NEW FRONTIERS IN MINING — Cominco hurt by low metal prices

It was a tough year for base metal producer Cominco (TSE) and, according to most analysts, 1994 is not likely to be much better.

Year-end results are not yet in, but for the nine months ended Sept. 30, the company lost $123.3 million, compared with a $65-million profit in the same period in 1992. The loss is due to the high operating costs at some of Cominco’s operations, combined with the poor prices the company received for its zinc, lead and nickel products.

The metal markets have, however, undergone a rally of late and the question is: If this rally lasts, will Cominco be able to capitalize on the higher prices?

Jonathan Challis, mining analyst for Scotia McLeod, believes Cominco’s stock already trades at a premium (recently in the $20 range). In his December report, he states there is limited upside potential for Cominco unless the supply-demand fundamentals change in the zinc and nickel markets. Some analysts think the strong year-end rally in metals markets can be attributed to factors not related to the fundamentals. These include “group rotation,” which involves pulling money out of one sector and putting it into another. Other factors include the overall strength in equity markets and the thinking, perhaps wishful, that we may have seen the bottom of the cycle for most metals.

Meanwhile, Cominco is trying to increase efficiency at its lead-zinc operations, the largest of which are Sullivan in Kimberley, B.C., Red Dog in Alaska and Polaris in the Canadian Arctic.

At Sullivan, an $8-million lead re-grind program is increasing lead recoveries and lead and zinc grades in concentrate. In 1992, 1.6 million tonnes of ore were milled averaging 7.1% zinc, 4.6% lead and 27 grams silver per tonne.

At the Highland Valley copper mine near Logan Lake, B.C., Cominco and Teck (TSE) are concerned about factors such as the price of the red metal, taxation and the relative value of the dollar. These factors will help determine whether the mine is in the black or the red for 1993. Production is 130,000 tonnes per day, and reserves stand at 632.9 million tons grading 0.414% copper and 0.0068% molybdenum.

Operations at the smelter at Trail, B.C., continue to be in the news as the company strives to restructure and cut costs. Most recent discussions were aimed at cutting the company’s $40-million annual tax bill. Cominco needs the tax break to build a $125-million lead smelter to replace a previous modification which failed to work.

One bright spot for the beleaguered company is that gold production has increased from its 60%-owned Snip mine, northwest of Stewart, B.C. For the first nine months of 1993, about 70,000 oz. were cranked out — more than in the same period in 1992, thanks to an increase caused by higher-than-expected grades, a reduction in costs to US$142 per oz. and greater throughput. On the exploration and development front, Cominco has joined with a consortium, which includes Teck (TSE), Korea Zinc and Samsung, to buy the Cirque property in British Columbia from Curragh. It has also acquired, from the same company, the Sa Dena Hes zinc-lead property in the Yukon. Cominco bought a 25% interest in the projects after Curragh was placed into receivership. In 1992, Sa Dena Hes produced 607,500 tons of zinc-lead concentrate.

The company, along with subsidiary Cominco Resources International (TSE), continues to explore and develop several projects in North America, South America, Germany and Turkey.