Noranda Inc. Business Information, Profile, and History

Company Perspectives:

Noranda remains committed to exploration activities, both in promising areas of the world where we are not currently active and in areas that are close to existing operations, thereby enabling us to realize inherent synergies and benefit from infrastructure already in place.

History of Noranda Inc.

Noranda Inc. is one of the largest mining and metals companies in the world with operations in 18 countries. Production of copper and nickel accounts for the majority of Noranda's revenues--the company also mines aluminum, zinc, and precious metals. Noranda restructured in the late 1990s by selling off its forest products and oil and gas businesses in order to focus on its core metals and mining assets.

Origins and Development: 1920s-50s

The history of Noranda begins with the story of a prospector named Edmund Horne, and a hunch. During the early 1920s, at a time when northern Canada was unchartered--the area was mostly wilderness, and prospectors preferred to stay on the familiar grounds of Ontario--Horne was drawn to the Rouyn district in northeastern Quebec. He visited Rouyn repeatedly, because he believed it "didn't seem sensible that all the good geology should quit at the Ontario border!" Horne could reach Rouyn only by way of a chain of lakes and rivers.

His enthusiasm was contagious, and soon a group of 12 men had raised C$225 to finance further explorations. The effort paid off when word of Horne's first strike made it to S.C. Thomson and H.W. Chadbourne, two United States mining engineers with a syndicate of investors interested in exploring Canadian mines. In February 1922, the syndicate bought an option on Horne's mining claims in Ontario and Quebec and exercised it. Noranda Mines Ltd. was incorporated in 1922 to acquire the U.S. syndicate's mining claims.

The next task was to make the area more accessible to miners. Roads were cut through the forests, and travel often required skis and sleds. Some equipment arrived by barge and ski-equipped plane, both of which could travel the lakes and rivers with relative ease. The mine began producing gold, copper ore, sulfur, and iron, and Noranda convinced the Canadian government to lay roads, railways, and power lines. Eventually, Noranda Mines Ltd. constructed a mill and a smelter, and a city began to take shape in what was once untamed wilderness.

Not satisfied with this initial success, Noranda Mines began to acquire other holdings. In 1927, it bought 80 percent of the stock in Waite-Ackerman-Montgomery Mines, which changed its name six years later to Waite Amulet Mines Ltd. Also that year, Noranda acquired a majority interest in Aldermac Mines Ltd., of Rouyn.

Because it believed strongly that Canadian ore should be processed in Canadian plants, Noranda Mines eventually acquired or built several processing companies. Canadian Copper Refiners, Ltd., a company in which Noranda Mines held majority interest, was constructed in eastern Canada in 1929 as a joint effort of Noranda Mines, London's British Metal Corporation, and Nichols Copper Company of New York City. The following year, Noranda Mines purchased a rod and wire mill just east of the copper refinery and bought a substantial interest in Canada Wire & Cable Company, Ltd., of Leaside, Ontario.

In the early 1930s, Noranda Power Company, Ltd., a new subsidiary, was formed. In 1934, this company took over the parent firm's power rights and leases on the Victoria River, only to transfer the rights to the government's National Electricity Syndicate under a new agreement four years later.

The 1930s set the stage for a decades-long tradition of growth through acquisitions, as Noranda made its climb to the ranks of Canada's largest companies. In 1935, the firm bought a substantial interest in Pamour Porcupine Mines, Ltd., located in the Porcupine district of Ontario. A few years later, it also acquired a 63.75 percent interest in Compania Minera La India for its gold mines in Nicaragua. In 1939, Noranda bought the controlling interest in Aunor Gold Mines, Ltd., which was formed earlier that year to take over additional Porcupine property. The late 1930s also saw the creation of Noranda Exploration Company, Ltd., a subsidiary formed in 1938 to undertake exploration work in Quebec.

By 1936, output of metals in the province of Quebec totaled well over C$30.6 million, thanks to the development sparked by Noranda Mines. From 1926 to 1936, Noranda stimulated the nation's economy by pouring into it approximately C$71 million in supplies, transportation, salaries, and taxes. By the end of World War II, the area's mineral production had climbed to C$150 million annually.

Perhaps due to the events of World War II, however, the 1940s and even the 1950s saw less corporate activity than earlier decades. Still, the company made two major acquisitions, including Castle Tretheway Mines Ltd.'s Omega Gold Mines, which Noranda Mines bought jointly with Anglo-Huronian Ltd. in 1944. Four years later, Noranda Mines and a subsidiary, Waite Amulet Mines, bought more than 500,000 shares of Mining Corporation of Canada Ltd. In 1956, Noranda acquired a sizable interest in Bouzan Mines Ltd.

Growth Continues in the 1960s-70s

By the early 1960s, the company began to see a flurry of activity, beginning with the acquisition of Western Copper Mills Ltd., located near Vancouver, in 1963. The new acquisition joined with Noranda Copper & Brass Ltd., a Noranda Mines subsidiary, to form Noranda Copper Mills Ltd. Also that year, the company acquired the remaining shares of Mining Corporation of Canada, which continued the firm's exploration efforts. In addition, Anglo-Huronian, Bouzan Mines, Kerr-Addison Gold Mines, and Prospectors Airways--all Noranda affiliates--merged to form Kerr-Addison Mines Ltd.

In December 1964, Noranda Mines made its most important acquisition when it merged with Geco Mines Ltd. The new company retained the name Noranda Mines Ltd. Based in Manitouwadge, in northwestern Ontario, Geco was a major producer of copper, silver, and zinc. The following year, Canada Wire & Cable, in which Noranda Mines had an interest since 1964, became a wholly owned subsidiary. In 1966, the firm also bought 80 percent of Norcast Manufacturing Ltd., which then purchased shares in Wolverine Die Cast Group. Also that year, Noranda Mines formed Noranda Manufacturing, Ltd., a holding company for its various manufacturing subsidiaries. Noranda Mines also acquired a controlling interest in Pacific Coast Company in 1967.

By 1968, Noranda Mines had become a widely held mining company with most of its activities centered in Quebec. Employees numbered 5,000. It was also in 1968 that 37-year-old Alfred Powis became president of Noranda Mines. Formerly a financial analyst in Montreal with Sun Life Assurance Company of Canada, Powis joined Noranda Mines in 1955 as an assistant to the firm's treasurer. Under Powis's leadership, the company began its evolution from a regionally based mining firm to an industry leader with subsidiaries involved in energy and forestry, in addition to mining.

It seems that Powis's aggressive tactics, including a chain of takeovers, were key contributors to the company's success. Powis's success did not come overnight, however. The company first had to weather the impact of several large investments made in the late 1960s.

In the early 1970s, the mining industry, as a whole, was depressed. Consequently, Noranda Mines had limited earnings from 1966 to 1972, increasing in that period by only 21 percent. In addition, gross capital employed rose from C$500 million in 1967 to C$1.5 billion in 1973. The rate of return on that capital dropped from 16 percent in 1966 to only 9 percent in 1972. Powis worked through the cyclical, industry-wide recession, and finally, in 1973, investments began to pay off; Noranda's sales climbed 75 percent to C$121 million, a company record.

Additional investments made in the early 1970s included Tara Exploration and Development Ltd., which owned lead and zinc properties in Ireland, and Belledune Fertilizer Ltd., acquired from Albright & Wilson Ltd. in 1972. The year 1974 saw even more acquisitions, including a 55 percent stake in Fraser Companies Ltd. and Alberta Sulphate Ltd., and 38.5 percent of Frialco, a Cayman Island firm with controlling interest in Friguia, a bauxite mining company in the Republic of Guinea. In addition, Noranda Sales Corporation of Canada Ltd., a subsidiary, bought in the spring of 1971 a 50 percent interest in Rudolf Wolff & Company, a British trading firm dealing with metals and other commodities.

The mining industry, known for caution, watched Powis march on this unusual acquisition path, then witnessed Noranda sales climb from C$60 million in 1972 to C$155 million two years later. It was during this era that a Canadian Business contributor referred to Powis as "the Houdini of the Canadian mining industry."

Diversification in the Late 1970s-80s

In 1976, however, earnings dropped to C$47 million. Demand for the two biggest contributors to the company's sales--copper and zinc--began to lag. The automobile industry was replacing zinc die castings with plastics. Copper, too, was being supplanted by various substitutes, from aluminum for power lines to glass fibers for communication cables.

In addition, many of the firm's earlier investments had been financed with short-term loans, which seemed like a good idea when business was booming. Although Powis acknowledged that money was tight at Noranda Mines in 1977, he defended his decision to load up on short-term debt, telling Canadian Business, "We put restraints on at the end of 1974 when we could see that things were getting grim. Those clamps have stayed on." Powis also indicated he was prepared for the tight zinc market.

To help wait out the cyclical downturn in the mining industry, the company diversified, concentrating on other business segments, such as manufacturing and forestry. As Powis stated in the July 22, 1974, issue of Iron Age, the future of Noranda would be "where our nose takes us. ... We originally got into manufacturing so we could have a home for our products." In addition, the company invested millions of dollars in efforts to convert some old saw mills into profitable lumber plants. That marked its entry into the forestry industry.

In 1981, Powis lost a long-running, highly publicized battle with Brascan, Ltd., a Toronto holding company owned by Edward and Peter Bronfman. Brascan became Noranda Mine's largest stockholder, and Powis, who became accountable to the Bronfmans, stayed on as chief executive officer. Brascan added C$500 million to Noranda Mines's bankroll and set the company back on its acquisition path.

In 1981, Noranda Mines first picked up Maclaren Power and Paper Company, a newsprint, pulp, and wood-products enterprise located in Buckingham, Quebec. The following year, it bought 49.8 percent of MacMillan Bloedel, Canada's largest paper company. The minority shareholding was sufficient to give Noranda Mines control of the company. While the acquisitions were intended to decrease the company's concentration on the lagging copper market, the expansion of the early 1980s initially resulted in decreased profits: in 1980 the firm had record earnings of C$408 million, while in 1983 it lost C$117 million due to interest payments on the acquisitions and expansion loans, which totaled C$169 million in 1983.

Powis and Adam Zimmerman, president of Noranda Mines, shared an optimism that began to pay off in the mid-1980s. Sales of zinc, fine paper, and other products began to recover, and, just as Noranda Mines finished a C$300 million addition to its aluminum smelter, demand for the element skyrocketed. Diversification was paying off, and to reflect its expanded activities the company changed its name from Noranda Mines Ltd. to Noranda Inc. in 1984.

In 1986--after a C$253,900 loss caused by strikes and other labor problems in 1985--the firm's net income stood at C$43,300 and total revenue was C$3.55 billion. In 1987, as various labor strikes were resolved, company officials predicted the firm would see its highest earnings since 1980. Also in 1987, the company was restructured, dividing its various business segments into four subsidiaries: Noranda Energy, Noranda Forest, Noranda Minerals, and Noranda Manufacturing.

In October 1989, after a heated battle between Powis and former protege William James--who had left Noranda and become chairman of Falconbridge, Ltd., a rival mining company--Noranda bought 50 percent of Falconbridge. Ownership of the multibillion dollar company was shared by Trelleborg A.B., a Sweden-based conglomerate. The move not only gave Noranda half of Falconbridge but also ownership of Kidd Creek, a Timmons, Ontario, copper and zinc mine that Noranda had long coveted.

Challenges in the Late 1980s and Early 1990s

Although most of Noranda's assets were located in North America, Noranda marketed its products globally. The firm's goal was to be a premier diversified natural resources company. Under the leadership of President David Kerr, the company remained committed to a sensitive environmental policy, a pledge necessary for any business to be well received in the 21st century. Nevertheless, the company's professions of environmental responsibility and the public's perception of its efforts often diverged. Noranda's Forest division was a frequent target of criticism. While environmental groups decried clear-cutting, Noranda Forest officials often cited re-seeding programs that planted twice as many seedlings as were cut. Although the company was unable to meet environmentalists' demands in some areas, Noranda Forest was compelled to meet consumer demands for recycled paper.

Noranda Forest Recycled Papers was established in 1989 and operated at a mill with a 50-year history of recycled paper production. The mill was the first to receive the Canadian Standards Association's Environmental Choice designation for its inclusion of more than 50 percent recycled paper and 5 percent postconsumer fiber in its fine paper. The operation was very successful, and Noranda raised the postconsumer content of its recycled paper to 10 percent in line with 1991 federal guidelines.

Noranda made halting progress in its handling of labor relations in the 1990s. When officials at a subsidiary, Brenda Mines Ltd. in British Columbia, realized that the mine's ore vein would be exhausted within three years, the company took steps to ensure a more stable transition for its workers. With the cooperation of the Canadian government's department of Employment and Immigration, the provincial Ministry of Advanced Education Training and Technology, representatives of management, and hourly and salaried employees, a job placement center was created to help employees recognize and prepare for new job prospects. The program earned an award from the Canadian Mental Health Association for "excellence in addressing the personal issues" related to the closure.

The Brenda Mines scenario, however, did not necessarily characterize labor relations in the late 1980s and early 1990s. A 94-day strike at the Noranda Aluminum smelter in New Madrid, Missouri, capped a 20-year adversarial relationship at that Noranda division. A ten-month strike that started in July of 1990 at Brunswick Mining and Smelting's huge zinc/lead mine near Bathurst, New Brunswick, threatened to shut down that division. Noranda executives admitted that management-labor relations were never lower, but agreements in 1991 at both subsidiaries focused on more open communications at all levels.

The lingering recession of the early 1990s hit Noranda hard in 1991, when it posted a C$133 million loss for the year. Although the mining and metals and oil and gas groups posted net gains, a C$75 million loss in the forest division cut into those profits. The balance of the losses was blamed on overproduction and the high level of the Canadian dollar relative to the U.S. dollar. The poor financial performance inspired management throughout the conglomerate to focus on cash conservation, cost containment, and asset sales. In 1991, the Canada Wire and Cable division was sold to Alcatel Cable for more than C$400 million.

Changes in the Mid-1990s and Beyond

In the early 1990s, Noranda's Alfred Powis and David Kerr were cautiously optimistic about the conglomerate's future. Encouraging forecasts of persistently low interest rates and a weakening of the Canadian dollar had been offset by lingering low levels of demand for Noranda's products. The company's leadership hoped to merely ride out the financial storm.

For the next several years, Noranda sold off certain unprofitable assets, including holdings in Hemlo Gold, Minnova Inc., MacMillan Bloedel, Central Canada Potash, Norandex Inc., and a 9 percent stake in Noranda Forest Inc. It also looked to make key investments that would pay off in the future. In 1994, it acquired 31.9 million shares of Falconbridge in order to become its largest shareholder. In addition, Noranda purchased the remaining shares of Brunswick Mining and Smelting Corp. that it did not already own. The deal bolstered Noranda's zinc holdings and strengthened its leading position in the industry.

While diversification had played an important role in the firm's business strategy since 1980s, Noranda began to backpedal in 1997 in order to focus on its core metals and mining businesses, and in 1998 divested its forest products and oil and gas businesses--Norcen Energy, Noranda Forest, and Canadian Hunter. A much leaner company, Noranda was left to shore up profits within its metals and mining operations.

It made several strategic moves that included the purchase of several Chilean companies that eventually formed Noranda Chile S.A., a subsidiary that operated the Altotnorte copper smelter in northern Chile. The company also continued to increase its stake in Falconbridge. In 1999, it acquired a stake in the Altamira copper and zinc mine in Peru. Construction on the mine--one of the largest mining projects in the world--was completed in 2001.

The early years of the 21st century were marked by low selling prices and a labor strike at the company's Horne copper smelter. Debt was also on the rise due mainly to expensive mining projects that were in the works. During 2002, the company reported a loss of $447 million. That year the company cut costs by shuttering its Gaspe, Quebec, copper smelter and the Warsaw, Kentucky, wheel plant. The firm also aligned various operations of Noranda and Falconbridge in an attempt to recover profits. It announced that its main focus for future growth would be in the copper and nickel mining industries.

Things began to turn around for Noranda in 2003. The labor strike was resolved and profitability was restored at its Canadian copper operations. Strong demand from China also signaled that prices for Noranda's products would rise. Overall, the company secured net income of $34 million for the year. By early 2004, rumors began to circulate that Noranda's major shareholder, Brascan Corp., was looking for a buyer. Because it would most likely fetch a price of approximately $4.5 billion, potential Noranda suitors would surely come from the pool of industry giants--such as BHP Billiton or Rio Tinto plc. Although consolidation was sweeping through the industry, a deal had yet to be announced by June 2004. While it appeared as though a change might be on the horizon for Noranda, its name in the mining world would no doubt continue to be a mainstay for years to come.

Principal Subsidiaries: Geco Mine; Brunswick Mining; Canadian Electrolytic Zinc Ltd. (95.2%); Mattabi Mines Ltd. (60%); Micro Metallics Corporation; Noranda Mining and Exploration Inc.; Noranda Group Pty. Ltd.; Noranda Sales Corporation Ltd.; Noranda Sales Corporation of Canada Ltd.; Noranda Sales, Inc.; Novicourt Inc. (61%); RudolfWolff & Co. Ltd.; American Racing Equipment, Inc.; Noranda Metallurgy Inc.; Noranda Aluminum, Inc.; Noranda Copper Smelting and Refining; Norandex Inc.; Wire Rope Industries Ltd. (85%); James Maclearen Industries; Noranda Advanced Materials; J.P. Levesque & Sons, Inc.; Northwood Panelborard Company; Heath Steele; Mines Gaspe; Matagami; Fundicion Refimet S.A. (24.8%); Falconbridge Limited (46%); Brunswick Smelting; CCR Refinery; CEZinc; Home Smelter; New Madrid Smelter; Falcondo Mine, Smelter and Refinery (85%); Kidd Creek Operations; Battle Mountain Complex; Golden Giant Mine; Holloway Joint Venture (85%); Kori Kollo (88%); James Maclaren Industries Inc.; Norbord Industries Inc.

Principal Competitors: Corporación Nacional del Cobre de Chile; Inco Ltd.; Teck Cominco Ltd.

Chronology

• Key Dates:
• 1922: Noranda Mines Ltd. is incorporated.
• 1929: Canadian Copper Refiners Ltd. is launched as a joint effort between Noranda, British Metal, and Nichols Copper.
• 1944: Omega Gold Mines is acquired.
• 1948: More than 500,000 shares of Mining Corp. of Canada Ltd. are purchased.
• 1964: Noranda merges with Geco Mines Ltd.
• 1981: Brascan Ltd. becomes the company's largest shareholder.
• 1984: The company changes its name to Noranda Inc.
• 1989: A 50 percent stake in Falconbridge Ltd. is acquired.
• 1995: Noranda purchases the remaining shares of Brunswick Mining and Smelting Corp.
• 1998: The company divests its forest products and oil and gas businesses.
• 2001: Construction of the Altamira copper and zinc mine in Peru is completed.