Photo courtesy of Teck Cominco Limited
Dejà vu. In September 2005, Teck Cominco Limited (TSX – TCK.A; TCK.B; NYSE – TCK) announced it would extend the life of its Highland Valley copper mine near Kamloops, British Columbia by half a decade. In February 2007, the company announced a further six-year extension of the life of the mine – from 2013 to 2019.
The latest extension brings good tidings to many stakeholders, according to Teck Cominco President and Chief Executive Officer Don Lindsay. “This is good news for the workforce at Highland Valley, local communities, the Province of B.C. and for Teck Cominco shareholders,” he said. “Highland Valley is one of the most efficient mining operations in the copper industry, and this extension significantly adds to its potential for the future.”
Thanks to the extension, an expected additional 247 million tonnes of ore will come in from an expanded Valley pit and continued mining of the Highmont pit will produce 1.5 billion pounds of copper and 21 million pounds of molybdenum in concentrate.
Six added years of expenses are high. The capital cost associated with the mine life extension at Highland Valley is approximately $300 million (in 2007 dollars), consisting of $167 million in incremental waste stripping and the balance for mobile equipment. Another $50 million in mobile mining equipment will be ordered in 2007 to permit waste stripping to commence in 2009.
However, the company stands on firm financial ground. Teck Cominco enjoyed record net earnings in the fourth quarter of 2006 and almost doubled its net annual earnings over the preceding year.
“Our fourth quarter earnings were a record $866 million, up substantially from $510 million a year ago,” said Lindsay. “The increase was driven by significantly higher commodity prices and higher sales volumes of Red Dog concentrates as poor weather conditions in the third quarter shifted some sales into the fourth quarter. Net earnings for the full year were $2.4 billion compared with $1.3 billion in 2005.”
“We are very pleased that our core operations achieved outstanding operating performance in 2006 allowing them to take advantage of the high commodity prices and generate record operating profits,” he added.
Copper production during the extension period from 2013 to 2019 should average 295 million pounds per annum. Life of mine copper and molybdenum grades are expected to decline by approximately 10% as a result of the inclusion of lower grade ore in the mine plan.
In February, the company also announced its intention to purchase up to 20 million of its outstanding Class B subordinate voting shares by way of a normal course issuer bid and, subject to shareholders’ approval, to implement a two for one share split of its Class A common shares and Class B subordinate voting shares.
“The Board has carefully considered a range of options for our growing cash balance,” said Lindsay of the proposal. “Our first priority continues to be to strengthen and grow the company through the development of current projects in our portfolio and the possible acquisition of new, high quality assets. In the meantime, the proposed share repurchases will provide an opportunity for us to effectively return some capital to shareholders, while preserving substantial capacity for future growth. Our intention would be to use these normal course purchases to maintain our cash balance at a reasonable level for this point in the cycle, taking into account potential alternative investments.”
The company believes that purchase of the Class B shares is an appropriate use of cash, given its substantial cash balance. The number of Class B shares to be purchased and the timing of those purchases will be determined by Teck Cominco from time to time based on prevailing market conditions and other considerations.
As well, the company plans to implement a two-for-one subdivision, or “share split,” of its issued and outstanding Class A common shares and Class B subordinate voting shares. The split was approved by Teck Cominco’s Board of Directors and must be approved by shareholders at the company’s annual and special meeting April 25, 2007. If approved by shareholders, the record date for the share split is expected to be May 7, 2007.
Teck Cominco is a diversified mining company, headquartered in Vancouver, Canada. Shares are listed on the Toronto Stock Exchange under the symbols TCK.A and TCK.B. and the New York Stock Exchange under the symbol TCK. Teck Cominco is a world leader in the production of zinc and metallurgical coal and is also a significant producer of copper, gold and specialty metals. For more information, visit www.teckcominco.com.