Burdened with some $4.1 billion in net debt,
The decision, which entails reducing the quarterly payment to 12 from 20 per share, is part of a larger restructuring plan that also includes the issuance of about $500 million worth of new shares. In addition, Noranda will arrange US$300 million in new term-debt to pre-fund pending debt.
The equity offering will see Noranda issue 20 million shares to a group of underwriters at $12.65 apiece. The group can boost this by up to 7.8 million shares. The deal also sees
Fully exercised, the offering is worth about $604 million. Proceeds will be used to redeem $150 million in preferred shares recently issued to Brascan; the rest will go toward reducing debt. The new U.S.-denominated debt will be arranged this fall, to cover debt maturing June 15, 2004.
By cutting its dividend and redeeming the preferred shares, Noranda believes can reduce annual dividend payments by about $70 million. In 2002, the company doled out some $216 million in dividend payments to its common and preferred shareholders.
Noranda recently sold its remaining 12 million priority units of
The Noranda Income Fund was created to acquire Noranda’s CEZinc processing plant and ancillary assets in Salaberry-de-Valleyfield, Que. The plant is the second-largest zinc processing plant in North America and was inherited when Noranda amalgamated with Kerr Addison Mines in 1996. Employing around 745 workers, the plant has an annual capacity of 525,000 tonnes of concentrate or 265,000 tonnes of zinc metal.
During the three months ended June 30, the fund earned $6.1 million, up from $5.9 million a year earlier. Revenue between the two quarters slipped by $17 million to $77.7 million, owing to lower zinc metal sales. Half-year earnings totalled $8.3 million on revenue of $156.4 million, up from the $8.1 million earned on $182.6 million in the first six months of 2002.
The fund has declared that a cash distribution for July of 8.5 per unit will be paid on Aug. 25 to unit-holders of record at the close of business on July 31.
In the end, Noranda figures the recapitalization plan will cut its net-debt-to-capitalization ratio to 38% from the present 51%, and generate $1 billion in capital. Noranda CEO Derek Pannell calls the plan “a prudent measure, given the continuing low metal prices and the improving, but still uncertain, economic outlook. We believe we will emerge with a much-improved financial asset base and increased earnings-generating capability.”
Meanwhile, Noranda has acquired a 3.3% net proceeds interest in the Antamina copper-zinc mine in the Peruvian Andes, in return for US$22.5 million paid to
The acquisition means Noranda’s US$422-million guarantee on the project loan is now non-recourse (still booked as long-term debt), though this does not increase the company’s 33.75% equity stake in the mine. The mine’s other owners include
Inmet will use the proceeds from the sale to pay down the remaining US$19.5 million owing under its US$40-million revolving credit facility. The company notes it has sufficient tax losses to offset any taxes payable on the income, which will be reported in the third-quarter statement.
During the second quarter, Antamina churned out 65,000 tonnes copper in concentrate (versus 93,700 tonnes a year earlier) and 99,500 tonnes zinc in concentrate (47,200 tonnes). Mill head grades were 1.1% copper (1.4% in the second quarter of 2002) and 2% zinc (0.9%), with recoveries of 83.8% copper (88.1%) and 81.7% zinc (84.6%). Mill throughput fell by about 500,000 tonnes to 6.7 million tonnes, owing chiefly to the types of ores being processed.
Similarly, lower grades at the Collahuasi mine in Chile saw concentrate production slip by about 7,800 tonnes to around 98,900 tonnes; cathode production was unchanged.
Overall, Noranda’s copper and recycling business contributed to an operating loss of $8 million (after depreciation and restructuring costs), including a $9 million provision to cover job cuts at the Kidd Creek division in Timmins and the Horne smelter in Quebec, plus an $11 million writedown related to metal prices arising from the stronger dollar. With a new collective agreement in place, and some 125 jobs eliminated, Horne returned to normal operating levels in mid July.
The nickel business generated $64 million in income, up from $46 million in the corresponding period of 2002. Production at the Sudbury mines fell on lower grades; the pattern is expected to continue into the third quarter with scheduled vacation shutdowns at the Lockerby and Thayer Lindsley mines and the Strathcona mill.
Higher grades offset lower mine tonnage at Raglan, performance of the Sudbury smelter was relatively unchanged, and the Nikkelverk refinery in Finland was ahead of last year’s pace as increased matte from Sudbury offset lower feed volume from the BCL smelter. Third-quarter production will reflect an ongoing (though nearly complete) maintenance and vacation shutdown at the Sudbury smelter.
Noranda’s zinc business lost $43 million, compared with year-earlier operating profit of $70 million, which included a $98-million pretax gain on the CEZ sale. Higher production at the Brunswick and Bell Allard mines offset shortfalls at the Brunswick smelter, which began a 4-month shutdown in mid-June. The plant is expected to restart in November.
Overall, Noranda’s mined metal volumes were as follows: 109,172 tonnes copper in concentrate (versus 124,035 tonnes in the second quarter of 2001); 151,246 tonnes zinc (141,006 tonnes); 13,754 tonnes nickel (13,192 tonnes); 6,557 tonnes ferronickel (7,162 tonnes); 19,911 tonnes lead (19,040 tonnes); and 2.8 million oz. silver (3.1 million oz.).
Realized prices for the metals were as follows: US75 per lb. copper (versus US 76 a year earlier); US40 per lb. zinc (US41); US$3.87 per lb. nickel (US$3.23); US$3.78 per lb. ferronickel (US$3.12); US24 per lb. lead (US24); US$4.70 per oz. silver (US$4.71).
The dividend news was accompanied by a second-quarter net loss of $15 million (or 11 per share). The results include $12 million in restructuring provisions, which were partially offset by a one-time tax recovery of $7 million. A year earlier, Noranda earned $47 million (18 a share).
Revenue between the two periods slipped by $90 million to $1.58 billion, owing to a stronger Canadian dollar and lower copper sales (the latter being a reflection of a strike at the Horne smelter in Rouyn-Noranda, Que.) Cash flow from operations (after working capital changes) fell to $156 million from $191 million.
For the first half of the year, Noranda’s loss was $74 million (38 a share) on revenue of $3.16 billion, compared with year-earlier net profit of $55 million (19 a share) on $3.3 billion.
At quarter’s end, Noranda had $554 million in cash (off $270 million from a year earlier) and about 244.4 million shares outstanding.
The first reduced dividend of 12 per share has been declared payable on Sept. 15 to shareholders of record at the close of business on Aug. 29.
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