Falconbridge earnings take spotlight

As usual, he appeared to relish the attention that comes with being in charge of the free world’s second largest nickel producer. He posed for the cameras, traded one-liners with a union spokesman and told the Dominican Republic’s visiting finance minister that “he could teach Canadian Minister of Finance Mike Wilson a thing or two about collecting taxes.”

But the irrepressible chairman had little to say about the threat of a takeover by Toronto-based Noranda Inc. (TSE).

In a bid to win control of Falconbridge’s Kidd Creek, Ont., copper- zinc orebody, Noranda bought a 19.9% stake in the nickel miner and promised to increase its position to at least 30%.

When asked how negotiations involving the two companies are progressing, James claimed not to know. He also declined to speculate on a street rumor that Noranda has offered $250 million and the Falconbridge shares it already holds in exchange for Kidd Creek.

Instead, he limited his comments to the highlights of what was a remarkable year for Falconbridge. Thanks largely to strong base metal prices, Falconbridge reported a record profit of $341.1 million or $4.57 per share. That compares with $73.1 million or $1.03 at the same time last year.

Revenues of $2.1 billion for 1988 were almost double the $1.3 billion reported in 1987. A long-term debt load of $761 million was just ahead of the $718.5 million reported at the end of fiscal 1987, even though Falconbridge spent $960 million to buy a 24.7% controlling block of its own shares from Placer Dome Inc. (TSE).

By outbidding Noranda for the control block, Falconbridge increased its long-term debt to over $1 billion. But the debt could be wiped out this year if Falconbridge realizes $4(US) per lb for its nickel output, 95 cents for copper and 60 cents for zinc, James said.

Falconbridge’s debt reduction plans depend to some extent on the outcome of labor negotiations with The United Steelworkers of America, which represents about 350 clerical and technical staff at the company’s Sudbury, Ont., operations. The old agreement expired on March 2 and, if there is no resolution, a strike could be called April 28.

“Negotiations are progressing slowly,” said Rick Briggs, president of Local 590 of the Mine, Milling and Smelter Union. Briggs predicted that the Sudbury operations would be shut down if an agreement isn’t reached.

A strike would affect the East, Fraser, Lockerby, Onaping, Strathcona and Falconbridge mines which contributed about 60% of the nickel and 56% of the copper that Integrated Nickel Operations sold in 1988. Integrated Nickel Operations include Falconbridge’s Sudbury mines, its refinery in Norway and custom feed business.

The Sudbury contract negotiations come nine months after James successfully resolved a dispute with the government of the Dominican Republic over a 25% tax that was levied on Falconbridge’s Dominican ferronickel production.

During 1988, the nickel miner increased its stake in Falconbridge Dominicana C. por A. (Falcondo) to 85.3%. After shipping 32,400 tonnes of contained nickel, Falcondo generated a record $83 million in cash flow and a net profit of $88 million after paying $86 million in cash taxes.

“We view the Dominican Republic as a long-term opportunity for Falconbridge and are exploring there for new deposits,” said James.

Over-all exploration spending is expected to be up 50% this year to $57 million from $38 million in 1987. Capital spending will also increase substantially to $266 million from $165 million last year.

As reported (N.M., Jan 30/89), top priority goes to the Craig mine at Sudbury where the company will spend $280 million to sink a 6.3-m- diameter, 1,430-m-deep ventilation shaft and excavate a 4.5-km underground haulage drift to connect the Craig to the new deep hoisting complex at Strathcona.

With reserves standing at 10-15 million tons grading 2% nickel and 0.9% copper, the Craig mine is expected to account for 60% of Falconbridge’s nickel production by 1993.

Falconbridge is also planning to spend $100 million to develop the No 3 Mine at Kidd Creek, which extends from the 4600 level to the 6800 level. The No 1 and 2 mines at Kidd Creek supplied 135,182 tonnes of zinc metal, 1 99,118 zinc concentrates and 122,329 tonnes copper, which Falconbridge sold in 1988.

As reported (N.M., April 24/89), Falconbridge recently tabled an offer for the 26% stake in New Quebec Raglan Mines (TSE) that it doesn’t already own. The $5.36 per share cash or share exchange offer would make Raglan a wholly- owned Falconbridge affiliate.

Raglan’s main asset is a 12- million-ton, grade 3.11% nickel and 0.79% copper deposit in Ungava, Que. Although $37 million has been spent by Raglan to explore the Ungava property, Falconbridge would have to be sure that nickel prices would remain at $4(US) before developing the deposit.

At the close of fiscal 1988, Falconbridge had a 14% share of the world nickel market compared to the 34% held by Toronto based Inco Ltd.

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