Falco boosts earnings in first quarter

Stronger metal prices and sales volumes pushed Falconbridge (FL-T) to a higher perch during the first quarter.

Net earnings topped $60.5 million (or 32 per share) in the three months ended March 31 as revenue soared to $719.4 million, compared with a profit of $22.7 million (11 per share) on $525.6 million in the corresponding period of 2002, when metal prices and sales volumes were lower.

Similarly, cash flow jumped to $140.9 from 112.4 million, and Falco expects the trend to continue, given its rosy forecast for nickel prices and production.

Operating expenses kept pace with production, but other costs, such as depreciation and amoritization, fell, boosting Falco’s operating margin to 13% from 5%. The biggest contributors were the Integrated Nickel Operations (the Sudbury operations, the Raglan mine in Quebec and the Nikkelverk refinery in Finland) and the Collahuasi mine in Chile, of which Falco owns 44%.

Net of byproduct credits, INO’s consolidated cash costs rang in at US$2.16 per lb. nickel, or US47 higher than a year earlier. A stronger loonie and higher electricity rates in Ontario are two reasons for the increase.

As Falconbridge President Aaron Regent explains, another reason is that crews were unable to gain access to a high-grade zone that ran about 2% nickel, causing overall grades at the Sudbury mines to fall. “However, that’s all behind us,” he adds.

The delay accounted for US19 of the increase.

Collahuasi’s costs actually dipped to US34 from US38 per lb. copper.

The Falcondo ferronickel operation in the Domincan Republic recorded an operating profit of $7 million despite the recent surge in oil prices. A year earlier, the operation posted an operating loss of $15 million, owing partly to weaker metal prices and a 6-week shutdown.

The Lomas Bayas copper mine produced and sold fewer tonnes, but this was offset by higher realized copper prices. Operating income remained unchanged, at $9 million, as did cash costs (virtually), at US$45 per lb.

The Kidd Creek division in Timmins, Ont., remains mired in red ink, having incurred an operating loss of $21 million, equivalent to the loss posted for the first quarter of 2002. Cash costs jumped 73% to US97 per lb. copper, net of zinc credits, owing partly to higher electricity rates.

“The cost picture was a mixture of pluses and minuses,” says Regent. “Cost containment and reduction will continue to be a priority for the balance of the year.”

Falco’s mined metal volumes were as follows: 12,961 tonnes nickel (versus 14,142 tonnes in the first quarter of 2001); 6,887 tonnes ferronickel (3,102 tonnes); 78,562 tonnes copper (81,270 tonnes); 21,172 tonnes zinc (25,630 tonnes); and 1.8 million oz. silver (1.7 million oz.). Refined production rang in at 27,450 tonnes nickel (20,159 tonnes in the year-earlier quarter), 66,928 tonnes copper (63,186 tonnes) and 37,935 tonnes zinc (37,785 tonnes).

Exploration

In exploration news, Falco is nearly finished a program of infill and delineation drilling at the Nickel Rim South deposit in Sudbury. A recent hole cut 26 metres of footwall mineralization grading 6.14% nickel and 23.62% copper, plus 4.9 grams platinum, 6.4 grams palladium and 3.9 grams gold per tonne.

“We are now looking at the program to see what should be done,” says Paul Severin, vice-president of exploration. “There will be some more additional drilling, but we’re getting close to the point where I think we have enough information to determine the deposit’s size and geometry.”

Results from hole MAC-104A are not excluded from the known inferred resource, being some 30 metres away and updip. At last report, Nickel Rim South hosted some 6.3 million tonnes grading 1.7% nickel, 3.4% copper and 0.03% cobalt.

Once drilling winds down in June, Falco will decide whether or not to proceed underground.

At Fraser Morgan, in Sudbury, two diamond drills are turning on the 3,900-level, and results to date suggest current tonnage estimates are conservative. A new estimate will be released mid-year.

Similarly, the Montcalm feasibility study is nearing completion, but permitting will require a few months. Situated near Timmins, the deposit hosts an indicated resource of 7 million tonnes grading 1.36% nickel, 0.67% copper and 0.06% cobalt, plus an inferred resource of 700,000 tonnes at 1.7% nickel, 0.7% copper, and 0.07% cobalt.

Falco has submitted an application for a freshwater dam at its advanced Koniambo project in New Caledonia. The bankable feasibility study is scheduled for completion in September.

Falco spent $97 million on capital projects in the quarter and expects to have spent $600 million by year-end. The largest chunk is going to the Collahuasi mine, followed by the Mine D project at Kidd Creek.

At March 31, Falco had $761 million in working capital.