RNS No 2237b
MINORCO
11th March 1998
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR TO DECEMBER 31, 1997
YEAR IN BRIEF
- Significant reduction in commodity prices in
fourth quarter arising from Asian financial crisis.
- Operating earnings increase by 10% to US$663 million.
- Net earnings before exceptional items decrease by 17%
to US$329 million.
- Construction of Collahuasi copper project and Cerro
Vanguardia gold project well advanced - first production
scheduled for 1998.
- Construction commenced at Loma de Niquel and Lisheen.
- Mondi Minorco Paper expands further into eastern Europe
and Terra acquires major nitrogen manufacturing facilities
in the UK.
Highlights 1997 1996
US$ millions
Sales 5,662 5,014
Operating earnings 663 605
Earnings before exceptional items,
taxation and minority interests 618 644
Net earnings 305 336
Net earnings before exceptional items 329 396
Net cash provided by operating activities 1,033 538
Capital expenditure 985 674
Acquisitions and investments 631 85
US$ per share:
Net earnings 1.36 1.50
Net earnings before exceptional items 1.46 1.77
Dividends declared 0.64* 0.63
* Recommended by directors and subject to shareholders'
approval
"While commodity price weakness weighed on our results, there
were significant improvements in operating performance
across the group."
Julian Ogilvie Thompson, Chairman
Overview of Results
While 1997 net earnings at US$305 million were only US$31
million lower than in the previous year, earnings before
exceptional items, which reflect underlying business
performance, were US$329 million, US$68 million lower than
the record level achieved in 1996. An operating earnings
increase of 10% to US$663 million was more than offset by
lower financial and equity income, higher taxation and the
absence of income from the sale of exploration properties.
1997 was a mixed year for commodity prices. Copper and
zinc prices increased in the first half of the year but
fell sharply in the fourth quarter reflecting concerns
about overcapacity in the industry and the Asian economic
crisis. Gold prices were depressed for much of the year
and in the fourth quarter fell to levels not seen for 18
years. Lower nitrogen fertiliser prices and higher natural
gas costs affected the agribusiness segment. These adverse
price changes which reduced operating earnings by around
US$80 million were more than offset by volume increases,
by the impact of acquisitions and the benefits of the
restructuring of the mining businesses in 1996.
The increase in operating earnings was principally generated
by the base metals segment, where operating earnings increased
from US$39 million to US$112 million. The gold segment and the
paper and packaging segment recorded smaller increases and
operating earnings of the agribusiness segment fell by US$41
million to US$271 million. Overall the earnings of the
industrial minerals segment were in line with the prior year.
Sales revenue
Minorco's sales revenue was US$5.7 billion in 1997
compared with US$5.0 billion in 1996, principally as a result
of higher sales in the paper and packaging and agribusiness
segments.
Operating earnings
Minorco's gold operations contributed US$43 million, a US$9
million increase over the previous year. The average market
price of gold fell by US$57 to US$331 per ounce in 1997.
Realised prices were lower at US$342 per ounce compared with
US$390 per ounce in 1996 and reduced operating earnings by
US$35 million. Attributable production increased by 63,000
ounces to 891,000 ounces. Despite the lower prices, earnings
improved due to the restructuring at Morro Velho, lower unit
costs at Jerritt Canyon and higher production from Pikes Peak.
Base metals earnings increased by US$73 million to US$112
million. The average market price for copper was virtually
unchanged from 1996 at 103 US cents per pound, the average
price of zinc increased by 28% to 60 US cents per pound and
nickel fell by 8% to US$3.14 per pound. In terms of realised
prices, copper, at 103 US cents per pound, was 3 US cents higher
than in 1996, zinc 13 US cents higher at 64 US cents per pound
and nickel 29 US cents per pound lower at US$3.03 per pound.
Attributable copper production at 178,000 tonnes was virtually
unchanged but Hudson Bay's zinc production fell by 6,000
tonnes to 78,000 tonnes. The better prices, together with the
benefits of the restructuring at Hudson Bay and increased
production at Mantos Blancos, led to the significant
improvement in earnings. In Brazil, operating earnings at
the nickel operations increased with cost savings more than
offsetting the lower price. Earnings at Catalao, the niobium
producer, were unchanged.
The industrial minerals segment contributed earnings of US$134
million compared with US$136 million in 1996. The European
Industrial Minerals Division increased earnings by around 11%.
While the UK operations performed well, the German operations
continued to suffer from the depressed conditions in the
construction industry. In particular, falling prices and
static sales contributed to a fall in operating earnings at
our major sand and gravel producer, Elbekies. The Spanish
operations also suffered from prices which were level with or
lower than last year. Copebras' operating earnings were
ahead of the previous year with carbon black and STPP broadly
in line with 1996 and a strong performance from fertilisers.
Carbon black sales reached record levels, but prices were
depressed by competition from imports. Cleveland Potash also
suffered from lower prices combined with the strength of
sterling and this was exacerbated by lower production due
largely to more difficult geological conditions in the mine.
The paper and packaging segment contributed US$103 million
compared with US$84 million in 1996. The earnings increase
was due to the Austrian operations where Neusiedler and Pols
made significant improvements, principally from a combination
of higher prices, lower timber costs and productivity
improvements. Swiecie, the Polish acquisition, was
included for the first time. These improvements were
partly offset by lower earnings from Aylesford Newsprint
where lower US dollar prices for newsprint and the strength
of sterling could only be partly compensated for by lower
input costs and overhead savings.
Terra recorded operating earnings of US$271 million,
13% down on the prior year. Operationally, the
nitrogen business had an excellent year. The autumn
fertiliser season was good with nitrogen solutions and urea
sales volumes up substantially. Earnings were, however,
adversely impacted by lower prices for nitrogen solutions
combined with higher natural gas input costs. Nitrogen
solutions prices were, on average, around 13% lower and urea
prices about 20% lower than in 1996 and natural gas costs
were around 27% higher, although the gas hedging programme
reduced input costs by US$42 million in the year. The
fertiliser price decline was attributable to world-wide
oversupply, reflecting China's reduced nitrogen fertiliser
imports in 1997. The decrease in the nitrogen business
earnings was partly offset by higher earnings from the
methanol business and the distribution business.
Unforeseen plant shut-downs throughout the industry
caused the price of methanol to average 58 US cents per
gallon in 1997 compared with 42 US cents per gallon in
1996. Gas hedging reduced input costs in this business by
US$15 million in 1997. Distribution benefited from the
acquisition of new dealerships and increased volumes in
all crop input categories.
Other components of earnings
Net corporate costs amounted to US$133 million compared
with US$69 million in 1996. This was primarily due to the
absence of income from the sale of exploration properties,
marginally lower financial income and higher interest expense.
Following the sale of many of our investments in 1996,
earnings from equity investments fell US$20 million.
Engelhard again achieved record earnings before exceptional
items, increasing by 8% over 1996 to US$163 million.
The tax charge in 1996 benefited from the sharing of tax
losses between Terra and Hudson Bay. An increase in earnings
attributable to minorities resulted from the restructuring of
the paper and packaging group at the end of 1996.
Exceptional items
Exceptional items amounted to a net charge of US$24 million;
the principal components being an impairment provision at
Independence Mining and restructuring and other provisions at
Engelhard, offset by the gain arising from Terra's insurance
claim in respect of the Port Neal explosion. This gain represents
the difference between the insurance settlement received on the
Port Neal plant and the original carrying value of the facility
at the time of the explosion.
The current low gold prices have adversely impacted the Jerritt
Canyon mine operated by Independence. If these price levels
continue, the economic mine life is likely to be reduced to four
years. An impairment provision was required to reflect the likely
negative impact.
The exceptional charge at Engelhard relates primarily to
actions taken to improve underperformance in a precious
metal-fabricating joint venture, in fluid cracking catalysts
and in part of the stationary source-emission-control business.
Operating cash flow
Net cash flow provided by operating activities increased from
US$538 million in 1996 to US$1,033 million in 1997. This
reflected improved cash operating earnings and a reduction
in working capital requirements.
Capital expenditure
Capital expenditure for the year totalled US$985 million,
an increase of US$311 million from last year. Expenditure
on the Collahuasi copper mine in Chile was the largest
element representing around 40% of this total. Other
significant mining expenditures related to the Cerro
Vanguardia gold project in Argentina and the Loma de
Niquel project in Venezuela.
Acquisitions
The cost of acquisitions in 1997 amounted to US$631
million. Mondi Minorco Paper and Frantschach jointly
acquired a 60% interest in Swiecie, the largest pulp and
paper company in Poland, for US$164 million. Swiecie is
a major producer of paper sacks and corrugated case
materials and packaging. The Frantschach group also
acquired the Dunaujvaros uncoated woodfree paper machine
in Hungary and a 19% stake in Syktyvkar, a listed
Russian paper producer.
In July, Minorco and Anglo American Coal (Amcoal)
established a 50/50 joint venture to participate in
the international coal business. The partners acquired
a 50% interest in the Cerrejon Central coal operation
in northern Colombia. In a second development, Minorco,
Amcoal, and their partner, Glencore, agreed with Rio
Tinto to combine its adjoining Oreganal coal property
with Cerrejon Central, with Minorco/Amcoal owning
one-third of the combined entity. Subsequently, under a
privatisation programme by the Colombian government,
the four partners successfully bid for the adjacent
Cerrejon South property.
In December, Terra purchased two nitrogen manufacturing
plants in the UK for a total cost of US$338 million. This
was Terra's first expansion outside its North American
base. The plants, which are located in Billingham and
Severnside, produce nitrogen products for sale in the
agricultural and industrial markets in the UK and western
Europe. Terra also acquired a number of new locations
for its distribution network including Huntting Elevator
which, as well as operating farm service centres in
Minnesota, South Dakota and Iowa, is also a grain
merchandiser.
Debt
Debt less liquid resources rose by US$277 million during
1997 and net debt at the year end stood at US$1.3 billion.
The ratio of net debt to total equity was 21% compared
with 19% a year ago. Of this net debt, US$670 million,
principally relating to Terra and Frantschach, is
non-recourse to Minorco.
A substantial portion of the increase in long term debt
related to the project finance facility raised to fund
the Collahuasi project. Terra funded the acquisition
of the two UK nitrogen plants by issuing US$125 million
of long term debt, together with part of the proceeds
from the sale of a minority partnership interest in
Terra's Beaumont subsidiary.
Dividend
At the half-year, the interim dividend was increased by
1 US cent to 22 US cents per share. The proposed final
dividend of 42 US cents per share, payable in May 1998,
is unchanged from the prior year.
Luxembourg - March 11, 1998
Contact:
Nick von Schirnding
VP Investor and Corporate Affairs
+27 11 638 3211
Carina Corbett
Corporate Affairs Manager
+44 171 404 2060
CONSOLIDATED STATEMENT OF EARNINGS
Year ended December 31
1997 1996
US$ millions
Sales 5,662.0 5,013.7
Operating earnings 663.2 604.7
Net corporate costs (133.4) (68.9)
Share of earnings of investments
accounted for by the equity method 88.6 108.2
Earnings before exceptional items,
taxation and minority interests 618.4 644.0
Exceptional items 48.0 (44.3)
Earnings before taxation 666.4 599.7
Taxation (153.6) (127.3)
Earnings after taxation 512.8 472.4
Earnings attributable to minority
interests in subsidiary companies (208.1) (136.7)
Net earnings 304.7 335.7
Net earnings before exceptional items 328.6 396.4
Earnings per share (US$):
Net earnings 1.36 1.50
Net earnings before exceptional items 1.46 1.77
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at December 31
1997 1996
US$ millions
Fixed assets:
Intangible assets 258.2 242.3
Tangible assets 5,084.5 4,047.9
Financial assets 845.9 757.3
6,188.6 5,047.5
Current assets:
Stocks 815.3 877.7
Debtors 733.6 777.1
Short term investments 1,012.5 1,368.1
Cash and cash equivalents 874.9 596.6
3,436.3 3,619.5
Short term debt (372.9) (571.6)
Current liabilities (995.9) (868.9)
Net current assets 2,067.5 2,179.0
Capital employed 8,256.1 7,226.5
Long term liabilities (2,806.7) (2,408.2)
Provisions for liabilities and charges (563.7) (518.1)
Minority interests in subsidiary
companies (1,261.8) (778.0)
Shareholders' investment 3,623.9 3,522.2
Capital and reserves:
Subscribed capital 315.9 315.8
Reserves 1,524.5 1,525.2
Cumulative translation adjustment (125.5) (66.9)
Retained earnings 1,909.0 1,748.1
Shareholders' equity 3,623.9 3,522.2
CONSOLIDATED STATEMENT OF CASH FLOW
Year ended December 31
US$ millions 1997 1996
Cash generated from operations 1,128.4 685.3
Interest paid (191.5) (165.5)
Dividends received 23.6 32.5
Other financial income 161.5 144.4
Taxes paid (62.2) (158.6)
Restructuring and reclamation payments (26.5) -
Net cash provided by operating
activities 1,033.3 538.1
Cash flow from investing activities
Acquisition of subsidiaries and
joint ventures (536.3) (46.9)
Acquisition of financial assets (94.7) (38.0)
Capital expenditure on tangible assets (985.5) (674.3)
Proceeds from disposal of tangible assets 25.3 66.8
Proceeds from disposal of financial assets 15.1 732.5
Net cash (used in)/ from investing
activities (1,576.1) 40.1
Cash flow from financing activities
Dividends paid to Minorco shareholders (143.7) (141.4)
Dividends paid to minority shareholders (42.6) (85.5)
Long term loans received net 462.6 179.1
Short term loans (repaid)/received net (138.6) 58.7
Decrease/(increase) in short term
investments 355.6 (380.5)
Share capital issued to minority
shareholders 255.1 15.9
Share buy-back by Terra Industries Inc. (22.4) (91.8)
Insurance proceeds received by
Terra Industries Inc. 95.1 26.7
Net cash from/(used in) financing activities 821.1 (418.8)
Increase in cash and cash equivalents 278.3 159.4
Cash and cash equivalents at beginning
of year 596.6 437.2
Cash and cash equivalents at end of year 874.9 596.6
Short term investments 1,012.5 1,368.1
Cash and cash equivalents 874.9 596.6
Liquid assets 1,887.4 1,964.7
NOTES
1. Sales, operating earnings and capital employed
US$ millions
By business segment
Sales Operating Capital
earnings employed
1997 1996 1997 1996 1997 1996
Gold 279.8 279.1 42.8 34.1 416.1 377.2
Base metals 759.2 686.1 111.9 39.0 1,570.6 1,093.3
Industrial
minerals 1,040.3 953.1 134.4 136.1 1,289.8 1,236.9
Paper and
packaging 1,041.6 825.0 103.2 83.6 831.9 663.6
Agribusiness 2,541.1 2,270.4 270.9 311.9 1,350.1 961.3
Financial
assets - - - - 2,797.6 2,894.2
5,662.0 5,013.7 663.2 604.7 8,256.1 7,226.5
By geographical segment
Europe 1,848.8 1,576.8 207.7 197.0 2,033.2 1,827.8
North America 3,045.3 2,754.3 317.9 336.0 1,690.5 1,274.4
South America 767.9 682.6 137.6 71.7 1,734.8 1,230.1
Financial assets - - - - 2,797.6 2,894.2
5,662.0 5,013.7 663.2 604.7 8,256.1 7,226.5
2. Operating earnings
US$ millions
1997 1996
Sales 5,662.0 5,013.7
Cost of sales (4,371.9) (3,792.8)
Gross operating earnings 1,290.1 1,220.9
Selling, administration and other expenses (626.9) (616.2)
663.2 604.7
3. Net corporate costs
US$ millions
1997 1996
Interest and other financial income 154.1 158.7
Foreign currency gains 0.8 4.6
Dividend income from cost
accounted investments 2.2 5.1
Interest expense (190.8) (178.2)
Net financial expense (33.7) (9.8)
Gains arising from sales of
exploration properties - 39.8
Corporate costs (49.2) (49.5)
Exploration (50.5) (49.4)
(133.4) (68.9)
4. Net earnings before exceptional items
US$ millions
1997 1996
Net earnings 304.7 335.7
Adjustment for exceptional items:
Mining restructuring 45.1 280.0
Terra casualty credit (163.4) -
Engelhard restructuring and
other provisions 46.4 -
Net impairment/(gain) on disposal
of investments 11.9 (235.7)
Other 12.0 -
Exceptional items (48.0) 44.3
Taxation 14.5 17.2
Minority interests 57.4 (0.8)
Net earnings before exceptional items 328.6 396.4
5. Consolidated statement of cash flow analysis
US$ millions
1997 1996
Cash flow from operating activities
Earnings before exceptional items,
taxation and minority interests 618.4 644.0
Adjustments for non-cash movements 237.0 130.9
Adjustments for financial income and
expense 39.6 16.5
Operating cash flow before changes to
working capital 895.0 791.4
Changes in working capital:
Stocks 114.7 (42.9)
Debtors 71.3 (14.0)
Creditors 47.4 (49.2)
Cash generated from operations 1,128.4 685.3
6. Reconciliation of Terra's operating earnings
US$ millions
1997 1996
Terra's operating earnings as
reported under US GAAP 253.3 295.2
Elimination of goodwill amortised
through the earnings statement 24.6 23.1
Reversal of methanol hedge costs
accrued by Terra (1.2) (1.2)
Other (5.8) (5.2)
Terra's operating earnings as
reported by Minorco (1) 270.9 311.9
(1) In addition, Terra's tax charge is reduced by US$43.0
million (1996: US$3.0 million) net of minorities reflecting
the adjustment from US GAAP full liability tax to the partial
liability tax method.
PRODUCTION
For the year ended December 31
Product Operation Operating Production
cash costs statistics(1)
1997 1996
Precious metals US$/oz
Gold (troy ounces)
Jerritt Canyon 199 218,400 216,600
Big Springs - - 1,200
Pikes Peak 197 228,200 174,500
Morro Velho 227 232,100 228,200
Serra Grande 188 128,100 124,600
Hudson Bay (2) - 84,500 83,100
891,300 828,200
Silver (troy ounces)
Hudson Bay (2) - 1,091,000 990,000
Mantos Blancos (2) - 1,282,000 1,513,700
2,373,000 2,503,700
Base metals US$/lb
Copper (tonnes)
Hudson Bay (2)(3) - 44,600 54,200
Mantos Blancos 0.63 132,900 122,400
177,500 176,600
Zinc (tonnes)
Hudson Bay (3) 0.36 78,300 83,900
Nickel (tonnes)
Codemin 2.48 6,800 6,200
Morro do Niquel 2.97 2,600 2,400
9,400 8,600
Niobium (tonnes)
Catalao 2,400 2,400
Industrial minerals
Limestone ('000 tonnes)
UK ) 8,308 7,159
Spain )
Sand and gravel ('000 tonnes) (4)
UK ) 10,362 10,117
Germany )
Spain )
Lime products ('000 tonnes)
UK 916 866
(1) Includes entire output of controlled entities and group's
proportion of joint ventures where applicable.
(2) By-product - revenues credited to unit cost of principal
product.
(3) At Hudson Bay, 33,000 tonnes of copper (1996: 31,600) and
16,900 tonnes of zinc (1996: 9,000) were processed in addition
to that sourced from its own production.
(4) Excludes production used in manufacture of ready-mixed
concrete.
Product Operation Production
statistics (1)
1997 1996
Industrial minerals (continued)
Hardstone ('000 tonnes)
UK ) 4,886 4,515
Germany )
Spain )
Coated stone ('000 tonnes)
UK 1,523 1,494
Ready-mixed concrete ('000 m3)
UK ) 2,360 2,151
Spain )
Potash ('000 tonnes)
Cleveland Potash 941 1,030
Salt ('000 tonnes)
Cleveland Potash 592 662
Carbon black ('000 tonnes)
Copebras 154 146
Sodium tripolyphosphate ('000 tonnes)
Copebras 62 63
Phosphate fertilisers ('000 tonnes)
Copebras 608 540
Paper and packaging
Paper ('000 tonnes)
Frantschach ) 451 340
Neusiedler )
Sacks (millions)
Frantschach 515 269
Newsprint ('000 tonnes)
Aylesford 176 166
Pulp ('000 tonnes)
Pols 121 109
Agribusiness
Ammonia ('000 tons)
Terra 2,857 2,722
Liquid solutions ('000 tons)
Terra 3,455 3,121
Methanol (million gallons)
Terra 310 312
(1) Includes entire output of controlled entities and group's
proportion of joint ventures where applicable.
END
FR JMMLBLLIBBMP
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