Falconbridge focuses on debt reduction

After promising to turn a profit during the latter three quarters of 1987, Falconbridge Ltd. has begun to deliver. The company recently reported a $2.5-million profit in the second quarter of 1987, before a one-time after-tax premium of $20.3 million paid to purchase and cancel convertible debentures which resulted in a net loss of $17.8 million, or 25 cents per share.

This compares with a loss of $10.1 million or 17 cents per share for the second quarter of 1986.

Revenues for the second quarter of 1987 increased to $319 million from $289.7 million a year earlier. Sales volumes of copper, ferronickel, silver and zinc concentrate were higher but these were moderated by the Canadian dollar strengthening against the U.S. dollar by 4.5% since the start of the year.

Before extraordinary items, the loss for the first six months of 1987 was $33.2 million, or 49 cents per share compared with a loss of $27.2 million, or 48 cents per share, for the same period in 1986.

After including the extraordinary after-tax gain of $44 million, mainly from the sale of its 49% equity interest in Western Platinum, earnings for the 6-month period ended June 30, 1987, were $10.8 million, or 16 cents per share, compared with earnings of $14.8 million, or 26 cents per share for the year earlier period.

Metal prices have generally become more buoyant through 1987 and continued to improve during the second quarter. Nickel continues to be in short supply and on the London Metal Exchange has risen in price more than 35% from $1.60(US) per pound at the beginning of the year to the $2.20 range currently.

Copper demonstrated similar strength with the LME price improving more than 20% from 61 cents per pound at the beginning of the year to more than 75 cents recently. Zinc supplies have been affected by a number of labor disputes. Through the year, the North American producer price of zinc moved from 44 cents per pound to 41 cents and then up to 48 cents .

However, recent increases in base and precious metal prices occurred too late in the second quarter to affect the company’s financial results. During the second quarter of 1987, Falconbridge received $160 million from the sale of eight million common shares. The money was used to purchase from the Canadian Development Corporation and cancel one-half of Falconbridge’s 8.5% convertible debentures. Dome Mines purchased the other half of these debentures.

This year, Falconbridge will raise approximately $20 million for exploration from a flow-through share issue.

A bid to reduce the company’s long-term debt by more than $500 million is continuing to produce results. In the first half of 1987, Falconbridge’s long-term debt was reduced by $354 million to $849 million. At June 30, the debt-to- equity ratio was 37:63, compared with 50:50 on Dec 31, 1986.