Denison earnings slip

Weak potash markets knocked down earnings this first quarter for Denison Mines, says President J. D. Fowler.

Its 60% owned potash project near Sussex, N.B. reached commercial production status on Jan 1 and the results from this operation were included in the company’s earnings statement.

For the three months ended March 31, the company realized consolidated net earnings of $4.07 million on revenues of $111.5 million, down from $6.5 million netted in the same period of 1986 on revenues of $122.3 million.

The loss per class A and class B participating share, after providing for preferred share dividends, was 7 cents for the first quarter compared with a loss of 3 cents a year earlier.

Potash Company of Canada (Potocan) holds the remaining 40% of the $350 million potash project and also acts as the agent for marketing the production.

Mr Fowler says the project was hit hard by weak markets and unforeseen start-up problems. Because of the initial problems, the project did not achieve all the volume and operating costs criteria contained in the project financing agreement by the March 31 deadline.

Discussions are under way with the lenders and partners aimed at finding acceptable amendments to the project financing agreement, he adds.

The Denison-Potacan project is financed through a limited recourse project financing facility. According to the 1986 Denison annual report, Denison’s share of term borrowings as of Dec 31, 1986 under the financing agreement is $173.4 million.

The report goes on to say, under the section called commitments and contingencies, that Denison may be required to provide additional support of up to $75 million in order to meet its obligations under the project financing agreement. The company’s obligation to provide this additional support is partially secured by a letter of credit for $37.5 million issued by a Canadian chartered bank.

Further, the Denison-Potacan project will require additional funding to achieve full completion of the project, as defined in the financing agreement, the report says. Denison’s share of such funding may amount to $30 million.

The project has a designed capacity of 1.3 million tonnes annually. Last year Denison’s share of production was 392,000 tonnes.

Looking at its uranium operations, Mr Fowler says the Elliot Lake reserves have increased with the purchase this month of a number of mining leases contiguous to the Denison south boundary from Canuc Resources.

At its 50% owned Quintette Coal, first quarter earnings rose to $8 million, up from a loss of $9.8 million in the first quarter of 1986.On-going production cost reductions and increased sales are the reason for the improvement.

These results are excluded from Denison’s financial statements.

Mr Fowler notes that coal markets remain weak, but discussions are continuing with the lenders on a debt restructuring plan and with the customers on pricing.