Denison Mines to Sell Non-core Asset in Mongolia Ahead of Merger

Ahead of its merger with Fission Uranium (TSX:FCU), Denison Mines (TSX:DML) has arranged to sell a non-core asset in Mongolia. The company will be selling its interest in the Gurvan Saihan joint venture (GSJV) to the Czech Republic’s Uranium Industry for $20 million.
Considering current market conditions, that’s quite a deal for Denison, which will receive an initial payment of US$250,000 on closing and a deferred payment of US$19,750,000. Rob Chang of Cantor Fitzgerald said his firm has been valuing Gurvan Saihan at $0.50 per pound, but “[t]he transaction translates into an in-situ multiple of US$0.92/lb. for the 21.8M lbs. of attributable U3O8 resources sold.”
The transaction, which is set to close on September 8, involves the transfer of all of the shares of Denison’s wholly owned subsidiary, Denison Mines (Mongolia), to Uranium Industry. Denison Mines (Mongolia) holds an 85-percent interest in the GSJV, as well as a 100-percent interest in the operator of the GSJV, Denison Mines Mongolia. The other 15 percent of the project is owned by Mongolian state-owned uranium company Mon-Atom.
Commenting on the deal, Denison President and CEO David Cates said, “[w]ith Denison’s continued focus on its Canadian exploration and development projects, we are pleased to have reached an agreement with Uranium Industry for the sale of our Mongolian interests. Throughout our negotiations, Uranium Industry has shown its strong commitment to developing the uranium mining industry in Mongolia together with its government partner Mon-Atom LLC. We are proud of the progress that Denison has made throughout the years in Mongolia, and we believe that Uranium Industry is very well positioned to take these assets into development and production.”
The deal also makes sense for Uranium Industry, which is already active in Mongolia and established the Mon Czech uranium joint venture with Mon-Atom just last month. There are currently no active uranium mines located in Mongolia; the last uranium mine there was the Dornod mine, which was in production from 1988 to 1995.

Mining in Mongolia

The price Denison got for the project is also significant because of its location. While Mongolia is rich in resources, it’s been criticized in the past for its harsh mining laws. However, the situation there is beginning to change, and Denison’s sale to Uranium Industry is not the only transaction that illustrates that.
For instance, Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) and the Mongolian government recently reached an agreement to move forward with a massive underground expansion at the Oyu Tolgoi copper mine. What’s more, Mongolia announced last month that it is planning to sell stakes in 10 state-owned enterprises this year and next, including the Tavan Tolgoi coal mine, in a bid to revive its growth and boost foreign investment.

Focusing on Canada

As mentioned, Denison sold off its interest in the GSJV to focus on its Canadian operations, which will grow considerably once its merger with Fission is finalized. The transaction will consolidate Denison’s projects in Canada with Fission’s Patterson Lake South (PLS) project in the Athabasca Basin.
Anyone watching the uranium space knows that Fission’s Triple R deposit at PLS has continued to produce great results this year, with the company releasing a much larger-than-expected maiden resource estimate in January and continuing to put out positive exploration results.
The boards of both companies have unanimously approved the deal, and have recommended that their shareholders vote in favor of the transaction. The merger is expected to close in October.
At the end of day Thursday, Denison Mines’ share price was up 3.17 percent, closing at $0.65.
 
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
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Denison Mines and Fission Uranium to Merge