Uranium giant plans major diversification

Within five years, 25% of revenues at Cameco — a Canadian mining and energy company — are expected to come from non-uranium sources, The Northern Miner learned during a series of wide-ranging interviews with company officials.

Formed from the merger of Saskatchewan Mining Development Corp. (SMDC), a provincial Crown corporation, and Eldorado Nuclear, a Federal Crown corporation earlier this year, Cameco is the largest uranium mining company in the world, producing about 18% of global output.

Although active in gold and base metals exploration and production, Cameco’s mandate for diversification is ambitious by any measure. To add some perspective, in 1987 combined SMDC and Eldorado revenues from uranium mining totalled $520 million. Non-uranium sources would then have to generate about $130 million to meet the 25% objective.

“Cameco will look to buy interests in existing companies,” Jan Bloemraad, head of the company’s New Projects division, explained. “Gold will be the thrust for the moment, but polymetallics are also important,” he added.

The drive for diversification comes from the top. William Gatenby, Cameco’s new chairman, president and chief executive officer, is committed to expanding out from uranium.

“Uranium will always be our major plank, but we’ll look for opportunities,” he said. These will include deals in gold, base metals and oil and gas. Cameco will even consider opportunities outside of Canada.

“We’ll look at projects in other countries,” he added. “We’re an international company.”

An oilman by training, the Saskatchewan-born Gatenby comes from Texaco Canada Resources, where he was president. That background brings to Cameco a new sense of direction, and importantly, a tough emphasis on making money.

That’s what investors will want to hear when Cameco begins its long privatization process. Owned 100% by the two government’s, the company will be spun-off to the public over a 7-year period. The first share issue is being targeted for next year, Gatenby says — and that will likely be in the $200- million range.

“We want to go private as quickly as possible. There’s a great deal of interest in the investment community,” he said. Gatenby added that several investment houses have discussed the deal and formal bids will be sought by Cameco.

One of the company’s main sales pitches will focus on the widely- held belief that the depressed uranium market will be making a turn for the better by the early 1990s. Currently trading at $13(US) per lb, the metal’s price is a long way from the heady days of 1979 when spot prices soared to the $40 range.

“Our belief is that we’re getting close to the bottom (of the uranium market),” Gatenby explained. “If one assumes that uranium is going to recover, there is no one going to do better on a turnaround than Cameco.” Cameco has the assets and the operating history to back that statement. In 1987, uranium production totalled 15 million lb — or 18% of that year’s world output of 81.8 million lb. More importantly, all Cameco’s production came from high grade, low cost open pit mines located in Saskatchewan’s prolific Athabasca Basin. Interests include 100% in the Rabbit Lake complex and a 50% stake in Key Lake, the world’s largest uranium mine.

To top it all off, Cameco holds a 50% interest in Cigar Lake. The Escondida and Red Dog of the uranium set, Cigar Lake hosts 385 million lb of uranium oxide in rock grading an incredible 12% uranium oxide per ton. By comparison, mines in the United States average 0.1% uranium oxide per ton.

“We have Cigar Lake, and it will be a real part of our future,” Gatenby said. Company officials and partners in Cigar Lake Mining Corp., which was organized to develop the project, are looking to the mid-1990s for production to commence.

One issue which remains a thorn in the company’s plans is the U.S. producers’ court action which is trying to ban foreign uranium from being enriched by the Department of Energy (DOE). Although that issue appears to be resolved following an agreement in principle whereby the U.S. government will set up a $1.75 billion(US) fund to buy domestic supply, a free trade agreement would guarantee market access. In 1987, SMDC sold 40% of its uranium production to the U.S.

“We’re great supporters of the free trade agreement. For our business, it’s a need.” Gatenby added that a free trade agreement would immunize Cameco from any future U.S. producer action calling for an embargo on uranium imports.