QuickLinks -- Click here to rapidly navigate through this document
 | 181 Bay Street, Suite 200 Toronto, Ontario M5J 2T3 Canada www.noranda.com | Contacts: Denis Couture, Vice-President, Investor Relations, Public Affairs & Communications (416) 982-7020 denis.couture@toronto.norfalc.com Steve Douglas, Executive Vice-President and Chief Financial Officer (416) 982-3554 |
FOR IMMEDIATE RELEASE; ALL NUMBERS IN U.S. DOLLARS
news release
TORONTO, October 28, 2004
NORANDA REPORTS THIRD QUARTER EARNINGS OF US$133 MILLION
Generates $1.1 Billion of Operating Cashflow for the Nine Months
and Lowers Debt-to-Capitalization Ratio to 38%
| Investors, analysts and other interested parties can access Noranda's Supplemental Information Package and its quarterly teleconference on its website atwww.noranda.com under the For Investors and Presentations and Webcasts sections. The teleconference will be held on Thursday, October 28, 2004 at 8:30 a.m. Eastern Standard Time. To participate by conference call, dial(416) 641-6715 for local and overseas and 1-800-428-5596 toll free in North America. All dollar amounts are in U.S. dollars unless otherwise noted. |
Third Quarter Highlights
Earnings
- •
- Earnings increased to $133 million from $18 million in the third quarter of 2003.
- •
- Generated $377 million of income from operating assets, $326 million higher than the prior year.
- •
- Reduced net-debt-to-total-capitalization ratio to 38% from 43% at year-end 2003.
- •
- Achieved increased profitability in all business units.
Production
- •
- Significantly increased copper concentrate production after completion of removal of residual lake sediment at Antamina mine, enabling access to higher-grade ores.
- •
- Continued ramp-up of aluminum foil production according to plan; new enhanced operating permit at primary smelter will allow increased production.
- •
- Successfully ramped up production after completion of expansion project at the Collahuasi copper mine and new crusher at Lomas Bayas mine, Chile.
- •
- Completed rebuild of Sudbury smelter furnace roof and walls; production returned to planned levels.
- •
- Renewed labour contract agreements at Matagami mine and Nikkelverk refinery.
Project Development and Acquisitions
- •
- Bankable feasibility study on Koniambo remains on track.
- •
- Further integrated Noranda's Aluminum business by acquiring strategic alumina refining operations and related bauxite mining assets.
Exploration
- •
- Reported encouraging exploration results for Frieda River, PNG, Fraser Morgan and Sudbury deposits.
Corporate Developments
- •
- Entered into exclusive negotiations with China Minmetals Corporation for its purchase of 100% of the common shares of Noranda.
1
| | Third Quarter | Nine Months | | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ millions, except per share information | Y-O-Y Change | ||||||||||||||
| 2004 | 2003 | 2004 | 2003 | ||||||||||||
| Revenues | 1,716 | 1,165 | 5,063 | 3,333 | + | $1,730 | |||||||||
| Income generated by operating assets* | 377 | 51 | 1,015 | 172 | + | $843 | |||||||||
| Net income (loss) | 133 | 18 | 393 | (32 | ) | + | $425 | ||||||||
| Basic earnings (loss) per common share | $ | 0.43 | $ | 0.04 | $ | 1.27 | $ | (0.22 | ) | + | $1.49 | ||||
| Diluted earnings (loss) per common share | $ | 0.42 | $ | 0.04 | $ | 1.25 | $ | (0.22 | ) | + | $1.47 | ||||
- *
- Defined as earnings before interest, corporate and general administration, research, development, exploration, minority interest, taxes, restructuring costs and other income
Commentary
"We are very pleased with the financial results Noranda delivered during the third quarter,"said Derek Pannell, Noranda's President and Chief Executive Officer. "All of our businesses reported improved operating income as we benefited from strong market conditions, increased metal price leverage and efficient operations. This resulted in our highest third quarter earnings in almost a decade, and is indicative of our Company's enhanced earning-generation capability."
CORPORATE DEVELOPMENTS
In mid June, Noranda's Board of Directors announced that it had commenced a review of various opportunities to maximize shareholder value after receiving several expressions of interest in the Company from potential acquirors. At that time, a Special Committee of Directors was established to oversee the review and the Board retained the services of CIBC World Markets as the Company's financial adviser.
On September 24, 2004, Noranda and China Minmetals Corporation ("Minmetals") announced that they had entered into exclusive negotiations concerning a preliminary proposal from Minmetals to acquire 100% of the outstanding common shares of Noranda.
Following a comprehensive review by the Special Committee of Noranda's Board of Directors of a number of proposals from various parties over the past several months, Noranda granted Minmetals exclusivity to conduct confirmatory due diligence and negotiate a definitive agreement. Minmetals' proposal contemplates that the transaction would be completed by way of a plan of arrangement and voted on by all Noranda common shareholders.
Minmetals' preliminary proposal reflected a small premium to the trading level of Noranda's common shares during the period prior to the September 24 announcement. Minmetals' preliminary proposal consists substantially of cash, as well as the distribution to shareholders of certain Noranda holdings, consisting principally of its aluminum business. Details of the terms of any final proposal will be disclosed upon signing of definitive agreements.
The preliminary proposal made by Minmetals is non-binding and there can be no assurance that a transaction will proceed. It is expected that, should the period of exclusivity lead to a definitive agreement, there could be non-completion fees payable to Minmetals under certain circumstances.
2
On October 4, 2004, Noranda and Century Aluminum Company announced that their respective subsidiaries had completed the acquisition of Kaiser Aluminum's Gramercy alumina refinery in Gramercy, Louisiana, and Kaiser's related bauxite mining assets in Jamaica. Century and Noranda each paid $11.5 million for their respective 50% interest. The transaction was previously announced in July when a bankruptcy court approved Century and Noranda as the successful bidders for these Kaiser assets. The addition of bauxite mining and alumina refining assets provides Noranda with the benefits of a fully-integrated aluminum business and complements the continuing ramp-up of its recently-modernized aluminum foil business. Prior to the completion of the acquisition, the alumina needs of the 250,000 tonne-per-year aluminum reduction smelter in New Madrid, Tennessee, were provided by Gramercy under a contract extending until 2010. The smelter has procured substantially all of its alumina requirements from the Gramercy alumina refinery due to the Mississippi River location of the New Madrid smelter and the Gramercy refinery, which facilitates logistics and transportation.
FINANCIAL RESULTS
Net income was $133 million or $0.43 per basic common share and $0.42 per diluted common share for the three months ended September 30, 2004. This compares with a net income of $18 million or $0.04 per basic and diluted common share in the same period of 2003. For the first nine months of 2004, net income amounted to $393 million or $1.27 per basic common share and $1.25 per diluted common share. This compares with a net loss for the first nine months of 2003 of $32 million, or a loss of $0.22 per basic and diluted common share.
For both the third quarter and first nine months of 2004, higher metal prices and increased sales volumes in the copper and nickel businesses were the main contributors to improved results. These were offset slightly by the negative effect of a stronger Canadian dollar on costs.
| | Realized Prices Nine Months | | ||||
|---|---|---|---|---|---|---|
| Metal prices | Y-O-Y Change | |||||
| 2004 | 2003 | |||||
| (US$ per pound) | ||||||
| Copper | 1.25 | 0.78 | 60% | |||
| Nickel | 6.39 | 3.99 | 60% | |||
| Zinc | 0.51 | 0.41 | 24% | |||
| Aluminum | 0.82 | 0.67 | 22% | |||
| Lead | 0.42 | 0.25 | 68% | |||
Revenues were approximately 50% higher compared to the third quarter and first nine months of 2003. The increase was attributable to higher metal prices and increased primary aluminum and aluminum foil sales volumes, as new capacity in these areas ramp up to full production.
The higher cost of operations in 2004 was attributable to the higher levels of operations at the Canadian copper facilities and the ramp-up of new production capacity in the Copper and Aluminum businesses. Higher energy costs as well as the stronger Canadian dollar also contributed to the increased costs.
The cost to purchase raw materials was higher for both periods in 2004, compared to 2003, as a result of increased feed requirements at the expanded Altonorte smelter, full operations at the Canadian metallurgical facilities and higher metal prices, which increased the cost to purchase third-party material.
3
REVIEW OF OPERATIONS
Copper
The Copper business generated income from operating assets of $232 million in the third quarter, exceeding last year's comparable result of $20 million. Revenues for the quarter reflect the business' recently-expanded production capacity and a build-up in inventories during the second quarter of 2004, which were realized in the third quarter of 2004. The average LME price for copper, excluding premiums, was $1.29 per pound for the quarter, more than 60% higher than the third quarter of 2003. The Company's integrated cost to produce a pound of copper in its Copper business was $0.43 per pound in the third quarter and $0.37 for the first nine months of 2004.
- •
- Mined production of 120,376 tonnes exceeded last year's level by 42%. Three of the mines recorded higher year-over-year output as the Antamina mine extracted higher grade material and increased production by 77%, performance of the new Collahuasi concentrator continued to exceed expectations and the completion of the crusher expansion at Lomas Bayas permitted higher production throughout the quarter.
- •
- At the Altonorte smelter, copper anode production of 56,469 tonnes was 22% lower than for the same period in the previous year due to reduced production following a fire at the concentrator dryer. Sulphuric acid production also decreased approximately 6%. Prices for sulphuric acid in South America strengthened further over the second quarter of 2004 with spot market sales conducted at the $80-$85 per tonne level.
- •
- Copper cathode production of 94,137 tonnes from the Canadian metallurgical facilities was 2% lower than in 2003. The Kidd Creek smelter was back on line at the end of June and recovered most of the lost production in the third quarter of 2004.
- •
- In the fourth quarter of 2004, mine copper production is expected to exceed that of the previous three quarters and total 440,000 tonnes for the year, a 20% increase over 2003.
Nickel
The Nickel business generated income from operating assets of $146 million for the quarter, an increase of more than 200% over the comparable period of 2003, while the average LME nickel price of $6.35 per pound was 49% higher. The cash operating cost to produce a pound of nickel at the INO and Falcondo facilities was $2.69 and $3.58, respectively.
- •
- Mined nickel production totalled 13,768 tonnes during the quarter, compared to 11,252 in the third quarter of 2003. Higher tonnage contributed to the increase in output.
- •
- At the Sudbury smelter, nickel-in-matte production in the third quarter of 2004 was 8,606 tonnes, compared to 11,373 tonnes in the same period of 2003. Following an eight-week maintenance shutdown that began on June 14, 2004, the smelter start-up took place as planned in early August 2004.
- •
- The Nikkelverk refinery produced 15,994 tonnes of refined nickel compared to 15,912 tonnes in the third quarter of 2003.
- •
- The 2004 forecasts are for 44,500 tonnes of mined nickel production from INO, 28,000 tonnes of ferronickel from Falcondo and 72,000 tonnes of refined nickel production from Nikkelverk.
4
Zinc
The Zinc business reported a loss of $3 million from operating assets in the quarter compared to a loss of $8 million in 2003. Production in the third quarter for this business unit is typically low as it is the period during which it conducts planned maintenance shutdowns. Cash generated in these operations was $14 million for the three months and $58 million for the nine-month period, compared to $27 million and a negative cash flow of $8.3 million in 2003, respectively. The improved results were attributed to higher zinc and by-product prices, including lead, silver and copper, as well as lower operating costs at the Bell-Allard mine. The LME zinc price averaged $0.44 per pound in the quarter and $0.47 for the first nine months of 2004. These compare with $0.37 for the third quarter and $0.36 for the first nine months of 2003. Noranda's mining cash cost to produce a pound of zinc was $0.28 per pound in the third quarter and $0.32 for the first nine months of 2004.
- •
- Mined production totalled 97,778 tonnes of contained zinc. The Bell-Allard mine's last day of mining was October 15, after establishing a record production rate in September.
- •
- The Brunswick Smelter produced 4,549 tonnes of lead metal due to the 10-week seasonal shutdown during the quarter. The start-up was also delayed 10 days when problems were encountered with the heat exchangers in the acid plant.
- •
- The CEZinc refinery produced 70,637 tonnes during the quarter. Year-to-date production is 209,849 tonnes.
- •
- The estimated mine production for the full year of 2004 is unchanged at 370,000 tonnes of contained zinc.
Aluminum
The Aluminum business generated income from operating assets of $20 million in the quarter compared to $1.0 million reported in the third quarter of 2003. Contributing to the results were higher production, increased sales volumes across all product lines, mid-west price premiums, which are at a 7-year high, and increased margins on value-added products. Partially offsetting these positive factors were higher year-over-year energy costs. The average LME aluminum price improved 19% year-over-year to average $0.77 for the quarter. Noranda's net cash cost per pound of aluminum was $0.58 in the third quarter and the first nine months of 2004.
- •
- The primary smelter increased shipments to 60,890 tonnes from 58,562 tonnes in the third quarter of 2003. Value-added product sales continues to grow and accounted for 89% of total shipments in the quarter and 83% for the first nine months of 2004, compared to 69% for the first nine months of 2003.
- •
- Shipments of foil products were up 12% over last year's third quarter to total 43,658 tonnes, reflecting strong demand across all product lines. The market improvement coincides with the continuing ramp-up at the Huntingdon West plant.
- •
- For the full year of 2004, shipments of primary aluminum and foil products are expected to total 251,000 tonnes and 176,000 tonnes, respectively.
5
NEW PRODUCTION CAPACITY UNDER DEVELOPMENT AND PROJECTS UPDATE
Nickel
After the first nine months, theNickel Rim South project is progressing on schedule and within budget. Site preparation, services and development of electrical systems are on schedule for completion at the end of 2004. Both vent shaft and main shaft construction programs are on track, with expected shaft sinking to begin in 2005. The five-year, $368-million development program is expected to deliver initial production in 2008 with a further $185 million required to bring the mine to full production. After taking into account pre-production revenues of $141 million, the overall net capital cost will be $412 million. Including by-product credits, the mine is expected to have operating cash costs of negative $0.60 to $0.70 per pound of nickel.
AtMontcalm, the West Extension stope is ready for production and development of the East Zone is well advanced. Mine site crushing facilities have been commissioned and the commissioning of both the concentrate receiving facilities at the Sudbury Smelter and the concentrator facilities has begun. Initial concentrate production is anticipated to begin in 2004. The project is expected to be completed in February 2005. The project remains on time and on budget, and will add 8,000 to 9,000 tonnes of nickel production per year beginning in 2005.
AtRaglan, the optimization project continues, with detailed engineering and procurement in progress. The stage-gate approval process is expected to be completed by year-end 2004. In addition, the Company is completing a feasibility study for a 5,000 tonne-per-year expansion.
During the quarter, Falconbridge and Barrick Gold continued to advance joint-venture documentation for theKabanga nickel project in Tanzania.
Copper
AtCollahuasi, the ramp-up exceeded expectations and the concentrator's design capacity throughput of 110,000 tonnes per day was surpassed in September with an average of 120,000 tonnes per day. The Ujina-Rosario expansion project was completed on budget. A conceptual study of the second expansion of the copper concentrator and the feasibility study of the molybdenum plant is continuing on schedule.
AtKidd, the start-up of the Montcalm nickel circuit in the concentrator is proceeding as planned. Operating personnel and technical support teams began commissioning in mid-October. A successful seven-week bismuth test was completed, with the refinery demonstrating the capacity to produce good quality cathode while treating anodes with over 200ppm bismuth. The test has confirmed the Metsite's capacity for 20,000 tonnes per year of Antamina bornite concentrate.
At Mine D, work is progressing as planned. Commissioning of the ore handling system was completed during the quarter, with first ore hoisted up the shaft on July 25, 2004 — ahead of our feasibility schedule. Ramping up of waste hoisting continued in August and September and will greatly enhance both operating and development efficiency.
EXPLORATION
Noranda's exploration group has reported encouraging results from several diamond drill programs that are in progress:
- •
- New zinc massive sulphide discovery at Matagami, Quebec.
- •
- New nickel mineralization intersected in the Fraser-Morgan area at Sudbury, Ontario.
- •
- Exploration results at Raglan, Quebec are expected to exceed those of previous years.
In Chile, in-fill drilling is scheduled to commence on the El Morro copper/gold project during the fourth quarter.
Underground and surface drilling continues at the Fraser Morgan nickel project in Sudbury. New mineralization has been intersected. Diamond drilling from surface, in an area approximately 450 metres northeast of the known resource, intersected 36.6 metres of 2.3% nickel and 0.7% copper:
6
| Hole | From (m) | To (m) | Metres | % Ni | % Cu | Comments | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NRD-69 | 1,216.7 | 1,252.3 | 35.6 | 1.84 | 0.72 | |||||||
| Incl. | 1,238.5 | 1,252.3 | 13.8 | 2.26 | 0.72 | |||||||
| NRD-76 | 1,257.3 | 1,293.9 | 36.6 | 2.33 | 0.71 | 40 metres from NRD-69 | ||||||
| NRD-63 | 1,199.5 | 1,227.6 | 28.1 | 2.06 | 0.54 | 70 metres from NRD-76 |
The pre-feasibility study of the existing Fraser Morgan resource is on track for completion by year-end 2004.
The Raglan exploration program wound down in mid-October after completing approximately 63,500 metres of diamond drilling. Results will be compiled over the next quarter as assay results become available. Each year, the exploration program has succeeded in discovering sufficient mineral resources that exceed Raglan's annual production. The 2004 program appears to have been particularly encouraging.
A new mineral discovery, named "Renaissance", has been made at Matagami, Quebec, approximately seven kilometres to the southeast of Noranda's concentrator. Hole MC-04-07 intersected massive and semi-massive sulphides from 527.25 to 536.25 metres at an approximate vertical depth of 465 metres. Estimated true width of this sulphide intercept is 6.9 metres. Assays are pending. Drilling continues with two machines. The geological environment of the new mineral discovery is similar to that which hosts the recently mined out Bell-Allard deposit. (Gary Potts, P.Geo. and Grant Arnold, Geo. are the qualified persons responsible for the exploration programs at the Fraser Morgan and Matagami projects, respectively. Potts is a member of the Association of Professional Geoscientists of Ontario and Arnold is a member of the Ordre des géologues du Québec.)
Since the end of the second quarter, Noranda has announced several new exploration initiatives with junior exploration companies in New Brunswick, Quebec and Ontario, in Canada, and in Western China and Brazil. These initiatives are aimed at leveraging the overall exploration investment and land holdings, and providing exposure to new opportunities.
LIQUIDITY AND CAPITAL INITIATIVES
Cash generated from operations, before the net change in accounts receivables, payables and inventories, was $436 million during the quarter and $1,081 million for the first nine months of 2004. Cash, cash equivalents and short-term investments was up slightly from year-end 2003 at $692 million. Total debt was $3.1 billion at the end of the period. The net debt to capitalization ratio was reduced to 38% from 43% at year-end 2003. The Company currently has $0.8 billion of undrawn committed bank lines.
Investments in new production capacity such as the Montcalm, Nickel Rim South and Koniambo nickel projects and the Collahuasi and Kidd Mine D copper projects totalled $132 million during the quarter and $322 million for the first nine months. The Collahuasi project was completed and started commissioning during the last quarter and the first phase of the Kidd Mine D is expected to be complete before the end of the year. For 2004, the Company's projected capital investment is $685 million, including $416 million in new production capacity.
MARKET REVIEW
Copper: LME copper prices averaged $1.29 per pound in the quarter as total exchange stocks remained close to their lowest level in a decade, representing less than a week of inventory. Cash prices peaked at $1.49 in October before position liquidation in some funds. Average treatment and refining charges have increased from their lows of late 2003 and early 2004. However, given Noranda's ability to treat both chemically and physically complex materials, as well as acid revenue generated by the sale of acid recovered through the high levels of sulphur fixation, revenue from treatment charges is not sensitive to spot price movements.
7
Strong fundamentals in the copper market have caused an 80% drop in total exchange stocks since the end of last year and this heightened global demand has been primarily driven by China. This trend is expected to continue for the foreseeable future, with China's ongoing investment in basic infrastructure and domestic demand for electronic products and motor vehicles. Demand conditions in key copper consuming countries are expected to remain strong in the medium term, indicating deficit forecasts for 2004 and 2005. As a result of these conditions, combined with low levels of working stocks and exchange inventories, the price outlook moving forward remains favourable.
Nickel: LME nickel prices averaged $6.35 per pound in the third quarter, up from $5.70 in the second quarter.
Pricing pressure in the nickel market has been reduced somewhat as a result of greater scrap availability, the switching into ferritic production and 200 series stainless steel, and Chinese nickel destocking. However, stainless steel demand remains strong and the high nickel alloy market continues to strengthen. Given the low level of nickel inventories, we can expect the nickel price to continue to be volatile going forward. Overall, nickel market fundamentals have been solid year to date, and we project 2004 and 2005 market deficits of 5,000 tonnes and 10,000 tonnes, respectively.
Zinc: During the quarter, zinc prices fluctuated between US$0.43/lb and US$0.45/lb before surging to US$0.49/lb at the end of the September on the basis of strong investment fund buying. The average for the third quarter declined US$0.02/lb to US$0.44/lb. LME stocks increased during the quarter by 5,675 tonnes to 736,600 tonnes as deliveries into the LME warehouses from unreported merchant inventories persisted.
Most analysts are anticipating improving market fundamentals for zinc will support current price levels during the fourth quarter and into next year. Metal stocks in the hands of traders and investors are declining. After a pause in the third quarter, zinc consumption in China, India, Asia and the U.S. continues to be robust. Consumption in Japan and Europe is also showing modest growth. In China, strong domestic demand and lower export tax credits has lead to a sharp reduction in zinc metal exports such that China has become a small net importer of metal. Globally, zinc mine production is rising in response to improved price levels but concentrate availability continues to fall short of smelter demand. According to the International Lead Zinc Study Group the zinc market is forecast to be in deficit by 150,000 tonnes this year, a figure many analysts believe to be conservative.
Aluminum: The year to date average LME cash price of $0.76 per pound is up 19% year over year and reported inventories are down nearly 700,000 tonnes since the beginning of the year. The U.S. Midwest delivery premium has remained at approximately 7 cents per pound for the past seven months. Since the end of the quarter, the LME price has strengthened further to $0.83 per pound, as at October 21.
The U.S. economy continues to demonstrate strength and improving consumer sentiment. Order levels for extrusion billet are very robust with spot billet premium up $0.03 to $0.04 per pound. Demand for flat rolled products continues to be very strong. In China, high spot alumina costs and rising power costs have combined to constrain Chinese metal production.
8
Dividends
The following dividends have been declared:
| Security | Dividend Amount | Record Date | Payable Date | |||
|---|---|---|---|---|---|---|
| Common shares | Cdn$0.12 per share | November 30, 2004 | December 15, 2004 | |||
| Preferred Series F shares | Floating rate | November 30, 2004 | December 12, 2004 | |||
| Preferred Series F shares | Floating rate | December 31, 2004 | January 12, 2005 | |||
| Preferred Series F shares | Floating rate | January 31, 2005 | February 12, 2005 | |||
| Preferred Series G shares | Cdn$0.38125 per share | January 15, 2005 | February 1, 2005 | |||
| Preferred Series H shares | Cdn$0.40625 per share | November 15, 2004 | December 31, 2004 | |||
| | | |
This news release contains forward-looking statements concerning the Company's business and operations. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and the Company's actual results could differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Information Form for a description of the major risk factors.
Noranda is a leading copper and nickel company with investments in fully-integrated zinc and aluminum assets. The Company's primary focus is the identification and development of world-class copper and nickel mining deposits. It employs 15,000 people at its operations and offices in 18 countries and is listed on The New York Stock Exchange and The Toronto Stock Exchange (NRD).
To participate in the third quarter analyst conference call scheduled for Thursday, October 28, 2004, at 8:30 a.m., please call (416) 641-667 or visit the Company's website at www.noranda.com.
Note: This press release is also available atwww.noranda.com. All dollar amounts are in U.S. dollars unless otherwise noted.
– 30 –
ATTACHMENTS
9
CONSOLIDATED RESULTS
(US$ millions)
| | Third Quarter | Nine Months Ended September 30 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2004 | Restated 2003 | 2004 | Restated 2003 | ||||||||||
| | (1) | | (1) | | ||||||||||
| Revenues | $ | 1,716 | $ | 1,165 | $ | 5,063 | $ | 3,333 | ||||||
Operating expenses | ||||||||||||||
| Cost of operations | 515 | 497 | 1,521 | 1,468 | ||||||||||
| Purchased raw materials | 705 | 496 | 2,165 | 1,331 | ||||||||||
| Depreciation, amortization and accretion | 119 | 121 | 362 | 362 | ||||||||||
| 1,339 | 1,114 | 4,048 | 3,161 | |||||||||||
| Income generated by operating assets | 377 | 51 | 1,015 | 172 | ||||||||||
Interest expense, net | 31 | 33 | 92 | 107 | ||||||||||
| Corporate and general administration | 17 | 12 | 45 | 39 | ||||||||||
| Research, development and exploration | 14 | 14 | 33 | 34 | ||||||||||
| Minority interest in earnings of subsidiaries | 76 | 11 | 219 | 45 | ||||||||||
| Income (loss) before undernoted | 239 | (19 | ) | 626 | (53 | ) | ||||||||
| Tax expense (recovery) | 99 | (1 | ) | 243 | (30 | ) | ||||||||
| Restructuring costs | — | 3 | — | 44 | ||||||||||
| Other expenses (income) | 7 | (4 | ) | (10 | ) | — | ||||||||
| Gain on sale of investment | — | (35 | ) | — | (35 | ) | ||||||||
| Net Income (loss) | $ | 133 | $ | 18 | $ | 393 | $ | (32 | ) | |||||
| Dividends on preferred shares | 5 | 8 | 15 | 20 | ||||||||||
| Interest on convertible debentures | — | — | 2 | 2 | ||||||||||
| Net Income (loss) attributable to common shares | $ | 128 | $ | 10 | $ | 376 | $ | (54 | ) | |||||
| Basic earnings (loss) per common share | $ | 0.43 | $ | 0.04 | $ | 1.27 | $ | (0.22 | ) | |||||
| Diluted earnings (loss) per common share | $ | 0.42 | $ | 0.04 | $ | 1.25 | $ | (0.22 | ) | |||||
| Basic weighted average number of shares — 000s | 296,495 | 252,303 | 296,114 | 250,671 | ||||||||||
| Diluted weighted average number of shares — 000s | 304,116 | 252,638 | 303,735 | 250,671 | ||||||||||
- (1)
- Effective January 1, 2004, Noranda retroactively adopted the new Canadian Institute of Chartered Accountants standard for Asset Retirement Obligation which requires that asset retirement obligation be recognized when incurred and recorded as liabilities at fair value. Previously these costs were charged to earnings over the life of the asset.
Effective July 1, 2003, Noranda adopted the U.S. dollar as its reporting and functional currency. This change has been reflected on a retroactive basis.
10
NORANDA INC.
CONSOLIDATED BALANCE SHEETS
($ US millions)
| | Sept. 30 2004 | Dec. 31 Restated 2003 | |||||
|---|---|---|---|---|---|---|---|
| | | (1) | |||||
| Assets | |||||||
Current assets | |||||||
| Cash and cash equivalents | $ | 692 | $ | 501 | |||
| Short-term investments | — | 129 | |||||
| Accounts receivable | 824 | 576 | |||||
| Metals and other inventories | 1,359 | 1,179 | |||||
| 2,875 | 2,385 | ||||||
| Operating capital assets | 4,817 | 4,765 | |||||
| Development projects | 1,021 | 973 | |||||
| Investments and other assets | 305 | 205 | |||||
| $ | 9,018 | $ | 8,328 | ||||
Liabilities and Equity | |||||||
| Current Liabilities | |||||||
| Accounts and taxes payable | $ | 1,058 | $ | 903 | |||
| Debt due within one year | 408 | 431 | |||||
| 1,466 | 1,334 | ||||||
Long-term debt | 2,714 | 2,893 | |||||
| Future income taxes | 175 | 46 | |||||
| Reclamation, pension and other provisions | 615 | 539 | |||||
Stockholders' interests: | |||||||
| Interests of other shareholders | 1,126 | 919 | |||||
| Shareholders' equity | 2,922 | 2,597 | |||||
| $ | 9,018 | $ | 8,328 | ||||
11
NORANDA INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
($ US millions)
| | Third Quarter | Nine Months Ended September 30 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2004 | Restated 2003 | 2004 | Restated 2003 | ||||||||||
| | | (1) | | (1) | ||||||||||
| Cash realized from (used for): | ||||||||||||||
Operations | ||||||||||||||
| Net income (loss) | $ | 133 | $ | 18 | $ | 393 | $ | (32 | ) | |||||
| Charges (credits) not affecting cash: | ||||||||||||||
| Depreciation, amortization and accretion | 133 | 117 | 360 | 340 | ||||||||||
| Minority interests in earnings of subsidiaries | 76 | 10 | 219 | 45 | ||||||||||
| Foreign exchange, restructuring and other | 94 | 1 | 109 | 86 | ||||||||||
| 436 | 146 | 1,081 | 439 | |||||||||||
| Net change in accounts receivable, inventories and payables | (146 | ) | 58 | (274 | ) | (92 | ) | |||||||
| Cash from operations | 290 | 204 | 807 | 347 | ||||||||||
Investment activities | ||||||||||||||
| Capital investments | (189 | ) | (190 | ) | (459 | ) | (403 | ) | ||||||
| Investments and advances | (3 | ) | (24 | ) | 125 | (24 | ) | |||||||
| Proceeds on dispositions | 2 | 85 | 5 | 96 | ||||||||||
| Cash used in investment activities | (190 | ) | (129 | ) | (329 | ) | (331 | ) | ||||||
Financing activities | ||||||||||||||
| Long-term debt, including current portion | ||||||||||||||
| Issued | 58 | 350 | 199 | 741 | ||||||||||
| Repaid | (57 | ) | (407 | ) | (401 | ) | (749 | ) | ||||||
| Issue of shares — common | 2 | 431 | 20 | 431 | ||||||||||
| Issue of shares — preferred | — | — | — | 198 | ||||||||||
| Redemption of preferred shares | — | (105 | ) | — | (105 | ) | ||||||||
| Dividends paid | (40 | ) | (32 | ) | (120 | ) | (99 | ) | ||||||
| Issue of shares — minority shareholders | 1 | 7 | 15 | 2 | ||||||||||
| (36 | ) | 244 | (287 | ) | 419 | |||||||||
| Increase in cash and cash equivalents | 64 | 319 | 191 | 435 | ||||||||||
Cash and cash equivalents, beginning of period | 628 | 409 | 501 | 293 | ||||||||||
Cash and cash equivalents, end of period | $ | 692 | $ | 728 | $ | 692 | $ | 728 | ||||||
12
SALES VOLUMES & REALIZED PRICES
| | | Third quarter | Nine months ended September 30 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | 2004 | 2003 | 2004 | 2003 | ||||||||
| Metal Sales (tonnes, except as noted) | |||||||||||||
| 100% basis, except as noted | |||||||||||||
| Copper | |||||||||||||
| Copper business | |||||||||||||
| CCR | 65,533 | 68,452 | 216,205 | 164,214 | |||||||||
| Kidd Creek | 23,040 | 23,533 | 59,760 | 73,773 | |||||||||
| Horne — (concentrates) | 5,378 | 3,453 | 20,568 | 11,358 | |||||||||
| Antamina — (concentrates) | (33.75%) | 22,537 | 15,160 | 58,488 | 55,271 | ||||||||
| Collahuasi — (concentrates) | (44%) | 59,035 | 25,304 | 108,400 | 85,775 | ||||||||
| Collahuasi | (44%) | 1,510 | 6,880 | 18,538 | 24,645 | ||||||||
| Lomas Bayas | 16,271 | 15,601 | 44,952 | 44,996 | |||||||||
| Altonorte — (anodes) | 18,646 | 59,439 | 117,310 | 122,408 | |||||||||
| 211,950 | 217,822 | 644,221 | 582,440 | ||||||||||
| Nikkelverk | 13,875 | 12,093 | 38,536 | 42,702 | |||||||||
| 225,825 | 229,915 | 682,757 | 625,142 | ||||||||||
Zinc | |||||||||||||
| Copper business | |||||||||||||
| Kidd Creek | 34,496 | 25,407 | 94,696 | 89,285 | |||||||||
| Antamina — (concentrates) | (33.75%) | 13,617 | 26,781 | 47,767 | 73,214 | ||||||||
| 48,113 | 52,188 | 142,463 | 162,499 | ||||||||||
Zinc business | |||||||||||||
| Brunswick/Matagami — (concentrates) | 82,596 | 88,055 | 227,727 | 252,186 | |||||||||
| 130,709 | 140,243 | 370,190 | 414,685 | ||||||||||
Nickel | 15,432 | 17,558 | 51,575 | 58,510 | |||||||||
Ferronickel | 6,247 | 7,361 | 20,832 | 20,352 | |||||||||
Aluminum | |||||||||||||
| Primary Aluminum — shipments | 60,890 | 58,562 | 187,315 | 181,942 | |||||||||
| Norandal — shipments | 43,658 | 38,864 | 131,842 | 112,449 | |||||||||
Lead | 9,581 | 3,928 | 60,055 | 48,843 | |||||||||
Gold — 000 ounces | 245 | 277 | 706 | 726 | |||||||||
Silver — 000 ounces | |||||||||||||
| CCR | 8,868 | 8,654 | 28,387 | 24,044 | |||||||||
| Kidd Creek | 949 | 1,550 | 3,096 | 4,307 | |||||||||
| Antamina | (33.75%) | 624 | 421 | 1,702 | 1,431 | ||||||||
| 10,441 | 10,625 | 33,185 | 29,782 | ||||||||||
Average Realized Prices — ($U.S. per pound, except as noted) | |||||||||||||
| Copper | 1.34 | 0.82 | 1.25 | 0.78 | |||||||||
| Nickel | 6.54 | 4.33 | 6.39 | 3.99 | |||||||||
| Ferronickel | 6.29 | 4.15 | 6.35 | 3.87 | |||||||||
| Zinc | 0.50 | 0.42 | 0.51 | 0.41 | |||||||||
| Aluminum | 0.84 | 0.68 | 0.82 | 0.67 | |||||||||
| Lead | 0.45 | 0.26 | 0.42 | 0.25 | |||||||||
| Gold — (US$ per ounce) | 395.12 | 363.78 | 397.81 | 354.59 | |||||||||
| Silver — (US$ per ounce) | 6.45 | 5.01 | 6.40 | 4.79 | |||||||||
Exchange Rate (US$1 = Cdn$1) | 0.77 | 0.72 | 0.75 | 0.70 | |||||||||
13
NORANDA INC.
PRODUCTION VOLUMES
| | | Third Quarter | Nine Months Ended September 30 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | 2004 | 2003 | 2004 | 2003 | ||||||||
| Mine Production (tonnes, except as noted) | |||||||||||||
| 100% basis, except as noted | |||||||||||||
| Copper | |||||||||||||
| Copper business | |||||||||||||
| Kidd Creek | 8,563 | 11,109 | 32,151 | 32,482 | |||||||||
| Antamina | (33.75%) | 31,027 | 17,560 | 87,560 | 63,959 | ||||||||
| Collahuasi | (44%) | 65,067 | 40,477 | 146,869 | 128,203 | ||||||||
| Lomas Bayas | 15,719 | 15,663 | 46,361 | 45,044 | |||||||||
| 120,376 | 84,809 | 312,941 | 269,688 | ||||||||||
| Matagami | 2,113 | 1,962 | 5,993 | 5,893 | |||||||||
| Brunswick | 1,447 | 2,120 | 4,646 | 6,699 | |||||||||
| INO | 8,435 | 7,786 | 23,052 | 27,732 | |||||||||
| Other | 3,165 | 3,094 | 10,538 | 12,828 | |||||||||
| 135,536 | 99,771 | 357,170 | 322,840 | ||||||||||
Zinc | |||||||||||||
| Zinc business | |||||||||||||
| Brunswick | 64,619 | 69,629 | 200,479 | 214,369 | |||||||||
| Matagami | 33,159 | 28,434 | 91,604 | 78,831 | |||||||||
| 97,778 | 98,063 | 292,083 | 293,200 | ||||||||||
| Kidd Creek | 25,594 | 19,782 | 57,086 | 57,433 | |||||||||
| Antamina | (33.75%) | 15,186 | 32,863 | 55,964 | 90,623 | ||||||||
| Other | 2,570 | 2,958 | 6,961 | 7,050 | |||||||||
| 141,128 | 153,666 | 412,094 | 448,306 | ||||||||||
Nickel | 13,768 | 11,252 | 36,797 | 37,967 | |||||||||
Ferronickel | 7,433 | 7,293 | 22,303 | 20,737 | |||||||||
Lead | 17,383 | 19,023 | 54,808 | 57,359 | |||||||||
Silver — 000 ounces | |||||||||||||
| Copper business | |||||||||||||
| Kidd Creek | 1,088 | 604 | 3,039 | 1,891 | |||||||||
| Antamina | (33.75%) | 770 | 484 | 2,159 | 1,744 | ||||||||
| 1,858 | 1,088 | 5,198 | 3,635 | ||||||||||
| Brunswick | 1,383 | 1,550 | 4,348 | 4,575 | |||||||||
| Matagami | 129 | 107 | 362 | 293 | |||||||||
| Other | 56 | 78 | 179 | 208 | |||||||||
| 3,426 | 2,823 | 10,087 | 8,711 | ||||||||||
Metal Production (tonnes, except as noted) | |||||||||||||
| Refined copper | |||||||||||||
| Copper business | |||||||||||||
| CCR | 63,180 | 71,358 | 209,628 | 160,828 | |||||||||
| Kidd Creek | 30,957 | 24,448 | 83,077 | 99,431 | |||||||||
| Collahuasi | (44%) | 6,894 | 7,241 | 18,715 | 20,686 | ||||||||
| Lomas Bayas | 15,719 | 15,663 | 46,361 | 45,044 | |||||||||
| 116,750 | 118,710 | 357,781 | 325,989 | ||||||||||
| Nikkelverk | 7,857 | 8,882 | 26,837 | 26,260 | |||||||||
| 124,607 | 127,592 | 384,618 | 352,249 | ||||||||||
| Copper anodes | |||||||||||||
| Horne | 27,611 | 43,293 | 112,044 | 93,614 | |||||||||
| Kidd Creek | 31,870 | 22,487 | 85,123 | 95,531 | |||||||||
| Altonorte | 56,469 | 72,781 | 187,561 | 181,791 | |||||||||
| 115,950 | 138,561 | 384,728 | 370,936 | ||||||||||
Refined zinc | |||||||||||||
| Kidd Creek | 23,248 | 5,301 | 87,624 | 74,202 | |||||||||
Refined nickel | |||||||||||||
| Nikkelverk | 15,994 | 15,912 | 50,952 | 56,615 | |||||||||
| Falcondo | 7,433 | 7,293 | 22,303 | 20,737 | |||||||||
| 23,427 | 23,205 | 73,255 | 77,352 | ||||||||||
Primary aluminum | 62,308 | 60,755 | 185,170 | 183,059 | |||||||||
Fabricated Aluminum | 43,658 | 38,864 | 131,842 | 112,449 | |||||||||
Refined lead | 4,549 | — | 57,937 | 47,788 | |||||||||
Refined gold — 000 ounces | 294 | 265 | 829 | 828 | |||||||||
Refined silver — 000 ounces | 8,461 | 6,698 | 28,820 | 22,394 | |||||||||
14
SEGMENTED INFORMATION
(US$ millions)
| | Third Quarter 2004 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Copper | Nickel | Zinc | Aluminum | Other | Total | |||||||||
| Revenues | $ | 924 | 419 | 101 | 233 | 39 | $ | 1,716 | |||||||
Operating expenses | |||||||||||||||
| Cost of operations | 220 | 139 | 31 | 105 | 20 | 515 | |||||||||
| Purchase of raw materials | 412 | 109 | 59 | 99 | 26 | 705 | |||||||||
| Depreciation, amortization and accretion | 60 | 25 | 14 | 9 | 11 | 119 | |||||||||
| $ | 692 | 273 | 104 | 213 | 57 | 1,339 | |||||||||
| Income (loss) generated by operating assets | $ | 232 | 146 | (3 | ) | 20 | (18 | ) | $ | 377 | |||||
Interest expense, net | (31 | ) | |||||||||||||
| Corporate and general administration | (17 | ) | |||||||||||||
| Research, development and exploration | (14 | ) | |||||||||||||
| Minority interest in earnings of subsidiaries | (76 | ) | |||||||||||||
| Income before undernoted | 239 | ||||||||||||||
Tax expense | (99 | ) | |||||||||||||
| Other income | (7 | ) | |||||||||||||
| Net Income | $ | 133 | |||||||||||||
| | | | | | | ||||||||||
Third Quarter 2003 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Restated (1) | ||||||||||||||
| | Copper | Nickel | Zinc | Aluminum | Other | Total | |||||||||
| Revenues | $ | 549 | 297 | 109 | 173 | 37 | $ | 1,165 | |||||||
Operating expenses | |||||||||||||||
| Cost of operations | 191 | 148 | 44 | 96 | 18 | 497 | |||||||||
| Purchase of raw materials | 287 | 68 | 55 | 65 | 21 | 496 | |||||||||
| Depreciation, amortization and accretion | 51 | 33 | 18 | 11 | 8 | 121 | |||||||||
| $ | 529 | 249 | 117 | 172 | 47 | $ | 1,114 | ||||||||
Income (loss) generated by operating assets | $ | 20 | 48 | (8 | ) | 1 | (10 | ) | $ | 51 | |||||
| Interest expense, net | (33 | ) | |||||||||||||
| Corporate and general administration | (12 | ) | |||||||||||||
| Research, development and exploration | (14 | ) | |||||||||||||
| Minority interest in earnings of subsidiaries | (11 | ) | |||||||||||||
| Loss before undernoted | $ | (19 | ) | ||||||||||||
Tax recovery | 1 | ||||||||||||||
| Restructuring costs | (3 | ) | |||||||||||||
| Other expense | 4 | ||||||||||||||
| Gain on sale of investment | 35 | ||||||||||||||
| Net income | $ | 18 | |||||||||||||
15
NORANDA INC.
SEGMENTED INFORMATION
(US$ millions)
| | Nine Months ended September 30, 2004 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Copper | Nickel | Zinc | Aluminum | Other | Total | ||||||||||
| Revenues | $ | 2,621 | 1,336 | 296 | 678 | 132 | $ | 5,063 | ||||||||
Operating expenses | ||||||||||||||||
| Cost of operations | 602 | 437 | 113 | 318 | 51 | 1,521 | ||||||||||
| Purchase of raw materials | 1,348 | 342 | 127 | 272 | 76 | 2,165 | ||||||||||
| Depreciation, amortization and accretion | 168 | 88 | 47 | 28 | 31 | 362 | ||||||||||
| $ | 2,118 | 867 | 287 | 618 | 158 | $ | 4,048 | |||||||||
| Income (loss) generated by operating assets | $ | 503 | 469 | 9 | 60 | (26 | ) | $ | 1,015 | |||||||
Interest expense, net | (92 | ) | ||||||||||||||
| Corporate and general administration | (45 | ) | ||||||||||||||
| Research, development and exploration | (33 | ) | ||||||||||||||
| Minority interest in earnings of subsidiaries | (219 | ) | ||||||||||||||
| Income before undernoted | $ | 626 | ||||||||||||||
Tax expense | (243 | ) | ||||||||||||||
| Other income | 10 | |||||||||||||||
| Net Income | $ | 393 | ||||||||||||||
| | | | | | | |||||||||||
Nine Months ended September 30, 2003 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Restated (1) | |||||||||||||||
| | Copper | Nickel | Zinc | Aluminum | Other | Total | ||||||||||
| Revenues | $ | 1,514 | 887 | 285 | 515 | 132 | $ | 3,333 | ||||||||
Operating expenses | ||||||||||||||||
| Cost of operations | 511 | 458 | 157 | 282 | 60 | 1,468 | ||||||||||
| Purchase of raw materials | 766 | 179 | 138 | 183 | 65 | 1,331 | ||||||||||
| Depreciation, amortization and accretion | 154 | 100 | 47 | 32 | 29 | 362 | ||||||||||
| $ | 1,431 | 737 | 342 | 497 | 154 | $ | 3,161 | |||||||||
| Income (loss) generated by operating assets | $ | 83 | 150 | (57 | ) | 18 | (22 | ) | $ | 172 | ||||||
Interest expense, net | (107 | ) | ||||||||||||||
| Corporate and general administration | (39 | ) | ||||||||||||||
| Research, development and exploration | (34 | ) | ||||||||||||||
| Minority interest in earnings of subsidiaries | (45 | ) | ||||||||||||||
| Loss before undernoted | $ | (53 | ) | |||||||||||||
Tax recovery | 30 | |||||||||||||||
| Restructuring costs | (44 | ) | ||||||||||||||
| Gain on sale of investment | 35 | |||||||||||||||
| Net loss | $ | (32 | ) | |||||||||||||
16