Write-downs hit Teck Cominco

Vancouver — The diversified nature of newly formed Teck Cominco‘s (TEK-T) mining operations failed to offset plunging metal prices as the major posted a third-quarter loss of $105 million, or 62 per share.

Driving the loss was $169 million ($122 million after-tax) in asset valuation writedowns. The company reduced the carrying values of its non-operating mineral properties by $154 million and made provisions for asset sales and reorganization costs to the tune of $15 million.

Topping the list of properties is San Nicolas in Mexico. Resources there are pegged at 75 million tonnes grading 1.4% copper and 2.1% zinc, which the major now feels may not meet its economic threshold. Teck Cominco holds a 74% interest in the project, with the remainder held by Western Copper Holdings (WTC-T). The major can boost its stake to 81% by funding development costs.

The Kudz Ze Kayah property in the Finlayson district of the Yukon, which hosts an indicated resource of 11.3 million tonnes grading 5.9% zinc, 1.5% lead, 0.9% copper, 1.3 grams gold and 133 grams silver per tonne, will have its carrying value reduced as well. Cominco discovered the deposit in 1993 and subsequently optioned it to Expatriate Resources (EXR-V), only to be handed it back earlier this year after the junior failed to make a scheduled $1-million payment.

Other affected properties include Lobo Marte in Chile; Petaquilla in Panama; Cerateppe in Turkey; and Schaft Creek in B.C. All but Schaft Creek host reserves, though that project does contain a resource of 1 billion tonnes grading 0.33% copper and 0.034% molybdenum.

Excluding the writedowns, Teck Cominco posted a profit of $17 million, or 10 per share in the third quarter ended Sept. 30. This compares to a profit of $25 million, or 22 per share recorded in the same period of 2000. The lower earning are attributed to lower zinc and copper prices, which recently sank to US65 per lb. and US38 per lb., respectively.

The company saw its copper operation generate a profit of $8 million, down from the $20 million it recorded in the third quarter of 2000. Operating profit from its gold operation fell to $6 million, from the $11 million hit in the three-month period last year. Lower production from the Hemlo operation in Ontario and a lower realized gold price from the Tarmoola operation in Australia are cited as reasons for the short fall.

Some 92% of the company’s total operating profit for the latest quarter came from power sales at its Trail Smelter near Trail BC and coal operations. Trail generated a profit of $59 million, up from the $56 million recorded in the third quarter of 2000. Power sales hit 444,000 MWh, compared to 157,000 MWh a year ago, with the price averaging US$143 per MWh, down from the US$170 per MWh received in the third quarter of 2000. Refined zinc production tallied 4,200 tonnes, down significantly from the 69,200 tonnes recorded in the third quarter of 2000.

The other bright spot in an otherwise bleak commodity picture was company’s coal mines, which generated a operating profit of $25 million, up from the $5 million hit in the corresponding period of last year. Metallurgical coal production was up 27% to 1.7 million tonnes, with the Elkview operation in BC contributing 1.4 million tonnes and the 61% owned Bullmoose mine also in BC adding 300,000 tonnes.

Moves made in early October will have an impact on the company’s fourth quarter results. On October 1, the Antamina copper-zinc mine in Peru reached commercial production. Ownership is shared among Noranda (NRD-T) and BHP Billiton (BHP-N), each with 33.75%, Teck Cominco holds 22.5%, and Tokyo-based Mitsubishi with 10%. October also saw Teck Cominco sell its investment in Australian gold miner PacMin. The deal generated $52 million in cash, removes $87 million in debt from the balance sheet and gave the major a 12% stake in Australian gold-tantalum miner Sons of Gwalia.