Dear Mr. Howe,

This letter will confirm our discussion of recent date regarding the following items:

(a) Amendment of Beaverlodge Contract

You will recall that the contract covering Beaverlodge production signed in December, 1953, provided for payment as follows:

(1) For actual costs of production for the period up to August 31st, 1955, these costs to include direct mine costs, administration and Head Office charges.

(2) A fixed allowance for amortization of $4.25 per pound of uranium produced.

(3) A fixed rate of profit of $1.50 per pound of uranium produced.

The contract provided further that on the completion of the cost period a fixed price would be negotiated, which price would take into account cost experience during the cost period and estimated costs for the balance of the contract. The contract also provided that Eldorado would make every effort to expand production and for this purpose would carry out an intensive exploration and underground development programme. As a result of this programme, the ore reserves were increased to the point where it was possible to plan an increase in production from the initial rate of 500 tons per day to a rate of 2,000 tons per day. The proposed expansion was discussed with the United States Atomic Energy Commission in June, 1955. The Commission expressed its wish that Eldorado should proceed with the expansion and undertook to purchase the increased production. This undertaking was contained in a Letter of Intent received from Jesse Johnson, Director of the Division of Raw Materials, under date of July 28th, 1955, a copy of which I sent to you under date of August 3rd, 1955.

It was not possible in June, 1955, to negotiate a firm price for the increased production, since at that time estimates of the necessary preproduction and capital expenditures were not available. It was agreed, therefore, that the price would be negotiated later in the year but that the price would not exceed $10.50 per pound. As I explained to you in my letter of August 3rd, 1955, we were satisfied that a ceiling of $10.50 per pound would give us plenty of leeway.

In December last we began negotiations on the amended contract. We took the position that Eldorado should be entitled to the price which would result from the application of the special price formula which is being used in connection with the purchase of uranium from private producers. On this basis the price would be $10.50 per pound. The Commission argued that credit should be allowed for the fact that the Commission had shared to some extent in the risks involved in the early stages of the project and a price of $9.50 per pound was proposed. After considerable discussion, it was agreed to split the difference and to write the contract at a price of $10.00 per pound, f.o.b. Beaverlodge. At the completion of the cost period - that is, at August 31st, 1955 - Eldorado had delivered 1,962,292 pounds. It is estimated that 14,865,175 pounds will be delivered during the balance of the contract - that is, from August 31st, 1955, to March 31st, 1962. It is estimated that the profit from the entire production after the amortization of preproduction and capital expenditures - i.e., $38,930,011 - will be $31,602,950.

(b) Amendment of Port Radium Contract

On the basis of our present estimates, the Port Radium property will be mined out by the end of 1958. There was on hand as at December 31st, 1955, 1,144,473 pounds which was not covered by contract. It is estimated that production between January 1st, 1956, and December 31st, 1958, will amount to 2,005,527 pounds. It was agreed that a contract would be entered into for 3,150,000 pounds at a price of $10.50 per pound, f.o.b. Port Radium. While this represents a considerable reduction below the previous price, for reasons which I explained to you it was considered advisable that a reduction in price should be offered. It is estimated that this contract will result in a profit of approximately $15,000,000 after depreciation.

(c) Refining Contract

As you are aware, the new refining process at Port Hope went into operation last June. The product of the new process is an orange oxide of a purity to permit its direct entry to a metal plant, as contrasted with the product of the old process which required further refining and purification before conversion to metal. Apart from the improvement in the specifications of the product, the new process also enables us to obtain recoveries in excess of 99% as against recoveries of approximately 90% in the old process. Since volume is the important factor in operating costs, when plans for the new process were under consideration it was decided to design for sufficient capacity to treat all of the Canadian production then in sight. In other words, the operation would not have been economic had it been based solely on the treatment of Eldorado concentrates. The new plant has a capacity for producing 3,300 tons of orange oxide per annum. To maintain the plant at full capacity will require production from Eldorado's properties, the Pronto and Gunnar properties, and some part of the production from the Algom property. While deliveries of orange oxide began last June, it was not considered desirable that a refining contract should be negotiated until at least six months' operating and cost experience was available. On the basis of this experience, a refining fee of 72¢ per pound of U[IN'3']O[IN'8'] contained in orange oxide was established. This figure covered operating cost, full depreciation over the period from June 1955 to June 1962, research and development cost including the amortization of the new research and development building and equipment, and a profit of 16¢ per pound. I advised you at our meeting that this refining fee appeared acceptable to the Commission. In subsequent discussion it has been suggested by the Commission that a longer period should be allowed for amortization, with a bail-out provision in the event that the plant does not operate for the entire period allowed for its amortization. I have advised the Commission that we would take this proposal under consideration. The suggested period of amortization - i.e., ten years - would have the effect of reducing the refining fee by approximately 5¢ per pound. On the basis of a refining fee of 72¢ per pound, the estimated profit on the contract after depreciation would be $6,500,000. If the refining fee is reduced to 67¢ per pound, the estimated profit would be $4,400,000.

A Letter of Intent has now been received from the Commission confirming the agreement described above with respect to the Beaverlodge and Port Radium contracts. The letter also accepts our proposal on the refining fee, subject to further discussion as to the possibility of increasing the period of amortization. While it is my hope that we can maintain our present position with respect to the refining fee, it may be necessary to give some ground on the question of amortization. I will keep you advised of developments in this connection. Yours sincerely,

W.J. BENNETT