EX-99.1 2 a2017-09dmcfinancialsfina.htm CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 30, 2017

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INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited - Expressed in thousands of U.S. dollars except for share amounts)
		At September 30 2017		At December 31 2016
ASSETS
Current
Cash and cash equivalents (note 5)	$	4,393	$	11,838
Investments (note 8)		32,215		-
Trade and other receivables (note 6)		3,253		2,403
Inventories (note 7)		2,781		2,381
Prepaid expenses and other		455		491
		43,097		17,113
Non-Current
Inventories-ore in stockpiles (note 7)		1,681		1,562
Investments (note 8)		4,463		3,760
Investments in associates (note 9)		3,688		4,692
Restricted cash and investments (note 10)		9,862		2,314
Property, plant and equipment (note 11)		200,377		187,982
Total assets	$	263,168	$	217,423
LIABILITIES
Current
Accounts payable and accrued liabilities	$	4,991	$	4,141
Debt obligations		-		276
Current portion of long-term liabilities:
Deferred revenue (note 12)		2,454		-
Post-employment benefits (note 13)		200		186
Reclamation obligations (note 14)		807		810
Other liabilities (note 16)		3,073		1,847
		11,525		7,260
Non-Current
Deferred revenue (note 12)		28,061		-
Post-employment benefits (note 13)		1,716		1,646
Reclamation obligations (note 14)		21,912		20,155
Other liabilities (note 16)		-		630
Deferred income tax liability		14,064		15,021
Total liabilities		77,278		44,712
EQUITY
Share capital (note 17)		1,151,781		1,140,631
Share purchase warrants (note 18)		333		-
Contributed surplus		54,991		54,306
Deficit		(974,367)		(961,440)
Accumulated other comprehensive loss (note 20)		(46,848)		(60,786)
Total equity		185,890		172,711
Total liabilities and equity	$	263,168	$	217,423
Issued and outstanding common shares (note 17)		559,084,402		540,722,365
The accompanying notes are integral to the condensed interim consolidated financial statements

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (Unaudited - Expressed in thousands of U.S. dollars except for share and per share amounts)
		Three Months Ended					Nine Months Ended
		September 30		September 30			September 30		September 30
		2017		2016			2017		2016
REVENUES (note 22)	$	2,717	$	3,489		$	7,929	$	10,482
EXPENSES
Operating expenses (note 21)		(2,630)		(2,553)			(7,552)		(7,625)
Exploration and evaluation (note 22)		(4,348)		(3,308)			(11,095)		(10,037)
General and administrative (note 22)		(1,169)		(1,020)			(4,697)		(3,287)
Impairment recovery (expense) (note 11)		-		(79)			246		(2,253)
Foreign exchange		(355)		481			(658)		(1,687)
Other income (expense) (note 21)		(556)		519			779		767
		(9,058)		(5,960)			(22,977)		(24,122)
Loss before finance charges, equity accounting		(6,341)		(2,471)			(15,048)		(13,640)
Finance expense (note 21)		(228)		(226)			(622)		(595)
Equity share of income (loss) of associate (note 9)		173		-			(1,004)		-
Loss before taxes		(6,396)		(2,697)			(16,674)		(14,235)
Income tax recovery (note 24)
Deferred		619		191			3,828		3,452
Loss from continuing operations		(5,777)		(2,506)			(12,846)		(10,783)
Net income (loss) from discontinued operations (note 4)		-		9,050			(81)		3,438
Net income (loss) for the period	$	(5,777)	$	6,544		$	(12,927)	$	(7,345)
Other comprehensive income (loss):
Items that may be reclassified to income (loss):
Unrealized gain on investments-net of tax
Continuing operations		2		1			-		6
Foreign currency translation change
Continuing operations		7,526		(3,145)			13,938		10,294
Discontinued operations				-			-		6,220
Comprehensive income (loss) for the period	$	1,751	$	3,400		$	1,011	$	9,175
Basic and diluted net income (loss) per share:
Continuing operations		(0.01)		0.00			(0.02)		(0.02)
Discontinued operations		0.00		0.01			0.00		0.01
All operations	$	(0.01)	$	0.01	$		(0.02)	$	(0.01)
Weighted-average number of shares outstanding (in thousands):
Basic		559,084		533,419			553,983		525,953
Diluted		559,084		533,464			553,983		525,953
The accompanying notes are integral to the condensed interim consolidated financial statements

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited - Expressed in thousands of U.S. dollars)
		Nine Months Ended
		September 30		September 30
		2017		2016
Share capital
Balance-beginning of period	$	1,140,631	$	1,130,779
Shares issued-net of issue costs		13,955		8,841
Flow-through share premium		(2,839)		(1,843)
Share options exercised-cash		16		-
Share options exercised-non cash		18		-
Balance-end of period		1,151,781		1,137,777
Share purchase warrants
Balance-beginning of period		-		-
Warrants issued in connection with APG Arrangement (note 18)		333		-
Balance-end of period		333		-
Contributed surplus
Balance-beginning of period		54,306		53,965
Stock-based compensation expense		703		261
Share options exercised-non cash		(18)		-
Balance-end of period		54,991		54,226
Deficit
Balance-beginning of period		(961,440)		(944,097)
Net loss		(12,927)		(7,345)
Balance-end of period		(974,367)		(951,442)
Accumulated other comprehensive loss
Balance-beginning of period		(60,786)		(73,592)
Unrealized gain on investments		-		6
Foreign currency translation realized in net income		-		(637)
Foreign currency translation		13,938		17,151
Balance-end of period		(46,848)		(57,072)
Total Equity
Balance-beginning of period		172,711		167,055
Balance-end of period	$	185,890	$	183,489
The accompanying notes are integral to the condensed interim consolidated financial statements

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited - Expressed in thousands of U.S. dollars)
		Nine Months Ended
		September 30		September 30
CASH PROVIDED BY (USED IN):		2017		2016
OPERATING ACTIVITIES
Net loss for the period	$	(12,927)	$	(7,345)
Items not affecting cash:
Depletion, depreciation, amortization and accretion		3,430		2,974
Impairment expense (recovery)		(246)		2,253
Stock-based compensation (note 19)		703		261
Recognition of deferred revenue (note 12)		(1,448)		-
Gain on other liability revisions (note 16)		(679)		-
Loss on divestiture of Africa Mining Division (note 4)		81		70
Gain on divestiture of Mongolia Mining Division (note 4)		-		(9,050)
Gains on asset disposals		(21)		(51)
Gains on investments		(405)		(1,017)
Equity loss of associate (note 9)		599		-
Dilution loss of associate (note 9)		405		-
Deferred income tax recovery		(3,828)		(3,452)
Foreign exchange losses		658		6,841
Other		17		-
Deferred revenue (note 12)		30,201		-
Post-employment benefits (note 13)		(95)		(99)
Reclamation obligations (note 14)		(585)		(376)
Change in non-cash working capital items (note 21)		(3)		1,468
Net cash provided by (used in) operating activities		15,857		(7,523)
INVESTING ACTIVITIES
Divestiture of asset group, net of cash and cash equivalents divested:
Africa Mining Division		(81)		(798)
Sale and maturity of investments		-		7,785
Purchase of investments		(29,889)		(500)
Expenditures on property, plant and equipment		(743)		(1,083)
Proceeds on sale of property, plant and equipment		186		55
Increase in restricted cash and investments		(6,945)		(280)
Net cash provided by (used in) investing activities		(37,472)		5,179
FINANCING ACTIVITIES
Repayment of debt obligations		(282)		(313)
Issuance of common shares for:
New share issues-net of issue costs		13,955		8,841
Share options exercised		16		-
Net cash provided by financing activities		13,689		8,528
Increase (decrease) in cash and cash equivalents		(7,926)		6,184
Foreign exchange effect on cash and cash equivalents		481		278
Cash and cash equivalents, beginning of period		11,838		5,367
Cash and cash equivalents, end of period	$	4,393	$	11,829
The accompanying notes are integral to the condensed interim consolidated financial statements

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(Unaudited - Expressed in U.S. dollars except for shares and per share amounts)

1.

NATURE OF OPERATIONS

Denison Mines Corp. (“DMC”) and its subsidiary companies and joint arrangements (collectively, “Denison” or the “Company”) are engaged in uranium mining related activities, including acquisition, exploration and development of uranium bearing properties, extraction, processing and selling of uranium.

The Company has a 60% interest in the Wheeler River Joint Venture (“WRJV”), a 22.5% interest in the McClean Lake Joint Venture (“MLJV”) (which includes the McClean Lake mill) and a 25.17% interest in the Midwest Joint Venture (“MWJV”), each of which are located in the eastern portion of the Athabasca Basin region in northern Saskatchewan, Canada. The McClean Lake mill provides toll milling services to the Cigar Lake Joint Venture (“CLJV”) under the terms of a toll milling agreement between the parties (see note 12). In addition, the Company has varying ownership interests in a number of other development and exploration projects located in Canada.

The Company provides mine decommissioning and decommissioned site monitoring services to third parties through its Denison Environmental Services (“DES”) division and is also the manager of Uranium Participation Corporation (“UPC”), a publicly-listed investment holding company formed to invest substantially all of its assets in uranium oxide concentrates (“U3O8”) and uranium hexafluoride (“UF6”). The Company has no ownership interest in UPC but receives fees for management services and commissions from the purchase and sale of U3O8 and UF6 by UPC.

DMC is incorporated under the Business Corporations Act (Ontario) and domiciled in Canada. The address of its registered head office is 40 University Avenue, Suite 1100, Toronto, Ontario, Canada, M5J 1T1.

2.

BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. The condensed interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2016. The Company’s presentation currency is U.S. dollars.

These financial statements were approved by the board of directors for issue on October 31, 2017.

3.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Significant Accounting Policies

The significant accounting policies followed in these condensed interim consolidated financial statements are consistent with those applied in the Company’s audited annual consolidated financial statements for the year ended December 31, 2016. Commencing with the first quarter of 2017, the Company applies the following accounting policy in accounting for deferred revenue from toll milling:

(a)

Deferred Revenue – Toll Milling

Deferred revenue associated with toll milling services consists of an upfront cash payment received by the Company in exchange for the monetization of its rights to proceeds from future toll milling activities under the applicable toll milling agreement. The Company recognizes revenue on a pro-rata basis, based on the actual cash receipts from toll milling received in the period as a percentage of the total undiscounted cash receipts expected to be received under the applicable toll milling agreement.

Accounting Standards Issued But Not Yet Applied

An update on the Company’s progress in evaluating the impact of the new standards required for fiscal 2018 is as follows:

IFRS 9, Financial Instruments and IFRS 15, Revenue from Contracts with Customers

Denison completed its preliminary assessment of the impact of the adoption of these standards and does not expect the adoption of either to have a material impact on its financial results. However, the Company is still completing its assessment and it may identify other matters in advance of the adoption of these standards.

Comparative Numbers

Certain classifications of the comparative figures have been changed to conform to those used in the current period.

Critical Accounting Estimates and Judgements

The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates and judgements that affect the amounts reported. It also requires management to exercise judgement in applying the Company’s accounting policies. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience. Although the Company regularly reviews the estimates and judgements made that affect these financial statements, actual results may be materially different.

Management has made significant estimates and judgements in the current period related to the following items that are in addition to those included in the financial statements for the year ended December 31, 2016:

(a)

Deferred Revenue – Toll Milling

In February 2017, Denison closed an arrangement with Anglo Pacific Group PLC and one of its wholly-owned subsidiaries (collectively “APG”). Under the arrangement, Denison monetized its right to receive future toll milling cash receipts from July 1, 2016 onwards from the MLJV under the current toll milling agreement with the CLJV (see note 12) for an upfront cash payment. The arrangement consisted of a loan structure and a stream arrangement (collectively, the “APG Arrangement”). Significant judgement was required to determine whether the APG Arrangement should be accounted for as a financial obligation (ie: debt) or deferred revenue.

Key factors that support the deferred revenue conclusion reached by management include, but are not limited to: a) Limited Recourse loan structure – amounts due to APG are generally repayable only to the extent of Denison’s share of the toll milling revenues earned by the MLJV from the processing of the first 215 million pounds of U308 from the Cigar Lake mine on or after July 1, 2016, under the terms of the current Cigar Lake toll milling agreement; and b) No Warranty of the Future Rate of Production - no warranty is provided by Denison to APG regarding the future rate of production at the Cigar Lake mine and / or the McClean Lake mill, or the amount and / or collectability of cash receipts to be received by the MLJV in respect of toll milling of Cigar Lake ore.

4.

DISCONTINUED OPERATIONS

Discontinued Operation – Africa Mining Division

On June 10, 2016, the Company completed a transaction with GoviEx Uranium Inc. (“GoviEx”) to sell its mining assets and operations located in Africa (the “Africa Mining Division”). The primary assets of the African Mining Division at that time were the mineral property rights for the Falea, Mutanga and Dome projects.

The consolidated statement of income (loss) for the Africa Mining Division discontinued operation for the three months and nine months ended September 30, 2017 and 2016 is as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Expenses
Operating expenses	$	-	$	-	$	-	$	(64)
Exploration and evaluation		-		-		-		(74)
General and administrative		-		-		-		(280)
Foreign exchange
Transactional		-		-		-		(5,154)
Translational		-		-		-		-
Other income (expense)
Gains on disposal of plant and equipment		-		-		-		49
Other		-		-		-		(19)
Loss before taxes		-		-		-		(5,542)
Income tax recovery (expense)		-		-		-		-
Net loss for the period		-		-		-		(5,542)
Loss on disposal		-		-		(81)		(70)
Loss from discontinued operations	$	-	$	-	$	(81)	$	(5,612)

The loss on disposal of $81,000 for the nine months ended September 30, 2017 consists of additional transaction costs incurred by the Company for professional fees related to the GoviEx transaction.

Cash flows for the Africa Mining Division discontinued operation for the nine months ended September 30, 2017 and 2016 is as follows:

						Nine Months Ended
						September 30		September 30
(in thousands)						2017		2016
Cash inflow (outflow):
Operating activities					$	-	$	(442)
Investing activities						(81)		(822)
Net cash outflow for the period					$	(81)	$	(1,264)

Discontinued Operation – Mongolia Mining Division

On November 30, 2015, the Company completed a transaction with Uranium Industry a.s (“Uranium Industry”) to sell its mining assets and operations located in Mongolia (the “Mongolia Mining Division”). The primary assets of the Mongolia Mining Division at that time were the exploration licenses for the Hairhan, Haraat, Gurvan Saihan and Ulzit projects.

The consolidated statement of income (loss) for the Mongolia Mining Division discontinued operation for the three months and nine months ended September 30, 2017 and 2016 is as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Expenses
Operating expenses	$	-	$	-	$	-	$	-
Exploration and evaluation		-		-		-		-
General and administrative		-		-		-		-
Foreign exchange
Transactional		-		-		-		-
Translational		-		-		-		-
Other income (expense)
Gains on disposal of plant and equipment		-		-		-		-
Other		-		-		-		-
Loss before taxes		-		-		-		-
Income tax recovery (expense)		-		-		-		-
Net loss for the period		-		-		-		-
Gain on disposal		-		9,050		-		9,050
Gain from discontinued operations	$	-	$	9,050	$	-	$	9,050

The gain on disposal of $9,050,000 for the nine months ended September 30, 2016 consists of the value of contingent consideration earned due to the issuance of mining licenses in the third quarter of 2016 for the four Mongolian projects listed above net of accruals for additional transaction costs related to the contingent consideration. The mining license contingent consideration was subsequently impaired to $nil in the fourth quarter of 2016 in light of the uncertainty regarding collectability due to the default by Uranium Industry of its obligations under the November 2015 amended and restated share purchase agreement and the January 2017 extension agreement.

Cash flows for the Mongolia Mining Division discontinued operation for the nine months ended September 30, 2017 and 2016 is as follows:

						Nine Months Ended
						September 30		September 30
(in thousands)						2017		2016
Cash inflow (outflow):
Operating activities					$	-	$	-
Investing activities						-		-
Net cash outflow for the period					$	-	$	-

5.

CASH AND CASH EQUIVALENTS

The cash and cash equivalent balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Cash			$	2,359	$	5,159
Cash in MLJV and MWJV				5		1,160
Cash equivalents				2,029		5,519
			$	4,393	$	11,838

6.

TRADE AND OTHER RECEIVABLES

The trade and other receivables balance consists of:

					At September 30		At December 31
(in thousands)					2017		2016
Trade receivables				$	2,757	$	1,792
Receivables in MLJV and MWJV					327		583
Sales tax receivables					123		18
Sundry receivables					46		10
				$	3,253	$	2,403

7.

INVENTORIES

The inventories balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Uranium concentrates and work-in-progress			$	421	$	392
Inventory of ore in stockpiles				1,681		1,562
Mine and mill supplies in MLJV				2,360		1,989
			$	4,462	$	3,943
Inventories-by balance sheet presentation:
Current			$	2,781	$	2,381
Long-term-ore in stockpiles				1,681		1,562
			$	4,462	$	3,943

8.

INVESTMENTS

The investments balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Investments:
Debt instruments-fair value through profit and loss			$	32,215	$	-
Equity instruments-fair value through profit and loss				4,447		3,745
Equity instruments-available for sale				16		15
			$	36,678	$	3,760
Investments-by balance sheet presentation:
Current			$	32,215	$	-
Long-term				4,463		3,760
			$	36,678	$	3,760

During the nine months ended September 30, 2017, the Company purchased debt instruments (consisting of a GIC) for $29,740,000 and it purchased additional equity instruments in Skyharbour Resources Ltd (“Skyharbour”) for $149,000.

9.

INVESTMENT IN ASSOCIATES

The investment in associates balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Investment in associates-by investee:
GoviEx			$	3,688	$	4,692
			$	3,688	$	4,692

A summary of the investment in GoviEx is as follows:

(in thousands)
Balance-December 31, 2016					$	4,692
Share of equity loss						(599)
Dilution loss						(405)
Balance-September 30, 2017					$	3,688

GoviEx is a mineral resource company focused on the exploration and development of its uranium properties located in Africa. GoviEx maintains a head office located in Canada and is a public company listed on the TSX Venture Exchange. At September 30, 2017 Denison held an approximate 20.24% interest in GoviEx based on publicly available information (December 31, 2016: 20.68%) and has one director appointed to the GoviEx board of directors. Through the extent of its share ownership interest and its seat on the board of directors, Denison has the ability to exercise significant influence over GoviEx and accordingly, is using the equity method to account for this investment.

The trading price of GoviEx on September 30, 2017 was CAD$0.20 per share which corresponds to a quoted market value of CAD$13,029,000 or $10,440,000 (December 31, 2016: CAD$9,772,000 or $7,278,000) for the Company’s interest in common shares of GoviEx.

The following table is a summary of the consolidated financial information of GoviEx on a 100% basis taking into account adjustments made by Denison for equity accounting purposes for fair value adjustments and differences in accounting policy. Denison records its equity investment entries in GoviEx one quarter in arrears due to the information not yet being publicly available. A reconciliation of GoviEx’s summarized information to Denison’s investment carrying value is also included.

				At June 30		At December 31
(in thousands)				2017		2016
Total current assets			$	3,284	$	4,480
Total non-current assets				23,926		23,937
Total current liabilities				(7,535)		(7,220)
Total non-current liabilities				(421)		(503)
Total net assets			$	19,254	$	20,694
						6 Months Ended
(in thousands)						June 30, 2017
Revenue					$	-
Net loss						(2,882)
Other comprehensive income (loss)					$	-
Reconciliation of GoviEx net assets to Denison investment carrying value:
Net assets of GoviEx – at December 31, 2016					$	20,694
Share capital change						812
Share-based payment reserve change						630
Net loss						(2,882)
Net assets of GoviEx – at June 30, 2017					$	19,254
Denison ownership interest						20.24%
Denison share of net assets of GoviEx						3,897
Other adjustments						(209)
Investment in GoviEx					$	3,688

10.

RESTRICTED CASH AND INVESTMENTS

The restricted cash and investments balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Cash and cash equivalents			$	2,542	$	277
Investments				7,320		2,037
			$	9,862	$	2,314
Restricted cash and investments-by item:
Elliot Lake reclamation trust fund			$	2,542	$	2,213
Letters of credit facility pledged assets				7,212		-
Letters of credit additional collateral				108		101
			$	9,862	$	2,314

Elliot Lake Reclamation Trust Fund

During the nine months ended September 30, 2017, the Company deposited an additional $693,000 (CAD$917,000) into the Elliot Lake Reclamation Trust Fund and withdrew $565,000 (CAD$741,000).

Letters of Credit Facility Pledged Assets

During the nine months ended September 30, 2017, the Company deposited CAD$9,000,000 with the Bank of Nova Scotia (“BNS”) as pledged restricted cash and investments pursuant to its obligations under an amended and extended letters of credit facility (see notes 12, 14 and 15). The monies have been invested in a GIC.

Letters of Credit Additional Collateral

As at September 30, 2017, the Company had on deposit an additional CAD$135,000 of cash collateral with BNS in respect of the portion of its issued reclamation letters of credit in excess of the collateral available under its letters of credit facility (see notes 14 and 15). The cash collateral has been invested in a GIC.

11.

PROPERTY, PLANT AND EQUIPMENT

The property, plant and equipment balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Plant and equipment:
Cost			$	78,188	$	72,601
Construction-in-progress				5,136		4,821
Accumulated depreciation				(16,217)		(12,609)
Net book value			$	67,107	$	64,813
Mineral properties:
Cost			$	133,454	$	123,340
Accumulated amortization				(184)		(171)
Net book value			$	133,270	$	123,169
Total net book value			$	200,377	$	187,982

The property, plant and equipment continuity summary is as follows:

				Accumulated
				Amortization /		Net
(in thousands)		Cost		Depreciation		Book Value
Plant and equipment:
Balance-December 31, 2016	$	77,422	$	(12,609)	$	64,813
Additions		115		-		115
Amortization		-		(109)		(109)
Depreciation		-		(2,485)		(2,485)
Disposals		(89)		73		(16)
Foreign exchange		5,876		(1,087)		4,789
Balance-September 30, 2017	$	83,324	$	(16,217)	$	67,107
Mineral properties:
Balance-December 31, 2016	$	123,340	$	(171)	$	123,169
Additions		628		-		628
Impairment recovery		246		-		246
Recoveries		(149)		-		(149)
Foreign exchange		9,389		(13)		9,376
Balance-September 30, 2017	$	133,454	$	(184)	$	133,270

Plant and Equipment

Canada Mining Segment

The Company has a 22.5% interest in the McClean Lake mill located in the Athabasca Basin of Saskatchewan, Canada. A toll milling agreement has been signed with the participants in the CLJV that provides for the processing of the future output of the Cigar Lake mine at the McClean Lake mill, for which the owners of the McClean Lake mill receive a toll milling fee and other benefits. In determining the units of production amortization rate for the McClean Lake mill, the amount of production attributable to the mill assets has been adjusted to include Denison’s expected share of mill feed related to the CLJV toll milling contract.

DES

The environmental services division of the Company provides mine decommissioning and decommissioned site monitoring services for third parties.

Mineral Properties

Canada Mining Segment

As at September 30, 2017, the Company has various interests in development and exploration projects located in Canada which are held directly or through option or various contractual agreements. Significant updates from the December 31, 2016 year-end are listed below.

Wheeler River

On January 10, 2017, Denison executed an agreement with the partners of the WRJV that will result in Denison having the potential to increase its ownership in the WRJV from 60% up to approximately 66% by the end of fiscal 2018. Under the terms of the agreement, the partners have agreed to allow for a one-time election by Cameco Corp. (“Cameco”) to fund 50% of its ordinary 30% share of the WRJV expenses for fiscal 2017 and 2018. The shortfall in Cameco’s contribution will be funded by Denison in exchange for a transfer of a portion of Cameco’s interest in the WRJV. Accordingly, Denison’s share of the WRJV expenses will be 75% in fiscal 2017 and 2018.

Waterbury Lake

In May 2017, the Company increased its interest in the Waterbury Lake property from 63.01% to 63.63% and, in August 2017, further increased its interest to 64.22% under the terms of the dilution provisions in the agreements governing the project (see note 23).

Moon Lake South

In January 2016, the Company entered into an option agreement with CanAlaska Uranium Ltd (“CanAlaska”) to earn an interest in CanAlaska’s Moon Lake South project located in the Athabasca Basin in Saskatchewan. As at September 30, 2017, the Company has spent CAD$549,000 under the option and has met the CAD$200,000 spending requirement for the first stage of the option. Denison now has a 51% interest in the project.

Moore Lake

In August 2016, the Company closed an agreement to option its 100% interest in the Moore Lake property to Skyharbour. In April 2017, Denison received CAD$200,000 of cash consideration from Skyharbour pursuant to the terms of the option agreement and a recovery of the carrying value of Moore Lake of $149,000 was recognized.

In June 2017, the Company recognized an impairment recovery of $246,000 for Moore Lake based on an update of the estimated recoverable amount remaining to be received under the option agreement.

12. DEFERRED REVENUE

The deferred revenue balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Deferred revenue – toll milling			$	30,515	$	-
			$	30,515	$	-
Deferred revenue-by balance sheet presentation:
Current			$	2,454	$	-
Non-current				28,061		-
			$	30,515	$	-

The deferred revenue liability continuity summary is as follows:

(in thousands)
Balance-December 31, 2016					$	-
Proceeds of APG Arrangement, net
Upfront proceeds						32,860
Less: toll milling cash receipts from July 1, 2016 to January 31, 2017						(2,659)
Revenue earned during the period						(1,448)
Foreign exchange						1,762
Balance-September 30, 2017					$	30,515

Arrangement with Anglo Pacific Group PLC

On February 13, 2017, Denison closed an arrangement with APG under which Denison received an upfront payment of $32,860,000 (CAD$43,500,000) in exchange for its right to receive future toll milling cash receipts from the MLJV under the current toll milling agreement with the CLJV from July 1, 2016 onwards.

The APG Arrangement represents a contractual obligation of Denison to pay onward to APG any cash proceeds of future toll milling revenue earned by the Company related to the processing of the specified Cigar Lake ore through the McClean Lake mill. The Company has reflected payments made to APG of $2,659,000 (CAD$3,520,000), representing the Cigar Lake toll milling cash receipts received by Denison in respect of toll milling activity for the period from July 1, 2016 through January 31, 2017, as a reduction of the initial upfront amount received and has reduced the initial deferred revenue balance to $30,201,000 (CAD$39,980,000) at the transaction date.

The Company’s share of toll milling revenue for January 2017, prior to the closing of the transaction with APG, of $444,000 has been recognized as toll milling revenue in the quarter ending March 31, 2017. Following the closing of the APG Arrangement, the Company recognized $1,448,000 in additional toll milling revenue from the draw-down of deferred revenue, based on the receipt of CAD$2,979,000 in toll milling cash receipts, in accordance with its accounting policy in note 3.

In connection with the closing of the APG Arrangement, Denison reimbursed APG for $100,000 in due diligence costs and granted 1,673,077 share purchase warrants to APG in satisfaction of a $333,000 (CAD$435,000) arrangement fee payable. The warrants have an exercise price of CAD$1.27 per share and will be exercisable for a period of 3 years from the date of closing of the financing (see note 18). In addition, the terms of the 2016 BNS Letters of Credit Facility between BNS and Denison have been amended to reflect certain changes required to facilitate an Intercreditor Agreement between APG, BNS and Denison (see note 15).

13. POST-EMPLOYMENT BENEFITS

The post-employment benefits balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Accrued benefit obligation			$	1,916	$	1,832
			$	1,916	$	1,832
Post-employment benefits liability-by balance sheet presentation:
Current			$	200	$	186
Non-current				1,716		1,646
			$	1,916	$	1,832

The post-employment benefits continuity summary is as follows:

(in thousands)
Balance-December 31, 2016					$	1,832
Accretion						43
Benefits paid						(95)
Foreign exchange						136
Balance-September 30, 2017					$	1,916

14. RECLAMATION OBLIGATIONS

The reclamation obligations balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Reclamation liability-by location:
Elliot Lake			$	13,385	$	12,470
McClean and Midwest Joint Ventures				9,317		8,479
Other				17		16
			$	22,719	$	20,965
Reclamation and remediation liability-by balance sheet presentation:
Current				807		810
Non-current				21,912		20,155
			$	22,719	$	20,965

The reclamation obligations continuity summary is as follows:

(in thousands)
Balance-December 31, 2016					$	20,965
Accretion						744
Expenditures incurred						(585)
Foreign exchange						1,595
Balance-September 30, 2017					$	22,719

Site Restoration: Elliot Lake

Spending on restoration activities at the Elliot Lake site is funded from monies in the Elliot Lake Reclamation Trust fund (see note 10).

Site Restoration: McClean Lake Joint Venture and Midwest Joint Venture

Under the Mineral Industry Environmental Protection Regulations (1996), the Company is required to provide its pro-rata share of financial assurances to the province of Saskatchewan relating to future decommissioning and reclamation plans that have been filed and approved by the applicable regulatory authorities. As at September 30, 2017, the Company has provided irrevocable standby letters of credit, from a chartered bank, in favour of the Saskatchewan Ministry of Environment, totalling CAD$24,135,000 relating to an approved reclamation plan dated March 2016.

15. DEBT FACILITIES

Letters of Credit Facility

The Company’s current letters of credit facility with BNS has a maturity date of January 31, 2018 and allows for credit to be extended to the Company for up to CAD$24,000,000. Use of the facility is restricted to non-financial letters of credit in support of reclamation obligations (see note 14).

The facility contains a covenant to maintain a level of tangible net worth greater than or equal to the sum of $150,000,000 and a pledge of CAD$9,000,000 in restricted cash and investments as collateral for the facility (see note 10). As additional security for the facility, DMC has provided an unlimited full recourse guarantee and a pledge of all of the shares of DMI. DMI has provided a first-priority security interest in all present and future personal property and an assignment of its rights and interests under all material agreements relative to the McClean Lake and Midwest projects. The facility is subject to letter of credit fees of 2.40% (0.40% on the first CAD$9,000,000) and standby fees of 0.75%.

At September 30, 2017, the Company is in compliance with its facility covenants and CAD$24,000,000 (December 31, 2016: CAD$24,000,000) of the facility is being utilized as collateral for letters of credit issued in respect of the reclamation obligations for the MLJV and MWJV. During the nine months ended September 30, 2017, the Company incurred letter of credit fees of $238,000.

16. OTHER LIABILITIES

The other liabilities balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Unamortized fair value of toll milling contracts			$	-	$	674
Flow-through share premium obligation (note 17)				3,073		1,803
			$	3,073	$	2,477
Other long-term liabilities-by balance sheet presentation:
Current			$	3,073	$	1,847
Non-current				-		630
			$	3,073	$	2,477

In February 2017, in conjunction with the APG Arrangement, the Company extinguished the remaining unamortized fair value of its toll milling contract liabilities and recognized a gain of $679,000 as a component of “Other income (expense)” – see note 21.

17. SHARE CAPITAL

Denison is authorized to issue an unlimited number of common shares without par value. A continuity summary of the issued and outstanding common shares and the associated dollar amounts is presented below:

	Number of		Value of
	Common		Common
(in thousands except share amounts)	Shares		Shares
Balance at December 31, 2016	540,722,365	$	1,140,631
Issued for cash:
Share issue proceeds	18,337,000		14,806
Share issue costs	-		(851)
Share option exercises	30,066		16
Share option exercises-fair value adjustment	-		18
Flow-through share premium liability	-		(2,839)
Share cancellations	(5,029)		-
	18,362,037		11,150
Balance at September 30, 2017	559,084,402	$	1,151,781

New Issues

In March 2017, Denison completed a private placement of 18,337,000 shares of Denison for gross proceeds of $14,806,000 (CAD$20,000,290). The aggregate share offering was comprised of the following three elements: (1) a “Common Share” offering which consisted of 5,790,000 common shares of Denison at a price of CAD$0.95 per share for gross proceeds of CAD$5,500,500; (2) a “Tranche A Flow-Through” offering which consisted of 8,482,000 flow-through shares at a price of CAD$1.12 per share for gross proceeds of CAD$9,499,840; and (3) a “Tranche B Flow-Through” offering which consisted of 4,065,000 flow-through shares at a price of CAD$1.23 per share for gross proceeds of CAD$4,999,950. The income tax benefits of the flow-through elements of this issue will be renounced to subscribers no later than December 31, 2017. The related flow-through share premium liabilities are included as a component of other liabilities on the balance sheet at September 30, 2017 (see note 16).

Share Cancellations

In January 2017, 5,029 shares were cancelled in connection with the January 2014 acquisition of the minority interest of Rockgate Capital Corp (“RCC”). RCC shareholders were entitled to exchange their RCC shares for shares of Denison in accordance with the share exchange ratio established for the acquisition. In January 2017, this right expired and the un-exchanged shares for which shareholders had not elected to exercise their exchange rights were subsequently cancelled.

Flow-Through Share Issues

The Company finances a portion of its exploration programs through the use of flow-through share issuances. Canadian income tax deductions relating to these expenditures are claimable by the investors and not by the Company.

As at September 30, 2017, the Company estimates that it has satisfied its obligation to spend CAD$12,405,000 on eligible exploration expenditures as a result of the issuance of flow-through shares in May 2016. The Company renounced the income tax benefits of this issue in February 2017, with an effective date of renunciation to its subscribers of December 31, 2016. In conjunction with the renunciation, the flow-through share premium liability has been reversed and recognized as part of the deferred tax recovery (see notes 16 and 24).

As at September 30, 2017, the Company estimates that is has incurred CAD$584,000 of expenditures towards its obligation to spend CAD$9,499,840 on eligible exploration expenditures as a result of the issuance of Tranche A flow-through shares in March 2017.

As at September 30, 2017, the Company has not incurred any expenditures towards its obligation to spend CAD$4,999,950 on eligible exploration expenditures as a result of the issuance of Tranche B flow-through shares in March 2017.

18. SHARE PURCHASE WARRANTS

A continuity summary of the issued and outstanding share purchase warrants in terms of common shares of the Company and the associated dollar amounts is presented below:

		Weighted
		Average		Number of
		Exercise		Common		Fair
		Price Per		Shares		Value
(in thousands except share amounts)		Share (CAD$)		Issuable		Amount
Balance-December 31, 2016	$	-		-	$	-
February 2017 warrants issued		1.27		1,673,077		333
Balance-September 30, 2017	$	1.27		1,673,077	$	333

The February 2017 warrants were issued in conjunction with the APG Arrangement (see note 12) and expire on February 14, 2020.

19. STOCK OPTIONS

A continuity summary of the stock options granted under the Company’s stock-based compensation plan is presented below:

						Weighted-
						Average
						Exercise
				Number of		Price per
				Common		Share
				Shares		(CAD$)
Stock options outstanding - beginning of period				6,938,179	$	1.06
Granted				6,459,400		0.85
Exercises (1)				(30,066)		0.68
Expiries				(819,524)		1.42
Forfeitures				(121,500)		0.75
Stock options outstanding - end of period				12,426,489	$	0.93
Stock options exercisable - end of period				4,803,464	$	1.11

(1)

The weighted average share price at the date of exercise was CAD$0.88.

A summary of the Company’s stock options outstanding at September 30, 2017 is presented below:

		Weighted				Weighted-
		Average				Average
		Remaining				Exercise
Range of Exercise		Contractual		Number of		Price per
Prices per Share		Life		Common		Share
(CAD$)		(Years)		Shares		(CAD$)
Stock options outstanding
$ 0.50 to $ 0.99		3.96		9,316,489	$	0.78
$ 1.00 to $ 1.19		2.28		1,365,000		1.10
$ 1.20 to $ 1.39		0.46		827,000		1.30
$ 1.40 to $ 1.99		1.43		918,000		1.82
Stock options outstanding - end of period		3.35		12,426,489	$	0.93

Options outstanding at September 30, 2017 expire between December 2017 and August 2022.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model. The following table outlines the assumptions used in the model to determine the fair value of options granted:

				Nine Months Ended
				September 30, 2017
Risk-free interest rate				0.11% to 1.44%
Expected stock price volatility				47.02% to 47.77%
Expected life				3.4 to 3.45 years
Expected dividend yield				-
Fair value per share under options granted				CAD$0.21 to CAD$0.29

The fair values of stock options with vesting provisions are amortized on a graded method basis as stock-based compensation expense over the applicable vesting periods. Included in the statement of income (loss) is stock-based compensation of $268,000 and $703,000 for the three and nine months ended September 30, 2017 and $73,000 and $261,000 for the three and nine months ended September 30, 2016. At September 30, 2017, an additional $778,000 in stock-based compensation expense remains to be recognized up until August 2019.

20.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The accumulated other comprehensive income (loss) balance consists of:

				At September 30		At December 31
(in thousands)				2017		2016
Cumulative foreign currency translation			$	(47,433)	$	(61,371)
Unamortized experience gain-post employment liability
Gross				786		786
Tax effect				(208)		(208)
Unrealized gains on investments
Gross				7		7
			$	(46,848)	$	(60,786)

21. SUPPLEMENTAL FINANCIAL INFORMATION

The components of operating expenses from continuing operations are as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Cost of goods and services sold:
Operating overheads:
Mining, other development expense	$	(235)	$	(176)	$	(456)	$	(490)
Milling, conversion expense		(531)		(533)		(2,209)		(1,725)
Less absorption:
-Mineral properties		10		8		28		29
Cost of services		(1,836)		(1,817)		(4,806)		(5,334)
Cost of goods and services sold		(2,592)		(2,518)		(7,443)		(7,520)
Reclamation asset amortization		(38)		(35)		(109)		(105)
Operating expenses	$	(2,630)	$	(2,553)	$	(7,552)	$	(7,625)

The components of other income (expense) for continuing operations are as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Gains (losses) on:
Disposal of property, plant and equipment	$	12	$	-	$	21	$	2
Disposal of equity investments		-		(3)		-		(3)
Investment fair value through profit (loss)		(453)		631		405		1,020
Extinguishment of toll milling contract liability (note 16)		-		-		679		-
Other		(115)		(109)		(326)		(252)
Other income (expense)	$	(556)	$	519	$	779	$	767

The components of finance income (expense) for continuing operations are as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Interest income	$	45	$	26	$	168	$	153
Interest expense		-		-		(3)		(2)
Accretion expense-reclamation obligations		(258)		(229)		(744)		(679)
Accretion expense-post-employment benefits		(15)		(23)		(43)		(67)
Finance expense	$	(228)	$	(226)	$	(622)	$	(595)

A summary of depreciation expense recognized in the statement of income (loss) is as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Continuing operations:
Operating expenses
Mining, other development expense	$	(1)	$	(3)	$	(4)	$	(11)
Milling, conversion expense		(532)		(533)		(2,209)		(1,725)
Cost of services		(59)		(68)		(177)		(201)
Exploration and evaluation		(23)		(16)		(69)		(43)
General and administrative		(9)		(9)		(26)		(25)
Discontinued operations		-		-		-		(26)
Depreciation expense-gross	$	(624)	$	(629)	$	(2,485)	$	(2,031)

A summary of employee benefits expense recognized in the statement of income (loss) is as follows:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Continuing operations:
Salaries and short-term employee benefits	$	(1,699)	$	(1,599)	$	(4,813)	$	(4,839)
Share-based compensation		(268)		(73)		(703)		(261)
Termination benefits		-		(4)		(13)		(19)
Discontinued operations		-		-		-		(269)
Employee benefits expense	$	(1,967)	$	(1,676)	$	(5,529)	$	(5,388)

The change in non-cash working capital items in the consolidated statements of cash flows is as follows:

						Nine Months Ended
						September 30		September 30
(in thousands)						2017		2016
Change in non-cash working capital items:
Trade and other receivables					$	(676)	$	1,770
Inventories						(207)		(15)
Prepaid expenses and other assets						13		197
Accounts payable and accrued liabilities						867		(484)
Change in non-cash working capital items					$	(3)	$	1,468

22. SEGMENTED INFORMATION

Business Segments

The Company operates in three primary segments – the Mining segment, the Environmental Services segment and the Corporate and Other segment. The Mining segment has historically been further subdivided into geographic regions, being Canada, Africa and Asia, and includes activities related to exploration, evaluation and development, mining, milling (including toll milling) and the sale of mineral concentrates. The Africa and Asia Mining segments were disposed of in 2016 and 2015, respectively, and are reported under discontinued operations in the tables below (see note 4). The Environmental Services segment includes the results of the Company’s environmental services business, DES. The Corporate and Other segment includes management fee income earned from UPC and general corporate expenses not allocated to the other segments. Management fee income has been included with general corporate expenses due to the shared infrastructure between the two activities.

For the three months ended September 30, 2017, reportable segment results were as follows:

(in thousands)		Canada Mining	DES	Corporate and Other	Total Continuing Operations	Total Discontinued Operations
Statement of Operations:
Revenues		456	2,007	254	2,717	-
Expenses:
Operating expenses		(794)	(1,803)	(33)	(2,630)	-
Exploration and evaluation		(4,348)	-	-	(4,348)	-
General and administrative		(1)	-	(1,168)	(1,169)	-
Impairment recovery		-	-	-	-	-
		(5,143)	(1,803)	(1,201)	(8,147)	-
Segment income (loss)		(4,687)	204	(947)	(5,430)	-
Revenues – supplemental:
Environmental services		-	2,007	-	2,007	-
Management fees		-	-	254	254	-
Toll milling services		456	-	-	456	-
		456	2,007	254	2,717	-

For the nine months ended September 30, 2017, reportable segment results were as follows:

(in thousands)		Canada Mining	DES	Corporate and Other	Total Continuing Operations	Total Discontinued Operations
Statement of Operations:
Revenues		1,892	5,216	821	7,929	-
Expenses:
Operating expenses		(2,746)	(4,665)	(141)	(7,552)	-
Exploration and evaluation		(11,095)	-	-	(11,095)	-
General and administrative		(12)	-	(4,685)	(4,697)	-
Impairment recovery		246	-	-	246	-
		(13,607))	(4,665)	(4,826)	(23,098)	-
Segment income (loss)		(11,715)	551	(4,005)	(15,169)	-
Revenues – supplemental:
Environmental services		-	5,216	-	5,216	-
Management fees		-	-	821	821	-
Toll milling services		1,892	-	-	1,892	-
		1,892	5,216	821	7,929	-
Capital additions:
Property, plant and equipment		717	26	-	743	-
Long-lived assets:
Plant and equipment
Cost		79,629	3,460	235	83,324	-
Accumulated depreciation		(13,988)	(2,126)	(103)	(16,217)	-
Mineral properties		133,270	-	-	133,270	-
		198,911	1,334	132	200,377	-

For the three months ended September 30, 2016, reportable segment results were as follows:

(in thousands)		Canada Mining	DES	Corporate and Other	Total Continuing Operations	Total Discontinued Operations
Statement of Operations:
Revenues		1,037	2,077	375	3,489	-
Expenses:
Operating expenses		(736)	(1,787)	(30)	(2,553)	-
Exploration and evaluation		(3,308)	-	-	(3,308)	-
General and administrative		-	-	(1,020)	(1,020)	-
Impairment expense		(79)	-	-	(79)	-
		(4,123)	(1,787)	(1,050)	(6,960)	-
Segment income (loss)		(3,086)	290	(675)	(3,471)	-
Revenues – supplemental:
Environmental services		-	2,077	-	2,077	-
Management fees		-	-	375	375	-
Toll milling services		1,037	-	-	1,037	-
		1,037	2,077	375	3,489	-

For the nine months ended September 30, 2016, reportable segment results were as follows:

(in thousands)		Canada Mining	DES	Corporate and Other	Total Continuing Operations	Total Discontinued Operations
Statement of Operations:
Revenues		3,388	5,974	1,120	10,482	-
Expenses:
Operating expenses		(2,291)	(5,125)	(209)	(7,625)	(64)
Exploration and evaluation		(10,037)	-	-	(10,037)	(74)
General and administrative		(17)	-	(3,270)	(3,287)	(280)
Impairment expense		(2,253)	-	-	(2,253)	-
		(14,598)	(5,125)	(3,479)	(23,202)	(418)
Segment income (loss)		(11,210)	849	(2,359)	(12,720)	(418)
Revenues – supplemental:
Environmental services		-	5,974	-	5,974	-
Management fees		-	-	1,120	1,120	-
Toll milling services		3,388	-	-	3,388	-
		3,388	5,974	1,120	10,482	-
Capital additions:
Property, plant and equipment		879	128	-	1,007	78
Long-lived assets:
Plant and equipment
Cost		76,717	3,331	224	80,272	-
Accumulated depreciation		(11,093)	(1,834)	(64)	(12,991)	-
Mineral properties		123,127	-	-	123,127	-
		188,751	1,497	160	190,408	-

23. RELATED PARTY TRANSACTIONS

Uranium Participation Corporation

The Company is a party to a management services agreement with UPC with an effective start date of April 1, 2016 and a term of three years. Under the agreement, Denison receives the following fees from UPC: a) a base fee of CAD$400,000 per annum, payable in equal quarterly installments; b) a variable fee equal to (i) 0.3% per annum of UPC’s total assets in excess of CAD$100 million and up to and including CAD$500 million, and (ii) 0.2% per annum of UPC’s total assets in excess of CAD$500 million; c) a fee, at the discretion of the Board, for on-going monitoring or work associated with a transaction or arrangement (other than a financing, or the acquisition of or sale of U3O8 or UF6); and d) a commission of 1.0% of the gross value of any purchases or sales of U3O8 or UF6 or gross interest fees payable to UPC in connection with any uranium loan arrangements.

The following transactions were incurred with UPC for the periods noted:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Management fees:
Base and variable fees	$	253	$	298	$	808	$	1,043
Discretionary fees		-		77		-		77
Commission fees		1		-		13		-
	$	254	$	375	$	821	$	1,120

At September 30, 2017, accounts receivable includes $219,000 (December 31, 2016: $160,000) due from UPC with respect to the fees indicated above.

Korea Electric Power Corporation (“KEPCO”) and Korea Hydro & Nuclear Power (“KHNP”)

At September 30, 2017, KEPCO, through its subsidiaries, including KHNP and its subsidiary KHNP Canada Energy Ltd. (“KHNP Canada”), holds 58,284,000 shares of Denison representing a share interest of approximately 10.42%. KHNP Canada is also the majority member of Korea Waterbury Uranium Limited Partnership (“KWULP”). KWULP is a consortium of investors that holds the non-Denison owned interests in Waterbury Lake Uranium Corporation (“WLUC”) and Waterbury Lake Uranium Limited Partnership (“WLULP”), entities whose key asset is the Waterbury Lake property.

In May 2017, Denison funded 100% of the approved fiscal 2017 program for Waterbury Lake which has had the impact of further diluting KWULP’s interest in the WLULP. As a result, Denison earned an additional 0.62% interest in the WLULP, increasing Denison’s interest to 63.63%. The additional interest has been accounted for using an effective date of May 31, 2017 and has resulted in Denison recording its increased pro-rata share of the net assets of Waterbury Lake, the majority of which relates to an addition to mineral property assets of $296,000.

In August 2017, Denison funded 100% of an approved expanded fiscal 2017 program for Waterbury Lake which has had the impact of further diluting KWULP’s interest in the WLULP. As a result, Denison earned an additional 0.59% interest in the WLULP, increasing Denison’s interest to 64.22%. The additional interest has been accounted for using an effective date of August 31, 2017 and has resulted in Denison recording its increased pro-rata share of the net assets of Waterbury Lake, the majority of which relates to an addition to mineral property assets of $304,000.

In September 2017, Denison and KHNP Canada entered into an amended and restated strategic relationship agreement (the “Amended SRA”) to replace the June 2009 strategic relationship agreement between Denison and KEPCO (the “2009 SRA”). The Amended SRA acknowledges the transfer of the Denison shares and the rights and obligations under the 2009 SRA, by KEPCO to KHNP Canada pursuant to an internal reorganization completed by KEPCO in early 2017.

Other

During the nine months ended September 30, 2017, the Company incurred investor relations, administrative service fees and other expenses of $135,000 (September 30, 2016: $125,000) with Namdo Management Services Ltd, which shares a common director with Denison. These services were incurred in the normal course of operating a public company. At September 30, 2017, an amount of $nil (December 31, 2016: $nil) was due to this company.

During the nine months ended September 30, 2017, the Company incurred office expenses and other expenses of $41,000 (September 30, 2016: $17,000) with Lundin S.A, a company which provides office and administration services to the executive chairman, other directors and management of Denison. At September 30, 2017, an amount of $nil (December 31, 2016: $6,000) was due to this company.

Compensation of Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers, vice-presidents and members of its Board of Directors.

The following compensation was awarded to key management personnel:

		Three Months Ended				Nine Months Ended
		September 30		September 30		September 30		September 30
(in thousands)		2017		2016		2017		2016
Salaries and short-term employee benefits	$	(359)	$	(296)	$	(1,018)	$	(875)
Share-based compensation		(239)		(70)		(601)		(195)
Key management personnel compensation	$	(598)	$	(366)	$	(1,619)	$	(1,070)

24. INCOME TAXES

For the nine months ended September 30, 2017, Denison has recognized deferred tax recoveries of $3,828,000. The deferred tax recovery includes the recognition of previously unrecognized Canadian tax assets of $2,482,000 relating to the February 2017 renunciation of the tax benefits associated with the Company’s CAD$12,405,000 flow-through share issue in May 2016.

25. FAIR VALUE OF FINANCIAL INSTRUMENTS

IFRS requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:

●

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

●

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

●

Level 3 – Inputs that are not based on observable market data.

The fair value of financial instruments which trade in active markets, such as share and warrant equity instruments, is based on quoted market prices at the balance sheet date. The quoted market price used to value financial assets held by the Company is the current closing price. Warrants that do not trade in active markets have been valued using the Black-Scholes pricing model. Debt instruments have been valued using the effective interest rate for the period that the Company expects to hold the instrument and not the rate to maturity.

Except as otherwise disclosed, the fair values of cash and cash equivalents, trade and other receivables, accounts payable and accrued liabilities, restricted cash and cash equivalents and debt obligations approximate their carrying values as a result of the short-term nature of the instruments, or the variable interest rate associated with the instruments, or the fixed interest rate of the instruments being similar to market rates.

The following table illustrates the classification of the Company’s financial assets within the fair value hierarchy as at September 30, 2017 and December 31, 2016:

						September 30		December 31,
		Financial		Fair		2017		2016
		Instrument		Value		Fair		Fair
(in thousands)		Category(1)		Hierarchy		Value		Value
Financial Assets:
Cash and equivalents		Category D			$	4,393	$	11,838
Trade and other receivables
Trade and other		Category D				3,253		2,403
Investments
Debt instruments		Category A		Level 2		32,215		-
Equity instruments-shares		Category A		Level 1		1,774		1,228
Equity instruments-warrants		Category A		Level 2		2,673		2,517
Equity instruments-shares		Category B		Level 1		16		15
Restricted cash and equivalents
Elliot Lake reclamation trust fund		Category C				2,542		2,213
Credit facility pledged assets		Category C				7,212		-
Reclamation letter of credit collateral		Category C				108		101
					$	54,186	$	20,315
Financial Liabilities:
Account payable and accrued liabilities		Category E				4,991		4,141
Debt obligations		Category E				-		276
					$	4,991	$	4,417

(1)

Financial instrument designations are as follows: Category A=Financial assets and liabilities at fair value through profit and loss; Category B=Available for sale investments; Category C=Held to maturity investments; Category D=Loans and receivables; and Category E=Financial liabilities at amortized cost.