Noranda profits grow

Stronger metal prices enabled Noranda (NOR-T) to overcome hefty unusual costs and to end 2000 substantially richer than it began.

The major earned $293 million (or $1.14 per share) on sales revenue of $7 billion, compared with $186 million (70 per share) on $6.5 billion in 1999. Recent earnings were reduced by $113 million as a result of higher energy costs, lower acid prices and a strike at the Sudbury, Ont., operations of subsidiary Falconbridge (FL-T); however, the loss was partially offset by a net gain of $54 million, owing to a failed takeover attempt of Rio Algom last fall and a change in Ontario’s mining tax laws.

Earnings in the three months ended Dec. 31 topped $71 million (27 per share) on $1.6 billion, compared with $89 million (36 per share) on $1.8 billion a year ago. The problems noted above continued in the recent period, as did operational difficulties in the company’s automotive wheel business.

“Looking ahead to 2001, our outlook is cautious,” says President David Kerr. “Energy costs will probably remain high, the Falconbridge strike continues, and metal prices could be soft, at least certainly for the first part of the year.”

Except for ferronickel, Noranda’s mine production volumes were down in 2000: 436,000 tonnes zinc (compared with 455,000 tonnes in 1999); 304,000 tonnes copper (367,000 tonnes); 46,000 tonnes nickel (55,000 tonnes); 28,000 tonnes ferronickel (24,000 tonnes); 71,000 tonnes lead (79,000 tonnes); and 9.7 million oz. silver (12 million oz.). Fabricated aluminum production was also down, at 142,000 tonnes (versus 149,000 tonnes).

At year-end, Noranda’s pretax operating margin improvements were tallied at an annualized rate of $184 million. The program is compared to a 1997 base.

Noranda’s cash-and-equivalents position declined by $64 million to $663 million at year-end. Working capital remained flat at $1.8 billion, though the company’s debt-to-capitalization ratio rose to 33.5%.

Noranda invested another $1.3 billion in various projects last year, of which Falconbridge covered one-fifth. The subsidiary will cover just under half of the $2.1 billion budgeted for this year and the next.

In 2000, the biggest ticket items were the Antamina copper-zinc project in Peru ($402 million), the Magnola magnesium plant in Quebec ($208 million) and the Norandal aluminum foil plant in Tennessee ($196 million). Norandal produced its first roll of foil in September and is now operating at its design capacity of 100,000 tonnes.

Ahead of schedule and within budget, Antamina is now slated to begin production in June instead of August. Commercial production should follow in January.

Proven reserves stand at 313 million tonnes averaging 1.3% copper, 1.06% zinc, 0.03% molybdenum and 14.13 grams silver per tonne, whereas probable reserves are pegged at 246 million tonnes grading 1.15% copper, 0.99% zinc, 0.028% moly and 13.71 grams silver.

The reserves are sufficient for 20 years of production at projected rates of 600 million lbs. copper and 360 million lbs. zinc, plus byproducts. At these rates, Antamina ranks as the world’s seventh-largest copper producer and third-largest zinc producer. Antamina is shared between Noranda, with a 33.75% interest, Billiton, with 33.75%, Teck (TEK-T), with 22.5%, and Japan’s Mitsubishi. Billiton acquired its interest through the takeover of Rio Algom.

Magnola, though behind schedule and over budget, expects to flick the switch on the remaining 12 of its 24 electrolytic cells by mid-year. Impurities passing through the leaching process are affecting current flows in the chlorinator and hence hindering throughput rates.

“The cost-overrun is really a commissioning cost,” says Aaron Regent, Noranda’s chief financial officer. “We’ve had lots of experience introducing new technology on a small scale, but this is our first attempt on a massive scale.”

In 2001, Magnola is expected to crank out 30,000 tonnes of magnesium metal, or just under half its capacity. The production will be sold to Europe instead of the U.S., where anti-dumping laws require a deposit that is based on average unit costs. Capital costs are now expected to top $840 million, or 15% more than predicted. Combined with lost revenue from a recent drop in metal prices, the project’s return on investment has been reduced to 10% from 12%.

By year-end, Noranda expects to have completed feasibility studies at two projects: Lady Loretta, in Australia, and Perseverance, in Quebec. The company holds a 75% interest in the former and a 100% interest in the latter.

Resources at Lady Loretta are pegged at 13.6 million tonnes grading 17.1% zinc, 5.9% lead and 97 grams silver.

At Perseverance, Noranda is focusing on three closely spaced deposits, dubbed Perseverance, Perseverance West and Equinox. The zones are less than 7 km from the company’s Matagami milling complex. Combined resources are estimated at 5 million tonnes grading 16.8% zinc, 1.3% copper, 34 grams silver and 0.4 gram gold.

Meanwhile, Noranda has filed a short-form shelf prospectus with Ontario and U.S. regulators to issue US$800 million in debt securities over a proposed 25-month period. Attached was a preliminary prospectus for US$300 million worth of 10-year notes, proceeds from which are earmarked for existing debt. Goldman, Sachs & Co. and others will underwrite the notes portion of the offer.

Standard & Poor’s Corp. has posted a negative outlook for Noranda, assigning a preliminary triple B-rating to the proposed offer and an A-2 rating to the company’s commercial paper. The service, has not yet tackled Noranda’s short-term and long-term debt, nor its preferred shares.