MBEF Points to Contradictions in Noranda Financial Claims
MBEF Points to Contradictions in Noranda Financial Claims
Company’s Annual Report Presents a Rosy Picture That Contradicts CEO’s Comments
Jefferson City — Missourians for a Balanced Energy Future today said Noranda Aluminum officials are boasting about the company’s strong financial position to their shareholders while simultaneously telling state policy makers that the company is on the brink of survival and cannot afford any increase in electric rates.
Noranda already pays the lowest electric rates of any Ameren customer – less than half the rate residential customers pay. And a recent study by the Missouri Office of Public Counsel says Noranda’s rates are currently $26 million below what it costs to provide the company with electric service. Missouri utility customers (in this case, Ameren’s other customers) are forced to make up the difference, thereby subsidizing Noranda’s electric rates.
In a July 28th, 2010, conference call with financial analysts, Noranda CEO Kip Smith made clear that he was content with the company’s electric rates:
“We also had a successful outcome in our efforts to maintain globally competitive power cuts [sic]. In late June, the Missouri Public Service Commission ruled on Ameren July 2009 power rate case. The PSC’s ruling resulted in no substantive change to the base power rate for our aluminum smelter in New Madrid. This is a significant outcome because it helps keep Noranda’s power cost competitive and supports Noranda’s objective to have globally competitive cost. Although our rate is still exposed to fuel adjustments, we remain pleased with our power contract. We have secured a supply through a long-term contract, which gives us ample capacity for our facility with virtually no take or pay.” (Fair Disclosure Wire, July 28, 2010, Q2 2010 Noranda Aluminum Holding CORP Earnings Conference Call.)
Nonetheless, Noranda officials have been making veiled threats to legislators and opinion leaders, claiming that any increases in electric rates could threaten the company’s survival in Missouri.
Most recently, at a Chamber of Commerce meeting in Jefferson City on April 7, Smith warned that Noranda’s electric rates are unfairly high and said rate hikes threaten the smelter’s ultimate survival, according to news reports. Smith called the issue of electric rates “moment of truth.”
However, on page 3 of Noranda’s 2010 annual report released in March, Smith, in a letter to stockholders, says : “2010 was a great year for Noranda. We delivered strong financial performance, while taking actions and making strategic investments that support our sustainable future success.”
Smith goes on to say: “We are proud of our strong financial results in 2010. We generated $271 million of cash flow from operating activities in 2010, compared to $221 million in 2009. We improved total segment profit to $216 million from $20 million a year earlier. Excluding special items such as a business combination gain in 2009 and debt repurchase gains in 2009 and 2010, our 2010 net income was $45 million, compared to a 2009 net loss of $125 million.”
“While achieving these results, we also strengthened our company by completing an initial public offering and a follow-on offering. These offering were complemented with significant debt pay down that has created financial capacity and flexibility to support our growth,” said Smith.
Page 1 of the annual report also reveals that Noranda believes it will benefit from higher aluminum prices. “We are bullish on aluminum over the medium and long-term. … [W]e believe demand fundamentals will continue to support upward pressure on aluminum prices over the medium and long term.”
On page 8, Smith adds: “In 2010, the aluminum industry experienced a robust recovery from the downturn of 2008 and 2009. For 2011, industry experts predict continued improvement in both demand and price.”
According to the report, Noranda’s sales in 2010 were about $30 million above 2008 sales and about $525 million above 2009 sales.
With regard to the New Madrid plant, Smith states on page 4: “During the fourth quarter of 2010, New Madrid achieved a new quarterly production record, setting the stage for the re-launch of an expansion project that will add 35 million pounds to its capacity starting in 2013 at a projected cost of $38 million. Our St. Ann bauxite mine and our Gramercy alumina refinery also returned to full operating capability during 2010, and our 2010 financial success demonstrated the value of this strategic integration.”
According to the report, Noranda’s net income after taxes for 2010 was $66.9 million.
In last year’s electric rate case, Noranda received a rate reduction of approximately $2.1 million, according to the Public Service Commission (Order on Case ER 2010-0036, 5/28/10, p 69.)
“It’s hard to reconcile Noranda’s public statements with the rosy picture it is painting for its shareholders,” said Irl Scissors, MBEF Executive Director. “Noranda enjoys highly favorable electric rates in a state which has among the lowest rates in the nation.”
Noranda’s 2010 annual report is available here: https://investor.norandaaluminum.com/phoenix.zhtml?c=220051&p=irol-reportsAnnual
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