Teck gets boost from Cominco

By purchasing almost 5.2 million shares of Cominco (CLT-T) at a cost of $127 million in 2000, Teck (TEK-T) increased its ownership of the company to 50.1% and took steps to consolidate it as a subsidiary.

For the year ended Dec. 31, Teck reported net earnings $85 million (or 77 per share), compared with $45 million (42 per share) in 1999. Operating cash flow increased to $235 million from $110 million between the two periods.

The higher earnings are attributed to several factors, including Cominco’s strong performance during the year, higher earnings from Teck’s coal operations, and a greater contribution from the company’s copper operations (reflecting higher prices, as well as higher production).

In the recent fourth quarter, earnings were $43 million, compared with $34 million in the final three months of 1999. Cash flow from operations for the quarter was $160 million, versus $40 million in the 1999 fourth quarter.

On the operations side, zinc production in 2000 was 459 million lbs., up from 82 million lbs. in 1999. The Red Dog mine in Alaska accounted for 61% of this production, while the Polaris mine on Little Cornwallis Island contributed 27%; the remainder came from the Sullivan mine, near Kimberley, B.C., and the Louvicourt mine, in Quebec. The average realized zinc price in 2000 was US51 per lb., compared with US49 per lb. in the previous year.

Earnings from refining and smelting operations were augmented significantly by a profit of $86 million from the sale of surplus power in the fourth quarter. “Cominco’s management has done a wonderful job of taking advantage, on an opportunistic basis, of the higher power revenues in the western U.S.,” says Teck President Steven Dean.

Cominco will be reducing zinc production at the Trail smelter by 25% during February and March in order to boost power sales. In addition, the Trail metallurgical operations will be shut down in August and September, and production cuts are expected for later in the year. The combined effect will be a shortfall of some 80,000 tonnes of zinc, representing about 5% of U.S. demand or a little over 1% of global demand for the year.

In the gold sector, Teck produced 497,000 oz. in 2000, down from 537,000 oz. in 1999. Dean says the drop is largely a function of lower production from Tarmoola in Australia. The mine produced 180,000 oz. in 2000, or 41,000 oz. less than in the previous year, the reason being a major waste-stripping phase that began in the second half of the year.

Production from Teck’s share of the David Bell and Williams mines, near Hemlo, Ont., was steady at 305,000 oz. for both years. Production for the current year is pegged at 98,000 oz. from David Bell and 207,000 oz. from Williams.

Cash operating costs averaged US$188 per oz., down slightly from US$192 per oz. in 1999. The company realized an average gold price (including hedging gains) of US$307 per oz., versus US$317 in 1999.

Copper sales in 2000 totalled 152 million lbs., compared with 120 million lbs. last year. The increase was principally due to a strong performance from the Highland Valley Copper mine, near Kamloops, B.C., which contributed 83 million lbs. The mine had a record year, producing 407 million lbs. copper. Highland Valley Copper is owned 14% by Teck, 50% by Cominco and 33.6% by Billiton. The mine is expected to produce 397 million lbs. of the red metal in 2001.

The average realized copper price was up at US80 per lb., compared with US77 per lb. in 1999. Consequently, operating profit from copper operations was up over the previous year.

“The metallurgical coal business was a star performer for us during the year,” says Dean. Production totalled 4.9 million tonnes, up 43% from 1999. The Elkview mine produced 4.1 million tonnes, and the 61%-owned Bullmoose mine contributed 860,000 tonnes. Both mines are in British Columbia.

Costs were down as a result of the implementation of various cost-cutting measures. Operating profit after depreciation was $16 million, versus a $4-million loss a year ago. Dean says the outlook for 2001 is positive because of planned higher sales volume and the possibility of higher average prices coming out of this year’s annual contract negotiations.

The production outlook for all commodities in 2001 (including Teck’s share of Cominco) is approximately 6.2 million tonnes of coal, 260 million lbs. copper, 870 million lbs. zinc and 650,000-660,000 oz. gold.

The sale of Teck and Cominco’s interest in the Quebrada Blanca copper mine in northern Chile to Aur Resources (AUR-T) was completed in November 2000, with cash proceeds totalling $270 million. Teck also announced it had reached agreements to sell its half-interest in the Niobec niobium mine in Quebec to Mazarin (MAZ-T) for $47 million and, for an additional $3 million, its 25% interest in the Oka niobium project, in the same province. The latter deal is subject to the consent of Niocan (NIO-T). The deals are expected to close in the first half of 2001.

The massive Antamina copper-zinc development project in Peru is on budget and ahead of schedule. At year-end, construction was 85% complete, with pre-testing of the semi-autogenous grinding (SAG) mill and two of the three ball mills under way. Also, construction of the concentrate pipeline and port is about 85% complete, and initial tailings dam construction is finished.

The development program also includes pre-stripping of 116 million tonnes of waste rock to get to the orebody. To the end of 2000, some 75 million tonnes of waste had been removed.

Antamina will be one of the largest greenfields mining projects ever built, with a capital cost of US$2.3 billion, including the final purchase price to the Peruvian government. It is being developed by a consortium, comprising Noranda (NOR-T), with a 33.75% interest, Billiton, with 33.75%, Teck, with 22.5%, and Japan-based Mitsubishi, with 10%.

Proven and probable mineral reserves stand at 559 million tonnes grading 1.24% copper, 1.03% zinc, 0.029% molybdenum and 13.71 grams silver per tonne, based on a 0.7% copper-equivalent cutoff grade.

At a design capacity of 70,000 tonnes per day, Antamina is scheduled to produce 675 million lbs. copper and 620 million lbs. zinc annually during the first 10 years of its projected 20-year mine life. The project is expected to be the seventh-largest copper mine in the world and the third-largest zinc mine. Ramp-up to design capacity will start in the second half of 2001.

Teck’s Australian subsidiary, PacMin, completed construction of the new A$40-million Carosue Dam gold project in Western Australia two months ahead of schedule. The mine produced 9,376 oz. in the startup phase before year-end. The 1.8-million-tonne-per-year open-pit operation will begin commercial production in the first quarter of 2001.

The feasibility study calls for a production base of 110,000-140,000 oz. per year, with a payback period of 2-3 years. Primary reserves are estimated at 15.5 million tonnes grading 2.18 grams gold, equivalent to 1.1 million contained ounces. An additional 126,000 oz. are contained in 3.5 million tonnes grading 1.1 grams.

In 2001, Carosue Dam is expected to produce 120,000-130,000 oz. gold.

Meanwhile, the 40%-held, 5.6-million-oz. Pogo project in Alaska is continuing with permitting and feasibility work. The draft environmental impact statement is scheduled for completion in the first quarter of 2001. A pilot plant program comprising grinding, flotation, leaching and gold recovery tests was completed toward the end of last year. Teck says the results were positive and are being incorporated in the metallurgical design.

The company hopes to receive a final sign-off on permitting issues by the first quarter of 2002, with a construction decision to follow. Pogo could be in production by 2004.

Surface exploration drilling on the nearby 4021 target returned “encouraging” results. The 2001 exploration program at Pogo will focus on expanded grid sampling and mapping, with the objective of outlining future drill targets.

At the San Nicolas copper-zinc project in Mexico’s Zacatecas state, the feasibility study is progressing according to plan, reports Teck. Geotechnical drilling confirmed good stability of the proposed pit walls, and infill drilling confirmed continuity of the mineralization. The pilot plant and leach bench-scale testwork are expected to be completed by mid-February. The environmental impact study is on schedule and will be completed shortly after the completion of the feasibility study in mid-2001.

Teck holds between a 66% and 81% interest in San Nicolas, depending on the level of financing it arranges on the completion of a bankable feasibility study. Western Copper Holdings (WTC-T) holds the remainder.

Preliminary open-pit modelling outlined a resource at San Nicolas of 75 million tonnes grading 1.4% copper and 2.1% zinc, with an overall stripping ratio of 4.3-to-1 (including the initial removal of 67 million tonnes during pre-stripping) to a depth of 420 metres.

On the surrounding 225-sq.-km land package, held 55-45 between Teck and Western Copper, a ground geophysical program, including induced-polarization and gravity surveys, has defined targets to be drilled in the first half of this year.

Teck is wrapping up an infill-drilling program at the Los Filos gold project, in Guerrero state, Mexico. Teck owns 70% of the property, with the remainder held by Miranda Mining & Development. Results will be reviewed internally within the next 6-8 weeks. A geological resource of 2.2-million-oz. is contained in 55 million tonnes grading 1.25 grams.

Teck is planning a fairly aggressive $2-million exploration drilling program this year on the 60%-held Morelos project, north of Los Filos. The company has received “very encouraging results” from surface sampling, trenching and a first round of drilling.

Teck will also be returning to the Silvercloud gold project, in Nevada, where it received some encouragement results from deep drilling. The project is south of the Midas deposit.

At the joint-ventured Rio Grande project, in northwestern Argentina, the company is compiling the results of trenching over a consistent zone of iron oxide-copper-gold mineralization. Drilling is expected to begin the middle of the month. “Results to date are still encouraging, and we have lots of optimism for the drill program,” says Fred Daley, vice-president of exploration. Teck can earn up to a 65% interest from Mansfield Minerals (MDR-V).

In late 1999, Teck and Inco (N-T) formed a joint venture to explore for copper-zinc-gold mineralization in Brazil. The pair has built up a large land position, and this year’s program will test several targets.

Teck is currently looking at several base metal opportunities in Australia.