Falconbridge ends 2001 on a sour note

Falconbridge (FL-T) incurred a consolidated loss of $20.5 million (or 13 per share) for the last three months of 2001 thanks to lower average realized prices for the company’s bread-and-butter metals.

The loss compares with year-ago profit of $40.9 million (21 per share), which included an after-tax expense of $30.6 million associated with the strike at the company’s Sudbury operations. Revenue during the three months ended Dec. 31, slipped by $75.8 million to $513.7 million from a year earlier. The latest quarter’s operating loss of $28.1 million compares with operating income of $57 million in the corresponding period the previous year.

During the quarter, cash flow from operations was $91.7 million, up from $79.1 million in 2000. Nickel prices fell 34%, while copper prices were 24% lower, zinc prices fell by 30% and cobalt prices were off by 43%.

The fourth-quarter loss brought the company’s consolidated earnings in all of 2001 to $16 million (2 per share) on revenue of $2.1 billion, compared with earnings of $368.3 million ($2.01 per share) on $2.6 billion in 2000. Operating income between the periods plummeted $509.6 million to $26.1 million. Cash flow from operations tallied to $354.4 million, down from $657.4 million in 2000.

During 2001, Falconbridge averaged US$2.79 per lb. for its nickel, well off the US$4.09 per lb. realized in 2000. Realized prices for copper, zinc and cobalt fell by 17%, 20% and 30%, respectively. Higher sales volumes more than offset lower average realized prices for precious metals, with revenues climbing by $37.7 million.

The company’s fourth-quarter refined nickel production totalled 22,328 tonnes compared to 17,160 tonnes a year ago. Copper production hit 65,061 tonnes, up from 47,097 tonnes. In all of 2001, Falconbridge produced a total of 89,883 tonnes of refined nickel and 205,428 tonnes of refined copper, both higher than the previous year.

The Sudbury operations continued to recover from the strike with nickel production climbing by more than 6,000 tonnes to 8,200 tonnes. Full production resumed in February.

Nickel production from the Nikkelverk refinery in Norway is expected to hit 76,000 tonnes during 2002 with new long-term custom feed contracts and increased feed from the Sudbury smelter. During 2001, Nikkelverk’s production tapered off to 68,200 tonnes owing mostly to the strike in Sudbury.

Falconbridge’s CEO Oyvind Hushovd said, “Metal prices fell continuously during last year due to weak demand and seem to have hit their cyclical lows during the last quarter of the year. Since then, prices have improved as a result of market expectations of healthier demand later this year.”

Falconbridge also said that it has dropped the Gag Island nickel laterite project in Indonesia by allowing a June 2000 joint venture agreement with BHP Billiton (BHP-N) to lapse. The company cites actions by the Indonesian government to protect forests and ban open-pit mining in the area, which led to a suspension of the project, as a reason for the termination. Falco had the right to earn a 37.5% interest by spending US$75 million. BHP Billiton is reviewing its options for Gag Island.

At the end 2001, Falconbridge’s cash resources stood at $198.3 million. The net debt to net debt plus equity ratio increased to 42% from 34% with the addition of the Lomas Bayas debt, the impact of lower metal prices and the Sudbury strike.

Falco’s board has declared dividends of 10 per share, payable Feb. 25, 2002, to shareholders of record Feb. 11, 2002 and of 2 per preferred share (series 1), payable Mar. 1, 2002 to shareholders of record Feb. 15, 2002. For series 2 preferred shares, a dividend of 36.72 per share is payable on Mar. 1, 2002 to shareholders of record Feb. 15, 2002.