Falco on cost-cutting track

Pushed by low prices for nickel, copper and zinc, Falconbridge (FL-T) slipped a little deeper into the red during the past quarter.

For the three months ended Sept. 30, the company lost $10.5 million (or 7 cents per share), compared with earnings of $23.5 million (13 cents per share) for the corresponding period last year.

Third-quarter revenue dropped to $410.3 million, from $519.1 million in the year-ago period, and the company incurred an operating loss of $5.7 million, compared with operating income of $50.6 million in the third quarter of 1997. Falco’s average realized prices for nickel and copper were US$2.01 and US77 cents per lb., respectively, down from US$3.18 and US$1.04 a year ago.

“The quarter was again characterized by falling prices,” says President Oyvind Hushovd. “The economic outlook is weakening and it doesn’t look like we can expect to see major improvements in the prices of our metals in the near future. We are continuing with a strategy that’s been unchanged for some time: all our operations have long-term cost-reduction objectives and we are making considerable progress toward lowering our costs.”

In contrast to Inco’s drastic slashing of its Canadian workforce (see separate story), Falco has reduced its workforce by only 125 employees and 175 contract employees since the beginning of the year.

During the third quarter, Falco’s mines and plants in Sudbury operated slightly below plan, due in part to lower-than-expected ore grades and the impact of a summer maintenance shutdown. The smelter is solving various commissioning problems with feed from the Raglan nickel-copper mine in northern Quebec and is gradually increasing its processing rate of the new material. Raglan increased its nickel production and achieved its planned annualized production rates during the quarter.

Mine production from the Kidd operations in Timmins improved during the quarter, and the metallurgical site continued to operate at a high level, contributing to improved operating costs. During the quarter, the capacity of the copper refinery was expanded to an annual rate of 128,000 tonnes. Kidd’s income for the last quarter was $17.1 million, down from $35.3 million in the same period last year.

Production and maintenance employees at the Kidd metallurgical site narrowly voted in favor of representation by the National Automobile, Aerospace, Transportation and General Workers Union (CAW Canada), by a margin of 386 to 353.

Ballot boxes had been sealed since last December pending the outcome of an Ontario Labour Relations Board hearing into Falconbridge’s position that the proposed bargaining unit should contain production and maintenance workers from both the Kidd mine and the metallurgical operations.

The labor board ruled that the metallurgical site, by itself, was an appropriate bargaining unit, and ordered the votes to be counted.

Falco is appealing on the grounds that the decision contains “material and significant errors in fact.”

In Norway, the newly expanded, 85,000-tonne-per-year Nikkelverk refinery operated below capacity in the third quarter, owing to shortages of matte from Sudbury and from custom feed sources.

In the Dominican Republic, production by subsidiary Falcondo fell short of capacity owing to a 10-day interruption caused by Hurricane Georges. While full production resumed in early October, operations were halted again by a previously planned, 3-month shutdown. The interruption and the shutdown will result in a production loss of about 10,000 tonnes of nickel in ferronickel.

In northern Chile, where Falco has teamed with Minorco (MNRC-Q) and a Japanese consortium to develop the Collahuasi copper mine, the oxide plant is operating near its annual capacity of 50,000 tonnes of copper-cathode, and material is being fed into the first line of the sulphide plant. The concentrator is expected to start up in November, putting Collahuasi back on track for commercial production to begin in early 1999.

The joint venture in New Caledonia between Falco and La Socit Minire du Sud Pacifique continues to move forward. Drilling began on the Koniambo deposit in September in order to establish a resource base.