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The FCU/DML Merger - Why Now?

July 20, 2015

This is my first blog post since we announced the merger of Fission with Denison Mines to create a new company, Denison Energy and I want to talk about why we believe this is a good deal for Fission shareholders.

Firstly, a little history. Back in 1996, I started Strathmore Minerals. Some years later, in 2006, my team and I spun out Fission Energy and then in 2013, we spun out Fission Uranium. Many of the shares that I own in FCU go all the way back to Strathmore and, for the rest of the team, a large part of their holdings in FCU go back to the early days of Fission Energy. Both myself and Ross McElroy have large holdings in FCU and our goal is to ensure the greatest possible share value for all shareholders.  

As both Management and shareholders, we think that combining Fission with Denison is the way to ensure that value growth, primarily because of the tremendous Denison assets.

Here’s why I love these assets. We’re talking about ownership in the cash-producing McClean Lake Mill, they have the superb Wheeler River project– with its Phoenix deposit and the new Gryphon discovery, they have a dominant Athabasca Basin package and they are part of the Lundin Group – with its excellent access to capital and long track record of growing shareholder value.

In recent months, despite Fission’s continued drilling success that includes the new high-grade zone at R660W, the needle has barely moved on our stock and has even gone down on the same day as strong company news. What has moved the needle upwards, however, is positive macro news, such as the overturning of the injunction that was delaying the first Japanese restarts. On the back of that news Fission’s stock went up. Denison’s went up far, far more.

With this in mind, it is surprising to me that Denison’s share price has dropped in the way that it has and I believe it’s because people are forgetting the tremendous value of Denison’s assets.  As the uranium sector moves closer to its inevitable upswing, we believe that Denison Energy – the combination of both companies – is capable of delivering more shareholder wealth than Fission Uranium would on its own.

Tier One Assets: Let’s talk in more detail about what this merger will bring in terms of value. As a result of this merger, Fission shareholders are going to have the three top assets in the Athabasca basin not owned by a major, including our own PLS and Triple R deposit, Denison’s Wheeler River – which  includes the Phoenix deposit (the highest grade undeveloped uranium project in the world) and the new Gryphon discovery, and of course the McClean Lake Mill (22.5% ownership) – a cash flowing asset currently processing Cigar Lake ore, expanding to 18mlbs per year. In total, once the merger is complete Fission shareholders will have interests in five of the top ten undeveloped projects in the Basin and, through the Lundin Group, will have access to the sort of capital and mining experience that will give us a tremendous edge moving forward.

Management and Technical Prowess: The combined Fission and Denison team has been involved with numerous discoveries in the basin, including two of the most important in the last thirty years. The teams have grown discoveries at Wheeler River, PLS and Waterbury to over 190mlbs U3O8 and they also have mine development capabilities. The combined Management have completed 7 M&A transactions since 2012 and raised a total of $115 million in equity for exploration and development since 2013.

More Attractive Together: As the second largest publicly traded company next to Cameco, we will be more appealing to institutional investors given the increased market cap and trading liquidity. What’s more, strategic buyers have a clear target to gain entry into the basin.

Protecting the PLS Asset: We have maintained, and continue to maintain, a dialogue with many different groups worldwide – all of whom could be potential acquirers - so believe me when I say that in these markets the danger of being taken out at a low price is very real. The time to protect the asset is now.

We’re sitting on what I consider without a doubt to be world’s best undeveloped uranium asset, yet anyone who thinks that an offer will come, during these markets, at a level that I and most Fission shareholders would be happy with needs to re-evaluate.

Should such an offer come in who’s to say that that, despite significant opposition, the hostile bidder wouldn’t walk away with the uranium sector’s crown jewel of exploration and development? The danger is real and by merging we can protect the asset and sell, or continue to develop, on a schedule that delivers maximum value to Fission shareholders rather than being forced to the table at the wrong time and price.

Why Merge Now?

We strongly believe that the underlying strengths of uranium sector fundamentals are going to push the sector up. Good news from Japan, rising numbers of reactors and a vulnerable supply side are all helping to building the upwards pressure. 

The timing of the merger is just right, not only in terms of protecting the Fission asset from a low, hostile takeover, it’s also ideal for giving Fission shareholders access to a vehicle that can ride the upwards wave far better and far further than Fission could on its own.

The diversity and the strength of the combined assets, the access to capital via the Lundin Group, the combined team excellence – these things, brought together now, are going to create uranium’s most agile development company at just the right time.

What Comes Next?

There is a clear path forward once the merger is complete and it’s as follows:

  • The initial PEA on the Triple R deposit will be released, with an updated resource, in Q3 2014
  • Wheeler River will see an updated resource as well as a maiden resource for the newly discovered Gryphon zone
  • Cash flows will increase from the McClean Lake Mill as Cigar Lake toll milling ramps up
  • UPC management service agreement will provide ongoing cash flow
  • We will continue with asset development  as well as undertake value enhancing transactions with other assets, including potential divestitures, JVs, strategic investments or acquisitions

I’ll leave you with this: Through the new Denison Energy, Fission shareholders will be part of the leading risk/reward uranium development company in the world, located in the best uranium region in the world at a time when the sector is quietly gearing up for growth. The company’s size will act as a defense as it lowers the cost of capital for future capital raises and wards off possible lowball bids yet we’ll be agile and strong enough to take advantage of value growth opportunities. In both the current uranium market and the one we believe is approaching, Denison Energy has the makings of a powerhouse.

Dev Randhawa, CEO of Fission Uranium

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