Vancouver — Poor base metal prices coupled with lower profits from power sales at Trail, B.C., substantially cut into
The major raked in a profit of $2 million (or 1 per share) on revenue of $501 million during the 3-month period, compared with $55 million (51 per share) on revenue of $672 million in the first quarter of 2001.
Before income and resource taxes, Teck Cominco’s balance sheet shows a loss of $7 million.
“In 2001 our earnings were dominated with power,” says Chief Executive Officer David Thompson. “We sold $131 million of power in the first quarter of that year, whereas this year we sold $6 million in the first three months.”
Power prices averaged US$22 per MW-hour during the quarter, much lower than the average price last year, which was US$445. Zinc and copper prices averaged US36 and US$71 per lb., respectively, during the quarter, down 22% and 11% from a year earlier.
Earnings during the first quarter included an after-tax gain of $11 million, which resulted from the sale of the company’s half-interest in Niobec.
Earlier in the quarter, the corporation decided to curtail production at its refineries as a result of a buildup of world zinc inventories. Toward this end, Teck Cominco will:
– close its Trail operations in August in order to slash output by 25,000 tonnes;
– close the Cajamarquilla refinery in Peru from June to August to reduce production by 30,000 tonnes; and
– reduce shipments of concentrate from the Red Dog mine in Alaska by 60,000 tonnes next year.
“Overall, the zinc market has shown some improvement, but it’s not yet coming through very strongly,” says Thompson.
President Steven Dean says the copper market depends on the pace at which the global, and specifically the U.S., economy recovers.
The first-quarter operating profit totalled $34 million, down from $184 million a year earlier.
Lower profits were reported at all the company’s operations, except the Elkview and Bullmoose coal mines, in British Columbia. Operating profits from coal amounted to $22 million, or 65% of the total operating profit.
Refinery operations at Trail and Cajamarquilla added $8 million to the major’s coffers, while Highland Valley Copper in British Columbia added $5 million. Gold operations at Hemlo reported an operating loss of $1 million.
Cash flow from operations was $39 million, compared with $191 million in the first quarter of 2001. At March 31, working capital stood at $616 million; net debt, at $874 million.
The Trail smelter and refinery cranked out 72,500 tonnes of zinc and 23,300 tonnes of lead during the period, up significantly over year-earlier levels. The increase reflects production curtailments in 2001, which were made in order to allow for greater power sales. Trail’s operating earnings during the recent quarter were $4 million. Profits associated with power sales contribute $2 million to that value.
“We are aiming for an operating profit of $40 million per year at US36 per lb. zinc,” says Thompson. “At US45 per lb., the target was $100 million per year.”
Teck Cominco is short of that target this quarter as a result of special items, which include the settlement of a legal dispute worth $3 million and the accruement of $1 million for potential early retirements later this year.
The Cajamarquilla operations produced 30,500 tonnes of refined zinc during the quarter, compared with 29,300 tonnes in the corresponding period last year. The operating profit fell to $4 million from $9 million because of lower sales volume and slumping zinc prices. Teck Cominco has decided not to proceed with a stage-2 expansion project; as a result, it will repay the US$103.4 million loan facility to the lender banks during the second quarter.
The Red Dog mine in Alaska produced 141,700 tonnes of zinc in concentrate during the quarter, a 12% increase from last year’s first quarter. This rise is attributed to greater efficiencies in the mill. Nonetheless, the mine recorded an operating loss of $3 million, compared with an operating profit of $20 million a year earlier. Lower zinc prices are blamed.
Teck Cominco’s share of production from Highland Valley was 28,000 tonnes of copper-in-concentrate, a 4% decrease year over year. Operating profits fell to $5 million from $20 million between the two first quarters as a result of lower ore grades, lower sales and an 11% drop in copper prices.
The Polaris mine, in Nunavut, produced 28,300 tonnes of zinc in concentrate, compared with 31,100 tonnes a year ago. Operating profit rang in at $1 million, compared with $4 million. Polaris is scheduled to close in August as a result of depleted reserves.
Gold production from the David Bell and Williams mines in Ontario’s Hemlo camp totalled 60,980 oz., down from 73,716 oz. The decrease is attributed to ground control problems following the collapse of backfill in the east end of the B-zone of the Williams mine. These problems blocked access to high-grade ore.
Williams reported an average cash operating cost of US$254 per oz., compared with US$206 per oz. in the year-earlier quarter.
The company produced 1.2 million tonnes of metallurgical coal from the Elkview mine and 302,000 tonnes from Bullmoose. Combined coal sales from both totalled 1.5 million tonnes, or 100,000 tonnes higher than a year earlier. The operating profit at Elkview was $22 million, up from $13 million as a result of higher sales and better coal prices. At Bullmoose, the operating profit was $5 million, compared with $2 million.
Farther afield, in Peru, the Antamina copper-zinc mine achieved commercial operation in late 2001. During the recent first quarter, it produced 283,000 tonnes of copper concentrate and 125,000 tonnes of zinc concentrate. Cash costs are consistent with those proposed in the feasibility study. During the next quarter, the mine is expected to crank out 275,000 tonnes copper concentrate and 170,000 tonnes zinc concentrate.
Construction at the Pend Oreille project in Washington state is expected to be completed in late 2003. Teck Cominco is currently sinking a shaft, which should be completed by August. Operations are expected to begin in 2004.
At the Pogo gold project in Alaska, feasibility work is continuing. The mill will be built in a valley, where ore will be trucked or conveyed directly, thereby eliminating the need for a shaft.
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