessary to prevent unnecessary degradation of the public lands. The Plaintiffs are seeking an order declaring that the Defendants have violated these environmental laws in relation to the Arizona 1 mine, and an injunction directing operations to cease and stopping the Defendants from authorizing or allowing any further mining or exploration operations at the Arizona 1 mine until BLM complies with all applicable laws. On February 8, 2010 the Defendants filed an Answer to the Plaintiffs' complaint denying the foregoing allegations. Denison has been added as an intervener in this lawsuit, and believes that each of these allegations is without legal merit; is not supported by the administrative record; and should be dismissed.On April 19, 2010, Plaintiffs filed a motion for a preliminary injunction to shut down operations at the mine pending a decision on the merits of the case. A hearing on the motion for an injunction was held on June 11, 2010, and on June 17, 2010 the judge denied the Plaintiffs' request for preliminary injunctive relief. On July 12, 2010, the Plaintiffs appealed the ruling on the preliminary injunction to the Ninth Circuit Court of Appeals, and on July 14, 2010 filed another motion for preliminary injunction, pending appeal. That motion was denied by the judge on August 11, 2010. On August 16, 2010 the Plaintiff's filed an emergency motion for an injunction pending appeal in the Court of Appeals. On August 31, 2010, a two-judge panel denied that motion. The appeal to the Court of Appeals of the district judge's original ruling denying the preliminary injunction is currently under way, and the original case is ongoing. If the Plaintiffs are successful on the appeal or on the merits, the Company may be required to stop mining activities at the Arizona 1 mine pending resolution of this matter. Any required stoppage of mining could have a significant adverse impact on the Company.In August 2009, the Arizona Department of Environmental Quality ("ADEQ") issued an air quality permit that authorized the restart and operation of the Arizona 1 mine. Despite this authorization by ADEQ and a previous authorization of construction and operation of the mine by the United States Environmental Protection Agency ("EPA") in 1988, EPA has alleged that a new EPA approval is required at this time, notwithstanding the ADEQ permit. On May 3, 2010, EPA issued a Finding of Violation to Denison alleging non-compliance with the provisions of the Clean Air Act for not obtaining this second EPA approval and associated matters. EPA and Denison are negotiating a Consent Agreement and Final Order to settle this administrative action, under which Denison, after submitting the requested application, will agree to pay a stipulated penalty.On July 29, 2010, Uranium Watch, Living Rivers and Center for Water Advocacy (the "Plaintiffs") filed a lawsuit against the U.S. Forest Service ("USFS") and the Forest Supervisor for the Manti-La Sal National Forest (together, the "Defendants") seeking an order declaring that the Defendants have violated environmental laws in relation to the Company's Pandora mine, by not requiring an Environmental Assessment or Environmental Impact Statement under the National Environmental Policy Act ("NEPA") in connection with the USFS's approval of Plans of Operation authorizing the Company to construct two vent holes and drill 16 uranium exploration holes at the mine. The Plaintiffs are seeking an order declaring that the Defendants have violated NEPA and vacating the USFS' approval of the Plans of Operation for these two projects, and enjoining the USFS from allowing the projects to proceed pending full compliance with the law. The Plaintiffs also filed a motion for a temporary restraining order and preliminary injunction against the commencement of the projects. Denison has been added as an intervener in this lawsuit. A hearing on the motion for a preliminary injunction was held on September 2, 2010, and on September 14, 2010 the judge denied the Plaintiff's request for preliminary injunctive relief. The original case is ongoing. At this time, all of the exploration holes have been drilled and one of the two vent holes has been installed.On August 17, 2010, EPA issued a Notice of Violation under the Clean Air Act, citing four violations of the National Emission Standards for Hazardous Air Pollutants for underground uranium mines, relating to operations at Denison's La Sal mines complex in Utah in 2009. Those violations were for alleged failure to obtain prior approval from EPA for the radon monitoring method used at the site, for some gaps in data collection and reporting, and for allegedly exceeding the emission standards at certain receptors using the prescribed air dispersion model. Denison has applied to EPA for approval to continue to use the radon monitoring method at the site, which is the same method used historically by the uranium mining industry. Similarly Denison does not believe the prescribed air dispersion model is sophisticated enough to accurately calculate potential doses from radon to nearby receptors at the La Sal mines, given the complex terrain and other factors at the site, and has applied to EPA for approval to use a more sophisticated air dispersion model. The Clean Air Act provides that, when a person is in violation of certain provisions of the Act, EPA may issue an administrative penalty, issue an order requiring compliance with the requirements, or bring a civil action, among other remedies. Administrative penalties can be based on the number of days of violation, the size of the business, the economic benefit of non-compliance, the seriousness of the violation and other factors, and can be significant. EPA has not issued an order or brought civil enforcement action at this time.(1) Production costs include the costs of mining the ore fed to the mill in the period plus the costs of milling less a credit for vanadium produced in the period and excluding depreciation and amortization, which is a non-GAAP measure.OtherOperating costs for the three months and nine months ended September 30, 2010 include a recovery of $5,712,000 and $13,157,000 respectively relating to the net realizable value of the Company's uranium and vanadium inventory. For the three and nine months ended September 30, 2009 operating costs include recoveries of $2,762,000 and $2,579,000 respectively relating to the net realizable value of the Company's uranium and vanadium inventory. Operating costs also include expenses relating to DES amounting to $3,484,000 for the three months and $9,874,000 for the nine months in 2010 compared to $3,641,000 and $7,546,000 respectively for the same periods in 2009.Sales Royalties and Capital TaxesSales royalties on Canadian production and capital taxes totaled $837,000 and $2,124,000 for the three and nine months ended September 30, 2010 compared with $359,000 and $1,047,000 for the same periods in 2009. 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 a Saskatchewan resource surcharge based on 3% of gross uranium sales. The Government of Saskatchewan 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. It is unlikely that Denison will pay tiered royalties in 2010. The Government of Saskatchewan, in conjunction with the uranium industry in Saskatchewan, is reviewing the current tiered royalty structure with a view to altering it to better align it with current and future industry economics.Mineral Property ExplorationDenison is engaged in uranium exploration, as both operator and non-operator of joint ventures and as operator of its own properties in Canada, the U.S., Mongolia and Zambia. For the three months ended September 30, 2010 exploration expenditures totaled $2,528,000 and $5,979,000 for the nine months ended September 30, 2010 as compared to $2,988,000 for the three months ended September 30, 2009 and $7,567,000 for the nine months ended September 30, 2009.A majority of the exploration expenditures during the period were spent in the Athabasca Basin region of northern Saskatchewan. Denison is engaged in uranium exploration as part of the McClean and Midwest joint ventures operated by Areva Resources Canada Inc. ("ARC") as well as on 29 other exploration projects including the Company's 60% owned Wheeler River project. Denison's exploration expense on its Canadian properties totaled $1,728,000 for the three months ended September 30, 2010 and totaled $4,810,000 for the nine months ended September 30, 2010. For the three months ended September 30, 2009, exploration expense totaled $1,997,000 and $5,429,000 for the nine months ended September 30, 2009.The summer drill program on the highly prospective Phoenix trend on the 60% owned Wheeler River property was completed during the quarter. This three rig program drilled a total of 20,320 metres. This program successfully extended the strike length of the two known mineralized Zones A and B, as well as discovering two new zones along strike. The Phoenix trend remains open in both directions.Exploration expenditures of $486,000 and $841,000 for the three months and nine months ended September 30, 2010 compared to $803,000 for the three months and $1,933,000 for the nine months ended September 30, 2009 were incurred in Mongolia on the Company's joint venture properties. The Company has a 70% interest in the Gurvan Saihan Joint Venture ("GSJV") in Mongolia. The other parties to the joint venture are the Mongolian Government as to 15% and Geologorazvedka, a Russian government entity, as to 15%. Under the new Nuclear Energy Law, the Government of Mongolia could acquire a 34% to 51% interest at no cost to the Government. Denison is currently engaged with industry groups and trade representatives in Mongolia to determine how the new law could be applied in practice. In October, the Company and Mon-Atom, the Mongolian state owned uranium company and partner in the GSJV, signed a Memorandum of Understanding ("MOU"). The purpose of the MOU is to establish a co-operative arrangement with Mon-Atom to address the ownership issue in the context of existing agreements between the GSJV and the Government of Mongolia and the Nuclear Energy Law and to establish the basis for negotiation of an Investment Agreement. Discussions are also underway between industry groups and the Mongolian Government in an effort to have some of the provisions amended in the Nuclear Energy Law.In Zambia, the Company was granted mining licences for its Mutanga and Dibwe properties in late March. These licenses are for a period of twenty-five years. Environmental baseline sampling is ongoing as well as environmental assessment studies for the access road and power line.General and AdministrativeGeneral and administrative expenses totaled $3,390,000 for the three months and $9,414,000 for the nine months ended September 30, 2010 compared with $2,945,000 for the three months and $10,798,000 for the nine months ended September 30, 2009. General and administrative expenses consist primarily of payroll and related expenses for personnel, contract and professional services and other overhead expenditures. Expenditures in the quarter are higher due to legal costs relating to legal challenges in the U.S.Stock Option ExpenseStock option expense totaled $399,000 and $1,237,000 for the three and nine months ended September 30, 2010 compared to $1,053,000 and $2,758,000 for the three months and nine months ended September 30, 2009.Other Income and ExpensesOther income (expense) totaled $(4,861,000) for the three months and $11,149,000 for the nine months ended September 30, 2010 compared with $(14,953,000) for the three months and $(16,512,000) for the nine months ended September 30, 2009. This consists primarily of foreign exchange losses, interest income and investment disposal gains. Foreign exchange losses totaled $3,005,000 for the nine months ended September 30, 2010 compared to foreign exchange losses of $14,993,000 for the nine months ended September 30, 2009. Other income also includes a uranium sales contract termination fee. During the second quarter the Company agreed to terminate one of its sales contracts in exchange for a termination fee of $11,000,000. The fee is payable in two installments of $6,000,000 received in June, 2010 and $5,000,000 due in March, 2011.Income TaxesFor the nine months ended September 30, 2010 the Company has provided for a current tax expense of $314,000 and a future tax recovery of $2,506,000.OUTLOOK FOR 2010The Company has chosen to change its production schedule in the fourth quarter to allow for toll milling of a third party's ore during November. Production guidance is unchanged at 1.6 million pounds even with the change in milling schedule due to better than planned mill performance and higher Arizona 1 head grade. Vanadium production is however expected to decline to 2.4 million pounds V2O5 from 2.8 million.Uranium sales volumes are expected to remain at 1.8 million pounds U3O8. Vanadium sales are now expected to be 2.1 million pounds V2O5 versus the original sales volume of 3.2 million pounds due to lower than anticipated demand. The Company expects to achieve an average realized price of $47.09 per pound U3O8 sold and $6.53 per pound V2O5.The McClean Lake joint venture shut down the McClean Lake mill in August 2010 until new feed sources are available. The stand-by costs to Denison are expected to be negligible as most of them will be paid for by the Cigar Lake joint venture. The cost of production in the U.S. is expected to be $37.07 per pound U3O8 net of vanadium credits. The cost of production is calculated using the costs of mining the ore fed to the mill in the period plus the costs of milling the ore less a credit for vanadium produced in the period and excludes amortization and depreciation.LIQUIDITY AND CAPITAL RESOURCESCash and cash equivalents were $33,106,000 at September 30, 2010 compared with $19,804,000 at December 31, 2009. The increase of $13,302,000 was due primarily to cash provided by operating activities of $28,502,000 and proceeds from sale of investments of $6,999,000 less expenditures of $22,118,000 on property, plant and equipment.Net cash provided by operating activities of $28,502,000 during the nine months ended September 30, 2010 is comprised of net income for the period, adjusted for non-cash items and for changes in working capital items. Significant changes in working capital items during the period include an increase in accounts payable and accrued liabilities of $4,706,000, a decrease of $5,506,000 in inventories and a decrease of $547,000 in trade and other receivables. The decrease in inventories consists primarily of a decrease in ore in stockpile and uranium concentrates offset by an increase in vanadium concentrates.Net cash used in investing activities was $14,562,000 consisting primarily of expenditures on property, plant and equipment of $22,118,000 less proceeds from the sale of investments of $6,999,000 and proceeds on sale of property plant and equipment of $1,530,000.Net cash used in financing activities totaled $747,000 consisting primarily of repayment of debt obligations.In total, these sources and uses of cash resulted in a net cash inflow after the effect of foreign exchange of $13,302,000 during the period.The Company has in place a $60,000,000 revolving term credit facility ("the credit facility"). The credit facility contains three financial covenants, one based on maintaining a certain level of tangible net worth, which must be greater than or equal to the sum of $665,000,000 plus an amount equal to (i) 50% of each equity issue after September 30, 2009 and 50% of positive net income in each fiscal quarter from September 30, 2009, the second requiring a minimum current ratio of 1.10 to 1 and the third requiring the Company to reduce the borrowing facility to $35,000,000 for a period of time each quarter before drawing further amounts. The credit facility expires on June 30, 2011. There is currently no debt outstanding under this credit facility; however $9,425,000 of the line is currently used as collateral for certain letters of credit.The borrower under the credit facility is the Company's subsidiary, DMI and the Company has provided an unlimited full recourse guarantee and a pledge of all of the shares of DMI. DMI has provided a first-priority security interest in all present and future personal property and an assignment of its rights and interests under all material agreements relative to the McClean Lake and Midwest projects. In addition, each of the Company's material U.S. subsidiaries has provided an unlimited full recourse guarantee secured by a pledge of all of its shares and a first-priority security interest in all of its present and future personal property. The credit facility is subject to a standby fee of 100 basis points.OFF-BALANCE SHEET ARRANGEMENTSThe Company does not have any off-balance sheet arrangements.TRANSACTIONS WITH RELATED PARTIESThe Company is a party to a management services agreement with UPC. Under the terms of the agreement, the Company will receive the following fees from UPC: 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 UPC; b) a minimum annual management fee of CDN$400,000 (plus reasonable out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon UPC's net asset value between CDN$100,000,000 and CDN$200,000,000 and 0.2% per annum based upon UPC's net asset value in excess of CDN$200,000,000; c) a fee of CDN$200,000 upon the completion of each equity financing where proceeds to UPC exceed CDN$20,000,000; d) a fee of CDN$200,000 for each transaction or arrangement (other than the purchase or sale of uranium) of a business where the gross value of such transaction exceeds CDN$20,000,000 ("an initiative"); e) an annual fee up to a maximum of CDN$200,000, at the discretion of the Board of Directors of UPC, for on-going maintenance or work associated with an initiative; and f) a fee equal to 1.5% of the gross value of any uranium held by UPC prior to the completion of any acquisition of at least 90% of the common shares of UPC.The following transactions were incurred with UPC for the periods noted below:

 

Three Three Nine Nine
months months months months
Ended Ended Ended Ended
SeptemberSeptemberSeptember September
30, 2010 30, 2009 30, 2010 30, 2009

(in thousands)

Management fees $ 409 $ 344 $ 1,127 $ 1,144
Commission and transaction
fees - - 962 742
----------------------------------------------------------------------------
Total $ 409 $ 344 $ 2,089 $ 1,886
----------------------------------------------------------------------------

At September 30, 2010, accounts receivable includes $172,000 due from UPC with respect to the fees indicated above.Korea Electric Power Corporation ("KEPCO")In June 2009, Denison completed definitive agreements with KEPCO. The agreements included a long-term offtake agreement which provides for the delivery to KEPCO of 20% of Denison's annual U3O8 production (+/-10%) but not less than 350,000 pounds (+/-10%) per year from 2010 to 2015 inclusive. KEPCO also purchased 58,000,000 common shares of Denison representing approximately 17% of the issued and outstanding capital as at the June 2009 share purchase. Two representatives from KEPCO have been appointed to Denison's board of directors.OUTSTANDING SHARE DATAAt November 4, 2010, there were 339,720,415 common shares issued and outstanding, stock options to purchase a total of 6,538,339 common shares and warrants to purchase a total of 6,408,000 common shares, for a total of 352,666,754 common shares on a fully-diluted basis.MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGThe Company's management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.There has not been any change in the Company's internal control over financial reporting that occurred during the Company's third quarter of 2010 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.Changes in Accounting PoliciesThe Company has adopted the following new standards issued by the CICA:

 

a) CICA Handbook Section 1582 "Business Combinations", Section 1601
"Consolidated Financial Statements" and Section 1602 "Non-Controlling
Interests" which replace the former CICA 1581 "Business Combinations"
and CICA 1600 "Consolidated Financial Statements" and establish a new
section for accounting for a non-controlling interest in a subsidiary.
These sections provide the Canadian equivalent to FASB Statements
No.141® "Business Combinations" and No.160 "Non-Controlling Interests
in Consolidated Financial Statements". CICA 1582 is effective for
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period after January 1, 2011.
CICA 1601 and CICA 1602 apply to interim and annual consolidated
financial statements relating to years beginning on or after January 1,
2011 although early adoption is permitted. CICA 1582, which replaces
Handbook Section 1581, Business Combinations, establishes standards for
the measurement of a business combination and the recognition and
measurement of assets acquired and liabilities assumed. CICA 1601, which
replaces Handbook Section 1600, carries forward the existing Canadian
guidance on aspects of the preparation of consolidated financial
statements subsequent to acquisition other than non-controlling
interests. CICA 1602 establishes guidance for the treatment of non-
controlling interests subsequent to acquisition through a business
combination. The Company has early adopted all three sections effective
January 1, 2010. There was no impact to the Company's financial
statements from adopting these standards.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)The Company is in the process of converting its basis of accounting from Canadian GAAP to IFRS to be effective in the first quarter report 2011. The conversion date for IFRS reporting is January 1, 2011. The restatement for comparative purposes of amounts reported for the year ended December 31, 2010 will also be required.The conversion to IFRS from Canadian GAAP is a significant undertaking. Management has established an IFRS project team that is staffed with both internal and external resources.The implementation project plan consists of three phases:

 

-- Initial diagnostic phase

-- Impact analysis and design phase

-- Implementation phase


The initial diagnostic phase was completed in third quarter 2008. The impact analysis and design phase and the implementation phase were initiated in 2009 and efforts are continuing for 2010.The impact analysis and design phase involves the selection of IFRS accounting policies by senior management and review by the audit committee; the quantification of impact of changes to the Company's existing accounting policies on its opening IFRS balance sheet; and the development of draft IFRS financial statements.The implementation phase involves the implementation of required changes to the Company's information systems and procedures. It will culminate in the collection of financial information necessary to prepare IFRS financial statements and audit committee approval of financial statements.During the third quarter, efforts were mainly focused on preparation of the IFRS opening balance sheet amounts for January 1, 2010. A preliminary calculation has been prepared and reviewed by management and is in the process of being examined by the Company's auditors. The most significant adjustments result from differences in recognition of long-lived asset impairments primarily on mineral properties and tax related adjustments. The overall effect of the adjustments is expected to give rise to a decrease in the asset values on the IFRS balance sheet versus the Canadian GAAP balance sheet. Plans for the fourth quarter include finalization of opening balance sheet, development of quarterly 2010 IFRS financial statements and required note disclosures.Management is using a combination of the current financial system application and some end-user computing tools to record the IFRS compliant financial information.Other work that is underway includes analysis of additional financial statement and note disclosures, review of information system and internal control changes required, and additional training required for key personnel. The Company is not anticipating significant information system changes or significant internal control changes.Potential Impact of IFRS Implementation on DenisonA description of the potential areas of impact of the IFRS implementation for Denison was outlined in the Company's management discussion and analysis dated March 11, 2010 available at www.sedar.com or www.sec.gov.com. There have been no significant changes to the information that was provided in that disclosure. However, management continues to monitor new developments and/or changes to the IFRS standards for applicability to Denison.MINE SAFETYUnder Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted by the U.S. Congress on July 21, 2010, the Company is required to make certain disclosures relating to violations, orders, penalties, assessments and fatalities that occurred during the reporting period at mines operated by the Company in the United States. During the Quarter, the Company received the following citations from the U.S. Mine Safety and Health Administration ("MSHA") for violation of a mandatory health and safety standard that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under Section 104 of the U.S. Mine Safety and Health Act of 1977:

 

-- Two citations as operator of the Beaver Shaft mine, for which MSHA has
assessed a penalty of $959; and

-- One citation as operator of the Arizona 1 Mine, for which MSHA has not
assessed a penalty at this time.

The total value of proposed assessments from MSHA during the quarter, including those mentioned above, was $7,421.RISK FACTORSThere are a number of factors that could negatively affect Denison's business and the value of Denison's common shares, including the factors listed in the Company's Annual Information Form dated March 19, 2010 available at www.sedar.com and Form 40-F available at www.sec.gov below.QUALIFIED PERSONThe disclosure of scientific and technical information regarding Denison's properties in this press release was prepared by or under the supervision of William C. Kerr, the Company's Vice-President, Exploration and Terry Wetz, Director of Project Development who are Qualified Persons in accordance with the requirements of National Instrument 43-101.

 

---------------------------------------------------------------------------
---------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

At September 30 At December 31
2010 2009
----------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents $ 33,106 $ 19,804
Trade and other receivables (Note 3) 13,431 13,773
Inventories (Note 4) 46,008 52,216
Prepaid expenses and other 1,309 1,607
----------------------------------------------------------------------------
93,854 87,400

Inventories - ore in stockpiles (Note
4) 2,130 1,530
Investments (Note 5) 2,310 10,605
Prepaid expenses and other 149 287
Restricted cash and investments (Note
6) 23,137 21,656
Property, plant and equipment (Note 7) 701,535 691,039
Intangibles (Note 8) 3,883 4,436
Goodwill (Note 9) 52,117 51,028
----------------------------------------------------------------------------
$ 879,115 $ 867,981
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES
Current
Accounts payable and accrued
liabilities $ 14,312 $ 9,508
Current portion of long-term
liabilities:
Post-employment benefits (Note 10) 389 380
Reclamation and remediation
obligations (Note 11) 768 752
Debt obligations (Note 12) 106 869
Other long-term liabilities (Note 13) 319 313
----------------------------------------------------------------------------
15,894 11,822

Deferred revenue 3,390 3,187
Provision for post-employment benefits
(Note 10) 3,523 3,426
Reclamation and remediation obligations
(Note 11) 17,514 17,154
Debt obligations (Note 12) 225 195
Other long-term liabilities (Note 13) 1,071 1,051
Future income tax liability 101,899 102,918
----------------------------------------------------------------------------
143,516 139,753
----------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (Note 14) 849,135 849,488
Share purchase warrants (Note 15) 5,830 5,830
Contributed surplus (Note 16 and 17) 41,159 39,922
Deficit (244,432) (242,494)
Accumulated other comprehensive income
(Note 18) 83,907 75,482
----------------------------------------------------------------------------
735,599 728,228
----------------------------------------------------------------------------
$ 879,115 $ 867,981
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Issued and outstanding common shares
(Note 14) 339,720,415 339,720,415
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments and contingencies (Note 23)

See accompanying notes to the consolidated financial statements

----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Statements of Operations
(Unaudited - Expressed in thousands of U.S. dollars except for per share
amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------- -------------------------
SeptemberSeptemberSeptember September
30 30 30 30
2010 2009 2010 2009
----------------------------------------------------------------------------

REVENUES (Note 20) $ 39,883 $ 12,748 $ 89,088 $ 48,118
----------------------------------------------------------------------------

EXPENSES
Operating expenses
(Note 19) 37,625 11,067 85,613 53,201
Sales royalties and
capital taxes 837 359 2,124 1,047
Mineral property
exploration 2,528 2,988 5,979 7,567
General and
administrative 3,390 2,945 9,414 10,798
Stock option expense
(Note 17) 399 1,053 1,237 2,758
Mineral property
impairment - 100,000 - 100,000
----------------------------------------------------------------------------
44,779 118,412 104,367 175,371
----------------------------------------------------------------------------

Income (loss) from
operations (4,896) (105,664) (15,279) (127,253)
Other income
(expense) (Note 19) (4,861) (14,953) 11,149 (16,512)
----------------------------------------------------------------------------
Income (loss) before
taxes (9,757) (120,617) (4,130) (143,765)

Income tax recovery
(expense):
Current (355) 74 (314) 1,690
Future 591 29,200 2,506 31,190
----------------------------------------------------------------------------
Net income (loss) for
the period $ (9,521) $ (91,343) $ (1,938) $ (110,885)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net income (loss) per
share:
Basic $ (0.03) $ (0.27) $ (0.01) $ (0.41)
Diluted $ (0.03) $ (0.27) $ (0.01) $ (0.41)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Weighted-average
number of shares
outstanding (in
thousands):
Basic 339,720 339,720 339,720 268,655
Diluted 339,733 339,720 339,730 268,655
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements


----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Statements of Shareholders' Equity and Comprehensive Income
(Loss)
(Unaudited - Expressed in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
-------------------------------------
September 30 September 30
2010 2009
----------------------------------------------------------------------------

Share capital
Balance at beginning of period $ 849,488 $ 666,278
New shares issued-net of issue costs - 185,053
Renunciation of flow-through share
liabilities (353) (1,824)
----------------------------------------------------------------------------
Balance at end of period $ 849,135 $ 849,507
----------------------------------------------------------------------------

Share purchase warrants
Balance at beginning of period $ 5,830 $ 11,728
Warrant expiries - -
----------------------------------------------------------------------------
Balance at end of period $ 5,830 $ 11,728
----------------------------------------------------------------------------

Contributed surplus
Balance at beginning of period $ 39,922 $ 30,537
Stock-based compensation expense 1,237 2,758
----------------------------------------------------------------------------
Balance at end of period $ 41,159 $ 33,295
----------------------------------------------------------------------------

Deficit
Balance at beginning of period $ (242,494) $ (95,482)
Net income (loss) for the period (1,938) (110,885)
----------------------------------------------------------------------------
Balance at end of period $ (244,432) $ (206,367)
----------------------------------------------------------------------------

Accumulated other comprehensive income
(loss)
Balance at beginning of period $ 75,482 $ (4,709)
Unrealized gain (loss) on investments
change-net of tax (3,451) 15,544
Foreign currency translation change 11,876 65,909
----------------------------------------------------------------------------
Balance at end of period $ 83,907 $ 76,744
----------------------------------------------------------------------------

Total shareholders' equity $ 735,599 $ 764,907
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Comprehensive income (loss)
Net income (loss) for the period $ (1,938) $ (110,885)
Unrealized gain (loss) on investments
change-net of tax (3,451) 15,544
Foreign currency translation change 11,876 65,909
----------------------------------------------------------------------------
Comprehensive income (loss) for the
period $ 6,487 $ (29,432)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Consolidated Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------- -------------------------
CASH PROVIDED BY SeptemberSeptemberSeptember September
(USED IN): 30 2010 30 2009 30 2010 30 2009
----------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income (loss) for
the period $ (9,521) $ (91,343) $ (1,938) $ (110,885)
Items not affecting
cash:
Depletion,
depreciation,
amortization and
accretion 22,984 4,451 45,234 21,701
Investments
impairment - - 181 -
Mineral properties
impairment - 100,000 - 100,000
Stock-based
compensation 399 1,053 1,237 2,758
Losses (gains) on
asset disposals (1,745) (835) (2,663) (707)
Losses (gains) on
restricted
investments (162) (116) (502) 580
Non-cash inventory
adjustments (5,650) (2,762) (12,830) (2,579)
Future income tax
expense (recovery) (591) (29,200) (2,506) (31,190)
Foreign exchange 6,695 15,616 3,005 14,993

Net change in non-
cash working capital
items
Trade and other
receivables (85) 50 547 550
Inventories 1,495 (10,842) (5,506) (29,096)
Prepaid expenses and
other assets (423) (630) 309 149
Accounts payable and
accrued liabilities 1,137 (620) 4,706 (13,909)
Post-employment
benefits (64) (88) (178) (211)
Reclamation and
remediation
obligations (194) (163) (797) (485)
Deferred revenue (168) - 203 274
----------------------------------------------------------------------------
Net cash provided by
(used in) operating
activities 14,107 (15,429) 28,502 (48,057)
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Decrease (increase)
in notes receivable 2 380 (22) 193
Purchase of
investments - (711) (17) (711)
Proceeds from sale of
investments 4,655 72 6,999 3,294
Expenditures on
property, plant and
equipment (6,970) (9,058) (22,118) (32,248)
Proceeds on sale of
property, plant and
equipment - 807 1,530 1,513
Increase in
restricted cash and
investments (672) (41) (934) (1,090)
----------------------------------------------------------------------------
Net cash used in
investing activities (2,985) (8,551) (14,562) (29,049)
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Decrease in debt
obligations (197) (159) (747) (100,411)
Issuance of common
shares for:
New share issues - 138 - 185,053
----------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities (197) (21) (747) 84,642
----------------------------------------------------------------------------

Increase in cash and
cash equivalents 10,925 (24,001) 13,193 7,536
Foreign exchange
effect on cash and
cash equivalents 189 1,861 109 558
Cash and cash
equivalents,
beginning of period 21,992 33,440 19,804 3,206
----------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 33,106 $ 11,300 $ 33,106 $ 11,300
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements


----------------------------------------------------------------------------
----------------------------------------------------------------------------
DENISON MINES CORP.
Notes to the Consolidated Financial Statements
(Unaudited - Expressed in U.S. dollars, unless otherwise noted)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

1. NATURE OF OPERATIONS

Denison Mines Corp. ("DMC") is incorporated under the Business Corporations Act (Ontario) ("OBCA"). Denison Mines Corp. and its subsidiary companies and joint ventures (collectively, the "Company") are engaged in uranium mining and related activities, including acquisition, exploration and development 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.The Company has a 100% interest in the White Mesa mill located in Utah, United States and a 22.5% interest in the McClean Lake mill located in the Athabasca Basin of Saskatchewan, Canada. The Company has interests in a number of nearby mines at both locations, as well as interests in development and exploration projects located in Canada, the United States, Mongolia and Zambia, some of which are operated through joint ventures and joint arrangements. Uranium, the Company's primary product, is produced in the form of uranium oxide concentrates ("U3O8") and sold to various customers around the world for further processing. Vanadium, a co-product of some of the Company's U.S mines is also produced and is in the form of vanadium pentoxide ("V2O5"). The Company is also in the business of processing uranium bearing waste materials, referred to as "alternate feed materials".Denison Mines Inc. ("DMI"), a subsidiary of DMC, is the manager of Uranium Participation Corporation ("UPC"), a publicly-listed investment holding company formed to invest substantially all of its assets in U3O8 and uranium hexafluoride ("UF6"). The Company has no ownership interest in UPC but receives various fees for management services and commissions from the purchase and sale of U3O8 and UF6 by UPC.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of PresentationThese unaudited consolidated financial statements have been prepared by management in U.S. dollars, unless otherwise stated, in accordance with generally accepted accounting principles in Canada ("Canadian GAAP") for interim financial statements.Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with Canadian GAAP have been condensed or excluded. As a result, these unaudited interim consolidated financial statements do not contain all disclosures required for annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2009.All material adjustments which, in the opinion of management, are necessary for fair presentation of the results of the interim periods have been reflected in these financial statements. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.These unaudited interim consolidated financial statements are prepared following accounting policies consistent with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2009, except for the changes noted under the "New Accounting Standards Adopted" section below.Significant Mining InterestsThe following table sets forth the Company's ownership of its significant mining interests that have projects at the development stage within them as at September 30, 2010:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ownership
Location Interest
----------------------------------------------------------------------------

Through majority owned subsidiaries
Arizona Strip USA 100.00%
Henry Mountains USA 100.00%
Colorado Plateau USA 100.00%
Gurvan Saihan Joint Venture Mongolia 70.00%
Mutanga Zambia 100.00%

As interests in unincorporated joint
ventures, or jointly controlled assets
McClean Lake Canada 22.50%
Midwest Canada 25.17%

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

New Accounting Standards AdoptedThe Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA") Handbook effective January 1, 2010:

 

CICA Handbook Section 1582 "Business Combinations", Section 1601
"Consolidated Financial Statements" and Section 1602 "Non-Controlling
Interests" which replace the former CICA 1581 "Business Combinations"
and CICA 1600 "Consolidated Financial Statements" and establish a new
section for accounting for a non-controlling interest in a subsidiary.
These sections provide the Canadian equivalent to FASB Statements
No.141® "Business Combinations" and No.160 "Non-Controlling Interests
in Consolidated Financial Statements". CICA 1582 is effective for
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period after January 1, 2011.
CICA 1601 and CICA 1602 apply to interim and annual consolidated
financial statements relating to years beginning on or after January 1,
2011 although early adoption is permitted. CICA 1582, which replaces
Handbook Section 1581, Business Combinations, establishes standards for
the measurement of a business combination and the recognition and
measurement of assets acquired and liabilities assumed. CICA 1601,
which replaces Handbook Section 1600, carries forward the existing
Canadian guidance on aspects of the preparation of consolidated
financial statements subsequent to acquisition other than non-
controlling interests. CICA 1602 establishes guidance for the treatment
of non-controlling interests subsequent to acquisition through a
business combination. The Company has early adopted all three sections
effective January 1, 2010. There was no impact to the Company's
financial statements from adopting these standards.

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

 

3. TRADE AND OTHER RECEIVABLES

The trade and other receivables balance consists of:

--------------------------------------------------------------------------
--------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2010 2009
--------------------------------------------------------------------------

Trade receivables - mineral concentrate
sales $ 1,370 $ 9,422
Trade receivables - other 4,251 2,114
Trade and other receivables in joint
ventures 867 928
GST and VAT receivables 1,030 1,127
Sundry receivables 5,913 182
Notes receivable - -
--------------------------------------------------------------------------
$ 13,431 $ 13,773
--------------------------------------------------------------------------
--------------------------------------------------------------------------

4. INVENTORIES

The inventories balance consists of:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2010 2009
----------------------------------------------------------------------------

Uranium concentrates and work-in-progress
(1) $ 16,578 $ 19,921
Vanadium concentrates and work-in-progress
(2) 8,836 442
Inventory of ore in stockpiles 17,802 28,366
Mine and mill supplies 4,922 5,017
----------------------------------------------------------------------------
$ 48,138 $ 53,746
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Inventories - by duration:
Current $ 46,008 $ 52,216
Long-term - ore in stockpiles 2,130 1,530
----------------------------------------------------------------------------
$ 48,138 $ 53,746
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) The uranium concentrates and work-in-progress inventory is presented
after a net realizable value provision of $nil as at September 30,
2010 and $5,910,000 as at December 31, 2009.
(2) The vanadium concentrates and work-in-progress inventory is presented
after a net realizable value provision of $103,000 as at September
30, 2010 and $7,302,000 as at December 31, 2009.

Operating expenses include write-downs (recoveries) of ($13,157,000) and ($2,579,000) relating to the net realizable value of the Company's uranium and vanadium inventories for the nine months ended September 2010 and September 2009, respectively.Long-term ore in stockpile inventory represents an estimate of the amount of ore on the stockpile in excess of the next twelve months of planned mill production.

 

5. INVESTMENTS

The investments balance consists of:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30 At December 31
(in thousands) 2010 2009
----------------------------------

Investments
Available for sale securities at fair
value $ 2,310 $ 10,605
----------------------------------------------------------------------------
$ 2,310 $ 10,605
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Investment SalesDuring the nine months ended September 2010, the Company sold equity interests in three public companies for cash consideration of $6,999,000. The resulting gain of $2,661,000 has been included in "other income (expense)" in the statement of operations (see Note 19).Investment ImpairmentsDuring the nine months ended September 2010, the Company has taken impairment charges of $181,000 on its investments. The resulting loss has been included in "other income (expense)" in the statement of operations (see Note 19).

 

6. RESTRICTED CASH AND INVESTMENTS

The Company has certain restricted cash and investments deposited to collateralize its reclamation obligations. The restricted cash and investments balance consists of:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
At At
September 30, December 31,
(in thousands) 2010 2009
----------------------------------------------------------------------------

Cash $ 57 $ 23
Cash equivalents 7,780 3,066
Investments 15,300 18,567
----------------------------------------------------------------------------
$ 23,137 $ 21,656
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Restricted cash and investments - by item:
U.S. mill and mine reclamation $ 20,502 $ 19,564
Elliot Lake reclamation trust fund 2,635 2,092
----------------------------------------------------------------------------
$ 23,137 $ 21,656
----------------------------------------------------------------------------
----------------------------------------------------------------------------

U.S. Mill and Mine ReclamationThe Company has cash, cash equivalents and fixed income securities as collateral for various bonds posted in favour of the State of Utah, the applicable state regulatory agencies in Colorado and Arizona and the U.S. Bureau of Land Management for estimated reclamation costs associated with the White Mesa mill and U.S. mining properties. During the nine months ended September 2010, the Company has not deposited any additional monies into its collateral account.Elliot Lake Reclamation Trust FundDuring the nine months ended September 2010, pursuant to its Reclamation Funding Agreement with the Governments of Canada and Ontario, the Company has deposited $1,313,000 (CDN$1,358,000) of additional monies into the Elliot Lake Reclamation Trust Fund and has withdrawn $819,000 (CDN$850,000).

 

7. PROPERTY, PLANT AND EQUIPMENT

The property, plant and equipment balance consists of:

------------------------------------------------------------
------------------------------------------------------------
At At
September 30, December 31,
(in thousands) 2010 2009
------------------------------------------------------------

Plant and equipment:
Cost $ 178,435 $ 172,675
Construction-in-
progress 19,811 11,861
Accumulated
depreciation (35,888) (27,916)
------------------------------------------------------------
$ 162,358 $ 156,621
------------------------------------------------------------

Mineral properties:
Cost $ 705,191 $ 686,457
Impairment (103,441) (103,441)
Accumulated
amortization (62,573) (48,598)
------------------------------------------------------------
$ 539,177 $ 534,418
------------------------------------------------------------

------------------------------------------------------------
Net book value $ 701,535 $ 691,039
------------------------------------------------------------
------------------------------------------------------------

A continuity summary of property, plant and equipment is presented below:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
(in thousands) September 30, 2010
----------------------------------------------------------------------------

Property, plant and equipment - net book value:
Beginning of period $ 691,039
Additions 24,886
Disposals (1,922)
Depreciation and amortization (21,685)
Recovery 394
Foreign exchange 8,823
----------------------------------------------------------------------------
End of period $ 701,535
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Plant and Equipment - MiningDuring the first nine months of 2010, the Company completed the disposal of certain of its mining equipment at its McClean Lake mining operation for proceeds of $1,530,000. The resulting realized loss on disposal of $392,000 has been included in "other income (expense)" in the statement of operations.Mineral PropertiesThe Company has various interests in development and exploration projects located in Canada, the U.S., Mongolia and Zambia which are held directly or through option or joint venture agreements. Amounts spent on development projects are capitalized as mineral property assets. Most exploration projects are expensed.CanadaIn 2006, the Company entered into an option agreement to earn up to a 75% interest in the Park Creek project. The Company is required to incur exploration expenditures of CDN$2,800,000 over three years to earn an initial 49% interest and a further CDN$3,000,000 over six years to earn an additional 26% interest. As at September 30, 2010, the Company has incurred a total of CDN$4,206,000 towards the option and has earned a 49% ownership interest in the project under the phase-in-ownership provisions of the agreement.

 

8. INTANGIBLES

The intangibles balance consists of:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
At At
September 30, December 31,
(in thousands) 2010 2009
----------------------------------------------------------------------------

Cost
UPC management services agreement $ 7,191 $ 7,041
Urizon technology licenses 750 750
----------------------------------------------------------------------------
$ 7,941 $ 7,791
----------------------------------------------------------------------------
Impairment
Urizon technology licenses (359) (359)
----------------------------------------------------------------------------
$ (359) $ (359)
----------------------------------------------------------------------------
Accumulated amortization
UPC management services agreement (3,308) (2,605)
Urizon technology licenses (391) (391)
----------------------------------------------------------------------------
$ (3,699) $ (2,996)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Net book value $ 3,883 $ 4,436
----------------------------------------------------------------------------
----------------------------------------------------------------------------

A continuity summary of intangibles is presented below:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
(in thousands) September 30, 2010
----------------------------------------------------------------------------

Intangibles - net book value:
Beginning of period $ 4,436
Amortization (643)
Foreign exchange 90
----------------------------------------------------------------------------
Net book value, end of period $ 3,883
----------------------------------------------------------------------------
----------------------------------------------------------------------------

9. GOODWILL

The goodwill balance consists of:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
At At
(in thousands) September 30 2010 December 31 2009
---------------------------------------------------------------------------

Goodwill, allocation by business unit:
Canada mining segment $ 52,117 $ 51,028
---------------------------------------------------------------------------
---------------------------------------------------------------------------

A continuity summary of goodwill is presented below:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
(in thousands) September 30, 2010
----------------------------------------------------------------------------

Goodwill:
Beginning of period $ 51,028
Foreign exchange 1,089
----------------------------------------------------------------------------
End of period $ 52,117
----------------------------------------------------------------------------
----------------------------------------------------------------------------

10. POST-EMPLOYMENT BENEFITS

The post-employment benefits balance consists of:

----------------------------------------------------------------
----------------------------------------------------------------
At At
(in thousands) September 30 2010 December 31 2009
----------------------------------------------------------------

Accrued benefit obligation $ 3,714 $ 3,594
Unamortized experience gain 198 212
----------------------------------------------------------------
$ 3,912 $ 3,806
----------------------------------------------------------------
----------------------------------------------------------------

Post-employment benefits -
by duration:
Current 389 380
Non-current 3,523 3,426
----------------------------------------------------------------
$ 3,912 $ 3,806
----------------------------------------------------------------
----------------------------------------------------------------

A continuity summary of the post-employment benefits is presented below:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
(in thousands) September 30, 2010
----------------------------------------------------------------------------

Post-employment benefits:
Beginning of period $ 3,806
Benefits paid (178)
Interest cost 220
Amortization of experience gain (18)
Foreign exchange 82
----------------------------------------------------------------------------
End of period $ 3,912
----------------------------------------------------------------------------
----------------------------------------------------------------------------

11. RECLAMATION AND REMEDIATION OBLIGATIONS

The reclamation and remediation obligations balance consists of:

---------------------------------------------------------------------------
---------------------------------------------------------------------------
At At
(in thousands) September 30 2010 December 31 2009
---------------------------------------------------------------------------

Reclamation obligations - by location:
U.S Mill and Mines $ 9,086 $ 8,609
Elliot Lake 7,969 8,155
McClean and Midwest Joint Ventures 1,227 1,142
---------------------------------------------------------------------------
$ 18,282 $ 17,906
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Reclamation obligations - by duration:
Current 768 752
Non-current 17,514 17,154
---------------------------------------------------------------------------
$ 18,282 $ 17,906
---------------------------------------------------------------------------
---------------------------------------------------------------------------

A continuity summary of reclamation and remediation obligations is presented
below:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
September 30,
(in thousands) 2010
----------------------------------------------------------------------------

Reclamation and remediation obligations:
Beginning of period $ 17,906
Accretion 978
Expenditures incurred (797)
Foreign exchange 195
----------------------------------------------------------------------------
End of period $ 18,282
----------------------------------------------------------------------------
----------------------------------------------------------------------------

12. DEBT OBLIGATIONS

The debt obligations balance consists of:

------------------------------------------------------------------------
------------------------------------------------------------------------
At At
(in thousands) September 30 2010 December 31 2009
------------------------------------------------------------------------

Revolving line of credit $ - $ -
Notes payable and other financing 331 1,064
------------------------------------------------------------------------
$ 331 $ 1,064
------------------------------------------------------------------------
------------------------------------------------------------------------

Debt obligations, by duration:
Current 106 869
Non-current 225 195
------------------------------------------------------------------------
$ 331 $ 1,064
------------------------------------------------------------------------
------------------------------------------------------------------------

Revolving Line of CreditThe Company has in place a $60,000,000 revolving term credit facility (the "facility") with the Bank of Nova Scotia. The maturity date of the facility is June 30, 2011.As at September 30, 2010, the Company has no outstanding borrowings under the facility (December 31, 2009 - $Nil). At September 30, 2010, approximately $9,425,000 of the facility is being utilized as collateral for certain letters of credit and is not available to draw upon (December 31, 2009 - $9,228,000). During the nine months ending September 30, 2010, the Company has not incurred any interest under the facility.The Company has deferred $1,214,000 (CDN$1,250,000) of incremental costs associated with the set-up and subsequent amendment of the facility. These costs are being amortized over the three year term of the facility. The unamortized portion of the asset is included in "prepaid expenses and other" on the consolidated balance sheet.

 

13. OTHER LONG-TERM LIABILITIES

The other long-term liabilities balance consists of:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
At At
September 30 December 31
(in thousands) 2010 2009
----------------------------------------------------------------------------

Unamortized fair value of sales contracts $ 319 $ 313
Unamortized fair value of toll milling
contracts 971 951
Other 100 100
----------------------------------------------------------------------------
$ 1,390 $ 1,364
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Other long-term liabilities - by duration:
Current 319 313
Non-current 1,071 1,051
----------------------------------------------------------------------------
$ 1,390 $ 1,364
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Unamortized fair values of sales contracts are amortized to revenue as
deliveries under the applicable contracts are made.

14. SHARE CAPITAL

Denison is authorized to issue an unlimited number of common shares without par value. A continuity summary of the issued and outstanding common shares and the associated dollar amounts is presented below:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of
Common Dollar
(in thousands except share amounts) Shares Amount
----------------------------------------------------------------------------

Balance at December 31, 2009 339,720,415 $ 849,488
----------------------------------------------------------------------------

Renunciation of flow-through share
liability - (353)
----------------------------------------------------------------------------
- (353)
----------------------------------------------------------------------------
Balance at September 30, 2010 339,720,415 $ 849,135
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Flow-Through Share IssuesThe Company finances a portion of its exploration programs through the use of flow-through share issuances. Income tax deductions relating to these expenditures are claimable by the investors and not by the Company.As at September 30, 2010, the Company has fully met its CDN$1,471,500 June 2009 flow-through share obligation. The Company renounced the tax benefit of the issue to its subscriber in February 2010.

 

15. SHARE PURCHASE WARRANTS

A continuity summary of the issued and outstanding share purchase warrants in terms of common shares of the Company and the associated dollar amounts is presented below:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number of Fair Value
Common Shares Dollar
(in thousands except share amounts) Issuable Amount
----------------------------------------------------------------------------

Balance at December 31, 2009 and September
30, 2010 6,408,000 $ 5,830
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Share purchase warrants, by series:
March 2006 series (1) 6,408,000 5,830
----------------------------------------------------------------------------
6,408,000 $ 5,830
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) The March 2006 series has an effective exercise price of CDN$10.42 per
issuable share (CDN$30.00 per warrant adjusted for the 2.88 exchange
ratio associated with the Denison and IUC merger) and expires on March
1, 2011.

16. CONTRIBUTED SURPLUS

A continuity summary of contributed surplus is presented below:

----------------------------------------------------------------------
----------------------------------------------------------------------
Nine Months Ended
(in thousands) September 30, 2010
----------------------------------------------------------------------

Contributed surplus:
Beginning of period $ 39,922
Stock-based compensation expense (note 17) 1,237
----------------------------------------------------------------------
End of period $ 41,159
----------------------------------------------------------------------
----------------------------------------------------------------------

17. STOCK OPTIONS

The Company's stock-based compensation plan (the "Plan") provides for the granting of stock options up to 10% of the issued and outstanding common shares at the time of grant, subject to a maximum of 20 million common shares. As at September 30, 2010, an aggregate of 12,224,025 options have been granted (less cancellations) since the Plan's inception in 1997.Under the Plan, all stock options are granted at the discretion of the Company's board of directors, including any vesting provisions if applicable. The term of any stock option granted may not exceed ten years and the exercise price may not be lower than the closing price of the Company's shares on the last trading day immediately preceding the date of grant. In general, the term of stock options granted under the Plan is five years and vesting occurs over a thirty month period.A continuity summary of the stock options of the Company granted under the Plan for the nine months ended September 30, 2010 is presented below:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-
Average
Exercise
Number of Price per
Common Share
Shares (CDN $)
----------------------------------------------------------------------------

Stock options outstanding - beginning of
period 8,084,990 $ 2.97
Granted 407,000 1.43
Exercised - -
Cancellations (1,820,151) 3.47
----------------------------------------------------------------------------
Stock options outstanding - end of period 6,671,839 $ 2.74
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock options exercisable - end of period 3,609,071 $ 3.24
----------------------------------------------------------------------------
----------------------------------------------------------------------------

A summary of the Company's stock options outstanding at September 30, 2010 is presented below:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted Weighted-
Average Average
Remaining Exercise
Range of Exercise Contractual Number of Price per
Prices per Share Life Common Share
(CDN$) (Years) Shares (CDN $)
----------------------------------------------------------------------------

Stock options outstanding
$1.37 to $4.99 3.72 5,523,975 $ 2.02
$5.00 to $9.99 4.09 1,040,039 5.75
$10.00 to $15.30 0.16 107,825 10.50
----------------------------------------------------------------------------
Stock options outstanding - end of
period 3.72 6,671,839 $ 2.74
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Options outstanding at September 30, 2010 expire between October 2010 and October 2016.The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model. The following table outlines the range of assumptions used in the model for the period:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months Ended
September 30, 2010
----------------------------------------------------------------------------

Risk-free interest rate 2.48 - 2.49%
Expected stock price volatility 87.4 - 90.1%
Expected life 3.7 - 3.8 years
Expected forfeitures 5.1%
Expected dividend yield -
Fair value per share under options granted CDN$0.88 - CDN$0.90
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Stock-based compensation would be allocated as follows in the statement of
operations:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30 September 30 September 30 September 30
(in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------

Operating expenses $ 109 $ 182 $ 427 $ 451
Mineral property
exploration 34 51 116 94
General and
administrative 256 820 694 2,213
----------------------------------------------------------------------------
$ 399 $ 1,053 $ 1,237 $ 2,758
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The fair values of stock options with vesting provisions are amortized on a straight-line basis as stock-based compensation expense over the applicable vesting periods. At September 30, 2010, the Company had an additional $2,393,000 in stock-based compensation expense to be recognized periodically to November 2012.

 

18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

A continuity summary of accumulated other comprehensive income (loss)
("AOCI") is as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
September 30 September 30 September 30 September 30
(in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------

AOCI - beginning of
period $ 65,533 $ 23,053 $ 75,482 $ (4,709)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cumulative foreign
currency
translation gain
(loss)
Beginning of
period $ 64,797 $ 13,433 $ 71,898 $ (4,925)
Change in foreign
currency
translation 18,977 47,551 11,876 65,909
----------------------------------------------------------------------------
End of period 83,774 60,984 83,774 60,984
----------------------------------------------------------------------------

Unrealized gains
(losses) on
investments
Beginning of
period 736 10,150 3,584 216
Net unrealized
gains (losses),
net of tax (1) (603) 5,610 (3,451) 15,544
----------------------------------------------------------------------------
End of period 133 15,760 133 15,760
----------------------------------------------------------------------------

AOCI - end of
period $ 83,907 $ 76,744 $ 83,907 $ 76,744
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Unrealized gains (losses) on investments deemed available-for-sale are
included in other comprehensive income (loss) until realized. When the
investment is disposed of or incurs a decline in value that is other
than temporary, the gain (loss) is realized and reclassified to the
income statement within other income (expense). During the three and
nine months ended September 2010, approximately $1,745,000 and
$2,661,000 of gains from investment disposals were recognized and
reclassified to the income statement, respectively. During the three
months and nine months ended September 30, 2010, approximately $nil and
$181,000 of other than temporary losses were recognized and
reclassified to the income statement. During the three and nine months
ended September 2009, approximately $36,000 and $172,000 of gains from
investment disposals were recognized and reclassified to the income
statement, respectively. During the nine months ended September 2009,
no other than temporary losses were recognized.

19. SUPPLEMENTAL FINANCIAL INFORMATION

The elements of operating expenses in the statement of operations are as
follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------- -------------------------
SeptemberSeptemberSeptember September
30 30 30 30
(in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------

Cost of goods sold -
mineral concentrates $ 33,325 $ 5,940 $ 61,345 $ 34,710
Mining and
development 7,175 13,550 24,949 41,391
Less: absorption to
stockpiles, mineral
properties (6,859) (12,749) (23,868) (38,886)
Mineral property
amortization and
stockpile depletion 13,235 9,345 36,661 36,279
Milling and
conversion 12,196 4,308 39,578 32,240
Less: absorption to
concentrates (25,290) (13,280) (74,197) (66,867)
Reclamation -
accretion,
adjustments 369 391 1,109 1,143
Post-employment -
accretion,
adjustments 60 58 201 163
Selling expenses 316 325 935 870
Cost of services 3,697 3,865 10,518 8,139
Inventory - non-cash
adjustments (599) (686) (8,382) (4,019)
----------------------------------------------------------------------------
Operating expenses $ 37,625 $ 11,067 $ 85,613 $ 53,201
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The elements of other income (expense) in the statement of operations are as
follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
-------------------------- -------------------------
SeptemberSeptemberSeptember September
30 30 30 30
(in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------

Interest income $ 147 $ 209 $ 488 $ 605
Interest expense (1) (1) (10) (1,435)
Gains (losses) on:
Foreign exchange (6,695) (15,616) (3,005) (14,993)
Land, plant and
equipment - 799 (180) 535
Investment disposals 1,745 36 2,661 172
Investment other
than temporary
losses - - (181) -
Restricted cash and
investments - fair
value change 162 116 502 (580)
Contract settlement
fee income (1) - - 11,000 -
Other (219) (496) (126) (816)
----------------------------------------------------------------------------
Other income
(expense) $ (4,861) $ (14,953) $ 11,149 $ (16,512)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) During the three months ended June 30, 2010, the Company agreed to
terminate one of its sales contracts in exchange for a termination fee
of $11,000,000 payable in two installments - $6,000,000 in June 2010
and $5,000,000 in March 2011. The June 2010 installment has been
received and the $5,000,000 March 2011 installment has been included in
the Company's trade and other receivable as a sundry receivable (see
note 3).

20. SEGMENTED INFORMATION

Business SegmentsThe Company operates in two primary segments - the mining segment and the services and other segment. The mining segment, which has been further subdivided by major geographic regions, includes activities related to exploration, evaluation and development, mining, milling and the sale of mineral concentrates. The services and other segment includes the results of the Company's environmental services business, management fees and commission income earned from UPC and general corporate expenses not allocated to the other segments.

 

For the nine months ended September 30, 2010, business segment results were
as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A. Africa Asia Services
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------

Statement of
Operations:
Revenues 29,979 45,749 - - 13,360 89,088
----------------------------------------------------------------------------

Expenses
Operating
expenses 33,238 41,858 - - 10,517 85,613
Sales royalties
and capital
taxes 2,076 - - - 48 2,124
Mineral property
exploration 4,810 304 24 841 - 5,979
General and
administrative - 3,058 807 714 4,835 9,414
Stock option
expense - - - - 1,237 1,237
----------------------------------------------------------------------------
40,124 45,220 831 1,555 16,637 104,367
----------------------------------------------------------------------------
Income (loss)
from operations (10,145) 529 (831) (1,555) (3,277) (15,279)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenues -
supplemental:
Uranium
concentrates 29,979 35,239 - - - 65,218
Vanadium
concentrates - 10,038 - - - 10,038
Environmental
services - - - - 11,271 11,271
Management fees
and commissions - - - - 2,089 2,089
Alternate feed
processing and
other - 472 - - - 472
----------------------------------------------------------------------------
29,979 45,749 - - 13,360 89,088
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital additions:
Property, plant
and equipment 822 22,065 1,060 415 524 24,886
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Long-lived assets:
Plant and
equipment
Cost 98,504 94,842 964 523 3,413 198,246
Accumulated
depreciation (5,381) (27,797) (514) (359) (1,837) (35,888)
Mineral
properties 321,006 82,375 127,340 8,456 - 539,177
Intangibles - - - - 3,883 3,883
Goodwill 52,117 - - - - 52,117
----------------------------------------------------------------------------
466,246 149,420 127,790 8,620 5,459 757,535
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the nine months ended September 30, 2009, business segment results were
as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A. Africa Asia Services
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------

Statement of
Operations:
Revenues 16,541 21,450 - - 10,127 48,118
----------------------------------------------------------------------------

Expenses
Operating
expenses 18,132 26,952 - - 8,117 53,201
Sales royalties
and capital
taxes 1,052 - - - (5) 1,047
Mineral
property
exploration 5,429 141 64 1,933 - 7,567
General and
administrative 12 3,074 1,165 811 5,736 10,798
Stock option
expense - - - - 2,758 2,758
Mineral
property
impairment - - 100,000 - - 100,000
----------------------------------------------------------------------------
24,625 30,167 101,229 2,744 16,606 175,371
----------------------------------------------------------------------------
Income (loss)
from operations (8,084) (8,717) (101,229) (2,744) (6,479) (127,253)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenues -
supplemental:
Uranium
concentrates 16,541 18,548 - - - 35,089
Vanadium
concentrates - 2,864 - - - 2,864
Environmental
services - - - - 8,241 8,241
Management fees
and commissions - - - - 1,886 1,886
Alternate feed
processing and
other - 38 - - - 38
----------------------------------------------------------------------------
16,541 21,450 - - 10,127 48,118
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital
additions:
Property, plant
and equipment 3,928 28,339 2,433 1,276 189 36,165
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Long-lived
assets:
Plant and
equipment
Cost 96,314 80,675 1,066 523 2,892 181,470
Accumulated
depreciation (4,888) (18,355) (481) (261) (1,533) (25,518)
Mineral
properties 319,545 74,174 125,805 7,907 - 527,431
Intangibles - 375 - - 4,562 4,937
Goodwill 71,944 - - - - 71,944
----------------------------------------------------------------------------
482,915 136,869 126,390 8,169 5,921 760,264
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the three months ended September 30, 2010, business segment results were
as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A. Africa Asia Services
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------

Statement of
Operations:
Revenues 11,961 23,397 - - 4,525 39,883
----------------------------------------------------------------------------

Expenses
Operating expenses 12,442 21,485 - - 3,698 37,625
Sales royalties and
capital taxes 834 - - - 3 837
Mineral property
exploration 1,728 301 13 486 - 2,528
General and
administrative - 1,344 255 251 1,540 3,390
Stock option expense - - - - 399 399
----------------------------------------------------------------------------
15,004 23,130 268 737 5,640 44,779
----------------------------------------------------------------------------
Income (loss) from
operations (3,043) 267 (268) (737) (1,115) (4,896)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenues -
supplemental:
Uranium concentrates 11,961 19,267 - - - 31,228
Vanadium concentrates - 3,794 - - - 3,794
Environmental services - - - - 4,116 4,116
Management fees and
commissions - - - - 409 409
Alternate feed
processing and other - 336 - - - 336
----------------------------------------------------------------------------
11,961 23,397 - - 4,525 39,883
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the three months ended September 30, 2009, business segment results were
as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada U.S.A. Africa Asia Services
(in thousands) Mining Mining Mining Mining and Other Total
----------------------------------------------------------------------------

Statement of
Operations:
Revenues 5,655 2,695 - - 4,398 12,748
----------------------------------------------------------------------------

Expenses
Operating expenses 5,894 1,330 - - 3,843 11,067
Sales royalties and
capital taxes 359 - - - - 359
Mineral property
exploration 1,997 132 56 803 - 2,988
General and
administrative 5 955 423 268 1,294 2,945
Stock option expense - - - - 1,053 1,053
Mineral property
impairment - - 100,000 - - 100,000
----------------------------------------------------------------------------
8,255 2,417 100,479 1,071 6,190 118,412
----------------------------------------------------------------------------
Income (loss) from
operations (2,600) 278 (100,479) (1,071) (1,792) (105,664)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenues -
supplemental:
Uranium concentrates 5,655 1,838 - - - 7,493
Vanadium concentrates - 846 - - - 846
Environmental
services - - - - 4,054 4,054
Management fees and
commissions - - - - 344 344
Alternate feed
processing and other - 11 - - - 11
----------------------------------------------------------------------------
5,655 2,695 - - 4,398 12,748
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Revenue ConcentrationThe Company's business is such that, at any given time, it sells its uranium and vanadium concentrates to and enters into process milling arrangements and other services with a relatively small number of customers. In the nine months ended September 2010, two customers from the mining segment accounted for approximately 36% of total revenues. For the comparative nine month period ended September 2009, two customers from the mining segment accounted for approximately 73% of total revenues.

 

21. RELATED PARTY TRANSACTIONS

Uranium Participation Corporation

The following transactions were incurred with UPC for the periods noted:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
----------------------- -----------------------
SeptemberSeptemberSeptember September
30 30 30 30
(in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------

Revenue:
Management fees $ 409 $ 344 $ 1,127 $ 1,144
Commission and
transaction fees - - 962 742
----------------------------------------------------------------------------
$ 409 $ 344 $ 2,089 $ 1,886
----------------------------------------------------------------------------
----------------------------------------------------------------------------

At September 30, 2010, accounts receivable includes $172,000 due from UPC with respect to the fees and transactions indicated above.Korea Electric Power Corporation ("KEPCO")In June 2009, Denison completed definitive agreements with KEPCO. The agreements included a long-term offtake agreement which provides for the delivery to KEPCO of 20% of Denison's annual U3O8 production (+/-10%) but not less than 350,000 pounds (+/-10%) per year from 2010 to 2015 inclusive. KEPCO also purchased 58,000,000 common shares of Denison representing approximately 17% of the issued and outstanding capital at the time of acquisition. Pursuant to a strategic relationship agreement, two representatives from KEPCO have been appointed to Denison's board of directors as of the date hereof.OtherDuring the nine months ended September 2010, the Company has incurred management and administrative service fees of $59,000 (nine months ended September 2009: $56,000) with a company owned by the Chairman of the Company which provides corporate development, office premises, secretarial and other services. At September 30, 2010, an amount of $5,000 was due to this company.

 

22. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS

Capital ManagementThe Company's capital includes cash and shareholders' equity. The Company's primary objective with respect to its capital management is to ensure that it has sufficient capital to maintain its ongoing operations, to provide returns for shareholders and benefits for other stakeholders and to pursue growth opportunities.Fair Values of Financial InstrumentsThe Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and price risk.

 

(a) Credit Risk

Credit risk is the risk of loss due to a counterparty's inability to meet its obligations under a financial instrument that will result in a financial loss to the Company. The carrying amount of financial assets represents the maximum credit exposure. The Company trades only with recognized, credit worthy third parties.The maximum exposure to credit risk at the reporting date is as follows:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands) At September 30 2010
----------------------------------------------------------------------------

Cash and cash equivalents $ 33,106
Trade and other receivables 13,431
Investments 2,310
Restricted cash and investments 23,137
----------------------------------------------------------------------------
$ 71,984
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(b) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with its financial liabilities and other contractual obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company's normal operating requirements on an ongoing basis. The Company ensures that there is sufficient committed capital to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents.The maturities of the Company's financial liabilities are as follows:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands) Within 1 Year 1 to 5 Years
----------------------------------------------------------------------------

Accounts payable and accrued liabilities $ 14,312 $ -
Debt obligations (Note 12) 106 225
----------------------------------------------------------------------------
$ 14,418 $ 225
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(c) Currency Risk

Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from assets and liabilities that are denominated in a currency that is not the functional currency for the relevant subsidiary company.Currently, the Company does not have any foreign exchange hedge programs in place and manages its operational foreign exchange requirements through spot purchases in the foreign exchange markets.The sensitivity of the Company's operations and other comprehensive income due to changes in the exchange rate between the Canadian dollar and its Zambian kwacha functional currencies and its United States dollar reporting currency as at September 30, 2010 is summarized below:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in
Change in Comprehensive
(in thousands) Net Income (1) Net Income (1)
----------------------------------------------------------------------------

Canadian dollar
10% increase in value $ (16,396) $ 39,555
10% decrease in value $ 16,396 $ (39,555)
Zambian kwacha
10% increase in value $ (3,093) $ (3,093)
10% decrease in value $ 3,093 $ 3,093

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

(1) In the above table, positive (negative) values represent increases
(decreases) in net income and comprehensive net income respectively.

(d) Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its outstanding borrowings and short-term investments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.

 

(e) Price Risk

The Company is exposed to equity price risk as a result of holding long-term investments in other exploration and mining companies. The Company does not actively trade these investments.The sensitivity analysis below has been determined based on the exposure to equity price risk at September 30, 2010:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in
Change in Comprehensive
(in thousands) Net Income (1) Net Income (1)
----------------------------------------------------------------------------

Equity price risk
10% increase in equity prices $ - $ 231
10% decrease in equity prices $ - $ (231)

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

(1) In the above table, positive (negative) values represent increases
(decreases) in net income and comprehensive net income respectively.

(f) Fair Value Estimation

The following table illustrates the classification of the Company's financial assets within the fair value hierarchy as at September 30, 2010:

 

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair
(in thousands) Level 1 Level 2 Level 3 Value
----------------------------------------------------------------------------

Financial assets at fair
value:
Investments-available
for sale securities
(1) $ 2,310 $ - $ - $ 2,310
Restricted investments
(2) 15,300 - - 15,300

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

(1) Classification designated as "available-for-sale".
(2) Classification designated as "held-to-trading". See note 6 for amount
of restricted investments within restricted cash and investments asset
amount.

The fair value of financial instruments which trade in active markets (such as available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted marked price used to value financial assets held by the Company is the current bid price.The fair values of cash and cash equivalents, trade and other receivables and accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.The fair values of the Company's restricted cash and investments approximate carrying values.The fair values of the Company's debt obligations approximate their carrying values.

 

23. COMMITMENTS AND CONTINGENCIES

General Legal MattersThe 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 IndemnitiesThe Company has agreed to indemnify Calfrac Well Services against certain specified future liabilities it may incur related to the assets or liabilities assumed by Calfrac on March 8, 2004.