Falconbridge Dominicana this year celebrates its 50th anniversary as one of the oldest foreign industrials established in the Dominican Republic. The Canadian mining company Falconbridge, the world’s third biggest producer of nickel and number six in copper production, sent its geologists to the country in 1955 to explore for nickel.
“We were extremely interested in the country’s large nickel reserves and in 1965 we were issued the first ever mining exploration licence,” says the company’s president and general manager Sergio Chávez.
Falconbridge Dominicana was incorporated with 85% of the company’s capital owned by the Canadian parent, 10% in Dominican government hands and 5% owned by the US mining group Red Stone. The company set up a unique arrangement with the Dominican Republic, under which Falconbridge pays the government 50% of its pre-tax profit each year in exchange for tax-free status. “This was one of the instruments that has given a boost to foreign investment in the country and other companies, such as Verizon, have come in under this arrangement,” says Mr Chávez.
The Canadian mining group Placer Dome is said to be seeking a similar agreement with the government. Falconbridge initiated production in 1972 and today the company operates seven ore deposits with a total output of 28,000 tonnes per year. Proven and calculable reserves last year amounted to 57.4m dry tonnes. The indicated mineral resources were 13.8m dry tonnes and inferred mineral resources were 6.4m dry tonnes. The production plant is currently operating at full capacity and last year its sales accounted for 2.6% of the Dominican Republic’s GDP, with exports amounting to $400m.
The company can be considered highly successful after half a century in business. Last year the average metal price received was 49% higher than in 2003. Net profit rose substantially to $77.4m in 2004, compared with $26.7m in 2003. Chief export markets are Japan, Korea, Europe and the US. “We invest some $20m each year in our business and the current value of the company’s metallurgic plant is $2bn,” says Mr Chávez.
Falconbridge is a large-scale operation, moving 45,000 tonnes of earth per day, with a staff of 2000. Most of these are specialists, whom Mr Chávez rates as highly skilled. “When the plant went on-stream in 1970 we had 350 expats working here, while this has now been reduced to four. Most of the staff are employed as engineers and mainly trained in the Dominican Republic,” he says.
Given the strong international demand for nickel, Falconbridge is looking to increase its output by 25% in the next two years, which will require an $80m investment. Last year’s nickel production was 65m pounds, or 5.5% more than the budgeted output. This surplus was principally due to the rental of 45mw of power during May and August, avoiding production losses associated with scheduled generator shutdowns. The plant also operated on a highly efficient basis, as the benefits of recent process control initiatives, capital expenditure and Six Sigma projects were delivered.
Energy well spent
Mr Chávez considers the Dominican Republic an attractive investment centre, while acknowledging the country’s problems, such as the energy crisis. Some 70% of the company’s costs are energy-related, so this is a critical matter which Falconbridge has addressed by installing its own back-up energy system. “My recommendation is that if an investor has enough capital, it is worthwhile spending on energy supply facilities,” he says. “Any excess electricity can be injected into the grid and sold in the spot market.”
Mr Chávez says that one of the main advantages of investing in the Dominican Republic is the country’s skilled labour force and competitive salary structures.
“The government provides generous incentives and there is an abundance of natural resources,” he says. “One of the handicaps is the inadequate infrastructure, as the country does not have a mass transport system or low-cost railways. The transport issue can often be influenced by political factors. However, this mentality is gradually being overcome and people in the administration are showing a greater interest in the country’s well-being than in political issues. This is an important factor in instilling investor confidence.”