Uranium: Political Baby’s Growing Pains [Elliot Lake History] – by R. M. Baiden (April 29, 1961)

This article was orginally published in Saturday Night (a Canadian general interest magazine that ceased publication in 2005) on April 29, 1961.

Uranium: Political Baby’s Growing Pains

Who is hiding what?

Canada’s uranium industry was fathered by the military necessity and mothered by politics. Deserted by its father in childhood, it now faces adolescence with only a mother  – at least until mother can find a new husband among the world’s nuclear power stations, most of which are not yet built.

But until this happy union, estimated at perhaps a decade away, the future of this ailing child is tied by political apron strings. More than that, both the form and the fact of its very existence depend upon political decisions to be made soon in Ottawa: How to allocate among the various producing mines the recently publicized agreement to sell 24,000,000 pounds of uranium to Britain.

At current shipping rates, this represents 13 months additional production for the three Canadian mining areas of Elliot Lake, Bancroft and Beaverlodge. Upon wise allocation of this order depends not only the ability of some mines to stay in business, but also the ability of the industry as a whole to take quick advantage of developing civilian demand in the 1970s.

It was undoubtedly, in recognition of the critical importance of this order that the federal government decided that allocation would be a political decision and not a decision by its agent, the Eldorado Mining and Refining Co. In short, allocations of this order, and possibly some reshuffling of existing contacts, must be based upon the national interest, not on strictly economic factors.

For, while economically the legitimacy of this demanding stripling is at least questionable, its importance is not. From its birth in 1953 with the discovery of the Blind River area deposits (later known as Elliot Lake), the industry has earned some $1,078 million and hold contacts – exclusive of the agreement with the U.K. –  calling for a further $544 million by 1966. In the process, it also created a new town, Elliot Lake, which , with a population of 30,000 in the heyday of the uranium boom, boasted that it was the “Uranium Capital of the World.”
But the boast and the boom have gone. Both were nurtured in the heady unreality of domestic politics and both were thrown, unprepared, into the cold reality of foreign politics and international economics. The result has been anguish for many in Elliot Lake – workers, merchants, businessmen and their families – who counted on continued prosperity for the uranium industry, and financial losses for investors lured into the uranium stock market by enthusiastic stock salesmen. More than half the mines are now closed.

In retrospect, it is difficult to credit the overpowering optimism that surrounded the uranium industry in the 1950s. This was the dawn of Canada’s Atomic Age. Uranium was the fuel of the future – and Canada had it in abundance.

Uranium mines sprang into existence on a prospector’s hunch and a stockbrokers brochure. Contacts to supply the U.S. Atomic Energy Commission through Eldorado were awarded to hastily-formed companies with profligacy and seeming abandon. (In one instance, a contract was awarded on the basis of some dozen drill holes alone.) At one stage, more than 20 Canadian uranium mines held contracts.

But Canada did produce the uranium. By the end of 1956, W.C. Pitfield and Co., a Toronto brokerage firm, in a booklet entitled A Study on Uranium for the Investor, was able to say this:

 “Canada’s uranium industry has grown from a small Government operation in 1947 to the point where, by 1958, it will occupy top place in dollar value in Canada’s mining industry with sales estimated at $300 million annually. The importance of the industry to the economy is apparent when comparison is made with the 1955 sales of $680 million for the newsprint industry and the sales of $225 million for the nickel industry. Canada is the largest producer of these commodities in the world today.”

This was a period of the great uranium boom on the Toronto Stock Exchange. Even the most respectable of firms were convinced uranium’s future promised nothing but prosperity and profit. In March, 1957, James Richardson and Sons, in a study entitled “Atomic Energy and Canadian Uranium Securities, “ reported:

“In conclusion, it may be said that until 1965, government purchases will take care of all uranium production. After that date, the known higher grade reserves of the United States are likely to be on the decline and at the same time, the requirements of industry will be raising rapidly so that by 1975, entirely apart from government needs, the demands of the free world may well exceed the currently indicated rate of production. In other words, the problem over the long term does not appear to be one of finding a market for the uranium produced, but of producing enough uranium to meet the demand.”

It hasn’t worked out that way. Some 16 uranium mines have either gone out of business or merged into the seven survivors: Bicroft, Denison, Eldorado, Faraday, Gunnar, Rio Algom and Stanrock. Elliot Lake is suggestive of a ghost town with more than half its houses and business establishments empty. (In his 1960 annual report to shareholders, Robert Winters, president of The Rio Tinto Mining Co. of Canada Ltd., parent company of Rio Algom and the major operator in Elliot Lake, said the company had repurchased 271 housing units during the year form employees who left the area.) Today, those remaining mines hold contracts which expire in 1966. Beyond that, the future is dim indeed.

What went wrong with the rosy forecasts? Briefly, uranium turned out to be more plentiful, at least for short-term supply, than had been expected – particularly in the U.S., but also in Australia, South Africa and the Belgium Congo. The U.S. policy of guaranteeing to buy all domestic uranium offered at $8 a pound was spectacularly  successful in encouraging U.S. production. By contrast, the U.S. was paying Canadian producers anywhere from $9.25 to well over $10 a pound (details of these agreements have never been revealed) on contracts expiring in 1962. Beyond that terminal date, the U.S.  AEC held options on future uranium production running through to 1966.

The result was obvious. The political and economic pressure to take domestically produced, cheaper uranium in place of high-cost foreign production was irresistible. In November, 1959, the U.S. announced that it would not exercise its options. Although obvious in retrospective, few at the time really believed the U.S. would abandon the Canadian industry when the chips were down. But it did.

The implication was disaster for the Canadian industry. With a marked slowdown in international uranium requirements for atomic reactors, the industry faced virtual extinction after 1962. To meet this emergency, the government, early in 1960, announced that the uranium contracts then in existence could be “stretched out” to 1966. That meant that while the companies would not sell any more uranium by 1966 than they would have by 1962, they – or some of them – could at least stay in business in 1966. The results of this plan were the mergers and closings of the mines and the slump at Elliot Lake.

At this stage it was commonly assumed that all the orders for uranium i.e. contacts, had been included in the stretch-out allocations. This meant, in turn, that the industry faced another crisis in 1966 unless unforeseen needs for uranium arose. From a position of per-eminence in terms of production and earnings, the uranium industry – with all hopes and expectations of workers and investors – was just staving off the inevitable. There was nothing to carry the industry form the mid-1960’s into the 1970’s.

It was against this background that the significance of the testimony by W.M. Gilchrist, Eldorado president, to the House of Commons Special Committee on Research, burst like a bombshell. But not, curiously enough, upon the Ottawa press corps. It was a Toronto editor of the Financial Post who first realized that what Gilchrist was saying was that there was an agreement under which Britain was committed to buy 24 million pounds of uranium and that this agreement had not been included in the 1960 stretch-out agreements. The agreement called for the delivery of the uranium between March 31, 1963 and December 31, 1966. The agreement was reached in early 1957 and was mentioned in 1958 but without details of price or poundage.

The furore which resulted from the revelation that this agreement existed and had not been included in the stretch-out involved the Diefenbaker government in one of its most complex issues. The Government first defended its failure to reveal the existence of the order, outside the stretch-out, on the basis that it was not a “firm contract.”

Gilchrist promptly shot this balloon down by stating the letter of intent by Britain and its acceptance by Canada constituted a contact. Industry reaction, by and large, was that the Government had cynically withheld information on the agreement at least as much for political as for economic reasons.

Pearson, leader of the Liberal Opposition and cabinet member in the Liberal Government when the agreement was reached, maintained he knew nothing about it. Industry men thought this was odd indeed as two of his Cabinet colleagues promptly became identified with the uranium industry upon their defeat in the 1957 general election. (Robert Winters, former Minister of Public Works is currently president of Rio Tinto; the late C.D. Howe was a Rio Tinto director.)

However that may be, the fact is that in early 1957 – before the general election – letters were exchanged between Sir Edwin Plowden, chairman of the United Kingdom  Atomic Energy Authority, and W.J. Bennett, then president of Eldorado. Without getting down t the details of delivery, this contact (i.e. the offer, acceptance and consideration) obligated the U.K. to purchase 24 million pounds of uranium between 1963 and 1966.

Shortly thereafter, of course, the Liberals were swept out of office. The subsequent developments are revealing. In 1957, when the Conservatives first learned about the contract, they were feeling kindly toward the British. Hadn’t they come t power partly on a platform of closer ties to the U.K. ? So, when the U.K. shortly thereafter asked for some re-negotiation of the deal (as it also did with South Africa) based on lessened U.K. demand for uranium, the Conservatives felt inclined to be accommodating to some extent.

By 1958 it was quite clear that unemployment was here with a vengeance and that Canada could not afford to be accommodating to anybody. But here the Conservatives hit a snag – how can you press, against  buyer opposition, for completion of what was, to all practical purposes, a secret contract? Obviously, the ground had to be prepared for a later public airing.

That meant that references to the agreement must be made so that no one could say that important contracts were being hidden from the public. So for the last few years there have been allusions to negotiations about a contract which would benefit Canada. But these allusions have been made outside the one place they might most reasonably be expected: the annual report of Eldorado. Eldorado’s report for 1960, for example, carries no reference to either the contract or negotiations about the contract.

The report, however, does show recently-revised delivery schedules for both the U.S. and the U.K. right up to 1966 – excluding the 24 million pound deal with the U.K. In fact, the report implies quite clearly that if the original schedules (before the stretch-out) had been adhered to, Eldorado would have nothing to deliver after 1963.

Eldorado’s reasons for the report appearing as it does are twofold:

1. Since exact delivery schedules has not been worked out with the U.K. it did not seem fitting to include them;
2. Since the Cabinet had not asked for disclosure in previous years, why should the corporation do so this year?

One answer to that question might be that since stockholders are the owners of a company they have – at least nominally – the right to know what is going on.

Apart from the absence of references to the agreement with the U.K. in the one place it might have been expected, what references there were seem to have been designed more to escape notice than to attract it. For the fact is that the Press Gallery did not notice them, or at least did not make the all-important connection between these references and the subsequent stretch-out plans.

And this is the key point. The fact that Eldorado had been dickering with the U.K. for an unstated amount of uranium had been known since Feb. 1, 1958 when the them Minister of Trade and Commerce, Gordon Churchill, said so in the Commons. What was kept secret, however, was that the agreement with the British had not been included in the 1960 stretch-out arrangements with the mines. Two reasons the Press Gallery missed the significant connection in Gilchrist’s testimony involve the mechanics of press operation in Ottawa.

The first is that the Press Gallery reporters, primarily politically oriented, did not jump on what they thought to be largely a business story because they saw no reaction from the Liberal Opposition. This, as it happened, was one of those peculiar occasions on which both Liberals and Conservatives could be embarrassed.

The second is that Press Gallery reporters say that they are being overwhelmed this year by attempts to dig up political dirt for a forthcoming federal election. They point out that there have been more “motions for the production of papers” and more “motions to adjourn to discuss an urgent matter of public importance” so far this year than during all of last year.

From this, and apart from the future of the mines themselves, the rights of shareholders and the livelihood of mine employees, two major questions of general political significance arise:

1. Why are the Conservatives and the Liberals so cosy about the handling of the uranium question?

2. To what extent is it wise to permit secrecy about government arrangements affecting whole industries? (see blow)

It’s clear that while Person deplores the situation which has developed, he is mainly concerned with ensuring that everyone realises that he did not know about the contract and therefore is not guilty of whatever it is that one could be guilty about. Having some knowledge of (and reverence for) the late C.D. Howe, he can hardly be shocked at the idea of government decisions being kept secret. He must feel some sympathy for the Conservatives in their present dilemma.

In short, although they occupy different sides of the Commons physically, the thinking of the Liberals and the Conservatives is so close on most matters as to be indistinguishable. This explains why it was up to a CCFer, Hazen Argue, to carry much of the brunt of dragging the whole story into the open. (Late last month Argue tried to make a motion for discussion of the issue as a matter of urgent public importance but was ruled out of order by the Speaker on the grounds that the contract lies years in the future, giving ample time for discussion.)

On the second question, no snap judgement can be made about the desirability of keeping some matters secret. In international relations, for example, secret diplomacy is often invaluable.

Technically, the U.K. is not a foreign country, however, and the full terms of international law do not prevail between Canada and the U.K. (we do not submit disputes to the International Court of Justice, as an example). Furthermore the Eldorado-Atomic Energy Authority contract was a commercial deal of no great political significance in 1957. It would be stretching matters too far to say that Governments would have fallen – or even wobbled – had the contract been announced when it should have been in early 1957.

But in the reality of the present, the Government faces a difficult political problem: how best to allocate the British contract? The easiest way out would have been simply to let Eldorado make the allocation on the basis of the most efficient mining operation. By deciding to make the allocation a policy matter, however, the Government faces a more difficult task. The temptation, and no doubt some pressure, will be to avoid helping the major producer, Rio Algom, which in addition to having a former Liberal Cabinet minister as its head, also happens to lie in Person’s constituency.

Assuming that the final price agreed upon is about $5 a pound and that the contact itself is stretched out to 1970, as is the case with the renegotiated South African contract, chances are that the Government will be able to ensure that all three mining camps remain in operation, even if at a reduced profit rate.

The two highest-cost producers, Bicroft and Faraday, would probably be unable to stay in business at $5 a pound. But a shifting of current premium contacts to these two mines and allocation of the British contact among the low-cost producers might be the way to maintain Canadian uranium production potential for the years when civilian demand takes up the slack.

With wise political mothering, the sickly child may yet grow strong.

SECRECY: What the PM Said on March 27

I point out this fact, that as soon as we took office on June 26, 1957, Mr Bennett delivered a communication to the then minister of trade and commerce which deals with uranium procurement. He sets out the facts in general, and he says this at page 15:

There has always been, and still is, close co-operation with the government of the United Kingdom and the government of the United States in the matter of the classification of information with respect to all phases of the atomic energy program. A tripartite committee is responsible for recommending  the declassification of information.

Up until December 13, 1956, all information with respect to uranium, ore reserves and production was classified. This information was declassified as of that date.  However, – I emphasize this. This is what Mr. Bennett, head of Eldorado and Atomic Energy of Canada Limited, said:

However, both the United Kingdom atomic energy authority and the United States atomic energy commission have asked that no information be made available as to the specific quantities of uranium which will be delivered to these agencies in any given period.

That was of course directed and determined by the president of Atomic Energy of Canada Limited and Eldorado as representing the policy that had always been followed. The only change in that regard was when an actual contact was entered into. – Hansard