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Boliden posted an operating profit of $5.5 million for its latest quarter ended Dec. 31, the first it has shown since the first quarter of 1998. Even so, after taking into account a $4.1-million writedown and other expenses, it was still in the red to the tune of $9.9 million (or 11 per share), compared with a loss of $14.2 million a year earlier.
For the full year, the company lost US$68.2 million (68 per share) on revenue of US$1 billion, compared with a net loss of US$75.7 million on revenue of US$1.1 billion a year earlier.
Anders Bulow, president, admits the company has had “a rocky ride” since it came to Canada a few years ago, mostly because of the tailings dam failure at the Los Frailes mine in Spain, teething problems at several new mines, and the Asian crisis, which led to a prolonged period of low metal prices.
However, Bulow believes the company has made significant progress in its multi-front effort to address operating issues, as well as concerns related to liquidity and its balance sheet. “The latest results are a reflection of improved operations at Lomas Bayas [in Chile] and a solid performance at Myra Falls [in British Columbia],” he points out.
Myra Falls is back in production after a 3-month shutdown that began in late 1998, during which time underground workings were rehabilitated at a cost of about $15 million. Ground problems were causing significant dilution of ore, particularly in the higher-grade Battle/Gap areas, which was rectified by an underground program that included backfill work and re-bolting of more than 1,000 metres of drifts on a tighter pattern.
Boliden has re-introduced drift-and-fill at Myra Falls, which gives better control and less dilution in certain areas than open stoping, the more common methodology used in the past. Costs at Myra Falls have fallen to about US34 per lb. of zinc (net of byproduct credits), and production levels are now similar to those of early 1998.
At Lomas Bayas, teething problems in the project’s solvent extraction-electrowinning plant, caused by excessive chloride and nitrate in the ores, prevented production levels from reaching the plant’s rated capacity. The addition of coalescers in the plant reduced the chloride levels, and modifications to the process reagents solved the nitrate problem.
During the latest quarter, production of cathode copper at Lomas Bayas averaged about 95% of design capacity (60,000 tonnes of copper cathode per year) at a cash cost of US43 per lb. Down the road, Boliden expects to place its adjacent Fortuna de Cobre copper project into production. A feasibility study is under way.
Boliden also benefited from the resumption of operations at Los Frailes in Spain, which produced at about 78% of planned levels (125,000 tonnes of zinc and 2.9 million oz. silver-in-concentrate per year), reaching about 90% by year-end. As is the case with most new mines, efforts are continuing to improve mining productivity and mill efficiencies.
On the financial front, Boliden recently filed a prospectus in both Canada and Sweden for a US$149-million rights offering to holders of its common shares and holders of Swedish depository receipts representing common shares. About US$80 million of the net proceeds will be used to repay an outstanding amount under a bridge facility, with the balance earmarked for an expansion program at the Ronnskar metallurgical complex in Sweden.
“We did the Scandinavian-style rights offering because we have greater liquidity in Sweden,” Bulow says. “We have about 70% of our shareholder base there. In a Canadian context, we’re a young company with a turbulent history, but, in a Scandinavian context, we’re known for our strong brand name and steady production.”
Boliden is spending US$245 million to upgrade and expand its Ronnskar metallurgical complex. In addition to improved port facilities, the major cost items will be a new flash furnace, three new larger converters, a new anode casting plant, and an extension of the tankhouse and sulphuric acid plant.
Construction began in the summer of 1998 and should be completed this summer. Once full production is achieved in the second half of 2001, the design capacity of the metallurgical complex should increase by 71% to 240,000 tonnes of copper cathode per year. Operating costs are expected to fall accordingly, by 25-30%.
Of Boliden’s revenue, about 36% is derived from mining operations, 46% comes from smelting divisions, and 18% is attributable to fabricating.
This year, Boliden expects to produce 298,400 tonnes of zinc in concentrate and 152,100 tonnes of copper in concentrate and cathodes. The Boliden area operations in Sweden (five underground mines and one open pit) still supply about 25% of the company’s zinc-equivalent production.
In recent months, Boliden has also sold some non-core assets, including an interest in a Saudi gold mine for US$6.9 million, the Gibraltar copper mine in British Columbia for $11.2 million, and the bulk of its recycling subsidiaries for US$19.8 million.
On the exploration front, Boliden has returned impressive results from recent drilling of the Renstrom Deep and Simon zones at the Renstrom mine in Sweden’s Skellefte district. Select results from Simon include: 8 metres of 7.2% zinc, 1.4% copper, 1.3% lead, 151 grams silver and 41.3 grams gold; 4.5 metres of 12% zinc, 0.8% copper, 1.6% lead, 146 grams silver and 7.4 grams gold; and 5 metres of 14.1% zinc, 1.5% copper, 2.5% lead, 305 grams silver and 6 grams gold. Select results from Renstrom Deep include: 3 metres of 10.3% zinc, 0.7% copper, 3.1% lead, 259 grams silver and 1 gram gold; and 4.3 metres of 15.8% zinc, 0.9% copper, 4.5% lead, 577 grams silver and 5.4 grams gold.
History
The company is well-established in Sweden, where, in 1924, it began life by discovering a large gold deposit near the village of Boliden in the Skelleftea mineral district. It was the start of the Swedish Klondike, and the new discovery was reputed to be “Europe’s richest gold mine.”
However, challenges soon surfaced. The deposit was in a remote location, and the mineralogy, which contained high amounts of arsenic, was complex. Because only two smelters in the world were capable of handling the concentrates, Boliden built its own smelter to ensure reasonable recoveries of gold, silver and copper. In 1930, the Ronnskar smelter was born.
In the 1940s, the company acquired a cluster of mines and plants that provided a steady flow of ore, which triggered subsequent expansions and modernization of the smelter. By the 1960s, Boliden had opened its Aitik copper-gold-silver mine, 60 km north of the Arctic Circle, which remains a production cornerstone today. It was expanded in 1980 to produce nearly 70,000 tonnes of copper, 65,000 oz. gold and almost 2 million oz. silver. At about the same time, the company also got into the scrap metal business.
In the mid-1980s, Swedish giant Trellborg acquired Boliden. A few years later, Boliden acquired the Spanish company Aspira, which was operating an open-pit zinc mine at Aznalcollar in Spain. Subsequent exploration led to the discovery of the Los Frailes deposit, 1 km east of the Aznalcollar mine.
Boliden was spun off as a publicly traded company in June 1997 by Trellborg, which sold a 55% stake in a public offering worth $880 million. At the time it set up shop in Toronto, Boliden sported 11 European mines and two smelters.
Later that year, Boliden made an unsolicited $593-million takeover bid for Westmin Resources in order to gain an operating presence in the Americas. The key assets of interest were Westmin’s Lomas Bayas copper mine and its Myra Falls zinc-copper mine.
Boliden’s bid was successful, helped in part by strong 1997 earnings, which reached US$81.8 million
— more than double the US$38.3 million profit posted in 1996. But metal prices began creeping south in 1998, triggered by the Asian crisis and generally weak demand. Boliden’s share price began creeping south that year too, down to $3.50 from a high of $12.50.
This decline was largely precipitated by a May 1998 tailings dam failure at the Los Frailes mine, about 30 km northwest of Seville, Spain. The discharge, which contained acidic waters and solids (including heavy metals), flowed into a nearby watercourse and into flatlands along the bank of the Guadiamar River.
Remediation
The tailings-dam failure at Los Frailes was more than a public relations disaster; it was a significant threat to Boliden’s continuing viability. Los Frailes was immediately closed, and the company was forced to declare force majeure on its smelter contracts.
However, financial considerations were not the foremost thing on the company’s mind at that time; it focused all its energies and efforts on a swift response to the incident, which is now being credited with having mitigated the downstream environmental impacts of the spill, particularly on a national park, 45 km away.
An independent consultant has since concluded that design and construction deficiencies contributed to the failure, and it now appears that the seeds for the disaster may have been sown 10 years before the company bought the mine facilities.
Investigators found that the accident was the result of more than 60 metres of lateral movement of a 700-metre section of the dam, along a bedding plane in what is called the Blue Clay Formation, at a depth of 14 metres below surface. The independent firm directing the investigation concluded that there was “no doubt” that the accident was caused by a fault in the formation, as a result of surplus pressure in the interstitial water of the clays, as well as pressures attributable to the weight of the dam and deposited tailings.
A subsequent review by another firm found that the dam’s stability had been affected by three main deficiencies in the design and construction work carried out by a Spanish contractor and its associated engineering firms.
“It’s like buying a house with a hidden fault,” Bulow says. “But, as the new owner, we’ve had to deal with the effects of that.”
Bulow points out that cleanup operations were successfully completed by late 1998: “The surface water quality has returned to normal and, as for metal content, we’ve satisfied Health Organization standards. It was a negative event, fundamentally, but we proved we had the ability to deal with it quickly, and that translated into a lot of local support for bringing the mine back into production.”
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