Teck triumphs over low prices

Despite substantially lower metal prices, Teck (TEK-T) managed to squeeze out a slim profit during the second quarter.

The Vancouver-based major earned $3 million (or 3cents per share) on $177 million in revenue, compared with $15 million (16cents per share) on $166.5 million in the second quarter of 1997. Cash flow between the two periods fell to $35 million from $37 million.

During the first half of 1998, earnings totalled $4 million (4cents per share) on revenue of $345.7 million, compared with $30 million (32cents per share) on $343 million in the year-ago period. Operating cash flow declined by 10%, to $63 million.

Teck produces gold, copper, zinc, lead, molybdenum, niobium, silver and metallurgical coal from working interests in 11 mines, nine of which are in Canada, one in Chile and one in Australia.

The company cranked out 112,491 oz. gold in the second quarter, up significantly from the 77,000 oz. produced a year ago. The increase is attributed to last year’s acquisition of a 70% interest in the Tarmoola open-pit mine in Western Australia.

For the first six months, gold production totalled 205,362 oz., with cash operating costs averaging US$223 per oz., compared with US$229 a year ago.

For the same period, Teck’s realized gold price fell to US$336 from $365 per oz.

In June 1998, Teck consolidated its Australian assets, including its interest in Tarmoola, with Australian-listed Camelot Resources, which has since been renamed Pacific Mining. Teck currently owns a 75% share, and an additional 6% is available upon conversion of convertible preference shares.

Copper production amounted to 31.3 million lbs. in the second quarter and 61.7 million lbs. in the first six months, versus 34.6 million lbs. and 69.4 million lbs. in the comparible periods of 1997. The shortfall is attributed to the closure of the Afton mine in southern British Columbia.

The average realized copper price, including hedging, during the first half of 1998 was US86cents per lb., compared with US$1.15 a year ago.

Coal production from the Elkview and Bullmoose mines in British Columbia was up 28% over last year’s quarter, at 1.1 million tonnes. Six-month production totalled 2.2 million tonnes, compared with 1.7 million tonnes in the first half of 1997.

Recently, Teck bought a 25% interest in the Antamina copper-zinc project in Peru from Inmet Mining (IMN-T) for $35 million plus future payments equivalent to 1.65% of the cash flow from the project.

The remaining 75% interest in the project will be split equally between Rio Algom (ROM-T) and Noranda (NOR-T). Under an agreement with the Peruvian agency Centromin, the partners have until Sept. 16, 1998, to commit to development.

Meanwhile, Teck is conducting a US$5.5-million program of surface exploration on the Pogo gold project in Alaska. The work consists chiefly of 70,000 ft. of definition and stepout drilling.

Pogo is estimated to contain geological reserves of 9.1 million tonnes grading 15.43 grams gold, equivalent to 4.5 million contained ounces.

Engineering studies, including metallurgical testwork and environmental base line studies, are in progress.

Teck can earn a 40% interest in the Pogo project from the Sumitomo Group of Japan by spending US$28 million on exploration and a feasibility study, and by funding the first US$33 million of development costs.

Farther south, in the central Mexican state of Zacatecas, Teck is carrying out metallurgical tests and preliminary economic evaluations on the San Nicolas polymetallic massive sulphide deposit. Drill crews are also exploring other targets in the area.

San Nicolas is a 60-40 joint-venture with Western Copper Holdings (WTC-T), with Luismin holding a back-in right to a 25% interest.

A preliminary open-pit reserve is estimated at 72 million tonnes grading 1.35% copper, 2.27% zinc, 0.53 gram gold and 30 grams silver, with a stripping ratio of 7.8-to-1.

In related news, weak zinc prices, along with operating problems at the Kivcet lead smelter at Trail, B.C., contributed to lower earnings for 34%-owned affiliate Cominco (CLT-T).

The company posted a profit of $2.9 million (3cents per share) in the second quarter after including an $11-million after-tax gain from the sale of its 15.6% interest in Global Stone, a limestone producer. This compares with consolidated earnings of $16.9 million (20cents per share) for the same period in 1997. Revenue in the second quarter declined to $362.4 million from $375.2 million a year ago.

Between the first half of 1997 and 1998, Cominco’s profit fell to $300,000 from $38 million (44cents per share). Sales revenue for the six months of 1998 was off by 6.1%, at $741.7 million.