Shutdowns cost Falconbridge (October 28, 2002)

Lower nickel sales and shrinking revenue from precious metals production pushed Falconbridge (FL-T) to a third-quarter loss.

The major found itself $21.3 million in the red (or 14 per share), compared with a loss of $23.9 million (15 per share) in the corresponding period of 2001.

In the second quarter of 2002, Falco earned $41.1 million.

Revenue in the recent third quarter climbed to $538.9 million from $522.2 million, and the operating loss slipped to $17.8 million from $22.9 million. Also, cash flow amounted to $56.6 million, about $10.6 million higher than a year earlier.

However, refined nickel production slipped to 18,811 tonnes, compared with 21,680 tonnes a year earlier, owing to shutdowns at mining operations. Operating income from nickel mines was $15.2 million, up from $5.8 million in the corresponding period of 2001 on higher nickel prices.

Production at the 85%-owned Falcondo operations in the Dominican Republic was up slightly from a year earlier and ahead of budget. The operations contributed $6.2 million to operating income, versus a year-earlier operating loss of $12.8 million. The turnaround reflects improved ferronickel prices and higher sales volumes.

Falconbridge and Sindicato Unido de Trabagadores de Falconbridge Dominicana, which represents production and maintenance workers at Falcondo, plan to begin contract talks in late October. The current contract expires at the end of November.

Copper production climbed to 79,744 tonnes, from 77,699 tonnes in 2001. Operating income slipped $3 million, to $9.4 million, chiefly as a result of lower copper prices at Collahuasi in Chile.

Realized prices for the company’s bread-and-butter metals were as follows:

o US$3.23 per lb. nickel;

o US$3.22 per lb. ferronickel;

o US67 per lb. copper;

o US38 per lb. zinc; and

o US$4.70 per oz. silver.

All, save for zinc, were slightly higher than year-earlier levels.

The company expects its bottom line to improve in the fourth quarter, when operations will be running at capacity. Still, the company has trimmed its full-year refined nickel production target by 2,000 tonnes, to 68,000 tonnes.

A company release states: “The business climate continues to be challenging, especially for copper and zinc. However the outlook for nickel remains positive.”

At the end of September, Falconbridge had $1 billion in current assets and $529 million in current liabilities. Cash and equivalents at the end of the third quarter stood at $262 million. Net-debt-to-net-debt plus equity climbed to 44%, from 42% at the end of 2001.

The company has declared a dividend of 10 per common share, 2 per Series 1 preferred share, and 36.7 per Series 2 preferred share.