TORONTO (miningweekly.com) – Uranium producer Denison Mines has come up with a plan to shore up its balance sheet by raising C$94,9-million, including through the sale of a 19,9% stake in the company to Korea Electric Power Corporation (Kepco).

The news sent the company's shares up 16,15% on Tuesday, to C$1,51 apiece by 16:15 in Toronto.

Denison, which said last month it was investigating a number of options to avoid being in breach of a debt covenant by year-end, expects that an agreement with the Korean utility will mean the company stays within the terms of the earnings covenant with its banker.

A memorandum of understanding has been signed between the parties, which includes proposals for an offtake agreement for Kepco to buy 20% of Denison's yellow cake production from 2010, and a private placement of about 58-million Denison shares to Kepco, which would give it a 19,9% stake in the Canadian company once the transaction is completed.

The shares would be priced at C$1,30 apiece – a 15% premium to the 30-day moving average price before the memorandum was signed – for gross proceeds of C$75,4-million.

Entities nominated by Denison chairperson Lukas Lundin would also buy another 15-million shares, for C$19,5-million.

Denison said it plans to use the proceeds for debt repayment and project development, but the “majority” of the funds raised would be used to pay down the company's revolving credit facility, president and COO Ron Hochstein said in a telephone interview.

The company currently has about $100-million drawn down on the facility, he said.

Denison has uranium mining assets in the US and Canada, as well as exploration properties in Zambia and Mongolia, and the firm has been hard hit by recent falls in prices for the nuclear fuel, prompting it to close some higher-cost mines in the US.

There had been speculation that the company may need to sell assets to reduce its debt load.

But Hochstein said the proposed agreement with Kepco would likely mean Denison avoids breaching the debt covenant.

“We haven't run all the numbers yet, but we expect that it should resolve the situation,” he said.

The offtake agreement with Kepco would be for uranium delivered from 2010, with minimum deliveries of 510 000 to 690 000 lb pounds of yellow cake from 2010 to 2015, Denison said.

The purchase price will be “on industry standard terms”.

Hochstein said on Tuesday that the company still expects to temporarily stop operations at its White Mesa mill after it had fulfilled its 2009 contractual commitments of 500 000 lb of yellow cake, which is likely to be in May.

Because the offtake agreement is for uranium delivered from 2010 onwards, the company's operational plans for 2009 will not be affected by the Kepco transaction, he said.

If the transaction is completed, Kepco will have the right to appoint two directors to Denison's board, and a right of first offer to buy up to 20% of any assets Denison acquires with a partner or sells.

DÉJÀ VU

Denison's announcement comes just two months after Vancouver-based uranium-miner Uranium One said that it would sell a 19,95% stake in itself to a group comprising the Tokyo Electric Power Company, the Toshiba Corporation and the Japan Bank for International Cooperation, at C$2,30 a share.

The consortium will also have an offtake option on up to 20% of Uranium One’s available production from assets where it has the right to market output.

Unlike Denison, Uranium One was reasonably well funded without the C$270-million cash injection it got from the Japanese consortium, but CEO Jean Nortier said at the time that the new partners would provide the company with key market intelligence and "strategic positioning".

The proposed agreement with Kepco is subject to the completion of a due diligence by the Korean firm, execution and delivery of definitive agreements on or before June 15 and regulatory approval.

Denison CEO Peter Farmer is scheduled to step down from his position at the company's annual shareholders' meeting at the end of this month. The firm has yet to announce his replacement.

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