Uranium company Denison Mines Corp. (NYSEMKT:DNN) has cleaned up its balance sheet after securing a strategic investor and completing an equity offering. But RBC Capital Markets Adam Schatzker wrote that the operations remain very risky going forward.
His big concern is that the company could have trouble fulfilling its contract obligations. On a conference call to discuss its second-quarter results, Denison reiterated that the Caribou and Midwest projects are on hold, and that Midwest is being reviewed for possible cost reductions. The lead times for these Canadian projects are very long, and Mr. Schatzker thinks there is a "very high chance" that Denison will have little-to-no Canadian-sourced production in 2011.
That could be a problem, because it would mean that contracted sales in 2011 would have to be sourced solely from Denison's U.S. operations, Mr. Schatzker wrote. He estimated that those contracted sales are for between 1.5 million and 2 million pounds of uranium.
"Given the operating costs and operational volatility at these [U.S.] mines, we think Denison's risk profile is quite high," he wrote in a note.
Denison also noted its Mutanga project in Zambia is progressing well, but Mr. Schatzker believes that the project is "marginal or uneconomic" at today's uranium prices.
He maintained an "underperform" rating on the stock and a target price of $1.80 a share.