Sempra press release
Teck Cominco reports record net earnings of $613 million for the second quarter
NYSE - New York Stock Exchange · Natural Gas · United States
VANCOUVER, July 24 /CNW/ - Don Lindsay, President and CEO said, "We're very pleased to report record earnings of $613 million for the second quarter of 2006 and $1.1 billion for the first half of the year. These record earnings, which occurred during what are normally our two weakest quarters of zinc sales due to the seasonality of shipments from our Red Dog mine in Alaska, were driven by the excellent commodity price environment." "Over the last twelve months to June 30, we've generated $2.0 billion of net earnings during a period when copper and zinc prices averaged US$2.29 per pound and US$0.96 per pound respectively on the LME. Current prices for metals have continued to be significantly higher than those in the previous twelve months. This clearly shows the substantial future earnings potential of the company should prices remain at these levels."
<< Highlights and Significant Items
Unaudited net earnings were a record $613 million or $2.95 per share in the second quarter, up significantly from $225 million or $1.11 per share in the second quarter of 2005, as a result of high commodity prices and despite seasonally low sales volumes at Red Dog.
Cash flow from operations, before changes to non-cash working capital items, was $669 million in the second quarter compared with $332 million in the second quarter of 2005.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $946 million in the second quarter compared with $447 million a year ago.
The company made an offer to acquire all of the outstanding shares of Inco Limited, the world's second largest nickel producer, for $6.4 billion in cash and 143 million Class B subordinate voting shares. Among other conditions, the bid is subject to the lawful termination of the support agreement between the Inco/Falconbridge merger, and Inco's takeover bid for Falconbridge being withdrawn or terminated. On July 21, 2006 the company extended the expiry date of the offer to 8:00 p.m. on August 16, 2006, which coincides with the date on which the Inco Shareholders' Rights plan will be cease traded.
In June 2006, the company reached agreement with the U.S. Environmental Protection Agency under which the company will pay for and conduct a remedial investigation and feasibility study with respect to metal contamination in the sediment of the Upper Columbia River Basin (Lake Roosevelt).
Elk Valley Coal ratified new collective agreements at Fording River and Elkview operations during the second quarter, and all the unionized operations in the Elk Valley now have multi-year agreements in place.
On June 1, 2006, the company completed the redemption of $112 million principal amount of exchangeable debentures and the company issued 11.5 million Class B subordinate voting shares.
On June 29, 2006, the company's Class B subordinate voting shares were listed for trading on the New York Stock Exchange.
The company increased its semi-annual dividend from $0.40 to $1.00 per share commencing with the July 4, 2006 dividend payment and currently has one of the highest dividend yields in the industry.
Despite normal seasonal inventory buildup at the Red Dog mine, cash (including temporary investments) increased by $415 million in the second quarter and totalled $3.6 billion at the end of June. Debt to total debt and equity ratio was 22%. >>
Management's Discussion and Analysis of Financial Position and Results of Operations
This discussion and analysis of financial condition and results of operations of Teck Cominco Limited is prepared as at July 24, 2006, and should be read in conjunction with the unaudited consolidated financial statements of Teck Cominco Limited and the notes thereto for the three and six months ended June 30, 2006 and with the audited consolidated financial statements of Teck Cominco Limited and the notes thereto for the year ended December 31, 2005. In this discussion, unless the context otherwise dictates, a reference to Teck Cominco or the company refers to Teck Cominco Limited and its subsidiaries including Teck Cominco Metals Ltd. and a reference to Teck Cominco Metals refers to Teck Cominco Metals Ltd. and its subsidiaries. Additional information relating to the company, including the company's annual information form, is available on SEDAR at www.sedar.com. This discussion and analysis contains forward-looking statements. Please refer to the cautionary language on page 16.
Earnings
Unaudited net earnings in the second quarter were $613 million or $2.95 per share, up significantly from net earnings of $225 million or $1.11 per share in the second quarter of 2005. The significantly higher earnings in the second quarter were a result of higher prices for the company's products. Average LME cash prices for copper and zinc were US$3.27 and US$1.49 per pound respectively in the quarter, up significantly from US$1.54 and US$0.58 per pound respectively in the second quarter in 2005. Coal prices averaged US$116 per tonne in the second quarter of 2006 compared with US$94 per tonne a year ago. A lower Canadian/U.S. dollar exchange rate of 1.12 in the second quarter compared with 1.24 a year ago partially offset the higher commodity prices. Net earnings in the first half of the year were $1.1 billion, more than doubling the net earnings of $430 million in the first half of 2005 as a result of high commodity prices. Net earnings in the first two quarters of the year are typically lower than the last two quarters, due to the seasonality of shipments from the Red Dog mine in Alaska. Red Dog's zinc sales in the first half of 2006 accounted for approximately 32% of its annual sales. Coal sales volumes at Elk Valley Coal in the first half of 2006 were approximately 45% of planned sales volumes for the year. Earnings of $13 million from discontinued operation related to additional proceeds on the sale of Cajamarquilla in 2004 as a result of the annual zinc price exceeding US$0.454 per pound. These contingent payments may be receivable until 2009. Operating profit of $894 million in the second quarter increased by 120% from $407 million in the same period in 2005, with significantly higher profits from zinc and copper operations due to high metal prices. Partially offsetting these higher prices were a weaker U.S. dollar, lower coal sales volumes and lower molybdenum revenues compared with a year ago. With rising metal prices, second quarter operating results included $107 million of revenues from final concentrate pricing, which primarily related to copper and zinc sales in the first quarter of 2006, compared with $6 million a year ago. If the current high commodity prices are sustained, the company expects to have significant future earnings. As an illustration, net earnings in the twelve months ended June 30, 2006 were $1.8 billion excluding $200 million of gain on sales of investments and non-recurring tax adjustments. The average LME copper and zinc prices during this twelve month period were US$2.29 per pound and US$0.96 per pound respectively. Current prices for metals have continued to be significantly higher than those in the previous twelve months.
Cash Flow
Cash flow from operations, before changes to non-cash working capital items, was $669 million in the second quarter compared with $332 million in the second quarter of 2005 with higher profits from copper and zinc operations. Cash flow after non-cash working capital changes was $600 million compared with $307 million in the second quarter of 2005. Net change in non- cash working capital items of $69 million comprised mainly increases in raw material inventory at Trail and production inventory at Red Dog. Cash flow before non-cash working capital items was $1.1 billion for the six months ended June 30, 2006 compared with $618 million in 2005. Capital expenditures were $82 million in the second quarter including investment on the Fort Hills oil sands project.
Revenues
Revenues are affected by sales volumes, commodity prices and currency exchange rates. Comparative data for production and sales as well as revenues are presented in the tables on pages 5 and 6. Average commodity prices and Canadian/U.S. dollar exchange rate are presented in the table below.
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Revenues from operations were $1.5 billion in the second quarter of 2006 compared to $1.0 billion in the same period a year ago. The increase over 2005 was due mainly to significantly higher prices for copper and zinc. Sales of metal in concentrates are recognized in revenues when title transfers and the rights and obligations of ownership pass to the customer, which usually occurs upon shipment. However, final pricing may not be determined until a subsequent date, which often occurs in the following quarter. Accordingly, revenue in a quarter includes estimated prices for sales occurring in the quarter and final pricing sales adjustments from sales that occurred in previous periods. These final pricing adjustments result in additional revenues in a rising price environment and reductions to revenue in a declining price environment. The amount of additional revenues recognized by the company on any price increases will be reduced by any price participation deductions as provided in the smelting and refining agreements. At March 31, 2006, the end of the previous quarter, outstanding receivables included 137 million pounds of copper provisionally valued at US$2.49 per pound and 157 million pounds of zinc provisionally valued at US$1.22 per pound. During the second quarter, 108 million pounds of copper included in the March 31, 2006 receivables were settled at an average final price of US$3.23 per pound and 149 million pounds of zinc were settled at an average final price of US$1.48 per pound. At June 30, 2006, outstanding receivables included 158 million pounds of copper provisionally priced at US$3.37 per pound and 74 million pounds of zinc provisionally valued at US$1.48 per pound.
<< PRODUCTION AND SALES (Note 1)
Production Sales Second Year Second Year Quarter to Date Quarter to Date 2006 2005 2006 2005 2006 2005 2006 2005 TRAIL METAL OPERATIONS
Refined Zinc - Thousand tonnes 73 72 147 143 74 68 149 136
Refined Lead - Thousand tonnes 21 21 45 43 21 20 44 42
Surplus Power - GW.h - - - - 291 301 540 495
MINE OPERATIONS (Note 2)
Zinc - Thousand tonnes Red Dog 133 135 268 271 58 52 173 161 Antamina 10 12 16 26 6 11 14 26 Pend Oreille 11 13 20 23 11 13 20 23 Louvicourt - 2 - 3 - 2 - 3 154 162 304 323 75 78 207 213
Copper - Thousand tonnes Highland Valley Copper 42 41 78 79 42 48 86 94 Antamina 20 20 43 41 27 20 39 41 Louvicourt - 2 - 4 - 2 - 4 62 63 121 124 69 70 125 139
Lead - Thousand tonnes Red Dog 28 23 58 44 - - 5 2 Pend Oreille 2 2 3 3 2 2 3 3 30 25 61 47 2 2 8 5
Molybdenum - Thousand pounds Highland Valley Copper 1,017 1,631 2,199 3,596 998 1,790 2,008 3,633 Antamina 791 723 1,720 1,357 922 863 1,946 1,733 1,808 2,354 3,919 4,953 1,920 2,653 3,954 5,366
Gold - Thousand ounces Hemlo 52 59 105 121 49 56 105 121 Pogo (Note 3) 15 - 22 - 14 - 17 - Other 3 4 6 8 3 4 5 8 70 63 133 129 66 60 127 129
Coal - Thousand tonnes Elk Valley Coal (Note 4) 2,190 2,673 4,484 5,200 2,305 2,487 4,325 4,647
Notes: (1) The table presents the company's share of production and sales volumes. (2) Production and sales volumes of base metal mines refer to metals contained in concentrate. (3) Pogo operations have not reached commercial production levels and the results from operations are not included in the company's earnings. (4) Results of the Elk Valley Coal Partnership represent the company's 40% direct interest in the Partnership commencing April 1, 2006, 39% from April 1, 2005 to March 31, 2006 and 38% from April 1, 2004 to March 31, 2005.
REVENUES, DEPRECIATION AND OPERATING PROFIT
QUARTER ENDED JUNE 30 Depreciation Operating Revenues and Amortization Profit (Note 1) Second Quarter Second Quarter Second Quarter ($ in millions) 2006 2005 2006 2005 2006 2005 Zinc Trail (including power sales) $ 451 $ 265 $ 12 $ 11 $ 112 $ 38 Red Dog 146 38 8 7 102 9 Pend Oreille 29 15 4 5 16 - Inter-segment sales and other (120) (43) - 1 4 (1) 506 275 24 24 234 46 Copper Highland Valley Copper 421 260 9 17 326 145 Antamina 275 117 9 10 211 77 Louvicourt - 10 - 1 - 6 696 387 18 28 537 228 Gold Hemlo 37 31 5 5 4 2
Coal Elk Valley Coal (Note 2) 307 301 10 7 119 131 TOTAL $1,546 $ 994 $ 57 $ 64 $ 894 $ 407
SIX MONTHS ENDED JUNE 30 Depreciation Operating Revenues and Amortization Profit (Note 1) Year to Date Year to Date Year to Date ($ in millions) 2006 2005 2006 2005 2006 2005 Zinc Trail (including power sales) $ 814 $ 534 $ 23 $ 22 $ 183 $ 59 Red Dog 362 139 20 18 240 52 Pend Oreille 47 26 8 9 22 (1) Inter-segment sales and other (183) (70) - 1 (13) - 1,040 629 51 50 432 110 Copper Highland Valley Copper 720 498 19 34 531 279 Antamina 386 233 15 19 301 150 Louvicourt - 20 - 3 - 11 1,106 751 34 56 832 440 Gold Hemlo 74 65 12 11 8 5
Coal Elk Valley Coal (Note 2) 599 477 17 15 246 171 TOTAL $2,819 $1,922 $ 114 $ 132 $1,518 $ 726
Notes: (1) Depreciation and amortization are deducted in calculating operating profit. (2) Results of the Elk Valley Coal Partnership represent the company's 40% direct interest in the Partnership commencing April 1, 2006, 39% from April 1, 2005 to March 31, 2006 and 38% from April 1, 2004 to March 31, 2005.
Operations
Trail Smelter and Refineries (100%)
Three months Six months ended June 30 ended June 30 100% 2006 2005 2006 2005
Zinc production (000's tonnes) 72.8 71.4 147.2 142.8 Lead production (000's tonnes) 21.1 21.1 44.6 42.6 Zinc sales (000's tonnes) 74.0 68.0 148.9 136.5 Lead sales (000's tonnes) 21.1 19.7 44.3 41.6 Surplus power sold (GW.h) 291 301 540 495 Power price (US$/megawatt hr) 28 46 39 49 Operating profit ($ millions) Metal operations 107 27 169 40 Power sales 5 11 14 19 >>
At Trail metal operations, refined zinc production was slightly higher than a year ago at 72,800 tonnes, while lead production remained the same as last year. The tin removal project in the drossing plant was commissioned in the quarter allowing for improved indium production. Indium production increased to 12,500 kilograms in the second quarter compared with 8,500 kilograms in 2005. The project is expected to increase indium production capacity to 75,000 kilograms per year and forecast production for 2006 is 52,000 kilograms. Operating profit increased significantly to $107 million compared with $27 million a year ago due to significantly higher zinc prices and higher sales volumes for zinc and lead, partially offset by a weaker U.S. dollar. Operating profit from surplus power sales in the second quarter was $5 million compared with $11 million in 2005 due mainly to lower power prices and the effect of a weaker U.S. dollar.
<< Red Dog (100%)
Three months Six months ended June 30 ended June 30 100% 2006 2005 2006 2005
Tonnes milled (000's) 780 741 1,539 1,452 Zinc grade (%) 20.4 21.7 21.0 21.9 Lead grade (%) 5.9 5.5 6.2 5.1 Zinc recovery (%) 83.8 83.8 83.0 85.2 Lead recovery (%) 61.3 58.5 60.0 59.8 Zinc production (000's tonnes) 133.2 134.4 268.6 270.8 Zinc sales (000's tonnes) 58.3 52.0 173.2 160.7 Lead production (000's tonnes) 28.0 23.7 57.6 44.4 Lead sales (000's tonnes) - - 4.6 1.8 Operating profit ($ millions) 102 9 240 52 >>
Mill throughput in the second quarter was 5% higher than a year ago as throughput was restricted in 2005 due to high amounts of silica contained in the ore. Zinc production in the second quarter was similar to a year ago as the higher mill throughput was offset by lower ore grades. Zinc sales volumes in the second quarter, usually the lowest quarter due to the seasonality of shipments, were approximately 10% of the total annual sales volumes from Red Dog. Sales in the first half of 2006 represented approximately 32% of planned sales for the year. Operating profits increased significantly to $102 million in the second quarter due to zinc prices which more than doubled from the same period last year. The 2006 shipping season commenced on July 15, 2006 with planned shipments of 1.0 million tonnes of zinc concentrate and 216,000 tonnes of lead concentrate, similar to 2005. Zinc sales in the third and fourth quarter of 2006 are estimated to be 175,000 tonnes and 200,000 tonnes of metals in concentrate respectively.
<< Antamina (22.5%)
Three months Six months ended June 30 ended June 30 100% 2006 2005 2006 2005
Tonnes milled (000's) 7,196 7,557 14,745 14,629 Copper grade (%) 1.43 1.35 1.45 1.38 Zinc grade (%) 0.88 1.08 0.74 1.12 Copper recovery (%) 90.7 88.7 90.6 89.4 Zinc recovery (%) 85.6 82.8 83.0 83.8 Copper production (000's tonnes) 89.4 91.8 190.6 183.7 Copper sales (000's tonnes) 87.7 88.3 172.3 180.6 Zinc production (000's tonnes) 44.1 54.2 70.4 114.0 Zinc sales (000's tonnes) 26.7 52.7 60.3 116.6 Molybdenum production (000's pounds) 3,513 3,213 7,642 6,030 Molybdenum sales (000's pounds) 4,095 3,833 8,648 7,700 Company's share of operating profit ($ millions) 211 77 301 150 >>
Mill throughput was 5% lower than a year ago due mainly to the processing of harder ore types and a three-day shutdown of the mill in April due to concerns related to water seepage from the tailings pond decant structure. Copper production was slightly lower than a year ago, as the lower throughput was partially offset by higher ore grades and improved mill recoveries due to the type of ore processed in the quarter. Molybdenum production in the second quarter increased by 9% compared with last year due mainly to higher mill recoveries as a result of process improvements implemented in 2005. The company's share of molybdenum revenues were $22 million in the second quarter compared with $30 million a year ago due mainly to a lower realized molybdenum price of US$21 per pound compared with US$28 per pound in 2005. The company's share of operating profits in the second quarter was $211 million compared with $77 million a year ago due mainly to rising copper prices that more than doubled from the same period last year. In addition, some March shipments of copper concentrates were deferred and recognized as sales in the second quarter when title was passed to the customers. On June 28, 2006, the Peruvian Congress passed a law that requires all mining companies to pay a new mining royalty of up to 3% of the value of sales regardless of whether the company has been granted an exemption through a mining stability agreement. If the new law is reaffirmed, Antamina will be required to pay US$83 million with respect to 2004 and 2005 operations, and US$42 million with respect to the first six months of 2006, of which the company's share is 22.5%. Antamina management and its legal advisors are of the opinion that the royalty is not payable due to the mining stability agreement and are actively pursuing this matter. As a result, no provision has been made in the financial statements.
<< Highland Valley Copper (97.5%)
Three months Six months ended June 30 ended June 30 100% 2006 2005 2006 2005
Tonnes milled (000's) 11,595 12,625 22,500 24,060 Copper grade (%) 0.419 0.382 0.394 0.382 Copper recovery (%) 90.5 88.1 90.9 88.3 Copper production (000's tonnes) 43.8 42.5 80.5 81.1 Copper sales (000's tonnes) 44.0 49.1 88.7 96.0 Molybdenum production (000's pounds) 1,044 1,673 2,256 3,689 Molybdenum sales (000's pounds) 1,025 1,836 2,060 3,726 Company's share of operating profit ($ millions) 326 145 531 279 >>
Copper production in the second quarter was slightly higher than a year ago as higher ore grades and improved mill recoveries more than offset the effect of lower mill throughput. Molybdenum production was 38% lower than the second quarter of 2005 due mainly to lower ore grades and reduced mill recoveries. Copper sales in the second quarter were similar to production levels, but were 10% lower than the same period a year ago as sales volumes in the second quarter of 2005 were higher by drawing down on-hand inventory. Molybdenum revenues in the second quarter declined significantly to $29 million compared with $78 million a year ago due to a 44% reduction in sales volumes and a lower realized price of US$25 per pound compared with US$34 per pound. Operating profit was $326 million in the second quarter compared with $145 million a year ago due to significantly higher copper prices and revenues from final concentrate pricing of $62 million. The push-back of the Valley East pit wall in extending the mine life to 2013 is progressing well. A revised mining plan has been developed to utilize available Highmont ore as well as additional lower grade ore, which will result in higher copper production in the transition period of 2008 and 2009. Copper production is estimated to be 124,000 tonnes and 145,000 tonnes in 2008 and 2009 respectively, up from previous estimates of 114,000 tonnes and 132,000 tonnes. The average annual copper production in the following four years is estimated to average 165,000 tonnes per year. Highland Valley Copper is studying the economic viability of a push-back of the Valley West pit wall to further extend the mine life to 2019. As part of the study, the feasibility of building a copper refinery based on the company's proprietary CESL hydrometallurgical technology is also being evaluated. The feasibility study on the mine life extension is expected to be completed in September and the study on the copper refinery is expected to be completed in the fourth quarter of 2006. An application to the BC Environmental Assessment office was filed in June to initiate the regulatory environmental assessment process in order to shorten the project execution time line should the outcome of the feasibility study be positive.