Noramda Inc.

Toronto, Canada--The story of Canadian industry is, primarily, the story of mining, forestry and energy development. Over the past century, aggressive corporations rushed in to extract resources and exploit the land. For more than 65 years, Noranda has led the charge.

Twenty years ago, Noranda was essentially a copper company (albeit a very large one). It was established in 1922 as Noranda Mines Limited in order to develop claims in Ontario and Quebec. Over the years it opened mines and built smelters and refineries across Canada and, eventually, around the world. Almost from the beginning, it was successful, but, like all resource companies, it was forever at the mercy of the volatile and cyclical international metal markets. When copper prices crashed, Noranda crashed with them.

Bankrolled in part by its majority owners, Brascan Ltd., and the vast fortunes of the Bronfman family, Noranda set out to become the premier diversified natural resources company and, in turn, to free itself from the tyranny of the commodities markets. Now, when metal prices plummet, newsprint or natural gas sales help buffer the loss.

The parent company, now called Noranda, Inc., is organized into four divisions: Noranda Minerals (producing nickel, copper, zinc, lead, silver and gold mine concentrates, processed metals and related chemical products); Noranda Forest (pulp, paper, lumber, panel board, other building materials and related forest products); Noranda Manufacturing (wire and aluminum products); and Noranda Energy (natural gas, oil and other energy products).

The company found, however, that it could not make itself recession-proof, and experienced losses from 1982 through 1985. But in 1988, Noranda Inc. rode the natural resource roller coaster to record profits of C$ 605 million (Canadian dollars), up 46 percent over 1987. Booming metal markets, soaring aluminum prices, hundreds of millions in profits from its huge forestry sector and strong performances from its energy holdings all contributed. Profits declined 27 percent in 1989 but still registered a healthy C$ 442 million. This allowed Noranda to rank eighth among Canadian businesses in terms of sales and sixth in profits.

However, some investors do not consider Noranda such a blue-chip prospect these days. The Bank of Canada's decision to fight inflation and rein in the runaway economy with higher interest rates hurts a company like Noranda with its acquisition-heavy debt load. (The 1989 purchase of nickel-giant Falconbridge boosted Noranda's long-term debt from C$2 billion to C$3.8 billion.) A stronger Canadian dollar also trims the profit margins from sales to the United States, and nearly 60 percent of Noranda's products are sold to U.S. markets. Prices are currently depressed for aluminum and oil, as well as pulp, newsprint and other paper products. Metal markets are weaker, competition is stronger, and ore grades are off. Production problems and shutdowns have also hurt the bottom line. Results from the first quarter of 1990 show a continued erosion of profits across the board.

At this spring's annual meeting, Noranda, Inc. Chairman Alfred Powis spent a lot of time explaining his company's murky financial picture. He blamed interest rates, currency exchanges and energy-supply problems. But he saved particular venom for environmentalists who, he explained, were forcing the company to spend hundreds of millions of dollars "to solve nonexistent or trivial problems."

Two of the "trivial problems" that concern environmentalists are the dioxins and furans produced during the chlorine bleaching process at Noranda's many pulp mills. Dioxin causes cancer and birth defects in test animals at extremely low doses; Noranda claims that dioxins are not a problem. Speaking to the Globe 90 conference in Vancouver last year, Noranda Forest Inc. Chairman Adam Zimmerman complained that "some people want very drastic measures taken ... even though it has yet to be shown that the minute traces of dioxin found in forest products have any effect on anybody anywhere." John Roberts, a Noranda environmental officer, says "the risk of dioxins is overstated," though he acknowledges that Noranda has "to do something about them." But not too much; Zimmerman likes to tell audiences that an average pulp mill produces only a sugar cube-sized chunk of dioxin over the course of a year. "In the concentrations it's now found, you'd have to drink 15 Olympic-sized swimming pools of it before you'd develop acne," he contends.

The Canadian government does not share Noranda's rosy assessment of the dioxin situation and last year closed off large areas of the British Columbia coastal sea bed to commercial fishing because of dioxin contamination. This spring, Ottawa announced new regulations for pulp and paper mills that will require the secondary treatment of all effluent, set new standards for fish toxicity and require the reduction of dioxins and furans to "nonmeasurable" levels. Canadian mills have until January 1994 to comply with the new federal controls.

It is not too surprising that Noranda is beginning to talk tough on the dioxin issue. Its plants are increasingly in the public eye. Federal surveys have targeted Noranda subsidiary MacMillan Bloedel Ltd.'s huge Port Alberni pulp mill as a prime contributor to the problem; the highest dioxin levels ever found in British Columbian game birds were detected earlier this year in two species of wild ducks that feed near the plant. Gord Perks, pulp and paper campaigner for Greenpeace Canada, reports that "the most serious environmental dioxin problem so far has been the contamination of fisheries and wildlife of the Howe Sound [on the British Columbia coast]. Eight different fisheries have been closed, prawn and shellfish fishing has been halted and the great blue heron population has disappeared."

The price tag for controlling dioxin emissions could be steep. According to Noranda's 1989 Annual Report, reducing chlorinated organics to proposed government limits would cost the company C$ 400 million. This expense, it claims, far exceeds the "insignificant" environmental benefits that would be achieved.

Zimmerman puts much of the blame for the dioxin furor on improved detection techniques that have uncovered dioxins at increasingly minute concentrations, and "environmental attacks on the industry that go far beyond what might be described as fair or reasonable or even necessary." He has labelled his critics "environmental terrorists."

This is an old tactic for the company. Whenever anyone criticizes a Noranda operation, the company claims that it has been the victim of bad press or an ill-informed public. Last fall, Zimmerman told The Canadian Club in Toronto that the media were not even-handed in their coverage. "It's just the bad things that happen and the people who are willing to say irresponsible things that are news," he said.

The company likes to claim the scientific high ground, employing a paternalistic "trust us, we're professionals" approach. In a 1988 special report to its shareholders, MacMillan Bloedel explained that, "To date the company has done a better job of planting and caring for trees than it has of explaining why it does what it does." Thus complaints about its operations are deemed simply a communications problem that can be solved by glossy folders, TV advertisements and slick public relations campaigns.

According to MacMillan Bloedel, the controversial forestry practice of clearcutting is not merely the best way to log, it is the only way. There is no middle ground, no room for compromise. "It is difficult to understand the widely entrenched belief, especially among the urban population, that clearcutting is bad, when professional foresters around the world support this method of harvesting," the company brochure complains. "Like a farmer's wheat field after a harvest, a clearcut is the result of a necessary stage in supplying the needs of mankind. But it is unsightly and [MacMillan Bloedel] has been slow to appreciate how deeply it offends some people." With this argument, the company tries to paint opponents of clearcutting as, at best, scientifically illiterate and motivated by unrealistic aesthetic or emotional expectations.

The brochure also defends the practice of slash burning the debris left on the site after a logging operation. Slash burning by British Columbian forest companies pumps about 20 million tons of carbon dioxide into the atmosphere each year, placing them just behind Alberta's coal-fired power plants as Canada's largest contributors to the greenhouse effect and the problem of global warming. Yet MacMillan Bloedel says critics of slash burning are misguided nature lovers worried about a little smoke ruining the view; it comments merely that "Slash burns are understandably even more visually offensive to many people than clearcuts."

In responding to government efforts to curtail Noranda's environmentally destructive practices, company executives play hardball. Noranda has repeatedly threatened to close plants if environmental controls make them too costly to operate. A good example is the story of the Horne smelter, until recently the second largest source of sulphur dioxide in Canada.

The Horne smelter in Rouyn-Noranda was built in 1927 to process local ore (which has since been exhausted). It became one of the largest custom smelters in the world, treating concentrates shipped in from producers as far away as Chile. When public and government pressure built to cut acid gas emissions, Noranda refused, claiming that its operating costs were dictated by world metal prices and left no margin for cleanup. "The Horne smelter cannot impose increased charges and remain competitive nor can it sustain additional operating costs and survive," a 1984 pamphlet entitled "Acid Rain--Noranda's View" stated. Noranda argued that if the smelter were forced to close, "the biggest impact would be on [the town of] Rouyn-Noranda where the unemployment is already high; at least 3,600 more people would lose their jobs over time, some directly and others as a result of multiplier effects."

The threat worked. In 1987, the federal and Quebec governments announced that each would contribute C$41.6 million towards the cost of a C$125 million acid plant to reduce sulphur dioxide emissions at the Horne smelter. The aid was in the form of low- interest loans with servicing conditions partly linked to future copper prices. It was the first financial support package under the Canadian Acid Rain Abatement Program, and it allowed Noranda to cut emissions by 70 percent, comfortably exceeding Quebec environmental regulations which called for a 50 percent cut by 1990. The 1000-ton per day acid plant started up in December 1989.

In a recent interview with Report on Business Magazine, Zimmerman said that "if it had come to a choice between spending C$ 200 million and closing down the plant, I'd have closed down the plant. We didn't have the money. Is that bargaining for jobs? Maybe. But it wasn't done maliciously. I was just being realistic."

The Horne smelter story is now repeating itself at the Port Alberni pulp mill on Vancouver Island. In January 1990, Noranda's Port Alberni employees got their first taste of realism, Noranda-style. Each worker received a letter saying that 200 jobs would be lost by January 1992 if the company is forced to meet new environmental standards. MacMillan Bloedel says it will cost C$ 120 million for the mill to meet environmental standards. And it is not willing to make the investment, particularly while environmentalists and native groups are fighting to restrict cutting on some of the company's old-growth timber licenses. It remains to be seen whether the government will back down on the new regulations (which appears unlikely at this time) or contribute to the cost of the cleanup (a revered Canadian response).

Noranda does not always get its way, however. In 1988, with its coffers bulging with record profits, Noranda Forest, Inc. went looking for new fields to conquer. The company and an Australian partner, North Broken Hill Ltd., proposed to build a C$ 960 million pulp mill in the northern farming district of Tasmania.The mill would use a chlorine bleaching process to transform 1.8 million tons of eucalyptus chips each year into pulp for export. That was until the partners decided they could not live with the proposed air, water and noise guidelines which, they claimed, exceeded the capabilities of any currently available technology. In March 1989, they dropped the whole project. Noranda had sunk C$12 million into the failed project and has since avoided off-shore megaprojects, at least those in unfamiliar waters.

Noranda blamed Australian politicians, "anti-development greenies" and even its own partner for the cancellation. As Zimmerman told Noranda shareholders a few weeks later, "It is virtually impossible to do serious business with government ministers [who are] attacking companies and their executives with untruths, reversing their positions 180 degrees in very short order and generally showing no willingness whatever to cooperate with legitimate industrial development."

Used to what it calls the "sympathetic administration" of Canadian regulators, the Australian rejection caught Noranda off guard. When approximately C$ 3 billion in forestry projects were announced in Alberta, Zimmerman told Australian journalists, the province "kissed them on both cheeks and gave them grants." Zimmerman did not explain that the federal government later derailed the projects until extensive environmental assessments, including an investigation of dioxin emissions, are completed.

In fact, the 70-year honeymoon between Noranda and Canadian regulators may be ending. In December 1988, MacMillan Bloedel was fined C$ 800,000 for wasting too much timber in its logging operation in the Queen Charlotte Islands off Canada's West Coast. Investigators found, in one instance, that the company had left 131,424 cubic meters of usable wood on the ground-- enough to build 2,600 homes.

The company is also finding its timber rights under attack. In the sensitive Carmanah Valley, one of the last unspoiled areas of old growth rainforest on Vancouver Island's west coast and the home of the tallest trees in Canada, the province recently moved to preserve about half the site (approximately 8,872 acres of forest) as a provincial park. Although environmentalists are still pressing to protect the whole watershed, the compromise deal covers far more than the 538 hectares MacMillan Bloedel originally proposed as a buffer around the last giant spruce trees.

And finally, plans by MacMillan Bloedel to clearcut 200 hectares near a popular whale-watching site on Vancouver Island have caused a public uproar that has even spread to the office of British Columbia's pro-development premier, William Vander Zalm. The premier recently said there will be no clearcut logging along the coast that could jeopardize the multi-million dollar cruise ship business.

It cannot be said, however, that Noranda has completely ignored the environmental consequences of its activities. Pressure from "environmental terrorists" has pushed the company to spend C$ 650 million on environmental projects over the last ten years. The company has also enacted a formal environmental policy which states, in part, that "Noranda operations will strive to be exemplary leaders in environmental management by minimizing the environmental impact on the public, employees, customers and property, limited only by the technological and economic viability."

That last phrase, "limited only by the technological and economic viability" is the key to understanding Noranda's corporate philosophy. In other words, it doesn't make good environmental sense unless it makes good business sense. And who determines what makes good business sense? The only people in a position and with the experience to understand all the variables--Noranda executives, of course.

William Glenn is a Toronto-based environmental consultant specializing in hazardous waste and acid rain issues. He is an award-winning columnist and the author of a number of environmental books.