Minerals strong for Noranda as profit slips in 1st quarter

The minerals sector of Noranda (TSE), which slipped to third place in 1989 in terms of earnings among the company’s operating divisions, was riding high again during the first quarter of 1990. Operating earnings by Noranda Minerals during the quarter ($57 million compared with $63 million for the same period last year) far outpaced the other three divisions of forestry, energy and manufacturing. Making a sizable contribution were the Falconbridge Ltd. operations acquired last year in a 50/50 partnership with Trelleborg of Sweden.

At Falconbridge’s Kidd Creek operation, higher quarterly production levels were recorded for copper and zinc. Integrated nickel operations were affected by lower nickel prices and higher operating costs.

To the end of the first quarter, Noranda reported earnings of $59 million (26 cents per share) after preferred dividends, compared with $158 million (82 cents per share) for the same three months in 1989.

For Noranda, last year’s earnings of $442 million were the second best in the company’s history. (In 1988, the company reported earnings of $603 million.) However, Chairman Alfred Powis explained at the annual meeting that company expectations for 1989 were higher.

“The big disappointment was production problems, which cost Noranda Minerals some $125 million in after-tax earnings. These started with the massive power failure in Quebec in March which destabilized the metallurgical operations and ended with numerous power interruptions in both Quebec and Ontario during the cold weather in the fourth quarter,” he said.

“In between, there were process problems, ore-grade shortfalls, concentrate shortages, equipment failures, late startups and, in one case, simply a poor operating performance. For Noranda Minerals, 1989 was the year of Murphy’s Law.”

The other factors were the high value of the Canadian dollar and interest rates. Avoidance of production problems and a continuance of the dollar and interest rates at 1988 levels would have given the company earnings last year of $665 million, he said.

Noranda (and Trelleborg) acquired Falconbridge after outbidding Amax Inc. of the U.S. Powis said the addition of Falconbridge has reinforced the position of zinc as Noranda’s most important product, moved copper to second place from fourth, and introduced nickel as Noranda’s fifth most important product.

Noranda`s alliance with Trelleborg, Powis said, “provides us with a window into Europe, an increasingly exciting part of the world, and we plan to investigate the possibility of other co-operative ventures with them.”

President David Kerr presented a slide showing Noranda to be in second place among the world’s major public mining companies in 1989 in terms of exploration expenditures. Noranda spent a total of $146 million last year, trailing only RTZ.

Kerr also said that during the past three years, Noranda’s capital expenditures and investments totalled almost $5 billion.

In his concluding remarks, Powis commented on a number of issues, including the environment and the Meech Lake accord.

“By their nature, Noranda’s operations are environmentally intrusive. We dig up rocks and cut down trees, and process them in large-scale chemical or metallurgical plants,” Powis said.

“As a result, environmental protection has always been an issue with Noranda, and in a sense this gives us a head start in today’s circumstances.”

The company spent about $650 million during the 1980s to improve the environmental performance of its facilities, Powis said. He also said Noranda has been conducting environmental audits of its operations since 1986.

A resolution from the floor sponsored by a number of religious groups and dealing with the company’s forest land management practices was defeated. The movers of the resolution sought additional audits. While he said he did not disagree with most of the presenters’ argument, Powis said the expense of another audit is not justified.

On federal politics, Powis said that on balance the Meech Lake accord “seems to reflect the realities of Canada. And whatever changes one might wish to see, at this point the potential cost of rejecting it seems to far outweigh the cost of acceptance.

“Risking Canada’s future should not be allowed to happen, and it’s to be hoped we can put this behind us and get on with solving a number of other pressing national problems.”

Powis said little improvement in quarterly results is expected for the balance of 1990 if enforcement of current tight monetary policies continues.006 0503,0211,0304,0008 Noranda (TSE) $000s except per-share items Quarter ended Mar. 31 19901989 Revenue $2,446,000 $2,274,000 Net earnings 59,000 158,000

per share 0.26 0.82004