Dynatec eyes producer status (October 30, 2002)

With demand for contract mining slumping, Dynatec (DY-T) reported net earnings of just $20,000 for the three months ended Sept. 30.

The earnings translate into nil per share, and compare poorly with the company’s year-ago net earnings of $2.7 million (2.4 per share). Revenues plummeted by nearly $27 million to $34.9 million. During the recent quarter, operations consumed $1.25 million in cash, well off the $6.6 million provided a year earlier.

The quarter’s paltry profit brings Dynatec’s nine-months net loss to $1.4 million, compared with year-ago net earnings of $4.3 million. Revenue fell 36.9% to $98.2 million. During the period, operations chewed up $10.3 million in cash, a far cry from the $8.2 million generated the previous year.

Dynatec attributes the significant drop-off to the cessation of work at Newmont Mining‘s (NEM-N) Ken Snyder mine, and reduced contract work at Barrick Gold‘s (ABX-T) Meikle mine complex, both in Nevada.

The only ray of light for Dynatec during the recent quarter was provided by its drilling division, which posted a 47.5% increase in revenues. The increase is owing to new mineral drilling contracts and increased volume of environmental drilling contracts. For the nine-month period the drilling division’s revenue climbed by 29.6%.

While the company says it has a backlog of contract work, including projects at GoldCorp‘s (G-T) Red Lake mine and Inco‘s (N-T) Garson Mine in Ontario, Dynatec’s plan is to join the ranks of mine owners.

In Sudbury, Dynatec, and joint venture partner FNX Mining (FNX-T) have advanced rehabilitation work at McCreedy West to a depth of more than 300 metres, providing access to the 700 zone and the Upper Main zone for definition drilling and test mining.

Recent infill drilling on the North zone of the Norman nickel-copper deposit confirmed mineralization at vertical depths of around 165 metres, cutting nickel, copper and precious-metal mineralization in massive-sulphide rock. Copper grades ranged from 2% to 6%, nickel grades were mostly 0.1-0.5%, platinum and palladium generally graded 1-3 grams each, and gold graded a fraction of a gram per tonne. The mineralized zones are typically between 1 and 4 metres wide.

The Sudbury Basin joint venture, held 75% by Fort Knox and 25% by Dynatec, is in the midst of a $14-million exploration campaign on the past producing McCreedy West, Levack, Victoria, Kirkwood and Norman properties. FNX picked up the projects from Inco (N-T) earlier this year. Dynatec inked to grab a deal for a quarter-interest by covering half the initial $14 million in spending. The company is also responsible for $4 million.

The partners plan to sink at least 122,000 metres of surface drilling on the properties by May 2003. Underground drilling on the McCreedy West property has begun. Drills will target the Levack property later this year once underground workings have been rehabilitated.

Production mining at the McCreedy Mine is expected to crank up in the fourth quarter.

At quarter’s end, Dynatec had $33 million in cash and long-term debt of $11.1 million.