Copper, lead prices affect Cominco’s earnings

While zinc prices were robust during the first quarter, copper and lead prices were not, resulting in a moderate decrease in earnings for Cominco (CLT-T).

The company reported a profit of $21 million (or 24 cents per share), compared with $27 million (31 cents per share) for the first quarter of 1996.

Cash flow rose to $65 million from $63 million.

Worldwide demand for zinc continues to be strong and should lead to higher prices in 1997, says President David Thompson.

Speaking at his company’s annual meeting, Thompson said the firm is well-positioned to take advantage of expected improvements in the zinc sector.

He told shareholders that the consumption of zinc in the West now exceeds production, having increased at a compound rate of 2.3% per annum since 1980.

Over the past 17 years, world consumption of zinc has grown to 6.3 million tonnes annually from 4.5 million tonnes, he said. More than half of that growth occurred since 1990.

Yet despite the increase in demand, the real price of zinc in 1996 was the lowest in 10 years. At presstime, it stood at US59.2 cents per lb.

Thompson blamed the low price on the influx of the metal from the China and the former Soviet Union. In the mid-1980s, eastern bloc countries imported up to 250,000 tonnes per year, while, in recent years, exports from there fed almost 10% of Western demand. He said exports from China could rise this year to between 280,000 and 300,000 tonnes from the 200,000 tonnes reported in 1996.

These imports have been largely absorbed by the West, Thompson said, and a deficit has emerged that is being met by inventory drawdowns on the London Metal Exchange.

“We project that this deficit will continue in 1997, and that the current surplus of zinc inventory will be largely eliminated by the end of the present year,” he said, adding that this bodes well for Cominco, given that zinc accounts for 48% of its revenue.

At the company’s Red Dog mine, in northwestern Alaska, production of zinc concentrate is expected to increase to 740,000 tonnes in 1998 from 550,000 tonnes in 1997.

In 1996, Cominco produced a total of 946,300 tonnes of zinc concentrate and 377,300 tonnes of refined zinc. Thompson predicted that production of refined zinc would increase by 40,000 tonnes in 1998 as a result of improvements made to the refineries in Trail, B.C., and Cajamarquilla, near Lima, Peru.

.SSatisfactory quarter

Total zinc concentrate production during the first quarter was 240,000 tonnes, similar to levels attained during the same quarter last year. Zinc production accounts for 40% of Cominco’s revenue.

Production of lead concentrate at the Trail smelter rose 7% to 56,100 tonnes, owing to increases in recovery and production at Red Dog and at the Sullivan mine, near Kimberley, B.C.

Cominco’s 50% share of copper-in-Concentrate production at the Highland Valley copper mine, also in British Columbia, was 19,100 tonnes — 6% higher than in the first three months of 1996.

Operating profit at Red Dog was $20 million, or $15 million higher than in last year’s first quarter. The increase is attributed to three factors: a 13% rise in the price of zinc, a 20% increase in sales volumes of zinc concentrate, and lower unit production costs from improved recoveries in the milling process.

Operating profit at Trail was $15 million, or 40% lower than levels recorded a year ago. Lead production was also down, and treatment of residues generated by the zinc refinery was restricted as a result of the startup of the Kivcet lead smelter at Trail, which began processing feed material in late March.

As of March 31, Cominco had $352 million in working capital, compared with $494 million a year earlier. Total debt stood at $594 million, compared with $650 million.