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CAPITAL MANAGEMENT AND FINANCIAL RISK | 12 Months Ended
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Dec. 31, 2019
Capital Management And Financial Risk |
CAPITAL MANAGEMENT AND FINANCIAL RISK | Capital Management The Company’s capital includes cash, cash equivalents, investments in debt instruments, investments in equity instruments and the current portion of debt obligations. The Company’s primary objective with respect to its capital management is to ensure that it has sufficient capital to maintain its ongoing operations, to provide returns for shareholders and benefits for other stakeholders and to pursue growth opportunities (refer to Denison’s Going Concern disclosure in note 2). Planning, annual budgeting and controls over major investment decisions are the primary tools used to manage the Company’s capital. The Company’s cash is managed centrally and disbursed to the various business units based on a system of internal controls that require review and approval of significant expenditures by the Company’s key decision makers. For example, under the Company’s delegation of authority guidelines, significant debt obligations require the approval of both the CEO and the CFO before they are entered into. The Company currently manages its capital by ongoing monitoring and review of its net cash and investment position, as well as its operating plans for the current and future periods. The Company’s net cash and investment position is summarized below:
|  |  |  | At December 31 |  | At December 31
(in thousands) |  |  |  | 2019 |  | 2018
Net cash and investments: |  |  |  |  |  |
Cash and cash equivalents |  |  | $ | 8,190 | $ | 23,207
Investments |  |  |  | 12,104 |  | 2,255
Debt obligations-current (note 16) |  |  |  | (470) |  | -
Net cash and investments |  |  | $ | 19,824 | $ | 25,462
Financial Risk The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and price risk.
| (a) | Credit Risk
Credit risk is the risk of loss due to a counterparty’s inability to meet its obligations under a financial instrument that will result in a financial loss to the Company. The Company believes that the carrying amount of its cash and cash equivalents, trade and other receivables, investments in debt instruments and restricted cash and investments represents its maximum credit exposure. The maximum exposure to credit risk at the reporting dates is as follows:
|  |  |  | At December 31 |  | At December 31
(in thousands) |  |  |  | 2019 |  | 2018
Cash and cash equivalents |  |  | $ | 8,190 | $ | 23,027
Trade and other receivables |  |  |  | 4,023 |  | 4,072
Investments in debt instruments |  |  |  | - |  | -
Restricted cash and investments |  |  |  | 11,994 |  | 12,255
|  |  | $ | 24,207 | $ | 39,354
The Company limits cash and cash equivalents, investment in debt instruments and restricted cash and investment risk by dealing with credit worthy financial institutions. The majority of the Company’s normal course trade and other receivables balance relates to a small number of customers whom have established credit worthiness with the Company through past dealings.
| (b) | Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with its financial liabilities as they become due (refer to Denison’s Going Concern disclosure in note 2). The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there is sufficient committed capital to meet its short-term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash and cash equivalents, its financial covenants and its access to credit and capital markets, if required. The maturities of the Company’s financial liabilities at December 31, 2019 are as follows:
(in thousands) |  |  |  | Within 1 Year |  | 1 to 5 Years
Accounts payable and accrued liabilities |  |  | $ | 7,930 | $ | -
Debt obligations (note 16) |  |  |  | 470 |  | 606
|  |  | $ | 8,400 | $ | 606
| (c) | Currency Risk
Foreign exchange risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. As at December 31, 2019, the Company predominantly operates in Canada and incurs the majority of its operating and capital costs in Canadian dollars. Some small foreign exchange risk exists from assets and liabilities that are denominated in a currency that is not the functional currency for the relevant subsidiary company but the risk is minimal. Currently, the Company does not have any foreign exchange hedge programs in place and manages its operational foreign exchange requirements through spot purchases in the foreign exchange markets.
| (d) | Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its liabilities through its outstanding borrowings and on its assets through its investments in debt instruments. The Company monitors its exposure to interest rates and has not entered into any derivative contracts to manage this risk.
| (e) | Price Risk
The Company is exposed to equity price risk on its investments in equity instruments of other exploration and mining companies. The sensitivity analysis below illustrates the impact of equity price risk on the equity investments held by the Company at December 31, 2019:
|  |  |  |  |  | Change in
|  |  |  |  |  | net income
(in thousands) |  |  |  |  |  | (loss)
Equity price risk |  |  |  |  |  |
10% increase in equity prices |  |  |  |  | $ | 1,216
10% decrease in equity prices |  |  |  |  |  | (1,216)
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, the variable interest rate associated with the instruments or the fixed interest rate of the instruments being similar to market rates. During 2019, there were no transfers between levels 1, 2 and 3 and there were no changes in valuation techniques, however, the Company did change its method of accounting for its GoviEx investment from the equity method to FVTPL in the fourth quarter of 2019. The following table illustrates the classification of the Company’s financial assets within the fair value hierarchy as at December 31, 2019 and December 31, 2018:
|  | Financial |  | Fair |  | December 31, |  | December 31,
|  | Instrument |  | Value |  | 2019 |  | 2018
(in thousands) |  | Category(1) |  | Hierarchy |  | Fair Value |  | Fair Value
Financial Assets: |  |  |  |  |  |  |  |
Cash and equivalents |  | Category B |  |  | $ | 8,190 | $ | 23,207
Trade and other receivables |  | Category B |  |  |  | 4,023 |  | 4,072
Investments |  |  |  |  |  |  |  |
Debt instruments-GICs |  | Category A |  | Level 2 |  | - |  | -
Equity instruments-shares |  | Category A |  | Level 1 |  | 11,971 |  | 2,007
Equity instruments-warrants |  | Category A |  | Level 2 |  | 133 |  | 248
Restricted cash and equivalents |  |  |  |  |  |  |  |
Elliot Lake reclamation trust fund |  | Category B |  |  |  | 2,859 |  | 3,120
Credit facility pledged assets |  | Category B |  |  |  | 9,000 |  | 9,000
Reclamation letter of credit collateral |  | Category B |  |  |  | 135 |  | 135
|  |  |  |  | $ | 36,311 | $ | 41,789
Financial Liabilities: |  |  |  |  |  |  |  |
Account payable and accrued liabilities |  | Category C |  |  |  | 7,930 |  | 5,554
Debt obligations |  | Category C |  |  |  | 1,002 |  | -
|  |  |  |  | $ | 8,932 | $ | 5,554
| (1) | Financial instrument designations are as follows: Category A=Financial assets and liabilities at fair value through profit and loss; Category B=Financial assets at amortized cost; and Category C=Financial liabilities at amortized cost.

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