Water tas may scuttle Trail smelter expansion

At least a 25% increase in refined zinc production is being considered by Cominco Ltd. (TSE) at its Trail smelter operations, Robert E Hallbauer, president, told reporters after the annual meeting. But that expansion program is contingent upon the removal by the provincial government of its onerous water tax which he said cost Cominco $9 million last year.

Water is used by the company in its power plants to produce electricity and he emphasized: “if expansion is to take place, the water rental must go.” He estimated the cost of the expansion program at $100-$150 million.

Conceding that Trail is “not an ideal place for a smelter” Hallbauer noted that it has to compete for feed “with the rest of the world.” Complicating matters further is the closure of Cominco’s Pine Point mine and an expected decline in production from its Sullivan mine property over the next 10 years.

Concentrate from the new Red Dog mine in Alaska will be shipped to Trail but transportation costs are going to be high, he predicted. Mine concentrates will have to be trucked to the coast of Alaska, loaded onto ships, off-loaded in Vancouver, sent by rail to the smelter, and the refined product shipped to market from there. “It’s a more complicated transportation system,” he said.

Red Dog is scheduled to begin concentrate shipments in the summer of 1990 and it will be the largest zinc mine in the world. Construction is also under way at Cominco’s Aberfoyle mine in Australia which is scheduled for production in early 1989. Concentrates from both mines have been sold under long-term contracts, he said.

Discussing the SNIP joint venture with Delaware Resources (VSE) Hallbauer said that underground exploration was under way and a production decision could be made this summer. “The major question to be answered at the moment is how big the mill should be,” he concluded.

Turning to Cominco’s financial performance, he forecast higher earnings in 1988 and noted that approximately one-quarter of Cominco’s 1987 profits were attributable to copper. Consolidated earnings for the 3-month period ended March 31 were $31.9 million compared to $4.4 million in 1987.

Both the metals and fertilizers divisions rebounded sharply during the quarter. Operating profit for the metals business segment totalled $59.8 million compared to $26.8 million in the quarter a year ago. The $11.8-million operating profit in the fertilizers division compares with a loss of $900,000 last year and mostly represents “improved results from the Vade potash mine and the U.S. nitrogen operations,” he said.

The metals division had an operating profit of $188 million for the year compared to $21 million in 1986 and the $16 million profit in the fertilizers division was a dramatic improvement over the $19 million loss in 1986.

Hallbauer said that Cominco’s total debt at year-end was $378.7 million, down $265.2 million from the previous year which, incidentally, exceeded the company’s debt reduction target figure. Mining companies are starting to feel the impact of the stronger Canadian dollar. To illustrate his point, Hallbauer said that every 1 cents increase in the Canadian dollar over its U.S. counterpart reduces Cominco earnings by $4.4 million. “With the same volume of production, our annual earnings would be $45 million less with the dollar at its current level compared to one year ago,” he said.