Denison closing Elliot Lake mine

Ontario Hydro has already begun shopping around for new uranium sources to replace the amounts supplied under recently cancelled long-term contracts signed with Denison Mines (TSE).

While uranium produced from Elliot Lake, Ont., mines, owned by Denison and Rio Algom (TSE), is sufficient to meet roughly 75% of the utility’s needs until 1994, a top Hydro official has already received unsolicited offers from producers in Saskatchewan.

When the search gets under way in earnest later this year, Doug Smith, director of Ontario Hydro’s fuel division in Toronto, said a large chunk of the new supplies could come from Saskatchewan producers like Cameco and Uranerz Exploration and Mining.

They already supply 25% of the uranium consumed by Hydro annually. Just how much the utility will require to fill a consumption rate of 4.5 million lb. annually depends on the outcome of discussions with Rio Algom, which supplies Hydro with about 1.2 million lb. annually from its Stanleigh mine.

Rio Algom is delivering uranium to Hydro under contracts that can be cancelled Dec. 31, 1993. Although Hydro is believed to be paying Rio Algom much less than the amount paid under contracts with Denison, Smith says uranium could be obtained more cheaply elsewhere.

The Denison contract, under which Hydro is paying roughly four times the current market price (of US$10 per lb.) for uranium, is officially set to expire Jan. 1, 1993. But the company expects to close the mine and lay off about 1,050 employees much sooner than that.

If discussions between Denison and Hydro are successful, the utility will accept uranium deliveries at a faster rate than it is required to under the present contract.

As a result, Denison can maintain current employment levels by dropping plans to reduce mine production to 1.4 million lb. from 2.7 million lb. annually and fulfilling its obligations under the contract by the second quarter of 1992. The mine would then shut down after 35 years in production.

Smith says Hydro is prepared to consider the idea because it gives Denison a little more time to prepare for layoffs which will only add to Elliot Lake’s economic troubles. Earlier layoffs at Denison and Rio Algom have increased unemployment in the region to 62%.

As Hydro is Denison’s only remaining customer, the company was preparing to cut production levels by laying off about 400 workers June 30 and shut the mine down temporarily for several weeks.

Also to be discussed is an attempt by Denison to recover from Hydro about $160 million in costs associated with the expansion and development of the Elliot Lake operation.

The two sides are attempting to resolve a dispute over about $300 million in mine depreciation costs that Denison would have been entitled to if the price contracts had run their full course until the year 2012. “In my view, they are not entitled to a penny,” Smith said. But Denison President Bill James clearly takes a different view. “Our position is that they owe us the money used to develop the mine and expand the plant for the contract,” James told The Northern Miner. If Denison and Hydro can’t reach an agreement on the depreciation issue, Smith says the price contract contains provisions to allow the issue to be placed before an arbitration board.