Higher production, lower costs and rebounding metal prices translated into a better-than-expected first quarter for
The major earned $20.4 million (or 10 per basic and fully diluted share) on revenue of $525.6 million in the first three months of the year, compared with $4.6 million (1 per share) on $532.5 million in the comparable period of 2001.
“The high production levels we achieved in the latter part of 2001 continued during the first quarter, and nickel prices recovered faster than expected,” says Chief Financial Officer Lars-Eric Johansson. “We are increasingly optimistic about the outlook for copper and nickel.”
Nickel rose almost US50 per lb. over the quarter, while copper appreciated US8. Nevertheless, Falconbridge realized 11% less for its nickel output, at US$2.84 per lb., and 4% less for its copper production, at US74 per lb.
Falconbridge’s nickel operations contributed $24.5 million to earnings, compared with $2.1 million a year ago. The increase reflects a full quarter’s worth of production from the Sudbury smelter, where production volumes returned to normal levels last summer, following a strike earlier in the year.
Copper operations added $21.2 million to gross profits, but still $8 million short of the comparable quarter of 2001. Lower metal prices are to blame, as the major cranked out considerably more of the red metal in the recent quarter, owing to the acquisition of the Lomas Bayas operation, in Chile, last summer.
Falconbridge’s production volumes include: 17,244 tonnes nickel (versus 15,987 tonnes in 2001); 81,270 tonnes copper (58,416 tonnes); 25,630 tonnes zinc (12,960 tonnes); and 1.2 million oz. silver (307,000 oz.). The rise in copper output reflects the addition of Lomas Bayas and the resumption of normal operating levels at Sudbury.
Comparable refined metal production was up as well, at 20,159 tonnes nickel and 63,186 tonnes copper. The increase partially offset the lower realized metal prices.
Falconbridge continues to integrate its operations with
“It is Falconbridge that has expertise in nickel, and that focus will not change,” he says. “In copper, we will work jointly with Noranda to gain better value and opportunities for both companies.”
New approach
To address concerns about conflicts of interest, Falconbridge has developed a policy on corporate governance and posted it on its web site. Also, Pannell has visited several institutional investors to explain the new approach.
“On the whole, in terms of what we are doing, the reaction [has been] quite positive,” he notes. “People see the consolidation that is taking place within the industry and, I think, are generally supportive of the cost-savings and opportunities we believe we can generate.”
Noranda owns 57% of Falconbridge and has noted its intention to increase this via the open market.
On the exploration front, Falconbridge has budgeted $34 million for its various properties. A portion is earmarked for Sudbury, where the company is following up the Nickel Rim South and Fraser Morgan zones.
Discovered last fall, Nickel Rim South has since been tested by three surface holes and five others wedged off the original, historic hole. Seven of the newer holes pulled up mineralization as thick as 73 metres and carrying over 8.5% nickel and 12.98% copper.
The zone actually represents two separate areas of mineralization: one in the contact layer of the Sudbury complex and another in the footwall rocks, about 100 metres in. Platinum, palladium and gold are far more abundant in the footwall zone, averaging several grams over reported intervals.
By June, Falco plans to have wedged six more holes off the original surface hole.
Resource estimate
“At that point, we’ll have enough information to complete a mineral resource estimate and a preliminary economic evaluation,” says Paul Severin, vice-president of exploration. “If positive, the next logical step is to proceed with an underground exploration program.”
The proposed underground program would cost about $75 million and take three to four years to complete. The timetable may be reduced by a year should Falconbridge and
“Already, we are working with Inco at many levels,” says Pannell. “If at all possible, I think that needs to be expanded to larger, more strategic projects.”
The Fraser Morgan zone was discovered in 1996, about 1.6 km southeast of the Fraser mine, from where it is now being delineated by underground drilling. The best interval obtained from drilling measures 63.8 metres and averages 2.6% nickel and 0.5% copper, prompting Severin to suggest that the zone may be equivalent in size to the Fraser orebody.
On March 31, Falco had $264.2 million in cash or equivalents, of which nearly $66 million was raised during the previous three months. The company assumed another $129 million in long-term debt, raising its net-debt to debt-plus-equity ratio to 43%.
“This is higher than we would have liked it to be,” says Johansson. “But we believe that, with today’s metal prices and our planned capital-expenditure progress, the tide has turned, and we might be able to lower the ratio over the year.”
On May 15, Falco will pay a dividend of 10 per share and, on June 1, a dividend of 2 per Series 1 share and 36.72 per Series 2 share.
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