Canadian uranium output constrained by red tape,

Canadian uranium output constrained by red tape, says Denison Mines CEO at 15:29 on April 19, 2006, EST.

TORONTO (CP) - While demand for uranium is soaring as more countries increase their use of nuclear power, Canadian production is constrained by bureaucracy, says the CEO of Denison Mines Inc. (TSX:DEN).

"What's happening now is you've got huge growth," Peter Farmer said after the Toronto company's annual meeting Wednesday.

"Russia's going to go up nine per cent, to 25 per cent (nuclear), Japan wants to go up 12 per cent, so they'll be 41 per cent nuclear, India, China - all of them need power. We're going to have a deficiency," Farmer said.

"The worst thing that could happen to the industry is you don't have the fuel. I don't think that's going to happen but we've got to really step up the process, the speed with which we can find and the speed with which we get license to operate," he said.

Saskatchewan, where Denison has been producing uranium for seven years, has the world's richest uranium mines, Farmer said.

"It's just a matter of the regulatory environment," he said. The Canadian Environmental Assessment Act, which came into force five years ago, "delays everything. And on top of it, the workload for the Canadian Nuclear Safety Commission climbs, climbs, climbs. . ."

"It bogs down the process."

Jim Mustard, an analyst with Haywood Securities, said it is probably fair to say that Canada's regulatory regime is excessive compared to many other jurisdictions in the world.

"As time goes on, the whole permitting process for project development does take considerably more time than it would have five or 10 years ago," Mustard said.

"Uranium is one of the most highly-regulated commodities in the world, including Canada, because of the safety and social issues," he added.

"Plus, the regulatory agencies, both provincial and federal, are short of staff, as are most mining organizations - contractors, consultants, mining companies - there's just a severe shortage of talent throughout the whole sector," he said.

Mustard suspects that talented government regulators are being lured into the private sector by higher salaries.

"The biggest problem we have here in Canada, with the federal regulator, is they need more manpower," Farmer said. "They've got some great people. If we had more of those great people in there, the process would be faster."

A lack of staff also appears to be constraining Denison, with employees being shifted from current projects in Saskatchewan to a new find.

"The only negative to this Mae zone discovery is that the exploration at McClean's and Woolly suffered again, with manpower and equipment being diverted to the Mae zone," Farmer told investors.

"We have recognized it is prudent to increase our uranium exploration efforts outside of Saskatchewan," Farmer said in an interview.

The company has acquired an interest in Mongolia, and last month it launched a strategic alliance with Energy Metals Ltd. to create a beachhead in Australia.

"I have no doubt that this strategic alliance will lead to the acquisition of more prospective uranium properties in Australia," Farmer told investors.

Australia currently has a restrictive policy on new uranium mine development.

"The federal government has been changing its viewpoint, but all of the various states still have policies that oppose new mine development," Mustard noted.

In December, a request to conduct a second expansion at McClean Lake was submitted to Canadian regulatory authorities, Farmer said.

"That expansion, when completed by 2009, will result in annual uranium production capacity estimated at 16 million pounds, with Denison's share being over two million pounds per year. McClean, that in 2005 was the sixth-largest producer, will be the second-or third-largest milling facility in the world and Denison will own 22.5 per cent of it."

The quoted spot price for uranium jumped from $20.70 US a pound at the start of 2005 to $36.25 US at year-end. Farmer attributes that largely to the growing acceptance of nuclear power.

He said Denison will realize a significantly higher price in 2006 than it did in 2005, with about two-thirds of its sales being above $30 a pound. While Denison sold only 1.3 million pounds in 2005, 17 per cent less than 2004, its production earnings were 2.8 times higher.

One of the company's goals for 2005 was to conserve inventory.

On Wednesday, shares of Denison, which went public in 2004, gained 11 cents to trade at $15.28 on the Toronto Stock Exchange.