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Why Denison Mines Stock Rallied 15% at the Open Today

By Reuben Gregg Brewer - Mar 15, 2021 at 10:40AM

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Nothing changed about Denison Mines today, but there are a lot more people that will be looking to buy the stock. Here's why.

What happened

Shares of Denison Mines (DNN 9.17%), which is looking to build a large uranium mining project, rose sharply in early trading today, gaining as much as 15% in the first half hour of the session. There wasn't any material news about the company's mining project, known as Wheeler River, but there was a notable change in how investors are likely to view the stock.

So what

Denison Mines announced today that it is going to be included in the S&P/TSX Composite Index. The company noted that this is "the headline index for the Canadian equity market." It is a pretty big deal, though not necessarily because it says anything about the company's prospects with the Wheeler Project. Still, there are benefits here.  

Two hands holding blocks spelling out the words RISK and REWARD.

Image source: Getty Images.

Index funds have to own the stocks in the indexes they track. So, when a stock gets added, there are new investors that simply have to buy the stock. Wall Street often tries to get ahead of that buying, which is likely what drove the early excitement here. Denison will be in the index starting on March 22. This move could also increase the liquidity of the company's stock and therefore make it easier for Denison to raise cash via future equity sales. That, in turn, could help it get the Wheeler Project through to completion. So there's a reason for the excitement beyond the fact that index funds will be forced to buy Denison stock.   

Now what

From a fundamental point of view, not that much has changed for Denison. The process of building the two mines in the Wheeler Project is still in the early stages, with breaking ground on the first mine not even planned until 2023. Long-term investors probably shouldn't read too much into the index inclusion at this point, even though it could help on the capital-raising front. Indeed, building a mine is complex, time consuming, expensive, and hard. There's still a huge amount of work ahead for Denison, which suggests that there's still a lot of risk as well.  

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