`Death of Mining’ excluded highly profitable Cominco

That cover story was mentioned at the annual meeting of Cominco Ltd. (TSE) whose profitability is higher than at any other time in its history. Robert Hallbauer, president and chief executive officer, conceded that more than a few people in the industry had their doubts about mining’s long-term viability at the time, albeit not to the extreme of Business Week.

“But the law of supply and demand finally worked as it always does,” he noted, and Cominco’s return to profitability generated the highest earnings ($242 million after extraordinary items) ever last year.

A few years ago, debt-servicing charges on the company’s massive debt load translated into a sea of red ink for Cominco which was then controlled by Canadian Pacific Enterprises. But Cominco, which is now controlled by a consortium led by Teck Corp. (TSE), has managed to reduce that debt considerably to its present level (end of first quarter) of $285.5 million, “a reduction of $57 million since year-end,” Hallbauer emphasized.

“Our return on sales and assets has improved dramatically as a result of disposing of low return assets and closing non-profitable operations,” and he commented that “strong metal prices have meant that debt has continued to decrease despite heavy capital expenditures on new mines and smelter modernization.”

Cominco’s main product, zinc, averaged 56.8 cents (US) per lb in 1988, compared to 36.2 cents a year earlier and 1989 earnings should benefit from prices that are “considerably higher than last year’s average,” he emphasized. Copper is now a very important product line for the company vis-a-vis its 50% interest in the Highland Valley Copper project in southern British Columbia. Copper averaged $1.18(US) per lb last year compared to a peak of $1.68 in 1989. The price has since fallen off to about $1.25.

He suggested at the meeting that the lower gold price, the high failure rate for new gold mines, and changes to flow-through share financing will make it impossible to “finance exploration on our properties through junior companies to the same extent as in the past.” He added, “We may be returning to the era in Canada when junior companies do grassroots exploration and turn to the larger companies for senior financing.”

After the meeting, he argued there was no incentive to invest in mining stocks with the capital gains tax set at 75%. “This is one reason why investors are out of the market,” he stressed.

Hallbauer said the first concentrate shipments from Cominco’s Red Dog deposit in Alaska will be shipped to Trail, B.C., in July 1990.

Responding to a question on the SNIP gold project in northwestern British Columbia, he said the feasibility study hadn’t been completed yet, but production costs should be less than $250 per oz.

Mine development might not proceed until next year because of delays in obtaining environmental permits. Cominco is having trouble with the economics of meeting the government’s environmental standards for a proposed cyanide plant so it may ship out gold in concentrate form instead.

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