New look for Falconbridge

Heading in 1988 into its 60th year of life, Falconbridge Ltd has taken on a new look just over the past year or so.

It’s a new look that’s been structured largely by Chairman William James, chief architect of the changes that have taken place since he joined the company five years ago.

Primarily a nickel producer until it acquired Kidd Creek Mines in 1986, Falconbridge is now much more heavily into copper and zinc production as a result of the Kidd Creek purchase, and is currently reaping the benefits of that expansion with the general strengthening of base metal prices.

To illustrate today’s difference at Falconbridge, nickel now accounts for about 32% of total metals production, while in 1985 it was 54%, James told The Northern Miner in an interview.

Copper now accounts for 30% of production, and zinc 15%, against 12% and 1% respectively in 1985. The change in metals balance doesn’t, though, alter the fact that Falconbridge is still the Free World’s second largest nickel producer.

At the same time, with the acquisition of Kidd Creek, Falconbridge became a major producer of silver, and is a force to be reckoned with in precious metals even though in 1986, in moves designed primarily as debt-reduction strategy, the company divested itself of most of its interests in gold (through sale of Kiena Gold Mines, Giant Yellowknife Mines, and Corporation Falconbridge Copper, with the latter’s Lac Shortt gold mine in northwestern Quebec).

In fact, as the Falconbridge chairman has pointed out, with the inclusion of the two Timmins-area Hoyle Pond and Owl Creek gold mines that it inherited with the Kidd Creek purchase, Falconbridge is now a bigger producer of precious metals than ever.

This year for instance, Kidd Creek alone is expected to produce about eight million oz of silver, (equivalent in value to about 130,000 oz gold),and subsidiary United Keno Hill Mines will produce another 1.7 million oz of silver. In gold, the Owl Creek and Hoyle Pond mines at Timmins will turn out about 83,000 oz, and another 35,000 oz of gold will come from Falconbridge’s nickel mines in Sudbury and a gold mine in Zimbabwe.

The gold equation may change of course if, as previously contemplated, Falconbridge sells off the Owl Creek and Hoyle Pond mines, (N.M, July 20/87), but James says he is still not in any hurry to do this, even though the $300 million he would expect to get for them would go a long way toward even further reduction of Falconbridge’s long-term debt.

The effort to clean up the company’s debt and the balance sheet has been paying off. Long-term debt, which just 18 months ago was $1.4 billion, has been trimmed by about half to just over $700 million. Working capital at the end of September was in the order of $562 million. Four core units

While the Falconbridge chairman doesn’t discount the possibility of further diversification, at the moment the company is concentrating on its four core units: its integrated nickel operations, the Kidd Creek base and precious metals operations, the ferronickel operations of subsidiary Falconbridge Dominicana C. por A. in the Dominican Republic, and its Indusmin industrial minerals division. Profit trend

Increases in base metal prices, particularly nickel and copper, helped give Falconbridge a third- quarter 1987 profit of $17 million, and James looks for a continuation of the profit trend not only in the final quarter of the year, but into at least the first quarter of 1988. Reasons for the optimism are not hard to find, with both nickel and copper prices at high levels, and demand for both metals, as well as for zinc, he said, expected to be at record levels for 1987.

Falconbridge has calculated that for every 5 cents (US) change in the price of nickel, there is an $8 million(C) change in cash flow; for every 5 cents change in the copper price, a $23 million cash flow change, and for every 5 cents change in the zinc price, a $19 million change.

James would not suggest though that profit levels (even with nickel, at presstime, at around $3.30 a lb, copper $1.33 a lb) would be anything like spectacular. “When I arrived at Falconbridge in 1982,” he said, “the nickel price for instance was around $3.20 a lb, so now we’re really just getting back to there. In fact, in real terms, factoring in the inflation effect since, we’re not even back there yet.”

The company is going to need and hopes to get good commodity prices in any case, he said, to help cover planned capital expenditures in 1988 of about $140 million. Most of this will go on property, plant and equipment development at Sudbury operations and at Kidd Creek ($37 million at Kidd Creek, $11 million of which will go into the zinc plant), and other lesser amounts on projects at the Norway refinery, Falconbridge Dominicana C. por A., and Indusmin.

James stressed that while there were metallurgical and mechanical difficulties in the zinc leach plant at Kidd Creek during the third quarter of 1987, these have now been corrected and output is back to normal levels.

On the exploration front, Falconbridge will have spent about $26 million on exploration in 1987, he said. In 1988 this budget figure will climb to about $30 million, most of which ($20 million) will go into surface and underground exploration programs in the Sudbury and Timmins areas.

The company’s star turn in exploration right now is its Lindsley base and precious metals discovery near Sudbury, where ore is believed potentially richer than for its five currently-producing mines in the Sudbury Basin.

An early hole at the Lindsley project, B51B, intersected 255.5 ft grading 2.3% nickel, 4.4% copper, 0.12% cobalt, 0.44 oz silver, 0.07 oz gold, 0.08 oz platinum and 0.27 oz palladium per ton.

A $10 million drill program, involving seven machines, three of which are heavy units for drilling as deep as 6,000 ft., is continuing on the property, and M. J. Knuckey, Falconbridge exploration vice- president, tells The Northern Miner that to date at least four mineralized zones of potential economic interest have been outlined.

“So far we have at least 24 intersections at better than 1% nickel,” Knuckey said. Further results from the current program are expected shortly. The seven machines are going to be at work for another three to six months.

The currently optimistic outlook for Falconbridge has been considerably bolstered by the Canada/U.S free trade agreement, James feels.

“It’s not a perfect document,” he says, “but it is better than no deal at all. The relatively easy access to U.S. markets we have now may well change…with the kind of protectionist sentiment there is now in the U.S… and the free trade pact at least gives us a say in the matter.

“It looks as though we`ll get a square deal, too, with the bi-national committee set up to handle disputes.”