Rio Algom’s operations enjoy profitable quarter

While weak copper prices hurt its bottom line, Rio Algom (ROM-T) nevertheless turned in a strong quarter from an operational standpoint, with both increased copper production and lower cash costs.

The Toronto-based company reports net earnings of $9 million (or 11cents per share) for the three months ended March 31, 1998, down from restated earnings of $16 million (24cents per share) for the corresponding period in 1997.

The company attributes its reduced earnings to lower copper prices; during the first quarter of 1998, the average selling price of copper was 40cents lower, at US78cents per lb., than in the first quarter of 1997.

On a restated basis, revenues for the first quarter of 1998 were $447 million, up $11 million from a year ago. Rio Algom says the increase reflects higher sales volumes and stronger aluminum prices for its metals distribution group, as well as greater sales of uranium and metallurgical coal, which more than offset lower copper revenue.

Revenues from copper mining in the first quarter of 1998 were $60 million, down from $72 million a year earlier.

During the first quarter, copper production attributable to Rio Algom increased to 66 million lbs. (35 million lbs. from 33.6%-owned Highland Valley in B.C. and 31 million lbs. from 100%-owned Cerro Colorado in Chile) from 60 million lbs. a year earlier. The average cash cost of copper production dropped to US53cents per lb. — a record low — from US61cents in the first quarter of 1997.

Rio Algom President Patrick James says the company remains on track to achieve its key objectives for 1998: to increase total copper production by more than 50%, to 380 million lbs., and to lower average cash costs by 10%, to US55cents per lb.

In February, commercial levels of production were reached at Rio’s 25%-owned Alumbrera copper-gold mine in Argentina, with daily mill throughput climbing throughout the quarter towards the design rate of 80,000 tonnes.

At Cerro Colorado, a US$200-million expansion project was more than 65% complete at the end of the first quarter and should be finished on schedule and within budget by mid-year.

Exploration spending was $2 million for the first quarter of 1998, down from the $5 million spent a year earlier. The drop was mostly due to reduced expenses at the Spence copper project in Chile.

Bulk sampling and metallurgical testing at Spence began near the end of the first quarter and prefeasibility work is expected to be completed by the end of the year.

Rio’s capital expenditures totalled $90 million during the quarter, with most of that related to the expansion at Cerro Colorado, an increased ownership of the Crandon zinc-copper deposit in Wisconsin and completion of the feasibility study at Antamina in Peru (T.N.M., March 23-29/98).

Rio’s cash and short-term investments, net of current bank loans and overdrafts, were $267 million at quarter’s end, compared with $144 million at year-end 1997. A major source of cash was the $177 million derived from the second and final instalment of subordinated debentures received on Feb.

4.

Beginning in the first quarter of 1998, Rio Algom changed its accounting policy to record copper revenue at the time of sale. Previously, revenue was recorded at the time of production at the estimated sales value.

These changes (which have been applied on a retroactive basis), as well as new inventory-valuation methods, reduced earnings for the first quarter of 1997 by $3 million, but did not materially impact on first-quarter 1998 results.

In mid-April, Rio Algom’s 100%-owned subsidiary Atlas Alloys announced a $5.75-per-share offer for all outstanding shares of Ideal Metal, a Montreal-based distributor of aluminum and copper alloy. The acquisition would make Atlas one of Canada’s largest aluminum distributors.