Cominco boosts Teck earnings

Teck (TEK-T) has posted a healthy third-quarter profit, buoyed by the contribution from its equity stake in base metal major Cominco (CLT-T).

Teck earned $12 million (or 11 cents per share) on revenue of $154.9 million during the period, compared with $2.1 million (2 cents per share) on $190.1 million in the corresponding period last year.

Teck’s 40.4% equity stake in Cominco paid off as the major raked in equity earnings valued at $11 million, compared with an equity loss of $5 million a year ago. The improvement is related to the price of zinc, which surged from US46 cents per lb. at the beginning of the quarter to US53 cents at the end. Adding to Cominco’s profitability was a strong performance by the Trail smelter in British Columbia, where the Kivcet lead smelter operated at 95% capacity.

Teck’s overall earnings totalled $700,000, down from $7 million a year ago, whereas cash flow from operations amounted to $21 million, compared with $35 million.

Teck attributes the decrease in operational profits to its coal operations. The company earned $483,000 (before depreciation charges) from coal, compared with a profit of $14 million a year ago. Lower prices and lower sales volumes (a result of cutbacks in the Japanese steel industry) left the coal division with cash operating profits of $483,000, compared with $14 million in the third quarter of 1998.

“We are focusing all possible resources on the cost side, to retain our operating margin,” says John Taylor, Teck’s senior vice-president and chief financial officer. “To regain total profitability, we will require higher [coal] prices.”

Production rates at the Elkview mine and the 61%-owned Bullmoose mine, both of which are in British Columbia, totalled 915,000 tonnes in the recent 3-month period, substantially lower than the 1.1 million tonnes produced a year ago.

In late September, gold prices increased by US$70 per oz. TeckGold, a wholly owned unit, reported a mine operating profit (before depreciation) of $24.5 million — an increase of 10% over the year-ago quarter.

Gold production between the two periods rose to 133,182 oz. from 120,788 oz. The increase is mainly due to the Tarmoola mine in Western Australia, which cranked out 56,418 oz. at a cash cost of US$181 per oz., compared with 44,887 oz. at US$193 per oz. a year ago.

The Tarmoola reserve was upgraded to 32.5 million tons grading 0.064 oz. gold per ton, equivalent to more than 2 million contained ounces — a 72% increase over previous estimates..

At the Carosue Dam project, south of Tarmoola, work continued on a bankable feasibility study. Probable reserves for three deposits stand at 16.5 million tonnes in total grading 1.96 grams, equivalent to just over 1 million contained ounces.

Closer to home, at the Williams and David Bell mines in Hemlo, Ont., total production in the third quarter amounted to 75,817 oz. — an increase of 2,407 oz. over year-ago figures. Cash costs, meanwhile, dropped by 7% to US$180 per oz.

TeckGold’s average cash operating cost rang in at US$181 per oz., down from US$193 per oz. a year ago. The company’s average realized gold price rang in at US$312 per oz. — US$12 lower than in the third quarter of 1998.

The company maintained a conservative hedging policy where all its contracts, including sold call options, were consistent with its forecast production. TeckGold does not have any hedge positions that are subject to margin calls.

In exploration news, Teck completed infill drilling on the L1 and L2 gold zones at the Pogo project in Alaska (see separate report, page 11).

Teck’s copper production dropped to 20 million lbs. during the third quarter, down from 32 million lbs. a year ago. The shortfall reflects a 4-month shutdown at the Highland Valley copper mine in British Columbia. The recent improvement in copper prices helped compensate for the lower production, with realized prices averaging US82 cents per lb., compared with US79 cents per lb. last year.

Farther afield, at the Antamina zinc-copper project in Peru, development is progressing, with half of the engineering work now complete. The estimated cost of development stands at US$2.3 billion.

The project is a partnership between Rio Algom (RIO-T) and Noranda (NOR-T), each of which holds a 33.7% interest. The remainder is divided between Japan-based Mitsubishi, with 10%, and Teck, with 22.5%.

Teck’s working capital on Sept. 30 was $332 million, including $263 million in cash. Long-term debt, excluding Teck’s exchangeable debentures in Inco (n-t), was $438 million, or 19% of total capitalization.

On an annual basis, Teck is producing about 500,000 oz. gold, and, following the completion of various development projects, this could increase to 750,000 oz.