The major posted a profit of $24 million (8 per share) on sales of $1.6 billion, down from the $68 million (27 per share) earned on sales of $1.8 billion in the first quarter of 2000. The decline is blamed on several factors:
– a strike at the Sudbury operations of 55%-owned subsidiary
– lower metal prices;
– lower sales volumes;
– higher energy costs;
– ground problems at Falco’s Kidd mine in Timmins, Ont.; and
– lower volumes at the American Racing aluminum-wheel operations.
“We were not expecting earnings at this [low] level,” said President David Kerr at Noranda’s annual meeting in Toronto. “We had forecast better rates, but the metal prices caught us off guard.”
Kerr expects prices to remain soft through the third quarter and then start to improve: “Not a happy outlook, but we see the price weakness as only temporary, given the strong supply-and-demand fundamentals for our metals.”
Kerr was more upbeat about Noranda’s growth strategy, stating that the US$170-million expansion of the Altonorte smelter in Chile is “progressing well,” with engineering and construction 90% and 30% complete, respectively.
By early 2003, the expansion will have doubled the smelter’s annual treatment capacity to 820,000 tonnes of copper concentrates, boosted copper production by 80% to 290,000 tonnes, and nearly tripled the production of sulphuric acid to 700,000 tonnes per year.
Noranda’s zinc business was hit in the first quarter by a fall in average zinc prices to US46 per lb., from US51 per lb. a year ago. Offsetting this somewhat was zinc concentrate production at the Brunswick mine, near Bathurst, N.B., which, at 132,000 tonnes, set a quarterly record. On the downside, metal production at the CEZinc refinery, outside Montreal, was 5% lower than in the first quarter of last year as a result of lower sales.
Noranda notes that, within its aluminum unit, “severe” customer volume curtailments and energy shortages in the southwestern U.S. are taking their toll on its American Racing Equipment manufacturing plants, in Kentucky and California.
The ramping up of the innovative Magnola magnesium plant in Danville, Que., is taking longer than expected. The date for attaining commercial production has been pushed back by one year to 2002. Only six of 24 cells are operating, and these are functioning at only a third of their capacity.
“There’s a myriad of things we have to try out in the plant in different combinations in order to ramp up the efficiencies [to a commercial level],” said Kerr, who stressed that the company would not take a writedown on the project.
The delays and modifications have already pushed up the cost of the project by about 25% to $920 million.
Meanwhile, development of the Antamina copper-zinc mine in Peru is on budget and two months ahead of schedule. The project, ownership of which is shared by Noranda, with a 33.75% interest,
Already, a tailings dam has been finished and sufficient water impounded to provide for startup. Development mining is at an advanced stage and an adequate ore supply is now exposed.
Noranda has recently issued US$300-million worth of unsecured, 10-year notes bearing interest at 8.375% per annum. The funds are being used to repay short-term debt.
Consolidated net debt increased by $500 million in the first quarter and now stands at 37% of capitalization. Some 40% of that debt increase is due to the translating of U.S.-dollar-denominated debt into increasingly weak Canadian dollars.
Noranda’s shareholders can expect their ever-reliable dividend of 20 per share to be paid in mid-June. The dividend will be paid to shareholders of record on May 25, 2001.
When asked for his opinion on the consolidation trend in the industry, Kerr said he does not expect Noranda to become a “large-cap” company. “We are a mid-cap company, and I suspect we’ll remain that way for a while.”
He added that although the company could issue additional shares in order to finance acquisitions, this is unlikely to happen, because “Noranda’s share value, as far as I’m concerned, is too low in the marketplace.”
As for the prospect of merging with another major, that is simply “not in the cards,” he said. Rather, the company is focused on growing earnings and improving the return on capital deployed. “We see that as being much more effective than amalgamating just to become a large-cap company.”
When asked whether Noranda could be taken over, Kerr said that that could only happen with the blessing of 40% owner
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