Noranda slashes dividend, stuns investors and analysts

Gary Park

Petroleum News Calgary correspondent

Noranda, the Toronto-based international metal producer, has stunned investors and analysts by slashing its long-standing quarterly dividend payouts by 40 percent because of low prices for many base metals and a shaky economic outlook.

It will also dilute its equity with C$500 million in new shares, then issue US$300 million in new debt to take advantage of low interest rates.

The initiatives are aimed at maintaining investment grade ratings on C$4.1 billion in debt.

Chief Executive Officer Derek Pannell said July 25 that fixing the debt-heavy balance sheet is what the company must do to position itself for better times.

He is hoping the entire package will improve Noranda’s debt-to-capitalization ratio to 38 percent from 51 percent at the end of 2002.

Brascan, which owns 40 percent of Noranda, has already agreed to buy up to C$300 million of the new shares.

Also tied up in maneuvering is Falconbridge, the world’s leading nickel producer. Noranda owns 60 percent of Falconbridge and has said it will take the company private if the price is right.

Some analysts believe the recapitalization plan is part of a strategy that will see Noranda eventually take over Falconbridge.