High interest rates, low prices make 1990 `a disappointing year”

Any way you look at it, the year 1990 will not be remembered fondly by many Canadian mining companies that have seen their profits plunge in the wake of falling metal prices, high interest rates and recession. Management at Noranda (TSE) described 1990 as “a disappointing year” in terms of that company’s financial performance. Last year, Noranda’s profit fell 73% to $120 million, down dramatically from $442 million in 1989. The steep decline was tied to a variety of factors, including difficult market conditions in the company’s beleaguered Forest group, combined with lower metal prices, strikes and the North American recession.

The outlook for this year’s profit picture isn’t expected to be much better either. “With a recession in North America, slower growth in Europe and Asia and uncertainty in the Middle East, demand for most of Noranda Minerals’ products in 1991 is expected to be weaker,” the company said.

At Falconbridge, equally owned by Noranda and Trelleborg of Sweden, net profit fell to $91 million last year, down sharply from $357 million a year earlier. The company blamed lower nickel and zinc prices coupled with higher depreciation charges for the decline.

The recession has also taken a heavy toll on other senior base metal producers including Inco (TSE) which last year saw its net earnings drop to US$441 million, down sharply from a record $753 million a year earlier. As well, production problems and lower metal prices cut Cominco’s (TSE) annual profit by 74% to $54 million. That compares with $214 million a year earlier. The company was plagued by a series of problems at its lead smelter and zinc refinery in Trail, B.C. A brief comparison of 1990 profit figures for several senior mining companies is presented below: Company Annual Profit (Loss) $million 1990 1989 Inco (US$) 441 753 Placer Dome 191 125 Noranda 120 442 Falconbridge 91 357 Teck Corp. 90 106 Rio Algom 87 73 Amer Barrick (US$) 58 33 Cominco 54 214 Cameco 34 23 BP Canada 29 18 Hudson Bay 16 46 LAC Minerals (US$) (64) 30 Echo Bay (US$) (60) 16 Denison (291) (3.3) But not all major mining companies reported lower earnings in the wake of the recession. Despite the decline in the North American economy during 1990, Rio Algom (TSE), 51.5% owned by London-based RTZ, saw its profit climb 19% to $87.3 million last year. The 1990 results included a $11.9-million gain on the earlier sale of Rio’s steel operations. The company has also declared a special dividend of $6.25 per share which represents proceeds from the 1989 sale of its steel manufacturing operations. After paying the special dividend, Rio will still have in excess of $70 million in cash. The company is concentrating its future activities on the mineral resource sector by beefing up its exploration and mine development activities in Canada and the U.S.

Among the senior gold producers, American Barrick Resources (TSE) enjoyed a banner year in 1990 despite a decline in the average gold price. The company reported a 73% increase in its annual profit to US$58.2 million, up from US$33.7 million a year earlier. Barrick’s strong performance reflects the success of its extensive hedging program and expanding output from its Goldstrike mine in Nevada.

Placer Dome also achieved increased earnings and record revenues last year after it began producing from two new gold mines and sold off its oil and gas operations. Placer’s 1990 profit rose to $191 million, up significantly from $125 million in 1989.