UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For November 26, 2002
Commission File Number 1-7953
RIO ALGOM LIMITED
(Translation of Registrant’s name into English)
| 66 Wellington Street West, Suite 3600 Toronto, Ontario, Canada (Address of Principal Executive Offices) | M5H 1N6 (Zip Code) |
(416) 868-7544
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F o Form 40-F x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes o No x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes o No x
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes o No x
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
Submitted with this Form 6-K is the following document:
| Consolidated Financial Statements and Management’s Discussion and Analysis for the three months ended September 30, 2002. |
Rio Algom Limited
Interim Report for the Three Months Ended
September 30, 2002
Rio Algom Limited (Rio Algom) is an international mining company and is an indirect
wholly-owned subsidiary of BHP Billiton Plc, a global natural resources company.
Rio Algom and its subsidiaries and investees produce copper, zinc, molybdenum, gold
and coal from mines in Canada, Chile, Peru and Argentina.
All financial figures are expressed in US dollars.
66 Wellington Street West, Suite 4200
Toronto, Ontario
M5H 1N6
RIO ALGOM LIMITED
CONSOLIDATED BALANCE SHEETS
(unaudited — in millions of US dollars)
| September 30, | June 30, | ||||||||
| 2002 | 2002 | ||||||||
Assets | |||||||||
| Current | |||||||||
| Cash and cash equivalents | $ | 207 | $ | 206 | |||||
| Receivables and prepaid expenses | 74 | 96 | |||||||
| Inventories | 67 | 60 | |||||||
| Loan receivable | 221 | — | |||||||
| Current future tax assets | 1 | — | |||||||
| 570 | 362 | ||||||||
| Property, plant and equipment | 1,027 | 1,043 | |||||||
| Mining properties | 172 | 176 | |||||||
| Investment | 216 | 219 | |||||||
| Loan receivable | — | 247 | |||||||
| Other assets | 4 | 5 | |||||||
| Non current future tax assets | 18 | 23 | |||||||
| $ | 2,007 | $ | 2,075 | ||||||
Liabilities | |||||||||
| Current | |||||||||
| Accounts payable and accrued liabilities | $ | 103 | $ | 145 | |||||
| Current portion of long term debt | 47 | 45 | |||||||
| 150 | 190 | ||||||||
| Long term debt | 525 | 529 | |||||||
| Post-employment benefit obligations | 20 | 20 | |||||||
| Site restoration and related obligations | 46 | 47 | |||||||
| Non current future tax liabilities | 134 | 136 | |||||||
| 875 | 922 | ||||||||
Shareholders’ equity | |||||||||
| Equity portion of convertible debentures | 222 | 222 | |||||||
| Preferred securities | 140 | 140 | |||||||
| Common shares | 368 | 368 | |||||||
| Contributed surplus | 43 | 43 | |||||||
| Cumulative translation adjustment | 84 | 100 | |||||||
| Retained earnings | 275 | 280 | |||||||
| 1,132 | 1,153 | ||||||||
| $ | 2,007 | $ | 2,075 | ||||||
Approved on behalf of the Board of Directors:
| “Bradford A. Mills” Bradford A. Mills Director | “Gordon C. Gray” Gordon C. Gray Director |
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RIO ALGOM LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited — in millions of US dollars except per share data)
| Three Months Ended | ||||||||||
| September 30, | September 30, | |||||||||
| 2002 | 2001 | |||||||||
Mining revenue | $ | 107 | $ | 83 | ||||||
Expenses | ||||||||||
| Cost of mine production | 69 | 46 | ||||||||
| Selling, general and administration | 4 | 6 | ||||||||
| Depreciation and amortization | 22 | 15 | ||||||||
| Interest | 9 | 3 | ||||||||
| Exploration | — | 1 | ||||||||
| 104 | 71 | |||||||||
| 3 | 12 | |||||||||
| Investment and other income | 3 | 4 | ||||||||
| Earnings before taxes and equity in net earnings (loss) of associated company | 6 | 16 | ||||||||
| Income and mining taxes | (5 | ) | (7 | ) | ||||||
| Earnings before equity in net earnings of associated company | 1 | 9 | ||||||||
| Equity in net earnings (loss) of associated company | 1 | (1 | ) | |||||||
Net earnings for the period | $ | 2 | $ | 8 | ||||||
| Accretion of equity element of convertible debentures | $ | (3 | ) | $ | (2 | ) | ||||
| Dividends on preferred securities | $ | (4 | ) | $ | (2 | ) | ||||
(Loss) income attributable to the common shareholders | $ | (5 | ) | $ | 4 | |||||
Per common share: | ||||||||||
| (Loss) net earnings for the period | $ | (0.08 | ) | $ | 0.06 | |||||
Weighted average shares outstanding(in millions) | 65.5 | 65.5 | ||||||||
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RIO ALGOM LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited — in millions of US dollars)
| Three Months Ended | ||||||||||
| September 30, | September 30, | |||||||||
| 2002 | 2001 | |||||||||
CASH PROVIDED BY (USED IN) THE FOLLOWING: | ||||||||||
Operating Activities | ||||||||||
| Net earnings for the period | $ | 2 | $ | 8 | ||||||
| Non-cash items: | ||||||||||
| Depreciation and amortization | 22 | 15 | ||||||||
| Future income taxes | 2 | 6 | ||||||||
| Equity in net (earnings) loss of associated company | (1 | ) | 1 | |||||||
| Other non-cash items | — | 2 | ||||||||
| Site restoration and related obligations | 1 | — | ||||||||
| Changes in non-cash working capital: | ||||||||||
| Decrease (increase) in receivables and prepaid expenses and inventories | 13 | (2 | ) | |||||||
| (Decrease) increase in accounts payable and accrued liabilities and taxes payable | (37 | ) | 6 | |||||||
| 2 | 36 | |||||||||
Financing Activities | ||||||||||
| Drawdown of senior project debt facilities | 22 | 29 | ||||||||
| Repayment of senior project debt facilities | (24 | ) | — | |||||||
| Decrease in long term debt and other obligations | (1 | ) | (1 | ) | ||||||
| Decrease in short term borrowings | — | (5 | ) | |||||||
| Interest on equity portion of convertible debentures | (3 | ) | (2 | ) | ||||||
| Dividends on preferred securities | (4 | ) | (2 | ) | ||||||
| (10 | ) | 19 | ||||||||
Investing Activities | ||||||||||
| Decrease in loan receivable | 16 | 32 | ||||||||
| Capital expenditures | (7 | ) | (64 | ) | ||||||
| 9 | (32 | ) | ||||||||
Increase in cash and cash equivalents during period | 1 | 23 | ||||||||
| Cash and cash equivalents, beginning of period | 206 | 83 | ||||||||
Cash and cash equivalents, end of period | $ | 207 | $ | 106 | ||||||
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RIO ALGOM LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the first quarter ended September 30, 2002 and 2001.
1. Accounting policies
The unaudited interim consolidated financial statements of Rio Algom Limited (the “company”) are prepared in accordance with accounting principles generally accepted in Canada applied on consistent basis. These interim financial statements do not contain all the information required for the annual financial statements and should be read in conjunction with the June 30, 2002 annual financial statements of the company.
2. Key operating statistics
| Three Months Ended | ||||||||
| Sep 30, 2002 | Sep 30, 2001 | |||||||
Copper Production(millions of pounds payable)(a) | ||||||||
| Cerro Colorado | 72 | 76 | ||||||
| Highland Valley Copper | 33 | 36 | ||||||
| Antamina | 57 | — | ||||||
Alumbrera(b) | 24 | 25 | ||||||
| 186 | 137 | |||||||
Average Copper Cash Cost(US$ per pound after by-product credits) | ||||||||
| Cerro Colorado | 0.39 | 0.37 | ||||||
| Highland Valley Copper | 0.50 | 0.52 | ||||||
| Antamina | 0.43 | — | ||||||
| Alumbrera | 0.16 | 0.20 | ||||||
Copper Sales(millions of pounds payable)(a) | ||||||||
| Cerro Colorado | 60 | 74 | ||||||
| Highland Valley Copper | 32 | 39 | ||||||
| Antamina | 67 | — | ||||||
Alumbrera(b) | 23 | 22 | ||||||
| 182 | 135 | |||||||
Average Copper Price(US$ per pound) | ||||||||
| Cerro Colorado | 0.75 | 0.74 | ||||||
| Highland Valley Copper (c) | 0.64 | 0.70 | ||||||
| Antamina | 0.64 | — | ||||||
| Alumbrera | 0.64 | 0.57 | ||||||
Other Production(a) | ||||||||
Gold(thousands of ounces) (b) | 39 | 44 | ||||||
Molybdenum(thousands of pounds) | 495 | 335 | ||||||
Coal(thousands of tonnes) | 560 | 152 | ||||||
Zinc(millions of pounds) | 40 | — | ||||||
| (a) | Rio Algom’s share. | |
| (b) | Not included in mining revenue or operating profit as the company’s investment in Alumbrera is accounted for using the equity method. | |
| (c) | Includes impact of currency hedge. | |
5 |
3. Segment Disclosures
(unaudited — in millions of US dollars)
| Compania | Compania | Corporate, | ||||||||||||||||||||||||||||||||||||||||||||||
| Minera Cerro | Highland Valley | Minera | Development and | |||||||||||||||||||||||||||||||||||||||||||||
| Colorado | Copper | Antamina | Other Mining | Exploration | Total | |||||||||||||||||||||||||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||||||||||||||||||||
Segmented Earnings | ||||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2002 and 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Mining revenue | 44 | 54 | 17 | 22 | 40 | — | 6 | 7 | — | — | 107 | 83 | ||||||||||||||||||||||||||||||||||||
| Cost of operations | 27 | 27 | 13 | 16 | 24 | — | 6 | 5 | — | — | 70 | 48 | ||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 9 | 11 | 3 | 3 | 10 | — | — | 1 | — | — | 22 | 15 | ||||||||||||||||||||||||||||||||||||
| Segment profit | 8 | 16 | 1 | 3 | 6 | — | — | 1 | — | — | 15 | 20 | ||||||||||||||||||||||||||||||||||||
| Corporate expenses | (3 | ) | (4 | ) | (3 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | (9 | ) | (3 | ) | (9 | ) | (3 | ) | ||||||||||||||||||||||||||||||||||||||||
| Exploration | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Investment and other income | 3 | 4 | 3 | 4 | ||||||||||||||||||||||||||||||||||||||||||||
| Income and mining taxes | (5 | ) | (7 | ) | (5 | ) | (7 | ) | ||||||||||||||||||||||||||||||||||||||||
| 8 | 16 | 1 | 3 | 6 | — | — | 1 | (14 | ) | (11 | ) | 1 | 9 | |||||||||||||||||||||||||||||||||||
| Associated company: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in net earnings (loss) | — | — | — | — | — | — | — | — | 1 | (1 | ) | 1 | (1 | ) | ||||||||||||||||||||||||||||||||||
| Net earnings for the period | 8 | 16 | 1 | 3 | 6 | — | — | 1 | (13 | ) | (12 | ) | 2 | 8 | ||||||||||||||||||||||||||||||||||
Segmented Cash Flow | ||||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2002 and 2001 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating activities | 24 | 33 | 11 | 10 | (28 | ) | — | (2 | ) | 1 | (3 | ) | (8 | ) | 2 | 36 | ||||||||||||||||||||||||||||||||
| Capital expenditures | 5 | 4 | — | 1 | 2 | 58 | — | — | — | 1 | 7 | 64 | ||||||||||||||||||||||||||||||||||||
Segmented Balance Sheets
As at September 30, 2002 and June 30, 2002
| Compania | Compania | Corporate, | ||||||||||||||||||||||||||||||||||||||||||||||
| Minera Cerro | Highland Valley | Minera | Development and | |||||||||||||||||||||||||||||||||||||||||||||
| Colorado | Copper | Antamina | Other Mining | Exploration | Total | |||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
| Current assets | 190 | 174 | 25 | 29 | 83 | 100 | 17 | 13 | 255 | 46 | 570 | 362 | ||||||||||||||||||||||||||||||||||||
| Fixed assets and mining properties | 409 | 415 | 60 | 66 | 681 | 689 | — | 1 | 49 | 48 | 1,199 | 1,219 | ||||||||||||||||||||||||||||||||||||
| Investment | — | — | — | — | — | — | — | — | 216 | 219 | 216 | 219 | ||||||||||||||||||||||||||||||||||||
| Other assets | 9 | 14 | 3 | 3 | — | — | — | — | 10 | 258 | 22 | 275 | ||||||||||||||||||||||||||||||||||||
| Total assets | 608 | 603 | 88 | 98 | 764 | 789 | 17 | 14 | 530 | 571 | 2,007 | 2,075 | ||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
| Current liabilities | 16 | 15 | 18 | 17 | 70 | 109 | 4 | 2 | 42 | 47 | 150 | 190 | ||||||||||||||||||||||||||||||||||||
| Long term liabilities | 133 | 134 | 8 | 8 | 376 | 379 | 8 | 8 | 200 | 203 | 725 | 732 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | 149 | 149 | 26 | 25 | 446 | 488 | 12 | 10 | 242 | 250 | 875 | 922 | ||||||||||||||||||||||||||||||||||||
Net assets | 459 | 454 | 62 | 73 | 318 | 301 | 5 | 4 | 288 | 321 | 1,132 | 1,153 | ||||||||||||||||||||||||||||||||||||
6
Geographic Data
| Canada | Chile | Argentina | Peru | Total | |||||||||||||||||||||||||||||||||||||
For the Three Months Ended September, 2002 and 2001 | |||||||||||||||||||||||||||||||||||||||||
| Mining revenue | 23 | 29 | 44 | 54 | — | — | 40 | — | 107 | 83 | |||||||||||||||||||||||||||||||
As at September 30, 2002 and June 30, 2002 | |||||||||||||||||||||||||||||||||||||||||
| Capital assets | 66 | 319 | 474 | 486 | 216 | 219 | 681 | 689 | 1,437 | 1,713 | |||||||||||||||||||||||||||||||
4. Commercial Production
The company holds a 33.75% interest in Compania Minera Antamina S.A. (“CMA”), a joint venture with Noranda Inc. (“Noranda”) (33.75%), Teck Cominco Limited (“Teck Cominco”) (22.5%) and Mitsubishi Corporation (“Mitsubishi”) (10%). CMA has developed and now operates a copper-zinc project in Peru. Each shareholder is responsible for its proportional share of the project’s total cost of US$2.3 billion, including the payment to Centromin (a mining company owned by the Peruvian government) referred to note 5(a) below.
On October 1, 2001, the CMA copper-zinc project commenced commercial production. CMA has entered into concentrate sales agreements for a significant portion of its future production with various counterparties including an affiliate.
5. Commitments and contingencies
(a) In September 1998, the company, along with partners Noranda and Teck Cominco, elected to proceed with the development of the Antamina property. In connection with this election, the partners and the company made an investment commitment of US$2.5 billion. Since the actual investment was less than the investment commitment as of June 6, 2002, US$111.5 million was paid by CMA to Centromin in the quarter ended September 30, 2002.
(b) The company has provided a several guarantee of its 33.75% share of Antamina’s senior debt. Rio Algom’s share of such debt amounted to US$422 million at September 30, 2002 (June 30, 2002 – US$424 million). The guarantee increased to a maximum of US$445 million in August 2002 as Antamina drew fully on its senior debt facilities. The first repayment of the senior debt of $24 million (Rio Algom’s share) was made in September 2002. Following satisfaction of a number of pre-agreed completion tests expected to occur between 2002 and February 2004, the guarantee will terminate.
6. Shareholder’s equity
At October 31, 2002, the company had 65,505,788 common shares and C$353,378,000 of 5.5% convertible redeemable subordinated debentures outstanding. Each debenture is convertible at the option of the holder into common shares at a price of C$40 per common share.
7. Change in reporting currency
Effective the third quarter ended March 31, 2002, the company’s financial statements are being reported in US dollars. US dollars have been adopted as the company’s functional currency.
7
Rio Algom Limited
Management’s Discussion & Analysis
For the first quarter ended September 30, 2002
Overview
Rio Algom Limited (“Rio Algom”) is an international mining company and is an indirect wholly owned subsidiary of BHP Billiton Plc, a global natural resources company. Rio Algom and its subsidiaries and investees produce copper, zinc, molybdenum, gold and coal from mines in Canada, Chile, Peru and Argentina.
Rio Algom’s mining operations include the wholly owned Cerro Colorado copper mine in Chile, a 33.6% partnership interest in Highland Valley Copper in British Columbia, a 33.75% interest in the Antamina copper-zinc mine in Peru, a 25% equity investment in the Alumbrera copper-gold mine in Argentina, a 25% royalty interest in the Polaris zinc-lead mine in the Canadian Arctic which closed in September 2002 and a 29.1% joint venture interest in the Bullmoose Coal mine in British Columbia. The company has also a wholly owned copper project at the feasibility stage in Chile.
On October 1, 2001 the Antamina copper-zinc project commenced commercial production, four months ahead of schedule.
Effective the third quarter ended March 31, 2002, the company’s financial statements and attached notes are being reported in US dollars. The US dollar has been adopted as the company’s functional currency.
All currency references herein are to U.S. dollars unless otherwise specified. Reference to Canadian dollars is indicated by the symbol “C$”.
Cash Profile and Liquidity
Cash and cash equivalents at September 30, 2002 were $207 million compared to $206 million at June 30, 2002.
Cash flow from operating activities for the first quarter ended September 30, 2002 was $2 million compared to $36 million for the first quarter of last year. Cash from operating activities went down mainly due to an increase in working capital, principally at Antamina. During the quarter ended September 30, 2002, Antamina paid to Centromin (a mining company owned by the Peruvian government) as planned, $111.5 million (Rio Algom’s share: $38 million). This payment was required by the agreement under which Antamina was acquired from Centromin.
The first principal repayment of the senior project debt at Antamina of $24 million (Rio Algom’s share) was made in September 2002 and more than offset the drawdown on the senior project debt
1
facilities of $22 million (Rio Algom’s share).
In the first quarter ended September 2002, most of the capital expenditures were related to the expansion program at Cerro Colorado while most of the capital expenditures for the first quarter of last year were related to the development cost of the Antamina mine. Costs to complete approved capital projects will be financed through cash flow generated from operating activities.
Rio Algom Limited has a loan receivable with a maturity date of February 1, 2003 from a wholly owned Canadian subsidiary of Billiton Plc. The interest rate on the loan is 6 month LIBOR plus 0.75% per annum. At September 30, 2002, the amount outstanding was $221 million compared to $247 million at June 30, 2002. BHP Billiton Plc has unconditionally and irrevocably guaranteed the loan as to both principal and interest. In the first quarter ended September 30, 2002, the company reported for this loan interest income of $2 million under investment and other income (2001 – $3 million).
Results of Operations
Rio Algom’s net earnings for the first quarter ended September 30, 2002, were $2 million with revenue of $107 million and operating profit of $15 million. In the first quarter of last year, the company reported net earnings of $8 million with sales of $83 million and operating profit of $20 million. Lower earnings for this current quarter resulted from lower profit contribution at Cerro Colorado and Highland Valley Copper, partly offset by a profit contribution attributable to the coming on stream of Antamina.
All production references herein are to payable pounds or payable ounces.
Cerro Colorado
Cerro Colorado reported revenue of $44 million for the first quarter ended September 30, 2002, compared to $54 million in the first quarter of the previous year. Copper sales were 60 million pounds for the three months ended September 30, 2002, down 19% from the 74 million pounds sold in the comparable period the year before. Around 9 million supplemental pounds of copper which were scheduled to be shipped in September 2002 have been shipped in October 2002. The average realized copper price increased 1%, from $0.74 in 2001 to $0.75 in 2002. Copper production of 72 million pounds for the first quarter of this year was down 5% compared to 76 million pounds in the first quarter ended September 30, 2001. The average cash operating costs were $0.39 per pound in 2002, up 5% from the $0.37 per pound in 2001. Operating profit for the three months ended September 30, 2002 was $8 million compared to $16 million the year before due to lower sales and higher average cash operating costs partly offset by higher average copper price.
Antamina
The Antamina copper-zinc project commenced commercial production on October 1, 2001.
2
Rio Algom’s share of the project’s revenue for the first quarter ended September 30, 2002 was $40 million. Rio Algom’s share of sales of copper and zinc amounted to 67 million pounds and 42 million pounds respectively and its share of production at the Antamina mine was 57 million pounds of copper and 40 million pounds of zinc. The average realized copper price was $0.64 per pound and the average cash operating cost after by-product credits was $0.43 per pound of copper. Rio Algom’s share of Antamina’s operating profit was $6 million for the quarter ended September 30, 2002.
Rio Algom has provided a several guarantee of its 33.75% share of Antamina’s senior debt during the pre-completion period. Rio Algom’s share of such debt amounted to $422 million as of September 30, 2002. Antamina is now into its completion test period. Following satisfaction of a number of pre-agreed completion tests expected to occur between 2002 and February 2004, the guarantee will terminate.
Highland Valley Copper (“HVC”)
Rio Algom’s share of revenue was $17 million for the first quarter ended September 30, 2002 compared to $22 million for the previous year’s first quarter. This reduction was mainly due to lower copper sales and lower average realized copper price that went from $0.70 per pound to $0.64 per pound. Rio Algom’s share of copper sales was 60 million pounds for the three months ended September 30, 2002 compared to 74 million pounds the year before. Rio Algom’s share of copper production at HVC was 33 million pounds for the quarter ended September 30, 2002, compared to 36 million pounds for the first quarter of last year. Average cash costs of $0.50 per pound in 2002 were down 4% from $0.52 per pound in 2001 due to continued cost reductions. Rio Algom’s share of operating profit for the quarter ended September 30, 2002 was $1 million compared to $3 million in 2001 due mainly to lower commodity prices and lower sales partly offset by lower costs.
Currency hedges reduced HVC’s average realized copper price by $0.05 per pound in both quarters ended September 2002 and 2001. The currency hedges will expire at the end of December 2002.
Alumbrera
Rio Algom’s investment in Minera Alumbrera is accounted for on an equity basis. Rio Algom’s share of net earnings was $1 million for the first quarter ended September 30, 2002 compared to a loss of $1 million for the comparable period the year before. The improvement in earnings was mainly due to a higher average copper price and lower operating costs in US dollar terms as a result of the Argentinean peso devaluation.
Other Mining
Other mining comprises a 25% royalty interest in the Polaris zinc-lead mine and Rio Algom’s 29.1% joint venture interest in the Bullmoose Coal mine. Revenue of both operations for the first quarter ended September 30, 2002 was $6 million with no operating profit compared to revenue of $7 million and operating profit of $1 million for the quarter ended September 30, 2001.
Polaris mine ceased its operations in September 2002 after exhausting its ore reserves.
3
The Bullmoose Coal mine is expected to exhaust its reserves by mid 2003 and the operations will then be permanently closed. The mine has been operating since production began in 1983.
Expenses
Corporate expenses for the first quarter ended September 30, 2002 were $3 million compared to $4 million in the first quarter of last year. Exploration costs were nil for the first quarter of this year compared to $1 million the in the first quarter of the year before. Interest expense of $9 million reported in this current quarter increased from $3 million reported last year due mainly to the interest from the Antamina financing being expensed effective October 1, 2001 (being the date of commencement of commercial production).
Future taxes
Rio Algom does not expect to fully utilize its tax losses. Therefore a valuation allowance of $3 million was taken against the Canadian future tax assets created during the period.
Risks and Uncertainties
Commodity Price Risk
The price of copper is the most significant factor influencing the profitability of Rio Algom. For the first quarter ended September 30, 2002, the company’s average realized copper price after by-product credits and excluding Alumbrera, was $0.68 per pound compared to $0.73 per pound in first quarter of last year.
Currency Risk
In 1998, Rio Algom entered into foreign exchange contracts involving approximately C$90 million per year over five years. These positions were intended to hedge the company’s exposure to currency risk at HVC, which incurs operating expenses in Canadian dollars, but receives sales revenue in US dollars. The average exchange rate on the contracts when established was C$1.00 to US$0.70.
Contracts settling for the quarter ended September 30, 2002 resulted in realized losses of $2 million, comparable to the losses realized in the first quarter of last year. The remaining contracts expire in December 2002.
Mining Risk
The business of mining for metals is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labour disputes, unusual or unexpected geological conditions, ground failures, changes in the regulatory environment, delays in the permitting and licensing of new projects and natural phenomena such as inclement weather conditions, floods and earthquakes.
4
Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. Although the company maintains insurance against risks that are typical of the mining industry, such insurance may not provide adequate coverage under all circumstances.
Estimates involving metal recoveries and capital and operating costs are based upon feasibility studies, which assess anticipated tonnage and grades of ore to be mined and processed, the configuration of the orebody, facility and equipment requirements, environmental and reclamation activities and other factors. As a result, actual cash operating costs and economic returns of any and all development projects may materially differ from the costs and returns as estimated in feasibility studies.
Political and Financial Market Risks
Adverse political and economic developments can affect the performance of an investment. While project-financing arrangements may contain exclusions for certain political risks, including those covered by political risk insurance taken out by the relevant bank syndicate, the company’s equity investment in these projects is not covered.
Outlook
The business environment remains uncertain in the short term and no significant improvement in the demand for base metals commodities is expected soon. World production of copper exceeded consumption in 2001 and continued to do so in 2002 albeit to a lesser extent due to production shut downs in the industry. The resulting stock overhang contributed to ongoing weak copper prices.
Looking forward, we believe that the copper market outlook remains favourable. Once world industrial production growth returns to more normal levels, we would expect a rapid reduction in world inventories and the associated reversion of base metals prices to their long-term trends.
Caution Regarding Forward-Looking Information
Some of the disclosures included herein respecting production and production capacity, mineral reserves, resources and grades, mine life expectations, mining and treatment methods, metal prices, sales volumes, cash, operating, development and total costs, development schedules and budgets, financing, expenditures, returns and economic and market conditions, represent forward-looking statements (as defined in theU.S. Securities Exchange Act of 1934). Such statements are based on assumptions and estimates related to future economic and market conditions.
While the reasonableness of such assumptions and estimates is reviewed by management, unusual or unanticipated events may occur which render them inaccurate. Factors that could cause actual results to differ materially include, among others: the risks and uncertainties described earlier and in the financial statements, international economic and political conditions, cyclical and volatile commodity prices, availability of materials and equipment, failure to receive necessary government permits, delays in anticipated start-up dates, unusual weather or operating conditions, force majeure events, metallurgical and other processing problems, lower-than-expected ore grades, unanticipated ground and water conditions, failure of equipment or processes to operate in accordance with specifications or expectations and litigation. Under such circumstances, future performance may differ materially from expectations.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 26, 2002 | RIO ALGOM LIMITED (Registrant) | |
| By: | /s/ Philippe Monier Name: Philippe Monier Title: Chief Financial Officer | |
