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Here's Why Denison Mines Corp's Stock is Slumping Today

By Matthew DiLallo - Jan 18, 2017 at 3:59PM

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While the uranium exploration and development company released its 2017 game plan, the biggest weight was its partner's disappointing financial results.

Image source: Getty Images.

What happened

Shares of Denison Mines ( DNN 2.03% ) slid on Wednesday, falling more than 12% by 3 p.m. EST. Fueling that slide was the release of its 2017 exploration and evaluation budget as well as the fallout from Cameco's ( CCJ 3.17% ) warning that its 2016 results would be well below the consensus estimate.

So what

Denison Mines announced Tuesday that it would spend 14.5 million Canadian dollars on exploration and evaluation in 2017. That capital would enable the company to resume work on its Wheeler River project this January. The spending level also follows on the heels of the announcement that Denison will increase its stake in the project from 60% to 66% after agreeing to allow Cameco to fund just half of its share of expenses over the next two years with Denison picking up the shortfall.

However, that budget figure seems to have made investors nervous, especially in light of Cameco's preliminary fourth-quarter results. The company said that it expects 2016 adjusted net earnings to be "significantly below" analyst expectations. While it delivered 31.5 million pounds of uranium at an average realized price of $54.46 per pound, which matched expectations, it expects to report a loss for 2016 due to impairment charges. Further, the company said it would cut 120 jobs at three of its mines. Investors saw these cuts implying that the uranium market is not as strong as Cameco says it is. The fallout from that revelation caused the stocks of other uranium companies, including Denison Mines, to sell-off.

Now what

As an exploration and development company, Denison's focus is not on the current uranium market but the market of the future. In fact, the company is not expected to start producing from its Wheeler project until 2025 at the earliest. Because of this, Denison investors need to have a very long-term mindset to invest in this company and should ignore moves like Wednesday's.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Denison Mines Corp. Stock Quote
Denison Mines Corp.
$1.51 (2.03%) $0.03
Cameco Corporation Stock Quote
Cameco Corporation
$23.12 (3.17%) $0.71

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