Nordstrom (TG:NRD)
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Noranda reports quarterly earnings of US$153 million - Highest
Quarterly Results in Over a Decade
TORONTO, April 26 /PRNewswire-FirstCall/ --
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Investors, analysts and other interested parties can access Noranda's
Supplemental Information Package and its quarterly teleconference on its
website at http://www.noranda.com/ under the For Investors and Presentations
and
Webcasts sections. The teleconference will be held on Monday, April 26,
2004 at 4:30 p.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.
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First Quarter Highlights
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- Reported earnings of $153 million compared with a loss of $40 million
in the first quarter of 2003.
- Increased income generated by operating assets by $299 million to $358
million.
- Reduced net debt to total capitalization ratio to 41% from 43% at
year-end 2003, with cash and equivalents increasing to $619 million
from $501 million.
- Achieved increased profitability in all four business units, including
zinc and aluminum.
- Advanced new production capacity at Collahuasi and Kidd Creek, due to
reach operational stage in 2004.
- Began an underground definition program at Nickel Rim South project
with production targeted for 2008.
- Achieved nickel production target following the return to work at the
Sudbury mines.
- Secured additional long-term zinc concentrate supply for the Kidd Creek
refinery.
- Signed a Letter of Intent to acquire a 50% interest in the Kabanga
project in Tanzania, a 30,000-tonne-per-year nickel deposit.
- Signed agreement to acquire 50% interest in Lennard Shelf zinc mine in
Australia.
- Continued ramp-up of aluminum foil production according to plan.
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First Quarter Y-O-Y
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$ millions, except per share information 2004 2003 Change
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Revenues 1,653 1,056 + $597
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Income generated by operating assets(x) 358 59 + $299
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Net income (loss) 153 (40) + $193
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Basic earnings (loss) per common share $0.50 $(0.18) + $0.68
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Diluted earnings (loss) per common share $0.49 $(0.18) + $0.67
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(x) 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 this quarter's strong results," said Mr. Derek
Pannell, Noranda's President and CEO. "Operating earnings have improved
consistently, quarter over quarter, for the last eighteen months. Improved
metal prices and operational leverage in all of our businesses have added
further momentum to the underlying progress that our employees have achieved
through continued cost saving and revenue-generating initiatives."
"We are experiencing the best fundamentals the base metals industry has seen
for more than a decade; nevertheless, we will remain disciplined in controlling
costs while increasing production and margins to maximize profitability."
FINANCIAL RESULTS
Net income was $153 million or $0.50 per common share ($0.49 per common share
diluted) for the quarter. This compares to a net loss of $40 million or $0.18
per common share in the first quarter of 2003, which included an after- tax
restructuring charge of $19 million and the effects of the strike at the Horne
smelter.
The year-over-year improved results are attributed mainly to higher metal
prices, increased production and improved operating efficiencies. These were
offset slightly by the impact of a stronger Canadian dollar and a three-week
labour strike at the Sudbury nickel operations.
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Realized metal prices First Quarter Y-O-Y
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2004 2003 Change
---- ---- ------
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(US$ per pound)
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Copper 1.17 0.76 + 54%
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Nickel 6.88 3.83 + 80%
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Zinc 0.53 0.41 + 29%
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Aluminum 0.79 0.68 + 16%
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Lead 0.41 0.24 + 71%
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Revenues were 57% higher compared to the first quarter of 2003. The increase is
attributed to higher prices for all of the metals that Noranda produces, higher
sales volumes and the continuing ramp-up of the aluminum foil plant. This was
slightly offset by the labour disruption at the Sudbury nickel operations.
The cost of operations was relatively unchanged from a year ago despite higher
production levels and the impact of the stronger Canadian dollar on domestic
operations.
REVIEW OF OPERATIONS
Copper
The Copper business generated income from operating assets of $139 million in
the quarter, exceeding last year's first quarter result of $24 million. This
was partly because last year's results included a strike at the Horne smelter,
but also because the average LME price for copper, excluding premiums, was
$1.24 per pound for the quarter, 65% higher than the first quarter of 2003.
Noranda's integrated cost to produce a pound of copper in its Copper business
was $0.25 per pound in the first quarter of this year.
- In 2004, copper production is expected to increase over the 2003 level
by approximately 20% to 440,000 tonnes. The forecast increase is a
result of the completion of the expansion of the Collahuasi facility,
increased production at the Antamina mine following the removal of the
lake sediments and production from the first phase of the Kidd Mine D
project. All of these projects are on schedule to be in operation in
the second half of 2004 and, as a result, copper operating earnings and
net income will increase substantially from the first quarter should
realized prices stay at these levels.
- Mined production of 85,950 tonnes was below the 93,958 tonnes recorded
in the first quarter of 2003 as higher output at the Antamina and Lomas
Bayas mines were offset by expected lower grades and output at
Collahuasi and a planned eight-day shutdown to complete the transition
and expansion of the mine. At the Antamina mine, the removal of the
lake sediment continued on plan enabling access to higher grade copper
ore. Full removal is expected to be complete by the end of the second
quarter, with metal output increasing at that time along with the
adjusted mine plan.
- Copper anode production from the Altonorte smelter surpassed the
comparable quarter's level by over 55% to total 63,850 tonnes on
account of the recently-completed expansion. Sulphuric acid continues
to generate significant by-product revenue with prices in South America
up $10 per tonne compared with 2003.
- Copper cathode production from the Canadian metallurgical facilities of
111,882 tonnes was 40% higher than a year ago, as a result of
productivity increases and because the comparative period included a
strike at the Horne smelter.
- During the quarter, the Company secured additional supplies of
long-term zinc concentrate for the Kidd Creek refinery. The agreement
will provide the refinery with an additional supply of
over 100,000 tonnes annually of precious metal-bearing zinc
concentrate, which will enable it to run at full capacity with improved
margins.
Nickel
The Nickel business increased income from operating assets by 274% to $187
million over the $50 million generated in the first quarter of 2003. The
average LME nickel price of $6.68 per pound was more than 75% above the first
quarter average for 2003. The impact of the higher prices was partially offset
by the effects of the Sudbury strike on production and costs of approximately
$13 million. The cash operating cost to produce a pound of nickel at the INO
and Falcondo facilities was $2.60 and $2.95, respectively.
- Mined nickel production totaled 19,071 tonnes during the quarter
compared to 19,848 tonnes in the first quarter of 2003. At the Sudbury
operations, all operating targets were achieved ahead of schedule
following the return to work.
- Nickel in matte production at the Sudbury smelter was 11,404 tonnes in
the first three months of 2004 compared with 14,851 tonnes in the same
period of 2003. The smelter will begin an eight-week maintenance
shutdown starting June 14.
- The Nikkelverk refinery produced 18,859 tonnes of refined nickel
compared to 20,563 in the first quarter of 2003.
- The 2004 forecasts are for 47,000 tonnes of mined nickel production
from INO, 28,000 tonnes of ferronickel from Falcondo and 72,000 tonnes
of refined nickel production from Nikkelverk.
Zinc
The Zinc business generated income from operating assets of $2 million in the
quarter compared to a loss of $21 million in 2003. The average LME zinc price
was $0.49 per pound in the quarter, up over 35% from the average in 2003. The
cash cost to produce a pound of zinc was $0.33 per pound.
- Mined production of 100,254 tonnes of zinc metal exceeded the first
quarter 2003 level of 96,082 tonnes as both the Brunswick and Matagami
mines recorded higher production.
- The Brunswick Smelter produced 25,148 tonnes of lead and set a new
monthly silver production record during the period with total
production of 3.1 million ounces.
- The Company recently signed an agreement with Teck Cominco Limited that
will enable it to earn a 50 percent interest in the Lennard Shelf zinc
property in Australia by investing approximately Australian $26 million
in exploration and other expenditures. The property consists of a
number of lead/zinc deposits and a mill with an annual capacity of
3.1 million tonnes of ore. The mine is currently on care and
maintenance but has the potential to significantly increase Noranda's
zinc exposure.
- Mine production for 2004 is estimated at 370,000 tonnes of zinc metal.
Aluminum
The Aluminum business generated income from operating assets of $16 million in
the quarter up from $10 million reported in the first quarter of 2003. The
average LME aluminum price improved 19% year-over-year to average $0.75 for the
quarter. Noranda's cash cost to produce a pound of aluminum was $0.57 per
pound.
- The primary smelter increased shipments to 60,745 tonnes from 59,852
tonnes in the first quarter of 2003. Value-added product sales were 8%
higher in the period and accounted for 77% of total shipments.
- Shipments of foil products were up 15% over last year to total 42,388
tonnes. Most of the increase was in heavy-gauge products and resulted
from the continuing ramp-up at the Huntingdon West plant.
- In 2004, shipments of primary aluminum and foil products are expected
to total 250,000 tonnes and 175,000 tonnes, respectively.
New Production Capacity Under Development
At Collahuasi, the move from the Ujina to Rosario deposit and the expansion of
the concentrator to 110,000 tonnes per day of ore are on schedule and budget.
At the end of March, the project was over 90% complete. The commissioning of
the new crusher and the conveyor belt began at the end of March.
The Kidd Creek Mine D project is advancing as planned with first ore production
expected by the end of 2004 with ramp-up during the first half of 2005. Mine D
will improve operational reliability and production predictability and maintain
the mining rate at 2.4 million tonnes per year.
Construction on the Montcalm nickel project in Ontario continued in the
quarter, with completion expected in the first quarter of 2005. The mine's
annual production of 8,000 to 9,000 tonnes will be processed at the Kidd Creek
mill and INO smelter and refinery.
During the quarter, the Company updated the estimate of the inferred resources
at the Nickel Rim South deposit to 13.2 million tonnes grading 1.7% nickel,
3.5% copper, 0.04% cobalt and significant platinum group metals. Additional
surface drilling continues to define the resource, which remains open in the
up-dip direction. An underground definition program was approved and site
preparation for the five-year, $368-million development program was started
with production expected in 2008. Once completed, a further $185 million will
be 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
$413 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.
Exploration is continuing at the Fraser Morgan nickel deposit, which now has an
indicated resource of 3.8 million tonnes grading 1.71% nickel, 0.52% copper and
0.06% cobalt, plus inferred resources of 2.5 million tonnes grading 1.4%
nickel, 0.4% copper and 0.05% cobalt. A major advantage of this deposit is that
it is accessible from the existing Fraser Mine infrastructure.
Work on the Kabanga nickel joint venture continues to advance, with efforts
focused on completing the due diligence, closing documents and off-take
agreements.
At the Koniambo project in New Caledonia, the bankable feasibility study was
advanced. The Company and its partners intend to be in a position to make a
development decision on the project by the end of 2004.
Capital Initiatives
Cash, cash equivalents and short-term investments increased $107 million from
year-end 2003 to $737 million. Total debt was relatively unchanged at $3.3
billion. The net debt to equity ratio was reduced to 41% from 43% at year-end
2003. In the second quarter, Noranda will be retiring $300 million of maturing
debt. The Company has almost $1 billion of consolidated undrawn committed bank
lines. Cash generated from operations, before the net change in accounts
receivables, payables and inventories was $350 million during the quarter,
approximately $250 million higher than in 2003.
During the quarter, the Company deployed $78 million in high-return investment
projects. The expanded capacities at both the Kidd Mine D and Collahuasi copper
mines are on schedule to begin production before the end of the year. For 2004,
the Company's total projected capital investment is $675 million, including
$400 million in new production capacity.
Market Review
Copper: LME copper prices averaged $1.24 per pound in the first quarter
compared to the prior year's first quarter average of $0.75 per pound. While
higher than in 2003, current prices are approximately $1.30 per pound and
reached as high as $1.41 in March 2004.
Market sentiment remains strong as all industry participants continue to feel
the impact of restricted copper supply and strong demand. The effects of mine
disruptions and output restrictions from some major producers continue to limit
mine supply. Several smelters are operating well below capacity with a number
of Asian operations announcing cutbacks in output for 2004. While China remains
a key driver behind global metal demand, positive changes are also occurring in
the U.S. and Japan. Total exchange inventories declined further at the end of
the quarter. A 200,000-tonne producer stockpile, which was built in the latter
half of 2003, has now been largely sold with physical deliveries spread
throughout the first half of the year. Overall inventories are now less than
three weeks of consumption, below the critical four-week threshold.
Nickel: LME nickel prices averaged $6.68 per pound in the first quarter.
The first quarter saw evidence of increased scrap availability and destocking
by traders and consumers in response to the elevated nickel price, but the
underlying nickel consumption fundamentals continue to be robust. Global
industrial production growth is expected to be very strong during 2004 and well
into 2005, with the peak occurring at the end of 2004/early 2005. Nickel's
fortunes are closely linked to stainless steel growth, which is strongly
correlated to industrial production. The nickel market is expected to continue
to benefit from constrained short-term supply of both primary nickel and
stainless steel scrap, strong demand emanating from Chinese stainless steel
expansions, and limited major greenfield nickel projects on the horizon.
Zinc: The zinc price recovery, which began at the end of 2003, continued into
the first quarter of 2004. LME cash settlement prices climbed to a high of
$0.51 per pound in February while the average for the quarter increased $0.06
to $0.49 per pound compared to the previous quarter.
Improved demand and the positive investment outlook for base metals continue to
underpin the market. LME stocks decreased during the quarter by 24,700 tonnes.
Developments in China are the main features of the market. According to
official statistics, Chinese imports of zinc concentrate increased 9% last year
while net metal exports fell 16% since China imported a large quantity of zinc
alloys to satisfy strong domestic demand. Consumption in China is estimated to
have grown 11% last year, a trend that has continued into the first quarter.
U.S. consumption has rebounded sharply while the growth in Asia is broadening
throughout the region. New metal supply is expected to be constrained by mine
output again this year and most industry experts agree that the global zinc
market will be in deficit during 2004.
Aluminum: The LME aluminum price traded as high as $0.80 per pound during the
quarter as the weaker U.S. dollar continues to provide support and fuel for the
U.S. production of goods and services. Currently, the U.S. Midwest delivery
premium is at its highest level in almost a decade at $0.07 per pound.
Fundamentals for aluminum continue to improve as the U.S. order levels
strengthened during the quarter and the Japanese economy is showing signs of
sustained improvement. On the supply side, an estimated 350,000 tonnes of
annual Chinese capacity has been taken out of production as a result of rising
alumina costs and regional power constraints.
Dividends
The following dividends have been declared:
Security Dividend Amount Record Date Payable Date
-------- --------------- ----------- ------------
Common shares Cdn$0.12 per share May 31, 2004 June 15, 2004
Preferred Series
F shares Floating rate May 31, 2004 June 12, 2004
Preferred Series
F shares Floating rate June 30, 2004 July 12, 2004
Preferred Series
F shares Floating rate July 30, 2004 August 12, 2004
Preferred Series
G shares Cdn$0.38125 per share July 15, 2004 August 1, 2004
Preferred Series
H shares Cdn$0.40625 per share May 15, 2004 June 30, 2004
Outlook
"The fundamentals and outlook for all the markets in which Noranda participates
are very positive. Improved operational leverage to metal prices combined with
a portfolio of low-risk growth projects set the stage for an extended period of
strong performance by Noranda," concluded Mr. Pannell.
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This news release contains forward-looking statements concerning the Company's
business and operations. The Company cautions that, by their nature,
forward-looking statements involve risk and uncertainty and the Company's
actual results could differ materially from those expressed or implied in such
statements. Reference should be made to the most recent Annual Information Form
for a description of the major risk factors.
Noranda is a leading copper and nickel company with investments in
fully-integrated zinc and aluminum assets. The Company's primary focus is the
identification and development of world-class copper and nickel mining
deposits. It employs 15,000 people at its operations and offices in 18
countries and is listed on The New York Stock Exchange and The Toronto Stock
Exchange (NRD).
Note: This press release is also available at http://www.noranda.com/. All
dollar amounts are in U.S. dollars unless otherwise noted.
NORANDA INC.
CONSOLIDATED RESULTS
(US$ millions)
First Quarter
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2004 2003
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Revenues $ 1,653 $ 1,056
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Operating expenses
Cost of operations 467 469
Purchased raw materials 711 414
Depreciation, amortization and reclamation 117 114
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1,295 997
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Income generated by operating assets 358 59
Interest expense, net 25 38
Corporate and general administration 13 13
Research, development and exploration 7 8
Minority interest in earnings of subsidiaries 79 16
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Income (loss) before undernoted 234 (16)
Tax expense (recovery) 86 (6)
Restructuring costs - 30
Other income (5) -
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Net income (loss) $ 153 $ (40)
Dividends on preferred shares 5 3
Interest on convertible debentures 1 1
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Income (loss) attributable to common shares $ 147 $ (44)
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Basic earnings (loss) per common share - $ $ 0.50 $ (0.18)
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Diluted earnings (loss) per common share - $ $ 0.49 $ (0.18)
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Basic weighted average shares outstanding - 000s 295,070 241,560
Diluted weighted average shares outstanding - 000s 297,438 241,560
Note: Effective July 1, 2003, Noranda adopted the US dollar as its
reporting and functional currency. This change has been reflected on a
retroactive basis.
NORANDA INC.
CONSOLIDATED BALANCE SHEETS
(US$ millions)
Actual
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Mar. 31 Dec. 31
2004 2003
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Assets
Current assets
Cash and cash equivalents $ 619 $ 501
Short-term investments 118 129
Accounts receivable 759 576
Metal and other inventories 1,245 1,179
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2,741 2,385
Operating capital assets 4,698 4,765
Development projects 1,047 973
Investments and other assets 283 205
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$ 8,769 $ 8,328
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Liabilities and Equity
Current liabilities
Accounts and taxes payable $ 1,061 $ 903
Debt due within one year 465 431
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1,526 1,334
Long-term debt 2,839 2,893
Future income taxes 91 46
Reclamation, pension and other provisions 589 539
Stockholders' interest:
Interests of other shareholders 1,000 919
Shareholders' equity 2,724 2,597
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$ 8,769 $ 8,328
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NORANDA INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS
(US$ millions)
First Quarter
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2004 2003
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Cash realized from (used for):
Operations
Net income (loss) $ 153 $ (40)
Charges (credits) not affecting cash:
Depreciation, amortization and reclamation 106 105
Future taxes 43 (16)
Minority interests in earnings of subsidiaries 79 16
Foreign exchange, restructuring and other (31) 44
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350 109
Net change in accounts receivable, inventory and
payables (88) (103)
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Cash from operations 262 6
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Investment activities
Capital investments (124) (101)
Investments and advances 10 -
Proceeds on dispositions 2 1
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Cash used in investment activities (112) (100)
--------- ---------
Financing activities
Long-term debt, including current portion
Issued 28 59
Repaid (44) (54)
Issue of shares - common 13 -
Issue of preferred shares - 98
Dividends paid (40) (29)
Issue of shares - minority shareholders, net 11 -
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(32) 74
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Increase (decrease) in cash and cash equivalents 118 (20)
Cash and cash equivalents, beginning of period 501 293
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Cash and cash equivalents, end of period $ 619 $ 273
NORANDA INC.
PRODUCTION VOLUMES
First Quarter
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2004 2003
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Mine Production (tonnes, except as noted)
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100% basis,
Copper except as noted
---------------
Kidd Creek 9,296 10,718
Matagami 1,856 2,003
Brunswick 1,842 2,386
INO 5,536 9,061
Antamina (33.75%) 25,557 24,457
Collahuasi (44%) 35,369 44,211
Lomas Bayas 15,728 14,572
Other 4,430 6,489
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99,614 113,897
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Zinc
Kidd Creek 20,792 21,172
Brunswick 73,580 70,798
Matagami 26,674 25,284
Antamina (33.75%) 22,469 24,168
Other 1,544 1,972
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145,059 143,394
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Nickel 11,072 12,961
Ferronickel 7,999 6,887
Lead 20,287 18,425
Silver - 000 ounces
Kidd Creek 1,194 739
Brunswick 1,602 1,482
Matagami 114 97
Antamina (33.75%) 653 685
Other 50 69
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3,613 3,072
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Metal Production (tonnes, except as noted)
------------------------------------------
Refined copper
CCR 78,160 43,026
Kidd Creek 33,722 36,959
Nikkelverk 9,746 8,535
Collahuasi (44%) 6,152 6,862
Lomas Bayas 15,728 14,572
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143,508 109,954
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Copper anodes
Horne 43,234 28,267
Kidd Creek 33,597 36,768
Altonorte 63,850 41,093
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140,681 106,128
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Refined zinc
Kidd Creek 28,458 37,935
Refined nickel
Nikkelverk 18,859 20,563
Falcondo 7,999 6,887
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26,858 27,450
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Primary aluminum 61,220 61,126
Fabricated aluminum 42,388 36,925
Refined lead 25,148 24,466
Refined gold - 000 ounces 269 270
Refined silver - 000 ounces 10,123 8,668
NORANDA INC.
SALES VOLUMES & REALIZED PRICES
First Quarter
--------------------
2004 2003
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Metal Sales (tonnes, except as noted)
-------------------------------------
100% basis,
Copper except as noted
---------------
CCR 84,986 47,154
Kidd Creek 10,272 28,773
Nikkelverk 13,197 14,470
Home - (concentrates) 17,605 9,711
Antamina -
(concentrates) (33.75%) 11,609 22,414
Collahuasi -
(concentrates) (44%) 11,957 35,914
Collahuasi (44%) 5,914 8,515
Lomas Bayas 15,935 14,578
Altonorte - (anodes) 55,097 29,661
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226,572 211,190
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Zinc
Kidd Creek 26,525 35,517
Antamina -
(concentrates) (33.75%) 14,219 15,400
Brunswick/Matagami -
(concentrates) 74,134 78,027
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114,878 128,944
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Nickel 18,118 20,390
Ferronickel 6,777 6,536
Aluminum
Primary aluminum - shipments 60,745 59,852
Norandal - shipments 42,388 36,925
Lead 21,211 18,469
Gold - 000 ounces 236 236
Silver - 000 ounces
CCR 9,326 9,082
Kidd Creek 1,004 1,204
Antamina (33.75%) 423 575
--------- ---------
10,753 10,861
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Average Realized Prices - ($U.S. per pound, except as noted)
------------------------------------------------------------
Copper 1.17 0.76
Nickel 6.88 3.83
Ferronickel 6.80 3.65
Zinc 0.53 0.41
Aluminum 0.79 0.68
Lead 0.41 0.24
Gold - (US$ per ounce) 403.55 354.63
Silver - (US$ per ounce) 6.33 4.72
Exchange Rate (US$ (equal sign) Cdn$) 0.76 0.66
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NORANDA INC.
SEGMENTED INFORMATION
(US$ millions)
Three Months ended March 31, 2004
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Alum-
Copper Nickel Zinc inum Other Total
-------------------------------------------
Revenues $ 844 481 85 204 39 $ 1,653
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Operating expenses
Cost of operations 195 140 34 103 (5) 467
Purchase of raw materials 462 122 31 76 20 711
Depreciation, amortization
and reclamation 48 32 18 9 10 117
-------------------------------------------
$ 705 294 83 188 25 $ 1,295
-------------------------------------------
Income generated by
operating assets $ 139 187 2 16 14 $ 358
-------------------------------------------
Interest expense, net (25)
Corporate and general administration (13)
Research, development and exploration (7)
Minority interest in earnings of subsidiaries (79)
---------
Income before undernoted 234
Tax expense (86)
Other income 5
---------
Net income $ 153
---------
Three Months ended March 31, 2003
-------------------------------------------
Alum-
Copper Nickel Zinc inum Other Total
-------------------------------------------
Revenues $ 471 284 87 171 43 $ 1,056
Operating expenses
Cost of operations 166 143 52 90 18 469
Purchase of raw materials 229 62 43 60 20 414
Depreciation, amortization
and reclamation 52 29 13 11 9 114
-------------------------------------------
$ 447 234 108 161 47 $ 997
-------------------------------------------
Income (loss) generated by
operating assets $ 24 50 (21) 10 (4) $ 59
-------------------------------------------
Interest expense, net (38)
Corporate and general administration (13)
Research, development and exploration (8)
Minority interest in earnings of subsidiaries (16)
----------
Loss before undernoted $ (16)
Tax recovery 6
Restructuring costs (30)
----------
Net loss $ (40)
----------
DATASOURCE: Noranda Inc.
CONTACT: Denis Couture, Vice-President, Investor Relations, Public
Affairs & Communications, (416) 982-7020; Steve Douglas,
Executive Vice-President and Chief Financial Officer, (416) 982-3554