Having spent the last two years fine-tuning its operations,
In 2002, Noranda saw its total consolidated debt (excluding short-term bank credit) increase by some $359 million to $5.3 billion — the most it’s ever been and among the industry’s highest. Moreover, scheduled repayments are set to increase in the coming years, ringing in at $662 million in 2004 and $1 billion in 2006, before declining to $619 million in 2007 and about half as much in each of the following five years.
Against this backdrop, Noranda has recorded four consecutive quarterly losses, including a whopping $673 million in the final three months of 2002. That loss reflected the writedown of its much-hyped Magnola magnesium plant in Quebec, which has since been shut down but remains on the books at $300 million in hopes that China’s cheap and numerous operations will eventually run out of steam.
Under such weight, in late July, Noranda launched a major recapitalization program aimed at raising $1 billion. Fully one-half was to come by way of a $500-million public equity financing, though the actual amount totalled $613 million.
“This additional equity will add substantially to our financial flexibility and is going to improve our balance sheet ratios, as well as our cash flow,” President Derek Pannell said when the program was announced.
Shareholders thought differently at first and expressed their dismay by knocking $1.79 off Noranda’s shares on an unusually high volume of 9.25 million shares. They have since relented, and at presstime, Noranda’s shares were trading at $13.83, or just 5% less than they were prior to the selling frenzy, and daily volumes have returned to normal levels.
A total of 44.52 million shares were printed at $12.65 apiece, for $599 million in net proceeds. Of the amount issued,
The additional shares increase Noranda’s outstanding float to about 289 million shares, which, at presstime, gives it a market capitalization of about $4 billion. That’s 17% greater than at the year’s start and 26% greater than at mid-year.
An unexpected surprise from the program has been the reduction of the quarterly dividend to 12 per common share. Payouts will now be 40% less than before, and, when combined with the elimination of the Brascan preferred shares, this will save the company $70 million in annual cash expenditures.
“The measures that we are taking in this recapitalization plan are very much a financial complement to the measures that we have taken, [building] on the accomplishment we have already proven on the operational side,” said Pannell. “They allow flexibility, and add a solid financial operating base so that we are indeed well positioned for the worst and best of times.”
Another area in which Noranda has broken tradition is currency; financials will now be recorded in greenbacks instead of loonies. The switch makes sense, given that most of the company’s revenue comes in the form of U.S. dollars and fully 55% of its operations are now based outside of Canada.
Said Pannell: “This conversion [better] reflects the company’s primary economic environment, and financial reporting will be more readily comparable to our peer group. Additionally, it has the potential to widen our shareholder base in the U.S. and Europe.”
Also, as part of its recapitalization, Noranda has sold its priority units of the
Noranda created the fund to take control of its CEZ zinc processing facilities outside of Montreal, Ont. The operation is the second-largest of its kind in North America, with annual capacity of 525,000 tonnes of concentrate or 265,000 tonnes of zinc metal, and was inherited during the company’s 1996 merger with Kerr Addison Mines.
Noranda retains a 25% stake in the fund, all in the form of ordinary units.
Noranda has not entirely shunned the debt market and in fact plans to shortly arrange US$300 million of new term debt to cover debt maturing in June 2004. The rationale here is simple: by then, interest rates may not be as low as they are now.
Most of Noranda’s direct debt bears interest at 5.36% annually and all of its indirect debt is carried at a rate of 4.48%. Each represents the weighted average of the outstanding amount owed. (For instance, US$300 million worth of senior debentures maturing in 2011 bear interest at 8.375%).
Noranda also is attempting to downgrade US$422 million in secured loans relating to the Antamina copper-zinc mine in northern Peru. Assuming no objections are raised, the loan will become non-recourse. Noranda owns a 33.75% stake in Antamina, as does
Antamina, one of the major contributors to Noranda’s production growth, is among the largest copper-zinc mines in the world, milling 70,000 tonnes of ore daily. In the first six months of the year, it contributed 46,399 tonnes copper-in-concentrate and 57,760 tonnes zinc-in-concentrate to Noranda’s overall metal output.
In-pit resources are pegged at 530 million tonnes grading 1.22% copper, 1% zinc and 13.7 grams silver per tonne. The resource is expected to support 20 years of production at current milling rates.
According to Noranda, the financial measures translate into a leaner balance sheet and greater cash flow. Post-recapitalization, the company estimates its consolidated net-debt-to-capitalization ratio at 44%, better than before but still well north of peers Teck Cominco, with 25%, and
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