Cominco suffers loss in third quarter

Low metal prices, a weaker Canadian dollar and an operating loss at its Trail production facilities in southeastern British Columbia all contributed to a less-than-stellar third quarter for Cominco (CLT-T).

The company’s unaudited loss from continuing operations for the three months ended Sept. 30 was $11.4 million (or 13 cents per share), compared with a profit of $42.7 million (50 cents per share) in the corresponding period of 1997. Sales revenue, at $401 million, was off 10% from the year-ago period, while cash flow from operations fell to $13 million (15 cents per share) from $88 million.

Cominco’s bottom line was hurt by weak zinc, lead and copper prices, which were 37%, 14% and 28% lower than their respective prices in the third quarter of 1997. The weaker Canadian dollar, which partially offset the lower metal prices, resulted in exchange losses from the re-valuation of Cominco’s U.S.-dollar-denominated borrowings and from losses on forward sales contracts.

Lower zinc prices, combined with a 2-week shutdown of the Kivcet lead smelter in July, resulted in an operating loss at the Trail smelter-refinery.

On a positive note, production in 1998 has exceeded 1997 levels for all of the company’s major products, with the exception of refined lead, which suffered as a result of the Kivcet shutdown.

In August and September, Kivcet’s throughput averaged 70% of design capacity, compared with 46% in the second quarter of 1998. Refined lead production in the third quarter totalled 13,300 tonnes — 17% less than a year ago.

At Cominco’s 82%-owned Cajamarquilla zinc refinery in Peru, production capacity increased by 20,000 tonnes, to 120,000 tonnes per year. The increase represents the first phase of an expansion program that was commissioned in the second quarter of this year. In the third quarter, zinc production was 16% higher than a year ago, at 30,900 tonnes.

Construction work on the second phase of the expansion, which will double Cajamarquilla’s annual capacity to 240,000 tonnes, is to begin in late March 1999. At an estimated cost of US$311 million, startup of the refurbished refinery is expected by the end of the year 2000.

In other highlights, a production expansion program at the Red Dog zinc mine in northern Alaska achieved design capacity on a sustainable basis in September. Annual production is expected to exceed 900,000 tonnes of zinc concentrates and 150,000 tonnes of lead concentrates. Red Dog’s third-quarter production was 214,000 tonnes — 35% higher than in the comparable period in 1997.

Once again, Red Dog exceeded the previous year’s shipping record during the 100-day shipping window. During the current year, 760,000 tonnes of zinc concentrate and 125,000 tonnes of lead concentrate were shipped, representing a 24% increase over year-ago figures for both products.

Proven and probable reserves at Red Dog at the end of 1997 stood at 50.6 million tonnes grading 19% zinc, 5.2% lead and 99 grams silver per tonne, with possible reserves pegged at 72.9 million tonnes grading 13.6% zinc, 3.7% lead and 65 grams silver.

At Cominco’s 77.5%-owned Polaris mine in Canada’s Far North, 1998 shipments are expected to total 210,000 tonnes of zinc concentrate and 40,000 tonnes of lead concentrate, compared with 198,000 tonnes of zinc and 35,000 tonnes of lead in the previous year.

The Highland Valley Copper mine, near Kamloops, B.C., continued to produce higher volumes of copper concentrates in the third quarter, having benefited from higher mill throughput as a result of improved ore fragmentation and grinding techniques. Cominco’s 50% share is equivalent to 21,300 tonnes of copper concentrate — 4% higher than in last year’s third quarter.

For the first nine months of 1998, Cominco incurred a loss from continuing operations of $11 million (13 cents per share); the figure takes into account a $16-million gain ($11 million net of taxes) on the sale of the company’s interest in Global Stone. In the comparable period last year, the company earned $89 million ($1.04 per share). Cash flow between the two periods dipped to $83 million (97 cents per share) from $227 million ($2.65 per share).

With 85.4 million shares outstanding, Cominco’s working capital stands at $472 million, with net debt estimated at $874 million. The company recently announced a share buyback program for up to 2 million, or 2.3%, of its outstanding shares.