The Highland Valley copper mine in southern British Columbia will close its doors on May 15, unless the owners can negotiate significant wage and power concessions to keep the mine operating profitably at today’s copper price. A shutdown would result in 1,100 workers losing their jobs.
Highland Valley Copper is a partnership controlled 50% by
During the first quarter of 1999, Cominco realized an operating profit of $1 million from Highland Valley, which included $5 million in hedging gains on copper forward sales. The actual operating loss, before the hedging gain, was $5 million to Cominco’s account. A year ago, Highland Valley accounted for a $3-million profit.
At the end of March, the company had 38,000 tonnes copper hedged at US79 cents per lb.
Cominco President David Thompson says serious negotiations with the union and BC Hydro will begin in earnest once a final report from the BC Jobs Commissioner has been tabled. He confirms that Highland Valley will be closed on May 15 unless a new deal can be struck. “Our position has been that we want to operate Highland Valley at a profit,” says Thompson. “In other words, we want to be full cost break-even, including depreciation. That’s not easy. It needs concessions [considering the] low copper prices.”
Cominco reports first-quarter earnings of $4.4 million (or 5 cents per share), including an income of $3 million in tax refunds on an after-tax basis, compared with a loss of $2.7 million (3 cents per share) for the same period in 1998.
Operating profit for the quarter was $29 million, versus $19 million in the first three months of 1998. The company’s zinc assets, led by Trail, are largely responsible for the improvement in the operating profits, despite zinc and lead prices that were 7% and 6% lower than the average London Metal Exchange (LME) prices a year ago.
Sales revenue was $384 million, up slightly from $379 million a year ago. Higher sales volumes of refined zinc and lead in the first quarter of 1999 were partially offset by low metal prices and a strengthening Canadian dollar.
Production volumes in the first quarter of 1999 exceeded 1998 levels for all of the company’s major products. The operating profit of the Red Dog zinc-lead mine in northern Alaska rose to $13 million from $9 million a year ago, while costs came down about 10%. Cash costs are now running at about US32 cents per lb. zinc.
The mine produced 232,700 tonnes of zinc concentrate and 33,500 tonnes of lead concentrate during the first three months of 1999, representing a 33% increase in zinc production and a 4% increase in lead production over the first quarter of 1998.
Proven and probable reserves in Red Dog’s Main deposit stand at 47.6 million tonnes grading 19.2% zinc, 5.2% lead and 99 grams silver per tonne. Additional possible reserves in the Aqqaluk deposit are estimated at 72.9 million tonnes grading 13.6% zinc, 3.7% lead and 65 grams silver. An indicated resource in the Hilltop deposit is pegged at 9.6 million tonnes grading 17.8% zinc, 5.5% lead and 117 grams silver, whereas the Paalaaq deposit contains an inferred resource of 13 million tonnes grading 15% zinc, 4% lead and 90 grams silver. Paalaaq remains open on the northern and western sides. In 1998, a summer program of exploration drilling discovered a potential new zone below Paalaaq. This will be followed up in 1999 with further drilling.
Exploration drilling at Cominco’s Kudz Ze Kayah project in southeastern Yukon, identified a smalller massive sulphide deposit in the vicinity of the ABM deposit. The new discovery contains a resource of about 1 million tonnes grading 6% zinc and 3% lead, with additional copper, gold and silver. The ABM deposit hosts an indicated resource of 11.3 million tonnes grading 5.9% zinc, 1.5% lead and 0.9% copper, plus 1.3 grams gold and 133 grams silver.
The mining of high-grade ore zones at the 77.5%-owned Polaris zinc-lead mine in Canada’s Far North resulted in first-quarter production of 46,700 tonnes of zinc concentrate (a 33% increase over the amount produced a year ago) and 9,900 tonnes of lead concentrate. Polaris contributed $4 million in operating profit to Cominco, which was relatively unchanged from the first quarter of 1998.
Zinc production at the Sullivan mine in southern British Columbia was 6% lower, at 47,500 tonnes of zinc concentrate. Sullivan incurred an operating loss of $3 million for the quarter, against a loss of $2 million a year ago.
Trail’s higher operating profit of $18 million for the first quarter of 1999, compared with $3 million in 1998, was due to the improved operating performance of the Kivcet lead smelter and slag fuming furnace, which operated at an average 94% design capacity, and an all-time record zinc production of 74,000 tonnes.
A 17-day scheduled maintenance shutdown of the oxygen plant and the lead smelter is expected to affect the operating performance of Trail in the second quarter.
A 17% decline in the price of copper over past year is directly responsible for a realized $3-million loss incurred by the 47.25%-owned Quebrada Blanca copper mine in northern Chile, compared with a $2-million profit in the comparable period of 1998.
The 82%-owned Cajamarquilla zinc refinery, near Lima, Peru, generated an operating profit of $8 million, compared with $7 million a year ago. The production of 29,000 tonnes zinc during the 3-month period was 13% higher than in the comparable period in 1998. The increase was due to additional production from a 20,000-tonne, first-stage expansion program that was commissioned in the second quarter of 1998.
Engineering studies are completed on a second stage of expansion, which would double Cajamarquilla’s capacity to 240,000 tonnes per year. In the next few weeks, Cominco is expected to decide whether or not to proceed.
The operations generated a cash flow of $51 million (60 cents per share) for the three months ended March 31, 1999, versus $31 million for the comparable period in 1998. While part of that increase is due to an income tax refund, cash flow is up about 50% — in large part driven by Trail’s performance.
At the end of the first quarter, working capital stood at $415 million, compared with $446 million at the end of 1998. Net debt was reduced by $80 million in the quarter to total $740 million, or 34% of net debt plus equity.
Capital expenditures are currently running at a rate of $70 million per annum, with $35 million earmarked for the Trail operations.
The market for zinc changed little during the first quarter of 1999. Korea is showing signs of strength and recently lowered its exports to 160,000 tonnes this year from a planned 180,000 tonnes, owing to additional domestic demand. Thompson says the other countries in Southeast Asian are not doing any worse than last year, and that there is evidence of some recovery in Thailand and Malaysia.
Japan continues to disappoint. During the first quarter, emerging countries could import tariff-free into Japan, but imports were down dramatically to 19,000 tonnes, compared with 66,000 tonnes last year and 128,000 tonnes in 1997. The main supplier had been China, which is now feeding some of its product into Singapore at the monthly rate of 4,000 tonnes. Thompson says domestic demand in China is felt to be quite good, with Chinese exports no higher than they were last year.
Markets in Western Europe remain steady but are not growing at the pace they were last year. “The one market that has improved is the United States,” Thompson says. “It has come back very well since January.
“Overall we see a fairly balanced market now. We do not see any significant reason for stocks to decline rapidly in the next few months until one of these markets starts to improve, and that could well be Western Europe.”
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