Denison In Precarious Position, Time to Sell - RBC

| About: Denison Mines (DNN)
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Denison Mines Inc. (NYSEMKT:DNN) shares continued to fall on Friday, as concerns grow that the uranium miner will violate one of its debt covenants and be forced to throw up a for-sale sign at its operations.

The company said Thursday that it will consider selling assets and has suspended operations at its Sunday and Rim mines in the Western U.S., in an attempt to combat mounting losses brought on by falling commodity prices. It will likely also shut its White Mesa mill in May.

With almost C$100-million of debt and the end of the fourth quarter of 2008, RBC Capital Markets analyst Adam Schatzker said the company is dangerously close to breaching its net debt to EBITDA covenant in Q4/2009 and unlikely to generate sufficient funds to repay its obligations.

He said in a note to clients:

“We think Denison is in a very precarious position. The simplest solution to its problems is for the uranium spot prices to recover to higher than C$50 per pound. Other than that, the easiest thing for Denison to do is to sell assets, but we think the only asset it could sell to repay its revolver is its crown jewel: its Canadian operations.”

Denison stock has fallen almost 25% to below C$1 over Thursday and Friday, and Mr. Schatzker thinks the selling should continue. He downgraded the stock from “sector perform” to “underperform” and cut his price target from C$1.75 to C$.50.

He wrote:

“We think investors should sell Denison given our belief that the company has a good chance of breaching its debt covenants in Q4/09 and possibly becoming insolvent.".