Falco boosted by higher nickel prices, tax cut

Higher nickel prices and a one-time $12-million tax recovery owing to changes in federal resource taxes helped Falconbridge (FL-T) to higher earnings of $56 million during the three months ended June 30.

The earnings translate into 30 per share, and compare favourably with year-ago earnings of $38.5 million (or 20 a share). Consolidated revenue between the two periods climbed by $60.6 million to $695 million, thanks mostly to increased nickel volumes and a 20% increase in the company’s realized nickel price.

Similarly, cash flow from operations (after working capital) climbed $33 million to $155.4 million.

So far this year, Falco earnings have nearly doubled to $116.5 million, or 62 a share; revenue climbed 20% to $1.4 billion, while operating income soared 76% to $167.6 million. The increases reflect higher nickel prices (up 27% to $3.85 per lb.) and volumes. The company also enjoyed slightly higher realized prices for its other metals.

Cash flow from operations climbed 37% to $219.1 million.

Falco’s mined metal volumes during the quarter came in at: 20,311 tonnes nickel (versus 20,354 tonnes in the second quarter of 2002); 6,557 tonnes ferronickel (7,152 tonnes); 79,864 tonnes copper (83,343 tonnes); 16,476 tonnes zinc (26,858 tonnes); and 548,000 oz. silver (774,000 oz.). Refined production totalled 26,697 tonnes nickel (25,476 tonnes a year earlier), 68,259 tonnes copper (65,618 tonnes) and 30,966 tonnes zinc (34,654 tonnes).

That performance is mimicked during the year so far, except for ferronickel production, which increased 3,180 tonnes to 13,444 tonnes.

For the quarter, Falconbridge realized an average of US$3.87 per lb. of nickel (up 20%), US$3.79 per lb. ferronickel (up 21%), US76 per lb. copper (up a penny), zinc was unchanged at US39 a lb., and realized silver prices fell US8 to US$4.62 per oz.

“Our production and overall financial results for the quarter were positive; however, we continue to be challenged by the strengthening of the Canadian currency relative to the U.S. dollar and by cost pressures resulting from high energy prices,” said Regent. “Metal prices have been steady with the exception of nickel which has been a strong performer. The economy remains a concern but we are cautiously optimistic for the balance of the year.”

Looking ahead, Falco expects nickel output from its Integrated Nickel Operations to fall in the third quarter thanks to scheduled shutdowns at Lockerby, Thayer Lindsley and at the Strathcona Mill.

At quarter’s end, Falco had $427 million in cash, up from $260 million at the end of 2002.

The company has declared a dividend of 10 per common share, 2 per Series 1 preferred share, and 36.72 per Series 2 preferred share. The dividends are payable between the end of July and August 18.

Shares in Falconbridge were unchanged at $18.15 in afternoon trade following the news on July 21.