James ready to cut costs in order to save Denison

Just two months short of his 62nd birthday, former Falconbridge Ltd. chairman Bill James has taken on what could be the biggest challenge of his career. After accepting an invitation to 0000,0509 become president and chief execu- tive officer of Denison Mines (TSE), James has been handed a mandate to rescue the ailing uranium company from its financial troubles.

Some say the problems facing Denison are insurmountable. But in an interview with The Northern Miner, James said he wouldn’t have accepted the post if he thought a turnaround couldn’t be achieved. “It’s pretty tight but I think it’s do-able,” said James, who succeeds John Fowler as president.

Known for his tough approach to negotiating, James said he had no master plan up his sleeve when he was approached by Denison Chairman Helen Roman-Barber last fall. He had been tipped to accept the post by a number of sources, including The Northern Miner (Sept. 25/89), after he was spotted in a Toronto restaurant with Roman- Barber.

After receiving $3 million in compensation when he resigned as CEO and chairman of Falconbridge after it was acquired by Noranda and Trelleborg AB of Sweden in mid-1989, James clearly had no need to take on such a demanding position.

Asked why he accepted Roman- Barber’s invitation, James replied, “I do it for the love of the sport. I like doing this better than sitting on boards,” he said.

The new Denison president declined to say whether he will follow the corporate strategy set out by Denison’s senior executives last year. It involved getting out of oil and gas in sticking with its core uranium business.

With the backing of Roman- Barber, who remains as chairman, his first task in the new job is to talk with banking officials about the principal on a $150-million bank loan that comes due Jan. 2.

Holders of seven million series B preferred shares are also owed $175 million should they elect to redeem their shares on March 15.

As Denison hasn’t yet found a buyer for its oil and gas assets, James says he doesn’t see within the company a lot of cash with which to address such problems. On Sept. 30, long-term debt stood at $130.7 million.

Partly because of the downsizing of its Elliot Lake uranium mines, cash flow from operations dropped to $37.8 million last year from $72.3 million in 1988. In the first nine months of 1990, Denison reported a net loss of $94.3 million or $1.69 a share after swallowing a $80-million writedown on the oil and gas properties.

While a 40 cents jump in the price of Denison A shares, after the appointment was announced, indicates that investors believe James is the right man to turn the company around, analysts are skeptical.

According to Yorkton Continental’s Paul Esquivel, James made all the right moves when he rescued Falconbridge Ltd. from similar financial difficulties. But James had considerable help from rising nickel and copper prices, he said. Denison is expected to benefit from tightening uranium supplies that could lead to higher prices. But Esquivel wonders if bankers will be patient enough to wait for a rally that may not come for another couple of years.

“The financial position that Denison is in represents a big hole to drag yourself out of,” he said.

Even though the Persian Gulf crisis has sparked a US$5-per-bbl. increase in the average price of oil from US$19.57 a year ago, Doug Flegg, an oil analyst with Midland Walwyn Capital Inc. in Toronto, believes Denison will continue to have trouble finding a buyer for the oil and gas assets.

“It’s tough to do a transaction like that when buyers and sellers can’t agree on what oil price base to work with,” said Flegg, who expects oil to average about US$23 in 1991.

At various times Denison was also expected to sell its Denison- Potacan potash operation in New Brunswick and 50% interest in Quintette Coal in British Columbia. The price that Quintette receives for its product is currently below the cost of production.

Nevertheless, analysts and sources close to the company agree that Roman-Barber made a courageous move in hiring James to mastermind the rescue attempt. They say James’s strengths are his toughness and ability to draw on a wide range of contacts that were accumulated with Noranda, Falconbridge, and lately as a director of 13 companies including Cameco the world’s largest uranium producer. (He resigned from the Cameco board Dec. 14).

Over the next few weeks, James said he will attempt to learn a little about the company and visit a number of operations including Elliot Lake and the Midwest uranium project in Saskatchewan.

With minable reserves standing at 35.5 million lb. grading 4.5% uranium oxide, the 45% owned Midwest project is said to be capable of producing 3.5 million lb. annually.

But mine construction won’t begin until Denison and partners Bow Valley Industries (TSE), Uranerz Exploration and Mining and PNC Exploration have obtained the necessary environment permits.

The fate of Denison’s wholly owned Koongarra uranium project in Australia is less certain because of the Australian government’s policy of having three uranium mines in production at one time.

According to Esquivel, James’s immediate challenge will be to position the company for the upswing in uranium prices which analysts expect to see over the next few years.

“We will try to sell assets, cut costs and see what comes of that,” he said.