Falco profits drop

With decreased base-metal prices and problems at the Sudbury and Kidd Creek divisions, Falconbridge (FL-T) saw its earnings drop during its fiscal 1997 and its fourth quarter.

The company’s consolidated earnings for 1997 were $137 million (or 75cents per share) down from earnings of $247.9 million ($1.40 per share) the previous year. Its consolidated revenues of $2.09 billion during 1997 were $52.4 million lower than during 1996, while its operating income of $254.5 million was $72.8 million lower.

During the quarter ended Dec. 31, 1997, earnings were $7.1 million (3cents per share) compared with earnings of $27.8 million (16cents per share) for the same quarter of 1996.

“From an earnings point of view, the last quarter was not great,” said Lars-Eric Johansson, Falconbridge’s chief financial officer during a conference call. He pinned the blame on lower metal prices (except for zinc and silver), a weaker Canadian dollar, as well as certain problems in the Sudbury and Kidd divisions, both situated in Ontario.

The 1997 results include $18 million in expenses related to a 24-day strike by production and maintenance employees at the Sudbury division and $8.5 million associated with geotechnical problems at the Kidd mine.

“Except for the strike, we’re quite satisfied with the way things have moved in Sudbury,” said Falconbridge President Oyvind Hushovd, noting that all of the company’s Sudbury mines are positive cash contributors, even at today’s low prices.

During 1997, nickel production at Sudbury declined to 40,088 tonnes from 42,096 tonnes in the previous year; copper production fell to 45,568 tonnes from 48,847 tonnes in 1996.

The declines came despite a significant boost in both nickel and copper production during the fourth quarter.

Production from the Kidd mine was disrupted during the fourth quarter when a 57-million-tonne wedge of rock in the east wall of the open pit moved 2 metres. Part of the infrastructure of the upper mine was damaged and will have to be redeveloped.

“We will have a difficult time with mine production from Kidd until probably May or June of this year, said Hushovd. “We’re going to be suffering, especially on the zinc production and to some extent on copper production, in that we are not able to compensate the loss of the upper mine with additional production from the lower mine.”

Only the top 2,000 ft. of the mine (mine No. 1) has been affected by this wedge movement, while the deeper area (mines Nos. 2 and 3, and the proposed mine D) remains unaffected. As well, the main infrastructure at surface is unaffected, because it is on the opposite side of the pit.

The situation has stabilized, and mining is expected to resume between the 2,000 and 2,500 levels by mid-1998 once the affected areas of mine No. 1 have been redeveloped. Reduced feed from the mine will be replaced by increased purchases of custom feed and through available concentrate inventories.

Kidd’s 1997 production totalled 75,751 tonnes of copper (86,157 tonnes in 1996), 90,039 tonnes of zinc (102,047 tonnes) and 3.28 million oz. silver (4.33 million oz.). The company estimates that the wedge movement cost it 5,000 tonnes of copper and 15,000 tonnes of zinc during the fourth quarter.

Due to the problems at Kidd, the company estimates it will lose 35,000 to 40,000 tonnes of zinc production in 1998, and now has a target of 80,000 to 85,000 tonnes of zinc for the year. Copper production will be less affected; the target is 75,000 tonnes in 1998.

Overall, Falconbridge plans to produce about 79,000 tonnes of nickel in 1998.

At the Kidd metallurgical site, production improved during the fourth quarter, making up some of the shortfall from earlier in the year, when both the copper and zinc operations underwent major maintenance shutdowns. The company has launched a “28cents plan” aimed at reducing costs to the US20cents per lb. level.

During the past year, Falconbridge spent a total of $1.02 billion on capital expenditures, including $747.4 million at Raglan and Collahuasi. The total amount was up from the $686.4 million spent in 1996, and will be higher than the projected capital expenditures of $550 million during 1998.

Falconbridge’s 100%-owned Raglan nickel-copper mine in northernmost Quebec began producing concentrates in December 1997, almost three months ahead of schedule. Some 12,000 tonnes of modules were installed at the site by the end of the summer and both above- and below-ground construction has now been completed.

The plant is currently running at a half capacity — about 50 tonnes per hour — with the first shipment of concentrate from Deception Bay due in early March. The concentrate will be unloaded at Quebec City and then sent by rail to Sudbury, where the first smelting of Raglan concentrate is scheduled for early April.

Falconbridge expects to produce about 16,000 tonnes of nickel from the Raglan project in 1998, as nickel production is ramped up to a rate of 21,000 tonnes annually.

Both the smelter in Sudbury and the Nikkelverk refinery in Norway are making preparations to receive Raglan concentrates; Nikkelverk’s refining capacity is being expanded to 85,000 from 69,000 tonnes of nickel annually.

Meanwhile, in northern Chile, the Collahuasi copper project is also three months ahead of its schedule, with full commercial production slated for late 1998. Falconbridge and Luxembourg-based Minorco (MNRC-Q) each hold a 44% stake in Collahuasi, with a Mitsui-led Japanese consortium holding the remainder.

Thomas Pugsley, Falconbridge’s vice-president of projects and engineering, said the huge project — where more than 5,500 construction workers are currently active — is 80% complete. Crushing and preparation of oxide ores for leaching is scheduled to begin about mid-March, with the first concentrate line set to be commissioned in July and the second following about a month later.

About two-thirds of the pre-stripping (about 110 million tonnes) has been completed, and the Collahuasi mining crew now has the capacity to mine more than 340,000 tonnes daily.

Meanwhile, the Pacific port and pipeline should be commissioned in August and September, and the first ship should be loaded in September.

Elsewhere, the company’s Falcondo operation in the Dominican Republic posted record production in 1997, despite lower grades.

In New Caledonia in the South Pacific, Falconbridge’s partner Socit Minire du Sud Pacifique (SMSP) recently reached a preliminary agreement with the French government and state-owned Eramet regarding the swapping of nickel mining assets.

At the Konkola Deep copper project in Zambia, a prefeasibility study being undertaken with Anglo-American subsidiary Zambia Copper Investments is running behind schedule, but should be delivered by Feb. 13, 1998.

Falconbridge’s board has declared dividends of 10cents per share to shareholders of record on Feb. 11, 1998 and of 15.63cents per preferred share (Series 1) to shareholders of record on Feb. 13, 1998.