Teck Cominco posts lower profits

Vancouver — Poor base metal prices coupled with lower profits from power sales at Trail have substantially cut Teck Comico‘s (TEK-T) net earnings during the first quarter this year. In addition, the company will curtail its zinc production.

Teck Cominco posted net earnings of $2 million, or 1 per share, during the first quarter on revenue of $501 million. This compares with net earnings of $55 million, or 51 per share, on revenue of $672 million, during the same period in 2001.

Power prices averaged US$22 per megawatt hour during the quarter, much lower than the average price last year which was US$445 per megawatt hour. Zinc and copper prices averaged US$0.36 and US$0.71 per lb. respectively during the quarter, down, 22% and 11% when compared with the same period last year. Earnings during the first quarter also included an after-tax gain of $11 million, which resulted from the sale of the company’s 50% interest in Niobec.

Earlier in the quarter, the corporation decided to curtail production at its refineries as a result of a buildup of world zinc inventories. To this end, Teck Cominco will close its Trail operations in BC, during the month of August to reduce production by 25,000 tonnes. The Cajamarquilla refinery in Peru, will be closed for three months from June to August to reduce production by 30,000 tonnes. In addition the company will reduce its shipments of concentrate from the Red Dog mine in Alaska by 60,000 tonnes next year.

Teck Cominco’s operating profit rang in at $34 million, down from $184 million in the first quarter last year. All of the company’s operations reported lower profits with the exception of the Elkview and Bullmoose coal mines. Operating profits from coal tallied $22 million or 65% of the total operating profit. Refinery operations at Trail and Cajamarquilla added $8 million to Teck Cominco’s coffers while Highland Valley Copper added $5 million. Gold operations at Hemlo reported an operating loss of $1 million.

Cash flow from the corporation’s operations tallied $39 million during the first quarter compared with $191 million in the same period last year. As of March 31 the working capital was $616 million and the net debt (long-term debt less cash and restricted funds excluding exchangeable debentures) was $874 million, or 26% of net debt plus equity.

The Trail smelter and refinery cranked out 72,500 tonnes of zinc and 23,300 tonnes of lead during the quarter. This was up significantly over last year’s production of 48,400 tonnes zinc and 20,800 tonnes of lead. This was primarily due to the company’s decision to make production curtailments last year to maximize power sales.

The Cajamarquilla operations produced 30,500 tonnes of refined zinc during the quarter compared with 29,300 tonnes in the same period last year. The operating profit was $4 million down from $9 million last year due to lower sales volume and slumping zinc prices. Teck Cominco has decided not to proceed with a stage-2 expansion project in the near term.

The Red Dog mine, in Alaska, produced 141,700 tonnes of zinc in concentrate during the quarter, a 12% increase over last year. This was attributed to increased efficiency from the startup of the mill optimization program. Despite the increased production the mine recorded an operating loss of $3 million compared with an operating profit of $20 million last year. Teck Cominco attributes the loss to significantly lower zinc prices.

Teck Cominco’s share of production from Highland Valley Copper mine in B.C., was 28000 tonnes of copper in concentrate, a 4% decrease over last year. This was attributed to lower ore grades. Operating profit during the first quarter was $5 million, down from $20 million last year.

The Polaris mine, in Nunavut, produced 28,300 tonnes of zinc in concentrate during the first quarter, compared with 31,100 tonnes a year ago. The mine’s operating profit rang in at $1 million during the quarter compared with $4 million last year. Polaris is scheduled to close in August after the depletion of the ore body.

Gold production from the David Bell and Williams mines at Hemlo, Ontario, totaled 60,980 oz during the quarter. This is down from 73,716 oz. in the same period last year. Teck Cominco attributes the decrease to ground control problems related to backfilling in the east end of the B-zone of the Williams mine. These problems temporarily blocked access to high-grade ore in the area and should have a negligible impact on production during the second quarter. The average cash operating cost at the Williams mine was pegged at US$254 per oz during the quarter compared with US$206 last year. The increase in attributed to lower gold production.

Metallurgical coal production during the quarter tallied to 1.23 million tonnes from the Elkview mine. Combined coal sales from the Elkview and Bullmoose mines, in BC, tallied to 1.5 million tonnes, 100,000 tonnes higher than last year. The operating profit was $22 million up from $13 million last year due to higher sales and better coal prices as well as a more favourable US exchange rate.

The Antamina copper-zinc mine, in Peru, achieved commercial operation during the fourth quarter last year. During the first quarter the mine produced 283,000 tonnes of copper concentrate and 125,000 tonnes of zinc concentrate Cash costs are reported to be consistent with those in the feasibility study. Teck Cominco reports that fine-tuning and optimization of the mining and milling operating systems are on going and will further reduce costs. On a 100% bases, Antamina’s revenues for the quarter were US$130 million. After depreciation and amortization, net interest and other costs the net earnings were US$12 million. Teck Cominco is using the equity accounting method for Antamina and reports earnings of $4 million compared with an equity loss of $1 million during the fourth quarter last year.

Construction at the Pend Oreille project, in Washington State, is ongoing with completion scheduled for the end of 2003. Operations are expected to commence in 2004.

At the Pogo gold project in Alaska, feasibility work is continuing. The mill location has been revised and is expected to result in lower capital and operating costs. Permitting work has included the submission of an updated water management plan based on the revised location of the facilities.