Vancouver — Despite the negative effect of the rising Canadian dollar, the world’s largest zinc producer saw its second-quarter profits rise as a result of a tax gain.
The Canadian dollar averaged a spot rate of 1.4 to its U.S. counterpart in the second quarter, compared with 1.55 a year earlier. The major hedges about half its currency exposure, resulting in a realized rate of 1.47 for the quarter.
“The most significant change in the latest quarter was the appreciation of the Canadian dollar,” says Teck Cominco CEO David Thompson. “The impact on earnings is $8 million after tax.”
The rising Canadian currency also affected operating profit, which amounted to $40 million, compared with $49 million a year earlier.
Despite being highly leveraged to the zinc price, which remained basically flat at US35 per lb. during the second quarter, the major saw higher copper and gold prices. Between the second quarters of 2002 and 2003, copper prices jumped from US73 to US76 per lb., gold prices soared from US$318 to US$347 per oz., while coal prices remained flat at US$42 per tonne.
However, Thompson states that after hedging, and in Canadian dollars, zinc prices dropped 9%, copper prices fell 1%, coal prices slipped 5%, gold prices rose 3%, while lead prices remained flat.
Despite tepid commodity prices, cash flow from operations (before changes to non-cash working-capital items) rose to $51 million, compared with $46 million in the corresponding period of last year.
Demand for zinc in Europe was flat in the quarter, whereas in the U.S., demand was down from the year-earlier peirod.
“But China is still extremely strong, and this is affecting the surrounding countries,” adds Thompson. “Countries such as Japan are selling huge quantities of galvanized product into China, so their demand for zinc is quite good despite a flat domestic market.”
He adds that in the first six months of this year, net exports of zinc from China (exports less imports) were 200,000 tonnes lower, on an annualized basis, than in the first half of 2002.
Going forward, Teck Cominco sees some signs of hope for rise in zinc prices: “We see the industry straining itself out from the supply side, and the demand side may pick up next year.”
During the second quarter, Teck Cominco’s smelter and refinery operations posted an operating gain of $9 million, down from $10 million a year earlier.
Trail
The Trail smelter made an operating profit of $6 million, compared with $9 million in the second quarter of 2002, while the 85%-owned Cajamarquilla zinc refinery, near Lima, Peru, posted an operating profit of $3 million, up from $1 million.
Trail produced 72,500 tonnes zinc in the quarter, plus 25,200 tonnes lead, 4.89 million oz. silver, and 35,000 oz. gold, compared with year-earlier output of 71,500 tonnes, 21,400 tonnes, 4.1 million oz. and 39,000 oz., respectively. Also, Trail sold 257 gigawatt-hours of surplus power, a 56% rise from the second quarter of 2002. The average realized power price was US$31 per MW-hour in the recent quarter, compared with US$15 a year earlier. Power contributed $8 million to profits in the recent period.
At Cajamarquilla, production continued above its design capacity in the first quarter, turning out 31,200 tonnes of refined zinc, compared with the design rate of 30,000 tonnes. In April, the company boosted its stake in the operation to 85% from 82% after paying US$20 million to reduce the bank debt.
In Alaska, the Red Dog mine cranked out 142,100 tonnes zinc-in-concentrate, compared with 136,200 tonnes in the second quarter of 2002. Grades improved modestly and recovery rates remained little-changed at 21.5% and 84.2%, respectively. Low zinc prices pushed the operation to a loss of $3 million, from a $4-million shortfall in last year’s second quarter.
Teck Cominco’s 22.5% stake in the Antamina mine in Peru earned the company $4 million during the recent quarter, which is $1 million lower than a year earlier, reflecting lower recovery rates and output.
Antamina produced 65,000 tonnes copper-in-concentrate and 99,500 tonnes zinc-in-concentrate during the quarter. Mill head grades were 1.09% copper and 1.97% zinc, with recoveries of 83.77% copper and 81.65% zinc.
Back in British Columbia, the 63.9%-owned Highland Valley copper mine produced 42,600 tonnes copper-in-concentrate, down from 47,400 in the second quarter of 2002. The average mill head grade between the two periods fell to 0.39% copper from 0.43%, while copper recovery slipped to 87.21% from 89.91%. The operating profit tallied $7 million, $2 million less than last year, reflecting lower sales volume.
Hemlo mines
At the Hemlo camp in Ontario, Teck Cominco produced 31,000 oz. gold at the David Bell mine. The mill head grade was 10.64 grams gold per tonne, and the recovery was 94.5%, contributing to an operating profit of $2 million.
The nearby Williams mine produced 93,000 oz. gold from ore grading 3.98 grams gold per tonne, with mill recoveries of 94.5%. The operating profit there was $3 million, a marked improvement from the $2-million profit of a year earlier. Driving the turnaround were slightly higher grades and recoveries, as well as a higher gold price.
Cash costs for the combined operation rose from to US$255 from US$245 per oz., owing to a 10% appreciation in the Canadian dollar, says Thompson.
The Elk Valley coal partnership, in which Teck Cominco has a 35% direct stake, contributed $22 million in operating profit for the major on production of 5.8 million tonnes. The partnership was formed in February, in a deal involving Fording,
At the end of the second quarter, Teck Cominco had a net debt (total debt less cash) of $924 million, or 28% of net debt plus equity, compared with $1.08 billion or 30% of net debt plus equity at the end of the first quarter (this figure excludes Inco exchangeable debentures).
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