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Exploration &
Development

Quarterly Exploration & Development Update

For the Three and Nine Months Ended September 30, 2016


2016 THIRD QUARTER PERFORMANCE HIGHLIGHTS
  • Completed highly successful summer 2016 exploration program at the Wheeler River property
    The summer exploration program included 37 drill holes, for a total of 23,622 metres and focused on expanding the uranium mineralization in the vicinity of the Gryphon deposit and completing an initial set of infill and delineation holes. The results demonstrated that the Gryphon deposit is part of a large and robust mineralizing system that remains open in numerous directions. Key highlights include:
    • Expansion of strike length of Gryphon D Series mineralized lenses
      The D Series lenses are located within 200 metres north and northwest of the Gryphon deposit. The lenses currently total 330 meters in collective strike extent, and mineralization remains open along strike in both directions. The most northeastern section drilled to date, Section 5350 GP, was highlighted by the result in drill hole WR-507D2, which returned 9.39% eU3O8 over 1.6 metres, from 579.5 to 581.1 metres, and indicates the continued strength of the mineralizing system and significant potential along strike and down-plunge to the northeast.
    • Discovery of additional high-grade mineralization associated with the Gryphon A and B Series lenses
      Additional high grade mineralization was discovered immediately to the southwestern portion of the Gryphon deposit. Highlights include 2.5% eU3O8 over 4.4 metres from 744.8 to 749.2 metres in drill hole WR-674, and 1.2% eU3O8 over 11.4 metres from 692.7 to 704.1 metres in drill hole WR-602D1. This mineralization is interpreted to be associated with the Gryphon deposit's previously defined A and B series lenses.
      The D Series lenses and the new high grade intersections associated with the A and B Series lenses are not included in the current mineral resource estimate for the Gryphon deposit, nor are they incorporated into the Preliminary Economic Assessment ("PEA") for the Wheeler River project, as detailed in the Company's NI 43-101 technical report entitled "Preliminary Economic Assessment for the Wheeler River Uranium Project, Saskatchewan, Canada", (the "PEA") with an effective date of March 31, 2016 - a copy of the report is available on the Company's website and on both SEDAR and EDGAR.
  • Initiated infill and delineation drilling at the Gryphon deposit
    To support the pre-feasibility study ("PFS") initiated for the Wheeler River project during the second quarter of 2016, Denison commenced an initial infill drilling program at the Gryphon deposit. Infill drilling is required at Gryphon to increase the confidence in the mineral resources estimated from an inferred to an indicated level. During the summer, five drill holes were completed using a directional drilling method to reduce time and costs, and improve drilling accuracy. Highlight results include drill hole WR-668D2, which intersected 1.5% eU3O8 over 14.4 metres (including 2.5% eU3O8 over 7.9 metres and 1.5% eU3O8 over 1.0 metre), and drill hole WR-668, which intersected 0.93% eU3O8 over 14.1 metres (including 2.1% eU3O8 over 3.7 metres and 1.4% eU3O8 over 1.3 metres) and 2.4% eU3O8 over 7.3 metres (including 3.7% eU3O8 over 4.5 metres).
  • Earned $3.4 million in toll milling revenue from McClean Lake during the first nine months of 2016
    The McClean Lake mill, in which Denison holds a 22.5% interest, packaged approximately 12.4 million pounds U3O8, during the nine months ended September 30, 2016, for the Cigar Lake Joint Venture ("CLJV") and generated toll milling revenues for Denison of $3.4 million. The Cigar Lake mine's annual production for 2016 is expected to be 16 million pounds U3O8, from which Denison is expected to earn approximately $4.5 million in toll milling revenue.
  • Entered into a transaction to acquire the Hook-Carter property from ALX Uranium
    In October 2016, Denison executed a definitive agreement with ALX Uranium Corp. ("ALX") to acquire an immediate 80% ownership of the Hook-Carter property in exchange for the issuance of 7.5 million common shares of Denison. Denison also agreed to fund ALX's share of the first CAD$12,000,000 in expenditures on the project. The Hook-Carter property consists of 28 claims, totaling 16,805 hectares, and is located to the northeast and on trend of the Triple R deposit, Arrow deposit and Spitfire discovery in the southwestern portion of the Athabasca Basin region, in northern Saskatchewan. Regulatory approvals required for the transaction to proceed have been received, and the parties expect to close the acquisition in early November 2016.

RESULTS OF CONTINUING OPERATIONS


CANADIAN MINERAL PROPERTY EXPLORATION & EVALUATION

The Company continued to focus on its significant portfolio of projects in the eastern portion of the Athabasca Basin region in northern Saskatchewan. Denison's share of exploration and evaluation expenditures was $3,308,000 and $10,037,000, respectively, during the three and nine months ended September 30, 2016 (September 30, 2015 - $3,753,000 and $12,007,000). During 2016, the Company's exploration and evaluation expenditures decreased as a result of a reduction in winter and summer activities, compared to the prior year, and a favourable fluctuation in foreign exchange rates applicable on the translation of expenses incurred in Canadian dollars. The following table summarizes the activities that were completed in the nine months ending September 30, 2016.

CANADIAN EXPLORATION & EVALUATION ACTIVITIES
Property Denison’s ownership Drilling in metres (m) Other activities
Wheeler River 60% 47,169 (73 holes) Completion of Preliminary Economic Assessment; Initial PFS activities; Geophysical surveys
Bachman Lake 100% - Geophysical surveys
Bell Lake 100% 2,382 (4 holes) Geophysical surveys
Crawford Lake 100% 2,810 (4 holes) Geophysical surveys
Hatchet Lake 64.36%(1) 2,040 (6 holes) Geophysical surveys,
Soil Sampling program
Mann Lake 30% 4,775 (7 holes) -
Marten 50% 1,021 (4 holes) -
McClean Lake 22.50% 2,850 (7 holes) -
Murphy Lake 68.85%(1) 3,695 (10 holes) Geophysical surveys
Moon Lake South nil(2) 516 (1 hole) -
Moore Lake 100%(3) - Geophysical surveys
South Dufferin 100% - Soil Sampling Program
Torwalt Lake 100% 612 (2 holes) -
Turkey Lake 100% 501 (4 holes) -
Waterbury Lake 63.01%(4) 3,153 (8 holes) Geophysical surveys
Wolly 22.5%(1) 5,339 (27 holes) Geophysical surveys
     Total   76,863 (157 holes)
(1) The Company's ownership in these projects is as at December 31, 2015. Various partners in these projects have elected to not fund the 2016 programs and dilute their respective ownership interest. As a result, Denison's interest will increase.
(2) The Company's ownership is as at September 30, 2016. Refer to Exploration Pipeline Properties below for further details. The property is currently owned by CanAlaska Uranium Ltd. and Denison is in the process of earning into an initial interest.
(3) Refer to Exploration Pipeline Properties below for details of option agreement entered into with Skyharbour Resources Ltd.
(4) The Company earned an additional 1.46% interest in the Waterbury Lake property effective August 31, 2016. Refer to RELATED PARTY TRANSACTIONS below for further details.


The Company's land position in the eastern Athabasca Basin, as of September 30, 2016, is illustrated below. Denison's high priority exploration properties are outlined in bold.



Wheeler River Project



The Wheeler River property is host to the high-grade Phoenix and Gryphon uranium deposits, discovered by Denison in 2008 and 2014 respectively. The Phoenix deposit is estimated to include indicated resources of 70.2 million pounds U3O8 (above a cut-off grade of 0.8% U3O8) based on 166,000 tonnes of mineralization at an average grade of 19.1% U3O8, and is the highest grade undeveloped uranium deposit in the world. The Gryphon deposit is hosted in basement rock, approximately 3 kilometres to the northwest of Phoenix, and is estimated to contain inferred resources of 43.0 million pounds U3O8 (above a cut-off grade of 0.2% U3O8) based on 834,000 tonnes of mineralization at an average grade of 2.3% U3O8.

The Wheeler River property lies between the McArthur River Mine and the Key Lake mill complex in the eastern portion of the Athabasca Basin in northern Saskatchewan -- a well-established uranium mining district with infrastructure including the provincial power grid, all-weather provincial highways and haul roads, air transportation infrastructure and multiple uranium processing facilities, including the 22.5% Denison owned McClean Lake mill. The ore haul road and provincial power line between the McArthur River Mine and the Key Lake mill complex run along the eastern side of the Wheeler River property. Denison is the operator of the Wheeler River project and holds a 60% interest, while Cameco Corp. ("Cameco") holds a 30% interest and JCU (Canada) Exploration Company, Limited ("JCU") holds a 10% interest. Further details regarding the Wheeler River Project are provided in the PEA. The Wheeler River property location and basement geology map is provided below.



Evaluation Program

During the three and nine months ended September 30, 2016, Denison's share of evaluation costs at Wheeler River amounted to $323,000 and $453,000, respectively (September 30, 2015 - $43,000 and $155,000), and was mainly related to the initiation of PFS activities as well as the internal evaluation, field investigations and engineering studies required to complete the PEA.
  • PEA Results
The PEA resulted in a base case pre-tax Internal Rate of Return ("IRR") of 20.4%, an indicative post-tax IRR to Denison of 17.8%, and a pre-tax Net Present Value ("NPV") of CAD$513 million (Denison's share -- CAD$308 million), based on a long term contract price for uranium of $44 per pound U3O8. The PEA also included a production scenario based on a uranium price of $62.60 per pound U3O8, resulting in a pre-tax IRR of 34.1%, an indicative post-tax IRR to Denison of 29.2% and a pre-tax NPV of CAD$1,420 million (Denison's share -- CAD$852 million).

The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability. The PEA, entitled "Preliminary Economic Assessment for the Wheeler River Uranium Project, Saskatchewan, Canada" prepared by SRK Consulting (Canada) Inc., with an effective date of March 31, 2016, is posted on the Company's website and is available under its profile on SEDAR and EDGAR.
  • PFS Activities
In July 2016, Denison announced the initiation of a PFS for the Wheeler River project. An important step in completing the PFS involves increasing the level of confidence of the previously released inferred resources estimated for the Gryphon deposit to an indicated level. An infill drilling program was designed to achieve this objective by increasing the previous 50 x 50 metre drill spacing to an approximate 25 x 25 metre spacing across the A, B and C series lenses of the Gryphon deposit. The program, which is expected to require approximately 40 drill holes, includes delineation holes designed to potentially close-off areas where mineralization is still open. Refer to the Exploration Programs section below for results of the initial infill and delineation drill holes completed during the summer 2016 program.

Throughout the third quarter of 2016, the Company continued its engineering data collection programs required for the PFS. The programs were carried out in combination with the exploration drilling program and included the following activities:
  • Collecting geotechnical and hydrogeological information from 1,650 metres of exploration drilling at Phoenix;
  • Geotechnical logging of 3,800 metres of historic exploration drill cores from both Phoenix and Gryphon;
  • Geotechnical logging of over 33,000 meters of exploration drill core at Gryphon
  • Completing a total of 92 hydrogeological tests at both Gryphon and Phoenix to better understand groundwater movement and flow paths, including tests in the sandstone at the unconformity and in basement zones across geological structures;
  • Conducting surface water elevation surveys in over 180 boreholes;
  • Collecting 20 sub-surface water samples for laboratory analysis to assist in environmental modelling and water treatment plant design; and
  • Installing two vibrating wire piezometers to facilitate sub-surface hydrogeological data collection during drilling and pumping programs.
In addition to the engineering field work, the Company initiated engineering investigations into alternative mining methods at Phoenix, as well as other options for shaft excavation at Wheeler. The Company has also commenced environmental baseline data collection programs including an aquatic program, terrestrial program, heritage program, waste rock geochemistry analysis, air quality assessments and traditional land-use knowledge. Community consultation programs with local communities have also been initiated by the Company.

Exploration Programs

Denison's share of exploration costs at Wheeler River amounted to $1,736,000 and $4,364,000 during the three and nine months ended September 30, 2016, respectively (September 30, 2015 - $1,786,000 and $4,449,000).
  • Discovery of High-Grade Mineralization Down-Dip and Up-Dip of the A and B Series Lenses
Five drill holes were completed during the summer 2016 exploration drilling program to test for possible extensions of the A and B Series lenses in the shallower, southwestern portion of the Gryphon deposit. The drill targets were located outside of the existing mineralized extent of the current mineral resources estimated for the Gryphon deposit. Four of the holes intersected significant mineralization, indicating a possible extension of certain lenses in both the up-dip and down-dip directions, as provided in the table below and as illustrated in the figure provided under the heading "Gryphon Deposit Infill Drilling Program" below. Further details are provided the Company's press release dated September 22, 2016.

Mineralized intersections from the A and B Series lens
expansion drill holes completed during summer 2016
Section Drill Hole From (m) To (m) Length (m)(6) eU3O8 (%)(1)(2)
4900 GP WR-602D1(3) 692.7 704.1 11.4 1.2
(including)(5) 693.2 694.2 1.0 3.8
(including)(5) 699.4 701.1 1.7 4.6
4925 GP WR-673(4) 627.2 631.0 3.8 0.36
(including)(5) 627.6 628.6 1.0 1.1
(and)(3) 634.2 652.9 18.7 0.18
(including)(4) 642.05 652.85 10.8 0.27
4950 GP WR-674(3) 691.8 692.8 1.0 0.13
(and)(3) 740.9 742.2 1.3 0.65
(and)(3) 744.8 749.2 4.4 2.5
(including)(5) 745.5 748.9 3.4 3.2
5000 GP WR-675(5) 607.9 608.9 1.0 1.36
(and)(3) 613.4 614.6 1.2 0.14
(1) eU3O8 is radiometric equivalent U3O8 from a calibrated total gamma down-hole probe. eU3O8 results are preliminary in nature and all mineralized intervals will be sampled and submitted for chemical U3O8 assay.
(2) Composites are compiled using 1.0 metre minimum mineralization thickness and 2.0 metres maximum waste.
(3) Intersection interval is composited above a cut-off grade of 0.05% eU3O8.
(4) Intersection interval is composited above a cut-off grade of 0.1% eU3O8.
(5) Intersection interval is composited above a cut-off grade of 1% eU3O8.
(6) As the drill holes are oriented steeply toward the northwest and the basement mineralization is interpreted to dip moderately to the southeast, the true thickness of the mineralization is expected to be approximately 75% of the intersection lengths.
  • Gryphon Deposit Expansion -- D Series Lenses
During the winter 2016 drill program a new mineralized zone was discovered within 200 metres north and northwest of the Gryphon deposit. The new zone of mineralization is interpreted to occur as another set of stacked, parallel lenses which are broadly conformable with the Gryphon deposit's A, B and C Series lenses. The lenses, designated the D series lenses, have not been included in the current mineral resource estimate or the PEA for the Wheeler River project, and form a compelling mineralized zone for potential resource expansion.

Results from 13 of the 17 drill holes completed during the summer 2016 drill program (as announced in the Company's press release dated September 7, 2016) returned uranium mineralization and demonstrate the continued expansion of the D series lenses along strike. The D Series lens mineralization currently totals 330 meters in collective strike extent, and mineralization remains open along strike in both directions.

Highlights from the summer drilling results are provided in the table below.

Highlights of mineralized intersections from exploration drilling on Section 5100 GP and 5350 GP
Section Drill Hole From (m) To (m) Length (m)(6) eU3O8 (%)(1)(2)
5100 GP WR-671 583.5 584.7 1.2 2.26
WR-671D1 682.2 687.5 5.3 1.21
WR-671D2 664.2 667.3 3.1 0.68
5350 GP WR-507D1EXT 721.7 723.5 1.8 1.16
WR-507D2 579.5 581.1 1.6 9.39
(1) eU3O8 is radiometric equivalent U3O8 from a calibrated total gamma down-hole probe. eU3O8 results are preliminary in nature and all mineralized intervals will be sampled and submitted for chemical U3O8 assay.
(2) Intersection interval is composited above a cut-off grade of 0.05% eU3O8. Composites are compiled using 1.0 metre minimum ore thickness and 2.0 metres maximum waste.
(3) As the drill holes are oriented steeply toward the northwest and the basement mineralization is interpreted to dip moderately to the southeast, the true thickness of the mineralization is expected to be approximately 75% of the intersection lengths.


On Section 5350 GP, the most northeastern section drilled to date, results indicate the continued strength of the mineralizing system down-plunge and the significant potential along strike to the northeast where no drilling has been carried out to date. On Section 5100 GP, multiple mineralized intercepts were reported and results indicate continuity between the recently defined D series lenses discovered during winter 2016 and the D series lenses previously identified in 2014.

The following plan map illustrates the northeast plunging Gryphon deposit's mineralized lenses and highlights the location of the D series lenses interpreted from winter 2016 drilling results (shaded in blue) and the summer 2016 mineralized intercepts (yellow stars). The simplified basement geology at the sub-Athabasca unconformity is provided as the backdrop.



  • Discovery of Uranium Mineralization at K-West
During the second quarter of 2016, weak basement-hosted mineralization was discovered in drill hole WR-663 on the K-West conductive trend, which is located approximately 500 metres west of the Gryphon deposit (see Denison's Press Release dated August 4, 2016). This result presents a compelling target for the discovery of a new basement-hosted deposit in close proximity to the Gryphon deposit. Two follow-up drill holes,
WR-676 and WR-663D1, were drilled approximately 50 metres up-dip and down-dip of WR-663 respectively. No significant mineralization was intersected in either hole; however, an extensive alteration zone, similar to the result in WR-663, was encountered in both holes and indicates continued potential for the discovery of higher grades. The zone is open along strike within the basement and given the proximity to Gryphon, and similar favorable geological setting, additional follow-up is warranted.
  • Gryphon Deposit Infill Drilling Program
A total of five initial infill and delineation drill holes, totaling 2,620 metres, were completed as part of the summer 2016 program. To reduce drilling costs, drill time to mineralization, and to improve drilling accuracy, a directional drilling method was employed during the summer. This approach involves drilling a single parent hole from surface with multiple "daughter holes" drilled from part way down the parent hole. The daughter holes are steered to their respective targets using specialized drilling equipment. The initial infill and delineation drill holes included a single parent hole (WR-668) and subsequent daughter holes (WR-668D1 to WR-668D4). The holes pierced their respective targets within 6 metres or less of the planned location and cost savings were realized owing to the reduced number of drill metres required (a total of 2,620 metres drilled in comparison to 4,247 metres if each hole were drilled from surface). Due to the operational success of the initial set of directional holes, continued infill and delineation drilling was deferred to 2017 to allow for additional exploration holes during the summer 2016 program.

Results from the initial five infill and delineation drill holes, presented in the table below (as announced in the Company's press release dated October 6, 2016), confirmed high grade results previously reported for the Gryphon deposit and, on initial evaluation, are consistent with A and B series lens interpretations and inferred block model grades for this area of the Gryphon deposit.

Mineralized intersections from infill and delineation drill holes
completed during summer 2016
Section Drill Hole From (m) To (m) Length (m)(5) eU3O8 (%)(1)(2) Lens Series Designation
5025 GP WR-668D1(3) 763.5 768.6 5.1 0.33 A
WR-668D3(3) 738.6 739.6 1.0 0.12 A
5050 GP WR-668(3) 754.7 768.8 14.1 0.93 A
(including)(4) 756.1 759.8 3.7 2.1 A
(including)(4) 765.5 766.8 1.3 1.4 A
(and)(3) 772.6 779.9 7.3 2.4 B
  (including)(4) 773.8 778.3 4.5 3.7 B
  WR-668D2(3) 768.9 783.3 14.4 1.5 A
  (including)(4) 772.0 779.9 7.9 2.3 A
  (including)(4) 781.7 782.7 1.0 1.5 A
  WR-668D4(3) 795.4 796.4 1.0 0.2 A
(1) eU3O8 is radiometric equivalent U3O8 from a calibrated total gamma down-hole probe. eU3O8 results are preliminary in nature and all mineralized intervals will be sampled and submitted for chemical U3O8 assay.
(2) Composites are compiled using 1.0 metre minimum mineralization thickness and 2.0 metres maximum waste.
(3) Intersection interval is composited above a cut-off grade of 0.1% eU3O8.
(4) Intersection interval is composited above a cut-off grade of 1% eU3O8.
(5) As the drill holes are oriented steeply toward the northwest and the basement mineralization is interpreted to dip moderately to the southeast, the true thickness of the mineralization is expected to be approximately 75% of the intersection lengths.


The figure below illustrates the Gryphon deposit's A series lenses on an inclined longitudinal section, and includes results from the initial five infill and delineation drill holes (WR-668 to WR-668D4), as discussed above.



Exploration Pipeline Properties

  • Summer 2016 drilling exploration programs
During the third quarter of 2016, the Company managed or participated in four exploration drilling programs (three operated by Denison) on the Company's exploration pipeline properties. Highlights from the summer programs include the following:

Waterbury Lake

Waterbury Lake is host to the J Zone deposit, located within 20 kilometres of the McClean Lake mill and is a joint venture between Denison (63.01% interest and operator) and the Korea Waterbury Uranium Limited Partnership ("KWULP") (36.99% interest). The 2016 program at Waterbury Lake is being fully funded by Denison at the cost of dilution to the KWULP. Denison incurred exploration costs during the three and nine months ended September 30, 2016 of $222,000 and $926,000, respectively (September 30, 2015 - $317,000 and $685,000).

Work during the third quarter of 2016 focused on the Hamilton Lake target area, which is located on the western side of the property. The Hamilton Lake area is a relatively large and underexplored area on the western flank of the Midwest Dome, which shows prospective airborne magnetic and electromagnetic trends, but has not been subject to adequate ground geophysical surveying and follow-up drill testing. Limited historical drilling by Cameco, at Hamilton Lake, intersected graphitic metasediments, structure, alteration, and elevated sandstone geochemistry.
During the second quarter of 2016, a large DCIP resistivity survey was completed over the southern portion of the Hamilton Lake area (Grid WAT-16-G2) -- comprising 21 lines and totaling 115.2 line kilometres. Results showed a significant north-south, linear, low resistivity trend with some associated low resistivity "breaches" in the sandstone that could be indicative of alteration chimneys associated with uranium mineralization.

During the third quarter of 2016, a two-hole drill program was completed, for a total of 1,077 metres, in order to test one of the sandstone breach anomalies overlying a strong basement resistivity low on line L36+00E. Drill hole WAT16-432A intersected a significant illite/chlorite altered fault zone in the basement within north-south striking, steeply east dipping, graphite-rich pelitic gneisses. WAT16-433, which was drilled 75 metres west of WAT16-432A, intersected a 30 metre wide fault zone in the sandstone, approximately 85 metres above the unconformity (at 426 metres), with associated intense bleaching, desilicification and illite clay replacement. WAT16-433 averaged 8.3 ppm uranium over the basal 24.8 metres of sandstone. Spot samples taken immediately above the unconformity, in WAT16-433, from 421.5 to 422.0 metres and from 422.0 to 422.5 metres, returned uranium values of 389 ppm and 299 ppm respectively. A 20 meter reverse unconformity offset can be interpreted between the two holes, which constitutes a priority target for follow up on section and along strike.

Based on the WAT16-G2 resistivity survey, the Hamilton Lake north--south trending resistivity low associated with the graphitic fault structure intersected in WAT16-432A and WAT16-433 has a minimum strike length of 4.5 kilometres to the south of the current drilling. Furthermore, based on airborne magnetic data, this trend appears to continue for a further 9 kilometres to the north. No drilling has been conducted along this trend outside of the current drilling and, given the highly encouraging summer 2016 exploration results, this trend warrants further exploration.

The uranium grade results reported above are from geochemical analysis performed on drill core samples by the Saskatchewan Research Council ("SRC"), an accredited geo-analytical laboratory, using a nitric-hydrochloric partial digest followed by ICP-MS analysis.

Crawford Lake

During the third quarter of 2016, two drill holes were completed for a total of 1,706 metres on the Company's 100% owned Crawford Lake property. Both drill holes targeted the CR-3 conductive trend. Crawford Lake is located just west of Wheeler River, approximately 10 kilometres south of Cameco's Millennium deposit, in the southeast portion of the Athabasca Basin. Exploration costs during the three and nine months ended September 30, 2016 were $326,000 and $755,000, respectively (September 30, 2015 - $599,000 and $1,892,000).

The first hole completed (CR-16-27A) was designed to follow up 600 metres along strike to the southwest of weak uranium mineralization intersected at the unconformity in drill hole MS-16-01 on CanAlaska's Moon Lake property (refer to the Moon Lake South section below). CR-16-27A intersected 100 metres of strong sandstone alteration above the unconformity and a wide graphitic structure 90 metres below the unconformity -- suggesting the optimal target at the unconformity remains untested. The second hole (CR-16-28) targeted a previously untested parallel conductor to the main CR-3 trend. Drill hole CR-16-28 intersected 100 metres of strong sandstone alteration and a wide structurally disrupted graphitic conductor. No elevated radioactivity or uranium mineralization was intersected in either of the holes. Geochemical and spectral clay results are pending. The CR-3 trend remains highly prospective with the previous discovery of weak uranium mineralization and both strong sandstone and basement alteration present. Future programs will continue to focus in this area.

Hatchet Lake

The Hatchet Lake Project is a joint venture between Denison (64.36% interest as at December 31, 2015 and operator) and Eros Resources Corp ("Eros") (35.64% interest as at December 31, 2015), and is located 16 kilometers north of the McClean Lake mill. The 2016 program at Hatchet Lake is being fully funded by Denison at the cost of dilution to Eros. Denison incurred exploration costs during the three and nine months ended September 30, 2016 of $575,000 and $748,000, respectively (September 30, 2015 - $21,000 and $622,000).

The drilling program carried out during the third quarter of 2016 consisted of 2,040 metres of drilling in six holes. At the Tuning Fork target area, drill hole TF-16-10 was completed approximately 100 metres east of previous drill holes HL-10-01 and TF-15-01, which intersected intense basement alteration and anomalous concentrations of uranium and other pathfinder elements. Drill hole TF-16-10, designed to test the interpreted plunge extension of the mineralized alteration system, intersected a strongly graphitic, locally faulted pelitic gneisses in the basement, however failed to intersect favorable alteration or elevated radioactivity. At the Hatchet South target area, five widely-spaced drill holes were completed to test targets identified from the 2015 and 2016 small moving loop electromagnetic (SMLTEM) surveys. Drill hole HTS-16-01 intersected a favorable geologic setting with graphitic pelitic gneisses overlying granitic gneiss in the basement, though no associated alteration or structure was encountered. Drill hole HTS-16-02 intersected granite and fresh sillimanite-bearing pelitic gneisses in the basement, and thus did not explain the electromagnetic target. Drill holes HTS-16-03 and HTS-16-04 both intersected narrow, weakly graphitic, locally sheared and faulted graphitic horizons in the basement. Neither hole encountered significant alteration or radioactivity associated with these zones. The last hole of the program, HTS-16-05, encountered significant structure and alteration in the basal 60 metres of the sandstone column, but did not explain the electromagnetic conductor. Drill hole HTS-16-05 was interpreted to have overshot the electromagnetic target. Geochemical and spectral clay results have been received and are currently undergoing interpretation.

Further to the drilling program, a land-based radon and soil sampling program was completed over the southeastern extension of the Richardson Lake Trend. This portion of the trend, which occurs outside of the Athabasca basin and overlies basement rocks, is largely unexplored but occurs along strike of historical uranium, base metal and gold drill intersections obtained on the northwestern half of the Richardson Lake Trend. The main objective of the survey was to identify zones of elevated radon and soil geochemical concentrations potentially related to an underlying bedrock source to assist with target generation for future drilling programs in the area. The preliminary results from the radon survey highlight several areas with high radon flux that show good correlation with known electromagnetic conductors in the area. Further review of the radon data, in conjunction with the results from the soil survey, should be completed to confirm or refine these areas of interest. The results from the soil sampling program have been received and are currently undergoing interpretation.

McClean Lake

The McClean Lake project is owned by Denison (22.50% interest) and its joint venture partners, OURD (7.50% interest) and AREVA Resources Canada as the operator (70.00% interest). Denison's share of exploration costs during the three and nine months ended September 30, 2016 were $87,000 and $99,000, respectively (September 30, 2015 - $2,000 and $5,000).

During the third quarter of 2016, seven drill holes were completed for a total of 2,850 metres, including two re-starts. The objective of the program was to test for basement-hosted mineralization occurring down-dip or down-plunge of the previously mined Sue deposits. Localized weak basement mineralization was intersected in drill holes S-835 and S-836, south and southwest of the Sue B open-pit, respectively. Highlight results include hand-held scintillometer probe peaks of 4,558 cps at 364.8 m in drill hole S-835 and 24,052 cps at 186.2 m in drill hole S-836. The other five holes did not intersect any significant mineralization.
  • Other exploration pipeline properties
During 2016, the Company entered into option agreements on the following properties:

Moon Lake South

In January 2016, the Company entered into an option agreement with CanAlaska Uranium Ltd. ("CanAlaska") to earn an interest in CanAlaska's 100% owned Moon Lake South project, located adjacent to Denison's 100% owned Crawford Lake property. Under the terms of the option, Denison can earn an initial 51% interest in the project by incurring CAD$200,000 in exploration expenditures by December 31, 2017 and can increase its interest to 75% by incurring an additional CAD$500,000 in exploration expenditures by December 31, 2020. As at September 30, 2016, Denison had incurred CAD$129,000 in exploration expenditures on the property.

Moore Lake

On July 14, 2016, the Company entered into an option agreement with Skyharbour Resources Ltd ("Skyharbour"), which grants Skyharbour an option to acquire a 100% interest in Denison's wholly owned Moore Lake property in exchange for cash, stock and exploration spending commitments. Denison received 4,500,000 common shares of Skyharbour and, under the terms of the agreement, expects to receive staged cash payments of CAD$500,000, in aggregate, over the next five years. Skyharbour must also spend CAD$3,500,000 in exploration expenditures on the property, over the same five year period, in order to complete the option.

Denison has also retained various back-in rights on the property, to re-acquire a 51% interest in the property, and is entitled to nominate a member to Skyharbour's Board of Directors as long as Denison maintains a minimum ownership position of 5%. As at September 30, 2016, Denison has an approximate 11.4% ownership interest in Skyharbour.

Sale of Mongolian Mining Division



In December 2015, Denison announced the closing of the sale of its interest in the Gurvan Saihan Joint Venture ("GSJV") to Uranium Industry a.s. ("Uranium Industry"), of the Czech Republic, pursuant to an amended and restated share purchase agreement entered into on November 25, 2015 (the "GSJV Agreement"). Under the terms of the GSJV Agreement, Denison received $1.25 million in initial payments during 2015, prior to the closing of the sale, and has the right to receive additional contingent proceeds of up to $12.0 million, for total consideration of $13.25 million.

On July 22, 2016, the Mineral Resources Authority of Mongolia ("MRAM") issued letters to the GSJV notifying it of its intention to grant mining licenses to the GSJV for the Hairhan, Haraat, Gurvan Saihan and Ulzit projects. On September 20, 2016, the mining license certificates for all four projects were formally issued.

The fair value of the receivable for contingent consideration related to the issuance of mining licenses has been increased from $nil, at December 31, 2015, to $10,000,000, as at September 30, 2016, in conjunction with the formal issue of mining licenses. A corresponding increase in the gain on the disposal has also been recognized. The contingent consideration related to the achievement of certain production thresholds continues to be fair valued at $nil and will be re-measured at each subsequent reporting date.

During the three and nine months ended September 30, 2016, a gain on disposal of $9,050,000 was recognized based on the increase in the fair value of the contingent receivable of $10,000,000, net of accruals for additional transaction costs.

SUBSEQUENT EVENT



Transaction to Acquire the Hook-Carter Property from ALX

In October 2016, Denison entered into a transaction to acquire an immediate 80% ownership interest in the Hook-Carter property in exchange for the issuance of 7.5 million Denison common shares to ALX. The property consists of 28 claims, totaling 16,805 hectares, and is located near the southwestern portion of the Athabasca Basin in northern Saskatchewan. The property is highlighted by 15 kilometres of strike potential along the prolific Patterson Lake Corridor and features between 250 and 700 metres of Athabasca Group sandstone cover overlying the basement rocks that define the prospective geological trends or corridors. The property is significantly underexplored, with only eight drill holes completed to date, including only five drill holes on the Patterson Lake Corridor. Results from historic holes show significant sandstone alteration, encouraging sandstone geochemistry and favourable basement geology in terms of lithology and structure. All the holes drilled to date were designed to test the unconformity and therefore the basement is considered unexplored.

Under the terms of the agreement, ALX will retain a 20% interest in the property and Denison agrees to fund ALX's share of the first CAD$12,000,000 in expenditures on the property. Denison will be the operator of the project and will retain full discretion as to the nature, extent, timing and scope of all work projects on the property, subject to a modest work commitment that involves spending CAD$3,000,000 on the property over the first 3 years. If Denison does not meet the $3,000,000 work commitment, ALX's interest will increase from 20% to 25% and Denison's interest will decrease from 80% to 75%. Thirty-six months after the effective date of the agreement, the parties agree to form a joint venture, in which all material decisions shall be carried by a vote representing a 51% ownership interest. The Denison common shares to be issued to ALX will be subject to an escrow arrangement, whereby 1/6th of the shares will be available to ALX on closing, and a further 1/6th of the shares will be released from escrow in 6 month increments following the closing. Completion of the transaction was conditional in part upon receipt of required regulatory and/or exchange approvals, which have been received, and closing is expected to occur in early November.

OUTLOOK FOR 2016



At the end of the second quarter of 2016, the Company modified its budget for the year and issued an updated outlook ("Previous Outlook 2016"). The modifications in the second quarter reflected a reduction in planned expenditures for exploration and evaluation in Canada as well as the sale of the Company's assets in Africa to GoviEx. The Company's outlook has been further modified (the "Current Outlook"), at the end of the third quarter of 2016, to reflect actual results as at September 30, 2016, and to incorporate updated revenue and spending estimates for the remainder of the year.

(in thousands) PREVIOUS
OUTLOOK 2016
CURRENT
OUTLOOK 2016
Actual to
September 30, 2016 (2)
Canada (1)      
Toll Milling Revenue & Mineral Sales $                    4,540 $                 4,540 $                 3,357
Development & Operations (2,400) (1,810) (1,189)
Mineral Property Exploration & Evaluation (12,000) (12,000) (10,598)
  (9,860) (9,270) (8,430)
Africa      
Zambia, Mali and Namibia (520) (520) (520)
  (520) (520) (520)
Other (1)      
UPC Management Services 1,530 1,300 1,019
DES Environmental Services 920 1,130 922
Corporate Administration & Other (4,250) (4,420) (3,392)
  (1,800) (1,990) (1,451)
       
Total $              (12,180) $           (11,780) $            (10,401)
(1) Outlook figures have been converted using various period average US$ to CAD$ exchange rates ranging from of 1.29 to 1.37.
(2) The Company budgets on a cash basis. As a result, actual amounts represent a non-GAAP measure and exclude non-cash depreciation and amortization amounts of $2,244,000.


Mineral Property Exploration & Evaluation

The 2016 outlook for the Canadian exploration program, inclusive of the evaluation work planned for Wheeler River, was updated, at the end of the second quarter, to reflect a reduction in winter exploration activities that occurred during the first half of the year. Denison's share of expenditures is forecasted to be $12 million. Denison's exploration expenditures are largely being funded by the proceeds from the Company's flow-through share offering completed in May 2015, which raised CAD$15 million. The Company remains on track to meet its exploration spending obligations under the May 2015 offering by the end of 2016.

Wheeler River - Evaluation

In April 2016, the Company announced the results of the PEA studying the economic potential of co-developing the Gryphon and Phoenix deposits. As a result of the positive economics in the PEA, the Company commenced work on a PFS, including environmental assessment work, with an approximate forecast for 2016 of CAD$1.8 million (Denison's share, CAD$1.1 million). The budget for PFS work expected to be completed in 2016 was reduced, at the end of the second quarter, to reflect the updated timing of certain PFS activities, which are now expected to be completed in 2017.

Wheeler River - Exploration

The total exploration budget for Wheeler River in 2016 is CAD$10.0 million (Denison's share, CAD$6.0 million). The winter drilling program was completed in April 2016 and the summer drilling program was completed in October 2016.

Drilling results to date demonstrate that the Gryphon deposit remains open in numerous directions and additional exploration drilling is warranted in 2017 to test the extents of the mineralization with the objective of expanding the current mineral resources estimated for the deposit. The D Series lenses, which currently have a collective strike extent of 330 meters, remain open along strike to the northeast and to the southwest and additional drilling is warranted. In addition, the significant mineralized intercepts reported both up-dip and down-dip of the current extent of the A and B Series lenses, on the shallower southwestern portion of the deposit, highlight the potential for resource expansion with additional drilling. Furthermore, the deposit is not considered closed-off on the deeper, down-dip and down-plunge portions of the A and B Series lenses. The weaker uranium intercepts along these margins of the deposit do not necessarily indicate closure as basement-hosted uranium deposits are known for variable grade continuity. The weak mineralization and significant alteration intersected in these areas suggest potential for additional high-grade shoots or lenses outside of the current mineral resource estimate.

Infill drilling of the Gryphon deposit is expected to continue in 2017 to support the completion of the PFS. An estimated 40 infill drill holes are required to upgrade the confidence of the current mineral resource estimate from the inferred to indicated mineral resource category. During the summer 2016 program, five infill holes were completed and the exploration team gained valuable experience, in advance of the 2017 drilling season, with a new directional drilling method under local bedrock conditions. With the enlarged mineralized footprint around the Gryphon deposit, based on the 2016 exploration results, the infill drilling program in 2017 may be expanded to allow for a larger portion of the potential resources at or around Gryphon to be categorized as indicated and incorporated into the PFS.

QUALIFIED PERSON AND ASSAY PROCEDURES



The disclosure regarding the PEA was reviewed and approved by Peter Longo, P. Eng, MBA, PMP, Denison's Vice-President, Project Development, who is a Qualified Person in accordance with the requirements of NI 43-101. The balance of the disclosure of scientific and technical information regarding Denison's properties in the MD&A was prepared by or reviewed and approved by Dale Verran, MSc, Pr.Sci.Nat., the Company's Vice President, Exploration, a Qualified Person in accordance with the requirements of NI 43-101.

Grade results reported herein as "eU3O8" refer to radiometric equivalent U3O8 derived from a calibrated total gamma down-hole probe. Radiometric equivalent U3O8 results are preliminary in nature and all mineralized intervals have been sampled and submitted for chemical U3O8 assay in accordance with Denison's technical procedures. All Gryphon drill holes reported herein were drilled at a high angle to mineralization to allow for better evaluation of true thicknesses which are expected to be approximately 75% of the intersection lengths. For further details regarding the description of the data verification, assay procedures and the quality assurance program and quality control measures applied by Denison, please see Denison's Annual Information Form dated March 24, 2016 available under Denison's profile on SEDAR at www.sedar.com, and its Form 40-F available on EDGAR at www.sec.gov/edgar.shtml.  
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