Teck Cominco cuts zinc output (February 15, 2002)

Vancouver Responding to an oversupply of zinc on the world market brought on by a slowing global economy, Teck Cominco (TEK-T) plans on trimming production by 55,000 tonnes in 2002.

The Cajamarquilla zinc refinery in Peru, owned 82% by the major and 17% by Japanese-based Marubeni, will be closed from June through August, reducing production by 30,000 tonnes. The refinery produced 31,500 tonnes of zinc in the fourth quarter of 2001, compared with 30,900 tonnes in the last three months of 2000. The operating profit fell to $3 million from $6 million.

The Trail zinc refinery in British Columbia will be closed in August, reducing zinc production by 25,000 tonnes. After being shut down for most of the third quarter of 2001 so that Teck Cominco could focus on power sales, the smelter reopened its doors in November. Production at Trail in the recent fourth quarter totalled 62,100 tonnes of refined zinc and 9,700 tonnes of refined lead. The smelter posted an operating loss of $15 million during the period, compared with a profit of $113 million a year earlier. The loss is attributed to low copper and zinc prices coupled with significantly reduced profits from power sales.

On the mine front, the Red Dog operation in Alaska is now slated to ship 1 million tonnes of concentrate in 2002, down from 1.06 million originally planned. This results in a reduction of 33,000 tonnes of contained zinc. The Red Dog mine cranked out 128,000 tonnes of zinc concentrate at an operating loss of $13 million in the fourth quarter, compared with 127,400 tonnes at a profit of $36 million a year earlier.

At the San Nicolas copper-zinc project in Mexico, Teck Cominco delivered a final feasibility study to its partner, Western Copper Holdings (WTC-T). A production decision is not expected until metal prices improve.

Meanwhile, rebuilding of the Pend Oreille mine in Washington state continues apace. Startup has been postponed to the first quarter of 2004 as a result of week metals prices.

According to Teck Cominco, the weak global economy saw zinc demand fall by 4% in 2001 resulting in rising inventories. The company sees demand growing again this year but the cutbacks are required in order to bring supply and demand into balance. Last year, the company realized an average price of US$0.40 per lb., down from the US$0.51 per lb received in 2000.

Zinc revenues accounted for 33% of Teck Cominco’s sales in 2001. The major estimates that a US$0.01 rise in the price of zinc would increase after tax earnings by $14 million, or $0.08 per share).

In 2001, $122 million in write downs caused the company to record an after-tax net loss of $21 million (or 17 per share). Fourth-quarter earnings totalled $6 million (3 per share) on revenue of $527 million, compared with $43 million (39 per share) on revenue of $716 million in 2000.