What happened

Shares of Denison Mines (NYSEMKT:DNN) fell a painful 21.5% in the final month of 2018, according to data provided by S&P Global Market Intelligence. That drop comes on top of a series of troubling monthly declines that have left the stock down 15% for 2018 and 31.5% below the highs reached in early October. Overall, it's been a pretty volatile year for this uranium-focused company.

So what

The future is what's important at Denison Mines. That's because the big asset here is a uranium mine project that the company is hoping to build, called the Wheeler Project. In September the company released the results of its prefeasibility study, so the project is still in the early stages of development. In fact, current projections don't call for mine construction to start until 2021. Uranium production isn't expected to start until 2024. That's a long way off and there's a lot spending to do between now and then.   

A mine shaft with lights in the distance

Image source: Getty Images.

That's a problem that's plagued money-losing Denison for some time. There's a lot of money going out the door, but very little revenue coming in. It has to rely on debt and stock sales to fund its spending, as well as partnerships, which have been a problem lately, since giant Canadian uranium miner Cameco (NYSE:CCJ) recently extracted itself from the project by selling its interest to Denison in exchange for 26.4 million shares of Denison stock.   

On the positive side, Denison now owns 90% of the Wheeler River project -- good news if it gets built and lives up to the 38% internal rate of return the company is projecting for the asset. On the negative side, however, owning more of the project means Denison now has to foot a larger share of the project's cost. The company sold almost 4 million shares of stock to raise money in the fourth quarter. Every new share that is sold dilutes existing shareholders. The Cameco transaction and new stock sale both took place in the last three months of the year, roughly when the stock started to slide, which is probably not a coincidence. 

Adding to the company's woes in December was a drop in the price of uranium. The nuclear fuel had been heading higher for most of 2018, after years of regular declines. However, the spot price of uranium dipped in the final month of the year, which helped to put additional pressure on Denison's shares. Essentially, the lower the price of uranium, the lower the expected return on the Wheeler Project. Investors reacted accordingly.   

Now what

Denison Mines is not a stock for investors with weak stomachs. The only major asset is a uranium mine that has yet to be built. Progress of the construction of this mine will have a major impact on Denison's stock price on top of the swings that will come from the ups and downs in the uranium market. Assuming the mine gets built, Denison could be a fabulous investment opportunity, but there's no guarantee that this will be the eventual outcome. And even if it does get built, the ride between now and initial uranium production is likely to be very bumpy for Denison shareholders. Only aggressive investors should be looking at this would-be miner.

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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.