Writedowns take toll on Teck

Vancouver — The diversity in Teck Cominco‘s (TEK-T) mining portfolio failed to offset the effect of plunging metal prices as the newly formed 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 value of its non-operating 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, where resources stand at 75 million tonnes grading 1.4% copper and 2.1% zinc — an estimate which may not meet Teck Cominco’s economic threshold. The company holds a 74% interest in the project, and can boost its stake to 81% by funding developing costs. The remainder is held by Western Copper Holdings (WTC-T).

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 and 0.9% copper, plus 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 receive 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 British Columbia. 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 incurred a profit of $17 million (10 per share) in the third quarter, compared with year-earlier earnings of $25 million (22 per share). The lower earnings are due to lower zinc and copper prices, which recently sank to US65 and US38 per lb., respectively.

The company’s copper operations generated a profit of $8 million, down from the $20 million of a year ago, while profit from gold operations fell to $6 million from $11 million. Lower production at the Hemlo operation in Ontario and a lower realized gold price for the Tarmoola operation in Australia are blamed for the shortfall.

Some 92% of the company’s total operating profit for the latest quarter came from power sales at its Trail smelter in British Columbia and from coal operations. Trail rang up $59 million in earnings, up from the $56 million recorded in the third quarter of 2000, while power sales hit 444,000 MWh, compared with 157,000 MWh. The power price averaged US$143 per MWh, down from US$170 a year earlier.

The company produced 4,200 tonnes of refined zinc, down significantly from the year-ago total of 69,200 tonnes.

The other bright spot in an otherwise bleak commodity picture was the company’s coal mines, which generated an operating profit of $25 million, up from $5 million a year ago. Metallurgical output increased 27% to 1.7 million tonnes, with the Elkview operation in British Columbia contributing 1.4 million tonnes and the 61%-owned Bullmoose mine, in the same province, adding 300,000 tonnes.

Two developments in early October will affect the company’s fourth quarter:

The Antamina copper-zinc mine in Peru reached commercial production, with ownership shared among Noranda (NRD-T) and BHP Billiton (BHP-N), each with 33.75%, Teck Cominco with 22.5%, and Tokyo-based Mitsubishi with 10%.

Also, Teck Cominco sold its investment in Australian gold miner PacMin. The deal generated $52 million in cash, removed $87 million in debt from the balance sheet, and gave the major a 12% stake in Australian gold-tantalum miner Sons of Gwalia.