Noranda deal

ignites takeover talk

Noranda (NOR-T) has agreed to sell its interest in Norcen Energy Resources Group to U.S.-based Union Pacific Resources Group for $1.8 billion in cash.

Noranda owns 92.6 million shares, or 49.5%, of Norcen, which is one of two companies that comprise Noranda’s oil and gas business (the other being wholly owned Canadian Hunter Exploration). The shares will be sold at $19.80 each, which, after tax, translates into earnings of $590 million.

Though Noranda announced its intention of selling Norcen last November (T.N.M., Nov. 24/97), the recent deal has sparked speculation of a possible takeover attempt of Rio Algom (RIO-T).

“We’ve heard the same rumor,” says Helen Reeves, Noranda’s vice-president of communications, “but we don’t have specific plans. We’ve found that our best rates of return have been achieved as a result of developing existing and greenfield projects versus acquisitions.”

Rio recently acquired another 50% interest in the Crandon zinc-copper project in northern Wisconsin. The project is now one of many advanced or producing projects Rio owns. Permitting is expected to be completed in three years, and development will occur shortly thereafter. The project is expected to yield, on a yearly basis, 150,000 tons of zinc in concentrate and significant credits of copper, lead and precious metals.

Though smaller than some of its other projects, Crandon could serve as a nearby source of concentrate to Falconbridge’s (FRL-T) copper and zinc refinery in Timmins, Ont. Noranda owns 46% of Falconbridge and intends to work towards taking the company private by gradually acquiring the remaining shares.

Noranda says it will use the proceeds of the sale of its interest in Norcen to advance several ongoing projects in Quebec, as well as its New Madrid aluminum smelter in Missouri.

Among its projects in Quebec is Magnola, where construction of a $720-million plant is awaiting approval from two joint-venture partners, each of which owns a 20% interest. The plant, which is expected to enter production in 2000, will be the world’s lowest-cost producer and supply 18% of the world’s current annual consumption of magnesium.

Meanwhile, Noranda is in negotiations with Zambia Consolidated Copper Mines to purchase copper smelters and mines in Zambia. Due diligence is continuing.

Later this year, Noranda plans to complete its divestment of non-mining and metallurgical operations by distributing, as a dividend, its 66% interest in Noranda Forestry plus its interest in Canadian Hunter.