Falco flies high in Q2

Higher metal prices offset lower production and increased mining costs for Falconbridge (FL-T) in the second quarter, enabling the major to more than triple earnings to US$139 million.

Falco turned a profit of US$139 million (or US77 per share) in the 3-month period, compared with US$39 million (US21 per share) in the second quarter of 2003.

The recent quarter’s earnings include a non-recurring, non-cash, after-tax loss of US$9 million related to how the company accounts for its interest rate hedge contracts. An early shutdown of the Kidd metallurgical operations also cut into earnings.

Revenue rose 44% to US$704 million, operating income jumped by US$139 million to US$189 million, and cash flow from operations (before working capital changes) more than doubled to US$216 million.

Realized prices for nickel, copper and zinc rose 49%, 64% and 31%, respectively, from the year-earlier period. On the other hand, nickel and copper sales volumes fell 4.6% and 15.5% to 25,833 tonnes and 88,020 tonnes. The lower volumes are attributed to the residual effects of a 3-week strike at Sudbury operations in the first quarter.

Mined metal volumes amounted to 18,828 tonnes nickel (versus 20,311 tonnes in the second quarter of 2003), 6,871 tonnes ferronickel (6,557 tonnes), 84,719 tonnes copper (79,864 tonnes), 10,700 tonnes zinc (16,479 tonnes), and 757,000 oz. silver (548,000 oz.). Refined production totalled 22,970 tonnes nickel (26,697 tonnes a year earlier), 49,348 tonnes copper (68,259 tonnes), and 35,918 tonnes zinc (30,966 tonnes).

Company-wide operating cash costs per pound of mined nickel rose 15% to US$2.83; copper cash costs rose US2 to US52 per lb.

Falco realized an average of US$5.76 per lb. of nickel, US$5.85 per lb. of ferronickel, a weighted average of US$1.25 per lb. of copper, and US51 for each lb. of zinc. The company also got US$6.22 for each ounce of silver sold, 35% better than a year earlier.

“We remain optimistic about the balance of the year,” says Falco CEO Aaron Regent. “The backdrop for metal prices continues to be strong with good demand, low inventories, and insufficient supply coming on-stream to eliminate the deficits in nickel and copper. As a result, metal prices should continue at these higher levels. With a large and growing production base of nickel and copper, Falconbridge is well-positioned to benefit.”

The company either met or exceeded most of its production targets during the quarter, except at Kidd Creek, in Timmins, where the copper smelter was shut down in mid-May after a cooling block in the C furnace failed. The company moved a planned 5-week shutdown ahead 6 weeks, declared force majeure on copper cathode deliveries, and completed an early replacement of the smelter’s walls and roof. The smelter returned to duty at the end of June, and the company expects to make up for most of the lost production during the third quarter. Second-quarter copper cathode production from Kidd was nearly halved to 19,531 tonnes.

At the Kidd division, production at the No. 1 mine was suspended during April and May owing to ground stability problems and stope blockage and maintenance issues associated with the ore-handling system. At Mine D, two new ventilation fans failed, but existing fans helped minimize lost production (the two fans are back up and running). A portion of the tonnage shortfall in the first half should be recovered during the balance of the year.

In the end, the Kidd division posted a second-quarter operating loss of US$19 million, compared with a loss of US$16 million a year ago.

Overall, Falco expects to produce 100,000 tonnes nickel and 350,000 tonnes copper this year.

Says Regent: “Our projects continue to advance well and we are particularly pleased with the completion of the US$654-million expansion at the Collahuasi project [in northern Chile], which was finished ahead of schedule and will be under budget.”

At quarter’s end, Falco had US$427 million in cash and equivalents, US$864 million in working capital, and long-term debt of US$77 million.


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