Ongoing technical problems at
The innovative plant is the first in the world to produce magnesium from serpentine tailings. It had an original capital budget of $733 million and was scheduled to be producing, by year-end, both magnesium metal and alloys at a full annual capacity of 63,000 tonnes.
Instead, however, Magnola’s total projected capital expenditures have swelled to at least $920 million, and commercial production has been delayed, with new, lower production targets of 30,000 tonnes and 55,000 tonnes for 2002 and 2003, respectively.
Of the 24 cells at the plant, only 10 are functioning, and these are only operating at about 50% capacity, meaning that the entire plant is running at 20% capacity.
Still, this is an improvement over the first quarter of 2001, when even fewer cells were operating, and at only a 25% capacity. By the end of 2001, Noranda plans to have 14 cells in operation.
One of the biggest startup problems had to do with sulphate and magnesium-oxide impurities entering the cells, which reduced performance. As well, there was difficulty with the handling of gas within the cells, which caused them to be shut down regularly.
The ramping-up problems come as a bit of a surprise from Noranda, which has a reputation for operational excellence. Indeed, Magnola’s troubles seem to have contributed to the recent departure of one of the project’s biggest boosters within the company — former chief operating officer David Goldman.
During a conference call with analysts, Noranda personnel did point out that it is casting good-quality magnesium and that it recently produced 95% grade 1 magnesium.
Also, the company has improved the quality of the prill feed to the chlorinators by reducing sulphur content. As a result, the chlorinators are now producing good-quality electrolyte with low oxide levels, but not yet at the design feed rate.
The production of a better-quality electrolyte has eliminated many of the problems initially encountered in the startup, and tests are under way to improve the chlorinator performance even further. This should permit further increases to the DC current to the electrolysis cells from the present 140kA to the design level of 182kA.
In addition, on-line time of direct current to the electrolysis cells has been increased to more than 90%, compared with a target of 98%.
“Look, we’re still a long way from 100%, but we’ve made a lot of progress,” said Robert Sippel, senior vice president of Noranda’s magnesium and recycling division. He added that the ramp-up schedule is also being delayed because of a need to rebuild some of the cells that were “aged prematurely” during the startup phase.
As for the magnesium market, prices continue to be under pressure, owing to strong Chinese production, but this is being offset somewhat by recent plant closures by Alcoa in the northwestern U.S. and by Pechiney in Europe.
Noranda says its magnesium sales are taking places at market rates, though details are not forthcoming.
Noranda also announced weaker second-quarter results, posting earnings of $28 million (9 per share) on revenue of $1.65 billion, compared with earnings of $84 million (33) on $1.87 billion in the corresponding period last year.
The major says the softening earnings are due to lower selling prices and lower sales volumes. These, in turn, are a reflection of both reduced customer demand in a weak economic environment and lower copper-smelter throughput resulting from scheduled maintenance shutdowns.
The earnings decline was partially offset by an Ontario tax credit of $11 million and an after-tax gain of $45 million from the sale of Noranda’s $243-million stake in
The biggest highlight for Noranda during the quarter was the mechanical completion and ramping-up of the massive Antamina copper-zinc mine in Peru, where the company is partnered with
Two months ahead of schedule and slightly under budget, the mine has shipped its first concentrate, and it is operating at a capacity nearing 70,000 tonnes per day.
As well, the molybdenum circuit is now functioning (though the product is not yet salable), and the zinc circuit is due to start up in early August.
Other highlights of the quarter include: the acquisition of the Lomas Bayas copper project and Fortuna de Cobre copper deposit in late July for US$175 million; the purchase, through subsidiary Falconbridge, of the Montcalm nickel-copper property for $14 million; the signing of a letter of intent to purchase the El Pachon copper deposit in Peru for US$30 million; an extension of an electronic hardware recycling business with Hewlett-Packard, with the opening of a new plant in Nashville, Tenn.; and the signing of a 3-year labour contract at Noranda’s CCR refinery in Quebec.
Noranda’s Altonorte smelter in Chile is being brought up to 800,000 tonnes of throughput from 400,000 tonnes, with construction 39% done and due for completion in early 2003. Year-to-date investment is US$49 million out of a budgeted US$168 million.
Overall capital expenditures for 2001 are estimated at $1.3 billion, of which $1 billion relates to the company’s key growth projects.
At the end of the period, Noranda’s consolidated net debt was $3.7 billion, or 36% of total capitalization.
A dividend of 20 per share will payable in mid-September to shareholders of record on Aug. 31, 2001.
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