Record profits fuel Falco’s ‘project pipeline’

Vancouver — “A solid fourth quarter capping an excellent year” aptly describes the latest financial and operating results posted by Toronto-based nickel giant Falconbridge (FL-T).

Aaron Regent, president and chief executive, made the bullish comment after reporting record earnings of US$672 million for 2004, including earnings of US$194 million in the fourth quarter. By comparision, the major turned a profit of US$191 million in 2003, including US$95 million in that year’s fourth quarter.

Looking ahead, Regent expects market fundamentals for nickel and copper to be “very positive into 2005, with demand remaining strong and supply being constrained for the lack of new projects.”

Falconbridge is applying some of its robust profits toward an aggressive agenda of mine development and expansion. Regent noted that the company is well positioned for growth, with a strong balance sheet and more than US$1 billion of liquidity, plus “an attractive pipeline of new projects” in various countries around the world.

The company’s new and expanded operations are expected to help the company reach its goal of setting new production records for both copper and nickel next year.

“This will be a stretch for us,” said Regent, “but we have sufficient feed and refining [capacity], so it’s what we’ll be shooting for.”

Last year, the company produced 100,900 tonnes of refined nickel and ferronickel and a record 340,000 tonnes of mined copper from its global operations. Production records were set at the Raglan nickel mine in Labrador and at the Collahuasi and Lomas Bayas copper mines in Chile.

In Canada, the Sudbury mines produced 5,700 tonnes of nickel and 6,800 tonnes of copper in the fourth quarter of 2004, about the same as a year earlier.

Kidd Creek was not a star performer, posting an operating loss of US$15 million for the quarter, but improvements are expected this year.

Raglan produced 6,700 tonnes of nickel-in-concentrate and 1,700 tonnes of copper during the fourth quarter, up from 5,600 and 1,500 tonnes, respectively, a year earlier.

The operating cash cost of mined nickel for all operations averaged US$2.93 per lb. in 2004, compared with US$2.78 a year earlier. The operating cash cost of copper was US58 per lb. in 2004, compared with US53 a year earlier.

Falconbridge also reported growth from various exploration programs carried out in the past year. Increased resources were reported at several operations, notably Raglan and Sudbury in Canada, where 4.3 million tonnes of mineral resources were added.

The two main exploration projects in the Sudbury camp are Nickel Rim South and Fraser Morgan. At Nickel Rim South, an underground definition program is continuing on schedule, with shaft-sinking slated to begin shortly. The inferred mineral resource was updated at year-end and now stands at 13.4 million tonnes grading 1.8% nickel, 3.3% copper, and “significant” palladium and platinum.

At Fraser Morgan, recent drilling has identified a new zone of mineralization, dubbed Zone 11. More drilling is planned and results will be incorporated into a prefeasibility study. The updated indicated mineral resource now stands at 4.9 million tonnes grading 1.8% nickel and 0.6% copper, plus an inferred resource of 2.1 million tonnes grading 1.8% nickel and 0.5% copper.

Project pipeline

The most ambitious project in Falco’s pipeline is Koniambo, one of the world’s largest and highest-grade nickel laterite deposits. It is in New Caledonia’s Northern Province, near the provincial capital of Kone.

Drilling to date has outlined measured and indicated resources of 142.1 million tonnes grading 2.13% nickel, plus an inferred resource of 156 million tonnes at 2.2% nickel. These calculations are based on a cutoff grade of 1.5% nickel.

At a 2% nickel cutoff, measured and indicated resources stand at 75.6 million tonnes grading 2.47% nickel. The property also has an inferred limonite resource of about 100 million tonnes grading 1.6% nickel and 0.2% cobalt, which could be developed.

Falconbridge and its joint-venture partners are looking to develop a 60,000-tonne-per-year nickel-in-ferronickel mining and smelting complex at Koniambo. If all goes as planned, the Toronto-based mining company will end up with a 49% interest in the proposed operation.

A bankable feasibility study of the project has already been completed. Capital costs are estimated at US$2.2 billion, not including US$500 million for working capital and various financing, interest and contingency costs.

Included in the capital costs are a US$600-million power station with an installed generating capacity of 390 MW. The remaining US$1.6 billion are allocated for the metallurgical plant, mine development and infrastructure, including a port and roads.

Falconbridge, together with its partners, are completing the financing structure for the project with a view to a possible startup date in 2009.

Closer to home, Falconbridge has finished construction of the Montcalm nickel project, near Timmins, under budget and two months ahead of schedule. The Ontario operation is running at full capacity and will likely produce 9,000 tonnes of nickel this year.

Late last year, the company approved the first phase of a project at Raglan aimed at boosting annual nickel production by about 5,000 tonnes. The capital cost for this phase is US$28 million and will include the conversion from autogenous to semi-autogenous grinding to boost production and better handle harder ores.

At the 44%-held Collahuasi mine, a scoping study assessing an expansion that would involve adding a grinding line and accelerating production in the Rosario pit. The goal here is to boost copper production by about 175,000 tonnes, with startup in 2007 at the earliest.

Plans also call for construction of a molybdenum plant. The plant would handle ore from the Rosario pit, which contains economic moly grades at depth. It’s believed to be one of the top three mines in Chile in terms of byproduct moly production potential.

The US$42-million plant will have a capacity of 12,000 tonnes of moly concentrate annually, with operations slated to begin late this year. Production in 2006 is forecast at 4,000 tonnes of moly-in-concentrate.

Falconbridge also improved its balance sheet during the past year, despite its ambitious program of mine development and expansions. The ratio of net debt to net debt-plus-equity strengthened to 24% from 37% at the end of 2003.