Noranda’s reorganization may lead to Hemlo company

When some 225 Noranda Minerals staff pack up in November and move fr om their parent company’s head office to their own headquarters across the street, the special relationship between the Noranda empire and mining will have been severed.

Noranda Inc. will still trace its roots back to the 1922 discovery of the Horne copper-gold orebody in Rouyn, Que., but mining will no longer hold the place of honor it once had in the conglomerate’s corporate structure. Noranda Minerals will be on an equal footing with three other business units — forest products, oil and gas, and manufacturing.

The office change is one more step in the recent reorganization of Noranda distancing the parent company from its operating units. The parent company’s name was changed from Noranda Mines to Noranda Inc. in 1984 with the new units set up early this year.

It probably won’t be the last change, however. The units are set up in such a way that any or all of them — or even their sub-units in the case of Noranda Minerals — could very easily go public on their own, a move that would fit in well with Noranda’s debt reduction objectives. That raises the possibility of investors having the chance to participate directly in Noranda’s Hemlo holdings rather than through the widely-diversified parent company: “It’s a possibility,” says John Gordon, vice-president of Noranda Minerals, “but I wouldn’t says it’s a definite possibility.”

Until the office change, however, Noranda Minerals will remain the only division to share office space with the parent company 45 floors above the intersection of King and Bay streets in Toronto. After the move, Noranda Inc. will be physically as well as legally above all four of the operating divisions.

On paper, all of the assets of all of the divisions belong to Noranda Inc., the parent company. In day-to- day business, however, assets have been delegated to the management of the various divisions. Going public would involve transferring those assets to the division.

Although the special tie with Noranda Inc. will be broken, Noranda Minerals will still be of prime importance to the corporation. Results from the first six months of 1986 show that metals and minerals accounted for $18.7 million in earnings, about 25% of Noranda Inc.’s total earnings before borrowing costs and unusual items are calculated. Forest products was the main source of earnings providing $49.7 million or about 64%.

Noranda Inc. itself reported earnings of $28.7 million or 21 cents per share compared to a loss of $41.3 million or 34 cents per share during the same period in 1985.

Noranda Minerals is also a major world player is many of the metal commodity groups. For example, in 1985 the units of the parent company that have since been formed into Noranda Minerals, produced 70.2 million tons of copper, 303.4 million tons of zinc, 23.2 million tons of lead and almost 280,000 oz gold.

In fact, Noranda Minerals says it is the largest mine producer of gold in Canada, the largest mine producer of zinc in Canada and the second largest in the world and the largest copper refiner in North America.

Mr Gordon says taking any one of Noranda Inc.’s units or sub-units public is a possibility but adds that in Noranda Minerals’ case it would be a long way off. First, he says, the company’s relationship with its bankers regarding the Golden Giant mine at Hemlo, Ont., would have to be “unravelled.”

The mine, operated and half- owned by Noranda subject to a net smelter royalty, is one of Noranda Minerals’ three most valuable assets. Scheduled to churn out more than 400,000 oz of gold a year by the end of the decade, it ranks next to the zinc mining and refining tandem of Brunswick Mining and Smelting and Canadian Electrolytic Zinc.

The other half of the Golden Giant mine is shared by Golden Sceptre Resources and Goliath Gold Mines. A private company called Hemglo, set up by the property vendors, is entitled to a net smelter return as well. Whether that royalty is 7.5% or 15% is under discussion now and may eventually be settled by the courts.

Due to debt problems Noranda won’t see any benefit from Hemlo until $210-million in capital start-up costs are paid off. Noranda borrowed that amount of money early in 1986 to reduce debt giving the lender 100% of the mine’s operating profit until that loan is paid off.

With production better than expected — mill throughput of 3,000 tonnes per day could come by late 1987 rather than early 1988 as scheduled — and gold prices moving up, that could take only to the end of 1987.

In the second quarter of 1986 the mine produced 72,700 oz of gold at an operating cost of $103.30(US) per oz for mine operating income of $24.1 million.

Selling some equity in Noranda Minerals, one of its sub-units or one of Noranda Inc.’s other operating arms, would fit in with the parent company’s debt reduction plans. In 1985-86 the parent company exceeded its goal of reducing debt by $1 billion trimming it by about $1.2 billion, but Chairman Alfred Powis said that was a minimum objective.

Such an offering would also likely command a premium due to the high profile and high quality of the Hemlo operation.

The debt reduction was accomplished largely by a sell-off of non- core assets and the sale of 12.5 million common shares to raise $240 million.

Before the debt reduction program began the company’s debt-to- equity ratio was about 0.85:1 says Mr Gordon. Currently it is about 0.70:1 and the company would like to see it reduced further to about 0.60:1.

Ironically, the new Noranda Minerals,with 26 mines and plants, represents the Noranda Mines of old. It is set up with four units, three of them overseeing various operations and the fourth being Noranda Sales.

The operating units of Noranda Minerals are: Noranda Zinc comprising Brunswick, Canadian Electrolytic Zinc, the Matagami operations in northwestern Quebec and the shut-down Heath Steele Mines in New Brunswick; Noranda Copper with mines at Murdochville, Que., and Granisle, B.C., smelters at Noranda, Que., and Murdochville, and a refinery at Montreal- East; Mining Corporation comprising the Geco copper-zinc-lead mine at Manitouwadge, Ont., the Mattabi zinc-copper-lead-silver mine at Ignace, Ont., and the potash mine of Central Canada Potash at Colonsay, Sask., plus Noranda’s holdings at Hemlo, Brenda Mines copper mine at Peachland, B.C., and the mine development and construction outfit well known in the industry as Mining Corp. of Canada.

Noranda Sales is the worldwide marketing arm of Noranda Minerals and the sales agent for the products of the three other business units.