Falconbridge subsidiary looks to profitable 1987

Its laterite nickel operations near the city of Bonao have become the envy of Falconbridge Ltd.’s competitors. It is also helping out the economy and the exports of the Dominican Republic, especially in these days of depressed sugar prices and consumption. In fact, Falconbridge Dominicana C por A (Falcondo) is the third biggest export earner in the country. Sugar still ranks number one accounting for about one third of the annual export value, followed by gold and silver for which Rosario Dominicana S.A. (previously controlled by Rosario Resources) is the main producer.

In 1986, Falcondo’s nickel shipments amounted to 48.5 million pounds, worth $87.8 million(US), down from 56.9 million pounds of nickel valued at $124.8 million in the year before. Falconbridge has a 67.7% equity interest in Falcondo and exclusive rights to purchase and market the ferronickel produced from the plant.

Falcondo enjoys a strong and favorable political and economic following in the Dominican Republic. It employs about 1,300 Dominicans (and only 12 expatriates) and the wages and employee benefits are among the best in the country.

In addition, it supplies about 10% of the country’s daily electricity consumption and is a steady and a reliable producer.

The company’s power plant in Bonao sells about 30% of its generating capacity to the national grid. In 1986, Falcondo had income of $8.5 million from power sales compared with $4.3 million in 1985. Without this extra source of income operations would sustain serious losses.

The mining operation seems a straightforward earth moving operation yet equipment availability is of utmost importance to carry the high volume of ore to the metallurgical plant. Mining is centred mainly at three different locations with an average haulage distance of 10 km to the plant compared with a mere two km in the earlier years of the operation.

In future years, distances will get longer and with that the maintenance and the machine shops will increasingly play a key role for equipment availability.

The mineral reserves at the end of 1986 were 29.7 million tons grading 1.91% nickel. The change in the cut-off grade in recent years reduced the reserve tonnage, yet the mineralization of the area is likely to sustain Falcondo operations for at least another 10 years.

The ore has to be blended carefully for grade control as well as the plant’s need for chemical specifications. The ore is stored in three storage bays, each having sufficient capacity for one week’s operation. After a drying process, the ore is conveyed to the reduction plant. The calcined ore from the shaft furnaces is then transported to the electric furnace.

In an ingenious way, Falcondo implemented plans for only one of the original three electric furnaces to operate and the company still can produce more than 50 million pounds of nickel annually.

This has brought about substantial savings in the operating costs. The original plant capacity was designed for more than 63 million pounds and the total cost came in at about $200 million at the time of completion in 1971. Moreover, plant economics were set on the basis of the low oil prices of the 1960s.

In the past decade of higher crude oil costs, improvements in efficiencies were made but the annual consumption of about three million barrels of crude oil gives the operations a high dependency on oil economics and politics.

The final output of refined metal comes in the form of pigs (more than two-thirds of the plant’s production) and the rest in ferrocones. The pigs and ferrocones contain 34% to 40% nickel. The variation mainly depends on the final market destinations.

Falconbridge Dominicana incurred a net loss of $2.2 million in 1986, compared with a loss of $10.5 million in 1985. However in 1986, the period from May to December produced net earnings of $7.3 million, as a result of lower oil prices and higher production rates.

The average price paid for the imported crude oil was about $12 a barrel in 1986 compared with $26.50 in 1985. The loss for 1986 was caused by the lower output in the earlier part of the year, due to a planned maintenance shutdown in January and a month-long strike in April.

The year 1987 had a profitable start and at present nickel prices, volume of nickel demand and crude oil costs the company hopes to finish the year with black ink at the bottom line.

Mr Ortslan is with the Montreal investment house of Deacon Morgan McEwen Easson.