Noranda uses hedge settlements to repay $240 million of debt in 2009

By Jennifer Lanning Drey

Portland, Ore., Aug. 5 - Noranda Aluminum Holding Corp. used proceeds from a hedge settlement agreement entered into in March to repurchase $240 million principal amount of its debt for $71 million in the first half of 2009, Robert Mahoney, chief financial officer of Noranda, said Tuesday during the company's second-quarter earnings conference call.

"We view these buybacks of debt at significant discounts to par as an appropriate strategic decision and a meaningful step in deleveraging our balance sheet," Mahoney said.

The company ended the second quarter with total debt of $1.1 billion and cash totaling $182.3 million.

Operating cash flows provided $33 million in the quarter, compared to $22 million in the second quarter of 2008. The improvement reflected better working capital management as well as the favorable impact of cash received from hedge settlement agreements, Mahoney said.

During the second quarter, Noranda reached settlements with its insurance carriers for its pot line freeze claim from a January 2009 outage at its New Madrid, Mo., smelter. The settlements will result in proceeds of $67.5 million.

"We continue to be well positioned in the short- to medium-term because of our cash balances, hedges and financial structure and with no maintenance covenants on our debt," Mahoney said.

Outlook cautiously improving

Also during the call, Noranda chief executive officer Kip Smith said Noranda's achievements during the second quarter, including reaching the insurance settlement, have boosted the company's confidence about its future.

However, market conditions remain challenging from a fundamental supply-demand and competitive cost perspective, the CEO noted.

"Our accomplishments in the last few months are consistent with cautious optimism about the near term and with our long-term view that significant value can be achieved through our participation in the aluminum industry," Smith said.

Noranda reported consolidated sales of $157.7 million for the second quarter, representing an almost 55% decrease from the comparable period in 2008. The second-quarter net loss was $12.1 million, compared with net income of $3.5 million in the same period of 2008.

The company also announced Tuesday that it has reached an agreement with Century Aluminum Co. under which Noranda will become the sole owner of each of its current joint ventures, Grammercy Alumina LLC and St. Ann Bauxite Ltd.

As consideration in the transaction, Noranda has agreed to release Century from certain obligations.

Noranda is a Franklin, Tenn.-based producer of value-added primary aluminum products, as well as high-quality rolled aluminum coils.

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