Clock - Uranium Supply Crunch and Critical ... - Andrew Johns

Canada Research | Page 36 of 87UraniumInvestment OverviewWheeler River. Denison has a 60% interest in its flagship Wheeler River project (30%Cameco, 10% Japan-Canada Uranium Co. (JCU)), where the Phoenix deposit hosts anestimated 39.4 Mlbs in 43-101 resources grading an outstanding 15.7%. The main ZoneA’s 35.6 Mlbs in Measured resources grades 18.0% – on par with the world’s two richestdeposits, McArthur River and Cigar Lake. For reference, at current spot prices, 18.0%material has an in-situ value of US$20,000/t (vs. global uranium deposit average of 0.1%– 0.2%, or ~US$150/t). Phoenix reflects the classic unconformity-related model of manymajor Athabasca deposits, with deposition into Athabasca Group sandstones and theunderlying Wollaston Group metasediments. High-grade uranium is found as horizontalsheets along a NE-trending shear fault, ~390 m – 420 m below surface and has beentraced along a ~1.3 km strike length. Phoenix shares many similarities to McArthur (only~40 km, on-strike to the NW), most importantly analogous fault structure(s), graphiticpelite, a quartzite ridge footwall, a silicified cap (at Phoenix Zone D), as well as minimalarsenic and other accessory metals.World Class Potential. For 2012, the JV has set an exploration budget of C$6.8 mln(C$4.1 mln attributable to Denison), including 60 holes for 28,000 m. The winterprogram is now complete, with probe results from 11 of 25 holes released thus far(including 4.9 m of 25.8% U3O8e); drilling as part of the 15,000 m summer program ison-going and focused on definition drilling at Zone B and on regional targets. We believethe project as it stands does not yet have the critical mass required for development,but there is strong potential to add pounds to existing resources, including:(i) increased drill density in the highest grade areas (which could bolsterconfidence and permit inclusion of additional high-grade material);(ii) extension of stacked structures of the Zone A Extension (located E/NE ofZone A) towards the strongly-altered Zone D;(iii) Zone A east step-outs, proximal to hole 438 (1.0 m grading 4.19% U3O8e,released February 28, 2012);(iv) basement-hosted mineralization, particularly towards the northern endof Zone A;(v) Zones B, C, D where we believe >10 Mlbs has already been defined bydrilling to date (see Exhibit 52). Regional targets are highly prospective, inour view.Our Wheeler Estimates. Our modeled reserve, on a 100% basis, stands at 70 Mlbsgrading 12%, comprised ~75% of high-grade Zone A material (and where most growthfrom existing 39.4 Mlbs resources will come from, in our view). We model anunderground operation, starting in 2019E and averaging 7.7 Mlbs/year over a nine yearmine life. We see capex of US$750 mln and LOM cash costs of US$28/lb; higher gradepounds are weighted to earlier years in our mine plan, boosting average output in years1 – 4 to 10 Mlbs/year.Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2