Falling metal prices crush Falco’s earnings

Slumping nickel, copper and zinc prices more than halved Falconbridge‘s (FL-T) earnings during the three months ended June 30.

The company posted earnings of $55.8 million (or 30 per share) for the three-month period, about 56% lower than year-ago earnings of $126.3 million (70 per share). Revenues between the two periods fell to $570 million from $753 million.

The recent quarter’s results included a $20-million tax benefit. This was the result of a reduction in tax rates in Ontario, which brought about a revaluation of the company’s future tax liability.

Operating income slowed to a trickle and amounted to $65.9 million, compared with $208.3 a year earlier. Cash flow from operations, before working capital changes, was $112.3 million, compared with $210.5 million a year earlier.

During the quarter, the company saw an across-the-board decline in the average realized prices of its mainstay metals:

• Nickel dove 31% to US$3.13 per lb.;
• Ferronickel was off 35% to US$2.97 per lb.;
• Copper slid more than 6% to US75 per lb.;
• Zinc dropped 16% to US46 per lb.; and
• Silver shed 8% to $4.41 per oz.

For the first half of the year, earnings amounted to $60.4 million (31 per share), down significantly from $235.8 million ($1.30 per share) in the first half of 2000. The company says the six-month-long strike at it operations in Sudbury took a $54.6-million bite out of first-quarter earnings this year.

Year-to-date revenues totalled $1.1 billion, down from the year-ago $1.4 billion. Operating income was $77.2 million, compared with $381 million. Cash flow of $190 million was less than half the previous year’s $405.1 million.

“It has been a mixed quarter for Falconbridge. Our Sudbury operations are now back to full production after the strike,” says a prepared statement from Oyvind Hushovd, Falco’s president and CEO. “However, metal prices remained under pressure and, for the moment, we do not see any signs that this will change soon.”

The company’s Sudbury mines continued to ramp up during the latest quarter. By June they had attained full production. Looking to replace some of the production lost to the strike, the Sudbury smelter and Nikkelverk refinery in Norway operated at their highest quarterly production levels ever.

The Raglan mine in Quebec operated at a capacity of 1 million tonnes annually.

At Falconbridge’s Kidd mining division, near Timmins, Ont., second-quarter copper and zinc production was higher than in the previous quarter. However, it was still off last year’s pace, thanks to an earlier ground movement.

Kidd incurred a loss of $14.6 million for the quarter, compared with a contribution of $17.8 million for the same period of 2000. The loss reflected lower metal prices and higher operating costs due to lower production.

The company has decided to accelerate development of Mine D and bring it in one year ahead of schedule. Work is currently focussed on development of the No. 4 shaft. This division is expected to maintain an annual production rate of about 2 million tonnes until 2004, when Mine D is slated to begin production.

In the Dominican Republic, Falcondo, the company’s 85%-owned nickel mining subsidiary, operated below capacity during the quarter, due to unscheduled maintenance at the power plant.

The company’s quarterly share of Falcondo’s earnings was $2 million, compared with income of $19.1 million during the second quarter of 2000. Falcondo is expected to churn out 26,000 tonnes ferronickel in 2001.

In northern Chile, production at the massive Collahuasi copper mine slipped slightly from a year ago, thanks to lower ore grades. However, it is still on target to meet annual production estimates. The mine is shared by Falconbridge (44%), operator Anglo American (AAUK-Q) (44%) and a Japanese consortium (12%).

The group is looking at upping mill capacity to 110,00 tonnes per day from the current 70,000 tonnes to help counter a planned drop in grade in 2004. A decision is expected later this year.

During the second quarter, Falco’s share of Collahuasi’s earnings was $12.8 million, compared with $20.3 million a year ago.

Also in Chile, the company has agreed to acquire 100% of the Lomas Bayas copper mine and the adjacent Fortuna de Cobre copper deposit from struggling Swedish-Canadian miner Boliden (BOL-T). The deal is slated to close by the end of July.

In New Caledonia, Falco says its early-stage Koniambo nickel-laterite project remains on-track. A prefeasibility study is under way and due to be completed at year-end.

Falco also acquired the Montcalm nickel-copper property near Timmins, Ont., from Outokumpu for $14 million.

Montcalm has the potential to produce 5 million tonnes of ore at a rate of 750,000 tonnes annually. The ore would be milled at the Kidd Division. Concentrates would be shipped to the Sudbury smelter. The project could up the company’s annual nickel output by 8,000 tonnes.

For shareholders, Falco has declared dividends of 10 per share, which are payable Aug. 13, and 2 per preferred share (series 1) and 36.72 per preferred share (series 2), which are both payable Sept. 1.