Falconbridge in red, suspends Falcondo (October 22, 2001)

Low base metal prices have forced Falconbridge (FL-T) to suspend production at its Falcondo operations in the Dominican Republic.

The 3-month shutdown took effect Oct. 21, with the 2001 production forecast revised downward to 21,000 tonnes of ferronickel.

Falcondo incurred a loss of $4.7 million during the three months ended Sept. 30, compared with earnings of $8.7 million in the corresponding period last year. The results reflect lower ferronickel prices, lower sales volumes and a writedown of inventory.

Falco’s entire third-quarter earnings statement was hit hard by low prices for nickel, copper and zinc, which have declined, year-over-year, by 31%, 32% and 28%, respectively.

For the third quarter, Falco suffered a net loss of $23.9 million (or 15 per share) on revenue of $552 million, compared with a year-earlier profit of $55.1 million (30 per share) on revenue of $605 million.

During the first nine months of 2001, the profit shrank to $36.5 million (16 per share), compared with $327.4 million ($1.80 per share) a year earlier; revenue fell almost $400 million to $1.62 billion between the two periods; cash generated from operations fell to $262.7 million from $578.2 million in the same nine months of 2000; and operating income dropped to $68 million from $475 million.

Falco President Oyvind Hushovd says the quarterly loss was “a disappointment” and that the company is reviewing its capital-expenditure programs and looking to cut costs. Capital expenditures for 2001 are forecast at $360 million, of which $215 million has already been spent.

The company reported relatively strong performances from its nickel operations in Sudbury, Ont., and in Raglan, Que.

There were some setbacks at the Kidd division in Timmins, Ont. Some of these were the result of ground movement and lower head grades; others stemmed from a furnace run-out at the copper smelter and power costs. As a result of these production disruptions, Kidd’s copper cathode production for 2001 is now expected to be 129,000 tonnes, whereas zinc production is forecast at 140,000 tonnes.

The Collahuasi copper-zinc mine in Chile enjoyed its highest quarterly copper production ever, thanks to improved grades and recoveries.

Still, Falco’s share of Collahuasi’s third-quarter earnings fell to $10.2 million from $26.7 million a year ago, owing to lower copper prices and sales volumes.

Falco and its partners at Collahuasi, Anglo American (AAUK-Q) and a Japanese consortium, completed a feasibility study that looked at expanding the daily milling capacity to 110,000 from 70,000 tonnes. The study is being reviewed by shareholders.

During the third quarter, Falconbridge assumed 100% ownership of the Lomas Bayas copper mine in Chile. The mine is forecast to produce 56,000 tonnes of copper cathode in 2001, increasing the company’s total annual copper output by 20% to more than 300,000 tonnes.

During the quarter, Lomas Bayas achieved its highest quarterly production rate since operations began. Lomas Bayas’s contributions to earnings since the acquisition are a healthy $1.3 million.

At the Koniambo nickel-laterite project in New Caledonia, the company has chosen Vaouvouto as the site for metallurgical facilities and a power plant.

Falco’s board has declared dividends of 10 per common share, payable Nov. 9, 2001, to shareholders of record Oct. 26, 2001, and of 2 per preferred share (series 1), payable Dec. 1, 2001, to shareholders of record Nov. 16, 2001. For series 2 preferred shares, a dividend of 36.72 per share is payable Dec. 1, 2001, to shareholders of record Nov. 16, 2001.

Consolidated cash at the end of the quarter totalled $341.5 million. Total liabilities were $2.9 billion, including current ones of $423 million.