Cominco posts stellar results

Aided by the recent rally in base metal prices, Cominco (CLT-T) roared back into the black during 1999, ending a 2-year downturn that had battered its bottom line.

The major zinc producer earned $131 million (or $1.54 per share) on revenue of $528 million in its latest quarter, ended Dec. 31, compared with a loss of $12 million (14 per share), on sales of $489 million in the corresponding period of 1998.

For the full year, Cominco reported earnings of $159 million ($1.86 per share) on revenue of $1.65 billion, compared with a loss of $23 million (27 per share) on revenue of $1.63 billion in 1998.

The growth in earnings was driven not only by improved metal prices, but by a $68-million improvement in operating profit ($61 million from zinc operations), $70 million of tax benefits and interest income, and an $18-million reduction in expenses.

Cominco ended the year with working capital of $428 million. Its net debt stood at $630 million, down 36% from $820 million a year earlier.

Cominco President David Thompson says the company plans to open up its wallet for capital improvements this year. “We think we’ll probably spend about $54 million on the Trail smelter, $40 million on the Red Dog mine and $15 million on the Highland Valley copper mine,” he estimates.

Cominco also hopes to place its Pend Oreille project into production by the first half of 2002, assuming permitting is in hand by the end of March. The zinc-lead mine is near Metalline Falls, Wash. At full production and on an annual basis, it is expected to produce 50,000 tonnes of zinc contained in concentrate.

Improved zinc prices were the biggest boon to the company’s bottom line in 1999. The average price rose 23% to 53 per lb. in the 1999 fourth quarter from 43 a year earlier.

The Red Dog zinc-lead mine in Alaska contributed an additional $40 million of profits, whereas the Trail smelter complex in British Columbia contributed an additional $9 million, over results achieved a year earlier.

Red Dog produced a record 944,000 tonnes of zinc concentrate for the full year, with 244,100 tonnes of zinc concentrate and 33,300 tonnes of lead concentrate produced in the fourth quarter. This compares with 224,000 tonnes of zinc and 31,000 tonnes of lead during the corresponding period last year.

Cominco recently initiated an optimization program designed to bring the mill at Red Dog up to its full operating potential. Once completed, it will allow the mine to produce 1.1 million tonnes of zinc concentrate per year at a grade of 56%.

On the exploration front, Cominco plans to accelerate its spending this year, particularly near Red Dog. “Our exploration budget for 2000 will be somewhat higher than last year, at around $28 million,” says Thompson.

Of that total, about $9 million will go towards exploration at Red Dog. Another $2 million to $3 million is slated for Arctic exploration near the Polaris mine, with a similar amount allocated for the Bongara zinc project in Peru.

This summer, a major exploration effort will begin to follow up encouraging results from a discovery 6 miles north of the Red Dog mine. Highlights of last year’s work included hole 810, which returned 240 ft. grading 20% zinc and 5% lead, plus 4 oz. silver per ton.

To date, Cominco has drilled nine holes on 400-ft. centres to test the new discovery, with only one miss. Two more holes were stopped short of their targeted depth and will be completed when drilling resumes. Significant flat-lying zones of zinc-lead-silver mineralization were encountered in an area measuring roughly 1,300 by 1,200 ft. The mineralization remains open to the northeast, northwest and southwest.

At Trail, the Kivcet lead smelter operated at an average design capacity of 87% during the fourth quarter. This includes an 8-day shutdown that occurred as a result of an oxygen plant outage in October. (The smelter performed at 89% of design capacity during the fourth quarter of 1998.)

The Cajamarquilla zinc refinery near Lima, Peru, set a second consecutive quarterly production record, producing 32,200 tonnes of refined zinc in the fourth quarter, compared with 30,300 tonnes in the corresponding period a year ago. For the entire year, Cajamarquilla cranked out 122,400 tonnes — an 8% increase from the 113,300 tonnes produced in 1998.

Quarterly production at Cominco’s 77.5%-owned Polaris mine fell to 49,000 tonnes of zinc concentrate and 9,100 tonnes of lead concentrate from 50,600 tonnes of zinc concentrate and 12,300 tonnes of lead concentrate in the corresponding period of 1998. The lower production is primarily the result of lower ore grades during the period.

Full production was resumed by mid-October at the Highland Valley copper mine near Kamloops, B.C. Highland Valley Copper is a partnership controlled 50% by Cominco, 33.6% by Rio Algom (ROM-T), 13.9% by Teck (TEK-T) and 2.5% by Highmont Mining. Copper concentrate sales during the fourth quarter were 46% below year-ago levels.