Rio Algom profits grow

On the back of higher copper prices and sales volumes, Rio Algom (ROM-T) earned $16 million (or 15 per share) on revenue of $564 million in the three months ended June 30, compared with $4 million (2 per share) on $492 million in the second quarter of 1999.

Operating profit between the two periods rose to $48 million from $20 million, while the amount of cash generated from operations increased to $65 million from $8 million.

Rio produced 117 million lbs. copper from its various mines at a cash cost of US45 per lb. and sold an equivalent amount of the metal at an average price of US79 per lb. through its Metals Distribution business. By comparison, the company produced 98 million lbs. in the second quarter of 1999 at a cash cost of US47 per lb. and realized a selling price of US70 per lb.

The major’s copper operations include: the wholly owned Cerro Colorado mine in northern Chile; the 33.6%-owned Highland Valley Copper (HVC) mine in British Columbia, in which Cominco (CLT-T) has a 50% interest, Teck (TEK-T) 11.4%, and Highmont Mining 5%; and a 25% equity stake in the Alumbrera copper-gold mine in Argentina, in which two Australian companies, MIM Holdings and North Ltd., have 50% and 25% interests, respectively.

Higher combined output at Cerro Colorado and HVC offset lower output from Alumbrera. Alumbrera, which actually eroded US$1 million from net earnings, suffered low grades, lower throughput rates and unscheduled maintenance shutdowns. Such adverse conditions are expected to continue for the remainder of the year.

Revenue from Cerro Colorado and HVC rose 45% to $106 million, which, combined with a 10% reduction in combined cash costs, pushed operating profits to $26 from $5 million a year ago.

Rio’s production of other commodities in the recent quarter consisted of 32,000 oz. gold (compared with 48,000 oz. a year ago); 248,000 lbs. uranium (452,000 lbs.); 408,000 lbs. molybdenum (226,000 lbs.); and 96,000 tonnes coal (69,000 tonnes).

The Metals Distribution business increased by 9% its revenue year-over-year, largely reflecting a 25% rise in stainless steel prices and a 7% increase in aluminum prices. Operating profits also rose, to $21 million from $15 million.

Meanwhile, a feasibility study at the Spence copper project in Chile is set to begin shortly. The study will include recent metallurgical tests on material pulled from the middle layer of the deposit, which contains 200 million tonnes of enriched sulphides grading 1.2% copper. Rio President Pat James says the supergene ore may take more than a year to leach (comparable to Cerro Colorado) and that copper recovery is projected at 75-80%. By comparison, flotation tests averaged more than 90%.

“This further enhances the flexibility of the project and could lead to greater cathode production than indicated in previous estimates,” notes James.

At last report, 70,000 tonnes of ore would be mined each day from an open pit designed at a stripping ratio of 2.3-to-1. Of that, 60,000 tonnes would be milled in a semi-autogenous grinding mill and passed through two flotation circuits to produce concentrate. The remaining 10,000 tonnes will be loaded on to pads for leaching and subsequent processing in a solvent extraction-electrowinning circuit.

Of the projected 500 million lbs. of annual copper output, 410 million lbs. will be in the form of concentrate, and the remainder will be cathode.

Gobal resources at Spence stand at 400 million tonnes grading 1% copper. This includes oxidized, transition and primary sulphide material.

The feasibilty study is scheduled for completion later this year and will be followed by a full update.

In Peru, development at the Antamina copper-zinc project continues on schedule for startup in 2002. About 95% of the engineering work and just over half of the overall construction is now complete.

Antamina hosts proven and probable reserves of 494 million tonnes averaging 1.8% copper-equivalent. Specifically, copper averages 1.3%; zinc, 1%; molybdenum, 0.03%; and silver, 12 grams per tonne.

Rio owns a 33.75% interest in the world-class deposit, as does Noranda (nor-t). The remainder is divided among Teck (tek-t), with 22.5%, and Mitsubishi of Japan, with 10%.

For the first six months of this year, Rio’s net earnings topped $31 million (31 per share) on revenue of $1.13 billion, compared with $5 million (11 per share) on $1 billion in the corresponding period of 1999. After dividends and charges related to convertible debentures, earnings were $10 million in the recent period. Cash flow nearly doubled year-over-year, to $83 million.

Rio injected $215 million into its various mines, of which $192 million went to Antamina, using financing structures already in place. The major will allocate another $10 million to that project in the fourth quarter.