Denison to Sell 20% Stake, Uranium to Korea Electric (Update2)

By Christopher Donville and Rob Delaney

April 14 (Bloomberg) -- Denison Mines Corp., a Canadian uranium producer, agreed to sell a 19.9 percent stake in the company to Korea Electric Power Corp. for C$75.4 million ($62.1 million) and supply the utility with uranium until 2015.

Korea Electric will buy about 58 million Denison shares for C$1.30 each, equal to yesterday’s closing price, Denison said in a statement. The agreement requires the Toronto-based mining company to sell as much as 690,000 pounds of enriched uranium a year to the state-controlled utility starting in 2010.

Seoul-based Korea Electric and other power companies in Asia are stepping up efforts to lock in supplies of uranium, the raw material in nuclear reactor fuel, amid concern about future shortages. China is urging its companies to acquire foreign supplies of uranium reserves as the country expands its nuclear generating capacity, an official of China’s National Energy Administration said last month.

“There’s tremendous interest in Asia to build up uranium stockpiles,” George Topping, an analyst at Blackmont Capital in Toronto, said today in a phone interview. “They want guaranteed delivery, not risky, early stage uranium exploration.”

Korea Electric, South Korea’s largest utility, will have the right to appoint two directors to Denison’s board. Today’s agreement also allows parties nominated by Denison Chairman Lukas Lundin to buy an additional 15 million shares for C$19.5 million, Denison said in the statement.

Idled Plants

Denison, which produces uranium in Canada and the U.S., has struggled to meet production targets, said Topping. The company said last month it temporarily idled two of its U.S. mines as the price of uranium for immediate delivery fell. Denison, which halted output at two other U.S. mines late last year, was in danger of breaching its debt covenants,

Chief Executive Officer Peter Farmer said on a March 19 conference call with analysts.

“Denison has disappointed in terms of its ability to ramp up U.S. production,” Topping said.

“Denison has over-promised and under-delivered.”

Ron Hochstein, Denison’s president and chief operating officer, didn’t immediately return a call from Bloomberg News for comment. Farmer, who is stepping down effective April 30, wasn’t immediately available.

Denison gained 12 cents, or 9.2 percent, to C$1.42 at 10:37 a.m. in Toronto Stock Exchange composite trading. The shares fell 11 percent this year before today.

To contact the reporters on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net; Christopher Donville in Vancouver at cjdonville@bloomberg.net.Last Updated: April 14, 2009 11:54 EDT