The doors of the Highland Valley copper mine in southern British Columbia remain closed, following an unsuccessful attempt by the owners to reach an agreement with unionized workers.
Highland Valley Copper (HVC) is a partnership controlled 50% by
“We want a long-term solution so that we can bring the mine on and run it uninterruptedly, unless there is a real disaster in the copper market and we see a period of copper prices below US60 cents,” says Cominco President David Thompson. “We don’t think the short-term fluctuations in the copper price we have seen in the last few months is a basis for restarting.”
HVC has negotiated cost reductions from its suppliers, the utilities and the provincial government. The mine has been closed since mid-May. Maintenance costs, including winterization preparations, are estimated at $2.5 million per month, though these are expected to fall to $1.5 million by October.
Cominco incurred a second-quarter loss of $7.5 million (or 9 cents per share) on revenue of $310 million, compared with a loss of $8 million (also 9 cents per share) on $362 million in revenue during the corresponding period of 1998. (The loss in the earlier quarter does not include an $11-million after-tax gain on the sale of Global Stone shares.)
The company says lower earnings from the smelter in Trail, B.C., and its two copper operations, plus seasonally low sales from its Arctic mines, all contributed to the loss.
Operations generated cash flow of $15 million (18 cents per share) during the three months ended June 30, 1999, versus $26 million for the year-ago quarter. At last report, the company had $405 million in working capital and a net debt of $757 million, or 35% of net debt plus equity.
Highland Valley Copper contributed a $3-million operating profit to Cominco in the recent quarter, down $5 million from a year ago. Hedging gains on copper forward sales are largely responsible for the profit. The actual operating loss, before the $5 million in hedging gains, was $2 million to Cominco’s account.
Trail’s operating profit during the second quarter was $5 million, down $7 million from a year ago. The smelting and refining operations incurred an additional $5 million in maintenance costs related to a 17-day shutdown of the oxygen plant and Kivcet lead smelter. These costs included $2.5 million in modifications.
Trail was also affected by a $6-million decline in contributions from the sale of its ammonium sulphate fertilizer. The price of the ammonium sulphate was off 25% from a year ago at $165 per tonne. The second quarter accounts for about half of the total fertilizer sales for the year. Despite the April shutdown, Kivcet operated at 74% of design capacity in the second quarter of 1999, compared with 44% last year.
Cominco recently reached an agreement through a mediated settlement with its unionized workers at Trail. The workers will receive a wage increase of 1.5% per year and a further $3 per month in pension benefits over a 2-year contract.
The Red Dog zinc mine in northern Alaska had an operating profit of $8 million, double that of a year ago, even though revenue had fallen to $32 million from $46 million. The mine produced 220,000 tonnes of zinc concentrate and 42,800 tonnes of lead concentrate during the recent quarter, representing an 18% increase in zinc production and a 50% increase in lead production over the first three months of 1998. The increase is due to a US$200-million project that achieved annual design capacity of 900,000 tonnes of zinc concentrate in the fourth quarter of 1998.
Second-quarter production was down about 6% against the first quarter, as some mill capacity was lost as a result of re-lining. Cominco expects production will be 225,000 tonnes for the third and fourth quarters — possibly higher once a new crusher is installed.
Red Dog ships its concentrate out by sea during a 3-month window in the summer months. The 1999 shipping season began in mid-July, a week later than usual.
The 77.5%-owned Polaris mine in Canada’s Far North produced 44,300 tonnes of zinc concentrate and 9,900 tonnes of lead concentrate for the three months ended June 30, similar to the levels achieved in the year-ago period. Concentrate shipments are expected to total 250,000 tonnes zinc and 60,000 tonnes lead. Polaris broke even for the quarter, compared with a $1-million operating profit a year ago.
The company’s 47.25%-owned Quebrada Blanca copper mine in northern Chile broke even during the recent period, as it did last year. Higher sales of copper and lower cash costs helped offset the reduction in copper prices without any deterioration in profitability.
The Sullivan mine in southern British Columbia suffered an operating loss of $6 million, versus a $3-million loss a year ago. Lower metal prices and higher costs associated with development work contributed to the loss. Cominco also wrote down $1.5 million of the existing lead inventory as a result of lower lead prices. Sullivan produced 50,500 tonnes of zinc concentrate and 14,500 tonnes of lead concentrate during the quarter.
The 82%-owned Cajamarquilla zinc refinery in Peru generated an operating profit of $7 million for the quarter, compared with $5 million a year ago. The go-ahead for the second stage of an expansion project, to 240,000 tonnes per year, was deferred until 2000. Arrangements for financing and power supply remain in place. The project could be constructed within 21 months of a decision date.
In terms of development-stage projects, the permitting of Pend Oreille, near Metalline Falls, Wash., is expected to be completed early next year; the project is due to come on-stream in the first half of 2002. Proven and probable reserves are estimated at 5.5 million tonnes grading 7.2% zinc and 1.3% lead. An additional 500,000 tonnes grading 4.4% zinc and 0.7% lead are inferred. Pend Oreille is just 70 km by road from the Trail operations.
“We have another eight orebodies that could be developed,” says Thompson, adding that zinc prices need to increase substantially before any such work is carried out. “I think most average orebodies need US60 cents zinc to justify [development].”
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