Noranda splashes red ink on 2001

Echoing the woes of its peers, Noranda (NRD-T) suffered huge losses in the final quarter of 2001 and even more during the entire year on account of weak metal markets.

In the final three months of 2001, the miner lost $84 million (or 37 per share) on revenue of $1.4 billion, compared with earnings of $71 million (27 per share) on $1.6 billion in the corresponding period of 2000. The recent period takes into account $22 million in unusual expenses, including the writedown of the Gasp copper smelter, in Quebec, in preparation for its closure.

Cash flow during the recent period, excluding capital expenditures but including dividends, remained essentially unchanged from a year ago. However, a shortfall of $131 million appears when capital costs but not dividends are considered.

Losses for the year totalled $92 million (47 per share), versus earnings of $293 million ($1.14 per share) in 2000, as revenue shrank by $805 million to $6.2 billion. Again, depressed metal prices are mainly to blame, with unusual items and higher costs playing secondary roles.

Interest payments and non-cash accounting charges were up considerably last year, owing to the start of commercial production at the Antamina copper-zinc mine in Peru and the Huntingdon aluminum foil plant in Tennessee, plus modifications to the CCR refinery in Quebec. Noranda did find $50 million in savings through its ongoing Six Sigma program and has implemented measures to save another $60 million annually.

Noranda realized an average of: US45 per lb. for its zinc production; US73 for copper; US$2.79 for nickel; US$2.85 for ferronickel; US70 for aluminum; US25 for lead; US$4.40 per oz. for silver; and US$272.11 per oz. for gold. All are lower than 2000 realized prices, considerably so in the case of base metals.

Noranda’s 2002 price forecasts include: US70 for copper; US42 for zinc; about US$2.50 for nickel; and US68 for aluminum. Magnesium prices are kept secret for competitive reasons but are not expected to rebound anytime soon.

“The magnesium market, like most metal markets right now, is pretty subdued,” says Chief Financial Officer Aaron Regent. “On the positive front, we have seen a lot of capacity curtailed. . . . However, the Chinese continue to produce [and cause] a supply-demand imbalance.

“Longer-term, there are lots of encouraging signs, particularly with the desire to use magnesium in various applications,” he adds.

Higher output

In terms of production, Noranda produced more metal in 2001 than in 2000 and expects output to rise even higher in the current year, owing to newfound production from Antamina and the Lomas Bayas copper mine in Chile. The latter was purchased by 56.3%-owned subsidiary Falconbridge (FL-T). In the case of zinc, record throughput rates were achieved at both the mining and refining stages.

Noranda produced some 509,000 tonnes zinc last year, as well as: 332,000 tonnes copper; 50,000 tonnes nickel; 22,000 tonnes ferronickel; 83,000 tonnes lead; and more than 10 million oz. silver.

Refined metal volumes include: 406,000 tonnes zinc; 528,000 tonnes copper; 90,000 tonnes nickel; 99,000 tonnes lead; 220,000 tonnes aluminum; 130,000 tonnes fabricated aluminum; 43 million oz. silver; and in excess of 1.2 million oz. gold.

Noranda’s overall cash operating marging rang in at $765 million, with nickel and copper operations contributing the most. The aluminum segment proved the most profitable when depreciation, amortization and reclamation charges are included.

“[Aluminum] sales volumes are expected to increase significantly in 2002, owing to a combination of the elimination of capacity,” says Regent. “In particular, Alcoa has shut down one of its foil plants, which produced 147 million lbs.”

On the development front, Noranda now has 16 cells running at its troubled Magnola magnesium plant in Quebec. The plant, which has 24 cells in all, cranked out 9,339 tonnes of pure magnesium and magnesium alloy last year.

“We are on [track] with our revised plan to get up to 55,000 tonnes by the end of the year,” assures newly appointed President Derek Pannell. “We still have some challenges ahead . . . but we certainly see no reason why we shouldn’t continue to progress.”

An expansion program at the Altonorte smelter in Chile is under way, with the new reactor scheduled for ignition in March. Startup of the acid and oxygen plants will follow in early 2003, thereby doubling the smelter’s capacity to 820,000 tonnes annually.

Alumysa

At the proposed Alumysa aluminum project in southern Chile, Noranda has opened an office to pursue public consultations. The company submitted an environmental impact statement last fall and expects to move on to the next stage of the project by October.

Alumysa is expected to increase Noranda’s aluminum output by 440,000 tonnes annually.

Noranda expanded its resource base considerably last year by acquiring projects and tabling a resource at the El Morro copper-gold property in Argentina. The major can earn a 70% interest in El Morro by spending US$10 million on exploration and paying Metallica Resources (mr-t) US$10 million in cash by October 2005.

At El Morro, the La Fortuna zone was pegged with an inferred resource of 410 million tonnes grading 0.61% copper and 0.56 gram gold per tonne, based on a cutoff grade of 0.4% copper. More than 15,000 metres of drilling have been sunk to date, with at least 7,000 more to be completed before the next project review begins.

Among Noranda’s recent acquisitions is El Pachon, where near-surface resources stand at 880 million tonnes averaging 0.62% copper. The resource, calculated by former owners Cambior (CBJ-T) and a private Bolivian mining company, is based on a cutoff grade of 0.4% copper and a copper price of US$1 per lb.

On Dec. 31, Noranda had $1 billion in cash or credit and a consolidated debt-to-capitalization ratio of just under 44%. The company has budgeted $600-700 million for 2002 capital projects and expects to spend considerably less in subsequent years.