Headnote Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief applications in Multiple Jurisdictions – National Instrument 51-102 Continuous Disclosure Obligations,s.13.1 – Application by issuer for relief from requirement to include certain financial statements in a management information circular –– Relief subject to condition that management information circular include the prescribed financial statements of the operating subsidiary entity and pro forma financial statements of the issuer giving effect to the acquisition excluding the holding entities. Applicable Legislative Provisions
National Instrument 51-102 Continuous Disclosure Obligations, ss. 8.4.
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction")
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF DENISON MINES CORP. (the "Filer")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision (the "Requested Relief") under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) exempting the Filer from the requirement in Section 8.4 of National Instrument 51-102 – Continuous Disclosure Obligations ("NI 51-102") of the Filer to include interim financial statements of White Canyon Uranium Limited ("White Canyon") for the nine-month interim periods ended March 31, 2012 and 2011 (the "White Canyon Interim Statements") in the Filer's management information circular (the "Denison Circular") with respect to a special meeting (the "Denison Meeting") of shareholders to approve a plan of arrangement involving the disposition of the Filer's U.S. mining division to Energy Fuels Inc. ("Energy Fuels").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
the Ontario Securities Commission is the principal regulator for this application; and
the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in all provinces and territories of Canada, except Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer and Other Parties to the Proposed Transaction
The Filer's head office is located at Atrium on Bay, Suite 402, 595 Bay Street, Toronto, Ontario, M5G 2C2.
The Filer is a corporation existing under the Business Corporations Act (Ontario) (the "OBCA").
The Filer is a reporting issuer in each of the provinces of Canada and is not currently in default of the securities legislation in any of these jurisdictions as of the date hereof. The common shares of the Filer are listed and posted for trading on the Toronto Stock Exchange ("TSX") under the symbol "DML" and on the NYSE MKT exchange (formerly the NYSE AMEX exchange) under the symbol "DNN".
The Filer holds all of the outstanding shares of White Canyon. The Filer and White Canyon together hold all of the outstanding shares of Denison Mines Holdings Corp. ("DMHC").
DMHC is a Delaware corporation with a December 31 financial year end. DMHC is a holding company that holds shares and interests of the various entities which comprise the Filer’s U.S. mining business. Prior to September 1, 2011, the Filer held all the shares of DMHC directly.
White Canyon is a corporation organized under the laws of Australia with a June 30 financial year end. White Canyon was previously listed on the Australian Stock Exchange ("ASX") and was a reporting issuer in Alberta and British Columbia with a secondary listing on the TSX Venture Exchange (the "TSXV").
The Filer acquired approximately 96% of outstanding shares of White Canyon effective July 1, 2011 in a take-over transaction under Corporations Act 2001 (Australia) that was exempt from the formal bid requirements of Part XX of the Securities Act (Ontario) (the "Act") pursuant to section 100.3 of the Act. The Filer acquired the remaining shares of White Canyon on July 28, 2011 under the compulsory acquisition provisions of Australian corporate law.
The Filer's acquisition of White Canyon was not a significant acquisition for the Filer for the purposes of Part 8 of NI 51-102.
On September 1, 2011, White Canyon transferred the shares of Utah Energy Corporation ("UEC") to DMHC. In exchange, DMHC issued 4.7 shares of common stock to White Canyon, representing approximately 29.9% of DMHC’s common stock. The remainder of the common shares of DMHC, as well as preferred shares, are held by the Filer directly.
The shares of UEC represented the only material asset of White Canyon. Since September 1, 2011 the only material asset of White Canyon has been its minority shareholding interest in DMHC. White Canyon has no other material assets or liabilities other than some inter-company debt to the Filer.
Accordingly:
(a) since July 1, 2011, DMHC and White Canyon have been under common control; and
(b) since September 1, 2011, the financial results of the operating business previously owned by White Canyon, being UEC, are included in the financial results of DMHC.
Prior to the acquisition by the Filer of White Canyon, White Canyon was a "designated foreign issuer" as defined in National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards. Upon the completion of the Filer's acquisition of White Canyon, White Canyon terminated its listings on the ASX and the TSXV, and ceased to be a reporting issuer in any Canadian province.
Energy Fuels is a corporation existing under the OBCA with a September 30 financial year end.
Energy Fuels is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. The common shares of Energy Fuels are listed and posted for trading on the TSX under the symbol "EFR".
The Proposed Transaction
On April 16, 2012, the Filer entered into a letter agreement (the "Letter Agreement") with Energy Fuels to complete a transaction whereby Energy Fuels will acquire from the Filer all of the outstanding shares of DMHC held by the Filer and all of the outstanding shares of White Canyon.
As consideration for the shares of DMHC and White Canyon, Energy Fuels will issue 425,441,494 common shares of Energy Fuels (the "EFR Share Consideration"). The transaction will be carried out by the Filer in connection with a corporate reorganization under a plan of arrangement pursuant to the OBCA. The plan of arrangement will provide that the EFR Share Consideration will be distributed to the Filer's shareholders on a pro rata basis as a return of capital by the Filer.
Upon completion of the proposed transaction, Energy Fuels will hold all of the shares of DMHC and White Canyon, and the Filer's shareholders will in aggregate own approximately 66.5% of the outstanding shares of Energy Fuels.
Completion of the transaction is subject to the parties negotiating and entering into a definitive agreement, as well as other customary closing conditions.
Energy Fuels will require shareholder approval under the rules of the TSX with respect to the issuance of the EFR Share Consideration, due to the number of shares of Energy Fuels to be issued.
The Filer will require shareholder approval of the Arrangement under the OBCA. In that regard, the Filer will seek such shareholder approval at the Denison Meeting.
Financial Disclosure Requirements for the Denison Circular
Because the Filer will be distributing securities of Energy Fuels to its shareholders in the transaction, the Denison Circular will require prospectus-level disclosure of Energy Fuels in accordance with Item 14.2 of Form 51-102F5.
The acquisition of DMHC and White Canyon by Energy Fuels will be a significant acquisition for Energy Fuels under Part 8 of NI 51-102. For this reason, certain annual audited and unaudited interim financial statements of the business to be acquired in the transaction, along with pro forma financial information of Energy Fuels, will be required to be included in the Denison Circular.
The acquired business consists of the shares of DMHC held by the Filer, and all of the White Canyon shares.
Because White Canyon and DMHC have only been under common control since June 2011, it will not be possible for the financial statements of DMHC and White Canyon to be presented on a combined basis under Section 8.4(8) of NI 51-102 for all periods for which acquisition statements will be required.
In accordance with Section 8.4 of NI 51-102, the financial statements relating to EFR and the businesses to be acquired in the transaction to be included or incorporated by reference in the Denison Circular will include:
(a) audited annual financial statements of EFR for the two years ended September 30, 2011;
(b) unaudited interim financial statements of EFR for the six month periods ended March 31, 2012 and 2011 (the "DMHC Interim Statements");
(c) annual financial statements of DMHC for the two years ended December 31, 2011, of which the statements as at and for the year ended December 31, 2011 will be audited (the "DMHC Annual Statements");
(d) unaudited interim financial statements of DMHC for the three month periods ended March 31, 2012 and 2011;
(e) annual financial statements of White Canyon for the two years ended June 30, 2011, of which the statements as at and for the year ended June 30, 2011 will be audited (the "White Canyon Financial Statements");
(f) pro forma financial statements of Energy Fuels for the periods ended September 30, 2011 and March 31, 2012, and a pro forma balance sheet of Energy Fuels as at March 31, 2012 (the “Pro Forma Statements”); and
(g) absent the Requested Relief, the Filer would also be required to include the White Canyon Interim Statements.
Since September 1, 2011, White Canyon’s sole material asset has been its minority shareholding position in DMHC, and White Canyon has no material liabilities other than some inter-company debt with the Filer. Prior to September 1, 2011, its sole material asset was the shares of UEC.
The Filer has considered the appropriate accounting treatment for the DMHC Annual Statements and the DMHC Interim Statements, and has discussed its potential approach with its auditors PricewaterhouseCooopers LLP (“PWC”). The Filer has determined that it would be appropriate to apply continuity of interest accounting for reorganization between commonly controlled entities as it relates to DMHC and White Canyon. The Filer has advised us that this approach would be consistent with the preferred approach dealing with Common Control Business Combinations as articulated in OSC Staff Notice 52-720 Office of the Chief Accountant Financial Reporting Bulletin, February 2012.
In accordance with this approach, the Filer proposes to consolidate the results of UEC in DMHC’s financial statements for the full period following June 30, 2011.
Subsection 8.4(3) of NI 51-102 provides that acquisition financial statements must include financial statements of the acquired business for the most recently completed interim period. For the reasons noted above, this would require statements for both DMHC and White Canyon.
The Filer feels that the inclusion of separate financial statements for White Canyon after June 30, 2011 would not be helpful to its shareholders and may in fact be misleading given the other financial disclosure in the Denison Circular during that period.
In light of the proposed approach for the presentation of the DMHC Annual Statements and the DMHC Interim Statements, the Filer is of the view that there would be no added benefit to providing the financial statements for White Canyon for any period after June 30, 2011, and in fact that the inclusion of any such statements may be misleading to the Filer’s shareholders.
All of the operations of White Canyon were undertaken through UEC. UEC’s results will be consolidated into the DMHC Annual Statements and the DMHC Interim Statements from July 1, 2011 onwards. Providing White Canyon financial statements for any period after June 30, 2011 would actually be confusing as those statements would also consolidate the July and August operating results of UEC, since that is the period prior to the legal reorganization and transfer of UEC to DMHC. This would lead to a type of double counting of the operating results for those months both in DMHC and White Canyon.
With respect to the results of White Canyon after August 31, 2011, again those statements would only reflect the minority shareholding position in DMHC. UEC’s financial results will be included in the DMHC Annual Statements and the DMHC Interim Statements. Again, a shareholder considering the transaction may be confused and not appreciate that the financial results of White Canyon after June 30, 2011 which would be included in the White Canyon Interim Statements were also reflected in the financial statements of DMHC which are in the Denison Circular.
Including both White Canyon and DMHC results for the period following June 30, 2011 would also result in much more complex and confusing presentation for the pro forma financial information of Energy Fuels to be included in the Denison Circular.
We note that under section 8.4(8) of NI 51-102, the Filer would be permitted to provide combined financial statements for periods during which the related businesses of DMHC and White Canyon were under common control. The preparation of combined financial statements for DMHC and White Canyon is not practicable in these circumstances given the differing year ends. the Filer submits that, given the fact that White Canyon’s operations are entirely contained within DMHC, that the inclusion of the DMHC Annual Statements and the DMHC Interim Statements which include the UEC business from July 1, 2011 give disclosure regarding the acquired business which is complete and substantially the same as would be included with combined financial statements.
If the Requested Relief is granted and the White Canyon Interim Statements are excluded from the Denison Circular, the results of UEC would be reflected in the acquisition financial statements as follows:
for the two year period to June 30, 2011 in the White Canyon Annual Statements;
for the period from July 1, 2011 to December 31, 2011 in the DMHC Annual Statements; and
for the period from January 1, 2012 to March 31, 2012 in the DMHC Interim Statements.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Requested Relief is granted.
“Lisa Enright”
Ontario Securities Commission