Cominco posts profit in quarter

Operating profits at the Red Dog mine in Alaska and the Trail smelter in British Columbia propelled base metal titan Cominco (CLT-T) to substantial earnings in the second quarter.

The company posted a profit of $22 million (or 25 per share) on revenue of $396 million for the 3-month period, compared with a loss of $8 million (9 per share) on revenue of $310 million in the second quarter of 1999. Cominco attributes the improvement to a $46-million increase in operating profits at its zinc operations.

“Our operating profits for the quarter improved from $14 million last year to $66 million this year,” said President David Thompson. “The main drivers were Trail, which had a $30-million improvement, including power sales; Red Dog, with $12 million, the Highland Valley copper-molybdenum mine [in British Columbia], with $7 million; and the Sullivan zinc-lead-silver mine [also in B.C.], with $4 million.”

For the 6-month period ended June 30, Cominco turned a profit of $41 million (48 per share) on revenue of $815 million, compared with a loss of $3 million (4 per share) on $693 million in the first half of last year. However, the 6-month increase was partially offset by a $12-million decrease in other income generated by foreign exchange and interest income, as well as a $27-million increase in taxes.

At June 30, the major had a working capital of $441 million and a net debt (total debt minus cash and short-term investments) of $546 million. Since the end of 1999, Cominco has reduced its debt load by $84 million, or 29%.

The company recently resumed drilling on the Anarraaq deposit, 9.7 km north of the Red Dog mine. The work entailed deepening holes 816 and 817, which were started last year. The holes failed to cut significant mineralization.

Cominco has completed five other holes, the results from which are as follows:

– Hole 923 intersected 197 ft. (true thickness: 180 ft.) grading 20% zinc and 6% lead, plus 4 oz. silver per ton, starting at a down-hole depth of 2,208 ft.

– Hole 924 was drilled 800 ft. north of hole 923 and intersected several mineralized sections, including: 16 ft. of 15% zinc, 4% lead and 0.1 oz. silver; 15 ft. grading 11% zinc, 2% lead and 0.4 oz. silver; and 40 ft. of 18% zinc, 4% lead and 0.5 oz. silver. Mineralization started at a down-hole depth of 2,152 ft.

– Hole 926 was collared about 1,600 ft. north of hole 924 and intersected 14 ft. grading 9% zinc, 3% lead and 0.1 oz. silver, starting at a down-hole depth of 2,166 ft.

– Hole 928, collared 800 ft. northwest of hole 923, cut 25 ft. grading 7% zinc, 2% lead and 0.7 oz. silver, starting at 2,140 ft. down-hole.

– Hole 929, collared 400 ft. west of hole 928, cut 65 ft. grading 18% zinc and 6% lead (silver assay pending), starting at 2,144 ft. down-hole.

Drill hole 923 deviated significantly from its intended target but did intersect a thick mineralized section. Hole 930, collared 800 ft. west of hole 926, was barren, and assay results for holes 931, 933 and 934 others are pending. Previous drilling at Anarraaq returned up to 19 ft. grading 29% zinc, 8% lead and 9 oz. silver in hole 812 (400 ft. south of hole 923).

“We are quite encouraged by the drill results so far,” says Thompson. “The metallurgy will be different [from Red Dog] since there seems to be a higher iron content.”

To date, drilling has defined the eastern and southwestern margins of the deposit, but it remains open in all other directions. Cominco plans to keep the drill rigs spinning as long as weather permits. All assays were performed at the Red Dog mine’s analytical laboratory.

Red Dog

In the second quarter, Red Dog produced 243,800 tonnes zinc concentrate (9.7% higher than in the year-ago period) and 38,600 tonnes lead concentrate (10.8% less).

The mine’s operating profit during the recent quarter was $20 million, compared with $8 million a year ago. The increase is chiefly due to higher zinc prices and an increase in zinc concentrate sales. Sales were 64,000 tonnes higher than in the second quarter of 1999. The average zinc price on the London Metal Exchange was US51 per lb. during the recent 3-month period, or 11% higher than a year ago.

At the Red Dog mill, two large modules will be added in September. So far, Cominco has spent $14 million on improvements at the plant.

Red Dog’s shipping season began in mid-July, and shipments this year are forecast at 950,000 tonnes zinc concentrate and 140,000 tonnes lead concentrate.

Trail

At the Trail smelter, Cominco produced 68,000 tonnes refined zinc, 19,200 tonnes refined lead, 2.7 million oz. silver and 13,600 oz. gold during the second quarter. The operation posted a $35-million operating profit, compared with $5 million in the corresponding period of 1999.

Operations benefited from the higher average zinc price and the improved performance of the Kivcet lead smelter. However, the improvements were partially offset by lower production and sales of zinc — a consequence of a fire in April that resulted in the temporary shutdown of a slag furnace.

The improvement in Trail’s performance is mainly due to surplus electricity generated at the Waneta dam operation. The average quarterly realized price on electricity sales was $133 per MW-hour, compared with $29 last year.

Cajamarquilla

The Cajamarquilla zinc refinery, near Lima, Peru, produced 30,000 tonnes of refined zinc — a small improvement over the second quarter of last year. Also, the plant posted a $9-million operating profit, or 22% higher than a year ago. Cominco is considering doubling annual production to 240,000 tonnes.

Sullivan

The Sullivan mine, near Kimberly, B.C., produced 51,500 tonnes zinc concentrate and 15,100 tonnes lead concentrate. The recent quarter was marked by a $2-million operating loss, compared with a $6-million loss a year ago.

In late 1999, Sullivan experienced rock stability problems that resulted in lower production of concentrates. However, these problems were solved during the first quarter of 2000.

The mine is slated to close down in December 2001.

Highland Valley

The 50%-owned Highland Valley copper mine, near Kamloops, B.C., has been operating at full production since October 1999. The mine churned out 23,600 tonnes of copper concentrate for Cominco during the recent quarter — a 57.6% increase over the year-earlier period. Operating profits rang in at $10 million, or $7 million higher. Cominco attributes the improvement to an 18% increase in the copper price combined with a 9% increase in copper concentrate sales and a 5% reduction in production costs. The mine also produced 2,000 oz. gold and 273,100 oz. silver in concentrate, plus 300 tonnes of molybdenum concentrate.

The mine is operated by Highland Valley Copper, a partnership controlled 50% by Cominco, 33.6% by Rio Algom (ROM-T), 13.9% by Teck (TEK-T) and 2.5% by privately owned Highmont Mining.

Quebrada Blanca

The 47.25%-owned Quebrada Blanca copper mine, in northern Chile, produced 7,500 tonnes of refined copper, or 15% less than in last year’s second quarter. Copper sales also dipped, by 19%, owing to a 25-day strike that was settled in late June. The sale of Quebrada Blanca to Aur Resources (AUR-T) is expected to close during the third quarter.

Polaris

The 77.5%-owned Polaris mine, on Little Cornwallis Island in Nunavut, cranked out 42,600 tonnes zinc concentrate and 9,000 tonnes lead concentrate. The mine’s shipping season is just beginning, and Cominco plans to transport 205,000 tonnes of zinc concentrate and 40,000 tonnes of lead concentrate. By year-end, the major intends to sell 60% of the concentrate from Red Dog and Polaris.

Iranian project

Meanwhile, in Iran, Cominco and a private company are involved in negotiations aimed at forming a joint venture in connection with a small-scale open-pit zinc mine.

On an annual basis, Iran Zinc Mine Development produces about 400,000 tonnes of oxide ore grading 33% zinc from the Angouran mine. The operation is 90 km west of the city of Zanjan, and most of the ore is processed at a plant in Dandi, 20 km east of the mine. The resulting zinc calcine is subsequently treated by local refineries. The major hopes to build a plant to leach run-of-mine oxide ore and thereby produce about 100,000 tonnes of refined zinc.

“Our involvement in Iran will be step-by-step,” says Thompson. “We’re still negotiating the agreements and all the necessary ancillary agreements that we need to enter Iran.”

Once that is accomplished, Cominco will initiate a full feasibility study, which will probably last about 15 months. At that stage, the company will decide whether or not to commit significant funds to the project.

On June 15, Teck made a cash offer to buy 4 million shares of Cominco at $25 per share. If the offer is accepted, Teck would own 49.9% of the outstanding shares of Cominco. By the end of the year, Teck intends to increase its holdings to 51%.

Cominco has formed a committee of independent directors to evaluate the offer; they intend to communicate their opinion to shareholders in the coming weeks.