Teck Cominco posts profits, possibilities

Flying high on strong commodity prices, Teck Cominco Ltd.'s profits soared to record levels in the second quarter.

Despite the strong results, the Vancouver, B.C.-based mining company decided Aug. 16 not to pursue an outstanding hostile purchase offer for Inco Ltd., the world's second largest nickel producer.

Teck Cominco disclosed the reversal one day after announcing plans to sweeten its original buyout offer to about C$89 a share. The move came less than 24 hours before its bid was due to expire.

Meanwhile, the company reported income of $613 million, or $2.95 per share, for the second quarter. That's almost triple the $225 million, or $1.11 per share, that it posted for the same period in 2005.

Revenues for the quarter also climbed to $1.546 billion, up 56 percent from $994 million a year ago. Average cash prices on the London Metal Exchange for copper and zinc were $3.27 and $1.49 per pound, respectively, up significantly from $1.54 and 58 cents per pound, respectively, a year ago.

"Over the last 12 months to June 30, we've generated $2 billion of net earnings during a period when LME copper and zinc prices averaged $2.29 a pound and $0.96 a pound, respectively … significantly higher than those in the previous 12 months," Teck Cominco President and CEO Don Lindsay said July 24.

Red Dog results unseasonably strong

Teck Cominco's quarterly earnings record is even more significant because it occurred during what is normally the company's weakest period for zinc sales due to the seasonality of shipments from Red Dog mine, Lindsay added.

At Red Dog, zinc production in the second quarter was similar to a year ago because 5 percent higher mill throughput was offset by lower ore grades. Lead recovery, however, increased 2.8 percentage points to 61.3 percent. The 2006 shipping season began July 15, with planned shipments of 1 million tonnes of zinc concentrate and 216,000 tonnes of lead concentrate, similar to 2005.

Commissioning under way at Pogo

Teck Cominco also reported significant progress during the quarter in commissioning the mine and mill at the Pogo gold mine it operates near Delta Junction.

Installation of the underground ore conveying system is under way.

Optimization of the mill grinding and flotation circuits is ongoing, with recovery surpassing 85 percent.

The mill has reached its design rate of 2,500 tonnes per day for short periods of time, but throughput is still limited by tailings filtration capacity and associated bottlenecks with the paste backfill system, with production expected to range between 60-70 percent of design capacity until filter plant modifications are completed.

A third pressure filter has been ordered and is expected to arrive on site in the third quarter.

Full production is anticipated in the first quarter of 2007.

Teck Cominco, which owns a 41 percent share of Pogo, said its operating loss at the mine project during the first half of 2006 was $8 million. The operating loss was capitalized as development costs.

Time for other opportunities

Teck Cominco made its original offer for Inco May 8, offering $6.4 billion in cash and 143 million of its Class B subordinate voting stock. Among other conditions, the bid was subject to lawful termination of a support agreement between the Inco/Falconbridge Ltd. merger, and Inco's takeover bid for Falconbridge being withdrawn or terminated.

Inco's management rejected the offer, which was valued at C$78.50 per share.

Teck Cominco persisted in hopes of winning over enough Inco shareholders. On July 21, the company extended the expiration date of its buyout offer to Aug. 16. Teck Cominco also announced plans Aug. 15 to sweeten its bid to about C$89 per share.

"While we received strong support from a large number of institutional investors, in the end we could not complete the proposed equity offering on terms that made sense for Teck Cominco," Lindsay said in a statement Aug. 16.

"Accordingly, we will not amend or extend our bid for Inco. We will now pursue some of the many other opportunities we see to grow Teck Cominco and to add value for our shareholders, both through enhancements to our existing assets and through acquisitions," the company president added.