Smelter problems lower Cominco earnings

Cominco President Robert Hallbauer didn’t mince words at the company’s recent annual meeting when he called 1991 first-quarter results “terrible,” or 1990 “a difficult year.”

The company’s problems at its smelting complex at Trail, B.C., led to a loss of $10.2 million in the 1991 first quarter, compared to a profit of $17.1 million in the comparable 1990 period. And 1990 earnings of $59 million were well below the record earnings of $215 million achieved in 1989.

“Our major problems were below capacity production of zinc and lead metal at Trail due to ongoing modifications to the zinc plant and the failure of the new QSL lead smelter to achieve startup,” Hallbauer told shareholders.

The shutdown of the Sullivan mine for nine months last year also affected earnings, Hallbauer said, as did low nickel prices and operating problems at the Glenbrook nickel smelter in Oregon.

The company’s first-quarter earnings was attributed to lower zinc prices, a drop in refined zinc production, and the exhaustion of the Pine Point concentrate inventory.

But Hallbauer also had some good news, in that zinc production in Trail reached normal levels in March as modifications were completed and brought on stream. These modifications were necessary to treat concentrates from the company’s new Red Dog mine in Alaska, and other concentrates of a similar nature available elsewhere.

“Simple concentrates such as those produced at Pine Point are becoming very scarce,” he said.

In addition, Hallbauer said the old lead smelter is working well, and mines including Sullivan ran well with overall concentrate production exceeding last year’s levels.

“We are currently running at about break even (at Sullivan), but with improved metal prices the mine will again be profitable,” Hallbauer said. “One thing is sure. If we had not achieved productivity improvement and a new mining plan, the mine at current metal prices would be closed.”

But Cominco has yet to resolve problems at its new QSL lead smelter which failed to perform as expected and was shut down in March, 1990. The company expects to make a decision in June on whether it will stick with the QSL technology or switch to another process.

The Red Dog mine also appeared to have had its share of startup problems, including heavily oxidized ore and mechanical and material handling problems compounded by a difficult winter with heavy snow, blizzards and high winds.

One of the major problems has been maintaining a regular flow of ore to the mill under winter conditions, and the company expects it may have to make further modifications to its feed system to achieve full production in the winter. But Hallbauer said the company has been able to make concentrate that meets marketing specifications.

In 1990, the mine produced 337,000 tons of zinc concentrate, 56,000 tons of lead concentrate, and 55,000 tons of bulk concentrate. The company expects that it will ship 410,000 tons of zinc, 80,000 tons of lead and a small quantity of bulk concentrate during the 1991 shipping season. This level is below the projected production of over 500,000 tons of zinc concentrate when the plant is producing at full capacity.

“Our lower-than-planned production may have some beneficial effect on zinc prices as the threat of a surplus of zinc concentrate is eased, particularly with other major zinc suppliers currently on strike,” Hallbauer said.

A forecast of strong nickel prices has Cominco optimistic that its Glenbrook nickel smelter (a joint venture with Cominco Resources) will be profitable during the remainder of 1991.

The successful startup of the company’s 60% owned Snip gold mine in northwestern British Columbia was a bright spot on the operation’s side. Almost 18,000 oz. gold were produced in the 1991 first quarter from 21,000 tons of ore averaging 0.87 oz. gold per ton.

Cominco’s next development project is expected to be the Quebrada Blanca copper project in Chile (a joint venture with Cominco Resources). The deposit contains 85 million tons of 1.4% copper which is amenable to heap leaching and solvent extraction.

The company also appears to be encouraged about work to date on its recent Pebble Beach copper-gold discovery in Alaska where initial drilling generated preliminary reserves of about 200 million tons averaging 0.4% copper and 0.012 oz. gold (which includes a higher-grade core of 50 million tons averaging 0.5% copper and 0.015 oz. gold). An extensive drill program is planned for this summer.

On the environmental side, Hallbauer said a “sad outcome” of increased environmental concern is government action to impose fines and possibly jail sentences on companies and directors for pollution permit violations.

“Past experience has shown that increasing financial penalties does not solve problems in other areas,” he said. “Co-operation and working together on problems does.”