Noranda posts slim first-quarter earnings — Collahuasi, Raglan boost production of copper and nickel

With a major restructuring behind it and several large projects in the pipeline, Noranda (NOR-T) managed to withstand the effects of low metal prices and turn a slight profit in the first quarter.

In the 3-month period ended March 31, Noranda earned $4 million (or nil per share) on sales revenue of $1.44 billion, compared with earnings of $27 million ($2.54 per share) on revenue of $1.52 billion in the first quarter of 1998. (Last year’s first-quarter earnings exclude a gain of $583 million on the sale of subsidiary Norcen Energy Resources.)

The results were a slight improvement over the company’s performance in the fourth quarter of 1998, when it spun off several non-mining assets, including Norcen Energy Resources, Nexfor (formerly Noranda Forest) and Canadian Hunter Exploration.

“The profile of our company has changed dramatically in the past year,” Noranda President David Kerr told shareholders at the annual meeting in Toronto. “We have narrowed our business focus and returned to our roots as miners and processors of minerals and metals.”

Noranda’s objective is to achieve a return of at least 12% on shareholders’ equity over a full commodity price cycle. This is to be achieved partly through a “margin improvement program,” designed to lower costs wherevever possible throughout the organization.

During the first quarter of 1999, Noranda produced the following volumes from its mines:

• 113,000 tonnes zinc;
• 86,000 tonnes copper;
• 14,000 tonnes nickel;
• 2,000 tonnes ferronickel;
• 18,000 tonnes lead; and
• 3.1 million oz. silver.

  In terms of refined metal, Noranda produced during the same period:

• 102,000 tonnes zinc;
• 122,000 tonnes copper;
• 21,000 tonnes nickel;
• 28,000 tonnes lead;
• 261,000 oz. gold;
• 12.4 million oz. silver;
• 55,000 tonnes aluminum; and
• 41,000 tonnes fabricated aluminum.

Production of copper and nickel was higher than in the first quarter of last year, owing to the startup of both the the Collahuasi mine in Chile and the Raglan mine in northern Quebec. Refined zinc production was also up, thanks in part to an improved performance by the CEZinc refinery in Valleyfield, Que.

Cash flow from operations before changes in working capital was $125 million, up from $108 million a year ago. Including working capital changes, cash from operations totalled $341 million, compared with $46 million in the first quarter of 1998.

As of March 31, 1999, Noranda had $1.5 billion in cash on hand, and consolidated net debt as a percentage of total capitalization stood at 24%.

Several Noranda projects are in the development stage:

• The $124-million permanent-cathode project at the CCR refinery in Montreal, Que., remains on schedule and on budget. The project is 80% complete and is expected to be fully operational by the end of the year.
• Engineering and design work are proceeding for the expansion of the Altonorte (formerly Refimet) copper smelter in northern Chile, which will boost annual production by 130,000 tonnes to 290,000 tonnes of copper cathode. However, the completion date has been deferred by 18 months to early 2003 due to an imbalance between smelter capacity and concentrate availability, which Noranda sees closing in 2002. Another factor in the delay is a decision by Altonorte’s closest major copper mine, Escondida, to defer a planned expansion. That mine is owned jointly by Broken Hill Proprietary (BHP-N) and Rio Tinto (RTP-N).
• Development continues on the $113-million Bell-Allard high-grade zinc-copper mine in Matagami, Que. The mine, which has an estimated throughput rate of 2,000 tonnes per day, is expected to begin operating in July. It will have a minimum life of five years and produce an average of 94,000 tonnes zinc annually.
• Noranda has installed a $23-million autogenous grinding mill at its Brunswick mine in Bathurst, N.B., to improve productivity at the concentrator.
• A $90-million single-anode project at Noranda’s aluminum smelter in New Madrid, Miss., will boost primary aluminum production by 15% to 253,000 tonnes annually. The project is to be completed this year.
• Construction of a new US$238-million high-speed aluminum foil plant in Huntingdon, Tenn., remains on schedule, with the first shipments expected in January 2001. The plant will have an annual capacity in excess of 90,000 tonnes.
• In New Caledonia, Noranda’s 49.9%-owned subsidiary, Falconbridge (FL-T), and its joint-venture partner, La Socit Minire du Sud Pacifique, are conducting exploration and feasibility studies on the Koniambo laterite nickel deposit, ownership of which is split 49-51 between those respective companies. To date, the partners have identified resources of 132.4 million tonnes, grading 2.46% nickel and 0.06% cobalt. Falco expects to invest US$15-25 million annually in Koniambo over the next three or four years.
• Construction of the 80%-owned Magnola magnesium plant in Danville, Que., is progressing, with startup slated for mid-2000. Expected to be the world’s lowest-cost magnesium producer, the $733-million plant will exploit serpentine tailings from the Jeffrey asbestos mine using proprietary technology. At full capacity, the plant will produce 63,000 tonnes annually of magnesium and magnesium alloy.
• This summer, Noranda and partners Rio Algom (ROM-T) and Teck (TEK-T) expect to close their previously announced US$54-million deal to sell a 10% equity interest in the Antamina copper-zinc project in Peru to Japan’s Mitsubishi Corp. Upon closure, Noranda will see its stake in Antamina fall to 33.75% from 37.5%. Mitsubishi and other Japanese smelters are expected to buy 200,000 tonnes of copper concentrates annually from the mine.

Noranda spent $250 million on capital expenditures during the first quarter (including $58 million at Magnola and $55 million at Antamina) and is projecting that a total of $1.29 billion will be spent on capital expenditures this year (including $456 million at Magnola; $215 million for Falconbridge; and $207 million at Antamina).

The major says it will be spend about $85 million this year on exploration, down $5 million from 1998.

Alfred Powis did not stand this year for re-election to the company’s board of directors. He served as Noranda’s chief executive officer from 1968 to 1990 and was a director for 34 years.