Stake in Cominco gives boost to Teck

Teck‘s (TEK-T) 40.4% equity stake in Cominco (CLT-T) paid off handsomely in the first quarter. The latter earned $7 million (or 6 per share) on sales revenue of $168.5 million, compared with a $1.8-million profit (2 per share) on $166.9 million in revenue in the first three months of 1999.

Equity earnings rose to $6.5 million, compared with $1 million a year earlier, mainly on the strength of zinc prices, which surged to 53 from 46 per lb., while operating cash flow rose to $27 million from $24 million.

Teck’s average realized gold price, including hedging gains, was US$321 in the first quarter, down from US$322 a year ago. The average spot price for the recent 3-month period was US$291 per oz.

Despite these lacklustre prices, Teck’s wholly owned subsidiary, TeckGold, managed to crank out 139,200 oz., compared with 126,000 oz. a year ago. The 11% increase is attributed to a combination of increased production and lower cash operating costs. Average cash operating costs between the two first quarters fell 7% to US$189 per oz.

Says Teck CEO Norman Keevil: “Last year, we produced the highest amount of gold and the fourth highest operating profits from gold in our 85-year history, despite the fact that the price of gold was lower than it has been for many years.”

The Tarmoola gold mine in Western Australia accounted for 54,130 oz. at a cash cost of US$188 per oz. during the first quarter. Production was 10% higher than in the year-ago period despite heavy rainfall that hampered milling rates. Production in the second quarter is pegged at 60,000 oz.

The two gold mines in Hemlo, Ont. — Williams and David Bell — produced a total of 82,333 oz. at cash costs of US$193 per oz. at Williams and US$182 at David Bell. Williams produced 10% more gold than a year ago; David Bell, 17% more.

Teck is currently producing 500,000 oz. gold per year and, following the completion of various development projects, this could increase to 750,000 oz.

At the Pogo gold property in Alaska, a decline has intersected the L1 vein, where sampling is under way. Drilling from underground stations will attempt to confirm the size and orientation of both the L1 and L2 veins, which are estimated to contain a resource of 10 million tons grading 0.52 oz. per ton, equivalent to 5.2 million contained ounces. Some exploratory drilling of the L3 vein is also planned. To date, Teck has drilled a total of 35 holes comprising 11,000 ft.; the overall program is expected to span 40,000 ft.

Teck is earning a 40% interest in the project from Sumitomo Metal by producing a feasibility study, spending US$28 million on exploration and funding the initial US$33 million of Sumitomo’s share of development costs.

In February, approval was granted for the development of the Carosue Dam gold project in Western Australia. Contracts have been awarded for engineering design, construction and power supply. Probable reserves are pegged at 16.5 million tonnes grading 1.96 grams, equivalent to just over 1 million contained ounces.

Copper

Teck produced 33 million lbs. copper in the first quarter, and, although this figure is unchanged from a year ago, sales dropped 9%, to 28.5 million lb. from 31.5 million. On a brighter note, higher copper prices helped offset the lower volumes, and Teck went on to realize a copper price of US82 per lb., compared with US72 in the first quarter of 1999.

At the Antamina zinc-copper joint venture in Peru, in which Teck has so far invested US$145 million, 85% of the engineering work is complete. Final development costs are pegged at US$2.3 billion.

“Once fully in production, the Antamina pit will move in excess of 100 million tonnes of material per year, and a concentrator which will process 7,000 tonnes of ore per day,” states Michael Lipkewich, Teck’s senior vice-president. He adds that the company is building a 300-km pipeline to move the concentrate to port facilities.

Processing of Antamina ore is slated to begin in August 2001, with full production projected for February of the following year.

Teck has a 22.5% interest in the project. The other partners include Rio Algom (RIO-T) and Noranda (NOR-T), each of which has 33.75%, and Mitsubishi of Japan, which has 10%.

In Mexico, Teck has expanded its interest in the San Nicolas copper-zinc property to 66.25%. The project is a partnership with Western Copper (WTC-T). Teck can earn an additional 10% by arranging Western Copper’s share of production financing, and a further 5% in return for a cash payment based on the project’s net present value at the feasibility stage.

Meanwhile, Teck and Cominco have entered into an agreement with Aur Resources (AUR-T) to sell their respective 29.25% and 47.25% interests in the Quebrada Blanca copper mine in Chile. The US$125 million Teck expects to generate from the sale will be redeployed to other projects.

Coal operations continued to be a drag on Teck’s bottom line. Lower prices and lower sales volumes followed cutbacks in the Japanese steel industry, resulting in cash operating profits of $1.7 million. Production rates at the Elkview and the 61%-owned Bullmoose mines in British Columbia totalled 1.13 million tonnes in the first quarter, up from 923,000 tonnes a year ago.

Working capital at the end of March stood at $249 million, including $201 million in cash. Long-term debt (excluding Inco-related exchangeable debentures) was $437 million, or 18% of total capitalization.