Denison uranium production to drop by 37% in two years

Toronto-based Denison Mines (TSE) says it is cutting its Elliot Lake, Ont., workforce by 450 and trimming uranium production by about 37% to keep the operation economically viable. Scheduled to be completed by Aug. 1, the cuts mean that Denison’s annual uranium output will drop to 2.7 million lb. by 1991 from 4.3 million lb. last year.

“The inescapable reality all of us must accept is that the Elliot Lake orebody is very low grade and present and forecast prices for uranium in the international marketplace will not support current production levels,” said Denison President Jake Fowler.

But even though low uranium prices made the announcement almost inevitable — Rio Algom is closing two of its own uranium mines in the region — a Denison spokesman said reductions at Elliot Lake won’t affect the company’s longterm commitment to uranium and industrial minerals.

Denison will also continue to deliver 1.3 million lb. uranium oxide to Ontario Hydro under a longterm contract which will continue into the next century. However, Denison has had to make alternative arrangements to meet the demands of the company’s other major customer, Tokyo Electric Power. Denison spokesman Ed Shiller declined to reveal what exactly what those arrangements are.

The reductions, at what is now Denison’s only producing uranium mine, are the latest in a series of setbacks for a company which last year reported a loss of $3.4 million. Since Chairman Stephen Roman died two years ago, shareholders have suffered as Denison A shares have fallen to $2.25 from $5.75.

However, Alan Ferry, a mining analyst at Prudential Bache Securities in Toronto, says the signs are there for a turnaround in the next couple of years.

As Denison is negotiating to sell its European oil and gas operations, its fortunes will be tied more closely to uranium prices which have dropped to US$9 per lb. as inventories have increased.

“While the growth in new nuclear power generating capacity has slowed considerably, there is still enough planned capacity to suggest a demand growth rate for uranium of about 2% per year from 1989 to 1998,” said Ferry.

In a bid to position itself for an upswing in the price of uranium, Denison is attempting to develop two relatively low-cost (in comparison with Elliot Lake) uranium projects.

Shiller says his company hopes to be in a position to make a production decision by the end of this year at the 45% owned Midwest Lake project in Saskatchewan where reserves stand at 56 million lb. of uranium oxide grading 1.25% uranium oxide. Grades at Elliot Lake average about 0.1% uranium oxide.

Denison is also waiting for permission to mine the 20% owned Koongarra deposit in Australia which hosts 30 million lb. uranium oxide grading 0.87%. Development prospects depend on the outcome of a review into the Australian governments policy of allowing only three uranium mines to operate at once.

Proceeds from the sale of Denison’s oil and gas assets, which in 1988 generated 32% of total revenues, may be used to retract seven million worth of series B preferred shares. Scheduled to expire March 15, 1991, they could cost Denison $175 million if fully retracted.

Meanwhile, to minimize the number of layoffs at Elliot Lake, Denison said it plans to utilize a number of alternatives including early retirement, inter-company transfers and relocation assistance.