Denison shifts emphasis back to uranium mining

The proceeds from the oil and gas sale, which some analysts feel will raise up to $500 million, will be augmented by an additional $217 million. The latter will incorporate a $167-million line of credit and a share issue valued at $50 million.

The bulk of the funds will go toward financing Denison’s four part strategic plan. This includes developing uranium as its core business, expanding its activities in industrial minerals, maximizing profitability and financing asset growth, Chairman Helen Roman- Barber said.

Built by Stephen Roman, the company’s late chairman, on a massive uranium discovery in the Blind River area of Ontario in the 1950s, Denison was once Canada’s largest uranium producer. However, during the 1970s and 1980s, uranium earnings were steadily surpassed by oil and gas income from production in Greece, Italy, Egypt, Spain, Ecuador, the U.S. and Canada. In 1987, for example, oil and gas operating profit totalled $64.9 million whereas mining activities generated a profit of $37.9 million. The company’s dominant position in Canadian uranium mining was also eroded following the discovery of large-tonnage high-grade uranium deposits in Saskatchewan in the late 1970s.

The company’s move to re-discover uranium is based on long- term forecasts which suggest that prices for uranium will begin to rise sharply in the 1990s. However, in 1988 prices continued a long slide which culminated in a record low price of less than $12(US) per lb at the beginning of 1989. In the late 1970s, prices exceeded $40(US) per lb for a short period.

“Our analyses indicate that both demand and prices for uranium will rise significantly by the mid-1990s, and we want to be in a positon to benefit from these favorable long- term market conditions,” Roman- Barber explained.

Denison’s future in uranium rests with two deposits — both capable of competing with the high grading low cost deposits found in Saskatchewan’s prolific Athabaska Basin. The company’s Midwest Lake deposit is in the Athabaska Basin, smack in the middle of a host of other large uranium deposits.

Purchased from Esso Minerals last year, Midwest Lake hosts 56 million lb of uranium oxide in rock grading 1.25% uranium oxide per ton. A 20% interest is also held in the Waterfound River deposit near Midwest Lake. In Australia, Denison controls the Koongarra deposit hosting reserves of 30 million lb of uranium oxide. Grade averages 0.87% uranium oxide per ton.

In 1988, Denison took a $125 million after-tax write-down in the value of its oil and gas assets, primarily to reflect the downturn in petroleum prices. The write-down resulted in a loss of $94.3 million compared to a $27.2 million profit in 1987. The share issue, which is expected to be completed by early March, will consist of a unit offering of non-voting Class B shares and Class B share purchase warrants. The credit facility was arranged by The Toronto-Dominion Bank and Bank of America Canada.

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