Teck Cominco recovers Red Dog's costs

Vancouver-based Teck Cominco has almost made enough money at Red Dog mine to start paying Alaska Native corporation NANA a 25 percent net proceeds of production royalty, the company announced in its second-quarter report July 30. Teck Cominco currently pays NANA an annual advance royalty equal to 4.5 percent of Red Dog's net smelter return. At a certain point specified in the royalty agreement, NANA must pay the 25 percent royalty, which increases in 5 percent increments every fifth year to a maximum of 50 percent.

Advance royalties previously paid are recoverable against the 25 percent royalty. In the fourth quarter of 2006, capital expenditures for Red Dog, including an interest factor, were fully recovered, Teck Cominco said. As of June 30, 2007, the unrecovered cumulative amount of advance royalty payments was $19 million. The company estimates that the payment of the 25 percent royalty to NANA will start in the third quarter of 2007, depending on metal prices, sales volumes and other items affecting the calculation of net proceeds.

Red Dog's operating profit in the second quarter was $119 million, up from $102 million in the same quarter last year. Zinc production in the quarter was 142,000 metric tons, a 7 percent increase compared with the same quarter in 2006. Teck Cominco attributes the increase partly to additional mill throughput and higher mill recoveries, the result of more amenable ores processed in the period. Lead production increased by 13 percent compared with the second quarter last year, reaching 31,600 tons. This was also the result of higher ore grades and improved mill recoveries due to the type of ore processed.

The first shipment of the year from Red Dog left the port on July 5, which was 19 days earlier than last year. Shipments of approximately 1 million tons of zinc concentrate and 260,000 tons of lead concentrate are planned, which is about the same volumes as were shipped in 2006.

Pogo commercial in April

Pogo gold mine near Delta Junction, which began production in early 2006, achieved commercial production in April 2007 and the operation broke even in the quarter. Gold production of 76,900 ounces in the second quarter was lower than full capacity as mill operations are still being optimized, according to Teck Cominco. Ore grades were also below plan due to stope sequencing and higher than expected dilution. Pogo's cash costs in the quarter were $460 per ounce, including the effect of higher inventoried production costs prior to the start of commercial production. The average realized gold price was $664 per ounce in the quarter.

At Teck Cominco's Highland Valley copper mine in south-central British Columbia, throughput has been reduced during the current push-back phase, which is being undertaken to extend the mine life. Copper production at the mine declined by 19 percent to 35,600 tons compared with the same period last year. Molybdenum production was also down by 19 percent. Operating profit at Highland Valley in the second quarter was $258 million, compared with $326 million in the same period last year.

Teck Cominco's unaudited net earnings in the second quarter totaled $485 million, down from $613 million in the same period last year. "Our core operations continued to perform well in the second quarter and prices for our major products remain high by historical standards," said Don Lindsay, the company's president and CEO. "Our net earnings of $485 million were in line with our expectations, but were below second-quarter earnings in 2006 because of lower coal prices and lower copper sales volumes." Teck Cominco holds a 40 percent interest in the Elk Valley Coal Partnership in southeastern British Columbia.