The ongoing slump in metal prices pushed
The loss, which translates into 27 per share, compares with earnings of $52 million in the comparable period of 2000, when revenue topped $1.66 billion. It also erases profits recorded in the previous two quarters, leaving the major with a 9-month loss of $8 million on revenue of $4.72 billion.
“Compared with the previous quarter, metal prices are down anywhere from 8 to 18 per cent for zinc, copper, nickel and aluminum,” says Chief Financial Officer Aaron Regent. “And when you look at the year to date, zinc is down 19%; copper, close to 10%; nickel, 31%; and aluminum, 5%. So, it’s no surprise that our results have been affected.”
Indeed, more than 90% of the swing in year-over-year quarterly earnings is a result of lower metal prices. At the operational level, operating margins are down more than 56% to $138 million, or nearly 112%, to negative $22 million, when accounting charges are factored in.
“Our financial results are not strong,” concedes Regent, “but we are trying to respond to the current environment.
Among those responses are the elimination of more than 550 jobs and a $45-million reduction in the exploration, research and administration budgets. As a result, more than $60 million will be shaved off future annual expenses.
About a third of the layoffs are associated with the closure of the Warsaw aluminum plant in Kentucky as part of a production consolidation process. The plant produced wheels for automotive manufacturers, with whom Noranda is curtailing business in favour of custom wheel producers.
Overall, the aluminum business ended the recent quarter $3 million in the red as revenue remained unchanged at $334 million. Here, a combination of lower metal prices and onerous wheel manufacturing contracts was behind the reversal.
Noranda’s mainstay of production, copper, added $676 million to the quarterly earnings statement. However, cash and non-cash expenses pushed the division almost three times deeper into the red than the aluminum section.
Production cutbacks at the Gasp smelter were partially offset by higher output at the Horne and Altonorte smelters. Combined, the three produced more sulphuric acid and copper anodes than in the year-ago quarter.
The expansion of Altonorte continues, with just under half of the committed $168-million budget having been spent. The smelter’s capacity is being doubled to 800,000 tonnes annually, which should be achieved early next year.
Cathode production at the Montreal refinery was slightly less than in the third quarter of 2000, owing to fewer annode deliveries from Canadian smelters. However, on a 9-month basis, comparable cathode output was up 6.3%, to 378,000 tonnes, which includes attributable production from other operations.
By virtue of its 55% interest in
The zinc section fared the worst of any, reporting a net operating loss of $13 million on sales of $168 million. Again, metal prices are solely to blame, as zinc production was actually up over the third quarter of 2000.
Combined cash costs at Noranda’s zinc operations were US32 per lb. for the 3-month period, a tad less than current spot prices. Total costs were US41 per lb.
Overall, Noranda produced the following metal volumes during the recent quarter: 128,000 tonnes zinc (versus 105,000 tonnes a year ago); 79,000 tonnes copper (76,000 tonnes); 13,000 tonnes zinc (9,000 tonnes); 21,000 tonnes lead (19,000 tonnes); 5 tonnes ferronickel (6 tonnes); and 2.5 million oz. silver (2.6 million oz.).
Refined metal production amounted to: 99,000 tonnes zinc (compared with 97,000 tonnes in the third quarter of 2000); 121,000 tonnes copper (123,000 tonnes); 22,000 tonnes nickel (19,000 tonnes); 21,000 tonnes lead (28,000 tonnes); 297,000 oz. gold (278,000 oz.); 9.71 million oz. silver (11.78 million oz.); and 54,000 tonnes aluminum (unchanged). Fabricated aluminum production topped 34,000 tonnes in the recent quarter, versus 35,000 tonnes a year ago.
On the development front, Noranda expects to fire up another four cells at the troubled Magnola magnesium plant in the fourth quarter. Ten of the 24 cells are currently working, and about 10,000 tonnes of magnesium metal are expected to be produced in 2001.
By year-end, Noranda will have invested $950 million in Magnola, far exceeding the original capital budget of $733 million. The mine was also scheduled to be producing, by year-end, both magnesium metal and alloys at a full annual capacity of 63,000 tonnes.
“We continued to make progress during the quarter . . . but none of the operation issues is resolved at this point,” says Regent. “Our focus continues to be to maintain stable operations and enhance the performance of the chlorinators.”
He adds that the magnesium business fundamentals are improving, which should ease the company’s ability to place metal into the market place.
The quarter also saw Noranda table a resource for the El Morro copper-gold property in Chile and purchase the El Pachon copper deposit in neighbouring Argentina. Inferred resources at the former were pegged at 410 million tonnes grading 0.61% copper and 0.56 gram gold per tonne, whereas the latter hosts a reserve of 880 million tonnes at 0.62% copper, 0.01% molybdenum, 0.02 gram gold and 2.1 grams silver.
Noranda can earn a 70% interest in El Morro by spending US$10 million on exploration and development over six years and paying
Meanwhile, Noranda has begun an environmental impact study for a proposed aluminum reduction plant and associated hydroelectric facility in southern Chile. The company envisages an operation capable of churning out 440,000 tonnes of aluminum per year.
Subsequent to the quarter’s end, Noranda and its partners began commercial production at the huge Antamina copper-zinc mine in Peru. The startup is four months ahead of schedule and came in under budget.
Annual metal production is forecast at 306,000 tonnes copper and 283,000 tonnes zinc over the first 10 years. Cash costs are expected to average US29 per lb. copper (net of byproduct credits) during that period and US$35 per lb. over the life of the mine (currently projected at 22 years).
Since May, the mine has treated more than 6.7 million tonnes of ore to produce more than 314,000 tonnes of copper concentrates. The first zinc concentrate should be produced shortly.
Antamina is expected to generate US$700 million in revenue during its first year of operation, or 30% less than originally forecast. Moreover, the mine is expected to break even after depreciation and interest payments on senior debt, provided current metal prices remain little-changed.
Noranda holds a 33.75% interest in Antamina, as does
At Sept. 30, Noranda had $1.3 billion in working capital and $547 million in the form of cash. Net debt stood at $4.4 billion, which accounts for 41% of total capitalization.
Noranda expects to spend $600 million on capital projects in 2002.
A quarterly dividend of 20 per share will be paid Dec. 15.
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