A healthy combination of stronger copper prices, higher production and lower cash costs allowed
In 1999, Rio chalked up $184 million in losses on revenue of $1.99 billion, compared with earnings of $34 million on $2 billion in 1998. The drastic about-face is attributed to the devaluation in August of four of the major’s projects by a combined $293 million (T.N.M., Nov. 8/99); were it not for these writedowns, Rio would have pocketed $30 million in the recent year.
“In view of the volatility in commodity prices and our policy of conservative financial management, we think this is a prudent step for Rio Algom,” President Patrick James noted at the time of the announcement.
The projects include the partly owned Alumbrera copper-gold and Bullmoose coal mines in Argentina and British Columbia, respectively, and the wholly owned Smith Ranch uranium mine and Nicolet zinc-copper deposit in the U.S. Costs incurred at Nicolet are now expensed instead of capitalized.
The yearly results are in stark contrast to the final three months of 1999. Earnings in that period topped $14 million (or 12 per share) on $499 million, compared with earnings of $7 million (2 per share) on $530 million in the year-ago period.
“In many ways, this was the best quarter ever for Rio Algom,” says James.
Rio’s share of copper production in the recent quarter topped a record 121 million lbs., propelling 1999 output 11% above budget to 405 million lbs., or 9% higher than 1998 output. Substantially higher output at the wholly owned Cerro Colorado mine in Argentina accounts for the difference.
Cash costs, in turn, averaged a record low of US43 per lb., reducing the 1999 average to US46 per lb. The major sold its copper for an average of US79 per lb. during the quarter, boosting the year’s average to US72 per lb. Spot prices are expected to average US80 per lb. this year and US85 in 2001.
The 33.6%-owned Highland Valley copper mine in British Columbia roared back to life, following a temporary shutdown earlier in the year. Rio says the mill is now operating above design capacity and should return sales volumes to normal levels shortly.
“Shutting it down was absolutely the right thing to do,” says James. “It allowed everyone the chance to focus on costs.”
A blemish on the quarter was Alumbrera, which contributed to Rio’s account 18% less copper at costs that were 6% higher than in 1998. Miners are currently in a low-grade portion of the pit and they will continue mining there until the first quarter of 2001. James notes this was expected and that the outstanding project loan of $547 million has accordingly become non-recourse to Rio and its partners.
On Dec. 31, 1999, Rio had $38 million in cash or equivalents. Its working capital totalled $330 million.
Rio declared a quarterly dividend of 7 per share, payable on March 31.
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