Red Dog posts dramatic turnaround

An increase in sales coupled with significantly higher zinc and lead prices helped the Red Dog Mine in northwest Alaska post a $50 million profit in 2003, turning round from a $28 million loss posted the prior year.

Red Dog's operator, Teck Cominco Ltd., released its fourth quarter and year-end reports for 2003 on Feb. 4, announcing net earnings of $149 million for the mining company. Higher earnings are due mainly to rising zinc, copper and gold prices, which rose significantly during the fourth quarter, the company said.

At Red Dog, the year-end increase in metal prices contributed to a stellar fourth quarter. Red Dog mine operations posted a $51 million profit, compared to a $10 million loss for the same period in 2002.

"The main difference is, we're a commodity business," said Rob Scott, general manager of the world's largest supplier of zinc. "The price increase is dramatic from one period to another - that's the biggest single factor."

According to Teck Cominco's operational report, the company realized 43 cents per pound for zinc in the fourth quarter, a 23 percent increase over the fourth quarter in 2002. For the entire year, zinc prices averaged 9 percent higher in 2003 compared to 2002.

Lead prices also increased dramatically in the latter part of 2003. Fourth quarter realized prices for lead were 27 cents per pound in 2003, up 35 percent for the same period in 2002. Average lead prices increased 30 percent throughout 2003, compared to 2002.

Pennies per pound add up when calculating the substantial amounts of mineralized material produced at Red Dog. The mine produced 143,000 tonnes of zinc in the fourth quarter, and 579,000 tons throughout 2003, slightly more than the previous year. Red Dog produced 34,000 tonnes of lead in the fourth quarter, and 125,000 tonnes throughout 2003, a substantial increase compared to 2002.

Total revenue in 2003 at Red Dog was $408 million, up from $382 million in 2002.

Cost cutting continues

To improve its bottom line, the mine also began some cost-cutting measures last fall. Those included some power consumption measures and process control measures in the mill. "A computer monitoring process control system can react faster than an operator to optimize recoveries," Scott said. "But these things take time to install."

The mine has also reduced its work force, with a goal of 60 fewer employees. Red Dog employed 365 full-time workers at the end of 2003, compared to 411 the year prior, Scott said.

Those job cuts are spread "throughout the organization, no one particular area," he said. "We're partway through that process."

In addition, contractors for camp and catering services and ore hauling work contribute another 103 workers related to the mine site, for a total of 468 current full-time workers. Of those, 252 are shareholders of the NANA Regional Corp., the Alaska Native regional corporation for the area.

Capital spending planned

Teck Cominco plans to invest approximately $15 million in capital spending at Red Dog in 2004, Scott said, an increase from the $8 million spent on capital in 2003.

Capital investments include about $7.5 million to upgrade some mobile equipment, including haul trucks, loaders and some support equipment.

Another $4 million is budgeted for infrastructure modifications, he said. That includes construction of an emulsion plant, which would enable on-site mixing of explosives rather than purchasing pre-mixed material, Scott said.

The Red Dog Creek, which currently bisects the open-pit mine that hosts the zinc and lead mineralization, needs to be diverted to allow additional mining in the existing pit area.

"The balance is a lot of smaller, cost savings projects," Scott said.