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Severe weather could cost Noranda $5.6M

Mar 12, 2014 | 12:13 PM | Michael Cowden

Tags  aluminum, alumina, bauxite, Noranda, New Madrid Mo., Gramercy La., SEC, winter weather michael cowden

CHICAGO — Noranda Aluminum Holding Corp. could suffer a hit to first-quarter pre-tax income to the tune of as much as $5.6 million due to weather-related production issues at its smelter in New Madrid, Mo., and its alumina refinery in Gramercy, La.

“Extraordinary weather production disruptions” at the facilities in January and February might boost integrated cash costs in the first quarter by 3 to 4 cents per pound, the Franklin, Tenn.-based aluminum producer said in a U.S. Securities and Exchange Commission filing.

The estimated pre-tax income hit is based on expectations that about 140 million pounds of material would be shipped from New Madrid in the first quarter, a company spokesman told AMM March 11. That means a 3-cent-per-pound increase in cash costs would result in a $4.2-million drop in pre-tax income, and a 4-cent-per-pound gain in cash costs would lower that figure by $5.6 million.

Gramercy, which has a nameplate capacity of 1.2 million tonnes of alumina per year, saw production drop by less than 10 percent, the spokesman said. New Madrid, which has a permitted capacity of 588,000 pounds of aluminum per year, suffered a production hit of less than 5 percent, he added.

Cold and wet weather made Noranda’s operations less efficient, spread fixed costs across smaller production volumes and also led to higher maintenance spending, the spokesman said, adding that both facilities returned to normal production levels this month.

Higher maintenance costs were a bigger issue at New Madrid, where cranes wouldn’t function, mobile equipment—such as forklifts—wouldn’t start, and control panels froze, the spokesman said. “Think about your car or the plumbing in your house. If it’s really cold for a long time, stuff breaks more than it otherwise would; so our maintenance guys were just busy constantly.”

At Gramercy, cold weather made operations less efficient and forced Noranda to consume more raw materials, such as bauxite and natural gas, than it normally would, the spokesman said. Natural gas also was more expensive, although the company had previously taken higher energy prices into account.

“It just takes more of everything to make the same amount of product,” the spokesman said. “It’s going to take more bauxite to make a tonne of alumina ... and production of alumina is very much a chemical operation that requires a certain amount of heat, so it took more natural gas to generate that heat.”

While production was chilled by the weather, Noranda didn’t have any issues getting product to its customers, the spokesman said.

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