Falconbridge profit, but cloud hovers

While something of a Caribbean cloud now sits over the company, Falconbridge Ltd. last year achieved a major upturn in its fortunes, recording a profit before extraordinary items of $29.7 million, or 42 cents a share.

In 1986 the company took a loss to the tune of $15.5 million, but a rapid rise in nickel and copper prices in the second half of 1987 and higher sales volumes, led to the greatly improved profit picture in the latest period.

Revenue strengthened to $1.3 billion from $1.21 billion, and adding a gain of about $43 million from sale last year of the company’s interest in Western Platinum, Falconbridge finished out 1987 with a profit of $73.1 million, or $1.03 a share.

The profit surge was most marked in fourth quarter 1987, when it soared to $43.2 million, or 62 cents a share, from $6.1 million, or 10 cents a share in the previous year. Revenue in the latest quarter climbed to $434 million, from $284 million.

It’s this brighter profit picture, in fact, that seems to be at the root of the company’s current problem with its big ferronickel-producing subsidiary, Falconbridge Dominicana C. por A. (Falcondo, as it’s known), in the Dominican Republic, the Caribbean nation sharing an island with Haiti.

Last November, the government of the Dominican Republic, led by President Joaquin Balaguer, announced it was imposing a 25% export duty on the ferronickel output of Falcondo, the world’s second biggest ferronickel producer, with annual production of around 70 million lb of nickel in ferronickel.

Caught by surprise, after 16 years of ferronickel production free of any kind of export duty, or even, by original agreement with the Dominican government, taxation on anything other than net income, Falconbridge at first halted shipments from the mine.

It continued to produce the product, however, and has resumed shipping to its customers worldwide (three shiploads have gone out this year), while it continues negotiations with the Dominican government on possible revisions to the original agreement with that country.

To show the company’s good faith, in fact, a Falconbridge spokesman tells The Northern Miner, the company has a made a $2-million(US) payment to the Dominican government, to be applied against future taxes.

In the meantime, while the burden of the company’s negotiations with the government remain largely at the moment with Falcondo President J. T. Clelland, it’s hoped that a meeting can soon be arranged with President Balaguer, involving both Falconbridge Chairman William James, and former Falconbridge President Marsh Cooper, who negotiated the original agreement with Balaguer.

At presstime, though, such a meeting had yet to be arranged.

In 1972, at the time of the inaugural ceremonies for the big ferronickel complex, President Balaguer in a ceremony at the presidential palace plainly intended to show the country’s satisfaction with Falcondo’s presence there, presented Cooper with the Order of Merit of Duarte, Sanchez and Mella, the highest decoration that can be bestowed by the Dominican government. Gratitude set aside

The country’s gratitude now however, appears to have been set aside in its pursuit of a pound of flesh from the ferronickel operation, particularly since it’s likely to be profitable on strengthened nickel prices. “There was a profit at Falcondo in 1987, the first since 1979,” the Falconbridge spokesmen said, although final figures are not yet available.

In 1986, Falcondo contributed about 11% of the consolidated revenues of parent Falconbridge, leading the spokesman to note that while the Dominican government’s move, until resolved, would have an impact on over-all Falconbridge profit, it would not be a big impact. Falcondo is an important core business unit for Falconbridge, he acknowledged, but “not the be-all and end-all.”

He took strong exception to published reports that the Dominican government claims little benefit to the country from the Falcondo operation other than wages to its 1,300 workers.

It was the biggest industrial project ever built in that country, he said, and its benefits there have been incalculable, financial and otherwise. He instanced the building of infrastructure and roads, the operation of schools, and even the supply of hydro power that goes into the national Dominican power grid from the big power plant at Falcondo.

He said everyone at Falconbridge, including Chairman James, is optimistic that there will be a quick solution to the Dominican situation.

As Clelland said, “We’ve always said that renegotiation of the contract — with the Dominican Republic — would have to come as soon as our results got better. But we want to do it by negotiation, not by decree.”