NORANDA Aluminum Holding Corp, the parent of St Ann bauxite mining operations Noranda Jamaica Bauxite Partners, plans to raise capital through a public share offering to pay down long-term debt.

A Noranda representative told the Business Observer that the final amount of shares to be raised was not yet finalised, but the line of debt the company hoped to pay down totalled US$200 million at the end of November.

In its filing with the US Securities and Exchange Commission (SEC), the company, which converts the mine bauxite in St Ann to alumina at its Gramercy, Louisiana plant and then into aluminium at its New Madrid, Missouri smelter, said it intends “to use the net proceeds from this offering to repay or repurchase amounts outstanding under our Term B loan”.

The Term B loan, which matures in 2014 was a US$500-million facility, acquired in May 2007, that the company managed to reduce the balance outstanding down to US$200 million as at November 29, 2010, as part of a debt-reduction drive, which, since April 2007 when investment fund outfit Appollo Funds acquired Noranda, saw the aluminium business retire or repurchase US$749.3 million in debt.

Noranda, in its prospectus, said that the debt reductions were “funded with cash flow generated from our operations, gains realised from aluminium hedges, and the proceeds of our IPO”, which resulted in strengthening the company’s liquidity position.

Noranda, in May, made US$81.6 million in a initial public offering, after deducting underwriting costs. In that offer, Noranda had hoped to raise US$250 million through the sale of 16.67 million shares at a price of US$14 to US$16 a stock. But the offer was scaled back to 10 million shares at US$8 per common stock.

An additional 1.5 million shares were sold as part of an over-allotment option exercised by underwriters, which included Merrill Lynch, Morgan Stanley & Co Inc, Credit Suisse Securities, Goldman Sachs & Co and UBS Securities. Those firms, along with Citigroup Global Markets Inc are underwriting the current share offering.

Since listing, Noranda’s share price hit a high of US$13.60 on November 11 after reaching a low of US$5.87 in mid July. Yesterday, the share traded last on the New York Stock Exchange (NYSE) traded yesterday at US$12.12, which translated to a price-earnings ratio of 3.43.

Noranda’s revenue was actually up during the first nine months of 2010 when compared to year-earlier levels — US$950.6 million in 2010 compared to US$540.6 million during the corresponding period in 2009 — but the aggressive debt-reduction drive dragged down net income, which fell year-on-year from US$158.1 million in the first nine months of 2009 to US$32 million in the first nine months of 2010.

“The decrease in net income resulted from the net effects of favourable impacts of US$103.4 million of increased operating income, US$80.3 million of prior-year impairment losses on our investment in affiliates, and US$63.6 million in reduced interest and income tax expenses, offset by reductions in other income, specifically, a $60.1 million reduction in gains on hedging activities, a US$192.2 million reduction in gains on debt repurchase and the prior year US$120.3 million gain on business combination,” said Noranda in its prospectus.

On the other hand, a low-cash interest burden relative to debt and debt maturities prior to 2013 gives the company a strong liquidity position.

As of September 30, 2010, Noranda had approximately US$33 million of cash and cash equivalents, which is expected to increase to US$48.8 million after the offer is completed, and US$215.2 million of available borrowing capacity under our revolving credit facility.

At the same time, Noranda painted a rosy picture of the medium-term prospects for the bauxite sector.

Noranda Jamaica, then St Ann Bauxite, cut production by half last year to deal with a global recession and credit crisis, which began in late 2007 and continued through 2009.

Since, aluminium prices have begun to recover, rising 79 per cent through November 24, 2010 from their lows reached in February 2009, while the operations at St Ann have returned to full capacity.

Importantly, Noranda believes that global demand driven by long-term and sustained economic growth, higher standards of living and increased demand from emerging markets, especially China, India and Brazil, and a weaker US dollar, among other things will support medium and long-term sustainable price levels above current prices.

“The combination of relatively high global inventories (supported by financing arrangements in low interest rate environments), newly built capacity and the restart of idled capacity may act to limit, but not negate, the upward pressure from demand on aluminium’s price in the short- to medium-term,” said the firm in its prospectus. “According to CRU (an independent consultancy group focused in part on the mining and metals sectors), demand in the medium term will be driven by continued strong growth in China and in other emerging economies such as India and Brazil. Both these latter countries have strong drivers for demand from their domestic economies, and in India the process of urbanisation and infrastructure development, that has been a favourable factor in China for some time, is beginning to increase demand.

“CRU estimates that primary aluminium consumption in the United States will reflect a 14 per cent growth rate in 2010, followed by an additional 7 per cent annually in 2011 and 2012.”

Noranda in the September quarter announced that it had initiated steps to complete a US$38-million capital project at New Madrid that will result in a six per cent increase in smelting capacity beginning in 2013, and are now evaluating a second phase to add further capacity, while in St Ann, Noranda expects to complete a dredging project during the first quarter 2011 that is expected will increase shipping volumes and lower costs.

In September, Noranda Jamaica announced plans for a US$150-million investment over the next five years.

“Including 2010, our plan which was approved [by the Jamaican government] was to spend, over a five-year period, over US$150 million,” president of Noranda Aluminum, Layle ‘Kip’ Smith, told reporters and editors at the Observer Monday Exchange held at the newspaper’s Beechwood Avenue headquarters in Kingston.

Noranda’s bauxite mining operation in Jamaica produces approximtely 4.5 million tonnes annually, of which 2.7 million is used at Gramercy to make alumina, with the remainder being sold to third parties to effectively reduce the cost of input to Gramercy. Gramercy produces 1.2 million tonnes of alumina, of which 0.5 million tonnes is used at New Madrid, which makes 263,000 million tonnes of aluminium annually — the majority in the form of value added products.