BUSINESS WATCH

An ambitious venture in Alaska

Peter C. Newman August 24 1987
BUSINESS WATCH

An ambitious venture in Alaska

Peter C. Newman August 24 1987

An ambitious venture in Alaska

BUSINESS WATCH

Peter C. Newman

Some of the heaviest construction equipment ever assembled north of the Arctic Circle begins moving this month into an unnamed inlet on the Chukchi Sea just south of Kivalina, halfway up the forbidding desolation of Alaska’s northwest coast. The assembled crews will begin building a road through treeless hills of permafrost to a site 85 km inland, where Vancouver’s Teck Corp. will develop the world’s largest zinc ore body.

Proven reserves at the Red Dog Mine (named after the spaniel who happened to be the only passenger of the bush pilot who first spotted the ore outcrops in 1968) are so massive that London’s authoritative Economist has already predicted that its owners could form their own version of an OPEC cartel to control world zinc prices. Teck president Norman Keevil Jr. denies such aspirations but admits that after the new ore body is brought on stream, his company will control at least 15 per cent of world zinc supplies. “Red Dog is the kind of mine you build major companies on,” he told me, comparing it with the Sudbury lode’s importance to Inco. “It’s one of the world’s great mineral deposits—85 million tons of 22-per-cent zincand lead-bearing ore—enough for 50 years.”

A partner in the venture will be a corporation representing local Inuit interests which, under the Alaska Native Claims Settlement Act of 1974, hold undisputed ownership of the land on which the open-pit operation will be developed. Teck is already paying the Inuit advance royalties of $1.3 million a year and, after recouping its $560-million capital investment, will cut them in for an initial 25 per cent and an eventual 50 per cent of Red Dog’s profits. That was the condition under which the mine and its essential road to tidewater, some of which runs through a national park, could go ahead. The agreement also empowers Inuit councils to halt operations for three weeks at a time if trucks on the port highway threaten to disrupt caribou migrations.

Teck acquired rights to exploit the Red Dog lode as part of its purchase of control late last year of Comineo Ltd., the CPR’s former mining arm. Under the railway’s auspices the project had been languishing because management was too nervous about depressed metals prices, and the company’s crushing debt load wouldn’t allow massive com-

mitments of new capital expenditures. Within weeks of its acquisition of Comineo, Teck decided to move ahead on Red Dog, advancing its production date to 1991 or even 1990.

That reverse takeover of a Canadian giant by a West Coast upstart less than a quarter its size was a classic. Jim Pitblado at Dominion Securities had first approached Keevil with the idea when he heard that the CPR was anxious to spin off its Comineo operation, which

has lost roughly $250 million over the past two years, yet required the infusion of more capital funds. Keevil and his financial team eventually put together an offer that included acquisition of a controlling stock position of 30 per cent, bringing in two partners (Metallgesellschaft AG of West Germany and MIM Holdings of Australia) to share the financial burden. The net effect of these and other manoeuvres was to reduce the cash burden from a potential $300 million to just over $100 million, and much

of that was offset by a subsequent Teck share and warrant issue.

What Keevil got in return was not only a conglomerate of 15 operating mines and two smelters but two major properties, apart from Red Dog, close to the production stage: another zinc deposit in Australia, called the Hellyer mine; and the Highland Valley mine in British Columbia, which could become North America’s lowest-cost producer of copper. Also, the timing of the acquisition was such that Red Dog ore supplies will dovetail into Cominco’s smelter schedule, as its Pine Point ore deposit is phased out later this year and the Sullivan mine is closed a decade from now. Meanwhile, Keevil has further reduced Cominco’s debt load by selling off West Kootenay Power & Light to a Missouribased electrical company. Previous sales included that of the Fording coal operation in British Columbia for $87 million and the earlier divestiture of the Con gold mine for $64 million.

Teck itself has been suffering from high debt problems, coming off three years of losses on asset sales and writedowns. Still, working capital ratios have improved recently and long-term debt is down to a manageable $110 million. Keevil has embarked on another major debt reduction at Comineo, mainly through stock issues.

Since 1972, when the Keevils, father and son, moved their head office to Vancouver from Toronto, the market value of Teck’s issued stock has jumped to more than $1 billion from $26 million, at least some of it gained by their onetime favorite habit of dividend stripping. As well as its seven mines spread from Newfoundland to the Yukon, Teck is currently a major player in the Hemlo goldfields, as a partner with Corona Resources in a mine in an area said to contain 11 million ounces of gold.

Keevil’s father, Norman Sr., who admits to being at least 72, remains Teck’s chairman and is probably a good symbol of the company’s enduring determination. At the annual hockey game for which the Keevils rent Toronto’s Maple Leaf Gardens every year during the Prospectors and Developers Association’s annual meeting, the prospectors’ team was beaten 8-7, with usually high-scoring Norman Keevil Sr. held to two assists. “He skates a bit like Frank Mahovlich,” says Keevil of his father. “He just cruises around the goal and people tend to feed him the puck. He could still be going at 100.”