Claim against Ontario Hydro key to survival for Denison

While certainly not out of the woods yet, Denison Mines (TSE) isn’t looking like quite the basket case it was when hard-driving Bill James took over its reins. This former Cinderella stock that enjoyed a wide following peaked at over $86 a share in 1967 compared with its recent 25 cents level.

Its big Elliot Lake mine, which operated for 35 years and turned out 147 million lb. uranium oxide from 70 million tons of ore, is now permanently closed — a sad period in the company’s long history.

“We are committed to giving this mine a decent burial,” James told a well attended annual meeting of still-hopeful shareholders who flocked to Toronto’s Royal York Hotel. But the cost will be high — estimated at $75 million, and the process will take 7-10 years to complete.

Under James’s driving force, a substantial portion of Denison’s loans has now been repaid, restructured or eliminated largely though the sale of assets. He has also slashed both operating and head office charges, significantly cut capital costs and reduced its once mighty board of directors to but five in number.

Excluding outstanding obligations to preferred shareholders, debts and reclamation liabilities stand at about $190 million, the meeting was told. But the company is running out of assets it can sell.

However, it has high hopes for a claim it holds against Ontario Hydro pertaining to the cancellation of a long-term contract for the sale of uranium, which James discussed in some detail. This amounts to about $350 million and is going to arbitration rather than through the courts. “This amount is just a small portion of what Ontario Hydro should save by cancelling 100 million lb. of deliveries from our contract,” James said in his best oratory. “We intend to vigorously enforce our contractual rights.” In fact both parties are digging in their heels for what could be a long and bitter battle.

If all goes according to plan, Denison will certainly not be getting out of the uranium business. It recently entered into an agreement with Total Compagnie Miniere of France. For $25 million from the French firm over a 4-year period, Denison will transfer a 70% interest in its Koongarra uranium project in Australia and the money will be used to develop uranium interests in Saskatchewan.

Under that agreement Denison will acquire a 22.5% joint venture interest in the rich McClean Lake deposit and Total gets a right to 70% of Denison’s 45% share interest in any Midwest production. Furthermore, the French firm has agreed to fund Denison’s share of the cost of developing McClean Lake. These two high-grade deposits would be developed as complementary operations utilizing a single mill at McClean, presently scheduled to come into production in 1996.

As to the oil and gas fields in Greece in which Denison holds a 68% interest, they are expected to produce 15,000 barrels of oil per day this year. At current prices the operation is just marginally profitable because of high costs. But the company and its partners have commenced negotiations with senior Greek government officials to obtain relief from the current level of royalties and taxes, James told the meeting.

“If you think this is a tough country, you ought to go to Greece and see how they operate,” he quipped in his rapid and frank manner to one of many questions from the floor.

In a move that surprised many shareholders, all were invited to a sit-down luncheon in the Royal York’s big Canadian Room following the meeting. While it wasn’t on the elaborate scale (pot roast) of those in the Stephen Roman heyday, that move again signals that the company is going to survive as a going concern.

“I believe we have made significant progress over the past year and will continue to do so,” he promised. “Lord knows, things just might work out. We’ll give it one helluva shot.”