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Denison Energy: Future Strategy

August 17, 2015

As I’m sure you can imagine, in the weeks since we announced the Fission/Denison merger agreement there has been a great deal of discussion regarding, what Management believes to be, the benefits to shareholders. More recently, that discussion has begun shifting to the subject of Denison Energy’s strategy post-merger. In other words, what will be the core direction for the new company and how will it increase shareholder wealth.

Part of the rationale behind the merger is to create a mid-tier company that has the size required to attract investment dollars of the same calibre that would be destined for Cameco. This will facilitate exploration and development at a lower cost of capital and enable Denison Energy to truly take advantage of the eventual uranium upswing, which we are confident is coming.

Probably the biggest question on everyone’s minds is what will happen with the two flagship projects â€" PLS and Wheeler River. Will Denison Energy be an exploration and development company, with the aim of eventual sale, or would it ultimately look to take one or both of these projects into production? With Denison Energy, we will have far more flexibility and control of these options, and this will benefit shareholders.

Both approaches have the potential to add serious shareholder wealth given the right circumstances and both approaches are viable. The merged company will have the industry’s leading exploration and development team, led by Ross McElroy, and through its association with the Lundin Group, the company will also have access to skills and experience required for building and running a mine. The flexibility to take different courses of action will be, I believe, a major benefit considering that the markets and the uranium sector remain unpredictable.

Let’s take a look at the various possibilities:

Exploration, Development and Sale of Assets. Both PLS and Wheeler River have incredible exploration potential and a clear development path for the Triple R deposit (PLS) and Phoenix / Gryphon deposits (Wheeler River). In the short term, this path will includes:

  • PLS is expected to complete its initial PEA on the Triple R deposit, together with an updated resource by fall of 2015.
  • Wheeler River is expected to have an updated resource, which will include a maiden resource for the newly discovered basement hosted Gryphon zone.

With the estimated $8 - 10M annual income from the mill and UPC management offsetting OPEX (how many exploration and development companies can say that), we can afford to develop these key assets much more effectively. The ability to cover overheads even in bad markets means less pressure on the company and thus means Denison Energy will be in a stronger negotiating position when the opportunity comes to monetize the assets.

Exactly how would a sales of assets look like in this situation? There are numerous possibilities so it’s impossible to say in any precise way. What I can do is point out the fact that the assets can be sold on their own or as part of a larger transaction involving the entire company - it all depends on the circumstances and most importantly which route provides the most value.Â

Exploration, Development and Production. Through the Lundin Group, Denison Energy will have access to considerable production expertise. It’s also feasible that the company could take on a partner â€" a major, a utility or some large financial group â€" that would facilitate the route to production.

With the continued nuclear reactor construction boom and the fact that Japan has begun turning reactors back on, I believe that the uranium sector is getting closer to the upturn that we have all been waiting for. When that happens, having the flexibility to profit from the upturn via sale, partial sale or going into production is going to be an important part of delivering wealth for our shareholders and that flexibility will be one of Denison Energy’s greatest strengths.

Ross McElroy, President, COO and Chief Geologist of Fission Uranium

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