Union workers at Canada’s largest copper mine, Highland Valley Copper, near Kamloops, B.C., have voted 86% in favour of a 5-year offer that ties wages to the price of copper.
The deal ends a stalemate between union officials and mine management that began in mid-May. Trevor Phelps, spokesman for Highland Valley Copper (HVC), describes the agreement as an “innovative and ground-breaking contract.”
HVC is a partnership controlled 50% by
The struggling mine reported a loss of $10 million for the first quarter of 1999. Production totalled 1.3 million lbs. over the first four months of the year, until operations were suspended. The cash production cost averaged US68 cents per lb., which is high by industry standards.
During previous talks, under the direction of Eric Van Soeren, the province’s job protection commissioner, HVC was able to negotiate cost reductions from its suppliers and the provincial government.
However, HVC and unionized workers failed to reach a sliding-scale agreement that would connect wages to the price of copper. Labour costs amount to about 40% of operating costs at the operation.
Brian Foley, associate chairman of the province’s Labour Relations Board, was instrumental in brokering the new deal, which allows HVC to reduce its operating costs at times of low copper prices through discounts on wages, electricity and supplies. In addition, premiums will be paid when copper prices improve above specified levels.
The labour package included a signing bonus of $2,000, to be paid in three stages over three years, as well as pension improvements and a 15% maximum fluctuation on wages based on the price of copper.
HVC has agreed to keep the mine operating for the life of the agreement, provided copper prices stay above US60 cents per lb. The mine will likely be operating at full capacity by late October. At last report, HVC had reserves of 417 million tonnes grading 0.42% copper and 0.0087% molybdenum. In 1998, the mine produced 170,000 tonnes of copper-in-concentrates, representing 1.5% of global demand.
In related news, Rio Algom has decided to write down the carrying value of four separate projects: the 25%-owned Alumbrera copper-gold mine in Argentina; the 29.1%-owned Bullmoose coal mine in British Columbia; and the wholly owned Smith Ranch uranium mine in Wyoming and advanced Nicolet zinc-copper deposit in Wisconsin. The reduction, totalling $293 million before taxes ($214 million, or $3.55 per share, after taxes), follows an across-the-board review that began in late 1998. The writedown will be reflected in the current quarter’s results as a one-time, non-cash adjustment.
“In view of the volatility in commodity prices and our policy of conservative financial management, we think this is a prudent step for Rio Algom,” says company president Patrick James. “We think we’ve thoroughly cleaned house here and do not foresee any need for additional writedowns at our other operations.”
Just over 42% of the amount is associated with Alumbrera (now valued at $267 million) and reflects a 27% decline in reserves there, to 460 million tonnes. The carrying values of both Bullmoose and Nicolet are being reduced to zero, with Smith Ranch to retain a value of $22 million.
Rio does not expect to receive permits for the Nicolet project until 2002. In the meantime, any expenses incurred at the site will offset changes in annual amortization charges against Smith Ranch and Bullmoose.
James says the adjustments will not affect any other aspect of the operations, such as ongoing production and costs; nor are they expected to affect the major’s credit rating or debt agreements.
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