Despite having taken some significant writedowns in junior companies during the past few years,
During a conference call with analysts, President Norman Keevil reported that the company had picked up a small stake in
Keevil maintains this is a reasonable level to sustain the company’s commitment to exploration, given that three advanced development projects are on the drawing boards right now: the Pogo gold deposit in Alaska; the San Nicolas base metal massive sulphide project in Mexico; and the Antamina copper-zinc project in Peru.
On the financial front, Teck reported 1998 earnings of $15 million (or 15 cents per share) before writedowns of $56 million plus its share of
Writedowns against 1998 earnings included $18 million on its
Teck sold its 3 million shares of VBN to
Including the year-end provisions against investment value, the loss in 1998 was $49 million (51 cents per share), compared with a loss of $176 million ($1.81 per share) in 1997.
“Even with low metal prices, I think we came through with quite satisfactory results,” said John Taylor, Teck’s senior vice-president. “That is really due to what has happened at our operations. Generally, there have been production increases and cost decreases.”
Between 1997 and 1998, gold and metallurgical coal production increased by 19% and 9%, and Teck reduced unit costs at 10 of the 11 mines in which it holds an interest. Cash operating profits from gold and coal operations increased by 27% and 14%, respectively, over 1997, while copper profits decreased by 43%.
Cash flow from operations, before changes to non-cash working capital items, was $128 million in 1998, versus $140 million in the previous year.
Teck’s balance sheet changed little in 1998. The company ended the year with a working capital of $268 million, including $196 million in cash. Long-term debt, excluding the exchangeable debentures, was $452 million.
Mining revenue for the year was $695 million, up slightly from $688 million in 1997, with higher gold revenues from the Tarmoola mine offset by lower copper revenues. Revenues from coal, zinc and niobium operations were all similar to 1997 levels.
Production was above forecast for every commodity in 1998 and exceeded 1997 levels in all categories but copper. Gold production was 446,000 oz., up sharply from 374,000 oz. in 1997.
The Tarmoola mine in Western Australia accounted for a third of total production. Tarmoola is owned by PacMin, an 80%-held Australian-listed subsidiary of Teck, and hosts reserves of 17.2 million tonnes grading 2.19 grams gold per tonne, equivalent to 1.2 million contained ounces. In 1999, the mine is expected to produce 180,000 oz. at a cash cost of US$210-220 per oz.
PacMin recently purchased the Carosue Dam gold project, near Kalgoorlie, from Western Metals. The project contains an inferred resource of 12.8 million tonnes grading 2.8 grams gold per tonne, equivalent to 1.2 million contained ounces. The project, which will undergo a feasibility study this year, has the potential to produce 130,000-150,000 oz. per year at a capital cost in the order of A$40 million.
The 50%-owned David Bell and Williams mines in the Hemlo camp of northern Ontario contributed 286,000 oz. to Teck’s account last year, compared with 302,000 oz. in 1997. An expected decline in the ore grade at both mines is responsible for the shortfall in ounces. Cash costs averaged US$200 per oz. at David Bell ($6 per oz. higher than in 1997), whereas cash costs at Williams declined to US$217 per oz. (compared with $229 in the previous year).
The company realized an average gold price of US$334 per oz., versus $348 per oz. in 1997, and has hedged 195,000 oz. of Canadian gold production over the next four years at a price of US$386 per oz., plus 1.2 million oz. of Australian production over nine years at A$552 per oz.
The company produced 128 million lbs. copper last year, down slightly from 132 million lbs. in 1997, while the average realized copper price dropped to US80 cents from $1.03 per lb.
Metallurgical coal production from the Elkview and 61%-owned Bullmoose mines in British Columbia was up 9% over 1997 levels at 4.3 million tonnes. Costs were slashed at both mines in 1998 and further savings are expected in 1999 owing to lower freight rates.
Michael Lipkewich, senior vice-president of mining, is hopeful the volume can be maintained in 1999 but said there could be a material decrease in volumes from Elkview. “There is a strong likelihood the price will be reduced this year by about US$9 per tonne. I think Bullmoose and Elkview — and, I suspect, Quintette — will all still be viable.”
Japan has already cut back on the tonnage of its annual contract for hard coking coal. The other market participants have yet to start their contract negotiations.
Commenting on Teck’s overall performance, Lipkewich said: “Generally, we had good production and good operating costs, and we’re fairly optimistic we will be able to sustain these costs next year.”
The company’s greatest capital outlay last year was its $64-million investment in the Antamina copper-zinc project. The company acquired a 25% interest in Compania Minera Antamina, the Peruvian company that owns the project. The balance is divided equally between
Antamina is perched at an elevation of 4,200 metres in the Andes Mountains of central Peru. Open-pit minable reserves are calculated at 494 million tonnes grading 1.3% copper, 1% zinc and 0.03% molybdenum, plus 12 grams silver per tonne.
Contracts for up to $250 million have been awarded for roads, mining equipment, camp construction and engineering. Road construction and pit stripping are proceeding, while mine crews prepare to excavate the concentrator and shop facilities. The first pour of concrete is expected by October of this year, with startup slated for September 2001.
Capital costs have increased by $110 million to US$2.26 billion following the completion of an updated feasibility study. Material changes include the construction of a US$175-million pipeline to transport the concentrate from the mine site to the Pacific port of Huarmey, just over 300 km away. The mill and primary crusher were relocated, and changes were made in the configuration of the haulage roads in the pit to reduce the operating cost.
The original feasibility projected an operating cost of US42-45 cents per lb. copper. Costs are now expected to fall below US30 cents per lb. during the first 10 years, with the life-of-mine estimate pegged at US36-37 cents per lb.
The partners have signed a commitment letter with a syndicate of banks for US$600 million, or half of the $1.2 billion required to finance the project. The balance is under negotiation with a group of international import and export agencies, with the closing expected in the second quarter.
At prices of US95 cents per lb. copper and US55 cents per lb. zinc, Teck’s rate of return would be 15%. At US90 cents per lb. copper and US45 cents per lb. zinc, the rate falls to 12%.
Meanwhile, at the San Nicolas massive sulphide project in Mexico’s Zacatecas state, Teck wi
ll assess metallurgical and geotechnical data before deciding whether or not to proceed with a feasibility study. Western Copper Holdings (wtc-t) has a 45% interest in the project, with Luismin, a Mexican company, retaining a back-in right to a 25% participating interest.
The project hosts a resource of 72 million tonnes grading 2.27% zinc, 1.35% copper, 0.53 gram gold and 30 grams silver. Teck assumed a pit slope of 45, leading to an overall waste-to-ore stripping ratio of 7.3-to-1. About 100 milllion tonnes of waste will have to be pre-stripped.
A consultant has advised Teck to steepen the walls of the pit to 54 in order to reduce the stripping ratio to about 5-to-1 and save about US$2 per tonne in operating costs.
In Alaska, the company has applied for permitting to begin underground exploration of the Pogo gold deposit, where a geological resource of 5.2 million ounces is contained in 9.1 million tonnes grading 17.8 grams. An adit will be driven to enable infill drilling and bulk sampling for metallurgical testing. Surface drilling is also planned, and Teck expects to have permits in hand by early March. A feasibility study is targeted for completion by the end of 2000.
Teck is earning a 40% interest in the Pogo project from Japan’s Sumitomo Metal Mining.
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