Falconbridge chalks up another profitable quarter

The continued strength of base and platinum group metals translated into another profitable quarter for Falconbridge (FL-T).

Net earnings for the three months ended June 30 topped $126.3 million (or 70 per share) on revenue of $753.6 million, compared with $30.9 million (16 per share) on $529.4 million a year ago. With the exception of silver, the major realized higher prices for all its metals, especially nickel, which averaged US$4.55 per lb. — its highest in over a decade.

Cash flow for the periods was $253.2 million and $51.7 million, respectively.

“This is actually the sixth-consecutive quarter that we are reporting improved earnings,” notes Chief Financial Officer Lars-Eric Johansson. “Of course, higher metal prices are one reason [behind this], but just as important is the fact that Raglan [in northern Quebec] and Collahuasi [in northern Chile] now account for 41% of our cash operating profit.”

Cash operating profits in the recent quarter were $299 million, of which Raglan and Collahuasi accounted for $121 million. The mines accounted for 8% more of the operating profit than a year ago, when both were still being ramped up to full production.

Falconbridge owns a 100% interest in Raglan and a 44% interest in Collahuasi, with the remaining stake in the latter split between Anglo American (AAUK-Q), with 44%, and a Japanese consortium, with 12%. Both mines are now operating at better-than-feasibility projections.

Falco mined the following volumes from its various operations:

– 14,622 tonnes nickel;

– 7,625 tonnes ferronickel;

– 72,217 tonnes copper;

– 28,590 tonnes zinc; and

– 712,000 oz. silver.

Of note, copper output from the Integrated Nickel Operations, which includes Raglan, was impeded by a rock burst in the Strathcona Deep Copper zone of the Fraser mine. The negative affect is expected to carry through the remainder of the year.

Furthermore, a scheduled 2-week shutdown at the smelter in Sudbury, Ont., caused the Nikkelverk refinery in Norway to operate below capacity. The refinery is now projected to crank out only 75,000 tonnes nickel in 2000.

In Sudbury, contract negotiations continue between Falconbridge and 1,250 production and maintenance workers. The union’s current contract expires Aug. 1.

In Timmins, the Kidd Creek mine overcame ground control problems (reported in the first quarter) to mine 13,946 tonnes copper, 28,590 tonnes zinc and 712,000 oz. silver. Copper production is actually slightly off from the first quarter, though zinc and silver output is significantly better.

The Kidd metallurgical plant operated at capacity, following a premature maintenance shutdown in the first quarter. The plant is now expected to produce 123,000 tonnes copper cathode this year, though zinc production projects remain unchanged.

A bright spot was Collahuasi, which mined more tonnes and higher grades than planned. Falco now expects its share of copper cathode output to top 181,000 tonnes this year, or 10,000 tonnes higher than originally forecast.

For the six months ended June 30, the company pocketed $235.8 million (or $1.30 per share) on revenue of $1.42 billion, compared with $22.6 million (10 per share) on $967.1 million a year ago. Again, higher metal prices, combined with a full period’s worth of output from Raglan and Collahuasi, account for the difference.

Cash flow for the first half of 2000 was $405.1 million and $166.3 million for the comparable period of 1999.

Meanwhile, Falco has approved plans to deepen Kidd Creek by 1 to 3.1 km below surface, which will make it the world’s deepest base metal mine. Dubbed Mine D, the project is expected to cost $640 million to complete.

Development will occur in two stages, with the first scheduled for completion in 2009. By then, most of the development costs will have been consumed, including $131 million for a new internal shaft, $42 million for a new ventilation and refrigeration system, and $35 million for a new mining fleet. A portion of the expenditures will be offset by the revenue generated after production begins in 2004.

Since its birth as an open pit in 1963, Kidd Creek has gone on to yield more than 100 million tonnes from three separate shafts. At full steam, Mine D is expected to add 2 million tonnes to Kidd’s annual production.

Reserves for the first stage are pegged at 15.7 million tonnes grading 2.82% copper, 5.74% zinc and 58 grams silver per tonne. Those blocked out for the second stage, which will begin 2.7 km below surface, currently stand at 10.5 million tonnes grading 2.2% copper, 5.27% zinc and 97 grams silver.

In other developments, Falco and Australian giant Broken Hill Proprietary (BHP-N) have reached a tentative agreement for the joint development of the Gag Island nickel laterite deposit in Indonesia. Assuming all goes well, Falco will acquire half of the latter’s 75% stake by spending US$75 million on a bankable feasibility study.

Resources at Gag Island are pegged at 240 million tonnes grading 1.35% nickel. This includes material from both oxide and silicate laterite zones.

Meanwhile, in New Caledonia, a prefeasibility study at the Koniambo nickel laterite project remains on schedule for completion by year-end. The deposit is now estimated to contain 146.5 million tonnes averaging 2.56% nickel.

On June 30, Falconbridge had $608.71 million in working capital. On that day, the major’s net debt-to-debt plus equity totalled 35%; it is expected to drop to 31% by year-end.

Falconbridge has approved the following dividends: 10 per common share, payable on Aug. 14; 2 per Series 1 Preferred share, payable on Sept. 1; and 36.72 per Series 2 Preferred share, payable on Sept. 1. This follows $43.9 million, paid out in the first half of the year.

Noranda (NOR-T), Falco’s largest shareholder, recently increased its ownership to 50.1%. It now holds 88.62 million shares.