Noranda barely profitable in Q1

Higher metal production did not translate into healthy profits for Noranda (NRD-T) during the first quarter.

The company posted earnings of $1 million (or a loss of 2 per common share after preferred-share dividends) on sales revenue of $1.64 billion, compared with earnings of $24 million (8 profit) on revenue of $1.61 billion during the corresponding period last year.

The highlight of the quarter was the rise in the mined production of copper, zinc and nickel, which were higher by 73%, 22% and 8%, respectively, due to the startup of the Antamina zinc-copper mine in Peru, the purchase of the Lomas Bayas copper mine in Chile, and the inclusion of a full quarter of operations at the Sudbury nickel operations.

Overall, mine production during the first quarter totalled 138,000 tonnes zinc (compared with 113,000 tonnes last year), 117,000 tonnes copper (68,000 tonnes), 17,000 tonnes nickel and ferronickel (16,000 tonnes), 19,000 tonnes lead (20,000 tonnes) and 3.7 million oz. silver (2.1 million oz.).

The increased production was offset by lower metal prices, which reduced earnings by $32 million.

“For 2002 as a whole, we are expecting to see a substantial increase in the production of all of our metals,” said Noranda Chairman David Kerr in a release. “We are well-positioned to benefit from an expected improvement in metal prices, which will result in increased earnings and improved shareholder returns.”

Noranda is widely viewed as being under the gun from its corporate overlord, Brascan (BNN.A-T), to produce a better return on invested capital. Brascan holds a 40% interest in Noranda as well as major stakes in forestry major Nexfor, landlord Brookfield Properties and merchant bank Trilon Financial.

Brascan has stated it no longer considers Noranda and Nexfor to be “core assets,” but the company still maintains that its two subsidiaries are not on the auction block.

In April, Noranda hopped on to the growing trust-unit bandwagon by filing a final prospectus for its Noranda Income Fund, which was newly created to indirectly acquire Noranda’s CEZ zinc processing facility outside Montreal, Que.

The units have been priced at $10 to provide a 10% cash-on-cash yield to investors. The offering is expected to close on May 3, 2002, and it should generate at least $400 million for Noranda.

The units being sold represent 45% of the total equity of the fund, with the remainder being held by Noranda. If an overallotment option is exercised by the underwriters, Noranda’s share will fall to 48%.