SMDC has record profit from uranium production

Record uranium production combined with lower debt charges and interest rates are the main reasons behind the record earnings of $60.3 million realized by Saskatchewan Mining Development Corp.

For the year ended Dec 31, the provincial crown corporation sold 7.2 million lb of uranium oxide and — for the first time — 16,563 oz of gold from the company’s 50%- owned Star Lake gold mine near La Ronge, Sask. Uranium production was at a peak level since the company first began production in 1983. A majority of the production came from SMDC’s 50%-owned Key Lake mine — the largest and richest operating uranium mine in the world.

During the year, Key Lake yielded 13.5 million lb of uranium oxide, more than 1.5 million lb above the mine’s rated design capacity. At Cluff Lake, also in Saskatchewan, the 20%-owned mine produced 2.15 million lb of uranium oxide.

The bottom line was especially aided by reductions in long term debt, which helped alleviate some of the hefty debt burden which has been hurting the company. SMDC added $600 million of debt during the construction of the Key Lake and Cluff Lake mines in the early 1980s. During the past three years $148 million has been paid back, $67 million of which was paid back in 1987.

The combination of less debt and lower interest rates, helped reduce interest payments by 27% in 1987 to $61.6 million. Although interest payments still comprised more than 65% of cash flows, the cash flow coverage of interest improved from 1.3 times to 1.5 times, in 1987.

Uranium reserves declined modestly to 304.3 million lb from 317.2 million lb in 1986. These reserves represent the largest high grade reserve base of any company in the world, SMDC says. More importantly, 85% of the company’s production to the year 1992 is committed for delivery under long-term sales contracts.

A large portion of the company’s reserves are in the Cigar Lake deposit which is the subject of a $50-million test mining program, scheduled for completion in 1990. Reserves total 385 million lb of uranium oxide in ore grading 14.1% per ton. Located at a depth of 1,410 ft, the rich ore is being accessed via a vertical shaft which will enable the partners to test mine a portion of the deposit. Full production could begin by 1993.

The company’s first gold production came from the Star Lake mine which yielded 33,126 oz of gold in 1987. SMDC spent $15 million on gold exploration last year.

SMAC plans to merge with Eldorado Nuclear Ltd. later this year. The new company, which will be privatized, will be capable of producing 18% of the world’s uranium (N.M., Feb. 29/88).