Noranda puts Perseverance on hold

With zinc prices foundering in the US33-36-per-lb. range, Noranda (NRD-T) has decided to postpone development of the Perseverance zinc deposit near Matagami, Quebec.

Noranda’s president of zinc operations, George Jones, said in a press release, “The current zinc prices and Noranda’s present financial situation prevent us from profitably developing the Perseverance deposit at this stage.”

“The forecast for the zinc market over the next few years is for continuing oversupply; however, we believe that the economic climate will be more favourable for the development of the mine in the 2005-2006 period. We will continue to evaluate the situation every quarter and will inform our employees and the community of our decisions,” he added.

Noranda said it made the announcement to lessen the impact on 255 employees expected to shift to jobs at Perseverance after the impending closure of the nearby Bell Allard mine. Based on current reserves, Bell Allard is slated to close during the fourth quarter of 2004.

“In the current context, it appears unlikely that the go-ahead for Perseverance will be given in 2003, which leads us to believe that there will be a minimum 15-month delay between the closure of the Bell-Allard mine and the commercial start-up of Perseverance,” said Michel Boucher, General Manager at Bell-Allard.

For the three months ended Sept. 30, Noranda posted a net loss of $70 million (or 32 per fully diluted share) on revenue of $1.39 billion, compared with a year-ago loss of $60 million (27 per share) on 1.46 billion.

At quarter’s end, Noranda had cash and equivalents totalling $412 million and its net debt stood at $4.8 billion, up from $4.6 billion a year earlier.

Discovered in 2000, Perseverance comprises three high-grade zones – Perseverance, Equinox and Perseverance West. Combined resources are estimated at 5.1 million tonnes grading 15.82% zinc, 1.24% copper, 29.4 grams silver and 0.38 gram gold per tonne. The project is just 6km from Noranda’s Matagami concentrator.

Noranda has a 90% stake in Perseverance. Following a feasibility study, Socit de Dveloppement de la Baie James (SDBJ) has the right to participate at 10% or to convert its stake to a 2% net smelter royalty. Should SDBJ take the royalty route, Noranda can cut it to 1% by paying $1 million.

Despite the postponement at Perseverance, Noranda has budgeted $3.4 million for exploration in the Matagami region during 2003.

Meanwhile in Murdochville, Noranda and the Quebec provincial government face a $15-million lawsuit launched by residents angry that the local smelter closed its doors last April. The Murdochville copper mine ceased operations in 1999.

Residents of the small Gasp town claim that Noranda lured them to the town and encouraged them to buy houses. Residents also hold the government partly responsible for the smelter’s closure. In all, 156 plaintiffs are seeking $97,000 in compensation.

Noranda says it has already offered about $15 million worth of compensation, including premiums, early retirement packages, and offered to buy back houses at 65% of their value before the mine’s closing.

In mid-afternoon trade in Toronto on Dec. 16, Noranda’s shares were 39 higher at $14.71.