Falconbridge in red, suspends Falcondo (October 16, 2001)

Pressured by continuing low prices for base metals, Falconbridge (FL-T) is suspending production at its Falcondo operations in the Dominican Republic for three months.

The shutdown begins October 21, with the production forecast for 2001 revised downwards to 21,000 tonnes of ferronickel.

Falcondo reported a loss of $4.7 million for the three months ended Sept. 30, 2001, compared to earnings of $8.7 million in the same period of 2000. The results reflect lower ferronickel prices, lower sales volumes and a writedown of inventory.

Falconbridge’s overall third-quarter earnings were hit hard, particularly by low prices for nickel, copper and zinc, which have declined by 31%, 32% and 28% year-over-year , respectively.

Thus, for the third quarter, Falco suffered a net loss of $23.9 million (15 per share) on revenues of $552 million, compared with a net profit of $55.1 million (30) on revenues of $605 million during the same period last year.

For the first nine months of 2001, Falco’s profit shrank to $36.5 million (16) from $327.4 million ($1.80) a year earlier as revenues fell almost $400 million to $1.62 billion. During the period, cash generated from operations totaled $262.7 million, compared to $578.2 million in the same nine months of 2000.

Falconbridge President and CEO Oyvind Hushovd said in a release that the quarterly loss was “a disappointment” and that the company is reviewing its capital-expenditure programs looking for cost-cutting opportunities. Capital expenditures for 2001 are forecast at $360 million, of which $215 million has already been spent.

Still, the company reported relatively strong performances from its nickel operations in Sudbury, Ont., and in Raglan, Que.

There were some setbacks, however, at the Kidd Division in Timmins, Ont., arising from the ongoing impact from ground movement at the beginning of 2001 as well as lower head grades. At the Kidd metallurgical division, production was negatively affected by a furnace run-out in August at the copper smelter and by power-cost problems in Ontario.

Due to these disruptions, Kidd’s copper-cathode production for 2001 is now expected to be 129,000 tonnes, while zinc production is forecast at 140,000 tonnes.

The Collahuasi copper-zinc mine in Chile enjoyed its highest-ever quarterly copper production, thanks to both higher grades and recoveries. Still, Falconbridge’s share of Collahuasi’s third-quarter earnings fell to $10.2 million from $26.7 million a year ago owing to lower copper prices and sales volumes.

Falco and its partners at Collahuasi — Anglo American and a Japanese consortium recently completed a feasibility study that looked at expanding the current milling capacity from 70,000 tonnes to 110,000 tonnes of ore per day. The study is now being reviewed by shareholders.

Also of note during the third quarter, Falconbridge assumed 100% ownership of the Lomas Bayas copper mine in Chile.

During the quarter, Lomas Bayas achieved its highest quarterly production rate since it began operations, and the mine is now forecast to produce 56,000 tonnes of copper cathode in 2001, increasing Falco’s total annual copper mine output by 20% to more than 300,000 tonnes. Lomas Bayas’ contributions to earnings since the acquisition has been $1.3 million.

As for its early-stage projects, the company reports that at the Koniambo nickel-laterite project in New Caledonia, Falco has chosen Vaouvouto as the site for metallurgical facilities and a power plant.

Falco’s board has declared dividends of 10 per common share, payable Nov. 9, 2001, to shareholders of record Oct. 26, 2001 and of 2 per preferred share (series 1) payable Dec. 1, 2001, to shareholders of record Nov.16, 2001. For series 2 preferred shares, a dividend of 36.72 per share is payable Dec. 1, 2001, to shareholders of record Nov. 16, 2001.