Ottawa, Sask. negotiate merging Eldorado, SMDC

Employees at Crown-owned Eldorado Nuclear Ltd. and the Saskatchewan Mining Development Corp. are waiting anxiously for results of merger talks involving the corporations’ owners.

According to recent speculation the federal government is planning to absorb Eldorado’s $561-million debt-loan in a bid to privatize the huge uranium company.

In an attempt to ease the way for a possible merger, the Saskatchewan government is also expected to take on the smdc’s $332 million debt-load.

Eldorado Nuclear and SMDC are controlled by Canada Development Investment Corporation and the Crown Management Board of Saskatchewan respectively. With negotiations expected to be completed by mid-February, an amalgamation would result in the world’s largest uranium producer.

While the two governments will retain a controlling interest, shares of the new company are expected to be sold to the public, but not until 1989.

With 2,032 tonnes of uranium produced in 1986, Eldorado in creased its output by one-third. But a long-term debt load of $547 mil lion reported in the same year prevented Eldorado from enjoying a firming market for its production.

Almost 50% of the company’s sales revenue of $202.2 million in 1986 went to servicing the debt costs.

With production increases at the Rabbit Lake, Sask. mill attributable to the Collins Bay-B orebody, Eldorado was able to sustain its higher production levels throughout the 1987 third quarter.

However, “no significant change in profitability can take place until the company is able to reduce its long-term debt,” said ex-Chairman N. M. Ediger at a 1986 shareholders’ meeting.

Since its inception, the smdc has suffered similar problems. Formed in 1974 with an initial equity investment of $200 million, the smdc was part of a provincial ndp government’s plan to retain control of the province’s natural resources.

Having incurred heavy capital expenditures the corporation didn’t see any return on its investment until 1984 when smdc’s Key and Cluff Lake uranium projects went into production. Output from smdc’s 50%-owned Key Lake mining venture was 12.59 million lb of uranium in 1986.

With it share of uranium produc tion totalling 6.7 million lb in 1986, SMDC supplied 7% of the western world’s uranium consumption.

In February 1987 smdc also became a significant gold producer when the first gold was poured from its 50%-owned Star Lake gold mine. With reserves of 230,000 tons grading 0.5 oz per ton, the operation is expected to produce an estimated 80,000 oz during a 3-year life span.

However, while earnings of $40.8 million during the first nine months of 1987 reduced the corporation’s net debt position by $60 million compared with last year, it would have taken another five years to wipe out the cumbersome debt, a company spokesman says.

“The Saskatchewan government has the same independent political policy as the federal government,” said Rita Mirwald, communications manager at smdc. “Obviously they feel there is no need to support these crown corporations within the public sector.”

When the amalgamation is complete, the debt-free company would have around 1.9 billion worth of assets.