Vancouver — Copper, molybdenum, and coal all took a back seat to precious metals for most of the 1990s, but no more. The once-lacklustre commodities propelled
For comparison purposes, three of North America’s largest gold companies —
Teck’s second quarter operating profit was a record $417 million, reflecting major price increases for its commodities. Copper prices averaged US$1.54 per lb., up from US$1.10 a year earlier. Moly prices averaged US$33 per lb., up from US$15, resulting in increased profits at the Highland Valley Copper mine in British Columbia, and at the Antamina copper-zinc mine in Peru. Coal prices averaged US$94 per tonne, up from US$51 in the year-earlier period.
While copper remains the strongest contributor, coal’s contribution is expected to rise, as sales for the coming year are priced at an average of US$122 per tonne. Teck Cominco holds a 39% interest in the Elk Valley Coal Partnership, which generated operating profits of $131 million for the company’s account from its Western Canadian coal mines, up from $39 million in the second quarter of 2004.
Even zinc held its own in the latest quarter, despite a 6% drop in production from the Red Dog mine in Alaska (mostly because high organic carbon and silica in the ore reduced recoveries). The company sees continued strength in zinc prices, driven by strong demand from China, which is consuming the metal at twice the rate of its domestic production.
Teck Cominco’s biggest problem going forward is what to do with its hefty profits, which are rolling in at an annualized rate of about $1 billion. The company doubled in semi-annual dividend to 40 per share, and paid $81 million in dividends in June, yet its cash balance at the end of June was a hefty $1.3 billion (against long-term debt of $632 million). The company recently built up its war chest by filing a shelf prospectus for up to US$1 billion in order to gain access to capital markets “as required.”
During a recent conference call with analysts, Teck Cominco President Don Lindsay confirmed that the company has examined a variety of new opportunities, including oil-sands projects in Alberta.
“We were approached by [oil-sands] companies, large and small. While there are a number of things that are appealing — including their location in business-friendly Alberta, and as a potential hedge against energy that we consume elsewhere — this would be a new business for us. To date, we’ve been unable to find an opportunity that meets our expectations.”
Teck Cominco was also approached to become a contract miner at various oil-sands projects, but given the current skills shortage in the industry, this was an opportunity the company had to refuse. Yet with so much cash coming in the door, management is continuing to examine acquisition opportunities, mostly based on their potential for return on investment.
“We would prefer to look at commodities where you negotiate a margin with your customers, such as [with] coal, iron ore, diamonds, and industrial minerals,” Lindsay told analysts, “rather than London Metals Exchange metals, which can go down and stay down for long periods of time.”
The company has several projects in the development pipeline, notably the Pogo gold mine in Alaska. Construction of the US$285-million mine is about 75% complete, however underground development has been slower than anticipated (about 30% complete) owing to poor ground conditions in portions of the access drift areas. Production startup is still on track for the first quarter of 2006.
The company is continuing efforts to settle a recently called strike at its Trail smelting and refining operation in southern British Columbia. The reduced operating profit is expected to be offset by increased power sales.
Throughput at the 22.5%-held Antamina mine was lower than a year ago, at 7.5 million tonnes compared with 8.2 million tonnes, mainly because of the ore-mix and unscheduled shutdowns. Even so, the company’s share of profits in the latest quarter was considerably higher than a year ago, at $83 million.
Highland Valley Copper posted an impressive performance, with operating profit of $145 million compared with $79 million a year earlier.
The aging Hemlo gold mines in Ontario posted a 12% drop in production to 116,300 oz. from 132,700 oz. a year earlier, while cash costs rose to US$318 per oz. from US$239 per oz. over the same period. Teck Cominco holds a 50% interest in Hemlo.
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