Falconbridge in the red, cheered by gold, silver

Earnings news on the first quarter this year announced at the annual meeting was considerably less than a barnburner for Falconbridge Ltd., but the company is looking for better things for the rest of the year.

Chairman William James told shareholders there was a loss in the quarter, before extraordinary items, of $15.4 million, or 24 cents a share, just about equal tothe loss Falconbridge sustained (again before extraordinary items) for the whole of 1986.

But, Mr James told The Northern Miner following the meeting, he expects Falconbridge is going to make some money in the last three quarters of the year.

“We’re going to have better quarters this year, I’ll guarantee you that,” he told the meeting.

An extraordinary gain of $43 million in the first quarter this year, from sale of the company’s 49% interest in Western Platinum, gave the company consolidated earnings of $28 million, or 44 cents a share.

The Falconbridge chairman said more than half of the first quarter loss is due to the weakening U.S. dollar, which resulted in a foreign exchange loss after taxes of $8 million.

That circumstance combined with lower nickel, copper and cobalt prices as well as reduced copper and zinc production sales to adversely affect the first quarter, he said.

Reciting a litany of poor prices for the base metals sector of the company’s business, he said only precious metal prices have recently shown marked improvement.

Falconbridge now produces more than 100,000 oz of gold annually, he pointed out, including production from the acquisition of Kidd Creek’s Hoyle Pond and Owl Creek mines. As well, Kidd Creek is budgeted this year to produce eight million oz of silver, the equivalent in value of about 130,000 oz of gold.

A large part of a $20 million exploration budget for this year will in fact be targeted at the Abitibi gold belt between Timmins, Ont., and Val d’Or, Que, he said, while additional gold and platinum exploration projects will be undertaken through joint-venture agreements with a number of junior companies.

Precious metals, he emphasized, continue to make a significant contribution to Falconbridge’s revenues.

In fact the company today is “quite different from the one of yesterday,” as a result of acquisition (Kidd Creek), and divestment (Kiena Gold Mines, Giant Yellowknife Mines, Corporation Falconbridge Copper, Western Platinum), he reminded shareholders.

“The difference in the contribution of various base metal products in 1986 versus 1985 is dramatic,” he said. “Nickel’s impact has been lessened by 50% as a result of the increased importance of copper and zinc.”

(At presstime, in a move following a late-night directors meeting, after the annual meeting, Falconbridge and Dome Mines announced they will buy all of the $270.8 million principal amount of 8.5% Falconbridge convertible debentures which Canada Development Corporation acquired in connection with the sale of Kidd Creek to Falconbridge last year.

Dome Mines, the companies said, would buy half of the debentures for about $157 million, and Falconbridge the remainder for cancellation, at the same price.

A spokesman for Falconbridge said as a result of the transaction, scheduled to close April 27, the company’s debt will be reduced by $135.4 million to approximately $876 million, improving the debt- to-equity ratio from 46:54, to 37:63. “It’s financially a very good move, very positive for us,” he commented.

Also as a result of the Falconbridge debenture purchase, Dome Mines’ stake in the company, on a fully diluted basis, will go to about 25% from the current 17.7%.

Falconbridge also plans an issue of 8,000,000 shares, through Dominion Securities, Wood Gundy, Burns Fry, and Gordon Capital Corp., for secondary offering in Canada and elsewhere outside the United States. Proceeds to Falconbridge would be about $160 million, most of which, the company spokesman said, could be used to pay for cancellation of the debentures.)