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Marketing Strategy of Cominco Ltd.

Marketing Strategy of Cominco Ltd.

Discuss Marketing Strategy of Cominco Ltd. within the Marketing Management forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Statistics: Public Company Incorporated: 1906 as Consolidated Mining & Smelting Company of Canada, Ltd Employees: 4,142 Sales: C$1.64 billion (1999) ...

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Marketing Strategy of Cominco Ltd.
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Anjali Khurana
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Marketing Strategy of Cominco Ltd. - December 15th, 2010

Statistics:
Public Company
Incorporated: 1906 as Consolidated Mining & Smelting Company of Canada, Ltd
Employees: 4,142
Sales: C$1.64 billion (1999)
Stock Exchanges: Toronto New York
Ticker Symbol: CLT
NAIC: 212231 Mining Lead-Zinc Bearing Ores; 212233 Mining Copper Bearing Ores; 331410 Smelting and Refining of Nonferrous Metals (Except Aluminum); 325313 Fertilizers, Chemical and Manufacturing


Company Perspectives:

We are committed to achieving above-average returns for our shareholders through improvements to existing operations, strategic acquisitions and divestitures; promoting the health and safety of our employees: protecting the environment; and contributing positively to the sustainable future of the communities in which we operate.


Key Dates:

1902: Cominco's predecessor builds the world's first electrolytic lead refinery at Trail, British Columbia.
1906: The Consolidated Mining & Smelting Company of Canada Limited is incorporated as a subsidiary of the Canadian Pacific Railway Co. Inc.
1909: The Sullivan mine begins production under Cominco's ownership.
1925: Company pioneers aircraft prospecting in the Northwest Territories.
1931: Company initiates fertilizer production plants as a pollution control measure at the Trail mine.
1944: Company completes the Brilliant Dam in British Columbia to supply electricity for wartime production.
1961: Cominco American discovers the Magmont lead deposit in Missouri.
1966: Company name is changed to Cominco Ltd.
1977: Cominco initiates a 20-year, C$1 billion dollar project to modernize the Sullivan Mine and Trail Operations.
1986: Teck Corporation acquires significant stake in Cominco Ltd. from Canadian Pacific.
1996: Cominco celebrates its 90th anniversary.


Company History:

Incorporated in Canada in 1906, Cominco Ltd. has emerged as a leading integrated zinc and copper producer. With mines in Canada, the United States, Chile, and Peru, Cominco is the world's largest producer of zinc concentrate as well as the fourth-largest zinc metal refiner. Additionally, Cominco produces lead, silver, gold, germanium, and indium. The company's head office is situated in Vancouver, British Columbia, Canada, while it oversees subsidiaries worldwide. Teck Corporation is the largest single shareholder with 44 percent of Cominco's Common Shares.

The Beginning: 1850--1900

Cominco's history reaches back to the Gold Rush in the second half of the 19th century. Thousands of placer prospectors flocked to the unexplored wilderness that was later to become the Province of British Columbia. (Placer refers to a gravel deposit containing particles of gold). Although the Gold Rush ended after ten years, it hastened the proclamation of the Colony of British Columbia in 1858 and influenced the development of trails throughout the region.

The newly created trails made it possible for the remaining prospectors to move further afield. Before long, placer gold was discovered in various parts of the Kootenay region in southeastern British Columbia. Soon after, steamboat service along the upper Columbia River made it easier for miners, prospectors, and others to reach the area.

Despite these transportation enhancements, mining activity was limited until the coming of the railways 20 years later. It was difficult to move the heavy, bulky ore mined in the Kootenays to the early smelters that were situated in the U.S. states of Montana and Washington. It was clear that cheap railway transportation was the key to success. In 1871, the Canadian government commissioned the Canadian Pacific Railway (CPR) to build a railway across Canada. To the south, the United States was developing a similar national railway system.

From 1875 to the beginning of the new century, no new gold fields were discovered in British Columbia, and gold mining was soon surpassed by silver, lead, and coal mining. Mining companies desperately awaited the coming of railway transportation to the Kootenay mines, but the wait was a long one. According to 'The Cominco Story,' published in the company periodical The Orbit in June 1988, both the Canadian and U.S. national railways were riddled with corruption and scandals leading to inevitable delays in construction. These delays lead to an influx of competing spur lines and affiliated businesses coming in from the United States. This competition ultimately resulted in the CPR acquiring a company that was later to become Cominco Ltd.

In 1891, the U.S.-owned Le Roi Mining & Smelting Company set the wheels in motion by deciding that the mines near Rossland, British Columbia, required a local smelter. The company enlisted the aid of Fredrick Augustus Heinze, a U.S. promoter, gambler, and visionary whose credentials included building a smelter in Butte, Montana. During the four years of Heinze's involvement, he succeeded in building the smelter at Trail, British Columbia, and in transferring control of the mines and utilities from American to Canadian and British interests. In 1896, Heinze incorporated his new company, British Columbia Smelting and Refining Company Limited, in the State of New Jersey. Due to Heinze's propensity for deal making, his business interests now included the smelter, mining interests, railway lines, railway charters, and associated land grants.

A year later, Heinze put the company up for sale. The CPR had no interest in the mines and mining activities but desperately wanted control of the railway lines that Heinze owned. However, the sale was a package deal. The CPR hired Walter Hull Aldridge, a smelter manager from Montana, to negotiate with Heinze on their behalf. Under Aldridge's leadership, the CPR bought Heinze's company, including the mining interests that proved to be a source of profit for the next 88 years.

After Aldridge took over in 1898, the smelter was known as the Canadian Smelting Works and was officially owned by the British Columbia Southern Railway, a CPR subsidiary. Canadian Smelting Works later became the Consolidated Mining and Smelting Company of Canada, Limited, which was renamed Cominco Ltd. in 1966.

Early Growth: 1900--35

Within two years, Aldridge had doubled the smelter's capacity, the CPR had improved its rail facilities, and other railway companies had built track providing the first rail connection for mines in the region. By 1901, Aldridge had installed three lead blast furnaces that were supplied with custom ore from the surrounding mines. The bullion was shipped to San Francisco for refining, then the refined lead was sold in Eastern Canada and the Far East. This represented the company's first move overseas.

In time, Aldridge negotiated with CPR executives and with the owners of the mines that supplied ore to the smelter to join the mines and smelter into one company with one management. In 1906, The Consolidated Mining and Smelting Company of Canada, Limited was incorporated as a subsidiary of the CPR.

In 1908, Consolidated leased the Sullivan Mine in East Kootenay. The Sullivan was a rich source of lead, silver, and zinc, but had been unprofitable to operate, as there was limited need for zinc, and the ore was a complicated mixture of minerals that was difficult to smelt. Anticipating that the metallurgical problems could be solved, Aldridge looked for solutions. By 1910, the Sullivan had become the largest source of lead in Canada. In 1913, Consolidated obtained complete ownership of the Sullivan, a mine that was to become the company's mainstay for years to come.

Relying on a slow and expensive method of hand picking, the mines could produce 50 tons of lead a day by 1916. The zinc-rich ore fragments were regarded as waste. However, World War I created a need for zinc for munitions. Consolidated contracted with the Imperial Munitions Board to produce 35 tons of zinc daily. Production costs were high, and Aldridge knew that in postwar years, the cost would be prohibitive. Consequently, Consolidated hired Randolphe 'Ralph' William Diamond, a prominent metallurgist from Ontario, to head up the company's milling operations and to conduct testing on the Sullivan ore. Diamond developed a process that permitted use of lower-grade ore and simplified hand sorting. The plant expanded to handle 600 tons daily.

Shortly after, Diamond developed 'differential flotation,' a process that would have an impact on the entire industry. Differential flotation allowed minerals to 'float' by sticking to bubbles formed in certain mixtures of chemicals and oils. The bubbles formed a surface froth, which could then be skimmed off, separating the mineral from the rest of the mixture. This process indicated a major step for Consolidated. The company could now mine the Sullivan on a worldwide scale. By 1923, the company had built a new concentrator near Kimberley, British Columbia. By 1924, the lead output had risen by 64 percent. Consolidated's general manager, S.G. Blaylock, wrote in the 1924 Annual Report: 'The year just past has been one of more than ordinary importance in the life of the Company.'

By the latter part of the decade, environmental pollution became a concern. Emissions of sulphur dioxide (SO2) contaminated the valley and extended to lands along the Columbia River in Washington State. Damage to vegetation and land was severe. In 1927, an International Joint Commission assessed damages at $350,000. Additional damages of $78,000 were awarded in 1941. To prevent further damage, Consolidated explored alternative uses for sulphuric acid, which it was producing in small quantities from the SO2. This led to the development of chemical fertilizers and to diversification into a new business. Also during this time, Consolidated contracted to purchase phosphate rock from a company in Garrison, Montana, the first step towards acquiring an American subsidiary company.

Consolidated's operation was suitable for producing fertilizers that could be used in the Canadian Prairies and marketed to other countries. By 1930, three sulphuric acid plants were operating and construction of a fertilizer complex had started. The fertilizers were marketed under the name Elephant Brand.

On October 29, 1929, the stock market crash heralded the Great Depression, and during that time there was limited market for fertilizers. Thus, Consolidated looked for other uses for the gases. It developed a process to manufacture elemental sulphur by the reduction of sulphur dioxide with coke. This process continued until 1943. Consolidated curtailed some of its activities during the Great Depression, including exploration, marketing, and sales efforts in fertilizers. By 1935, it was evident that grain growing could not continue without the use of fertilizers, and Consolidated again turned to the Prairie fertilizer market.

Exploration and Expansion: 1930--45

In the third decade of the 20th century, Consolidated entered a period of exploration. Interest in northern exploration lead to the establishment of an aviation service to transport personnel and supplies to properties in northern Canada. Cominco's air service was one of several regional services that were later consolidated to form the Canadian Pacific Airlines.

Much of the northern exploration enjoyed only limited success. As S.G. Blaylock, the company's general manager once remarked, 'Three things are necessary to find a mine: brains, guts and luck.' During the 1930s and 1940s, Consolidated worked a number of gold mines across Canada. However, only the Con in the Northwest Territories proved to be a winner. The Con became the first gold mine that went into production in the Northwest Territories, and it was a profitable source for 50 years until it was sold in 1986. Further exploration lead to the discovery of the Campbell Shear Zone that came into production in 1956.

As the century progressed, sophisticated mining technology, combined with changing needs, made it profitable to mine various other minerals. During World War II, Allied requirements led to opening two new mines in British Columbia to provide tungsten for armor-piercing shells and to provide coal for the smelter in Trail. Increased need for mercury, used in bomb detonators, led to the operation of the Pinchi mine. The Pinchi was later closed but remained a Cominco property.

During World War II, Cominco contracted with the British Government to supply zinc and lead. Later, because of its experience in fertilizer production, Consolidated acquired authorization to build nitric acid and ammonium nitrate plants near Calgary, Alberta. Nitric acid and ammonium nitrate were used in explosives. While the plants were being constructed, a new explosive was developed that did not require ammonium nitrate. Consolidated consequently switched the plants over to the production of fertilizer grade nitrogen. In making the transition, Consolidated developed a new means of prilling ammonium nitrate that had a worldwide impact on the industry. (Prilling is the process of atomizing and cooling molten liquids to form a bead).

In 1942, Consolidated was selected to produce large quantities of heavy water required for the war effort. Heavy water, consisting of two deuterium atoms instead of two hydrogen atoms, was thought to be useful in the control of neutron particles resulting from atomic fission. Consolidated was chosen because it already had an electrolytic hydrogen plant, a natural concentrator of heavy water. The company shipped 100 pounds of heavy water a month to Ohio. In 1945, the plant began supplying heavy water to a uranium facility owned by the Canadian government. Also that year, Consolidated mourned the death of S.G. Blaylock, general manager and later chairman of the company.

Postwar Years: 1945--80

The postwar years proved to be the most active of Consolidated's history. Technological advances made it possible to operate previously unprofitable mines, such as the Bluebell lead-zinc mine. The Bluebell became the largest lead-zinc mine in the province and remained operational for 20 years. Other major Consolidated mines going into operation during this time included the H.B. zinc-lead mine at Salmo, British Columbia, and the Pine Point zinc-lead mine in the Northwest Territories.

Beginning in the 1950s, Consolidated branched out aggressively into new domestic and international markets. The Canada Metal Company (a lead fabricating firm) and National Hardware Specialties Limited (a die casting company) were among the best-known operations. In 1962, Consolidated and the company's agents in Calcutta formed Cominco Binani Zinc Ltd. to build an electrolytic zinc smelter and refinery and a sulphuric acid by-product plant in southern India. Cominco Binani Zinc Ltd. experienced difficult beginnings, due to local and international economic conditions but would ultimately reach full production in 1969. In 1964, Consolidated and Mitsubishi Metal Mining Company in Japan joined to construct a lead smelter to be supplied with concentrates from Cominco operations. More than one million tonnes [a unit of metric measurement similar to an Imperial ton] of lead concentrate had been shipped to Mitsubishi Cominco in the late 1990s. Also in 1964, Consolidated acquired Western Canada Steel Limited, which would be a part of its family until 1988 when Consolidated restructured and sold the company.

In 1966, Consolidated established Cominco American Incorporated. The American subsidiary had its roots in Montana Phosphate Products Company (MPP), a small company that had been supplying phosphate rock to Trail. MPP obtained phosphate leases in the area and also discovered a lead deposit with zinc and copper at Salem, Missouri. After incorporation, Cominco American combined with another Cominco venture, Cominco Products Inc., bringing all of the company's mining, exploration, and fertilizer activities together in the United States.

Also in 1966, Consolidated began exploring opportunities in Australia. The company first established the Cominco Australian Pty Ltd. as a holding company with Cominco Exploration Pty Ltd. as a wholly-owned subsidiary. Later, in 1971, Cominco would obtain an interest in Aberfoyle Ltd., an Australian mining company. By 1977, Cominco had reorganized Aberfoyle's many small companies under the umbrella of Aberfoyle Limited.

Other international explorations and operations included activities along the Iberian Peninsula, resulting in a 47 percent interest in Exploración Minera International (España) S.A. Later, Cominco teams discovered zinc-lead-copper deposits in north central Spain.

In 1968, Consolidated, having officially changed its name to Cominco Ltd., along with Canadian Pacific Investments Ltd. formed Fording Coal Limited to develop coal deposits near in southeastern British Columbia. Cominco sold its interests to Canadian Pacific in 1985.

Turbulent Times: 1980--90

For Cominco, th 1980s was a period of economic turmoil, riddled with gains and losses, the startup of new operations, and the closure of others&mdash well as a change in majority ownership. The slumping U.S. economy resulted in a gigantic drop in Cominco's net earnings in 1980 and 1981. High interest rates combined with a reduced demand for consumer goods led to lowered prices for metals. In 1982, the company recorded its first loss since 1932. The situation worsened; by the end of 1985, Cominco was more than C$1.0 billion in debt.

Still, there were triumphs. In 1984, the company completed the first phase of the Trail modernization program, initiated in 1977. This included construction of the world's first zinc pressure leaching plant and a new lead smelter feed plant. Operations commenced at three new mines: the world's northernmost mine, the Polaris zinc-lead mine in the Northwest Territories; the Highland Valley Copper mine (50 percent interest), a mine which has become the second largest copper mine in the world; and Buckhorn open pit gold mine in Nevada. The most significant event of the decade, however, was widely regarded as the production of the Red Dog mine in Alaska. An engineering triumph, the mine was and remained one of the world's largest zinc-lead mines.

To reduce debt, Cominco sold its interest in a number of non-core assets and mines, including the Con gold mine, Cominco's first mining operation in the north. At the same time, Cominco's parent company, the Canadian Pacific Railway, sold its 52.5 percent stake in Cominco. Nunachiaq Inc., a holding company for a consortium comprised of Teck Corporation, Metallgesellschaft AG, and M.I.M. Holdings Company purchased 29.5 percent interest. The remaining shares were sold publicly. By 1987, Cominco was in the black and by 1988, debt was down to C$344 million.

Better Times: 1990s and Beyond

The 1990s ushered in a period of prosperity. In fact, the year 1990 saw the discovery of two new depositions: the drill hole hit mineralization at the Cerattepe copper-gold deposit in Turkey and the Pebble copper-gold deposit in Alaska. In 1994, Quebrada Blanca copper mine began production, and the Kudz Ze Kayah zinc deposit was discovered in the Yukon. A year later, in 1995, Cominco found major new ore reserves at Red Dog. CESL Engineering announced a breakthrough in copper and nickel hydrometallurgy, and the company bought the Cajamarquilla zinc refinery in Peru. In 1996, as Cominco celebrated its 90th birthday, the company commenced a production rate increase project at Red Dog.

In 1998, net profits dipped, but the following year Cominco enjoyed consolidated net earnings of C$159 million, a C$182 million improvement over the previous year. Trail, Cajamarquilla, Red Dog, Polaris, and Quebrada Blanca mines achieved record production, while zinc contained in concentrate rose to a new record of 728,000 tonnes of zinc. In 1999, Cominco Ltd.'s operations in British Columbia won two civic awards and one award for mine safety. Cominco Ltd. commenced the new millennium in a position of strength and stability.

Principal Subsidiaries: Cominco Engineering Services Ltd.; Highland Valley Copper (50%); Cominco American Inc.(United States); Cominco Alaska Inc.(United States); Glenbrook Nickel Company (United States); Lake Minerals Corporation (United States); Minera Cominco Chile Ltda (Chile); Cia, Minera Constelación, S.A. de C.V. (Mexico); Cominco Madençilik Sanayai A.S. (Turkey); Cominco (Peru) S.R.L. (Peru); Refinería de Cajamarquilla S.A. (Peru; 82%).

Principal Operating Units: Red Dog Mine; Trail Operations; Sullivan Mine; Polaris Mine; Refinería de Cajamarquilla.

Principal Competitors: Inco Limited; Noranda Inc.; WMC Ltd.
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