Denison Mines Corp (DNN) 2008 Q4 法說會逐字稿

Ladies and gentlemen, please stand by. Your conference is about to begin. Please be advised that this conference call is being recorded. Good morning and welcome to the year-end 2008 results conference call for March 19th, 2009.

Your host for today will be Mr. Peter Farmer. Mr. Farmer, please go ahead.

Thank you, Michael. And thank you all for dialing in. With me today are Ron Hochstein, President and Chief Operating Officer, Jim Anderson, Executive Vice President and Chief Financial Officer, and Andre Desautels, Vice President, General Counsel and Corporate Secretary. I'll start with some of the highlights of the quarter. Jim will speak to the financial results, followed by Ron with a report on operations and then we'll ask for questions.

This discussion includes forward-looking information with respect to Denison's operations and financial results. Actual future results may differ from expected results for a variety of reasons described in the cautionary statements regarding forward-looking information section of our press release. All amounts are in US dollars unless otherwise indicated.

It's been quite a year. We started the year with significant plans for development to expand our operations and increase production. We believed that rather than seek to raise more equity to provide the cash for our capital needs, a loan facility of $125 million was a reasonable amount of leverage. Then the short-term uranium and vanadium markets weakened, followed by the recession which we are now in.

As a result and in order to conserve capital and position the Company for the anticipated market recovery, we have taken measures to realign our US operations. We have temporarily placed the higher cost Sunday and Rim mines on stand by. The lower cost Pandora, West Sunday and Beaver mines will continue to operate and will be producing approximately 430 tons of uranium, vanadium ore per day.

For now, the White Mesa mill will continue to operate in order to fulfill our 2009 contractual commitment to deliver 500,000 pounds of U308 which is expected to be achieved by May 2009. At that point, we may elect to put the mill on temporary standby, pending new uranium sales contracts that require near term deliveries. The mill will start up again in quarter one, 2010 or earlier in order to produce the 750,000 pounds of U308 that we are contractually committed to deliver in 2010.

Based on the foregoing scenario for US operations, we are revising our 2009 US production estimates to 500,000 to 800,000 pounds U308 which includes approximate 160,000 pounds from the new parallel alternate feed circuit which should be operational by June 1, 2009. This, combined with the anticipated Canadian production of approximately 600 -- 761,000 pounds will result in total 2009 U308 production of an estimated 1.3 to 1.5 pounds U308. We with will also produce approximately 500,000 pounds of vanadium in 2009.

We are able to ramp up production fairly quickly to meet deliveries under any new contracts. As a result of the effect of the current economic environment on Denison, we could be in a position of breach of the EBITDA covenant with our banker. To avoid this, we have also initiated a process to consider and respond to various strategic opportunities which may be available to the Company over the next few months, including, but not limited to, entering into offtake contracts with utility companies which may involve a strategic investment in Denison, asset sales, purchases and joint ventures, investments of our private equity investors and potential corporate transactions with other uranium producers. Denison has retained Coremark Securities Inc. for the purpose of providing it with the financial advice and evaluating these alternatives and executing any related transactions.

Although the spot price has been showing consistent weakness and has decreased again and is now trading at $42.50 per pound, we remain bullish about future uranium prices in the mid to long-term because uranium supply-demand fundamentals remain strong. The market for uranium continues to expand. Currently, there are 43 reactors under construction with n a additional 100 more in the planning stage.

In the United States alone, there are 17 new reactor applications. The incremental supply from inventories, HEU feed supplies, other stockpiles and existing and new primary production simply cannot keep up with this increase in demand. We expect recovery of uranium prices by the end of this year and a significant increase in new long-term contracts later this year. You will note that UxCo has increased their estimate of the shortage in supply from last year.

At Denison, the fourth quarter saw some significant activity. We sold 400,000 pounds U308 during the quarter from US production at an average price of $61.50 per pound and 177,000 pounds U308 from our Canadian production under the existing long-term contract at an average price of $52.28 per pound. We and our joint venture partners AREVA Resources Canada Inc. OURD Canada Company Inc. Limited announced the postponement of the development of the Midwest deposit.

This was mainly due to the current economic climate, delays and uncertainties with the regulatory approval process, increased operating and capital costs and the deflated market for uranium. We are continuing the environmental assessment process and engineering. This will enable us to quickly resume development when economic conditions recover. The status of the project is being reviewed every six months.

In another cash saving move, we announced the suspension of mining at the Tony M mine located in Ticaboo, Utah. At the same time, we opened the Beaver Mine on the Colorado plateau. The Beaver ore contains a higher grade of uranium than Tony M's, plus it is the more lucrative uranium vanadium ore.

In December, we issued 7,275,000 flow-through common shares at Canadian CAD1.10 per share for gross proceeds of little over CAD8 million. This was followed after the year end by a [BOT] deal financing in January 2009 of 28,750,000 common shares at Canadian CAD1.65 per share which raised gross proceeds of approximately CAD47 million. By the end of the year, we had produced a total of 1,616,.250 pounds of U308, more than double Denison's 2007 total.

In 2008, we also produced 1.2 million pounds of vanadium, making us a new major supplier in the vanadium market. Unfortunately, the vanadium market like all commodities suffered a downturn in late 2008. At the beginning of 2008, vanadium was selling at $14 to $15 per pound. By December 31st, vanadium was selling for $6.50 to $7 per pound and is currently selling at about $5 per pound.

As a result of the decline in value, we wrote down our vanadium inventory by $9.5 million. We expect some recovery of vanadium prices in 2009 as steel production starts to recover. We expect to produce 500,000 pounds of vanadium in 2009. By the end of the year, our joint marketing venture with AREVA Resources Canada for the output from McCLean Lake terminated, except for one remaining joint venture contract which requires us to deliver 400,000 pounds of U308 in 2009 and 40,000 pounds in 2010 at 80% to 85% of the quoted spot price. Denison is now marketing the balance of its share of McClean Lake production.

In addition to the contract noted above, the Company currently has two other long-term uranium contracts in place. One is for the sale of 17% of the White Mesa mill production commencing in 2008 up to a total of 6.5 million pounds with a minimum of 250,000 pounds in 2008, 500,000 pounds in 2009, 750,000 pounds in 2010, and 1 million pounds in 2011. The sales price is 95% of the published long-term price for the month prior to delivery with a floor price of $45.

The second contract is for 20% of the production from the White Mesa mill during the years 2012-2017 inclusive, but not less than 200,000 pounds per year. Pricing under this contract is also 95% of the long-term price at the time of delivery, but has an escalated floor price of $50 per pound. We expect to be in a position to sell 1.2 million to 1.3 million pounds of U308 in 2009 including the 500,000 to 600,000 pounds from US production. We also anticipate selling 1.5 million pounds of vanadium in 2009. Now for the numbers. Jim?

Thank you, Peter. Good morning, everyone. Overall, results for the year reflect a strong sales revenue from both US and Canadian production. However, the current economic climate impacted commodity and stock market valuations and resulted in non-cash impairment charges totaling $58,964,000 in the fourth quarter. These included a $36,512,000 impairment on goodwill, and $12,952,000 impairment related to portfolio investments and a $9.5 million impairment resulting from the write-down of our vanadium inventory.

We also had a non-cash charge of $5.2 million related to the forfeiture of stock options in the quarter. As a result, consolidated net loss was $56,762,000 or $0.30 per share for the three months ended December 31st, 2008, compared with a consolidated net income of $23,542,000 or $0.12 per share for the same period in 2007. For the year ended December 31st, 2008, the Company's consolidated net loss was $80,648,000 or $0.42 per share, compared with a consolidated net income of $4,244,000 or $0.25 per share for the 12-month period ended December 31st, 2007.

For the fourth quarter, net cash provided by operations was $673,000, compared with net cash used by operations of $9,040,000 for the same period in 2007. For the year ended December 31st, net cash used by operations was $8,764,000, compared with cash used by operations of $23,084,000 for the 12 months ended December 31st, 2007. Revenue was $36,807,000 for the fourth quarter of 2008, compared with $38,825,000 for the fourth quarter of 2007. Revenue from the 12 months ended December 31st, 2008 was $123,184,000, compared with $76,764,000 for the 12 months ended December 31st, 2007.

Uranium sales revenue for the fourth quarter totaled $34,812,000. As Peter mentioned we sold 400,000 pounds of U308 from US production at an average price of $61.50 per pound and 177,000 pounds U308 from Canadian production at an average price of $52.28 per pound. Uranium sales revenue for all of 2008 totalled $114,588,000, compared with $65,125,000 for 2007.

The 2008 sales included 920,000 pounds U308 from US production at an average price of $67.27 per pound and 742,950 pounds U308 from Canadian production at an average price of $57.40. This compared with 2007 sales of 325,000 pounds of US production at an average price of $99.11 per pound and 420,000 pounds of Canadian production at an average price of $74.91 per pound. Uranium sales revenue also includes the amortization of the fair value increment related to long-term sales contracts from the acquisition of Denison Mines Inc. In 2008, this amounted to $9,449,000, compared with $2,418,000 in 2007.

Other income totaled $2,533,000 for the three months ended December 31st, 2008, compared with $4,284,000 for the three months ended December 31st, 2007. For the year ended December 31st, 2008 other income totaled $2,468,000, compared with $41,627,000 for the same period in 2007. This consists primarily of interest expense, foreign exchange gains, and a non-cash impairment charge against the Company's investments in Uranerz Energy Corporation and Energy Metals Limited of $12,952,000.

Foreign exchange gains totaled $15,312,000 for the three months and $15,544,000 for the year ended December 31st, 2008. The translation of the Zambian kwacha to US dollars accounts for the majority of these amounts. In 2007, other income was primarily due to gains on the sale of portfolio investments which totaled $5,364,000 and $45,115,000 for the three months and for the year ended December 31st, 2007 respectively.

Other income also included interest incurred on indebtedness of $1,230,000 for the three months and $2,652,000 for the year ended December 31, 2008. For 2008, revenue from Denison's environmental services division was $5,562,000, compared with $4,723,000 for 2007. And revenue from the management contract with Uranium Participation Corporation was $2,929,000, compared with $4,390,000 in 2007.

On the expense side, operating expenses totaled $45,939,000 for the quarter, compared with $18,132,000 for the fourth quarter of 2007. For the year, operating expenses totaled $118,000 -- $118,069,000, compared with $47,038,000 for 2007. Operating expenses are predominantly production costs, but also include the expenses of the environmental services division which totaled $5,188,000 for the year, compared with $4,521,000 in 2007. and also, the fourth quarter write-down of the vanadium inventory totaling $9,500,000.

Denison is engaged in uranium exploration, both on its own and as operator and non-operator of joint ventures. Denison's exploration projects are in Canada, the US, Mongolia and Zambia. Exploration expenditures totaled $2,080,000 for the three months ended December 31st, 2008, compared with $3,990,000 during Q4 of 2007. For the 12 months ended December 31st, 2008 exploration expenditures were $20,114,000, compared with $20,727,000 for the 12-month period ended December 31st, 2007.

The Company expenses exploration expenditures on mineral properties that are not sufficiently advanced to identify their development potential. In the Athabasca basin, Denison is engaged in joint venture exploration projects operated by our AREVA Resources as well as 30 other exploration projects. Denison's share of exploration spending on its Canadian properties totaled $733,000, of which $624,000 was expensed in the statement of operations for the three months ended December 31st, 200, compared with $3,180,000 of exploration spending in the fourth quarter of 2007, of which $2,977,000 was expensed.

For the year ended December 31st, 2008, Denison spent $12,943,000 on exploration, of which $11,953,000 was expensed, compared with $17,209,000 in exploration spending in 2007, of which $16,402,000 was expensed. In Mongolia, exploration expenditures totaled $916,000 for the fourth quarter and $4,436,000 for the year ended December 31st, 2008 on the Company's Gurvan-Saihan joint venture where it has 70% interest in its 100% owned property. This compared to $1 million for the fourth quarter of 2007 and $4,048,000 for the year ended December 31st, 2007.

In Zambia, the Company commenced exploration activities during the third quarter of 2008, including an airborne geophysical survey, line cutting and drilling. Exploration expenditures during the three months ended December 31st, 2008, totaled $614,000 and $379,000 for the year end December 31st, 2008. Additional expenditures for the development of the Mutanga project continued. This work included resource delineation and hydrogeological drilling, metallurgical test work and environmental studies and engineering.

General and administrative expenses consist primarily of payroll and related expenses for personnel, contract and professional services and other overhead expenditures. G&A expenses were $3,349,000 for the quarter, compared with $3,578,000 for the same period in 2007, and $14,754,000 for the year, compared with $12,323,000 for the 12 months ended December 31st, 2007. The increase was primarily the result of the acquisition and implementation of new information and financial systems, and an increase in public Company expenses due to additional compliance costs.

Denison evaluates the carrying amount of its goodwill annually to determine whether events or changes in circumstances indicate whether such carrying amount has become impaired. Denison's goodwill amount arises from the acquisition of Denison Mines Inc. in 2006. The goodwill was allocated to the Canadian mining and exploration segment. Denison examined the fair value of the assets and liabilities of the segment at December 31st, 2008 and determined the fair value had decreased, and as a result determined that an impairment charge of $36,512,000 should be made and charged to operations in the fourth quarter.

At December 31st, 2008, Denison had cash and cash equivalents of $3,206,000, and portfolio investments with a market value of $10,691,000. The Company has in place $125 million revolving credit facility with a term of June 30th, 2011. As of December 31st, 2008, bank indebtedness under the facility was $99,998,000. We will continue to review our production and spending plans as the year progresses to keep them within our available resources. Now I'll turn the call over to Ron for an operations update.

Thank you, Jim. Good morning, everyone. For the quarter, conventional ore production at White Mesa totaled 485,000 pounds of U308. In Canada, the McClean Lake joint venture produced 682,000 pounds of U308 of which Denison's 22.5% share was 153,900 pounds.

Total uranium production for the Company for the year ended December 31st, 2008 was approximately 1,616,250 pounds. 94,000 pounds came from processing of alternate feed material at White Mesa, prior to the commencement of conventional ore processing on April 28th, 2008. 791,000 pounds came from conventional ore processing. Denison's 22.5% share of the 3,248,000 pounds of production from McClean Lake joint venture was 731,250 pounds.

In addition, during the third quarter, White Mesa began production of vanadium. In Q4, vanadium production was 973,000 pounds of V205. A total after 1,223,000 pounds were produced for the year.

Unit production cash costs in Canada are driven primarily by production volumes as the majority of costs do not vary with volume. The fixed costs for the McClean operations total approximately Canadian CAD58 million per year. So as production volumes increased, the cost per pound decreases. Reagent costs are in addition to the fixed costs as are amortization, depletion and depreciation.

Canadian production costs for the quarter were $57.99 per pound U308 including $29.28 per pound for amortization, depletion and depreciation. For the year ended December 31st, 2008, production costs were $55.29 per pound including $32.10 per pound for amortization, depletion and depreciation. For the year ended December 31st, 2008, production costs in the US for processing of conventional ore were $65.86 per pound uranium and vanadium equivalent including $27.72 per pound for amortization, depletion and depreciation.

At December 31st, 2008, inventory from Canadian production was 22,000 pounds uranium. And from US production, inventory was 163,000 pounds uranium, and 1,223,000 pounds V205. For 2009, we anticipate production at the McClean Lake mill to be approximately 3,380,000 pounds U308 of which Denison's share will be 761,000 pounds. Mining at the Sue E and Sue P pits was completed in 2008. At December 31st, 2008, the McClean Lake mill ore stockpile has approximately 375,600 tons of ore from Sue E, Sue B and Sue A, containing 6.5 million pounds uranium with Denison's share being 1.46 million pounds.

Milling of these ores is ongoing. Mining of the next open pit deposit, Caribou, was expected to commence in mid-2009 once regulatory approvals were received. This project has now been delayed at least a year after review of the project economics at current uranium prices.

As Peter outlined earlier, as a result of the erosion of uranium prices and overall market conditions, we are realigning our US operations. The cost of mining and processing the material from the five mines we had operating in 2008 is above current spot prices. As a result, we are placing Sunday and Rim on temporary standby along with Tony M and Topaz which were placed on standby in November and December 2008 respectively.

We will continue to operate our three lower cost uranium vanadium lines on the Colorado plateau, Pandora, West Sunday and Beaver. The combined output of these three operating mines is approximately 430 tons per day. We will also be suspending the haulage of ore from the stockpile at Tony M at the end of this month, whereas at the end February there was approximately 20,000 tons remaining. Production from the mines being hauled for Denison's White Mesa mill at December 31st, 2008, a total of 122,000 tons remain on stockpile at the mill. The other modification to our operating plan is the partial shutdown of White Mesa.

The mill will continue to process conventional ore and will produce a committed contract volume of 500,000 pounds of U308. There will be a scheduled maintenance shutdown in April, lasting up to four weeks to perform critical maintenance, such as the relining of the sag mill. Processing of conventional ore will likely go to mid to late May. The new $5 million alternate feed circuit is anticipated to be operational by June 1st, 2009 and we expect to produce 160,000 pounds of U308 from this circuit in 2009. This operating plan will enable us to keep our core group of operations and trade people employed.

Meanwhile, at the Company's Arizona one mine on the Arizona strip, the air quality permitting process is ongoing but the Company is unable to determine the length of time required to receive the permit. Once the permit is received, mine production should be able to commence within six months. Based on our new operating plan, the Company now expects to be ability to produce 500,000 to 800,000 pounds of U308 and 500,000 pounds of V205 at the White Mesa mill in 2009. Any further production from conventional ore will depend upon a strengthening of uranium markets or new contracts.

Turning now to exploration and development. In the Athabasca basin, Denison is participating in 33 exploration projects. On Denison's operated and non operated projects, a total of approximately 25,675 meters of drilling and five drill programs is planned this winter. Denison's exploration spending in 2009 in the basin is expected to total $7.7 million.

Near the McClean Lake mill, joint venture partner AREVA is operator of the Midwest, Woolly, Water Found and McClean projects where 76 holes totaling 19,075 meters in aggregate are planned. Denison is the operator on the 60% owned Wheeler River joint venture and is managing the diamond drilling on that project for 13 holes totaling 6,600 meters were planned. As previously reported on February 17th, 2009, the third and fourth holes drilled returned significant uranium intersections at the unconformity.

The initial pole group grades have been confirmed by assay results with WR258 intercepting 2.5 meters of 24.6% U308 at 397.5 meters. And drillhole 259 intersecting 4 meters of 19.7% U308 at 397 meters. The assays which I'm going to mention in the future are based on progrades, not actual grades. In addition to the above drillholes, drillhole 261 intersecting 1.6 meters at 5.6% U308 at 406.4 meters at a 1% cutoff. Drillhole 262 through 265 intercepted significant alteration, but no mineralization.

Drillhole 266 intercepted minor mineralization of 2.61% U308 over 0.6 meters in the basement from 415.1 meters. These results validate the exploration model as being similar to the McArthur River deposit as the grades and mineralogy are very similar to that of McArthur. The high grade mineralization at this time is believed to be reflective of one pod of at least 100-meter strike plane. The drill program which has three holes remaining is focused on identifying other pods along strike from the known pod.

In addition to these drill programs, Denison is carrying out a number of geophysical surveys to identify targets for future drill programs. Approximately 1500 line kilometers of airborne geophysical surveys are being flown over two properties. Denison is also carrying out a large number of ground geophysical surveys on seven properties, and over 250 line long fixed loop are moving with (inaudible) domain surveys, 125 line kilometers of horizontal loop electromagnetics and over 100 line kilometers of resistivity surveys will be completed during the 2009 season.

Over 300 line kilometers of ground magnetic surveys will also be carried out in conjunction with the above. In the Southwest United States, Denison is placing its 2009 program on hold as part of its capital conservation program. The results of the 2008 program will be released once assay results have been received.

In Mongolia, as reported earlier in 2008, drilling identified extensions of deposits at Hairhan and Haraat and a new discovery at [Olshead] . We will be releasing an updated 43-101 for Hairhan next month and a revised 43-101 for Haraat later in Q2. The Mongolia program for 2009 will be a combination of limited exploration drilling and drilling of the initial test ISR well fields.

As to Zambia, we completed and released a 43-101 resource measurement last week which reported measured and indicated resources estimated at 2 million and 5.8 million pounds U308 respectively. Inferred resources exceed 13 million pounds U308. Results are significantly higher than the previous historic estimates for this project of 13.7 million pounds.

The results are based on 45,600 meters of development drilling, which we carried out from late 2007 through to mid 2008. Following this, we carried out 26,000 meters of exploration drilling that revealed three new large mineralized zones with similar mineralization to the main Mutanga deposit. These new zones could potentially add to the existing resource base.

We are currently working on the completion of a definitive feasibility study for early April and it and an environment report will form the basis for a mining application to follow in late-April. Early year scoping studies suggest the potential for a relatively low cost open pit mining operation, utilizing [alcholide leach] processing for extraction. In 2009, there are no significant exploration or other development activities planned for Zambia.

That's the conclusion of my report. Now I'll turn the call back over to Peter.

Thank you, Ron and Jim. 2008 was not the year we planned for. We made major advances in production including the completion of the refurbishment of the White Mesa mill, and the commencement of both conventional uranium production and vanadium coal recovery there.

We had some excellent exploration results at Wheeler River, [Zanta] and Mongolia, all of which will add to our resource base. We had increased sales revenues from both US and Canadian production. But the current economic climate has had a major impact on commodity prices, stock market valuations and access to capital. What looked like a modest $125 million line of credit at the beginning of the year has resulted in some major belt-tightening at Denison.

Our budgets and spending plans for 2009 are being tailored to fit within our existing financial resources given the economic environment. That's why we realigned our 2009 US production plans. That's why we're cutting back on exploration and development. That's why we postponed capital expenditures. And that's why we're exploring other avenues, evaluating strategic opportunities in which Denison can leverage its valuable international portfolio of assets.

We expect 2009 to be a tough year, but Denison has a 50-year history of thriving in every type of cycle, good or bad. The current downturn presents us with an opportunity to streamline operation and clearly focus on our core assets with a view to a strong recovery when the markets turn around. Are there any questions, Michael?

Thank you, sir. Ladies and gentlemen, we will now take questions from the telephone lines. (Operator Instructions). The first question is from Adam Schatzker at RBC Capital Markets. Please go ahead, sir.

Good morning, gentlemen. If you'll bear with me, I have a few questions but I'll limit it to a few up front. Just the first is a clarification. I'm wondering since did you the equity issue in January, I'm assuming all of the money raised went to the credit facility. But I'm wondering did you draw down on that facility since then. If so, can you tell us what the approximate balance would be today?

We used all of the equity issue to draw down or to repay the credit facility. The balance today is about --

$90 million.

About $90 million.

Almost back to where you started then?

We were $100 million at year end.

Right. You mentioned that you're looking at a number of alternatives in order to go forward here. I'm wondering when you look at asset sales, have you identified some that are maybe non-core that you could sell readily? In more of a worst case scenario, do you think you would consider selling the Canadian assets?

I can say that we believe that the Canadian assets, the US assets, the Mongolian assets and the Zambian assets all have significant value beyond what the stock market reflects. To the extent that we have reasonable offers on any of those assets, and evaluating them would give a good return to our shareholders, we're going to look at selling them. I don't think there's anything -- we have publicly said for some time, it would make sense for us to divest of a portion of the Zambian assets to keep control, but sell up to 50%. We've said up to 40%, but we've got a soft commitment to the Zambian government. They've indicated they want to buy up to 10%. In summary, Adam, everything's for sale at the proper price.

True enough. And last question for now is when you did your asset test for your Canadian operations, I'm wondering what start year did you assume for Midwest and what CapEx?

We used the estimated CapEx based on the best information we had from the operator and start year I think was 2013.

And how comfortable are you with those? I know you're expecting to get the CapEx down with the reengineering. But the start date, is that still a doable date, do you think?

It's a doable date, yes, but it's an assumption.

Thanks very much. I'll let somebody else ask now. Thank you.

Thank you. The next question is from [Oris Walkada] at Canaccord Adams. Please go ahead.

Hi, good morning. Couple of questions as well.

Hi, Oris. I guess he's not there.

The next question is from Mr. Oris Walkada. If you are using a speaker phone, please pick up your handset, sir.

Hi. It's Oris. Can you hear me?

I'm not hearing any response from you, Mr. Walkada. The next question will be from Duncan McKeen at Macquarie Capital. Please go ahead.

Thanks very much. Guys, just wondering if you got a suitable contract -- hello?

Next question is from Duncan McKeen. Please go ahead, Mr. McKeen.

Good morning, gentlemen. Just wondering, if you were to get --

I'm not hearing anything here.

I'm not hearing any response from Mr. McKeen either, sir. One moment, please. We have another question from Mr. Adam Schatzker. Please go ahead, Schatzker.

Can you guys hear me?

Yes, sure can.

Wow, I guess I got the lucky phone line today. I'll go back to my other questions then. One for Ron here regarding the Colorado plateau mines that you'll be operating, the three of them this year. My assumption before was there was a fairly high vanadium to uranium ratio. Based on your outlook now, it looks like the ratio is coming down closer to 1 to 1, is that the nature of these mines or is there something else going on there?

No, the 2009 projections, Adam, it's still up at 6 to 1 in terms of gross ore, 4 to 1 on a recovery basis. The reason that it's down for 2009 is for the last two months, we've been running 100% Tony M ore which has no vanadium. So of the -- so far, the first quarter of 2009, we've only had one month of Colorado plateau ore, two months of Tony M. That's why the ratio looks a little off.

If we look to the next year, 750 and 1million pounds, if those are the minimum for the contract, we should expect a pickup in vanadium?

Correct.

Yes.

Also if I can ask, on the Zambian kwacha, it seems that you guys have a very healthy exposure to that. I've seen that it certainly has weakened by pretty close to 50%. I'm wondering, how much money do you actually have in Zambian kwacha?

Not really the money that's involved, it's the assets themselves and the translation of the assets back into US dollars that gives rise to the gain or loss.

Okay. I see. You book them in kwacha, then?

It's a -- yes, the books are in kwacha and then they have to be translated back to US dollars.

I'll let you guys try for somebody else. Thank you.

Thank you. The next question is from Oris Walkada at Canaccord Adams. Please go ahead.

Hi, can you hear me now?

Sure can.

Okay. Great. Good morning, guys. Couple of questions, if I could. Could you give us any indication of where you expect your cash costs to be this year, both the US and Canadian operations? And I know you're shutting down some of the higher cost mines, but could you give us any indication there?

The cash costs in Canada will be pretty similar to what we've issued already for 2008. We don't see much change there. In the United States, we do see a reduction because we've seen a significant reduction in asset price. As a result, our milling costs will come down probably about 10% to 15% at a minimum.

Okay. And do you have the ability to just shut down production and buy material on the spot market to deliver your contracts? Is that something you're looking into?

The contracts are generally production contracts. They don't allow you to go ahead and buy on spot, unless you have a shortfall in production. Then usually the customer has an option to demand material from you, waive the material you didn't deliver, or go out and buy material on their own, and you pay the difference if there is a difference. They don't -- won't allow you to buy lower cost stuff on spot if spot collapses further, for example.

You alluded to your opening remarks in terms of perhaps running into some difficulties here with your debt covenants. Could you just go into that in a little more detail? At current pricing for uranium and vanadium, how quickly do you think you might trip that covenant?

By the end of the year. And that's based upon the sales plans that we have currently and is dependent on whether or not we get new sales contracts. It's the EBITDA covenant that's driven off of income.

Okay. That's great. One final thing --

As you cut your sales and cut your costs -- there's no point for us today to be producing uranium and selling it at a loss. Although that would generate more revenue, it generates a larger loss for us and utilizes cash resources. What we've decided to do is cut back on our production, preserve the production at the lower cost mines in the US, the three mines that we're talking about, and plus they have a significant vanadium credit and move forward. We can reopen mines fairly quickly in the US and we'll see how it goes. If we get a new contract for 2009 from the -- that has a reasonable price on it, we can make money on it, we'll produce.

Right. Makes sense. And just finally, with all the belt-tightening, what do you expect CapEx spending to be in '09?

Trying to find the number for you. $17 million.

Thank you.

Thank you. (Operator Instructions). The next question is from Edward [Sterk] at BMO. Please go ahead.

Hi, there, guys. Thanks very much for taking my question. Just wondering if you have any insight at the moment into the timing of sales over the next four quarters?

The timing of sales? Uranium sales?

Yes.

Yes, we're selling 200 -- correct me if I'm wrong, guys, 225,000 pounds first quarter, this is the US sales, then I think it's 200 --

I think it's 105,000.

125,000 maybe third quarter. Or second quarter and then another 125,000 and then the balance in the fourth quarter.

I think that's right.

And that's US sales only. Do you have anything for Canadian?

Canadian is equal every quarter.

Okay. And just looking -- you mentioned earlier that all of the money you raised in your -- in the deal in the first quarter this year went towards paying down the credit facility. But the credit facility's back up again almost to where it was at the beginning. What would have been the main cash flows and drivers of that?

We spent capital on a couple of the mines in the US and the cost of production. We're building up production, both in Canada and in the US for sale at the end of the quarter, plus we will have some inventories.

Next quarter, you would expect there to be a net cash in-flow against that -- against the outflow in this quarter as it were, is that what you're saying?

Correct. Yes.

Okay. Thank you. That's all from me.

Thank you. And the next question is again from Adam Schatzker at RBC Capital Markets. Please go ahead, sir.

Hi, guys, was trying to let others have an opportunity. I promise the last ones here. You mentioned a one-year delay at the Caribou mine. What effect is that going to have longer term?

It will have no impact, Adam, on 2009 or 2010 production. The earliest that it could have any potential impact would be 2011.

The fact that it is delayed now you're saying shouldn't have any effect if it is just a one-year delay or do you expect an effect in 2011?

It could impact the operation at McClean in 2011.

Can you quantify the impact?

It might be that unless we can get the McClean north deposit, get that underground up and running, it could mean that McClean may have to shut down for a period of time or operate on a different operating philosophy such as week on, week off type thing.

Okay. I'm just curious as well with your joint ventures with AREVA either in exploration or wherever, do they have the option to spend your interest down if you don't have the money, say if want to acceleration an exploration project?

Oh, gosh, I'd have to look at every joint venture agreement.

And quite frankly, that would be something it would be nice to have happen because we've been pushing for a long time for them to accelerate. That hasn't been an issue with our programs in Canada.

Certainly Woolly and McClean and Midwest.

Okay. All right. I'll try to leave it at that. Thanks, guys.

Thank you. (Operator Instructions). And the next question is from Mr. Duncan McKeen and Macquarie Capital. Please go ahead, sir.

Thanks very much, gentlemen. I think you partially touched on my questions earlier. But I'm just wondering if you got the right contract in the US right away, how quick could the mines there be ramped up, apart from Arizona where you're waiting for the permit. What term price do you think you would need to make that happen? And also, what would be the earliest that a utility would accept delivery of uranium on a term contract?

Let me go in reverse order. A utility can accept delivery very quickly if they're prepared to do it. Have you to recognize that one of the economic -- one of the effects of the current economic situation is that utilities -- some utilities certainly are having problems with their own receivables from their customers.

If you think about what's happening in Florida and California, houses are going up for sale in foreclosure so you can bet the utility bills haven't been paid. There's that whole issue that's an effect that we had not frankly anticipated. But it's up to the utility. As far as how quickly can we bring mines on? The Rim mine we just put on suspension so we can bring it up quite quickly, along with West Sunday.

We're keeping -- just to elaborate on that a bit. We are not walking away from the mines. We are continuing the dewater Tony M and Rim has some water but very little. We're continuing to maintain minimum ventilation and everything so the mines are essentially just on a warm standby. It is essentially would be rehiring of people to ramp them back up.

Okay.

You can -- we're disclosing all our costs of production, our costs in the US. That's the minimum number that we would want to see, which is as you can understand, significantly above the current spot market. But it's the old question, do you want -- given all of these circumstances, we're putting things on standby, which we are able to do, but do we want supply further constrained? Does the buying side of the utility of the uranium market want supply constrained and further constrained. We're seeing this all around the world and we're going to see more of it.

Then you end up with the same situation we had two years ago which is nuts on the other side. I think you'll see some improvement. You'll see us entering into some new contracts. Whether or not we can get one for 2009, I don't know.

Okay. With just the -- in the back half of this year with just the parallel alternate feed circuit running, what do you expect your cash costs might be just for that circuit alone?

If you look at just that circuit alone and you don't include the other costs of mill administration and that, we estimate it will be less -- well less than $15 a pound. Between $10 and $15.

Okay. That's great. Thanks, guys.

Thank you.

Thank you. The next question is from Pat Donnelly at Salman Partners. Please go ahead.

Thank you. Good morning, gentlemen. Just a couple questions. What are you guys paying for acid right now?

$92.

Between $90 and $100.

Okay. And my other question is, I remember Peter you mentioned a little while ago that you're close to completing a contract. Is that still going to happen any time soon or are we going to see an announcement?

Hope so.

Okay. What's your view on the vanadium markets. Where are vanadium prices now and where do you see those going in the next six to 12 months or so.

A lot of vanadium production is getting shut in. Inventories are getting drawn down. By the same token on the demand side, it's dependent upon steel production. But the reports that we've seen that if the steel production can maintain itself at a 40% level, that will be good for us. Having said that, the markets are weak and we'll see. We expect a recovery. It is American production so whether that has any effect or not, I don't know.

Okay. All right. Thanks very much.

Thank you. (Operator Instructions). And the next question is from Bart Jaworski at Raymond James. Please go ahead.

Good morning, guys. Just a question on the fourth quarter cash costs at White Mesa. Do you have a number for us on that?

We have a number of the total costs and then we carve out depletion, depreciation and amortization. But remember, Bart, that part of your mining cost is in the depletion costs.

Yes, I got the 2008 cash costs of $38.14, but I didn't see disclosure on the fourth quarter so I was just trying to back that out.

It's not going to be that much different. It's pretty similar, because a lot of our reagent prices and everything were fixed for the year so it's not going to be that much different.

Got you. On the Wheeler, that seemed like the one real bright spot here that could have switched things around or at least offset some of the negatives on the operational side. I noticed in the financials you're talking about three more holes, not a lot of emphasis on doing much more work or at least not much visibility on it. What type of emphasis will you be placing on that and how much capital are you willing to spend on Wheeler over the next nine to 12 months?

The three holes remaining is what we can do in order to complete before we have to pull out for breakup. Bart, we just have one drill on site. The program that's currently laid out there is what's been agreed upon by the joint venture partners, and obviously was done well before the discovery. This was pushed -- this limited program was not only something that Denison, but our partners were also in favor of given capital constraints throughout the market. With the discovery, we'll certainly be relooking at that program and working with our partners ideally to lay out a summer program as well.

There's no restrictions to drill that during the summertime?

No, no. We have ample sites to drill. We're not -- we don't have issues with lakes or anything like that there. This project is actually very well sited for that. We can drill all year round, other than breakup and freezeup.

Okay. Any idea right now, ballpark, how much you'll be spending on that this year?

We have to wait to -- I don't want to speak for our joint venture. We don't want to speak for our joint venture partners.

Okay. Sounds good. Thanks very much.

And the next question is from at Oris Walkada at Canaccord Adams. Please go ahead.

Just a quick follow-up. Can you confirm that you still have access to draw down the available credit from your facility if you need it?

Absolutely.

Thank you very much.

Thank you. There are no further questions registered at this time. I would like to turn the conference back over to Mr. Farmer.

Thank you very much for the questions and listening to this call. We appreciate you doing so. Thank you.

Thank you. Ladies and gentlemen, your conference is now ended. All participants are asked to hang up their lines at this time and thank you for your participation.