U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 40-F
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[X] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31 ,2002
Commission File Number 001-13184
TECK COMINCO LIMITED
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(Exact name of Registrant as specified in its charter)
NOT APPLICABLE
(Translation of Registrant's name into English (if applicable))
CANADA
(Province or other jurisdiction of incorporation or organization)
1041, 1221, 1021, 1031, 1044, 1061, 1311
(Primary Standard Industrial Classification Code Number (if applicable))
NOT APPLICABLE
(I.R.S. Employer Identification Number (if applicable))
SUITE 600 - 200 BURRARD STREET, VANCOUVER, B.C. V6C 3L9 CANADA (604) 687-1117
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK, 10019 (212) 664-1666
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
NOT APPLICABLE ________________________
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___________________ ________________________
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NOT APPLICABLE
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(Title of Class)
______________
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
US$170 million Convertible Subordinated Debentures due 2006
and US$200 million 7.00% Notes due 2012
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(Title of Class)
For annual reports, indicate by check mark the information filed with this Form:
[X] Annual information form [X] Audited annual financial statements
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
4,681,478 CLASS A COMMON SHARES AND 179,855,017 CLASS B
SUBORDINATE VOTING SHARES
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Indicate by check mark whether the Registrant by filing 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
(the "Exchange Act"). If "Yes" is marked, indicate the filing number assigned to
the Registrant in connection with such Rule.
Yes [_] 82-________ No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
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UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
A. UNDERTAKING
Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff,
and to furnish promptly, when requested to do so by the Commission
staff, information relating to: the securities registered pursuant to
Form 40-F; the securities in relation to which the obligation to file
an annual report on Form 40-F arises; or transactions in said
securities.
B. CONSENT TO SERVICE OF PROCESS
A Form F-X signed by the Registrant and its agent for service of
process was filed with the commission together with the Registrant's
Registration Statement of Form F-9, No. 333-92116.
CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision of and with the participation of the
registrant's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c)) under the Securities
Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these controls and
procedures were effective. There have been no significant changes in our
internal controls or in other factors that could significantly affect those
controls subsequent to the date of the evaluation nor were there any significant
deficiencies or material weaknesses in those controls requiring corrective
action.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that
it meets all of the requirements for filing on Form 40-F and has duly caused
this annual report to be signed on its behalf by the undersigned, thereto duly
authorized.
Registrant: TECK COMINCO LIMITED
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By (Signature and Title): /s/ Karen L. Dunfee
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Karen L. Dunfee
Corporate Secretary
Date: May 27, 2003
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CERTIFICATIONS
I, David A. Thompson, certify that:
1. I have reviewed this annual report on Form 40-F of Teck Cominco Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (and persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 27, 2003.
/s/ David A. Thompson
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David A. Thompson
Chief Executive Officer
CERTIFICATIONS
I, John G. Taylor, certify that:
1. I have reviewed this annual report on Form 40-F of Teck Cominco Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (and persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 27, 2003.
/s/ John G. Taylor
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John G. Taylor
Chief Financial Officer
DOCUMENTS FILED AS PART OF THIS REPORT
1. Annual Information Form of Teck Cominco Limited for the year ended
December 31, 2002.
2. Audited Consolidated Financial Statements of Teck Cominco Limited for
the years ended December 31, 2002 and 2001 and the related Management's
Discussion and Analysis (Annex A).
LIST OF EXHIBITS
23.1 Consent of PricewaterhouseCoopers, Independent Accountants
23.2 Consent of William P. Armstrong, P. Eng.
23.3 Consent of Gordon Stothart, P. Eng.
23.4 Consent of Colin J. McKenny, P. Geol.
99.1 Certification of David A. Thompson, Chief Executive Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of John G. Taylor, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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ANNUAL INFORMATION FORM
March 14, 2003
TECK COMINCO LIMITED
Suite 600, 200 Burrard Street
Vancouver, British Columbia
V6C 3L9
AN ADDITIONAL COPY OF THIS ANNUAL INFORMATION FORM
MAY BE OBTAINED UPON REQUEST FROM THE CORPORATE SECRETARY,
TECK COMINCO LIMITED AT THE ABOVE ADDRESS OR FROM THE COMPANY'S
INTERNET WORLD WIDE WEB SITE - HTTP://WWW.TECKCOMINCO.COM
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TABLE OF CONTENTS
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION..........................III
THE COMPANY....................................................................1
INCORPORATION...............................................................1
SUBSIDIARIES................................................................2
GENERAL DEVELOPMENT OF THE BUSINESS............................................2
MAJOR HOLDINGS OF THE COMPANY...............................................2
THREE-YEAR HISTORY..........................................................3
2000.....................................................................3
2001.....................................................................4
2002.....................................................................5
SIGNIFICANT ACQUISITIONS AND DISPOSITIONS...................................6
Coal partnership.........................................................6
TRENDS......................................................................7
NARRATIVE DESCRIPTION OF THE BUSINESS..........................................7
REVENUE.....................................................................7
ZINC........................................................................8
Zinc operations..........................................................8
Zinc refining and lead smelting..........................................9
Zinc advanced projects..................................................11
COAL.......................................................................11
Coal partnership........................................................11
COPPER.....................................................................15
Copper operations.......................................................15
Copper projects.........................................................19
GOLD.......................................................................20
Gold operations.........................................................20
Gold advanced projects..................................................21
EXPLORATION................................................................23
Base metals and other commodities.......................................23
Gold exploration........................................................23
MINERAL RESERVES AND RESOURCES.............................................23
Mineral reserves at december 31, 2002...................................25
Mineral resources.......................................................26
MARKETING..................................................................26
Zinc....................................................................27
Copper..................................................................27
Gold....................................................................28
HEDGING PROGRAM............................................................28
ENVIRONMENTAL PROTECTION...................................................28
HUMAN RESOURCES............................................................29
FOREIGN OPERATIONS.........................................................30
COMPETITIVE POSITION.......................................................30
RISKS AND UNCERTAINTIES....................................................31
Risks inherent in the mining business...................................31
Commodity price fluctuations and hedging................................31
Competition for mining properties.......................................32
Future market access....................................................32
-i-
Mineral reserves and recovery estimates.................................32
Currency fluctuations...................................................33
Interest rate risk......................................................33
Environment.............................................................33
Aboriginal title claims.................................................34
Foreign activities......................................................34
Legal proceedings.......................................................34
SELECTED FINANCIAL INFORMATION................................................35
Three-year summary.........................................................35
Dividends..................................................................36
MANAGEMENT'S DISCUSSION AND ANALYSIS..........................................36
Quarterly data.............................................................36
MARKET FOR SECURITIES.........................................................36
DIRECTORS AND OFFICERS........................................................37
Directors..................................................................37
Officers...................................................................38
Ownership by directors and officers........................................40
ADDITIONAL INFORMATION........................................................40
NOTE: ALL CURRENCY REFERENCES ARE TO CANADIAN DOLLARS UNLESS OTHERWISE NOTED.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
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This Annual Information Form and the material incorporated by reference therein
contain certain forward-looking statements within the meaning of the UNITED
STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. These forward-looking
statements include estimates, forecasts, and statements as to management's
expectations with respect to, among other things, the size and quality of the
company's mineral reserves and mineral resources, future trends for the company,
future production, capital and mine production costs, demand and market outlook
for commodities, and the financial results of the company. These forward-looking
statements involve numerous assumptions, risks and uncertainties and actual
results may vary.
Factors that may cause actual results to vary include, but are not limited to,
changes in commodity and power prices, changes in interest and currency exchange
rates, inaccurate geological and metallurgical assumptions (including with
respect to the size, grade and recoverability of mineral reserves and
resources), unanticipated operational difficulties, (including failure of plant,
equipment or processes to operate in accordance with specifications or
expectations, cost escalation, unavailability of materials and equipment, delays
in the receipt of government approvals, industrial disturbances or other job
action, and unanticipated events related to health, safety and environmental
matters), political risk, social unrest, and changes in general economic
conditions or conditions in the financial markets.
The company does not assume the obligation to revise or update these
forward-looking statements after the date of this document, or to revise them to
reflect the occurrence of future unanticipated events, except as may be required
under applicable securities laws.
* * *
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THE COMPANY
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INCORPORATION
Teck Cominco Limited, previously Teck Corporation, was continued under the
CANADA BUSINESS CORPORATIONS ACT in 1978. It is the continuing company resulting
from the merger in 1963 of the interests of The Teck-Hughes Gold Mines Ltd.,
Lamaque Gold Mines Limited and Canadian Devonian Petroleum Ltd., companies
incorporated in 1913, 1937 and 1951 respectively. Over the years, several other
reorganizations have been undertaken. These include the merger of the company
with Brameda Resources Limited and The Yukon Consolidated Gold Corporation in
1979, the merger with Highmont Mining Corporation and Iso Mines Limited in 1979,
the consolidation with Afton Mines Ltd. in 1981 and the merger with Copperfields
Mining Corporation in 1983. On July 20, 2001, the company completed a merger
with Cominco Ltd. by acquiring all of the issued and outstanding share capital
of Cominco Ltd. that it did not previously own by way of a plan of arrangement
under the CANADA BUSINESS CORPORATIONS ACT. Pursuant to the plan of arrangement,
Cominco shareholders received 1.8 Class B subordinate voting shares of the
company plus six dollars in cash for each Cominco common share held. On July 23,
2001, Cominco Ltd. changed its name to Teck Cominco Metals Ltd. and on September
12, 2001, the company changed its name to Teck Cominco Limited.
Since 1978, the Articles of the company have been amended on several occasions
to provide for various series of preferred shares and other corporate purposes.
On January 19, 1988, the Articles were amended to provide for the subdivision of
the company's Class A common shares and the Class B subordinate voting shares on
a two-for-one basis. On September 12, 2001, the Articles were amended to effect
the name change described above and to convert each outstanding Class A common
share into one new Class A common share and 0.2 Class B subordinate voting
shares and to enact "coattail" takeover bid protection in favour of the Class B
subordinate voting shares. The Class A shares carry the right to 100 votes per
share and the Class B Subordinate Voting Shares carry the right to one vote per
share. In all other respects the Class A and Class B Subordinate Voting Shares
rank equally. Subject to certain exceptions, if a take-over bid is made in
respect of the Class A shares and is not made concurrently with an offer to
purchase Class B Subordinate Voting Shares on identical terms, each outstanding
Class B Subordinate Voting Share will be convertible into a new common share.
New common shares will have rights identical to the Class A shares, except that
each new common share will be convertible, at any time, at the option of the
holder into one Class B Subordinate Voting Share.
The registered and principal offices of Teck Cominco Limited are located at 200
Burrard Street, Vancouver, British Columbia. The company's other Canadian
offices are located in Toronto and Kamloops. Foreign offices are located in
Fairbanks, Alaska; Spokane, Washington; Guadalajara, Mexico; Santiago, Chile;
Lima, Peru; Rio de Janeiro, Brazil; Ankara, Turkey; Windhoek, Namibia; and
Perth, Australia.
In this form, 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 or to Cominco
refers to Teck Cominco Metals Ltd. and its subsidiaries.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 1
SUBSIDIARIES
The financial statements of Teck Cominco consolidate the accounts of all of its
subsidiaries. Teck Cominco's material subsidiaries which are wholly-owned, held
directly or indirectly, unless otherwise indicated, are as follows:
JURISDICTION OF
COMPANY NAME INCORPORATION
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Bermuda
Teck Base Metals Ltd.
Teck Cominco Metals Ltd. Canada
Teck-Hemlo Inc. Ontario
Teck Bullmoose Coal Inc. British Columbia
Teck Gold Limited Canada
Teck-Pogo Inc. Alaska, U.S.A.
Teck Resources Inc. Colorado, U.S.A.
Teck Cominco Alaska Incorporated Alaska, U.S.A.
Teck Cominco American Incorporated Washington, U.S.A.
Refineria de Cajamarquilla S.A. (82%) Peru
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GENERAL DEVELOPMENT OF THE BUSINESS
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MAJOR HOLDINGS OF THE COMPANY
The company is engaged primarily in the exploration for, and the development and
production of, natural resources. The company is a producer of zinc, coal,
copper, gold, lead, as well as various specialty metals such as germanium and
indium. Certain of Teck Cominco's current zinc operations and assets are owned
and managed by its subsidiary, Teck Cominco Metals. The principal mining and
processing operations in which the company has an interest as at March 14, 2003
are the following:
(i) the Red Dog zinc mine, located near Kotzebue, Alaska, in which the
company has a 100% leasehold interest;
(ii) the Antamina copper, zinc mine located in Peru and owned by Compania
Minera Antamina S.A. ("CMA") in which the company has a 22.5% interest;
(iii) the Trail smelter and refinery, located at Trail, British Columbia,
which also includes the Waneta hydroelectric power plant, in which the
company has a 100% interest;
(iv) the Cajamarquilla zinc refinery, located near Lima, Peru, in which the
company owns an 82% interest;
(v) the Elkview, Fording River, Coal Mountain and Line Creek metallurgical
coal mines, located in southeastern British Columbia, in which the
company has an effective 41% indirect interest through the Fording Coal
Partnership and the Fording Canadian Coal Trust, and the Greenhills
metallurgical coal mine located in southeastern British Columbia, in
which the company has an effective indirect 32% interest through the
Fording Coal Partnership and the Fording Canadian Coal Trust;
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 2
(vi) the Bullmoose metallurgical coal mine, located in northeastern British
Columbia, in which the company has a 61% joint venture interest;
(vii) the Highland Valley copper mine, located near Kamloops, British
Columbia, in which the company has a 63.9% partnership interest;
(viii) the Louvicourt copper, zinc mine, located near Val d'Or, Quebec, in
which the company has a 25% joint venture interest; and
(ix) the David Bell and Williams gold mines, located near Marathon, Ontario,
in which the company has a 50% joint venture interest.
The company also has a number of advanced projects including:
(i) the Pogo project located in Alaska, U.S.A. in which the company can
earn a 40% interest; and
(ii) the Pend Oreille zinc and lead project located near Metaline Falls,
Washington, in which the company has a 100% interest.
For further information on the operations and projects set out above and other
assets of the company, see "Narrative Description of the Business."
THREE-YEAR HISTORY
2000
The company reported net earnings of $85 million or $0.77 per share in 2000,
compared with net earnings of $45 million or $0.42 per share in 1999. The
earnings include equity earnings of $37 million in respect of the company's
share of earnings of Cominco for the nine months ended September 30, 2000. The
company increased its ownership in Cominco to 50% in the third quarter of 2000
and consolidated the accounts of Cominco for the last quarter of 2000. As a
result total assets, revenues, expenses and cash flow items all increased
significantly in 2000.
The company's $37 million share of Cominco earnings in the first three quarters
compared favorably with the $9 million recorded in the same period in 1999. In
part this was a result of higher ownership, which averaged 45% in the period as
opposed to 40% in 1999. The major portion of the increase was a result of higher
operating earnings at the Red Dog mine, which had increased sales as a result of
its expansion program, and at Highland Valley Copper, which had been shut down
for a portion of the earlier year, and revenues from power sales at Trail. Power
sales contributed additional operating earnings of $58 million to Cominco in the
first three quarters as surplus power was sold into a buoyant United States
market.
Operating profits after depreciation for the year were $247 million compared
with $78 million in 1999. The majority of this increase related in the last
quarter to the consolidation of Cominco in the fourth quarter and a strong
earnings contribution from Cominco. The company's own operations benefited from
higher copper and coal prices and higher coal volumes, which contributed to
lower unit costs. Offsetting this was lower gold production and prices.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 3
Cash flow from operations before changes to non-cash working capital items was
$239 million compared with $110 million in 1999. Most of this increase was the
result of consolidating Cominco in the fourth quarter. Administrative and
exploration costs also increased for the same reason.
In 2000 the company bought 5.2 million Cominco shares at a total cost of $127
million. Other major investments included the construction of the Carosue Dam
mine in Western Australia at a cost of $48 million and feasibility study costs,
including working capital, on the Pogo project in Alaska. In March, the company
acquired an additional direct 40% interest in the San Nicolas base metals
project in Mexico in addition to its indirect 33% interest held through Minera
Tama S.A. de C.V. by issuing 1.8 million Class B Shares. Major expenditures on
existing mines included $21 million relating to the expansion of the Elkview
coal mine and $23 million at Tarmoola where the mine entered a planned
pre-stripping phase. In addition, the company and Cominco sold their interests
in the Quebrada Blanca mine in Chile to Aur Resources Inc. for cash proceeds of
$270 million, notes receivable at commercial rates totalling $54 million and 5
million shares of Aur Resources with an ascribed value of $12.5 million.
Pursuant to a normal course issuer bid, during the year the company purchased
and cancelled 2.5 million Class B Shares at a cost of $21 million.
Year-end working capital was $760 million, including cash of $266 million,
compared with working capital of $249 million and cash of $199 million at the
end of 1999. Net long term debt excluding the 3% Inco Exchangeable Debentures
was $875 million, which was 15% of net debt plus equity.
2001
The company reported a net loss of $21 million or $0.17 per share in 2001
compared to net earnings of $85 million ($0.77 per share) in 2000. The results
are comprised of earnings of $101 million before asset valuation writedowns and
an after tax charge against earnings of $122 million in respect of such
writedowns. The comparability of results is significantly affected by the
company's increased ownership of Cominco. Up to the third quarter of 2000 the
company accounted for its interest in Cominco on an equity basis. After the
company increased its ownership of Cominco to 50% in the third quarter of 2000,
the company consolidated the results of Cominco. The company further increased
its ownership in Cominco from 50% to 100% on July 19th, 2001, eliminating the
minority interest for succeeding periods. The minority shareholders' share of
the earnings of Cominco for first six months of 2001 was $48 million. As a
result of these changes, total revenues, expenses and cash flow items all
significantly increased in 2001.
Operating profits after depreciation for the year were $402 million compared
with $247 million in the prior year. The majority of this increase relates to
the consolidation of Cominco for a full year. Operating profit from Trail of
$222 million was similar to pro forma operating profit of $229 million for the
full year of 2000, with higher profits from power sales offsetting the lower
profit from metal sales. Lower zinc prices resulted in an operating profit of $4
million for the year at Red Dog compared to pro forma operating profits of $121
million for the full year of 2000 (stated on the basis of full year
consolidation). Operating profits from coal operations include a full year of
results in both 2000 and 2001 and increased from $16 million in 2000 to $87
million in 2001 as a result of higher prices, a stronger United States dollar
and an increase in sales volumes. Operating profit from gold operations declined
from $52 million to $35 million during the year as a result of the sale of
PacMin Mining Corporation Limited ("PacMin") which owned the Tarmoola and
Carosue Dam gold mines.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 4
In the third quarter, following the merger of the company and Cominco, the
company conducted a review of the carrying values of its mineral properties and
investments in the light of sustained low metal prices. As a result of the
review, the company recorded before tax provisions of $169 million ($122 million
after tax) mainly against non-operating mineral properties, but also including
investments in exploration stage companies.
Cash flow from operations before changes to non-cash working capital items was
$418 million compared with $239 million the year before. This increase was the
result of consolidating Cominco for a full year.
In 2001 the company completed the acquisition of Cominco, issuing 78,482,502
Class B Shares and paying $262 million for the remaining 50% of Cominco which it
did not already own. In addition the company paid $38 million in partial
redemption of the 2024 Exchangeable Debentures. These debentures are no longer
exchangeable for Cominco Shares, but are exchangeable into Class B Shares.
In the first quarter of 2001 the company sold its interest in the Niobec niobium
mine for cash proceeds of $43 million. In the fourth quarter the company sold
its investment in PacMin through which the company held its interest in the
Tarmoola and Carosue Dam mines. The company received cash of $52 million and
17.4 million shares of Sons of Gwalia Limited valued at $85 million. Also in the
fourth quarter, the Antamina mine in Peru, in which the company has a 22.5%
interest through CMA, began commercial production. The company recorded $1
million as its equity accounted share of losses for Antamina in the quarter.
Other major investments included ongoing construction of the Pend Oreille mine
in Washington State ($23 million) and feasibility study costs, including working
capital, on the Pogo project in Alaska. Major expenditures on existing
facilities included the completion of the mill optimization project at the Red
Dog mine which totalled $62 million in the year, $14 million relating to the
expansion of the Elkview coal mine and ongoing capital expenditures at the Trail
refinery of $55 million.
In December, 2001 the Sullivan zinc and lead mine and concentrator located at
Kimberley, British Columbia was closed. Reclamation and closure plans are now
being implemented for the decommissioning of the mine.
Pursuant to a normal course issuer bid, during the year the company purchased
and cancelled 1,495,100 Class B Shares at a cost of $13 million.
Year-end working capital was $609 million, including cash of $101 million
compared with working capital of $760 million and cash of $266 million at the
end of 2000. The reduction of cash and working capital was mainly the result of
the $300 million disbursed in connection with the merger and Cominco
exchangeable debentures. Net long term debt excluding the 3% Inco Exchangeable
Debentures, was $864 million which was 25% of net debt plus equity.
2002
Net earnings for the year ended December 31, 2002 were $30 million, or $0.15 per
share, compared with a loss of $21 million or $0.17 per share in 2001. The loss
in 2001 was due to the recording of asset valuation writedowns of $122 million
on an after-tax basis. Net earnings before the writedowns were $101 million or
$0.69 per share in 2001. The comparability of these results is also affected by
the acquisition of the remaining fifty per cent of Cominco that the company did
not already own in July of 2001. The minority shareholders' share in the
earnings of Cominco in the first half of 2001 was $48 million.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 5
Earnings in 2002 were severely affected by lower prices for many of the
company's principal products. Electrical power prices were unusually high in
2001, averaging US$174 per MW.h., but returned to the more normal levels of US$
23 per MW.h. in 2002. Zinc and copper prices averaged US$0.35 and US$0.71 per
pound respectively compared with US$0.40 and US$0.73 per pound in 2001.
Partially offsetting the effects of low zinc and copper prices were higher gold
prices, which averaged US$314 per ounce compared with US$282 per ounce in 2001,
and higher coal prices which at an average price of US$44 per tonne were 10%
higher than a year ago.
Operating profits after depreciation for the year were $183 million compared
with $402 million in the prior year. The majority of this decrease relates to
lower profits from third party power sales, which declined from $302 million to
$5 million. Partly offsetting this was a higher contribution from the Trail
refinery, which had curtailed production in the first half of 2002 and suspended
operations for three months in 2001 in order to deliver power into North
American markets. Also affecting operating profit at Trail were weaker markets
for many of the company's specialty metals such as germanium. Overall operating
profit from Trail was $23 million compared with $222 million in 2001. Lower zinc
prices resulted in an operating loss of $28 million for the year at Red Dog
compared to an operating profit of $4 million in the prior year. Sales volumes
of zinc concentrates increased by 10% to 586,000 tonnes in the year. Operating
profit from gold operations declined from $35 million to $20 million during the
year due to reduced production as a result of ground control problems and the
November 2001 sale of the company's interest in PacMin. Lower production at the
Hemlo mines of 269,000 ounces compared to 536,000 ounces in 2001 offset the
effect of higher gold prices during the year. Operating profit from coal
operations increased from $87 million in 2001 to $116 million in 2002 as a
result of higher prices with similar sales volumes.
Cash flow from operations before changes to non-cash working capital items was
$201 million compared with $418 million in 2001. This decrease was the result of
lower operating profits.
The company recorded equity earnings of $17 million in respect of its 22.5%
interest in the Antamina mine in Peru. This compares to a loss of $1 million in
2001. The mine commenced commercial production in the fourth quarter of 2001 and
the 2001 results reflect only one quarter of operation. Underlying the results
were lower unit costs for production and higher prices for the mine's principal
product as copper prices averaged US$0.66 in the fourth quarter of 2001.
Major investments included completion of the funding of the Antamina project
($26 million), ongoing construction of the Pend Oreille mine in Washington State
($33 million), and upgrades to power generation assets at the Waneta Dam ($35
million). The latter two projects continue into 2003.
2002 year-end working capital was $635 million, including cash of $91 million
compared with working capital of $609 million and cash of $101 million at the
end of 2001. Net long term debt excluding the 3% Inco Exchangeable Debentures,
was $868 million compared to $864 million at the beginning of the year. Net debt
to net debt plus equity was 26% at year-end.
SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
COAL PARTNERSHIP
On January 12, 2003, the company entered into an agreement with Fording Inc.
("Fording"), Westshore Terminals Income Fund, Sherritt International
Corporation, and the Ontario Teachers Pension Plan Board to combine the
metallurgical coal assets of Fording, Luscar Energy Partnership and the company
in the
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 6
Fording Coal Partnership (the "Coal Partnership"). The company contributed its
Elkview Mine and $125 million in cash to obtain an initial 35% interest in the
Partnership. This interest may be increased to 40% should the Partnership meet
certain earnings and efficiency targets by March 31, 2007. The company also paid
$150 million for a 9.1% interest in the Fording Canadian Coal Trust ("FCCT"),
formed by the reorganisation of Fording into an income trust. FCCT owns the
remainder of the Coal Partnership and certain other assets, through its
wholly-owned subsidiary Fording. Through its direct interest in the Partnership
and its interest in FCCT, the company has an effective 41% which could increase
to 46% should the Coal Partnership meet certain earnings and efficiency targets
by March 31, 2007.
TRENDS
The results of the company in 2003 will continue to be affected by commodity
prices including the price of zinc, coal, copper, gold and power. Production of
refined zinc is expected to increase over that of 2002 when production at Trail
and Cajamarquilla was curtailed in response to rising LME stocks. Net power
sales are expected to increase due to the completion of upgrades of the
generating units at Waneta. Two turbine upgrades have been completed. The
remaining two units are expected to be completed by the fourth quarter of 2003.
On February 28, 2003, as described above under the heading "Significant
Acquisitions and Dispositions", the company contributed the Elkview mine and
$125 million to obtain a 35% interest in the Fording Coal Partnership, and paid
$150 million to obtain a 9.1% interest in the Fording Canadian Coal Trust. This
transaction increases the company's share of metallurgical coal production, and
subsequently the sensitivity of the company's earnings to changes in
metallurgical coal prices, and will increase the company's interest expense, as
the coal investment was funded by additional borrowing.
NARRATIVE DESCRIPTION OF THE BUSINESS
-------------------------------------
A narrative description of the company's mines, smelting and refining operations
and development projects is provided below.
REVENUE
The following table summarizes Teck Cominco's revenue by business segment.
2002 2001
-------------------------------------------------------------|-------------------------------------
($ in millions) % | ($ in millions) %
------------------------------|-------------------------------------
Smelting and Refining (1) 914 42 | 979 41
|
Coal Mines 463 21 | 412 17
|
Zinc Mines 462 21 | 516 22
|
Copper Mines 277 13 | 308 13
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 7
2002 2001
-------------------------------------------------------------|-------------------------------------
($ in millions) % | ($ in millions) %
------------------------------|-------------------------------------
Gold Mines 133 6 | 227 10
|
Other 13 1 | 14 --
|
Intersegment Sales (75) (4) | (77) (3)
-------------------------------------------------------------|-------------------------------------
|
TOTAL MINING REVENUE 2,187 100 | 2,379 100
=============================================================|=====================================
(1) Including power sales
Other than intersegment sales, all sales are to third parties, of which no
single customer accounts for more than 15% of revenue.
ZINC
ZINC OPERATIONS
RED DOG MINE, UNITED STATES (ZINC, LEAD)
- ----------------------------------------
The Red Dog zinc-lead-silver mine, concentrator and shipping facility in the
northwest Arctic Borough near Kotzebue, Alaska, commenced production in December
1989 and began shipping concentrates in July 1990. The Red Dog mine is 100%
owned and operated by the company, subject to a royalty as described below. In
2002, the mine produced 1,043,000 tonnes of zinc concentrate containing 1,275
million pounds of zinc (2001-935,000 tonnes of concentrate, 1,141 million pounds
of zinc) and 197,000 tonnes of lead concentrate containing 238 million pounds of
lead (2001-168,000 tonnes of concentrate, 210 million pounds of lead). Mill
throughput in 2002 was 3.2 million tonnes (2001-3.2 million tonnes) with zinc
recovery at 85.1% (2001-80.9%) and lead recovery at 60.2% (2001-59%).
The mining method employed is conventional drill and blast open pit mining. The
main pit has an expected life of 9 years at current rates of production.
Additional reserves have been identified in the vicinity of the processing
facilities sufficient to extend the life of the operation by a further 17 years.
The mineral processing facilities employ conventional grinding and sulphide
flotation methods to produce zinc and lead concentrates.
The mine and concentrator properties are leased from, and are being developed
under the terms of a development and operating agreement with, the NANA Regional
Corporation, Inc. ("NANA"), a native Alaskan development corporation. NANA
receives an annual advance royalty equal to the greater of 4.5% of the value of
annual production or US$1 million until the company has recovered its capital
investment, interest and the advance royalties previously paid to NANA. After
those amounts have been recovered NANA will have a carried interest in the net
proceeds of production from the mine, starting at 25% and increasing to 50% by
successive increments of 5% at five-year intervals. In addition to the royalties
payable to NANA, the operation is subject to State and federal income taxes.
All contaminated water from the mine area and waste dumps is collected and
contained in a tailings impoundment and seasonally discharged through a water
treatment plant. Mill process water is reclaimed from the tailings pond. The
mine and an associated port facility operate under effluent permits issued by
the United States Environmental Protection Agency and air permits issued by the
State of Alaska. The
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 8
operation is in material compliance with all of its permits or related
regulatory instruments and has obtained all of the permits that are material to
its operations.
In addition to the original capital invested to establish mining, mineral
processing and transportation infrastructure, substantial additional capital has
been invested at Red Dog to increase production and optimise mineral processing
and transportation facilities.
A project to optimise the mill and increase production from 900,000 tonnes of
zinc concentrate per year to 1,100,000 tonnes per year was completed at the end
of 2001. This project also improved the grade of the concentrate and the
recovery of zinc in 2002.
Approximately 25% of the zinc concentrate produced at Red Dog is shipped to the
company's metallurgical facilities at Trail and the balance to customers in Asia
and Europe. The lead concentrate production is shipped to customers in Asia and
Europe. The majority of concentrate sales are pursuant to long-term contracts.
The balance is sold on the spot market at prices based on prevailing market
quotations.
POLARIS MINE, CANADA (ZINC, LEAD)
- ---------------------------------
The Polaris zinc-lead mine ceased production in September 2002 after 21 years of
operation. The mine, mill and shipping facility are located on Little Cornwallis
Island in the Canadian high arctic.
In 2002, the mine produced 125,000 tonnes of zinc concentrate containing 173
million pounds of zinc (2001-196,000 tonnes of concentrate, 271 million pounds
of zinc) and 22,203 tonnes of lead concentrate containing 39 million pounds of
lead (2001-39,000 tonnes of concentrate, 67 million pounds of lead). Mill
throughput in 2002 was 694,000 tonnes (2001-1.0 million tonnes) with zinc
recovery at 97.6% (2001-97.3%) and lead recovery at 89.9% (2001-91.0%).
Concentrates were sold to Western European smelters at market prices prevailing
at the time of sale.
The terrestrial aspects of a decommissioning and closure plan were conditionally
approved by regulators and stakeholders in 2002 and the mine is awaiting final
approval of the marine aspects from the Department of Fisheries and Oceans.
Reclamation will occur over the next two years.
ZINC REFINING AND LEAD SMELTING
TRAIL METALLURGICAL OPERATIONS
- ------------------------------
The company owns and operates the integrated smelting and refining complex at
Trail, British Columbia. The complex's principal products include refined zinc,
lead, silver and gold. Germanium dioxide, cadmium, bismuth, indium and copper
compounds are produced as metal co-products, along with a variety of sulphur
products and ammonium sulphate fertilisers.
Construction of the lead smelter modernization project, including the Kivcet
furnace and installation of a slag fuming plant, was completed and the plants
were started up in 1997.
Trail's zinc operations consist of six major metallurgical plants, one
fertilizer plant and two specialty metal plants. Zinc concentrates are initially
treated in roasters or pressure leach facilities. The zinc and other elements
are put into solutions, the zinc is then purified and electroplated onto
cathodes. Refined zinc is produced by remelting cathodes produced in an
electrolytic refining plant into various shapes
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 9
appropriate to customer requirements. The specialty metals processes extract the
co-products to produce valuable metals. Lead concentrates, recycled batteries,
residues from the zinc circuits and various other lead-bearing materials, are
treated in the Kivcet flash furnace and refined into lead in the cell
electro-refinery.
Drainage water from the smelter site and metallurgical effluent is collected in
ponds and treated through a water treatment plant. The smelter operates under
effluent and air emission permits issued by the British Columbia Ministry of
Water, Land and Air Protection. The operation is in material compliance with all
of its permits and has obtained all of the permits that are material to its
operations.
The company also owns the Waneta hydroelectric power plant near Trail, which has
an installed capacity of 425,000 kilowatts with an annual average output of
2,630,000 megawatt hours of energy. Capacity was increased from 400,000
kilowatts with the installation of an upgraded turbine in the fourth quarter of
2002. This plant, together with agreements with B.C. Hydro and Aquila Networks
Canada, provides electric power to the Trail operation. In 2002, surplus power
sales from the Waneta hydroelectric facility into the United States and Canadian
markets returned to a more normal level of 683,000 megawatt hours as compared to
the 1,159,000 megawatt hours sold in 2001 when zinc production was curtailed to
supply strong power markets.
In 2002, Trail produced 269,000 tonnes of refined zinc (2001-168,100 tonnes),
80,700 tonnes of refined lead (2001-55,200 tonnes), 17.7 million ounces of
silver (2001-9.2 million ounces) and 126,703 ounces of gold (2001- 47,800
ounces).
CAJAMARQUILLA ZINC OPERATIONS, PERU
- -----------------------------------
The company owns 82% of the Cajamarquilla zinc refinery, located approximately
20 kilometers east of Lima, Peru. Marubeni Corporation owns 17% and the
refinery's employees own the remaining 1%. Cajamarquilla commenced operation in
1981 and was acquired in 1995. The Cajamarquilla plant utilizes both a Lurgi
fluidized bed roaster and a leaching, purification and electrowinning facility.
Cajarmaquilla also has an acid plant which makes high quality sulphuric acid
from the gases produced in the roasting process. Concentrate feed for the
refinery comes from a number of Peruvian mines.
The refinery has an annual capacity of 120,000 tonnes of zinc metal and produced
92,900 tonnes of refined zinc in 2002 (2001-122,100 tonnes). The lower
production in 2002 resulted from a 3-month shutdown taken in reaction to market
conditions. However, for the 9 months of operation, the refinery ran above
design capacity. Refined zinc is marketed in Latin America, the United States
and Asia. Saleable co-products consist of sulphuric acid, cadmium, copper cement
and lead-silver concentrate. Cadmium is sold in Asia while the other co-products
are sold in South America.
Metallurgical effluent is processed in a water treatment plant and discharged to
two lined retention ponds where samples are taken for analysis to ensure that
the water meets irrigation standards. Once the quality is confirmed, the water
is allowed to flow to a third (irrigation) pond and then used for crop
irrigation by neighboring farming co-operatives. If necessary, the water can be
recirculated from the retention ponds back to the plant for further treatment.
The discharge of final effluent from the retention ponds to the irrigation pond
is authorized by a permit from the Peruvian Government and the operation is in
material compliance with this permit.
The Stage I expansion program, which increased the refinery's production
capacity to 120,000 tonnes, was completed and commissioned in 1998. The same
year, work began on a Stage II expansion program
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 10
that would double Cajamarquilla's capacity to 240,000 tonnes. Further work on
the Stage II expansion has been deferred at this time. This Stage II expansion
program will take about 18 months to complete after a construction decision is
made.
ZINC ADVANCED PROJECTS
PEND OREILLE PROJECT, UNITED STATES (ZINC, LEAD)
- ------------------------------------------------
At the Pend Oreille project, near Metaline Falls, Washington, a feasibility
study and environmental impact statement for the State of Washington were
completed in mid-2000. Engineering and construction commenced in the second half
of 2000. Applications for operating permits have been submitted and permits are
being issued as required by the project. The Pend Oreille project is owned 100%
by the company. A probable reserve of 5.7 million tonnes grading 7.7% zinc and
1.3% lead is expected to provide a mine life of 8 years. Inferred and indicated
resources of 3.3 million tonnes grading 6.6% zinc and 1.3% lead identified on
the main Washington Rock zone and on a separate zone to the north require
further drilling and evaluation to qualify as reserves. Several significant new
drill targets have been identified in the immediate area using downhole
geophysical techniques.
The installation of a new underground hoisting facility and the sinking of an
internal shaft have been completed. Surface construction to-date has included
rehabilitation of the support facilities, upgrading the power supply, demolition
in preparation for the installation of new equipment in the concentrator and
preparation of the tailings impoundment basin. Production is scheduled to
commence in the 1st quarter of 2004. The total estimated capital cost is $74
million.
The Pend Oreille mine will be an underground mine. The mineral processing
facilities will employ conventional grinding and sulphide flotation methods to
produce high quality zinc and lead concentrates. Annual production is forecast
to be 730,000 tonnes per year of ore to produce 83,000 tonnes per year of zinc
concentrate and 13,000 tonnes per year of lead concentrate. The concentrates
will be hauled by truck to Trail Metallurgical Operations.
COAL
COAL PARTNERSHIP
The company holds its metallurgical coal mining interests (other than the
Bullmoose mine which will be transferred to the partnership when reclamation is
complete) through its 35% initial interest in the Coal Partnership, of which the
company is the managing partner. The remaining 65% interest in the Coal
Partnership is held by Fording, a wholly-owned subsidiary of FCCT. The company
has the right to earn up to an additional 5% interest in the Coal Partnership
over a four year period, bringing its interest to 40%, to the extent that
operating synergies realized by the Coal Partnership and distributable cash
generated by the Elkview mine exceed certain target levels during the four year
period from April 2003 to March 31, 2007.
The Coal Partnership is a general partnership established under the laws of the
Province of Alberta. The company, in its capacity as managing partner of the
Coal Partnership, manages and makes all decisions relating to the business and
affairs of the Coal Partnership, subject to obtaining, in respect of certain
matters, the approval of Fording. These matters include certain fundamental
changes with respect to the Coal Partnership, and approval of an annual
operating and capital plan and budget for the Coal Partnership.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 11
The Coal Partnership has entered into an agreement with respect to a $120
million revolving credit facility for working capital purposes, and has given an
unsecured guarantee, limited in recourse as against the company to the assets of
the Coal Partnership and the interest of the company therein, with respect to up
to $420 million of borrowings by Fording incurred principally in connection with
the financing of the transaction pursuant to which the company acquired its
interest in the Coal Partnership.
The Partnership Agreement provides that while the foregoing guarantee is in
place, Fording may not sell its interest in the Coal Partnership or carry on any
business other than in respect of the Coal Partnership or its industrial
minerals business substantially as currently conducted, unless in the reasonable
judgment of the company, the carrying on of such business could not, under any
reasonably foreseeable circumstances, have an adverse effect on the financial
condition of Fording.
ELKVIEW MINE, CANADA (COAL)
- ---------------------------
The Elkview Mine is an open pit coal mine located in the Elk Valley in
southeastern British Columbia. The mine has a current annual design capacity of
6 million tonnes of clean coal with an ability to expand to 7 million tonnes
with modest additional capital expenditures. In 2002, when the company owned
100% of the Elkview Mine, the mine produced approximately 5.5 million tonnes of
metallurgical coal (2001-5.5 million tonnes) and mined approximately 111.0
million tonnes of waste (2001-100.7 million tonnes).
Elkview Mine's operating profit was $92 million for the year ended December 31,
2002 and $70 million for the year ended December 31, 2001. The increase in 2002
was mainly due to higher coal prices and increased sales.
The property comprising the Elkview Mine consists of eight coal licences (which
have a 20-year life and are automatically renewable on a yearly basis) and fee
simple lands including coal rights and covers a surface area of approximately
23,000 hectares. The mine is accessed by an all-weather highway, which connects
Alberta with British Columbia. The mine operates on a continuous basis, 24 hours
a day, 365 days a year, with approximately 690 personnel. The mine has been
operating on a nearly continuous basis for over 30 years under a mining permit
granted under the MINES ACT (British Columbia). Remediation and reclamation
permits are in place to permit all facets of the mining process. Additional
permits will be required in the future in respect of the location of additional
dumps and tailings impoundment areas that will be required as mining operations
proceed.
The mine proper and the associated fee simple lands at Elkview Mine cover a
portion of the Crowsnest coal field that runs from just north of the Elkview
property to 20 kilometers south of the City of Fernie, British Columbia. The
mineral reserves associated with the Elkview Mine lie in the Mist Mountain
formation of the Crowsnest coal field with the mine exploiting 16 coal seams in
the area of Baldy and Natal Ridge, just outside the Town of Sparwood, British
Columbia, bounded by Michel Creek to the south and the Elk River to the west.
Annual in-fill drilling programs are conducted to confirm and update the
geological model used to develop the yearly mine plans.
The coal produced is a high quality mid-volatile hard coking coal. Lesser
quantities of lower grade hard coking coal are also produced. The Elkview Mine
uses conventional open pit truck/shovel mining methods. The preparation plant,
which has a capacity of 7 million tonnes per year of clean coal, is a
conventional coal washing plant, using standard technology of cycloning and
heavy media flotation.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 12
FORDING RIVER MINE, CANADA (COAL)
- ---------------------------------
The Fording River Mine is located 29 kilometres northeast of the community of
Elkford, in southeastern British Columbia. The mine is a conventional open pit
operation comprised of 20,304 hectares of coal lands of which 3,592 hectares are
currently being mined or are scheduled for mining. All permits necessary for the
current operation of the mine are in hand and in good standing.
Construction of Fording River as a 3 million tonne per year operation was
commenced in 1969. It has operated continuously since that time. In 2002, prior
to the company's acquisition of its interest in the Coal Partnership, Fording
River produced 8.1 million tonnes of coal at a strip ratio of 8.0 BCM (bench
cubic metres of waste) per tonne of coal.
Coal mined at Fording River is primarily metallurgical coal, although a small
amount of thermal coal is also produced. The current annual production
capacities of the mine and preparation plant are 10 and 9.5 million tonnes,
respectively. All permits necessary for the current operation of the mine are in
hand and are in good standing. Annual in-fill drilling programs are conducted to
refine mine plans and confirm and update the geological model.
The majority of current production is derived from the Eagle Mountain pit. Known
reserves at Fording River are projected to support mining at 2002 production
rates through 2024. Fording River's reserve areas include Eagle Mountain,
Greenhills, Turnbull, Henrietta, and Castle Mountain.
GREENHILLS, CANADA (COAL)
- -------------------------
The Greenhills Mine is located eight kilometres northeast of the community of
Elkford, in southeastern British Columbia. The mine site is comprised of 10,092
hectares of coal lands of which approximately 2,669 hectares are currently being
mined or are scheduled for mining. Greenhills holds a forest licence and manages
a 7,610 hectare forest located outside the active mining area. All permits
necessary for the current operation of the mine are in hand and in good
standing.
The Greenhills operation was constructed in the early 1980's and has operated
continuously since 1993. Coal mined at Greenhills is primarily metallurgical
coal, although a small amount of thermal coal is also produced. The current
annual production capacities of the mine and preparation plant are 4.5 and 5.5
million tonnes, respectively. In 2002, before the company acquired its interest
in the Coal Partnership, coal production at Greenhills was 3.8 million tonnes at
a strip ratio of 10.5 BCM per tonne. The strip ratio is expected to decrease
over the life of the mine.
Greenhills is operated under a joint venture agreement (the "Greenhills Joint
Venture Agreement") among the Partnership, Pohang Steel Canada Limited
("Poscan") and Poscan's parent, Pohang Iron and Steel Co., Ltd. ("Posco").
Pursuant to the agreement, the Partnership has an 80% interest in the joint
venture while Poscan has a 20% interest. The mine equipment and preparation
plant are owned by the Partnership and Poscan in proportion to their respective
joint venture interests. Under the Greenhills Joint Venture Agreement, the
Partnership is the manager and operator of Greenhills. The Partnership and
Poscan bear all costs and expenses incurred in operating Greenhills in
proportion to their respective joint venture interests. Poscan, pursuant to a
property rights grant, has a right to 20% of all of the coal mined at Greenhills
from certain defined lands until the Greenhills Joint Venture Agreement
terminates. Pursuant to an extension agreement reached between the parties in
2003, the Greenhills Joint Venture Agreement terminates on the earlier of: (i)
the date the reserves on the defined lands have been depleted; and (ii) March
31, 2004, if prior to December 31, 2003, Posco and Fording have not entered into
coal sale contracts on mutually satisfactory terms providing for coal deliveries
between April 1, 2004 and March 31, 2013 (the "Posco Coal Sales
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 13
Agreements"); or (iii) March 31, 2013, if on or before December 31, 2003, Posco
and the Partnership have agreed to the Posco Coal Sales Agreements. Both the
Partnership and Posco have expressed their intention to negotiate the Posco Coal
Sales Agreements. If the Partnership decides to carry on mining after the
termination of the joint venture, it is required to negotiate in good faith with
Poscan regarding Poscan's continued participation at Greenhills, and if
agreement cannot be reached, to acquire Poscan's interest in the mine equipment
and preparation plant.
Production is derived from the Cougar reserve, which is divided into two
distinct pits, Cougar North and Cougar South. Cougar North has been fully
developed and currently produces the bulk of the coal for the mine. Development
and pre-stripping of Cougar South is underway and is expected to provide a
long-term source of coal. Known reserves at Greenhills are projected to support
mining at 2001 production rates through 2026.
COAL MOUNTAIN, CANADA (COAL)
- ----------------------------
The Coal Mountain Mine is located 30 kilometres southeast of Sparwood in
southeastern British Columbia. The mine site is comprised of 2,521 hectares of
coal lands of which approximately 650 hectares are currently being mined or are
scheduled for mining. All permits necessary for the current operation of the
mine are in hand and in good standing.
Coal Mountain produces both metallurgical and thermal coal. The current annual
production capacities of the mine and preparation plant are 2.5 and 3.2 million
tonnes, respectively.
In 2002, before the company acquired its interest in the Coal Partnership, coal
production was 2.1 million tonnes. The strip ratio in 2002 was 5.7 BCM per tonne
and is anticipated to decrease over the life of the mine.
LINE CREEK, CANADA (COAL)
- -------------------------
The Line Creek Mine is located approximately 25 kilometres north of Sparwood in
southeastern British Columbia. Line Creek supplies bituminous metallurgical and
thermal coal to a variety of international and domestic steel producers and
Pacific Rim electric utilities. The Line Creek property consists of 8,124
hectares of coal lands of which approximately 1,450 hectares are currently being
mined or are scheduled for mining. All permits necessary for the current
operation of the mine are in hand and in good standing.
2002 production was 2.4 million tonnes of metallurgical coal and 0.5 million
tonnes of thermal coal. The strip ratio in 2002 was 12.5 BCM per tonne. The mine
is a conventional open pit operation. Raw coal is transferred to an 11 kilometre
coal conveyor for transportation to a processing plant, where it is crushed,
cleaned, and dried using conventional technology.
The bituminous metallurgical and thermal coal at Line Creek is mined from nine
seams lying in a syncline. The seams average two to thirteen metres in
thickness, with the thickest seam reaching 15 metres in several places.
Annual production at Line Creek has been reduced to two million tonnes as part
of the Coal Partnership's rationalization of operations.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 14
LUSCAR MINE, CANADA (COAL)
- --------------------------
The Luscar Mine is located approximately 42 kilometres south of Hinton, Alberta.
The 2002 production, prior to the company's acquisition of its interest in the
Coal Parternship was 2.1 million tonnes of metallurgical coal. The mine will
close in late 2003 or early 2004 due to exhaustion of reserves.
The bituminous metallurgical coal at Luscar is mined from a seam which has an
average thickness of ten to twelve metres, although in some areas folding and
faulting has produced sections of coal up to 40 metres thick.
BULLMOOSE MINE, CANADA (COAL)
- -----------------------------
The company has a 61% joint venture interest in the Bullmoose coal mine located
near Tumbler Ridge in northeastern British Columbia. BHP Billiton (through its
wholly-owned subsidiary, Rio Algom Limited) has a 29% interest in the mine and
the remaining 10% is held by Nissho Iwai Coal Development (Canada) Ltd. Teck
Cominco is the operator of the mine.
The mine's reserves will be depleted in April of 2003, which coincides with the
end of the sales agreement with the Japanese steel industry. Following
completion of reclamation of the Bullmoose mine site, the balance of the
Bullmoose reclamation equipment and coal lands will be transferred to the Coal
Partnership.
COAL TRANSPORTATION AND SALES
- -----------------------------
Coal from the coal mines owned by the Coal Partnership is principally
transported by rail pursuant to long-term rail contracts to the Roberts Bank
coal port near Vancouver operated by Westshore Terminals Ltd. ("Westshore").
Westshore provides coal loading services under long-term agreements with the
Partnership.
Metallurgical coal from the Line Creek Mine is shipped by rail under long-term
rail contract to the Neptune Terminals, a multi-product bulk handling port
facility located at Vancouver, British Columbia, which is owned by its users.
The Coal Partnership holds a 46.4% interest in the shares of the corporation
that owns the Neptune Terminals. By agreement among the shareholders of Neptune
Terminals, rates charged for the handling of coal and other products are based
on the actual costs allocated to the handling of each product.
Coal is sold principally under annual contracts at annually negotiated prices.
Coal from the Bullmoose Mine is transported by rail to the Ridley terminal in
Prince Rupert, for shipment to Japan.
COPPER
COPPER OPERATIONS
ANTAMINA MINE, PERU (COPPER, ZINC)
- ----------------------------------
In July 1998 the company acquired 25% of the Antamina copper, zinc project in
Peru, with the balance then held by BHP Billiton (through its wholly-owned
subsidiary, Rio Algom Limited) and Noranda Inc. Subsequently, in October 1999,
Mitsubishi Corporation acquired a 10% interest in the Antamina project,
resulting in a reduction of the other participants' interests to 33.75% for each
of BHP Billiton and
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 15
Noranda and 22.5% for Teck Cominco. The participants' interests are represented
by shares of CMA, the Peruvian company that owns and operates the project. Teck
Cominco's interest is subject to a net profits royalty of 1.667% on the
project's free cash flow after recovery of capital costs and an interest factor
on 60% of project expenditures.
The property comprising the Antamina project consists of numerous mining
concessions and mining claims (including surface rights) covering an area of
approximately 14,000 hectares. CMA also owns a port facility located at Huarmey
and an electrical substation located at Huallanca. In addition, CMA holds title
to all easements and rights of way for the 302 kilometer concentrate pipeline
from the mine to CMA's port at Huarmey.
In August, 2002, in accordance with the agreement under which it acquired the
Antamina concessions, CMA paid US$111.5 million to Centromin, an agency of the
government of Peru, representing 30% of the difference between the actual amount
of qualified project expenditures (US$2.15 billion) and US$2.52 billion.
Project financing in the amount of US$1.32 billion of senior loans with a
consortium of 20 banks and export/import credit agencies is in place. The
balance of required funding has been arranged pro rata by the CMA shareholders.
Teck Cominco's share of the project cost to completion was US$490 million, of
which US$300 million was provided by the project financing. Total development
cost was US$2.206 billion.
The mineralization is located at an average elevation of 4,200 meters, 385
kilometers by road and 270 kilometers by air north of Lima, Peru. Antamina lies
on the eastern side of the Western Cordillera in the upper part of the Rio
Maranon basin, a tributary of the Amazon River.
The open pit is a truck/shovel operation. The ore is crushed at the rim of the
pit and conveyed through a 2.7 km tunnel to a coarse ore stockpile at the mill.
It is then processed utilizing a SAG mill, followed by ball mill, grinding and
flotation to produce separate copper, zinc, molybdenum and lead/bismuth
concentrates. A 302 km long slurry concentrate pipeline, approximately 9 inch
diameter, with a single pump station at the minesite transports copper and zinc
concentrates to the port where they are dewatered and stored prior to loading
onto vessels for shipment to refineries and smelters world-wide.
Annual metal in concentrate production is expected to average 675 million pounds
of copper and 625 million pounds of zinc during the initial 10 years of
operation, with an estimated 22-year mine life. Power for the mine is taken from
the Peru national energy grid through an electrical substation constructed at
Huallanca. Water requirements are sourced from a dam-created reservoir upstream
from the tailings impoundment facility. The tailings impoundment facility is
located next to the mill and waste dumps are located adjacent to the pit. Fresh
water from mill operations is collected and contained in a tailings impoundment
area. Mill process water is reclaimed from the tailings pond. The operation is
subject to water and air permits issued by the Government of Peru and is in
material compliance with those permits. The operation holds all of the permits
that are material to its operations
The Antamina polymetallic deposit is skarn hosted. It is unusual in its
persistent mineralization and predictable zonation, and has a SW-SE strike
length of more than 2,500 meters and a width of up to 1,000 meters. The deposit
is located mainly between elevation 4,350 and 3,790 meters, but outcrops up to
elevation 4,650 meters. The deepest drill hole, which terminated at 3,632 meters
elevation, was still in mineralized skarn. The skarn is well zoned symmetrically
on either side of the central intrusion with the zoning used as the basis for
four major subdivisions of the skarn being a brown garnet skarn, green garnet
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 16
skarn, wollastonite/diopside/green garnet skarn and a marbleized limestone with
veins or mantos of wollastonite. Other types of skarn, including the massive
sulfides, massive magnetite, and chlorite skarn, represent the remainder of the
skarn and are randomly distributed throughout the deposit.
The mineral reserves at Antamina are 530 million tonnes (287 million tonnes
proven and 243 million tonnes probable), with a grade of 1.22 % copper, 1.01%
zinc and 0.029% molybdenum, using a cutoff grade of 0.7% copper-equivalent. The
waste to ore ratio is 2.03 to 1.
In 2002, Antamina milled 26.7 million tonnes of ore averaging 1.37% copper and
1.19% zinc and produced 730 million pounds of copper and 509 million pounds of
zinc. Copper recovery averaged 88.1% and zinc recovery in zinc-bearing ores
averaged 82.7% in 2002.
Antamina has entered into long-term copper and zinc concentrate agreements with
major smelting companies and refineries which in aggregate account for over 70%
of the mine's expected production of copper and zinc concentrates. The price of
copper and zinc concentrate sales under these long-term sales agreements will be
based on LME prices at the time of the sale with treatment and refining charges
determined by reference to current world market terms. The remaining concentrate
will be sold under short-term contracts as well as on the spot market.
Little exploration has been conducted outside the pit area. In-fill definition
drilling has, however, been conducted within the pit area.
HIGHLAND VALLEY MINE, CANADA (COPPER)
- -------------------------------------
The company has an aggregate 63.9% partnership interest in the Highland Valley
copper mine located near Kamloops, British Columbia. BHP Billiton, through its
wholly-owned subsidiary Rio Algom Limited, owns a 33.6% interest, and the
remaining 2.5% is held by Highmont Mining Company (excluding the company's
interest therein).
The company's interest is held through an 11.4% direct interest in the Highland
Valley Copper partnership ("HVC") and a 50.001% interest in the Highmont Mining
Company partnership, which holds a 5% interest in HVC. The company's remaining
50% interest is held through its wholly-owned subsidiary, Teck Cominco Metals.
The company and BHP Billiton jointly operate the mine. The property comprising
the Highland Valley mine consists of mineral leases, mineral claims and crown
grants which will be kept in good standing beyond the shutdown of operations.
The mine covers a surface area of approximately 34,000 hectares and HVC holds
the surface rights to such area pursuant to various leases, claims and licenses.
The Highland Valley Copper operation is located adjacent to a highway connecting
Merritt, Logan Lake, and Ashcroft. The mine itself is approximately 80
kilometers south-west of Kamloops, and approximately 200 kilometers north-east
of Vancouver. The mine operates throughout the year. Power is supplied by B.C.
Hydro through a 138kv line which terminates at the Trans Canada Highway west of
Spatsum in the Thompson Valley. Mine personnel live in nearby areas, primarily
Logan Lake, Kamloops, Ashcroft, Cache Creek, and Merritt.
The mine is an open pit operation. The mill, which uses semi-autogenous grinding
and conventional flotation to separate metal in concentrate form from the ore,
has the capacity to process 136,000 tonnes of ore per day. In 2002 the operation
produced 447,000 tonnes of copper concentrate containing 400 million payable
pounds of copper (2001-449,000 tonnes of concentrate, 400 million pounds of
copper), 4,622 tonnes of molybdenum concentrate containing 5.4 million pounds of
molybdenum (2001-3,511
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 17
tonnes of concentrate, 4.1 million pounds of molybdenum), 2.0 million ounces of
silver (2001-2.1 million ounces) and 14,400 ounces of gold (2001-14,000 ounces).
The gold and silver production are recovered from the copper concentrate and are
not actually produced at the mine. Mill throughput in 2002 was 49.8 million
tonnes (2001-48.9 million tonnes) with copper recovery at 88.7% (2001-89.4%).
Water from mill operations is collected and contained in a tailings impoundment
area. Mill process water is reclaimed from the tailings pond. The operation is
subject to water and air permits issued by the Province of British Columbia and
is in material compliance with those permits. The operation holds all of the
permits that are material to its operations.
Ore is mined from two sources, the Lornex and Valley mines. Both are located in
the Guichon Batholith which hosts all of the ore bodies located in the area. The
Lornex orebody occurs in Skeena Quartz Diorite host rock, intruded by younger
pre-mineral Quartz Porphyry and Aplite Dykes. The Skeena Quartz Diorite is an
intermediate phase of the Guichon Batholith and is generally a medium to coarse
grained equigranular rock distinguished by interstitial quartz and moderate
ferromagnesian minerals. The sulphide ore is primarily fracture fillings of
chalcopyrite, bornite and molybdenite with minor pyrite, magnetite, sphalerite
and galena.
The host rocks of the Valley deposit are mainly porphyritic quartz monzonites
and granodiorites of the Bethsaida phase of the Batholith. These rocks are
medium to coarse-grained with large phenocrysts of quartz and biotite. The rocks
of the deposit were subjected to hydrothermal alteration followed by extensive
quartz veining, quartz-sericite veining, and silicification. Bornite,
chalcopyrite and molybdenum were introduced with the quartz and quartz-sericite
veins and typically fill angular openings in them. Accessory mineral consist of
hornblende, magnetite, hematite, sphene, apatite and zircon. Pre-mineral
porphyry and aplite dykes intrude the host rocks of the deposit.
The existing 5 year collective agreement with the United Steelworkers of America
expires September 2003. Bargaining for a new agreement will be initiated in
mid-2003.
At current rates of production the operation has an expected life of 6 years.
Concentrates are transported to Vancouver for shipment, with the majority being
sold under long-term sales contracts to smelters in several countries. The
balance is sold on the spot market.
Capital expenditures in 2002 decreased to $8 million from $25 million in 2001
and are expected to decline further beginning in 2004.
Highland Valley Copper continues to explore for mineral deposits within a 15
kilometer radius of the concentrator, with the focus on large (greater than 100
million tonne), near-surface deposits.
LOUVICOURT MINE, CANADA (COPPER, ZINC)
- --------------------------------------
In 1993, the company earned a 25% joint venture interest in the Louvicourt
copper, zinc mine and milling facility located near Val d'Or, Quebec. Aur
Resources Inc., the operator of the mine, has a 30% joint venture interest in
the mine and the remaining 45% interest is held by Novicourt Inc., a subsidiary
of Noranda Inc.
The Louvicourt mine is an underground copper, zinc operation. The mill, which
operates at a daily capacity of 4,300 tonnes, uses semi-autogenous grinding,
froth flotation and pressure filters for the recovery of metal concentrates. In
2002, the mine produced 156,800 tonnes of copper concentrate
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 18
containing 99 million pounds of copper (2001-183,900 tonnes of concentrate, 114
million pounds of copper), 35,700 tonnes of zinc concentrate containing 44
million pounds of zinc (2001-32,200 tonnes of concentrate, 39 million pounds of
zinc), 745,764 ounces of silver (2001 - 884,265 ounces) and 27,792 ounces of
gold (2001-33,307 ounces). Mill throughput in 2002 was 1.5 million tonnes (2001
- - 1.6 million tonnes) with copper recovery at 96.8% (2001-96.9%) and zinc
recovery at 83.8% (2001-82.3%).
There were no capital expenditures in 2002. Proven and probable reserves are
sufficient for another two years of production.
Teck Cominco's share of the copper concentrates produced from the Louvicourt
mine is currently sold to a subsidiary of Noranda, Noranda Metallurgy Inc. and
shipped by rail and smelted at its smelter in Rouyn, Quebec. The prices paid for
the payable copper, gold and silver contained in such concentrates are based on
the London Metal Exchange (the "LME") and London Bullion Exchange quotations.
Treatment and refining charges are adjusted annually.
Teck Cominco's share of the zinc concentrates is currently sold to a Noranda
subsidiary, Canadian Electrolytic Zinc Limited, and shipped by rail to and
smelted at its smelter in Valleyfield, Quebec. The price paid for the payable
zinc contained in such concentrates is based on LME quotations.
COPPER PROJECTS
SAN NICOLAS PROJECT, MEXICO (COPPER, ZINC)
- ------------------------------------------
The San Nicolas property, which is located in Zacatecas State, Mexico, is a
major massive sulphide deposit containing copper, zinc, gold and silver. The
property is held by Minas de San Nicolas S.A. de C.V. ("MSN"), which is owned
40% directly by the company (the "Direct Interest") and 60% by Minera Tama S.A.
de C.V. ("Tama"). Tama in turn is owned 65% by the company and 35% by Western
Copper Holdings Ltd. ("Western Copper") resulting in the company holding a net
79% interest (not including the company's equity interest in Western Copper) in
the property. Upon the completion and delivery of a feasibility study (see
below) along with a notice of decision to place the property into production,
the Direct Interest will be reduced to 25%, and Tama will then hold a 75%
interest in MSN. Two months after the delivery of the feasibility study and the
production notice referred to above, the company may elect to convert the 25%
Direct Interest to a 25% participating interest, or have it converted to a 15%
carried interest. Upon the company electing to commit to arrange 100% of Tama's
share of financing to put the property into production, Teck Cominco's interest
in Tama will increase to 75% and Western Copper's will dilute to 25%, in which
case the company's net interest in the project would be 81.25%. In addition,
Teck Cominco has an 8.6% equity interest in Western Copper.
The company completed and delivered a feasibility study to Western Copper on
December 21, 2001. A production decision has not been made due to low metal
prices and a production decision will not be considered by the company until
there is a significant improvement in metal prices. There was no material change
in the status of the project, which was held on a care and maintenance basis
during 2002.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 19
GOLD
GOLD OPERATIONS
HEMLO GOLD OPERATIONS, CANADA (GOLD)
- ------------------------------------
The company has a 50% joint venture interest in two gold mines in the Hemlo Gold
Camp located near Marathon, Ontario: the Williams and David Bell gold mines (the
"Hemlo Operations"). Homestake Canada Inc. (a wholly owned subsidiary of Barrick
Gold Corporation, "Homestake") holds the remaining 50% joint venture interest.
The company's share of production is subject to a 2.25% net smelter return
royalty at Williams and a 3% net smelter return royalty at David Bell.
The Hemlo Operations lie adjacent to the Trans-Canada Highway in the Hemlo
district of Ontario, and operate throughout the year. The mill located at the
Williams Mine processes ore for both the Williams Mine and the David Bell Mine.
Power for the Hemlo Operations is taken from the Ontario Hydro grid, and back-up
standby diesel generators are available at the site to provide some emergency
support should the grid not be able to supply power. Water requirements are
sourced from Cedar Creek and personnel from both mines live in nearby areas, the
majority in Marathon, Ontario.
The Hemlo Operations operate a combined tailings management system including a
tailings basin and polishing pond. The property includes one tailings pond,
located approximately 4 kilometers from the Williams mill, and four waste
stockpiles located adjacent to the Williams open pit. The Williams effluent
treatment plant employs polishing pond water as feed water and the Williams mill
reclaims water from both the tailings basin and the polishing pond. The David
Bell Mine reclaims mine water for use in the backfill process along with raw
water from Cedar Creek. Both operations comply with certificates of approval for
industrial wastewater and air, which are administered by the provincial
regulatory authorities. The Williams mill and both mines hold all the necessary
permits and certificates that are material to the operations.
The Hemlo Operations are located in a small east-west trending Archean
Greenstone Belt in central Ontario known as the Hemlo zone. The Williams Mine is
located at the western end of the Hemlo zone, the David Bell Mine is located at
the eastern end of the Hemlo zone, and Newmont Mining Corporation's Golden Giant
Mine is located between the Williams and David Bell Mines along the Hemlo zone.
The total length of the mineralized zone comprising the Williams, David Bell and
Golden Giant mines is over 3 kilometers.
The Williams and David Bell orebodies lie at the contact between overlying
metasedimentary rocks and underlying felsic metavolcanic rocks. The Williams
package dips north at 60-70 degrees and the David Bell package dips north at
50-60 degrees. The ore zones continue to around 1,200 meters below the surface
and vary in width from 45 meters to 1 meter at Williams and from 15 meters to 1
meter at David Bell. The ore at both mines is hosted by three principal rock
types, feldspathised porphyry, muscovite schist and biotite fragmental, and is
characterized by gold, pyrite, molybdenite, and barite and various arsenic,
mercury, and antimony mineral species. Both main orebodies are composed of fine
grained quartz-feldspar rock with gold occurring as finely disseminated
particles within the groundmass as well as with pyrite grains.
Teck Cominco's share of gold production from the Hemlo Operations is sold on a
spot basis at prevailing market prices at the time of production. Teck Cominco
has also entered into certain hedging contracts in respect of certain portions
of its production. See "Hedging Program" for further details.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 20
WILLIAMS MINE
The Williams Mine, primarily an underground operation with some open-pit mining,
has been operating since the fall of 1985. The property comprising the Williams
Mine consists of 11 patented mining claims and six leased claims. The mine
covers a surface area of approximately 270 hectares.
The Williams Mine is one of the largest gold-producing mines in Canada. The
underground mine is accessed by a 1,300 meter production shaft, and mining is
carried out by longhole stoping with delayed cemented rock backfill. The
Williams open pit mine lies immediately above and adjacent to the underground
mine, and ore from these two sources and the David Bell Mine is treated in the
Williams mill. The mill started production in 1985 at the rate of approximately
3,000 tonnes per day, and capacity was expanded to 6,000 tonnes per day in late
1988. The Williams mill presently operates at the rate of 9,000-10,000 tonnes
per day. The Williams mill uses semi-autogenous grinding and a carbon-in-pulp
gold recovery circuit. Approximately 20% of the gold is recovered by a gravity
circuit. At the present rate of mining, the Williams Mine has an expected mine
life of over 11 years.
Underground operations at Williams in 2002 were affected by unstable ground
conditions, which required a different mining sequence than planned. The lower
than planned grade resulted in lower gold production. Ground conditions
stabilized and production improved by the fourth quarter. A paste back fill
plant is currently under construction and is expected to start production in the
second quarter of 2003.
The Williams Mine produced 405,000 ounces in 2002 (2001-446,000 ounces). Tonnage
milled from the Williams Mine was 3.0 million tonnes (2001-3.0 million tonnes)
with a mill recovery of 94.6% (2001-93.1%).
DAVID BELL MINE
The property comprising the David Bell underground mine consists of granted
mining leases and mining claims, covering a surface area of approximately 274
hectares.
The David Bell Mine was developed through a 1,160 meter production shaft, and
mining is by longhole stoping with delayed cemented hydraulic backfill. The
David Bell mill is currently on care and maintenance, and all ore from the David
Bell Mine is transported to, and processed at, the nearby Williams mill. At the
present rate of mining, the David Bell Mine has an expected further mine life of
approximately 6 years.
The Teck-Homestake joint venture also has a 50% net profits interest in the
Quarter Claim, which is adjacent to the David Bell Mine and is operated by a
subsidiary of Newmont Mining Corporation. Production subject to the Quarter
Claim royalty was completed in 2001.
In 2002, production from the David Bell Mine was 133,000 ounces of gold
(2001-162,000 ounces). Tonnage milled from the David Bell Mine was 430,000
tonnes (2001-455,000 tonnes) with a mill recovery of 94.6% (2001-93.2%).
GOLD ADVANCED PROJECTS
POGO PROJECT, UNITED STATES (GOLD)
- ----------------------------------
In June 1997, Teck Cominco entered into an agreement with Sumitomo Metal Mining
America Inc. and SC Minerals America Inc. to earn a 40% joint venture interest
in the Pogo gold deposit located in Alaska,
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 21
40 air miles (64 kilometers) from Delta Junction at the terminus of the Alaska
Highway. The Pogo property is approximately 16,700 hectares in size and is
comprised of 1,281 granted mining claims, each requiring a specified nominal
amount of annual assessment work.
Teck Cominco may earn its 40% interest by spending US$28 million on exploration
and a feasibility study, completing a comprehensive feasibility study and
funding the initial US$33 million of development costs. As of December 31, 2002,
Teck Cominco has incurred exploration and feasibility study expenditures in
excess of the required US$28 million and will complete the $33 million
development funding in 2003. Teck Cominco is the project operator.
The property is subject to a 1.5% net smelter return royalty payable by the
venturers to Stone Boy Inc. on the first 2 million ounces of gold produced.
After the first 2 million ounces of gold is produced, such 1.5% net smelter
return royalty is no longer payable; however, the company (through its indirect
wholly-owned subsidiary, Teck-Pogo Inc. ("TPI")) must then pay Sumitomo Metal
Mining America Inc. and S.C. Minerals America Inc. a production royalty on TPI's
share of any additional ounces of gold that it takes as its share of production
from the property. This royalty on each ounce of gold to TPI's account is equal
to the greater of 5% of the price of gold and US$25. Teck Cominco will be
entitled to a management fee as the project operator.
Access presently is by helicopter or small fixed-wing aircraft. All-weather land
access will require construction of a 49 mile (79 kilometer) road, which is
subject to regulatory approvals.
During 2000, a development adit was driven into the L1 vein, providing access
for an underground exploration drilling program. Drilling results provided
information for the mineral resource model. At the end of 2001 the underground
workings were on care and maintenance while the focus continued as scheduled on
feasibility work and permitting.
A pilot plant program was completed towards the end of 2001, comprising
grinding, flotation, leaching and gold recovery testing. Results were positive
and are being incorporated in the metallurgical design for the feasibility
study.
In the summer of 2002, as part of the feasibility study, the project completed a
surface in-fill drilling program on the L2 vein, and a geotechnical drilling
program to finalize the location of key infrastructure facilities. The program
included 32 drill holes with a cumulative total of over 28,000 feet to reduce
the drill-hole spacing to 200 feet for the L2 vein. Probable mineral reserves
are 7.0 million tonnes grading 16.2 grams per tonne gold. An interim feasibility
study is in preparation and is scheduled for completion in the first quarter
2003. The final feasibility is subject to environmental permitting.
A draft Environmental Impact Study ("DEIS") was issued on March 14, 2003. The
issuance of the DEIS triggers a 60 day federally mandated period during which
the public has the opportunity to comment on the DEIS. Following the public
review and comment period, the final EIS (FEIS) and the Record of Decision (ROD)
will be issued by the EPA. Construction permits will be negotiated following the
ROD and are expected in the fourth quarter 2003.
Surface exploration programs have been conducted on the property over the past
four years and have identified a discontinuous trend of mineralization known as
the Pogo Trend. Within this trend, several gold drill targets are defined and
these will be tested in future drilling programs.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 22
LOS FILOS PROJECT, MEXICO (GOLD)
- --------------------------------
Located approximately 150 kilometers southwest of Mexico City, the Los Filos
deposit is held by Minera Nuteck, a company held 70% by the company and 30% by
Miranda Mining Corporation ("Miranda").
No significant exploration or development work was undertaken on the property in
2002. The classification of mineral resources has not materially changed since
2001. The design and economics of this project continue to be reviewed by the
company in conjunction with work on the nearby Morelos property. In the event
that the company does not commence construction of a mine on the Los Filos
property by December 31, 2006, the property reverts to Miranda.
EXPLORATION
BASE METALS AND OTHER COMMODITIES
In 2002 the company incurred the majority of its base metal exploration
expenditures on projects in Peru, Chile, Brazil, Australia, Canada, and Mexico
with minor amounts in Turkey and Namibia. Copper and zinc remain the main
commodities of interest. Exploration is carried out through sole funding and
joint ventures with major and junior exploration companies. No economic base
metal discoveries were made in 2002.
During 2002 the company entered into an option - joint venture agreement with
Rhonda Corporation to earn an interest in Rhonda's Inulik diamond property in
the Northwest Territories. The property is at an early stage of exploration.
Prospecting work in 2002 outlined several kimberlite boulder trains. Results are
pending on samples submitted for indicator mineral and diamond determination.
GOLD EXPLORATION
In 2002, the company incurred the majority of its gold exploration expenditures
in Mexico, Canada, Australia, and Argentina, with minor amounts in Turkey and
Peru. Exploration is focused on areas in proximity to the company's existing
operations or development projects and regions which the company considers to
have high potential for discovery. The company's most significant gold
exploration project is the "Morelos" project in Mexico. Located a few kilometers
north of the Los Filos project, the property is held by Minera Media Luna S.A.
de C.V. in which Teck Cominco Limited has an approximate 78% participating
equity interest and Miranda Mining Development Corporation has an 8%
participating equity interest and a 14% carried equity interest.
Exploration at Morelos Norte in 2002 targeted gold skarn mineralization
associated with the margins of a granodiorite stock. Exploration included
mapping, prospecting and geochemical sampling around the margins of the stock,
29.6 kilometers of IP along the west side of the stock, and 7721 metres of HQ
and NQ diamond drilling in 52 holes. The latter included infill and step-out
drilling on the El Limon prospect, including definition of a surface oxide zone
on the northwest end of the prospect, as well as testing of IP targets in the
Los Guajes and Amarilla areas west of El Limon.
MINERAL RESERVES AND RESOURCES
The classification of mineral reserve and resource estimates is consistent with
the classification system prescribed by the Canadian Securities Administrators
in National Instrument 43-101, "Standards of
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 23
Disclosure for Mineral Products". The mineral reserve estimates are reported
separately from and are not aggregated with estimated mineral resources. Mineral
resources do not have demonstrated economic viability. Mineral reserve and
resource estimates are based on various assumptions relating to operating
matters, including with respect to production costs, metal recoveries and mining
dilution, as well as assumptions relating to long-term metal prices and, in
certain cases, exchange rates. Assumptions with respect to operating matters are
based on historical experience at the relevant operation and current mine plans,
or, in the case of development properties, on feasibility study estimates.
Methodologies for reserve and resource estimation vary from property to property
depending on the style of mineralization, the local geology and other factors.
Geostatistical estimation methods are used at the company's material base metal
properties.
Mineral reserve and resource estimates may be materially affected by a number of
risks and uncertainties, including with respect to environmental, permitting,
legal, title and other issues. These risks and uncertainties are discussed under
the heading " Risks and Uncertainties".
Mineral reserves at Williams and David Bell have been estimated on the basis of
an assumed gold price of US$300 per ounce. Mineral resources at these properties
have been estimated at various assumed gold prices at the different operations,
depending on the expected life of the relevant operation. Mineral resources at
Williams and David Bell have been estimated on the basis of assumed gold prices
of US$350 and US$400 per ounce. Mineral reserves at Pogo have been estimated on
the basis of US$300 per ounce. Mineral resources at Pogo have been estimated
using an assumed gold price of US$400 per ounce. Copper reserves at Highland
Valley Copper are estimated on the basis of an assumed copper price of
US$0.72/lb while those at Antamina have been estimated using an assumed copper
price of US $0.90/lb. Zinc reserves at Antamina and Red Dog have been estimated
on the basis of US$0.50 and US$0.55/lb zinc, respectively, whereas at the
development properties, assumed prices of US$0.45 to US$0.60/lb zinc have been
used in the estimation of reserves and resources.
Estimates of the mineral reserves and resources for the company's material
properties (other than the Fording River mine) have been prepared under the
general supervision of William P. Armstrong P.Eng. who is an employee of Teck
Cominco. Mineral reserve and resource estimates for Antamina have been prepared
under the supervision of Gordon Stothart P.Eng., who is an employee of Compania
Minera Antamina. Mineral reserve estimates for Louvicourt have been provided to
the company by the project operator. Mineral Reserves and Resources for Fording
River, Greenhills and Coal Mountain have been prepared under the supervision of
C.J. McKenny P.Geol., an employee of Fording Inc. seconded to the Coal
Partnership. Messrs. Armstrong, Stothart and McKenny are Qualified Persons for
the purposes of National Instrument 43-101.
Mineral reserves and resources at Polaris were depleted during the year and the
operation has been closed; reserves and resources at Bullmoose were largely
exhausted during the year and the mine will close in the spring of 2003.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 24
MINERAL RESERVES AT DECEMBER 31, 2002
MINERAL RESERVES(100%)(1)
- ---------------------------------------------------------------------------------------------------------------
PROVEN PROBABLE TOTAL TECK
------------------- ----------------- -------------------- COMINCO
TONNES GRADE TONNES GRADE TONNES GRADE INTEREST
(000'S) (G/T)(2) (000'S) (G/T) (000'S) (G/T) (%)
- ------------- ------------------------|-------------------|-----------------|--------------------|-------------
GOLD Williams | | | | 50
Underground | 6,640 5.43 | 6,440 4.95 | 13,080 5.19 |
Open-pit | 11,560 1.67 | 7,940 1.83 | 19,500 1.74 |
David Bell | 2,750 10.11 | | 2,750 10.11 | 50
Pogo | | 7,000 16.12 | 7,000 16.12 | 40(4)
- --------------------------------------|-------------------|-----------------|--------------------|-------------
| GRADE | GRADE | GRADE |
| (%) | (%) | (%) |
- --------------------------------------|-------------------|-----------------|--------------------|-------------
COPPER Antamina | 287,000 1.28 | 243,000 1.15 | 530,000 1.22 | 22.5
Highland Valley | 246,200 0.42 | 49,600 0.42 | 295,800 0.42 | 63.9
Louvicourt | 2,600 3.00 | 30 0.14 | 2,630 2.97 | 25
- --------------------------------------|-------------------|-----------------|--------------------|-------------
ZINC Antamina | 287,000 1.04 | 243,000 0.97 | 530,000 1.01 | 22.5
Red Dog | 28,900 21.4 | 56,100 16.5 | 85,000 18.2 | 100
Louvicourt | 2,600 1.9 | 30 7.2 | 2,630 1.9 | 25
Pend Oreille | | 5,700 7.7 | 5,700 7.7 | 100
- --------------------------------------|-------------------|-----------------|--------------------|-------------
LEAD Red Dog | 28,900 5.7 | 56,100 4.1 | 85,000 4.6 | 100
Pend Oreille | | 5,700 1.4 | 5,700 1.4 | 100
- --------------------------------------|-------------------|-----------------|--------------------|-------------
COAL(3) Elkview | 162,000 | 92,000 | 254,000 | 41(5)
Fording River | 147,000 | 117,000 | 264,000 | 41(5)
Greenhills | 99,000 | 8,000 | 107,000 | 41(5)
Coal Mountain | 31,000 | 1,000 | 32,000 | 41(5)
(1) Mineral reserves are mine and property totals and are not limited to Teck
Cominco's interest.
(2) g/t = grams per tonne.
(3) Coal reserves expressed as tonnes of clean coal.
(4) The company has the right to earn a 40% interest under a development
agreement.
(5) In addition to its direct 35% interest in the Coal Partnership (which may
be increased to 40% in certain circumstances) the company has an indirect
6% interest through its investment in the Fording Canadian Coal Trust.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 25
MINERAL RESOURCES
MINERAL RESOURCES(100%)(1)
- -----------------------------------------------------------------------------------------------------------------
MEASURED INDICATED INFERRED TECK
---------------------------------------------------------- COMOMCO
TONNES GRADE TONNES GRADE TONNES GRADE INTEREST
(000'S) (G/T) (000'S) (G/T) (000'S) (G/T) (%)
(2)
- ----------------------------------------|------------------|-----------------|---------------------|-------------
GOLD Williams | | | | 50
Underground | 340 3.22 | 670 3.39 | 6,900 5.11 |
Open-pit | 1,140 1.90 | 1,900 1.84 | 1,410 1.89 |
David Bell | 140 9.37 | 680 3.77 | | 50
Pogo | | 770 8.92 | 1,230 16.90 | 40(4)
Los Filos | 5,200 2.24 | 16,900 1.96 | 5,900 2.00 | 70
Lobo-Marte | | | | 60
LOBO | | 64,210 1.79 | 5,660 1.70 |
Marte | | 33,470 1.58 | 3,590 1.35 |
El Limon | | | 13,400 3.53 | 78.8
Kudz Ze Kayah | | 11,300 1.30 | 1,500 2.00 | 100
- ----------------------------------------|------------------|-----------------|---------------------|-------------
| GRADE | GRADE | GRADE |
| (%) | (%) | (% |
- ----------------------------------------|------------------|-----------------|---------------------|-------------
COPPER Antamina | 25,000 0.50 | 35,000 0.47 | 33,000 0.78 | 22.5
San Nicolas | 1,880 0.73 | 78,080 1.34 | 7,020 1.28 | 79
Kudz Ze Kayah | | 11,300 0.90 | 1,500 0.14 | 100
- ----------------------------------------|------------------|-----------------|---------------------|-------------
ZINC Antamina | 25,000 0.20 | 35,000 0.29 | 33,000 0.99 | 22.5
Red Dog | | 9,000 17.4 | 37,100 13.8 | 100
San Nicolas | 1,880 3.6 | 78,080 1.8 | 7,020 1.4 | 79
Pend Oreille | | | 3,300 6.6 | 100
Kudz Ze Kayah | | 11,300 5.9 | 1,500 6.4 | 100
Sa Dena Hes | | 2,190 10.4 | | 50
- ----------------------------------------|------------------|-----------------|---------------------|-------------
LEAD Red Dog | | 9,000 5.2 | 37,100 4.3 | 100
Pend Oreille | | | 3,300 1.3 | 100
Kudz Ze Kayah | | 11,300 1.5 | 1,500 3.1 | 100
Sa Dena Hes | | 2,190 2.6 | | 50
- ----------------------------------------|------------------|-----------------|---------------------|-------------
TITANIUM White Earth(3) | | 428,000 11 | 1,031,000 10 | 100
- ----------------------------------------|------------------|-----------------|---------------------|-------------
COAL Elkview(5) | 20,500 | | 880,000 | 35(7)
- ----------------------------------------|------------------|-----------------|---------------------|-------------
Fording River(6) | 362,000 | 276,000 | | 35(7)
- ----------------------------------------|------------------|-----------------|---------------------|-------------
Greenhills(6) | 5,000 | 325,000 | | 35(7)
- ----------------------------------------|------------------|-----------------|---------------------|-------------
Coal Mountain(6) | 70,000 | 41,000 | | 35(7)
- ----------------------------------------|------------------|-----------------|---------------------|-------------
(1) Mineral resources are mine and property totals and are not limited to Teck
Cominco's interest.
(2) g/t = grams per tonne
(3) Grade reported as % Ti02
(4) The company has the right to earn a 40% interest under a development
agreement. See "Gold Advanced Projects - Pogo Project"
(5) Elkview coal resources expressed as tonnes of clean coal
(6) Fording River, Greenhills and Coal Mountain coal resources expressed as
tonnes of coal in situ
(7) In addition to its direct 35% interest in the Coal Partnership (which may
be increased to 40% in certain circumstances) the company has an indirect
6% interest through its investment in the Fording Canadian Coal Trust).
MARKETING
Teck Cominco's principal products are zinc concentrates, refined zinc metal,
coal, copper concentrates, and gold.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 26
ZINC
After a significant fall in 2001, zinc consumption in the Western World in 2002
rose by 1.6%. Gains in consumption in Korea and Taiwan boosted consumption while
consumption in the USA was flat as a result of reduced galvanizing in commercial
construction balanced out by increased auto production. European consumption
remained stable.
Stock levels on the LME rose steadily throughout 2002 ending the year at 651,000
metric tonnes, 218,000 metric tonnes higher than the beginning of the year.
Prices traded in a 5(cent)US/lb range in 2002, ending tHe year at US$0.34/lb, an
historic low. Over the year as a whole, the price averaged US$0.35US/lb, down
from US$0.40/lb in 2001.
Due to a fall in Chinese mine production, China continued to be a major net
importer of concentrates in 2002. This action was a factor in the concentrate
market in the West moving into deficit. As a result of less zinc concentrates
being available in China, refined production fell in China and consequently
China's net exports of refined zinc fell 25%. As a result of cutbacks in mine
production in the West announced in late 2001 as well as mine closures in 2002,
zinc mine production fell by 1% in 2002 for the first time since 1997. The
concentrate balance moved into significant deficit in 2002 putting downward
pressure on treatment charges. Despite the fall in mine production, prior year
concentrate surpluses allowed refined production in the West to actually
increase. This was balanced by a fall in imports of refined metal from the East
Bloc. The Western World marketplace recorded its second consecutive refined
metal surplus in excess of 300,000 metric tonnes. The outlook for 2003 is
improving as refined metal production is expected to be constrained by a lack of
mine production and overall Western World supply is expected to be reduced due
to a further fall in exports of refined zinc from the East Bloc.
COPPER
Western World refined copper consumption fell again in 2002 by 2% against 2001
levels as a slowdown in economic activity globally, negatively affected all
sectors of copper consumption. Copper consumption in the US, the world's largest
copper consuming area, fell by close to 8% in 2002. European consumption fell 5%
while consumption in Korea rose by 7%. Of note is that with the fall in
consumption in the US and the continued rise in Chinese consumption, China
surpassed the US as the largest consumer of copper globally. Stock levels on the
LME and COMEX rose 180,000 metric tonnes ending 2002 at a combined level of
1,218,000 metric tonnes. Prices started 2002 at 65(cent)US/lb and rose to
76(cent)US/lb in June and ended the year at 70(cent)US/lb. The price averaged
70.6(cent)US/lb in 2002 down slightly from 71.6(cent)US/lb in 2001. Similar to
zinc, mine production cuts initiated in late 2001 and continued in 2002 are
expected to help to reduce the oversupply in the marketplace and provide for an
improved market outlook for 2003. These cuts in mine production kept the
concentrate market in deficit and reduced treatment and refining charges for
another year.
METALLURGICAL COAL
World crude steel production exceeded 900 million tonnes in 2002 - an increase
of 6% from 2001. The Asian region accounted for an 11% increase with China's
production up 20%. North America was up 3%, Europe 1% and South America up 9%.
Increased steel production translated into increased demand for coal. The tight
market in 2002 translated into an improvement in prices in excess of 10% over
2001.
Demand for 2002 seaborne trade in metallurgical coal is estimated at 193 million
tonnes, up 0.7% from 2001 levels.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 27
Australia dominates the metallurgical coal market exporting an estimated 108
million tonnes in 2002, up 4% from 2001 levels, while Canadian exports are
estimated to have fallen 8% to 24 million tonnes, U.S. exports are estimated to
have fallen 13% to 20 million tonnes and China's exports rose 3% to 12 million
tonnes.
Diversification of sales for Elkview metallurgical coal in 2002 resulted in
increases in sales to Europe, South America, and Asia.
The market is expected to be balanced for 2003, once excess inventories from
2002 are reduced. The establishment of the Coal Partnership is expected to
facilitate brand optimization, which is expected to improve netbacks.
GOLD
The price of gold started the year at US$278/tr oz and finished 2002 up 27% at
US$347/tr oz. The average for 2002 was US$310/tr oz versus 2001's average of
US$271/tr oz. World-wide mine production fell in 2002 by 2% to 2,543 metric
tonnes (the first drop since 1995), mainly in North America and South Africa.
The reduction in supply from liquidation of hedging positions by producers that
started in 2001 continued in 2002. Consumption in the jewellery sector fell off
by 12% while overall fabrication fell by 11% primarily due to weak GDP growth.
HEDGING PROGRAM
In an effort to achieve a projected consolidated cash flow and profits for the
company sufficient to generate a satisfactory return on capital, the company
regularly reviews market movements and from time to time conducts hedging
transactions in respect of gold, copper, zinc, electrical power and United
States dollars. The objectives of the company's hedging programs are to reduce
the commodity related price risk while optimizing upside participation, to
maintain adequate cash flows and profitability to contribute to the long-term
viability of the company's business and to contribute toward achieving the
required returns on capital investment. As a result, the company enters into
forward sales contracts and put and call options with major international banks
and other international financial institutions. All hedging decisions must be
approved by the applicable committee appointed by the board of directors of the
company operating under guidelines established by the Board of Directors. For
further details on the company's hedge position as at December 31, 2002, refer
to note 17 to the company's consolidated financial statements, for the year
ended December 31, 2002.
In addition to the corporate positions described above, hedge transactions are
in place to offset LME related price risk associated with customer forward fixed
price purchase contracts, third party metals purchased for resale and manage any
metal pricing exposure associated with both the Trail and Cajamarquilla
smelters. Smelter pricing exposure relates to timing imbalances between purchase
of concentrates and ultimate sale of metal products.
ENVIRONMENTAL PROTECTION
The current and future operations of the company, including development
activities and commencement of production on its properties or areas in which it
has an interest, are subject to laws and regulations in Canada and elsewhere
governing occupational health, waste disposal, protection and remediation of the
environment, reclamation, mine safety, management of toxic substances and
similar matters. Compliance with these laws and regulations affects the costs of
and can affect the schedule for planning, designing,
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 28
drilling, developing, constructing, operating and closing the company's mines,
refineries and other facilities.
Whether in Canada or abroad, the company attempts to apply technically proven
and economically feasible measures to protect the environment throughout
exploration, mining, processing and closure. Although the company believes that
its operations and facilities are currently in substantial compliance in all
material respects with all existing laws, regulations and permits, there can be
no assurance that additional significant costs will not be incurred to comply
with current and future regulations or that liabilities associated with
non-compliance will not occur.
For accounting purposes, current costs associated with permit compliance are
treated as normal operating costs necessary to maintain operations on an ongoing
basis. In addition, amounts are accrued in the accounts of the company to
provide for certain future reclamation, site restoration and other closure
costs. Financial guarantees of various forms are posted, if required, with
various governmental authorities as security to cover estimated reclamation
obligations. The company's provisions for future reclamation and site
restoration are based on known requirements. It is not currently possible to
estimate the impact on operating results, if any, of future legislative or
regulatory developments.
The company conducts regular environmental audits, with the objective of
assessing regulatory compliance and the effectiveness of environmental
management systems whereas other audits may have the objective of a formal risk
assessment, assessing closure preparation or auditing a focused topic (health
protection for example). In 2002, health and safety management system audits
were conducted at two locations further to the integration of health and safety
into the corporate Environment, Health and Safety Management Standards. The
overall objective of Teck Cominco audits is to identify environment, health and
safety risks, assess regulatory compliance and conformance with applicable laws
and assess conformance with appropriate environment, health and safety
management systems and good management practices.
All of the company's mining operations have closure and reclamation plans in
place and these undergo regular updates. The reclamation programs are guided by
land capability assessments, which integrate several factors in the reclamation
approach including biological diversity, establishment of sustainable
vegetation, diversity of physical landforms and requirements for wildlife
habitat. In addition to reclamation of operating mines, certain idle and closed
mines are under continuous care and maintenance as well as progressive closure.
The company's Code requires that sites be reclaimed in a planned and timely
manner. The company manages a number of decommissioned mine sites in Canada and
conducts regular inspections to verify the success of reclamation activities.
HUMAN RESOURCES
As at December 31, 2002 there were 5,751 employees (2001 - 6,210 employees)
working at the various operations managed by the company. The decrease in the
number of employees in 2002 was primarily due to the closure of Polaris and an
early retirement program at Trail. Collective bargaining agreements covering
unionized employees at the company's various operations are as follows:
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 29
EXPIRY DATE OF
COLLECTIVE AGREEMENT
----------------------------------------------------------------
Cajamarquilla December 31, 2003
Trail May 31, 2005
David Bell October 31, 2004
Sullivan December 31, 2003(1)
Quintette December 31, 2004(1)
Highland Valley Copper September 30,
2003
Elkview October 31, 2005
Coal Mountain December 31, 2004
Line Creek May 31, 2005
Fording River April 30, 2006
Bullmoose December 31, 2003
================================================================
(1) The collective agreements at Sullivan and Quintette cover the
remaining bargaining unit employees working at these locations
both of which are closed and in the process of being reclaimed.
FOREIGN OPERATIONS
The Red Dog mine and the Pogo development project located in Alaska, U.S.A., the
Pend Oreille project in Washington State and the Antamina project and the
Cajamarquilla zinc refinery located in Peru, are Teck Cominco's significant
assets located outside of Canada. Teck Cominco holds its 22.5% interest in
Antamina directly through its equity interest in the operating company of the
project, CMA. The company holds a 100% interest in the Red Dog mine and an 82%
interest in the Cajamarquilla zinc refinery. Revenues from the Red Dog mine and
the Cajamarquilla zinc refinery accounted for 24% of the company's 2002
consolidated revenue and 37% of the company's total assets in 2002. The Antamina
project was accounted for on an equity basis in 2002. Its carrying value at
December 31, 2002 was $348 million.
The company also has interests in various exploration and development projects
in various foreign countries, with significant activities in the United States,
Mexico, Peru, Chile, Argentina, Brazil, Australia, Turkey and Namibia. The
company currently has foreign exploration offices in all of the foregoing
countries except Argentina.
See "Risks and Uncertainties - Foreign Activities" for further information on
the risks associated with these foreign properties.
COMPETITIVE POSITION
The company sells base metals, metal concentrates, metallurgical coal and gold
at prices determined by world markets over which it has no influence or control.
Teck Cominco's competitive position is determined by its costs compared to those
of other producers throughout the world, and by its ability to maintain its
financial integrity through metal and coal price cycles and currency
fluctuations. Costs are governed principally by the location, grade and nature
of ore bodies and mineral deposits, the location of its metal refining
facilities and their cost of power and, as well, by operating and management
skill. Teck Cominco reduces its exposure to metal price cycles and currency
fluctuations through its hedging program. See "Hedging Program" for further
details.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 30
Over the long term, Teck Cominco's competitive position is determined by its
ability to locate, acquire and develop economic ore bodies and replace current
production. In this regard, Teck Cominco also competes with other mining
companies for mineral properties, for joint venture agreements and for the
acquisition of investments in other mining companies.
RISKS AND UNCERTAINTIES
The following discussion pertains to the outlook and conditions currently known
to management which could have a material impact on the financial condition and
results of operations of the company. This discussion, by its nature, is not
all-inclusive. It is not a guarantee that other factors will or will not affect
the company in the future. This discussion should be read in conjunction with
material contained in other sections of this Annual Information Form.
RISKS INHERENT IN THE MINING BUSINESS
The business of exploring for minerals is inherently risky. Few properties that
are explored are ultimately developed into producing mines.
Mineral properties are often nonproductive for reasons that cannot be
anticipated in advance. Even after the commencement of mining operations, such
operations may be subject to risks and hazards, including environmental hazards,
industrial accidents, unusual or unexpected geological formations, ground
control problems and flooding. The occurrence of any of the foregoing could
result in damage to or destruction of mineral properties and production
facilities, personal injuries, environmental damage, delays or interruption of
production, increases in production costs, monetary losses, legal liability and
adverse governmental action. In particular, the Williams and David Bell mines
have been subject to recent periodic seismic events.
The company's property, business interruption and liability insurance may not
provide sufficient coverage for losses related to these or other hazards.
Insurance against certain risks, including certain liabilities for environmental
pollution, may not be available to the company or to other companies within the
industry. In addition, insurance coverage may not continue to be available at
economically feasible premiums, or at all. Any such event could have a material
adverse effect on the company.
COMMODITY PRICE FLUCTUATIONS AND HEDGING
The results of the company's operations are significantly affected by the market
price of gold and base metals, which are cyclical and subject to substantial
price fluctuations. The company's earnings are particularly senstitive to
changes in the market price of zinc and metallurgical coal. Market prices can be
affected by numerous factors beyond the company's control, including levels of
supply and demand for a broad range of industrial products, expectations with
respect to the rate of inflation, the relative strength of the U.S. dollar and
of certain other currencies, interest rates, global or regional political or
economic crises and sales of gold and base metals by holders in response to such
factors. If prices should decline below the company's cash costs of production
and remain at such levels for any sustained period, the company could determine
that it is not economically feasible to continue commercial production at any or
all of its mines.
The objectives of the company's hedging programs are to reduce the risk of a
commodity's market price while optimizing upside participation, to maintain
adequate cash flows and profitability to contribute to the long-term viability
of the company's business. There are, however, risks associated with hedging
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 31
programs including (among other things), an increase in the world price of the
commodity, an increase in gold lease rates (in the case of gold hedging), an
increase in interest rates, rising operating costs, counter-party risks and
production interruption events. The company's results of operations are also
affected by the market price for electricity.
The company does not hedge its exposure to changes in the price of metallurgical
coal. Prices of diesel and electricity also fluctuate and these fluctuations
affect the costs of production at various operations.
COMPETITION FOR MINING PROPERTIES
Because the life of a mine is limited by its ore reserves, the company is
continually seeking to replace and expand its reserves through the exploration
of its existing properties as well as through acquisitions of interest in new
properties or of interests in companies which own such properties. The company
encounters strong competition from other mining companies in connection with the
acquisition of properties.
FUTURE MARKET ACCESS
Access to the company's markets are subject to ongoing interruptions and trade
barriers due to policies and tariffs of individual countries, and the actions of
certain interest groups to restrict the import of certain commodities. Although
there are currently no significant trade barriers existing or impending of which
the company is aware that do, or could, materially affect the company's access
to certain markets, there can be no assurance that the company's access to these
markets will not be restricted in the future.
MINERAL RESERVES AND RECOVERY ESTIMATES
Disclosed reserves should not be interpreted as assurances of mine life or of
the profitability of current or future operations. The company estimates its
mineral reserves in accordance with the requirements of the applicable Canadian
securities regulatory authorities and established mining standards.
The SEC does not permit mining companies in their filings with the SEC to
disclose estimates other than mineral reserves. However, because the company
prepares this Annual Information Form in accordance with Canadian disclosure
requirements, this annual information form incorporates estimates of mineral
resources. Mineral resources are concentrations or occurrences of minerals that
are judged to have reasonable prospects for economic extraction, but for which
the economics of extraction cannot be assessed, whether because of insufficiency
of geological information or lack of feasibility analysis, or for which economic
extraction cannot be justified at the time of reporting. Consequently, mineral
resources are of a higher risk and are less likely to be accurately estimated or
recovered than mineral reserves.
The company's reserves and resources are estimated by persons who are employees
of the respective operating company for each of our operations under the
supervision of employees of the company. These individuals are not "independent"
for purposes of applicable securities legislation. The company does not use
outside sources to verify reserves or resources. The mineral reserve and
resource figures incorporated in this annual information form are estimates
based on the interpretation of limited sampling and subjective judgements
regarding the grade and existence of mineralization, as well as the application
of economic assumptions, including assumptions as to operating costs, foreign
exchange rates and future metal prices. The sampling, interpretations or
assumptions underlying any reserve or resource figure may be incorrect, and the
impact on mineral reserves or resources may be material. In addition, short term
operating factors relating to mineral reserves, such as the need for orderly
development of ore
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 32
bodies or the processing of new or different ores, may cause mineral reserve
estimates to be modified or operations to be unprofitable in any particular
fiscal period.
There can be no assurance that the indicated amount of minerals will be
recovered or that they will be recovered at the prices assumed for purposes of
estimating reserves.
CURRENCY FLUCTUATIONS
The company's operating results and cash flow are affected by changes in the
Canadian dollar exchange rate relative to the currencies of other countries.
Exchange rate movements can have a significant impact on results as a
significant portion of the company's operating costs are incurred in Canadian
and other currencies and most revenues are earned in U.S. dollars. To reduce the
exposure to currency fluctuations, the company enters into limited foreign
exchange contracts from time to time, but such hedges do not eliminate the
potential that such fluctuations may have an adverse effect on the company. In
addition, foreign exchange contracts expose the company to the risk of default
by the counterparties to such contracts, which could have a material adverse
effect on the company.
INTEREST RATE RISK
The company's exposure to changes in interest rates results from investing and
borrowing activities undertaken to manage liquidity and capital requirements.
The company has incurred indebtedness that bears interest at fixed and floating
rates, and has entered into interest rate swap agreements to manage interest
rate risk associated with that debt. There can be no assurance that the company
will not be materially adversely effected by interest rate changes in the
future, notwithstanding its use of interest rate swaps. In addition, the
company's use of interest rate swaps exposes it to the risk of default by the
counterparties to such arrangements. Any such default could have a material
adverse effect on the company.
ENVIRONMENT
Environmental legislation affects nearly all aspects of the company's
operations. Compliance with environmental legislation can require significant
expenditures and failure to comply with environmental legislation may result in
the imposition of fines and penalties, clean up costs arising out of
contaminated properties, damages and the loss of important permits. Exposure to
these liabilities arises not only from existing operations, but from operations
that have been closed or sold to third parties. There can be no assurances that
the company will at all times be in compliance with all environmental
regulations or that steps to bring us into compliance would not materially
adversely affect the company.
Environmental laws and regulations are evolving in all jurisdictions where the
company has activities. The company is not able to determine the specific impact
that future changes in environmental laws and regulations may have on the
company's operations and activities, and its resulting financial position;
however, the company anticipates that capital expenditures and operating
expenses will increase in the future as a result of the implementation of new
and increasingly stringent environment regulation. Further changes in
environmental laws, new information on existing environmental conditions or
other events, including legal proceedings based upon such conditions or an
inability to obtain necessary permits, could require increased financial
reserves or compliance expenditures or otherwise have a material adverse effect
on the company. Changes in environmental legislation could also have a material
adverse effect on product demand, product quality and methods of production and
distribution.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 33
ABORIGINAL TITLE CLAIMS
Recent Canadian jurisprudence puts in doubt the ability of mining companies to
acquire within a reasonable time frame effective mineral titles in some parts of
Canada, particularly British Columbia, in which aboriginal title is claimed. The
risk of unforeseen aboriginal title claims also exists in foreign jurisdictions
and also could affect existing operations as well as development projects and
future acquisitions. The need for governments to consult with aboriginal peoples
with respect to grants of mineral rights in the issuance or amendment of project
authorizations may affect the company's ability to expand or transfer existing
operations or to develop new projects.
FOREIGN ACTIVITIES
The company operates in a number of foreign countries where there are added
risks and uncertainties due to the different economic, cultural and political
environments. Some of these risks include nationalization and expropriation,
social unrest and political instability, uncertainties in perfecting mineral
titles, trade barriers and exchange controls and material changes in taxation.
Further, developing country status or unfavourable political climate may make it
difficult for the company to obtain financing for projects in some countries.
LEGAL PROCEEDINGS
The nature of the company's business subjects it to numerous regulatory
investigations, claims, lawsuits and other proceedings in the ordinary course of
business. The results of these legal proceedings cannot be predicted with
certainty. There can be no assurances that these matters will not have a
material adverse effect on the company.
In October 1999, the Supreme Court of British Columbia dismissed a lawsuit
brought against Cominco and the trustees of its pension funds. In the lawsuit,
the plaintiffs claimed that a reorganization of pension plans in 1986 was
improper and that units with a value of $120 million (based on current unit
values) should be transferred back to Cominco's original pension plan from
various successor plans. The Court held that the plaintiffs suffered no loss of
benefits due to the transfers that occurred as a result of the restructuring of
the plans. In January 2000, the plaintiffs appealed the decision, which appeal
was heard by the British Columbia Court Of Appeal in June 2002. The Court
reserved judgement on the appeal.
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TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 34
SELECTED FINANCIAL INFORMATION
------------------------------
THREE-YEAR SUMMARY
($ IN MILLIONS, EXCEPT EPS) 2002 2001 2000
- --------------------------------------------------------------------------------
STATEMENT OF EARNINGS
Revenue $ 2,187 $ 2,379 $ 1,206
Net earnings (loss) 30 $ (21) $ 85
Basic earnings (loss) per share $ 0.15 $ (0.17) $ 0.77
Diluted earning per share $ 0.15 $ (0.17) $ 0.71
CASH PROVIDED BY OPERATIONS $ 201 $ 418 $ 239
BALANCE SHEET
Total assets $ 4,958 $ 5,133 $ 5,102
Long-term debt, including $ 933 $ 1,005 $ 875
convertible debentures
================================================================================
The main factors affecting the comparability of data are:
(a) In 2001, the company wrote down the carrying value of certain assets
due to market conditions. The writedowns resulted in pre-tax charges to
earnings of $169 million.
(b) Until the third quarter of 2000, the earnings (losses) of Cominco were
accounted for on an equity basis. The company's share of the earnings
of Cominco form a significant part of the company's earnings. The
company acquired its initial 15% interest in Cominco in 1986. This
interest was increased to 22% in 1993 and 36% in 1994. In 1995, this
interest was diluted to 34%. In 1999, this interest was increased to
44%. The company's interest in Cominco was further increased to 50% in
2000. Beginning with the fourth quarter of 2000, Cominco's results and
financial position were consolidated and included in the above data. On
July 19, 2001, the company acquired the remaining 50% of Cominco that
it did not already own. The minority interest in Cominco's earnings was
eliminated from that time forward.
(c) The Antamina mine commenced production in the fourth quarter of 2001.
Equity earnings in 2002 include a full year of Antamina results.
(d) The sale of the Quebrada Blanca mine by the company (29.25%) and
Cominco (47.25%) to Aur Resources Inc. was completed on November 22,
2000, with cash proceeds of $270 million to the consolidated entity.
The sale of the Niobec mine was completed in the first quarter of 2001
with cash proceeds of $43 million and a note receivable of $5 million
due in 2004. The sale of PacMin Mining Corporation Limited, which owns
the Tarmoola and Carosue Dam mines, was completed in October 2001 with
cash proceeds of $52 million and 17.4 million shares of Sons of Gwalia
Limited.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 35
DIVIDENDS
The company's Class A common shares and Class B Shares rank equally as to the
payment of dividends. The company may not pay dividends on the Class A common
shares and Class B Shares unless all dividends on any preferred shares
outstanding have been paid to date. As of the date hereof, there are no
preferred shares outstanding. Dividends of $0.20 per share were paid in each of
the last three fiscal years on both the Class A common shares and the Class B
Shares. The company's dividend policy continues to contemplate the payment of a
$0.20 per share dividend per year.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
The Management's Discussion and Analysis and Financial Review disclosed in the
company's 2002 Annual Report at pages 27 to 36, is incorporated into this Annual
Information Form by reference.
QUARTERLY DATA
- ---------------------------------------------------------------------------------------------------------------------
($ in millions, except per share information) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
- ---------------------------------------------------------------------------------------------------------------------
Revenue 625 540 521 501 527 598 582 672
Operating profit 60 40 49 34 33 90 95 184
Net earnings (loss) 15 5 8 2 6 (105) 23 55
Earnings (loss) per share $0.08 $0.02 $0.04 $0.01 $0.03 $(0.62) $0.22 $0.51
Diluted earnings (loss) per share $0.08 $0.02 $0.04 $0.00 $0.03 ($0.62) $0.20 $0.46
Cash flow from operations 70 46 46 39 53 75 99 191
- ---------------------------------------------------------------------------------------------------------------------
MARKET FOR SECURITIES
---------------------
The company's Class A common shares and Class B Shares are listed on The Toronto
Stock Exchange. The Class B Shares rank PARI PASSU with the Class A common
shares as to dividends and as to the receipt of the remaining property of the
company upon dissolution, and in all other respects save and except that the
Class A common shares are entitled to 100 votes per share and the Class B Shares
are entitled to one vote per share. In September 2001, the articles of the
company were amended to provide "coattail" provisions for the benefit of the
holders of the Class B Shares.
The 3% Inco Exchangeable Debentures are listed on The Toronto Stock Exchange.
The company's 6% convertible subordinated debentures due in 2006 are listed on
the American Stock Exchange.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 36
DIRECTORS AND OFFICERS
----------------------
DIRECTORS
NAME AND MUNICIPALITY OFFICE HELD AND PRINCIPAL OCCUPATIONS WITHIN DIRECTOR
OF RESIDENCE PREVIOUS FIVE YEARS SINCE
- -------------------------------------------------------------------------------------------------------------------
J. Brian Aune (1)(3)(4)(5) Chairman of St. James Financial Corp., investment company. February 1995
WESTMOUNT, PQ
Lloyd I. Barber (3)(4)(6) President Emeritus, University of Regina. September 2001
REGINA, SK
Hugh J. Bolton (2) Chairman, Epcor Utilities Inc., electrical utility, from 2000 September 2001
EDMONTON, AB to present; Managing Partner-International Pricewaterhouse
Coopers from 1998 to 1999; Chairman and Chief
Executive Officer, Coopers & Lybrand Canada
from 1991 to 1998.
James W. Gill (2)(6) President and Chief Executive Officer, Aur Resources Inc., May 1990
TORONTO, ON mining company.
Masayuki Hisatsune (5) Director and Vice President, Sumitomo Metal Mining America February 2002
VANCOUVER, B.C. Inc. and President, Sumitomo Metal Mining Resources. From
December 2000 to present; General Manager, Administration
Department, Mineral Resources Division, Sumitomo Metal Mining
Co. from 2000 to 2001; General Manager, Operations and
Development, Engineering Department, Mineral Resources
Division, Sumitomo Metal Mining Co. prior to 2000.
Norman B. Keevil (1) Chairman and previously Chief Executive Officer of the July 1963
WEST VANCOUVER, B.C. company from November 30, 1981 to July 25, 2001, and
President of the company from November 30,
1981 to June 8, 2000.
Norman B. Keevil III (6) President, Pyramid Automation Ltd.; mechanical engineering April 1997
VICTORIA, B.C. and design consulting company.
Takuro Mochihara (1) Executive Officer, Non-Ferrous Metal Division, Sumitomo Metal September 2000
TOKYO, JAPAN Mining Co. Ltd.; from 1998 to June 2000 General Manager,
Metals Dept. and prior thereto General Manager, Base Metals
Dept., Mitsubishi Corporation.
Warren S. R. Seyffert (6) Counsel at Lang Michener, law firm. August 1989
TORONTO, ON
David R. Sinclair (1)(2)(4) Corporate Director. September 2001
NANOOSE BAY, B.C.
Keith E. Steeves (2)(5) Consultant since June 1, 1996; previously Senior Vice October 1981
RICHMOND, B.C. President, Commercial of the company.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 37
NAME AND MUNICIPALITY OFFICE HELD AND PRINCIPAL OCCUPATIONS WITHIN DIRECTOR
OF RESIDENCE PREVIOUS FIVE YEARS SINCE
- -------------------------------------------------------------------------------------------------------------------
David A. Thompson (1) Chief Executive Officer of the company since July 25, 2001; October 1980
WEST VANCOUVER, B.C. Deputy Chairman of the company since June 8, 2000; previously
Senior Vice President of the company from July
11, 1988 to June 8, 2000 and from January 1,
1995 to July 25, 2001, President and Chief
Executive Officer of Cominco Ltd.
Robert J. Wright (1) (2) (3) Deputy Chairman of the company since June 8, 2000; previously May 1994
(4) (5)(6) Chairman of the company from September 7, 1994 to June 8,
TORONTO, ON 2000; President, Glenedin Inc.
====================================================================================================================
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Pension Committee
(5) Member of the Corporate Governance Committee
(6) Member of the Environment, Health & Safety Committee
Each of the directors holds office until the annual meeting to be held on April
23, 2003 and until a successor is duly elected or appointed, unless the office
is earlier vacated in accordance with the by-laws of the company.
OFFICERS
NAME AND MUNICIPALITY OFFICE HELD AND PRINCIPAL OCCUPATIONS WITHIN
OF RESIDENCE PREVIOUS FIVE YEARS
- --------------------------------------------------------------------------------
Norman B. Keevil Chairman and previously Chief Executive
WEST VANCOUVER, B.C. Officer of the company from November 30,
1981 to July 25, 2001, and President of
the Company From November 30, 1981 to
June 8, 2000.
Robert J. Wright Deputy Chairman of the company since
TORONTO, ON June 8, 2000; previously Chairman and
President, Glenedin Inc.
David A. Thompson Chief Executive Officer of the company
WEST VANCOUVER, B.C. since July 25, 2001 and Deputy Chairman
of the company since June 8, 2000;
previously Senior Vice President of the
company; President and Chief Executive
Officer of Cominco Ltd.
Roger A. Brain Senior Vice President, Marketing and
NORTH VANCOUVER, B.C. Refining; previously Vice President,
Marketing and Sales of Cominco Ltd.
Douglas H. Horswill Senior Vice President, Environment and
WEST VANCOUVER, B.C Corporate Affairs; previously Vice
President, Environment & Corporate
Affairs of Cominco Ltd.
Michael P. Lipkewich Senior Vice President, Mining.
WEST VACOUVER, B.C.
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 38
NAME AND MUNICIPALITY OFFICE HELD AND PRINCIPAL OCCUPATIONS WITHIN
OF RESIDENCE PREVIOUS FIVE YEARS
- --------------------------------------------------------------------------------
John G. Taylor Senior Vice President, Finance and Chief
VANCOUVER, B.C. Financial Officer.
Michael J. Allan Vice President, Engineering, since
NORTH VANCOUVER, B.C. September 3, 1999; previously Group
Manager, Business Development, H.A.
Simons.
Jon A. Collins Vice President, Exploration Business
VANCOUVER, B.C. Development; previously Vice President,
Exploration of Cominco Ltd.
Fred S. Daley Vice President, Exploration.
KAMLOOPS, B.C.
Michel P. Filion Vice President, Environment.
SURREY, B.C.
Gary M. Jones Vice President, Business Development.
BURNABY, B.C.
G. Leonard Manuel Vice President and General Counsel;
WEST VANCOUVER, B.C. previously General Counsel and Secretary
of Cominco Ltd.
Ronald A. Millos Vice President, Corporate Finance;
VANCOUVER, B.C. previously Vice President, Finance and
Chief Financial Officer of Cominco from
February 1, 2001 to July 25, 2001 and
Comptroller of Cominco Ltd. from June 1,
1998 to February 1, 2001.
Bryan Morris Vice President, Business Development.
VANCOUVER, B.C.
Richard A. Mundie Vice President, Special Projects,
WEST VANCOUVER, B.C. previously Vice President, Marketing
from February 21, 2001 to September 30,
2002, Vice President, Commercial, from
June 1, 1996 to February 21, 2001.
Peter C. Rozee Vice President, Commercial and Legal
WEST VANCOUVER, B.C. Affairs since March 2001; previously
Vice President, General Counsel and
Secretary, Inmet Mining Corporation.
James A. Utley Vice President, Human Resources.
WEST VANCOUVER, B.C.
Lawrence A. Mackwood Treasurer.
WEST VANCOUVER, B.C.
Howard C. Chu Controller.
VANCOUVER, B.C.
Karen L. Dunfee Corporate Secretary.
RICHMOND, B.C.
Anthony A. Zoobkoff Senior Counsel and Assistant Secretary;
NORTH VANCOUVER, B.C. previously Senior Counsel and Assistant
Secretary of Cominco Ltd.
===========================================================================
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 39
OWNERSHIP BY DIRECTORS AND OFFICERS
The directors and executive officers as a group beneficially own directly or
indirectly or exercise control or direction over the following shares issued by
the company:
SHARES BENEFICIALLY OWNED OR OVER WHICH AS A % OF THE TOTAL
CONTROL OR DIRECTION IS EXERCISED OUTSTANDING OF THE CLASS
- --------------------------------------------------------------------------------------------------------------
Class A common shares 210,640 4.5%
Class B subordinate voting shares 879,979 0.5%
==============================================================================================================
In addition, two directors of the company are trustees of a trust which holds
shares carrying 98% of the votes attached to outstanding shares of Keevil
Holding Corporation and are directors of Keevil Holding Corporation. Keevil
Holding Corporation holds 51% of the voting shares of Temagami Mining Company
Limited which holds 2,150,000 Class A common shares, representing 46% of the
shares of this class.
ADDITIONAL INFORMATION
----------------------
(1) The company shall provide to any person or company, upon request to the
Corporate Secretary of the company:
(a) when the securities of the company are in the course of a distribution
pursuant to a short form prospectus or a preliminary short form
prospectus has been filed in respect of a distribution of its
securities:
(i) one copy of the Annual Information Form of the company, together
with one copy of any document, or the pertinent pages of any
document, incorporated by reference in the Annual Information
Form;
(ii) one copy of the comparative financial statements of the company
for its most recently completed financial year together with the
accompanying report of the auditor and one copy of any interim
financial statements of the company subsequent to the financial
statements for its most recently completed financial year;
(iii) one copy of the Management Proxy Circular of the company in
respect of its most recent annual meeting of shareholders that
involved the election of directors or one copy of any annual
filing prepared in lieu of that information circular, as
appropriate; and
(iv) one copy of any other documents that are incorporated by
reference into the preliminary short form prospectus or the short
form prospectus and are not required to be provided under (i) to
(iii) above; or
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 40
(b) at any other time, one copy of any other document referred to in
1(a)(i), (ii) and (iii) above, provided the company may require the
payment of a reasonable charge if the request is made by a person or
company who is not a security holder of the company.
(2) Additional information, including directors' and officers' remuneration and
indebtedness to the company, principal holders of the issuer's securities,
options to purchase securities and interests of insiders in material
transactions is contained in the Management Proxy Circular to be issued for
the company's Annual Meeting of Shareholders to be held on April 23, 2003.
Additional financial information is provided in the comparative financial
statements of the company for 2001 and 2002. Copies of these documents are
available upon request from the Corporate Secretary of the company.
(3) Unless otherwise stated information contained herein is as at December 31,
2002
- --------------------------------------------------------------------------------
TECK COMINCO LIMITED -- 2002 ANNUAL INFORMATION FORM Page 41
================================================================================
TECK COMINCO LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
================================================================================
AUDITORS' REPORT
to the Shareholders of Teck Cominco Limited
We have audited the consolidated balance sheets of TECK COMINCO LIMITED as at
December 31, 2002 and 2001 and the consolidated statements of earnings, retained
earnings and cash flows for the each of the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
February 7, 2003
TECK COMINCO LIMITED
Consolidated Balance Sheets
As at December 31
================================================================================
($ IN MILLIONS) 2002 2001
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 91 $ 101
Accounts and settlements receivable 235 242
Production inventories 495 540
Supplies and prepaid expenses 134 161
- --------------------------------------------------------------------------------
955 1,044
INVESTMENTS (note 4) 414 606
PROPERTY, PLANT AND EQUIPMENT (note 5) 3,393 3,298
OTHER ASSETS (note 6) 196 185
- --------------------------------------------------------------------------------
$4,958 $5,133
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 294 $ 310
Short-term bank loans -- 80
Current portion of long-term debt (note 7) 26 45
- --------------------------------------------------------------------------------
320 435
LONG-TERM DEBT (notes 5 and 7) 933 1,005
OTHER LIABILITIES (note 8) 351 365
FUTURE INCOME AND RESOURCE TAXES (note 13) 556 509
DEBENTURES EXCHANGEABLE FOR INCO SHARES (note 9) 248 248
MINORITY INTERESTS (note 10) 30 31
SHAREHOLDERS' EQUITY (note 11) 2,520 2,540
- --------------------------------------------------------------------------------
$4,958 $5,133
================================================================================
Commitments and contingencies (notes 5 and 17)
APPROVED BY THE DIRECTORS
/s/ David A. Thompson
/s/ Keith E. Steeves
The accompanying notes are an integral part of the financial statements.
TECK COMINCO LIMITED
Consolidated Statements of Retained Earnings
Years Ended December 31
================================================================================
($ IN MILLIONS) 2002 2001
- --------------------------------------------------------------------------------
BALANCE AT THE BEGINNING OF THE YEAR $ 502 $ 572
Adjustment on adoption of new accounting standard
for foreign exchange currency translation (note 1) (20) (20)
- --------------------------------------------------------------------------------
BALANCE AT THE BEGINNING OF THE YEAR AS RESTATED 482 552
Net earnings (loss) 30 (21)
Dividends (37) (29)
Interest on exchangeable debentures, net of taxes (note 11(a)) (3) (3)
Shares issued to Class A common shareholders (note 11(g)) -- (10)
Reduction on purchase and cancellation of
Class B Subordinate Voting Shares (note 11(f)) -- (7)
- --------------------------------------------------------------------------------
BALANCE AT THE END OF THE YEAR $ 472 $ 482
================================================================================
The accompanying notes are an integral part of the financial statements.
TECK COMINCO LIMITED
Consolidated Statements of Earnings
Years Ended December 31
================================================================================
($ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001
- --------------------------------------------------------------------------------
REVENUES $ 2,187 $ 2,379
COST OF OPERATIONS (1,805) (1,751)
DEPRECIATION AND AMORTIZATION (199) (226)
- --------------------------------------------------------------------------------
OPERATING PROFIT 183 402
OTHER EXPENSES
General, administration and marketing (53) (58)
Interest on long-term debt (67) (77)
Exploration (34) (59)
Research and development (19) (15)
Other income and expense (net) 7 62
- --------------------------------------------------------------------------------
17 255
ASSET VALUATION WRITEDOWNS (note 12) -- (169)
INCOME AND RESOURCE TAXES (note 13)
On earnings from operations (5) (103)
On asset valuation writedowns (note 12) -- 47
MINORITY INTERESTS 1 (50)
EQUITY EARNINGS (LOSS) 17 (1)
- --------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 30 $ (21)
- --------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.15 $ (0.17)
The accompanying notes are an integral part of the financial statements.
TECK COMINCO LIMITED
Consolidated Statements of Cash Flows
Years Ended December 31
================================================================================
($ IN MILLIONS) 2002 2001
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings (loss) $ 30 $ (21)
Items not affecting cash:
Depreciation and amortization 199 226
Future income and resource taxes (22) 48
Equity (earnings) loss (17) 1
Minority interests (1) 50
Asset valuation writedowns (note 12) -- 122
Other 12 (8)
- --------------------------------------------------------------------------------
201 418
Net change in non-cash working capital items (note 15(a)) 51 (119)
- --------------------------------------------------------------------------------
252 299
FINANCING ACTIVITIES
Short-term bank loans (80) 75
Long-term debt 345 219
Repayment of long-term debt (439) (53)
Decrease (increase) in funds held on deposit (note 7(b)) 157 (157)
Reduction of other liabilities (27) --
Interest on exchangeable debentures (note 11(a)) (5) (5)
Issuance (purchase and cancellation) of
Class B Subordinate Voting Shares 1 (20)
Dividends paid (37) (29)
Shares of subsidiary issued -- 19
Dividends of subsidiary paid to minority shareholders -- (6)
- --------------------------------------------------------------------------------
(85) 43
INVESTING ACTIVITIES
Property, plant and equipment (187) (346)
Cominco shares acquired on merger -- (277)
Partial redemption of Cominco exchangeable debentures -- (38)
Investments (18) (36)
Proceeds from sale of investments and mining
assets (note 3) 28 131
Refund of tax deposit -- 57
- --------------------------------------------------------------------------------
(177) (509)
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- 2
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (10) (165)
CASH AT THE BEGINNING OF THE YEAR 101 266
- --------------------------------------------------------------------------------
CASH AT THE END OF THE YEAR $ 91 $ 101
================================================================================
See also note 15
The accompanying notes are an integral part of the financial statements.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Teck Cominco Limited (the company) is engaged in mining and refining
businesses including exploration, development, mining, processing, smelting
and refining. The company's major products are zinc, metallurgical coal,
copper, gold, lead and specialty metals.
The consolidated financial statements of the company are prepared using
accounting principles generally accepted in Canada. Note 19 reconciles the
company's earnings and shareholders' equity to results that would have been
obtained had the company's consolidated financial statements been prepared
in accordance with accounting principles generally accepted in the United
States.
BASIS OF PRESENTATION
These consolidated financial statements include the accounts of the company
and all of its subsidiaries. Many of the company's mining activities are
conducted through interests in joint ventures where the company shares
joint control. These joint ventures are accounted for using the
proportionate consolidation method. Inter-company accounts and transactions
have been eliminated on consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes. Significant areas where management's judgment
is applied are asset and investment valuations, contingent liabilities,
future income tax valuation reserves, environment and post-closure
obligations and pension liabilities. Actual results could differ from these
estimates.
TRANSLATION OF FOREIGN CURRENCIES
Except as described in the paragraph below, monetary assets and liabilities
are translated at year-end exchange rates, and other assets and liabilities
are translated at historical rates.
Effective January 1, 2002 the company adopted new accounting standards
recommended by the Canadian Institute of Chartered Accountants for the
translation of foreign currencies. Foreign exchange gains and losses on
long-term debt not associated with self-sustaining foreign operations are
no longer deferred and amortized over the term of the debt, but charged to
earnings in the period they arise. The company recorded an adjustment to
reduce opening retained earnings by $20 million, the amount of unamortized
foreign exchange loss on long-term debt as at December 31, 2001.
The assets and liabilities of self-sustaining foreign operations are
translated at year-end exchange rates, and revenues and expenses are
translated at monthly average exchange rates. Differences arising from
these foreign currency restatements are recorded in shareholders' equity as
a cumulative translation adjustment until they are realized by a reduction
in the investment. In addition, exchange differences on long-term monetary
liabilities, which have been designated as a hedge against self-sustaining
foreign operations, are included in the cumulative translation adjustment.
CASH
Cash includes cash on account, demand deposits and short-term investments
with maturities of three months or less.
INVESTMENTS
Investments comprise marketable and non-marketable securities. Investments
in other companies are carried at cost or at cost less amounts written off
to reflect an impairment in value which is other than temporary.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES, continued
PROPERTY, PLANT AND EQUIPMENT
(a) Plant and equipment
Plant and equipment are depreciated over the estimated lives of the
assets on a unit-of-production or straight-line basis as appropriate.
(b) Mineral properties and deferred costs
Exploration costs and costs of acquiring mineral properties are
charged to earnings in the year in which they are incurred, except
where these costs relate to specific properties for which economically
recoverable reserves are believed to exist, in which case they are
deferred.
Deferred costs include interest and financing costs relating to the
construction of plant and equipment and operating costs net of
revenues prior to the commencement of commercial production of a new
mine. Interest and financing costs are capitalized only for those
projects for which funds have been borrowed.
Mineral properties and deferred costs are, upon commencement of
production, amortized over the estimated life of the orebody to which
they relate or are written off if the property is abandoned or if
there is considered to be a permanent impairment in value.
(c) Investments in mining properties
Investments in mining properties over which the company has
significant influence but not joint control are accounted for using
the equity method.
REVENUE RECOGNITION AND INVENTORIES
Revenues are recorded at the time of sale, when the rights and obligations
of ownership pass to the customer, except in the case of Bullmoose Coal,
where revenues related to coal produced under the terms of a long-term
sales contract are recorded at the time of production. Coal production in
excess of contracted sales is inventoried at cost. Finished goods, raw
materials and in-process inventories are valued at the lower of cost and
net realizable value.
INCOME AND RESOURCE TAXES
Future income tax assets and liabilities are determined based on the
difference between the tax basis of the company's assets and liabilities
and the respective amounts reported in the financial statements. The future
tax assets or liabilities are calculated using the tax rates for the
periods in which the differences are expected to be settled. Future tax
assets are recognized to the extent that they are considered more likely
than not to be realized.
EMPLOYEE FUTURE BENEFITS
Pension and other employee future benefit expenses are based on actuarial
determinations of current service costs. Certain actuarial assumptions used
in the determination of future benefits and plan liabilities are based upon
management's best estimates, including expected plan performance, salary
escalation and retirement dates of employees. The discount rate used to
determine the accrued benefit obligation is determined by reference to
market interest rates at the measurement date of high quality debt
instruments. Differences between the actuarial liabilities and the amounts
recorded in financial statements will arise from changes in plan
assumptions, changes in benefits, or through experience as results differ
from actuarial assumptions. Differences which are greater than 10% of the
plan's assets or liabilities are taken into the determination of income
over the average remaining service life of the related employees.
Non-pension retirement benefits are accrued and are funded by the company
as they become due.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
SHARE OPTION PLAN
The company has a share option plan as described in note 11(d). Effective
January 1, 2002, the company adopted the new accounting standard for stock
based compensation. The company has elected not to follow the fair value
method of accounting for share options granted to employees and directors.
Accordingly, no compensation expense is recorded on the grant of share
options to employees and directors as the exercise price is equal to the
market price at the date of grant. Pro forma disclosure of the compensation
expense which would have been recorded under the fair value method is
disclosed in note 11(d).
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
SITE RESTORATION AND POST CLOSURE COSTS
Expenditures related to ongoing environmental and reclamation activities
are expensed as incurred unless previously accrued.
Provisions for future site restoration and reclamation and other post
closure costs in respect of operating sites are charged to earnings over
the estimated life of the assets, commencing when a reasonably definitive
estimate of the cost can be made.
EARNINGS PER SHARE
The company follows the `treasury stock' method in the calculation of
diluted earnings per share. Under this method, dilution is calculated based
upon the net number of common shares issued should `in the money' options
be exercised and the proceeds used to repurchase common shares at the
weighted average market price in the period.
HEDGING TRANSACTIONS
The company uses future foreign exchange and commodity futures and option
contracts and interest rate swaps to manage its exposure to fluctuating
interest rates, prices and exchange rates for the commodities it sells.
Gains and losses relating to such instruments are taken into revenue at the
time the commodities to which they are matched are sold.
2. MERGER WITH COMINCO LTD.
The company began acquiring shares of Cominco Ltd. (Cominco) in 1986 and in
September 2000 the company acquired 5,176,700 shares of Cominco at a cost
of $127 million, increasing the company's shareholding to just over 50%.
Until September 30, 2000 the company had been accounting for the investment
as an equity investment which had an accumulated value on an equity
accounting basis of $898 million. Since that date the results of Cominco
have been consolidated with those of the company.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
2. MERGER WITH COMINCO LTD., continued
On July 19, 2001 shareholders of Cominco approved an arrangement to merge
Cominco with the company. Under the terms of the arrangement Cominco
shareholders received 1.8 Class B Subordinate Voting Shares of Teck and $6
in cash for each Cominco share held. Holders of the exchangeable debenture
due 2024 received $6 in respect of each underlying Cominco share, reducing
the face value of each $1000 debenture to $745 (note 11 (a)). The merger
was accounted for using the purchase method as follows:
===========================================================================
SHARES
MERGER ACQUIRED
($ IN MILLIONS) IN 2001 IN 2000
---------------------------------------------------------------------------
Purchase price
Cash $ 262 $ 127
Shares issued (note 11(c)) 913 --
Merger costs 15 --
Carrying value of investment accumulated
in prior periods -- 771
---------------------------------------------------------------------------
Total cost of the acquisition $1,190 $ 898
===========================================================================
Assets acquired
Cash $ -- $ 24
Other current assets -- 830
Mineral and resource properties 301 2,392
Other assets -- 178
Purchase of remaining minority interest
in net assets 1,006 --
---------------------------------------------------------------------------
1,307 3,424
Liabilities assumed
Current liabilities -- 320
Long-term debt -- 1,263
Other liabilities 117 --
Outstanding minority interest in net assets -- 943
---------------------------------------------------------------------------
117 2,526
---------------------------------------------------------------------------
Net assets acquired $1,190 $ 898
===========================================================================
3. DISPOSITIONS
(a) Sale of PacMin Mining Corporation (PacMin)
In November 2001, the company disposed of its interest in PacMin which
owned the Tarmoola and Carosue Dam gold mines in Western Australia and
realized no gain or loss on the sale. The company received cash
proceeds of $52 million and 17.4 million shares of the purchaser, Sons
of Gwalia Ltd. In addition the purchaser assumed $89 million of PacMin
debt.
(b) Sale of Niobec
In March 2001, the company sold its 50% interest in the Niobec mine in
Quebec to Mazarin Inc. The company received cash proceeds of $43
million and a note in the amount of $5 million due March 2004. An
after-tax gain of $11 million was recorded on the sale.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
4. INVESTMENTS
===========================================================================
($ IN MILLIONS) 2002 2001
---------------------------------------------------------------------------
Investments and advances
Inco Limited common shares (note 9) $246 $246
Cajamarquilla funds held on deposit (note 7(b)) -- 165
Loans receivable and other investments 80 87
Investment in Sons of Gwalia Ltd. (notes 3(a) and 12) 64 85
Investment in other exploration companies 24 23
---------------------------------------------------------------------------
$414 $606
===========================================================================
Included in the above are marketable securities carried at a cost of $97
million (2001 - $108 million) that had a quoted market value of $95 million
(2001 - $133 million). Inco common shares are excluded from marketable
securities for the reasons discussed in note 9.
5. PROPERTY, PLANT AND EQUIPMENT
===========================================================================
($ IN MILLIONS) 2002 2001
---------------------------------------------------------------------------
Mines and processing facilities $3,949 $3,779
Accumulated depreciation and depletion (1,191) (1,042)
---------------------------------------------------------------------------
2,758 2,737
Development projects 287 253
Investment in Antamina 348 308
---------------------------------------------------------------------------
$3,393 $3,298
===========================================================================
Investment in Antamina
The company accounts for its 22.5% investment in Compania Minera Antamina
S.A. (CMA), the company holding the Antamina project, on an equity basis.
In connection with the senior debt financing of the project the company has
provided the lenders with a guarantee of its 22.5% share of the debt during
the pre-completion period. The guarantee will be removed when the project
meets certain completion tests which are expected to take place in the
second quarter of 2003. At December 31, 2002 the senior project debt
outstanding was US$1.25 billion in respect of which the company is
responsible for and has guaranteed US$281 million.
The project commenced commercial production in the fourth quarter of 2001.
Upon the project meeting the completion tests as defined in the senior debt
project financing agreement, certain voting restrictions of the company in
relation to the management of CMA will be removed. The company will then
account for the investment on a proportionate consolidation basis,
reflecting its share of the assets and liabilities of CMA on its balance
sheet including its share of the senior project debt, which would then be
non-recourse.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
6. OTHER ASSETS
==========================================================================
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
Future tax benefits and investment tax credits (note 13) $139 $146
Prepaid pensions 10 --
Other 47 39
--------------------------------------------------------------------------
$196 $185
==========================================================================
7. LONG-TERM DEBT
(SEE ALSO NOTE 5)
==========================================================================
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
Convertible debenture due 2006 (a) $241 $ 236
6.875% debenture due February 2006 (US$150 million) 237 239
7% debenture due September 2012 (US$200 million) (c) 312 --
8.7% debenture (US$125 million) -- 199
Cajamarquilla financing agreement (2002 - US$88 million;
2001 - US$190 million) (b) 138 303
Other 31 73
--------------------------------------------------------------------------
959 1,050
Less current portion (d) (26) (45)
--------------------------------------------------------------------------
$933 $1,005
==========================================================================
(a) In 1994 the company received net proceeds of $186 million on the issue
of US$137 million deep discount convertible subordinated debentures,
with a stated amount of US$170 million, due in 2006. The debentures
bear interest on the issue price at 6% per annum, computed on a
semi-annual basis. The cash interest payment is 3.75% of the stated
value, with the balance deferred to maturity in 2006. Conversion is at
the option of the holder at any time on or prior to maturity into
Class B Subordinate Voting Shares at a conversion rate of 46.551
shares per US$1,000 of stated amount at maturity. The debentures are
redeemable at any time at the option of the company. In December 2001,
the company entered into interest rate swaps with respect to US$100
million of this debt. The 3.75% cash portion of the interest rate has
been exchanged for a floating interest rate of LIBOR less 1.0%.
(b) In 1998 Cajamarquilla completed a US$250 million financing agreement
for its expansion program and ongoing operating requirements. This
facility consisted of term loans totalling US$200 million from a
syndicate of banks, repayable over 10 to 12.5 years, and a US$50
million working capital loan. As a result of the deferral of the
Cajamarquilla expansion project, the term loan was prepaid by US$103
million during 2002 from funds held in trust. The interest rates on
these loans are based on LIBOR plus a variable spread and semi-annual
principal payments of US$4 million are being made on the term loans.
The balance of the working capital loan is due in April 2003 and
discussions are underway to extend the facility.
The assets of Cajamarquilla and the common shares of Cajamarquilla
held by the company and Marubeni Caja Investments Limited are pledged
as security for the outstanding term and working capital loans. The
company has guaranteed its 83% share of the loans.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
7. LONG-TERM DEBT, CONTINUED
(c) In September 2002, the company issued debentures in the amount of
US$200 million, bearing interest at 7% and due September 15, 2012.
(d) Scheduled repayments on long-term debt are $26 million in 2003, $12
million in 2004, $12 million in 2005, $490 million in 2006, $43
million in 2007, and $376 million thereafter. Included in the current
portion of long-term debt are $12 million of term loan and $14 million
of working capital loan of Cajamarquilla.
(e) At December 31, 2002, the company had bank credit facilities
aggregating $939 million, 90% of which mature in 2005 and beyond.
Unused credit lines under these facilities amount to $879 million as
the company has issued $60 million of letters of credit.
8. OTHER LIABILITIES
==========================================================================
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
Accrued post-closure costs
Site restoration costs $143 $170
Other post-closure costs 17 20
Accrued employee future benefits (note 16(a)) 148 121
Other 43 54
--------------------------------------------------------------------------
$351 $365
==========================================================================
9. DEBENTURES EXCHANGEABLE FOR INCO SHARES
==========================================================================
($ IN MILLIONS) 2002 2001
--------------------------------------------------------------------------
Exchangeable debentures due 2021 $172 $139
Deferred gain 76 109
--------------------------------------------------------------------------
$248 $248
==========================================================================
In September 1996, the company issued $248 million of 3% exchangeable
debentures due September 30, 2021. Each $1,000 principal amount of the
exchangeable debentures is exchangeable at the option of the holder for
20.7254 common shares of Inco Limited (subject to adjustment if certain
events occur), without payment of accrued interest.
The exchangeable debentures are redeemable at the option of the company on
or after September 12, 2006. Redemption may be satisfied by delivery of the
Inco common shares, or delivery of the cash equivalent of the market value
of the Inco common shares at the time of redemption.
The Inco common shares held by the company have been pledged as security
for the exchangeable debentures. As this underlying security can be
delivered at the option of the company in satisfaction of the liability,
hedge accounting is applied such that any gains and losses on the Inco
common shares are offset by corresponding gains and losses on the
exchangeable debentures.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
10. MINORITY INTERESTS
====================================================================================================
($ IN MILLIONS) 2002 2001
----------------------------------------------------------------------------------------------------
Cajamarquilla (83% owned) $30 $31
====================================================================================================
11. SHAREHOLDERS' EQUITY
====================================================================================================
2002 2001
----------------------------------------------------------------------------------------------------
($ IN MILLIONS) SHARES SHARES
(IN 000'S) AMOUNT (IN 000'S) AMOUNT
====================================================================================================
Exchangeable debentures due 2024 (a) $ 107 $ 107
Capital stock
Class A common shares 4,682 7 4,682 7
Class B Subordinate Voting Shares 179,855 1,779 179,796 1,779
----------------------------------------------------------------------------------------------------
1,786 1,786
Contributed surplus 50 50
Cumulative translation adjustment (j) 105 115
Retained earnings 472 482
----------------------------------------------------------------------------------------------------
$2,520 $2,540
====================================================================================================
(a) Exchangeable debentures due 2024
In April 1999 the company issued $150 million of 25-year debentures
with each $1,000 debenture exchangeable, at a reference price of
$23.50 per share, into 42.5532 shares of Cominco. At the time of the
merger with Cominco in 2001, holders of these debentures were paid $6
in respect of each underlying Cominco share as a partial repayment.
The face value of each $1,000 debenture was reduced to $745 and each
debenture became convertible into 76.596 Class B Subordinate Voting
Shares for a total, if exchanged, of 11,489,000 Class B Subordinate
Voting Shares. Interest is at 2% above the company's dividend yield
based on a reference price of $9.72.
The debentures are exchangeable by the holder or redeemable by the
company at any time. If redeemed by the company within seven years of
issue, the company will pay a premium per debenture of $112 declining
to $19 in year seven.
By virtue of the company's option to deliver Class B Subordinate
Voting Shares to satisfy the principal payments, the debentures net of
issue costs are classified as a component of shareholders' equity. The
interest, net of taxes, is charged directly to retained earnings.
(b) Authorized share capital
The company's authorized share capital consists of an unlimited number
of Class A common shares (Class A shares) without par value, an
unlimited number of Class B Subordinate Voting Shares without par
value and an unlimited number of preferred shares without par value
issuable in series.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
11. SHAREHOLDERS' EQUITY, CONTINUED
The Class A shares carry the right to 100 votes per share and the
Class B Subordinate Voting Shares carry the right to one vote per
share. In all other respects the Class A and Class B Subordinate
Voting Shares rank equally. Subject to certain exceptions, if a
take-over bid is made in respect of the Class A shares and is not made
concurrently with an offer to purchase Class B Subordinate Voting
Shares on identical terms, each outstanding Class B Subordinate Voting
Share will be convertible into a new common share. New common shares
will have rights identical to the Class A shares, except that each new
common share will be convertible, at any time, at the option of the
holder into one Class B Subordinate Voting Share. See note 11(g).
(c) Class B Subordinate Voting Shares issued in the last two years
======================================================================
SHARES ISSUED
($ IN MILLIONS) (IN 000'S) AMOUNT
----------------------------------------------------------------------
At December 31, 2000 101,802 $ 868
Issued in respect of Cominco merger 78,482 913
Options exercised (d) 67 1
Purchased and cancelled (f) (1,495) (13)
Issued in respect of an amendment to
the Articles of the company (g) 938 10
Issued to holders of shares of predecessor
companies merged with the company 2 --
----------------------------------------------------------------------
At December 31, 2001 179,796 1,779
Options exercised (d) 59 --
----------------------------------------------------------------------
At December 31, 2002 179,855 $1,779
======================================================================
At December 31, 2002 there were 391,204 Class B Subordinate Voting
Shares (2001 - 392,366 shares) reserved for issuance to the former
shareholders of certain companies that amalgamated with the company in
prior years.
(d) Share options
In the year ended December 31, 2002, the company granted to directors
and employees 1,671,000 Class B Subordinate Voting Share options at
market with a weighted average exercise price of $13.76 per share.
These share options have a term of six years and expire in 2008. At
December 31, 2002, outstanding director and employee share options
totalled 8,254,000 (4.5% of issued share capital) with exercise prices
ranging between $6.40 and $29.30 per share.
As described in note 1, the company does not use the fair value method
of accounting for share options granted to employees and directors.
Had the company followed the fair value method of accounting, the
company would have recorded a compensation expense of $5 million in
respect of its employee and director share options. Pro forma earnings
for 2002 determined under the fair value method of accounting for
stock options are as follows:
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
11. SHAREHOLDERS' EQUITY, CONTINUED
---------------------------------------------------------------------------
($ IN MILLIONS) 2002
---------------------------------------------------------------------------
Net earnings
As reported $30
Compensation expense 5
---------------------------------------------------------------------------
Pro forma $25
===========================================================================
Basic and diluted earnings per share
As reported $0.15
Pro forma $0.12
The average fair value of Class B Subordinate Voting Share options was
estimated as $3.07 per share option at the grant date based on the
Black-Scholes option-pricing model using the following assumptions:
Dividend yield 1.5%
Risk free interest rate 4.42%
Expected life (based on recent experience) 3.7 years
Expected volatility 25%
Outstanding share options:
==================================================================================================
2002 2001
----------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
(IN 000'S) (IN 000'S)
--------------------------------------------------------------------------------------------------
Outstanding at beginning of year 6,779 $14.68 3,320 $16.87
Granted under plan 1,671 13.76 816 15.24
Issued to Cominco employees at
the time of merger -- -- 3,128 12.47
Exercised (59) 9.56 (67) 12.35
SARs exercised (36) 11.54 (183) 12.35
Expired (63) 17.68 (152) 23.57
Forfeited (38) 16.63 (83) 15.34
--------------------------------------------------------------------------------------------------
Outstanding at end of year 8,254 $14.51 6,779 $14.68
==================================================================================================
Options vested and exercisable at
year-end 7,996 $14.48 6,205 $14.81
==================================================================================================
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
11. SHAREHOLDERS' EQUITY, CONTINUED
Information relating to share options outstanding at December 31,
2002:
======================================================================
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES PRICE RANGE EXERCISE PRICE REMAINING LIFE
(IN 000'S) (MONTHS)
----------------------------------------------------------------------
379 $6.40 - $9.50 $ 7.56 59
3,497 $10.00 - $13.00 11.56 55
1,668 $13.50 - $14.50 13.76 62
1,525 $15.50 - $17.85 16.55 57
444 $18.00 - $19.80 19.33 14
741 $26.00 - $29.30 26.57 8
----------------------------------------------------------------------
8,254 $14.51 51
======================================================================
(e) As at January 1, 2002, 3.7 million outstanding employee and director
share options had attached Share Appreciation Rights (SARs) allowing
the holder to receive the cash value of the appreciation of the value
of the shares over the exercise price of the options in lieu of
exercising the share options. Effective January 1, 2002, the new
accounting standard for stock based compensation requires the cash
settlement value of SARs to be recorded on the balance sheet by
adjusting the opening retained earnings and recording the change in
the liability for the period as a charge to earnings.
Prior to June 30, 2002, the company made arrangements with directors
and employees to waive the SARs on outstanding share options. At
December 31, 2002, there were 443,000 outstanding share options (with a
weighted average remaining life of six months) belonging to former
directors and employees that continue to have SARs attached. In
accordance with provisions of the new accounting standard the company
has recorded an adjustment to reduce opening retained earnings by $0.4
million and a recovery for the year ended December 31, 2002 of $0.3
million in respect of these remaining SARs.
(f) During 2001, the company purchased and cancelled 1,495,100 Class B
Subordinate Voting Shares pursuant to a normal course issuer bid. In
November 2001 a new normal course issuer bid was accepted by the
Toronto Stock Exchange which entitled the company to purchase and
cancel up to ten million of its outstanding Class B Subordinate Voting
Shares on or before November 13, 2002. No shares have been repurchased
pursuant to this new bid which expired in November.
(g) On September 10, 2001, the shareholders at a special meeting approved
an amendment to the Articles of the company to adopt certain take-over
bid protections (referred to as "coattails") for holders of Class B
Subordinate Voting Shares. As a result of the implementation of the
"coattails" protection, holders of Class A shares of record on
September 25, 2001 received one new Class A share plus 0.2 of a Class
B Subordinate Voting Share in exchange for each Class A share
previously held. There were 938,372 Class B Subordinate Voting Shares
issued in relation to the amendment.
(h) Convertible debenture included in long-term debt - see Note 7(a)
(i) In April 1999 the company completed the issue of 10,000,000 units,
each comprising one Class B Subordinate Voting Share and one-half of a
warrant, at an issue price of $15.00 per unit. Each whole warrant
entitles the holder to purchase a Class B Subordinate Voting Share at
a price of $18.00 at any time prior to May 26, 2004. If the average
trading price of the Class B Subordinate Voting Shares is not less
than $22.50 per share during 20 consecutive trading days prior to the
notice date, the company has the right to give notice after May 25,
2001 requiring that the exercise price of the warrant be adjusted so
that its value will not increase or decrease following the 30th day
from the date of notice.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
11. SHAREHOLDERS' EQUITY, CONTINUED
(j) The cumulative translation adjustment represents the net unrealized
foreign exchange gain on translation of the accounts of
self-sustaining foreign subsidiaries, net of foreign exchange losses
on US dollar denominated debt designated as hedges against these
investments.
=====================================================================
($ IN MILLIONS) 2002 2001
---------------------------------------------------------------------
Cumulative translation adjustment - beginning
of year $115 $ 53
Net effect of exchange rate changes (10) 77
Losses (gains) realized - (15)
---------------------------------------------------------------------
Balance end of year $105 $115
=====================================================================
12. ASSET VALUATION WRITEDOWNS
The company performs periodic assessments of the carrying value of its
mineral properties and investments in exploration companies. As a result of
one of these assessments in 2001, the company recorded a writedown of $169
million ($122 million on an after-tax basis), primarily related to
non-operating mineral properties. In 2002, included in other income and
expense was a writedown of an investment of $22 million.
13. INCOME AND RESOURCE TAXES
(a) Income and resource tax expense
======================================================================
($ IN MILLIONS) 2002 2001
----------------------------------------------------------------------
Current
Income tax $ 14 $19
Resource tax 14 16
Large corporation tax 3 4
----------------------------------------------------------------------
31 39
Future
Income tax 8 11
Resource tax (34) 6
----------------------------------------------------------------------
(26) 17
----------------------------------------------------------------------
$ 5 $56
======================================================================
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
13. INCOME AND RESOURCE TAXES, CONTINUED
(b) Reconciliation of income and resource taxes calculated at the
statutory rates to the actual tax provision
========================================================================================
($ IN MILLIONS) 2002 2001
----------------------------------------------------------------------------------------
Tax expense at the statutory rate of 42% (2001 - 44%) $ 7 $37
Tax effect of
Resource and depletion allowances, net of resource taxes 5 6
Difference in foreign tax rate (17) (14)
Benefit of current tax loss not recognized 20 50
Reduction in statutory rates - (21)
Large corporation tax 3 4
Other (13) (6)
----------------------------------------------------------------------------------------
$ 5 $56
========================================================================================
(c) Temporary differences giving rise to future income tax assets and
liabilities
========================================================================================
($ IN MILLIONS) 2002 2001
----------------------------------------------------------------------------------------
Future income tax asset
Investment tax credits $ 74 $106
Net operating loss carry-forwards 327 275
Property, plant and equipment (95) (101)
Inventory adjustments - 3
Other 15 30
Valuation allowance (175) (145)
----------------------------------------------------------------------------------------
146 168
Less current portion (7) (22)
----------------------------------------------------------------------------------------
$139 $146
----------------------------------------------------------------------------------------
Future income tax liability
Property, plant and equipment $(507) $(498)
Net operating loss carry-forwards 13 34
Other (62) (45)
----------------------------------------------------------------------------------------
$(556) $(509)
========================================================================================
For income tax purposes, certain U.S. subsidiaries of the company have
regular tax net operating loss carry-forwards of US$440 million and
alternative minimum tax net operating loss carry-forwards of US$187
million, which expire in the years 2004 through 2021. Also available
to offset future regular taxes are US$16 million of investment tax
credits and to offset alternative minimum taxes are US$4 million of
investment tax credits, which expire in various years through 2006.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
14. JOINT VENTURES
The principal operations of the company which are conducted as joint
ventures are the Bullmoose, Highland Valley, Louvicourt and Hemlo mines.
The company's share of the assets and liabilities, revenues and expenses
and cash flows of these joint ventures is as follows:
===========================================================================
($ IN MILLIONS) 2002 2001
---------------------------------------------------------------------------
Cash $ (3) $ 5
Other current assets 117 106
Mineral properties, plant and equipment 283 317
---------------------------------------------------------------------------
Assets $397 $ 428
---------------------------------------------------------------------------
Current liabilities $ 53 $ 57
Long=term liabilities 94 41
Equity 250 330
---------------------------------------------------------------------------
Liabilities $ 397 $ 428
===========================================================================
Revenue $ 485 $ 515
Expenses 442 434
---------------------------------------------------------------------------
Earnings $ 43 $ 81
===========================================================================
Cash flow:
Operating activities $ 102 $ 126
Financing activities $ (5) $ 5
Investing activities $ (17) $ (25)
15. SUPPLEMENTARY CASH FLOW INFORMATION
===========================================================================
($ IN MILLIONS) 2002 2001
---------------------------------------------------------------------------
(a) Changes to non-cash working capital items
Accounts and settlements receivable $(15) $ 54
Production inventories 47 (85)
Supplies and prepaid expenses 27 4
Accounts payable and accrued liabilities (26) (17)
Current income and resource taxes 17 (47)
Other 1 (28)
---------------------------------------------------------------------------
$ 51 $(119)
===========================================================================
(b) Non-cash investing and financing transactions
Shares issued in merger with Cominco (note 2) $ -- $ 913
(c) Other information
Interest paid $ 55 $ 68
Income and resource taxes paid $ 15 $ 42
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
16. EMPLOYEE FUTURE BENEFITS
Substantially all of the company's employees participate in either defined
benefit or defined contribution pension plans.
The defined benefit plans provide for pensions based principally on years
of service and compensation rates near retirement. Annual contributions to
these plans, which are based on actuarial cost methods, are made at or in
excess of the minimum requirements prescribed by legislation.
(a) Actuarial valuation of funding surplus (deficit)
====================================================================================================
2002 2001
-------------------- ------------------------
OTHER OTHER
PENSION EMPLOYEE PENSION EMPLOYEE
BENEFIT BENEFIT BENEFIT BENEFIT
($ IN MILLIONS) PLANS PLANS PLANS PLANS
---------------------------------------------------------------------- -------------------------
Accrued benefit obligation
Balance at beginning of year $814 $142 $751 $125
Changes in methodology and assumptions 13 -- -- --
Actuarial revaluation 11 24 48 8
Current service cost 14 3 15 4
Benefits paid (72) (7) (56) (6)
Interest cost 53 10 48 8
Impact of new discount rate at year-end 2 1 -- 1
Plan improvements -- -- 19 --
Foreign currency exchange rate changes -- -- 5 2
Transfers to other plans -- -- (16) --
Other -- (1) -- --
--------------------------------------------------------------------- -----------------------------
Balance at end of year 835 172 814 142
Plan assets
Fair value at beginning of year 752 -- 790 --
Actual return on plan assets (18) -- -- --
Benefits paid (72) -- (56) (4)
Foreign currency exchange rate changes -- -- 5 4
Contributions 31 -- 30 --
Transfer to other plans -- -- (17) --
--------------------------------------------------------------------- -----------------------------
Fair value at end of year 693 -- 752 --
---------------------------------------------------------------------------------------------------
Funding surplus (deficit) (142) (172) (62) (142)
Unaccrued deficiency 131 45 66 17
----------------------------------------------------------------------------------------------------
Total accrued (liability) asset (notes 6 and 8) $ (11) $(127) $ 4 $(125)
====================================================================================================
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
16. EMPLOYEE FUTURE BENEFITS, CONTINUED
(b) Employee future benefits expense
=======================================================================================================
2002 2001
----------------------- ------------------------
OTHER OTHER
PENSION EMPLOYEE PENSION EMPLOYEE
BENEFIT BENEFIT BENEFIT BENEFIT
($ IN MILLIONS) PLANS PLANS PLANS PLANS
------------------------------------------------------------------------- ------------------------
Current service cost $ 14 $ 3 $15 $ 4
Interest cost 53 10 48 8
Expected return on assets (50) -- (51) --
Early retirement window -- -- 4 --
Amortization of unaccrued deficiency 2 1 -- --
---------------------------------------------------------------------------------------------------------
Net expense for the year $ 19 $14 $16 $12
=========================================================================================================
(c) Significant assumptions used
Discount rate 6.5%-7.0% 6.5%-7.0% 6.5%-7.0% 6.5%-7.0%
Expected long-term rate of return
on plan assets 7.5% 7.5% 7.5% 7.5%
Rate of compensation increase 1.0%-4.5% 1.0%-4.5% 1.0%-4.5% 1.0%-4.5%
17. COMMITMENTS AND CONTINGENCIES
(a) The company's hedging commitments at December 31, 2002 consist of the
following:
==============================================================================================================
2007 - MARKET VALUE
2003 2004 2005 2006 2009 TOTAL GAIN (LOSS)
------------------------------------------------------------------------------
($ millions)
GOLD (000's ozs)
Forward sales contracts 16 13 -- -- 131 160 US$(4)
Average price (US$/oz) US$340 US$350 -- -- US$350 US$349
Forward sales contracts 92 40 34 31 8 205 US$(8)
Average price (C$/oz) C$489 C$509 C$515 C$519 C$520 C$503
ZINC (million lbs)
Forward sales contracts 20 -- -- -- -- 20 NIL
Average price (US$/lb) US$0.37 -- -- -- -- US$0.37
POWER (MW.h)
Forward sales contracts 350,000 -- -- -- -- 350,000 NIL
Average price (US$/MW.h) US$36 -- -- -- -- US$36
US DOLLARS (millions)
Forward sales contracts 42 30 -- -- -- 72 NIL
Average exchange rate 1.59 1.60 -- -- -- 1.59
US DOLLARS (millions)
Forward collars 147 117 10 -- -- 274 US$(2)
Average upper limit 1.54 1.56 1.60 -- -- 1.55
Average lower limit 1.60 1.61 1.64 -- -- 1.60
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
17. COMMITMENTS AND CONTINGENCIES, CONTINUED
INTEREST RATE SWAPS
PRINCIPAL AMOUNT RATE SWAPPED RATE OBTAINED MATURING DATE UNREALIZED GAIN
($ MILLIONS) ($ MILLIONS)
---------------------------------------------------------------------------------------------
US$100 3.75% LIBOR minus 0.96% July 2006 US$7
US$50 7% LIBOR plus 2.43% September 2012 US$1
In addition to the above hedging commitments, the company has forward
purchase commitments on 186 million pounds of zinc at US$0.41 per
pound, maturing in 2003 to 2004, and 31 million pounds of lead
averaging US$0.22 per pound maturing in 2003, to match fixed price
sales commitments to customers.
Included in the gold hedge position are 259,000 ounces of floating
lease rate contracts having a built-in gold lease rate allowance of
2%. At December 31, 2002 the one-year lease rate was 0.65%.
(b) Teck Cominco Alaska Incorporated (TCAK), a subsidiary company, has a
royalty agreement with NANA Regional Corporation (NANA) on whose land
the Red Dog mine is situated. Under the terms of the agreement, NANA
receives an annual advance royalty equal to the greater of 4.5% of Red
Dog's net smelter return or US$1 million. After TCAK recovers certain
capital expenditures including an interest factor and all advance
royalties, the royalty will be 25% of net proceeds of production from
the Red Dog mine increasing in 5% increments every fifth year to a
maximum of 50%.
TCAK leases road and port facilities from the Alaska Industrial
Development and Export Authority through which it ships substantially
all ore concentrate produced at the Red Dog mine. The lease requires
TCAK to pay a minimum annual user fee of US$18 million, with fee
escalation provisions based on zinc price and annual tonnage.
TCAK has also entered into agreements for the transportation and
handling of concentrates from the millsite. These agreements have
varying terms expiring at various dates through 2010 and include
provisions for extensions. There are minimum tonnage requirements and
the annual fees amount to approximately US$8 million, with adjustment
provisions based on variable cost factors.
(c) See also note 5 which discusses the company's guarantee of its share
of the Antamina project debt.
(d) In October 1999, the Supreme Court of British Columbia dismissed a
lawsuit brought against Cominco and the trustees of its pension funds.
In the lawsuit, the plaintiffs claimed that a reorganization of
pension plans in 1986 was improper and $78 million (based on the
December 31, 1996 valuation; current valuation $120 million) should be
transferred back to Cominco's original pension plan from various
successor plans. The Court held that certain of the transfers were
proper and that the plaintiffs suffered no loss of benefits due to the
transfers. In January 2000, the plaintiffs appealed the decision. The
appeal was heard in June 2002. The court reserved judgment on the
appeal and it is not known when the court will render a decision.
(e) The company's operations are affected by federal, provincial, state
and local laws and regulations concerning environmental protection.
The company's provisions for future reclamation and site restoration
are based on known requirements. It is not possible to estimate the
impact on operating results, if any, of future legislative or
regulatory developments.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts and settlements receivable,
long-term receivables and deposits, other investments, accounts payable and
other liabilities represent their fair value. The carrying amounts and the
quoted market value of the company's equity investments and marketable
securities are disclosed in note 4.
The carrying amounts and estimated fair values of the company's other
financial instruments at December 31 are summarized as follows:
================================================================================================
2002 2001
---------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
($ IN MILLIONS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------------------------------------------------------------------------------------------
Convertible debentures $241 $228 $236 $230
Exchangeable debentures due 2024 107 153 107 161
8.7% debenture -- -- 199 199
6.875% debenture 237 245 239 235
Medium-term notes 31 31 44 45
7% debentures due 2012 312 310 -- --
Hedging commitments (note 17(a)) -- (9) -- (1)
-----------------------------------------------------------------------------------------------
The fair value estimates for the convertible debentures, the exchangeable
debentures due in 2024, the 8.7% debentures and the 6.875% debentures and
medium-term notes are based on quoted market prices at year-end. For
forward sale commitments, the estimated fair value is based on the market
value for the hedge instruments at the reporting date.
19. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
The effect of the material measurement differences between generally
accepted accounting principles (GAAP) in Canada and the United States on
the company's net earnings and shareholders' equity is summarized as
follows:
===================================================================================================
($ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001
---------------------------------------------------------------------------------------------------
Net earnings (loss) under Canadian GAAP $ 30 $ (21)
Add (deduct)
Inventory valuation (a) (6) (2)
Future income and resource taxes (b) - 7
Exchangeable debentures due 2024 and convertible debentures (c) (1) (1)
Share of earnings (losses) in Antamina project (d) 1 (12)
Unrealized holding gains (losses) on investments (e) -- 4
Deferred start-up costs (f) 2 3
Stock compensation expense (g) 5 (5)
Derivative instruments (h) 19 20
---------------------------------------------------------------------------------------------------
Net earnings (loss) before change in accounting principle 50 (7)
Derivative instruments - cumulative adjustment to opening balances (h) -- (26)
---------------------------------------------------------------------------------------------------
Net earnings (loss) under US GAAP before comprehensive
income adjustments to opening balances 50 (33)
Derivative instruments - cumulative adjustment to opening balances (h) -- (17)
Adjustments to arrive at comprehensive income (i)
Unrealized holding gains (losses) on investments (e) (26) 24
Cumulative translation adjustment (8) 51
Minimum pension liability (i) (28) (35)
---------------------------------------------------------------------------------------------------
Comprehensive income (i) $(12) $(10)
===================================================================================================
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
19. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE
UNITED STATES, continued
====================================================================================================
2002 2001
----------------------------------------------------------------------------------------------------
Earnings (loss) per share, before change in accounting principle
and comprehensive income adjustments
Basic $0.26 $(0.11)
Fully diluted $0.26 $(0.11)
====================================================================================================
($ IN MILLIONS) 2002 2001
----------------------------------------------------------------------------------------------------
Shareholders' equity under Canadian GAAP $2,520 $2,540
Cumulative adjustments to shareholders' equity
Inventory valuation (a) (9) (3)
Exchangeable debentures due 2024 and convertible debentures (c) (115) (117)
Share of losses in Antamina project (d) (11) (12)
Unrealized holding gains (losses) on investments (e) (2) 24
Deferred start-up costs (f) (8) (10)
Stock compensation expense (g) - (5)
Derivative instruments (h) (4) (23)
Minimum pension liability (i) (63) (35)
----------------------------------------------------------------------------------------------------
Shareholders' equity under US GAAP $2,308 $2,359
====================================================================================================
(a) Coal Inventory Valuation at Bullmoose Mine
Under Canadian GAAP, production inventories may be recorded at net
realizable value where there is a long-term contract for sale. US GAAP
requires such inventory to be valued at the lower of cost and market.
(b) Future Income and Resource Taxes
Under Canadian GAAP changes in tax rates are reflected in future
income taxes when they are "substantively enacted". Under US GAAP such
changes in rates are not reflected until enacted. As certain Canadian
rate reductions were not enacted at December 31, 2000, the impact of
using the substantively enacted rates has been excluded in the
determination of income under US GAAP, and has been included in income
in 2001 when the new rates were enacted.
(c) Exchangeable Debentures due 2024 and Convertible Debentures
Canadian GAAP requires that a portion of the convertible debentures be
classified as equity. The difference between the carrying amount of
the debentures and the contractual liability is amortized to earnings.
Similarly, the exchangeable debentures due 2024 have been classified
as equity with related interest being charged directly to retained
earnings. US GAAP would classify both debentures as liabilities and
interest would be charged against current period earnings.
(d) Share of Earnings (Losses) in Antamina Project and Commencement of
Commercial Production
US GAAP adjustments in respect of the company's share of earnings in
the Antamina project (note 5) arise mainly as US GAAP requires the
project to record operating profits and losses from newly commissioned
operations at the time the first product is shipped. Canadian GAAP
records gains and losses from the date commercial production
commences.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
19. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
STATES, continued
(e) Unrealized Holding Gains (Losses) on Investments
For US GAAP purposes, portfolio investments and marketable securities
are recorded on the balance sheet at fair values with unrealized gains
and losses for trading securities being included in income and for
available-for-sale securities in other comprehensive income. Portfolio
investments are reported at cost for Canadian GAAP purposes.
(f) Deferred Start-Up Costs
In Canada, certain mine start-up costs are deferred until the mine
reaches commercial levels of production and amortized over the life of
the project. Under US GAAP, these costs are expensed as incurred.
(g) Stock Compensation Expense
US GAAP requires that the change in value of Stock Appreciation Rights
be included in income. Canadian GAAP was aligned with US GAAP
effective January 1, 2002.
(h) Derivative Instruments
Under the supervision of its Risk Management Committee, the company
enters into forward sales contracts and other derivative instruments
for sale of its principal products and the currencies in which it
deals. The effect of these contracts is to reduce financial risk by
fixing the future price for these products and currencies. Under US
GAAP, such contracts, which do not result in the physical delivery of
the products, require any unrealized gains or losses on the
instruments at the statement date to be taken into income.
(i) Comprehensive Income
US GAAP requires disclosure of comprehensive income which is intended
to reflect all changes in equity except those resulting from
contributions by and distributions to shareholders. As a result, the
company is required to recognize a minimum pension liability in the
amount of the excess of the company's unfunded accrued benefit
obligation over the recorded pension liability; an offsetting
intangible asset is recorded equal to any unrecognized past service
costs, with any difference recorded as a change in other comprehensive
income.
(j) Financial Accounting Standards Board (FASB) Standards
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
It requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it occurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The company is analyzing the impact of SFAS No. 143
and will adopt the standard for the purposes of the U.S. GAAP
reconciliation note on January 1, 2003.
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
20. SEGMENTED INFORMATION
The company has six reportable segments: gold, zinc mines, zinc smelters,
copper, coal, and corporate. The corporate segment includes the company's
investment, exploration and development activities and the elimination of
inter-segment sales which are recorded at arm's length prices. Segments
include operations based upon the principal product produced.
========================================================================================================================
2002
---------------------------------------------------------------------------------------
ZINC ZINC CORPORATE INTER-
($ IN MILLIONS) SMELTERS MINES COPPER GOLD COAL AND OTHER SEGMENT TOTAL
------------------------------------------------------------------------------------------------------------------------
Revenues $ 914 $462 $277 $133 $463 $ 13 $(75) $2,187
Operating profit after
depreciation 35 (26) 32 20 116 4 2 183
Interest on long-term debt -- -- -- -- -- (67) -- (67)
Depreciation and amortization (47) (74) (50) (16) (12) -- -- (199)
Equity earnings -- -- 17 -- -- -- -- 17
Property, plant and equipment 1,299 1,044 534 85 144 287 -- 3,393
Total assets 1,606 1,533 603 100 243 873 -- 4,958
Capital expenditures 75 50 31 18 11 2 -- 187
========================================================================================================================
2001
---------------------------------------------------------------------------------------
ZINC ZINC CORPORATE INTER-
($ IN MILLIONS) SMELTERS MINES COPPER GOLD COAL AND OTHER SEGMENT TOTAL
-----------------------------------------------------------------------------------------------------------------------
Revenues $979 $516 $308 $227 $412 $14 $ (77) $2,379
Operating profit after
depreciation 244 (3) 39 35 87 (4) 4 402
Interest on long-term debt - - - - - (77) - (77)
Depreciation and amortization (43) (86) (51) (34) (11) (1) - (226)
Asset valuation writedowns - - - - - (169) - (169)
Equity earnings (loss) - - (1) - - - - (1)
Property, plant and equipment 1,240 1,141 556 90 157 114 - 3,298
Total assets 1,719 1,576 621 100 204 913 - 5,133
Capital expenditures 75 102 96 53 14 6 - 346
The geographic distribution of the company's property, plant and equipment
and external sales revenue is as follows, with revenue attributed to
regions based on the location of the customer:
===========================================================================================
PROPERTY, PLANT & EQUIPMENT REVENUES
($ IN MILLIONS) 2002 2001 2002 2001
------------------------------------------------------------------------------------------
Canada $1,475 $1,451 $337 $ 375
Australia -- -- 16 109
Latin America 642 576 128 187
United States 1,265 1,260 651 623
Asia -- -- 678 701
Europe -- -- 377 367
Other 11 11 -- 17
------------------------------------------------------------------------------------------
$3,393 $3,298 $2,187 $2,379
==========================================================================================
TECK COMINCO LIMITED
Notes to Consolidated Financial Statements
Years Ended December 31, 2002 and 2001
================================================================================
21. SUBSEQUENT EVENT
Subsequent to December 31, 2002, the company entered into an agreement with
Fording Inc. (Fording), Westshore Terminals Income Fund, Sherritt
International Corporation and Ontario Teachers Pension Plan Board to
combine the metallurgical coal assets of Fording, Luscar Energy Partnership
and the company. The company will contribute its Elkview mine, which has a
net book value of $171 million, and $125 million in cash to obtain a 35%
interest in the resulting partnership. This interest may be increased to
40% should the partnership meet certain earnings and efficiency targets by
March 31, 2007. The company will also pay $150 million for a 9.1% interest
in the Fording Canadian Coal Trust (FCCT), formed by the reorganization of
Fording into an income trust. FCCT will own the remainder of the
partnership and other assets. Accordingly, on closing, the company's direct
and indirect interest in the coal partnership will be 41% with the
potential of increasing to approximately 46%. Completion of the transaction
is subject to Fording shareholder approval and other conditions, including
receipt of regulatory approvals.
ANNEX A
TECK COMINCO LIMITED
MANAGEMENT DISCUSSION AND ANALYSIS AND FINANCIAL REVIEW - 2002
FINANCIAL SUMMARY
Net earnings for the year ended December 31, 2002 were $30 million, or $0.15 per
share, compared with a loss of $21 million or $0.17 per share in 2001. The loss
in 2001 was due to the recording of asset valuation writedowns of $122 million
on an after-tax basis. Net earnings before the writedowns were $101 million or
$0.69 per share in 2001.
Earnings in 2002 were affected by extremely low zinc and copper prices, which
averaged US$0.35 and US$0.71 per pound respectively compared with US$0.40 and
US$0.73 per pound in 2001. Offsetting the effects of low zinc and copper prices
were higher realized gold prices, which averaged US$314 per ounce compared with
US$282 per ounce in 2001, and higher coal prices which at an average price of
US$44 per tonne were 10% higher than a year ago.
Net earnings in 2001 of $101 million before writedowns included significant
profits from power sales, with a realized power price of US$174 per MW.h in 2001
compared with US$23 per MW.h in 2002.
Excluding Trail, which benefitted from significant power profits in 2001,
operating profit from all other operations in 2002 of $160 million was 11% lower
than the $180 million in 2001, with higher coal profits partially offsetting the
lower profits from zinc, copper and gold operations. The results from the
Antamina copper, zinc mine were included in equity earnings, and would have
added $36 million to operating profit for the year had the operation been
consolidated.
Cash flow from operations, before changes to non-cash working capital items, was
$201 million compared with $418 million in 2001. The higher cash flow in 2001
was due mainly to the significant profits from power sales, when Trail shut down
its metals operations from July to September to maximize power sales
opportunities.
Year-end working capital was $635 million, compared with $609 million at the end
of 2001. The cash balance at December 31 was $91 million compared with $101
million a year ago. Net debt (long-term debt less cash), excluding the
exchangeable debentures relating to Inco shares, was $868 million or 26% of net
debt plus equity, compared with net debt of $864 million or 25% of net debt plus
equity at the end of 2001.
FINANCIAL DATA
($ millions, except per share data) 2002 2001
- --------------------------------------------------------------------------------
EARNINGS AND CASH FLOW
Revenue $ 2,187 $ 2,379
Operating profit (after
depreciation) $ 183 $ 402
Earnings before asset
writedowns $ 30 $ 101
Net earnings (loss) $ 30 $ (21)
Cash flow from operations $ 201 $ 418
Earnings (loss) per share $ 0.15 $ (0.17)
CAPITAL EXPENDITURES AND INVESTMENTS
Capital expenditures $ 187 $ 346
Investments $ 18 $ 36
BALANCE SHEET
Cash $ 91 $ 101
Working capital $ 635 $ 609
Total assets $ 4,958 $ 5,133
Long-term debt $ 933 $ 1,005
Shareholders' equity $ 2,520 $ 2,540
Net debt to net debt
plus equity 26% 25%
Shares outstanding (millions) 184.5 184.5
RESULTS OF OPERATIONS
REVENUES
Revenues are affected by sales volumes, commodity prices and currency exchange
rates. Comparative data for each operation on production and sales as well as
revenues and operating profits are presented in the tables on pages 29 and 30.
Commodity prices and the Canadian/U.S. dollar exchange rate are presented in the
table on this page.
Revenues from operations were $2.2 billion in 2002 compared with $2.4 billion in
2001. Major decreases from 2001 included $49 million from the Cajamarquilla zinc
refinery which had a three-month shutdown in 2002, $34 million from the Sullivan
mine which closed in December 2001, and $93 million from gold operations with
the sale of the two Australian gold mines in October 2001.
SMELTING AND REFINING
Trail operated under a number of adverse conditions in 2002, with lower
treatment charges received on its smelting and refinery operations and lower
zinc premiums realized due to market conditions. Prices also declined for
certain specialty metals such as indium and germanium. Refined zinc production
was 269,000 tonnes compared with 168,100 tonnes in 2001 when operations were
shut down in the third quarter to maximize power sales opportunities. Trail
realized substantial profits from unusually high power sales in the previous
year, selling 1,159,000 MW.h at an average price of US$174 compared with sales
of 683,000 MW.h at an average price of US$23 in 2002. Operating profit from
Trail was $23 million in 2002, down significantly from $222 million in 2001 due
mainly to the reduced power profits.
Refined zinc output at Cajamarquilla was 92,900 tonnes in 2002 compared with
122,100 tonnes in 2001. The lower production was due to a three-month shutdown
of its operations from June to August of 2002 to help reduce market inventory.
Despite the reduction in output and sales and the operating losses incurred
during the shutdown, Cajamarquilla generated an operating profit of $12 million
compared with $22 million the year before.
ZINC MINING
The Red Dog mine produced 578,400 tonnes of zinc in concentrate in 2002 compared
with 517,700 tonnes in 2001. The higher production was mainly a result of higher
ore grades, as well as improved recovery rates as a result of the Value
Improvement Program completed in late 2001. The Red Dog mine recorded an
operating loss of $28 million in the year compared with a profit of $4 million
in 2001, mainly due to the lower zinc price which averaged US$0.35 per pound
compared with US$0.40 per pound in the previous year.
The Polaris mine shut down in early September after depleting its ore reserves,
and reclamation work is now being carried out. Production in 2002 was 78,600
tonnes of zinc in concentrate compared with 123,100 in 2001. The mine recorded
an operating profit of $2 million compared with $11 million in 2001 as a result
of the lower production and zinc price.
- ----------------------------------------------------------
REALIZED METAL PRICES 2002 2001
Zinc (US$/pound) 0.35 0.40
Copper (US$/pound) 0.71 0.73
Lead (US$/pound) 0.20 0.22
Gold (US$/ounce) 314 282
Coal (US$/tonne) 44 40
Canadian/U.S. exchange rate
(US$1 - Cdn$) 1.57 1.55
- ----------------------------------------------------------
COPPER MINING
The Highland Valley Copper mine (Teck Cominco 63.9%) produced 181,300 tonnes of
copper in concentrate in 2002 compared with 186,600 tonnes the previous year.
The mine contributed an operating profit of $35 million compared with $42
million in 2001, as a result of lower copper prices and a 14% reduction in
sales. The lower sales were due mainly to the timing of shipments and not
market-related.
The company's 22.5% share of Antamina's production was 74,400 tonnes of copper
production in 2002. The mine is currently equity-accounted and equity earnings
in 2002 were $17 million on an after-tax basis. Its results will be reflected in
operating profit and cash flow in 2003 when it achieves completion as defined in
the project loan agreement.
PRODUCTION AND SALES STATISTICS
PRODUCTION SALES
FOR THE YEARS ENDED DECEMBER 31 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------
REFINED METALS
ZINC Trail 269,000 168,100 275,300 156,000
(TONNES) Cajamarquilla 92,900 122,100 98,000 122,300
- --------------------------------------------------------------------------------------------
361,900 290,200 373,300 278,300
LEAD Trail 80,700 55,200 78,400 45,900
(TONNES)
SURPLUS POWER
(MW.H) Trail 683,000 1,159,000
MINE OPERATIONS
ZINC Red Dog 578,400 517,700 586,300 531,700
(TONNES) Antamina 51,900 12,600 56,300 7,000
Polaris 78,600 123,100 105,700 128,400
Louvicourt 5,000 4,500 5,000 4,500
Sullivan -- 72,600 -- 48,100
- --------------------------------------------------------------------------------------------
713,900 730,500 753,300 719,700
COPPER Highland Valley 115,900 119,300 114,900 133,800
(TONNES) Antamina 74,400 18,100 78,800 19,800
Louvicourt 11,200 12,900 11,200 12,900
- --------------------------------------------------------------------------------------------
201,500 150,300 204,900 166,500
LEAD Red Dog 107,900 95,300 113,000 83,100
(TONNES) Polaris 17,600 30,600 27,900 30,600
Sullivan - 31,600 -- 24,200
- --------------------------------------------------------------------------------------------
125,500 157,500 140,900 137,900
GOLD Williams 202,554 222,894 202,554 222,894
(OUNCES) David Bell 66,503 84,618 66,503 84,618
Tarmoola -- 143,290 -- 143,290
Carosue Dam -- 84,746 -- 84,746
By-product 16,142 17,559 16,420 17,559
- --------------------------------------------------------------------------------------------
285,199 553,107 285,477 553,107
COAL Elkview 5,547 5,517 5,517 5,399
(000'S TONNES) Bullmoose 1,342 1,154 1,100 1,154
- --------------------------------------------------------------------------------------------
6,889 6,671 6,617 6,553
NOTE: THE ABOVE PRODUCTION AND SALES VOLUMES REFER TO THE COMPANY'S SHARE.
PRODUCTION AND SALES VOLUMES OF BASE METAL MINES REFER TO METALS CONTAINED
IN CONCENTRATE.
SEGMENTED REVENUE AND OPERATING PROFIT AFTER DEPRECIATION
REVENUE OPERATING PROFIT
($ IN MILLIONS) 2001 2002 2001 2002
- ----------------------------------------------------------------------------------------------
ZINC Trail (including power sales) $ 769 $ 785 $ 23 $222
Cajamarquilla 145 194 12 22
Red Dog 382 376 (28) 4
Polaris 80 106 2 11
Sullivan -- 34 -- (18)
Inter-segment sales (75) (77) 2 4
- ----------------------------------------------------------------------------------------------
1,301 1,418 11 245
COPPER Highland Valley 251 282 35 42
Louvicourt 26 26 (3) (3)
- ----------------------------------------------------------------------------------------------
277 308 32 39
GOLD Williams 100 98 16 21
David Bell 33 36 4 8
Tarmoola -- 58 -- 2
Carosue Dam -- 35 -- 4
- ----------------------------------------------------------------------------------------------
133 227 20 35
COAL Elkview 387 337 92 70
Bullmoose 76 75 24 17
- ----------------------------------------------------------------------------------------------
463 412 116 87
OTHER 13 14 4 (4)
- ----------------------------------------------------------------------------------------------
TOTAL $2,187 $2,379 $183 $402
GOLD MINING
Gold production at both the Williams and the David Bell mines at Hemlo was
adversely affected by ground conditions in 2002 beginning early in the year. The
mines have taken measures to address the stability problems and had made
significant improvements by the end of the year. Combined gold production from
the two mines was 538,112 ounces compared with 597,878 ounces in 2001, of which
the company's share is 50%.
The average cash operating cost was US$222 per ounce compared with US$187 per
ounce a year ago, due to the lower production. The average realized gold price,
including hedging gains, was US$314 per ounce compared with US$282 per ounce in
2001. Operating profit from gold operations of $20 million was down from $35
million in 2001, due to the lower production caused by ground problems and the
sale of the Tarmoola and Carosue Dam gold mines in October 2001.
COAL MINING
Metallurgical coal production from the Elkview mine was 5,547,000 tonnes
compared with 5,517,000 tonnes in the previous year. With higher sales and a
higher average coal price of US$44 per tonne compared with US$40 per tonne a
year ago, operating profit from Elkview operations was $92 million, compared
with $70 million in 2001.
The Bullmoose mine produced 2,203,000 tonnes of coal in 2002 compared with
1,894,000 tonnes in 2001, of which the company's share was 61%. The increase was
due mainly to an acceleration of the production rate as the mine is scheduled to
mine out its coal reserve at the end of the first quarter in 2003. The company's
share of operating profit in 2002 was $24 million compared with $17 million in
2001 as a result of a higher coal price and lower operating costs.
OTHER EXPENSES
General, administration and marketing expense of $53 million decreased from $58
million in 2001 mainly as a result of reduced overhead costs following the
merger with Cominco.
Interest expense was $67 million in 2002 compared with $77 million in the
previous year. The lower interest expense was due mainly to lower interest rates
in the current year. In September 2002 the company issued US$200 million of
debentures due 2012 bearing an interest rate of 7%, replacing some lower
interest-rate revolving bank debts and resulting in a higher interest expense in
the fourth quarter compared with the first three quarters.
Exploration expense was $34 million in 2002, down significantly from $59 million
in 2001. The 2001 expense included the ongoing exploration programs of the two
pre-merger companies. Following the merger with Cominco, the exploration
activities were reorganized resulting in major reductions in 2002.
Included in the net amount of $7 million of other income were interest and
investment income totalling $29 million, including interest received on tax
refunds, offset by a reduction in the carrying value of investments of $22
million recorded at year-end. The latter relates to the company's holding of
17.4 million share in Sons of Gwalia Limited, the carrying value of which was
reduced from $86 million to $64 million.
Income tax expense of $5 million represents a net number for provisions of taxes
and recovery on losses in different jurisdictions. A reconciliation between
taxes calculated at the statutory rates and the actual tax provision as well as
other tax information is provided in note 13 of the financial statements.
EQUITY EARNINGS
The company accounts for its 22.5% investment in the Antamina project, which
commenced commercial production in the fourth quarter of 2001, on an equity
basis. Upon the project achieving "completion" as defined in the senior project
debt agreement, expected in the second quarter of 2003, the company will account
for the investment on a proportionate consolidation basis, presenting its share
of operating profit and cash flow on the same basis as other operations. Equity
earnings from the Antamina mine in 2002 were $17 million compared with an equity
loss of $1 million in the fourth quarter of 2001.
FINANCIAL POSITION AND LIQUIDITY
OPERATING CASH FLOW
Cash flow from operations, before changes to non-cash working capital items, was
$201 million in 2002 compared with $418 million in 2001. The higher operating
cash flow in 2001 was due mainly to the significant profits from power sales,
when Trail shut down its metals operations from July to September
of 2001 to maximize power sales at high prices. Operating cash flow of $70
million in the fourth quarter was the highest of the four quarters in the year,
with low gold production at Hemlo in the first two quarters, the shutdown of
Cajamarquilla from June to August and the maintenance shutdown of Trail in
August affecting the cash flow in the first three quarters.
Cash flow from operations, after allowing for the effect of changes in non-cash
working capital items, was $252 million. The reduction to non-cash working
capital items of $51 million was due mainly to inventory reductions.
INVESTING ACTIVITIES
Capital expenditures in 2002 were $187 million. Major expenditures included $65
million at Trail and $33 million on the Pend Oreille zinc project. The company
completed its funding of the construction of the Antamina project in 2002 with
capital expenditures of $26 million, which included the final payment made to
the Peruvian government. Other capital expenditures included $16 million at Red
Dog, $11 million at Elkview, $10 million at Cajamarquilla and $8 million on the
Pogo gold project.
FINANCING ACTIVITIES
In May 2002, the company repaid the US$125 million debenture on maturity by
drawing down the company's long-term credit facilities. In September, the
company issued US$200 million of 10-year 7% debentures. The net proceeds were
used to repay shorter-term revolving bank loans.
In April 2001 the company drew the remaining US$103 million (Cdn$165 million) of
the Cajamarquilla term loan facility. The funds, which were placed in a
restricted account, were repaid to the banks in May 2002 as a decision was made
not to proceed with the plant expansion in the near term.
The $80 million of short-term bank borrowings outstanding at the end of 2001
were repaid in the year.
CASH RESOURCES AND LIQUIDITY
At December 31, 2002, the company had a cash balance of $91 million and no
short-term bank borrowings. Net debt (total debt less cash), excluding the Inco
exchangeable debentures, was $868 million or 26% of net debt plus equity,
compared with net debt of $864 million or 25% of net debt plus equity at the end
of 2001.
When the investment in Antamina is proportionately consolidated, expected in the
second quarter of 2003, the company's share of the Antamina project debt of
US$281 million will be included in long-term debt. At the year-end, the company
had bank credit facilities aggregating $939 million in total commitments, 90% of
which mature in 2005 and beyond. Unused credit lines under these facilities
amounted to $879 million as the company has issued $60 million of letters of
credit.
OUTLOOK
EARNINGS AND CASH FLOW
Metal production forecasts for 2003 are summarized in the table on page 12. In
2003, the smelter and refineries at Trail and Cajamarquilla plan to operate at
full production rates. Zinc concentrate production
from the mines will decrease in 2003 due to the closure of the Polaris mine in
September 2002. This reduction is expected to be offset by an increase in zinc
production planned at Antamina. The Red Dog mine is expected to produce at full
production rates. Copper production from the Highland Valley Copper mine is
expected to decrease slightly in 2003 due to lower ore grades, while copper
production from Antamina in 2003 is expected to be similar to 2002. Gold
production from the Hemlo mines is expected to be at a level similar to 2002.
Despite the scheduled closure of the Bullmoose mine at the end of the first
quarter in 2003, the formation of the newly announced Coal Partnership is
expected to result in an increase to the company's share of metallurgical coal
production in 2003.
As discussed earlier, the results of Antamina will be proportionately
consolidated when the mine achieves completion, as defined in the senior project
debt agreement, which is expected in the second quarter of 2003. The new
accounting treatment will have no effect on net earnings, but the company's
share of revenues, operating profit, interest expense and cash flow in the
Antamina project will be added to the company's respective accounts. The
Antamina mine at current metal prices is expected to generate cash flow more
than sufficient to cover its senior debt repayments.
Unfavourable financial market conditions have resulted in reductions in pension
plan asset values in 2002 for the company's defined benefit pension plans. As
disclosed in the pension note (Note 16) of the financial statements, there was a
negative return of $18 million on plan assets in 2002 instead of an expected
return of $50 million based on actuarial assumptions. The reduction in pension
asset values will result in an increase in the company's funding and pension
expense with respect to the company's defined benefit plans in 2003, estimated
to be $9 million and $6 million respectively.
The company's earnings and cash flow are especially sensitive to zinc, copper,
gold and coal prices, and the Canadian/U.S. dollar exchange rate. The
accompanying table shows the impact on the company's earnings due to
fluctuations in metal prices and the Canadian/U.S. dollar exchange rate.
EARNINGS SENSITIVITY
(Based on 2003 plan, and before the effect of hedging)
IMPACT ON
AFTER-TAX
CHANGE EARNINGS
- ---------------------------------------------------
(Cdn$ millions)
ZINC US$0.01/lb $13
COPPER US$0.01/lb $3
GOLD US$10/oz $4
COAL US$1/MT $7
CDN$/US$ CDN$0.01 $8
Zinc and copper prices are expected to improve over 2002 levels due to improving
market fundamentals. There are no significant changes expected in metallurgical
coal markets in 2003.
To manage the risks of changing metal prices and the U.S. dollar exchange rate,
the company regularly reviews market movements and from time to time conducts
hedging transactions. The company's forward sales positions are summarized in
Note 17(a) of the financial statements.
DEVELOPMENT PROJECTS AND CAPITAL EXPENDITURES
On January 13, 2003, the company announced jointly with Fording Inc., Westshore
Terminals Income Fund, Sherritt International Corporation and Ontario Teachers
Pension Plan Board that an agreement was reached to combine the metallurgical
coal assets of Teck Cominco, Fording and Luscar Energy Partnership under a plan
of arrangement to form a new Coal Partnership (see page 7). Teck Cominco will
contribute $125 million and its metallurgical coal assets, including the Elkview
mine, for a 35% interest in the partnership and will be the managing partner.
Teck Cominco's interest in the partnership will increase by up to 5% if the
partnership achieves certain levels of operating synergies by March 31, 2007. In
addition, the company will invest $150 million for a 9.1% interest in the
Fording Canadian Coal Trust which will own the remaining 65% of the partnership.
Accordingly, the company's direct and indirect interest in the Coal Partnership
is 41% with the potential of increasing to approximately 46%. The new Coal
Partnership will be the world's second largest producer of seaborne
metallurgical coal with 25 million tonnes of annual capacity.
Construction of the Pend Oreille mine in Washington State is continuing with
start-up scheduled in the first quarter of 2004 (see page 25). Capital
expenditures in 2003 are estimated to be US$34 million and total project costs
remain on plan at US$74 million.
At the Pogo gold project in Alaska, the Preliminary Draft Environmental Impact
Statement issued by the EPA on August 29, 2002 is being reviewed by federal and
state regulatory agencies and native groups. It is anticipated that public
hearings will take place in the spring of 2003 with the final permits expected
to be issued in the fourth quarter of 2003. The project feasibility study is
being updated and will be finalized on receiving the key permits. If permitting
and development remain on schedule, the mine could commence gold production in
late 2005 (see page 25).
The company's 2003 capital expenditures are estimated to be $180 million,
excluding the company's share of capital expenditures in the new Coal
Partnership. Major expenditures include $34 million upgrading Trail's power
generation facilities, $31 million at Red Dog and $51 million on the Pend
Oreille project.
The company expects to finance the $275 million investment in the new Coal
Partnership with cash on hand and revolving bank credit facilities. The budgeted
capital expenditures will be funded by cash flow from operations.
CAUTION ON FORWARD-LOOKING INFORMATION
This annual report contains certain forward-looking statements within the
meaning of the UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
These forward-looking statements include estimates, forecasts, and statements as
to management's expectations with respect to, among other things, the size and
quality of the company's mineral reserves and mineral resources, future
production, capital and mine production costs, demand and market outlook for
commodities, and the financial results of the company.
These forward-looking statements involve numerous assumptions, risks and
uncertainties and actual results may vary.
Factors that may cause actual results to vary include, but are not limited to,
changes in commodity and power prices, changes in interest and currency exchange
rates, inaccurate geological and metallurgical assumptions (including with
respect to the size, grade and recoverability of mineral reserves and
resources), unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications or
expectations, cost escalation, unavailability of materials and equipment, delays
in the receipt of government approvals, industrial disturbances or other job
action, and unanticipated events related to health, safety and environmental
matters), political risk, social unrest, and changes in general economic
conditions or conditions in the financial markets.
These risks are described in more detail in the Annual Information Form of the
company. The company does not assume the obligation to revise or update these
forward-looking statements after the date of this document, or to revise them to
reflect the occurrence of future unanticipated events, except as may be required
under applicable securities laws.