Denison — then and now

Second-quarter financials issued by Denison Mines (DEN-T) paint a picture of a small but generally healthy company making it work in tough times.

Denison lost $978,000 in the second quarter on revenue of $6.1 million and is $83,000 in the hole for the first six months of the year, during which time revenue amounted to $10.2 million.

The bulk of revenue during the quarter, $5.6 million, came from Denison’s 22.5% share in the new McClean Lake uranium mine in northern Saskatchewan. McClean produced 786 tonnes of U3O8 during the period and 1,655 tonnes during the first half.

In the second quarter of 2000, Denison made a profit of $388,000 on revenue of $3.8 millon. In the first half of that year, earnings were $1.6 million and revenue was $12.6 million.

Denison today stands in stark contrast to the big Denison of 20 and 30 years ago. Then, it was a uranium giant and had begun to describe itself as a “Canadian world energy company.” Today, it owns a minority interest in a single producing uranium mine and has oil and gas royalties.

Back in 1978, when uranium prices were peaking at US$43.40 for a pound of yellowcake, Denison took in $338 million in annual revenue, with $222 million of that coming from uranium production at Elliot Lake. It was branching out into oil and gas, both in western Canada and in offshore properties around the world: Denison had interests in the North Sea, in the Mediterranean (off Spain), in the Atlantic (off Cameroon), and most notably in the Prinos field in the Aegean Sea (off Greece).

The early 1980s were a golden time for Denison, with long-term sales contracts getting the company prices close to US$40 per lb. Its annual production was in the 2,500-tonne neighbourhood, and contracts were signed through to 2012 with power utilities around the world. Revenue, through those years, ran as high as $706 million — numbers that, put it in the same league as Falconbridge and Rio Algom, and well ahead of other large mining companies, such as Teck, Dome Mines and Placer Development. In 1983, the company racked up a profit of $100 million.

In 1984, shares were split into voting and non-voting classes; the voting shares touched a high of $23.25 and the non-voting ones, $20, in that year. As uranium prices cooled off and customers began to look elsewhere to renew their contracts, revenue started to slide.

The latter half of the ’80s brought mounting losses, starting with a writedown of $241 million that left Denison with a $158-million loss in 1985, but uranium mining, sheltered by the long-term contracts, stayed profitable. Another writedown against the value of oil and gas assets followed in 1988, and in the next year, Denison posted its first operating loss since the 1950s.

It was 1990 that brought the worst news: Ontario Hydro, the last of the utilities buying Denison uranium, cancelled its long-term contract, causing Denison shares to plunge to pennies. The company wrote down a $209-million carrying value and announced it would finish mining in Elliot Lake in mid-1992. At the same time, coal prices plunged and Denison’s Quintette mine could not pay its liabilities.

The board turned to William James, who had been with Falconbridge and had just finished wrestling a top price out of Noranda and Trelleborg in their takeover of that company. Denison then set out to restructure, recognizing there was more to be gained from asset sales than there was from burning the decks to feed the boilers. Development projects in the uranium business were sold: they were at the stage where they would have been a drain on the treasury. The Quintette coal mine was sold to Teck, and the oil and gas assets were put on the block. Denison turned a profit in 1992, though it was still facing larger liabilities than it had assets. A big part of the picture was the rehabilitation of the Elliot Lake mine sites, which had required a $103-million provision for cleanup expenses. As rehabilitation work went on, that liability shrank, and Denison began to build up a service business in environmental work.

The other big weight on the balance sheet was a pair of preferred-share issues that had been piling up dividend arrears since the beginning of the decade. In 1995, the preferred shareholders accepted a package that gave them 25 new common shares for each preferred, for a 62% equity interest in the restructured Denison. Debt-holders took an 18% stake in the company, and the common shareholders were left with 20%.

The measures brought the balance sheet under control and the company returned to a positive book value in 1996. It still had interests in the Prinos oil field, in Ecuador and on the Grand Banks, and it had kept one uranium project, McClean Lake, which was scheduled to go into production in 1998, plus a few exploration properties.

And it’s largely those assets that underpin Denison today. McClean Lake is in production; Prinos was shut down in 1998, and the Ecuadorian and Grand Banks assets have been sold, but new oil and gas interests are providing royalties; and Denison Environmental Services has decommissioned several sites in Ontario and Quebec, including Cambior’s Vezina mill, Algoma Steel’s Wawa iron mines, and Inco’s Shebandowan nickel mine.

Times have changed for Denison, more than for most of its contemporaries, but, while smaller, it has found a way to survive.