Cheap Chinese magnesium has flooded the market, driving prices down and forcing NORANDA to close its Magnola magnesium smelter in Danville, Que. Said Derek Pannell, Noranda's president and CEO, "Chinese producers now supply over 50% of the world's magnesium compared with virtually no exports at all in the early 1990s." He noted that the Magnola plant has been a technical success, but it is low prices that are forcing the temporary shutdown. About 380 workers will be laid off for at least a year.
The shutdown and related restructuring of its magnesium business are expected to improve Noranda's cash flow by $100 million annually. Noranda is also taking a $630-million write-down of the book value of its magnesium business in the fourth quarter of 2002. The business will have a residual book value of $300 million.
Despite the large write-down, Pannell remains optimistic about the company's future. "In summary, the firm actions we have taken, the increased leverage to metal prices achieved by our completed capital investment program and the recently improving metal prices will put us on track to substantially improve shareholder returns," he told a news conference on Jan. 28.
CMJ profiled the Magnola smelter in its April 1999 issue. The project is owned 80% by Noranda and 20% by LA SOCIT GNRALE DE FINANCEMENT DU QUBEC (SGF). The partners invested $1.3 billion in the construction and start-up.