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Falconbridge Reports 2005 Second Quarter Net Earnings Of US$202 Million

Posted on: Friday, 29 July 2005, 09:00 CDT

Noranda and Falconbridge Complete Merger

ALL NUMBERS IN U.S. DOLLARS UNLESS OTHERWISE NOTED

Falconbridge Limited (TSX:FAL.LV)(NYSE:FAL) today reported net earnings of $202 million (basic earnings per share of $0.62 and diluted earnings per share of $0.61) for the second quarter of 2005. This compares with earnings of $108 million (basic earnings per share of $0.35 and diluted earnings per share of $0.35) for the second quarter of 2004.

(Note: 2004 financial results, as presented in this press release, represent the consolidated results of Noranda Inc., which was renamed Falconbridge Limited after the amalgamation on June 30, 2005.)

COMMENTARY

"With the merger of Noranda and Falconbridge now complete, we are pleased to announce strong results for the new company's first quarterly report," said Derek Pannell, Falconbridge's Chief Executive Officer. "The combination of a strong performance by our operations and reasonable prices for our four main metals generated another quarter of solid financial results. Our planned copper and nickel production growth is on track. With the continuing good contribution from our aluminum and zinc operations, and increasing molybdenum exposure, we are well positioned to continue building on these results."

SECOND QUARTER 2005 HIGHLIGHTS Financial Results and Position --------------------------------------------------------------------- $ millions, except Q2 Q2 Y-O-Y H1 H1 Y-O-Y per share information 2005 2004 Change 2005 2004 Change --------------------------------------------------------------------- Revenues 2,124 1,694 25% 4,100 3,347 22% --------------------------------------------------------------------- Income generated by operating assets(i) 464 284 63% 919 645 42% --------------------------------------------------------------------- Net income 202 108 87% 378 260 45% --------------------------------------------------------------------- Basic earnings per common share $0.62 $0.35 77% $1.20 $0.86 40% --------------------------------------------------------------------- Diluted earnings per common share $0.61 $0.35 74% $1.19 $0.85 40% --------------------------------------------------------------------- (i) Defined as earnings before net interest, corporate and general administration, research, development, exploration, minority interest, taxes, and other income.

- Second quarter 2005 realized prices were higher (vs. second quarter 2004) for all metals: copper 24%, nickel 33%, zinc 24%, aluminum 8%

- Issued $250 million in 12-year notes and $250 million in 30-year notes

- Announced redemption of $500 million in Junior Preference Shares

- Repaid $200 million of debentures which matured in July 2005

- Credit ratings reaffirmed by S&P (BBB-, stable), Moody's (Baa3, stable) and DBRS (BBB High, stable)

- Announced normal course issuer bid for up to 10% of the public float of outstanding common shares

Production, Operations & Projects

- Nickel mine output increased by 6% to 13,000 tonnes and zinc mine output increased by 3% to 130,000 tonnes in second quarter year over year

- Increased output of copper anodes, copper cathodes and refined nickel by 16%,14% and 26%, respectively in second quarter year over year

- Collahuasi mill shutdown resulted in lower mined copper production

- Completed Altonorte molybdenum roaster modifications and began production on budget and on schedule

- Completed engineering work for the molybdenum recovery circuit at Collahuasi; construction is 54% complete

- Began main shaft sinking at the Nickel Rim South project

- Finalized joint-venture agreement with Barrick Gold on the Kabanga nickel deposit in Tanzania; the Company has a 50% stake in the project and will be the operator

- Sold American Racing Equipment for $40.5 million, resulting in a $1 million net gain

- Completed 37 Six Sigma projects with average annualized savings value of $636,000 per project, which will generate total annual savings of $24 million

NORANDA AND FALCONBRIDGE AMALGAMATION AND NAME CHANGE

On May 5, 2005, Noranda completed its previously announced issuer bid to exchange Noranda common shares for the new Junior Preferred Shares. A total of 63,377,140 Noranda common shares were repurchased as a result of this offer and a total of 50,000,000 new Junior Preferred Shares were issued as consideration.

On May 6, 2005, Noranda announced the results of its merger offer to former Falconbridge minority common shareholders whereby it offered to exchange 1.77 Noranda common shares for each outstanding former Falconbridge common share that it did not own. 58,476,589 million former Falconbridge common shares were validly deposited under the offer, representing 78% of the shares held by the minority shareholders, increasing Noranda's ownership to 164,235,689 million, or 91%, of the outstanding former Falconbridge common shares.

On June 30, 2005, Noranda and Falconbridge shareholders approved the amalgamation of the two companies. The amalgamated company chose to continue operating under the name Falconbridge Limited and effective July 6, 2005, began trading under a new stock symbol (TSX: FAL.LV and NYSE: FAL).

FINANCIAL RESULTS

Revenues for the second quarter of 2005 were $2.1 billion, 25% higher than revenues of $1.7 billion in the same period of 2004. The increase was mainly due to higher realized metal prices and higher refined nickel sales volumes. Business unit revenues were 24% higher for copper, 41% higher for nickel, 15% higher for zinc and 15% higher for aluminum.

Operating expenses totaled $1.7 billion in the second quarter, 18% higher than $1.4 billion in the same period last year. Cost of operations increased to $682 million from $535 million in the second quarter of last year due to the higher levels of mined nickel and zinc production, higher levels of anode and cathode copper production, increased refined nickel production, higher energy costs and the impact of a weaker U.S. dollar on operating costs at all Canadian and South American operations. The average value of the Canadian dollar increased to US$0.80 versus US$0.74 during the second quarter of 2004. The cost of purchased raw materials were $831 million, 11% higher than $749 million in 2004 due to higher metal prices and increased custom feed processing at the Sudbury nickel smelter, the Nikkelverk refinery and the Kidd Creek and Altonorte copper smelters.

Depreciation, amortization and accretion expense increased to $147 million from $126 million a year with the majority of the increase being incurred in the copper and nickel business units. Interest expense increased to $44 million from $40 million in the second quarter of last year due to the impact of $1.25 billion in preferred share liabilities issued pursuant to the issuer bid completed in early May 2005. Research and exploration expense increased to $15 million from $12 million in the same quarter last year. Minority interest in earnings of subsidiaries decreased to $55 million from $64 million largely as a result of the elimination of the former Falconbridge minority interest during the second quarter of 2005. Tax expenses recorded increased from $57 million a year ago to $130 million during the second quarter of 2005, due to the overall increase in profitability.

Income generated by operating assets for the second quarter was $464 million, 63% higher than $284 million in the second quarter of 2004. Income from operating assets increased 53% to $202 million in the copper business, 47% to $200 million in the nickel business, 150% to $25 million in the zinc business and 46% to $35 million in the aluminum business.

Net income totaled $202 million or $0.62 per basic common share and $0.61 per diluted common share for the second quarter 2005, 87% higher than net income of $108 million or $0.35 per basic and $0.35 per diluted common share in the same period of 2004. Higher net income reflects higher realized metal prices, significantly higher Antamina molybdenum concentrate sales and higher nickel sales volumes.

Consolidated assets for the new Falconbridge Limited totaled $12.5 billion as at June 30, 2005, compared with $9.6 billion for Noranda at the end of 2004. The increase is primarily due to the increase in carrying values of assets in recognition of the fair market value increments from the amalgamation of Noranda and the former Falconbridge, the cash proceeds from issuance of $500 million of debentures, the investment of additional capital in advancing brownfield expansion development projects and increased inventory investment due to the rise in metal prices and higher levels of cash generated from operations.

LIQUIDITY AND CAPITAL INITIATIVES

Liquidity and Capital Initiatives

Cash generated from operations, before the net change in accounts receivables, payables and inventories, was $424 million during the second quarter of 2005. Total liquidity remains strong, with cash and cash equivalents up from $884 million at year-end 2004 to $1.5 billion. In addition, we currently have $1.0 billion of undrawn committed bank lines. Total debt was $4.9 billion at the end of the period. The net-debt-to-capitalization ratio increased to 42.3% from 38.7% at year-end 2004.

During the quarter, Falconbridge had its ratings reaffirmed by S&P (BBB-, stable), Moody's (Baa3, stable) and DBRS (BBB High, stable). In addition, DBRS raised its rating of Falconbridge commercial paper to R1-low. Subsequently, the company issued $250 million aggregate principal amount of 12-year notes, which are unsecured, bear interest at the rate of 5.5% per annum and mature on June 15, 2017, and $250 million aggregate principal amount of 30-year notes, which are also unsecured, bear interest at the rate of 6.2% per annum and mature on June 15, 2035. Falconbridge intends to use the net proceeds of this offering to repay outstanding indebtedness and for general corporate purposes.

Falconbridge announced that it intends to redeem a total of 20,000,000, or $500 million, of its outstanding Junior Preference Shares. The Junior Preference Shares will be redeemed on August 11, 2005 from holders of record on July 1, 2005. Falconbridge will utilize its current cash balances to fund the redemption.

The Company anticipates that it will repay approximately $1.0 billion in debt during the third quarter of 2005, using current cash balances to fund the repayments. This amount includes, among other things, $500 million for the junior preference share redemption and two debt debentures totaling $400 million, maturing in July and September 2005.

Investments in new production capacity such as the Nickel Rim South and Koniambo nickel projects totaled $109 million during the second quarter. For 2005, the Company's projected capital investments are approximately $250 million for sustaining capital expenditures and approximately $400 million in new investments.

Subsequent to Quarter End

On July 29, 2005, Falconbridge received approval from its Board of Directors to institute a Normal Course Issuer Bid through the facilities of the Toronto Stock Exchange for the repurchase of up to 10% of the public float of its outstanding common shares, subject to receipt of applicable regulatory approval. The bid will enable Falconbridge to repurchase up to a maximum of 29,100,000 common shares, over approximately a 12-month period. The Board of Directors believes that the market price of its common shares is such that their purchase by the Company for cancellation may be an attractive and appropriate use of funds in light of the potential benefit to remaining shareholders. For further information, refer to Falconbridge's Normal Course Issuer Bid press release dated July 29, 2005.

REVIEW OF OPERATIONS Copper Business Unit --------------------------------------------------------------------- Q2 Q2 Y-O-Y H1 H1 Y-O-Y 2005 2004 Change 2005 2004 Change --------------------------------------------------------------------- Production: mined copper (MT) 100,300 106,600 (6%) 205,800 192,600 7% --------------------------------------------------------------------- refined copper (MT) 124,700 108,400 15% 246,300 242,200 2% --------------------------------------------------------------------- mined zinc (MT) 55,100 29,000 90% 102,700 72,300 42% --------------------------------------------------------------------- refined zinc (MT) 35,600 35,900 (1%) 73,500 64,400 14% --------------------------------------------------------------------- Revenues ($ millions) 1,058 853 24% 2,038 1,697 20% --------------------------------------------------------------------- Realized copper price ($/lb.) 1.57 1.27 24% 1.55 1.21 28% --------------------------------------------------------------------- Costs ($ millions) 856 721 19% 1,605 1,426 13% --------------------------------------------------------------------- Cash costs ($/lb. of copper) 0.21 0.39 (46%) 0.29 0.33 (12%) --------------------------------------------------------------------- Income from operating assets ($ millions) 202 132 53% 433 271 60% ---------------------------------------------------------------------

Revenues

For the second quarter of 2005, consolidated revenues increased 24% to $1,058 million, primarily due to higher realized copper, zinc, precious metals and molybdenum prices. Higher revenues also reflect higher copper cathode sales from the Kidd Creek refinery and the Lomas Bayas mine, higher by-product zinc production and sales, as well as significantly higher Antamina molybdenum concentrate sales. Total sales of copper during the quarter were 202,900 tonnes versus 208,200 tonnes in the same period in 2004. Sales of by-product zinc concentrate and metal from Kidd Creek increased significantly to 48,900 tonnes from 33,700 tonnes the year prior.

The realized copper price of $1.57/lb. increased by 24% in the quarter, compared to $1.27/lb. realized in the same period in 2004. The realized zinc price at Kidd Creek was $0.63/lb., a 24% increase in the quarter, compared with $0.51/lb. in the same period in 2004.

Also contributing to copper group earnings was increased sales of by-product molybdenum concentrate from Antamina, of which Falconbridge's share totaled 590 tonnes during the second quarter of 2005 versus 110 tonnes during the same period last year, for a revenue contribution of $33 million.

Costs

Total operating costs increased to $856 million from $721 million in the second quarter of 2004. The cost of operations increased to $278 million from $187 million in the same period last year as a result of a weaker U.S. dollar on Canadian and South American operating costs, and higher energy and supply/consumables costs. Cost of operations was lower in 2004 due to a five-week shutdown at the Kidd Creek mine.

The cost of purchased raw materials increased to $510 million from $474 million in the second quarter of 2004 due to increased levels of throughput at the Altonorte and Kidd Creek smelters. The operating cash cost of producing a pound of copper in the second quarter of 2005 decreased to $0.21/lb. from $0.39/lb. in the second quarter of 2004 mainly due to higher by-product credits.

Income generated from operating assets

Operating income for the Copper Business in the second quarter of 2005 increased to $202 million from $132 million a year ago as a result of higher copper, zinc, precious metals and molybdenum prices. Operating income also benefited from higher treatment and refining charges and increased throughput at the Altonorte and Kidd Creek smelters. Partially offsetting the stronger revenues were increased costs resulting from the impact of a weaker U.S. dollar on Canadian and South American operating costs.

Production

During the second quarter of 2005, copper mine production from Canadian and South American operations totaled 100,300 tonnes, compared to 106,600 tonnes a year ago. Production was lower primarily due to operational issues at the Collahuasi mine. During routine maintenance at the end of March 2005, it was discovered that one of the three mill motors required repairs. The repairs kept the third unit out of service until April 30, 2005. As a result, the Company's share of annual copper concentrate production at Collahuasi is now forecast at 196,000 tonnes of contained copper, compared to an earlier forecast of 211,000 tonnes.

Copper production was slightly higher at the Lomas Bayas mine, unchanged at the Antamina mine and lower at the Kidd mine, compared to the same quarter last year. At the Kidd Creek mine, lower copper concentrate output was offset by significantly higher zinc concentrate output as a result of higher zinc grades.

Refined copper production was 124,700 tonnes in the second quarter of 2005 versus 108,400 tonnes in the second quarter of 2004. Kidd Creek smelter anode production was significantly higher due to increased custom feed throughput. Kidd Creek second quarter 2004 production was impacted by a five-week scheduled maintenance shutdown. Altonorte anode production was higher due to increased custom feed processing. Lomas Bayas and Collahuasi copper cathode production was also higher than second quarter 2004. Horne smelter second quarter anode production was below the same period last year due to a planned maintenance shutdown.

Other Developments

Falconbridge announced that it will increase annual production of copper anodes at the Horne smelter. Production will increase from 140,000 tonnes per year to 170,000 tonnes per year, or 21%, beginning in the fourth quarter of 2005.

At the end of the second quarter, Falconbridge reached a commercial agreement with Inco Limited to refine the copper anodes produced at Inco's Sudbury operations. The anode copper will be refined at Falconbridge's Canadian Copper Refinery (CCR) located in Montreal, Quebec. The terms of this commercial agreement are consistent with those in the marketplace and will commence during 2006.

The Company is investing $18 million in the CCR refinery to increase its capacity to refine anodes that are higher in nickel. Also, the CCR refinery is expected to achieve full capacity of 370,000 tonnes of refined copper per year, compared with an average of less than 300,000 tonnes produced in recent years.

Also at quarter end, Falconbridge's Altonorte copper smelter in Chile completed the modification work on a former copper roaster and began tolling of molybdenum concentrates. Construction on the $6-million project was completed on time and on budget. Production started on June 29, 2005 and achieved design capacity run rate of 32 tonnes of molybdenum concentrate per day (10,000 tonnes per year) after one-and-a-half weeks.

Nickel Business Unit --------------------------------------------------------------------- Q2 Q2 Y-O-Y H1 H1 Y-O-Y 2005 2004 Change 2005 2004 Change --------------------------------------------------------------------- Production: mined nickel (MT) 20,700 19,100 8% 41,200 38,200 8% --------------------------------------------------------------------- refined nickel (MT) 28,900 23,000 26% 56,800 49,800 14% --------------------------------------------------------------------- Revenues ($ millions) 613 436 41% 1,151 917 26% --------------------------------------------------------------------- Realized nickel price ($/lb.) 7.64 5.76 33% 7.34 6.32 16% --------------------------------------------------------------------- Realized ferronickel price ($/lb.) 7.55 5.85 29% 7.13 6.29 13% --------------------------------------------------------------------- Costs ($ millions) 413 300 38% 757 594 27% --------------------------------------------------------------------- Cash costs ($/lb. of nickel) 3.49 2.82 24% 3.25 2.78 17% --------------------------------------------------------------------- Income from operating assets ($ millions) 200 136 47% 394 323 22% ---------------------------------------------------------------------

Revenues

For the second quarter of 2005, consolidated revenues of $613 million increased from $436 million in the second quarter of 2004.

Nickel sales volumes increased 22% to 22,000 tonnes from 18,000 tonnes in the second quarter of 2004 and copper sales volumes of 15,500 tonnes increased by 35% from 11,500 tonnes a year ago. Production in the second quarter of 2004 was impacted by the ramp-up of production after a three-week strike at the Sudbury operations that occurred during the first quarter of 2004. At Falcondo, ferronickel sales volumes decreased by 14% to 6,700 tonnes from 7,800 tonnes in the second quarter of 2004 due to lower demand from the stainless steel sector. Cobalt sales volumes of 1,200 tonnes in the quarter increased by 40% from 2004 levels. Precious metals revenues increased by $9 million in the second quarter of 2005 compared to the same period in 2004.

Realized nickel prices of $7.64/lb. increased by 33% from $5.76/lb. in the corresponding period in 2004 and realized ferronickel prices of $7.55/lb. increased by 29% from $5.85/lb. in the same period in 2004.

Costs

Total operating costs increased to $413 million from $300 million in the second quarter of 2004. Cost of operations increased to $224 million from $158 million in the same period last year, reflecting a full quarter of operations at Sudbury (the 2004 period contained the ramp-up after the strike in Sudbury), new production costs at the recently commissioned Montcalm mine and increased oil purchase costs at Falcondo. Falcondo's average oil costs, used to generate electricity and produce diesel fuel from purchased unrefined oil, rose from $34 per barrel in the second quarter of 2004 to $47 per barrel in the most recent quarter.

The cost of purchased raw materials increased to $145 million from $111 million in the second quarter of 2004 due to the impact of higher prices and increased volumes of custom feeds.

The operating cash cost of producing a pound of nickel from INO mines was $3.07, compared to $2.49 in the second quarter of 2004. The 23% increase was the result of the impact of the stronger Canadian dollar on operating costs at the Canadian operations, higher energy costs, maintenance shutdown costs at the Sudbury smelter and lower mine production volumes due to lower ore grades. Falcondo's operating cash cost per pound of ferronickel increased by 23% in the second quarter of 2005 to $4.19/lb. from $3.42/lb. in the same period in 2004, due mostly to the significant increase in oil prices.

Income generated by operating assets

Second quarter operating income for the Nickel Business totaled $200 million, compared to $136 million in the second quarter of 2004. The $64 million increase was mainly due to the impact of improved metal prices and sales volumes offset partially by increases in unit costs and increased depreciation and amortization.

Production

Total refined nickel production was 28,900 tonnes during the quarter versus 23,000 tonnes during the same period in 2004.

Sudbury mines production was 5,600 tonnes of nickel and 7,000 tonnes of copper during the second quarter of 2005, compared with 5,700 tonnes of nickel and 7,500 tonnes of copper in the second quarter of 2004. The decrease in production was primarily attributed to the impact of lower ore grades. At Raglan, nickel in concentrate production in the quarter was 5,200 tonnes and copper production was 1,400 tonnes, compared with 6,200 tonnes of nickel and 1,600 tonnes of copper in 2004. The decreases in production were due to the impact of lower ore grades which more than offset a 4% increase in ore tonnes mined. In its second full quarter after achieving commercial production, the Montcalm mine produced 2,200 tonnes of nickel and 1,100 tonnes of copper.

At the Sudbury smelter, second quarter nickel in matte production increased to 15,500 tonnes from 14,500 tonnes in the same period of 2004 as a result of the treatment of higher concentrate tonnages with lower feed grades. The smelter completed a three-week maintenance shutdown in the quarter and will take a three-week vacation shutdown in July 2005.

At the Nikkelverk refinery, nickel production during the quarter was 21,200 tonnes, compared to 16,100 tonnes in the same period in 2004.

In the second quarter of 2005, Falcondo produced 7,700 tonnes of nickel in ferronickel, compared with 6,900 tonnes in the second quarter of 2004.

Other Developments

Falconbridge and Barrick Gold Corporation finalized a joint-venture agreement regarding the Kabanga nickel deposit and related concessions in Tanzania. Under the current terms of the agreement, Falconbridge acquired a 50% indirect interest in the Kabanga Project for $15 million and will be the operator of the joint venture.

Zinc Business Unit --------------------------------------------------------------------- Q2 Q2 Y-O-Y H1 H1 Y-O-Y 2005 2004 Change 2005 2004 Change --------------------------------------------------------------------- Production: mined (MT) 72,000 94,100 (23%) 139,100 194,300 (28%) --------------------------------------------------------------------- refined (MT)(i) 17,200 17,500 (2%) 33,900 34,800 (3%) --------------------------------------------------------------------- Revenues ($ millions) 127 110 15% 246 195 26% --------------------------------------------------------------------- Realized zinc price ($/lb.) 0.63 0.51 24% 0.63 0.52 21% --------------------------------------------------------------------- Costs ($ millions) 102 100 2% 215 183 17% --------------------------------------------------------------------- Cash costs ($/lb. of zinc) 0.39 0.33 18% 0.39 0.33 18% --------------------------------------------------------------------- Income from operating assets ($ millions) 25 10 150% 31 12 158% --------------------------------------------------------------------- (i) 25% of CEZ refinery

Revenues

Total zinc revenues increased to $127 million, 15% higher than the $110 million recorded during the second quarter of 2004. The increased revenue was due to higher prices for zinc, lead and other by-products. The average LME price per pound of zinc during the second quarter was $0.58/lb., an increase of 23% compared to $0.47/lb. in the same period last year. The average realized price per pound of refined lead during the second quarter was $0.50/lb., versus $0.40/lb. in the same period last year.

In the second quarter of 2005, sales volumes of zinc-in-concentrates decreased 22% to 55,700 tonnes from 71,000 tonnes in the second quarter of 2004, while second quarter 2005 lead metal sales decreased to 22,400 tonnes from 29,300 tonnes in the same period a year ago.

Costs

Total operating expenses increased to $102 million from $100 million in the second quarter of 2004. The cost of purchased raw materials increased to $57 million from $37 million in the second quarter of 2004. The increase is reflective of the rise in zinc and lead prices.

The operating cash cost per pound of mined zinc was $0.39/lb. in the second quarter of 2005, an increase of 18% from $0.33/lb. for the same period in 2004. The increase is primarily due to a stronger Canadian dollar, higher energy costs, higher prices for consumables, higher freight charges and also reflects the closure of the Bell Allard mine in October, 2004.

Income generated by operating assets

The second quarter 2005 operating income of the Zinc Business was $25 million, compared with $10 million for the second quarter of 2004. The $15 million increase reflects higher metal prices and decreased depreciation and amortization charges, which were offset by the impact of lower sales volumes and an unfavourable impact on costs due to the foreign exchange variance caused by the strengthening of the Canadian dollar.

Production

Contained zinc production was 72,000 tonnes in the second quarter of 2005, compared to 94,100 tonnes in the same period in 2004. The decrease in production is primarily attributable to the closure of the Bell Allard mine in October 2004. Falconbridge's share of refined zinc production at the Noranda Income Fund CEZ Refinery totaled 17,200 tonnes, versus 17,500 tonnes during the second quarter of 2004.

Lead metal production at the Brunswick smelter was 23,000 tonnes in the second quarter of 2005 compared to 28,200 tonnes in the same period in 2004. The decrease in production is primarily due to process reliability issues that are being addressed.

Aluminum Business Unit --------------------------------------------------------------------- Q2 Q2 Y-O-Y H1 H1 Y-O-Y 2005 2004 Change 2005 2004 Change --------------------------------------------------------------------- Production: primary (MT) 61,700 61,600 - 123,100 122,900 - --------------------------------------------------------------------- Shipments: fabricated (MT) 43,500 45,800 (5)% 89,200 88,200 1% --------------------------------------------------------------------- Revenues ($ millions) 277 241 15% 574 445 29% --------------------------------------------------------------------- Realized aluminum price ($/lb.) 0.90 0.83 8% 0.91 0.81 12% --------------------------------------------------------------------- Costs ($ millions) 242 217 12% 504 405 24% --------------------------------------------------------------------- Cash costs ($/lb. of aluminum) 0.61 0.57 7% 0.61 0.57 7% --------------------------------------------------------------------- Income from operating assets ($ millions) 35 24 46% 70 40 75% ---------------------------------------------------------------------

Revenues

Total aluminum revenues increased to $277 million, 15% higher than the $241 million recorded during the second quarter of 2004. Sales volumes of primary aluminum decreased 6% to 61,800 tonnes from 65,700 tonnes in the second quarter of 2004. Second quarter rolled-products sales volumes of 43,500 tonnes decreased by 5% from 45,800 tonnes in the same period a year ago due to coil belt problems at the Huntingdon West plant (Tennessee), which have since been repaired. The realized primary aluminum price of $0.90/lb. increased by 8% in the quarter, compared with $0.83/lb. in the same period in 2004.

Costs

Total operating expenses increased to $242 million from $217 million in the second quarter of 2004. The cost of operations increased to $137 million from $110 million in the same period last year. This is mostly as a result of the inclusion of Noranda's share of the newly acquired St. Ann bauxite mine and Gramercy alumina refinery operating costs, which are offset by the benefits of a fully-integrated aluminum business and certainty of long-term alumina supply. The cost of purchased raw materials decreased to $94 million from $97 million in the second quarter of 2004.

The operating cash cost per pound of primary aluminum metal production was $0.61/lb. in the second quarter of 2005, an increase from $0.57/lb. for the same period in 2004. The cost per pound at the rolled products division was 7% lower in the second quarter of 2005, compared with the same period in 2004.

Income generated by operating assets

Second quarter 2005 operating income for the Aluminum Business was $35 million compared with $24 million for the second quarter of 2004. The $11 million increase was mainly due to the impact of higher metal prices, higher value-added volumes and increased metal premiums and fabrication margins.

Production

In the second quarter of 2005, primary aluminum production was 61,700 tonnes, compared to 61,600 tonnes in the same period in 2004. For the rolled products operations, shipments were 43,500 tonnes, compared with 45,800 tonnes for the second quarter of 2004.

During the quarter, the New Madrid primary smelter obtained final regulatory approval of the recently signed 15-year power supply contract.

Other Business

Subsequent to quarter end, Falconbridge's subsidiary Noranda Aluminum Inc. sold its after-market automotive wheel manufacturing and distribution operations, American Racing Equipment ("ARE") to Platinum Equity, a global mergers and acquisition firm based in Los Angeles, California, for proceeds of $40.5 million. The transaction will result in a gain for Falconbridge of approximately $1 million. Under the transaction, an affiliate of Platinum Equity has acquired all outstanding shares of ARE.

Production Forecast --------------------------------------------------------------- 2005 Current 2005 Previous Production Forecast (tonnes) Forecast (tonnes) --------------------------------------------------------------- Copper: Mined 490,000 496,000 Refined 559,000 551,000 --------------------------------------------------------------- Nickel: Mined 83,000 80,000 Refined 114,000 113,000 --------------------------------------------------------------- Zinc: Mined 472,000 470,000 Refined 208,000 210,000 --------------------------------------------------------------- Aluminum: Primary 251,000 253,000 Fabricated 178,000 178,000 ---------------------------------------------------------------

DEVELOPMENT PROJECTS UPDATE

Nickel

Raglan Mine Optimization Project

The conversion of the mill from autogenous to semi-autogenous grinding is in progress with 35% of construction complete. The conversion will allow an increase in the level of annual throughput to approximately one million tonnes of ore per year and increase the mill's ability to process harder ore. In 2005, capital expenditures for Phase one are expected to be $21 million. Phase two, which is expected to be complete late in 2007, will be appropriately sequenced with the changes to the grinding circuit and will debottleneck the back end of the mill. When complete, the concentrator is expected to process 1.3 million tonnes, resulting in approximately 30,500 tonnes of annual contained nickel production.

Nickel Rim South Project

Vent shaft sinking, which began in February 2005, is on schedule and on budget. Main shaft sinking began in April 2005.

Koniambo Project

Falconbridge advanced its joint-venture Koniambo ferronickel project in New Caledonia by completing a positive technical feasibility study, the first of two conditions in the Bercy Accord. This was achieved well in advance of the January 1, 2006 deadline.

As part of the Company's agreement with SMSP and the French Government, the second condition is to place firm orders of at least $100 million in equipment and services related to the project. These orders have been submitted for review.

Falconbridge and its partners are continuing to prepare for the construction phase. They have submitted applications for permits and are finalizing agreements that will assist with the financing plan. Start-up for Koniambo production is targeted for 2009.

Kabanga Project

Falconbridge and Barrick Gold finalized a joint-venture agreement regarding the Kabanga nickel deposit and related concessions in Tanzania. Under the current terms of the agreement, the Company has acquired a 50% indirect interest in the Kabanga Project for $15 million and will be the operator of the joint venture.

Over the next several years, the Company will fund and conduct a $50 million work plan that will include additional exploration and infill drilling, and further technical work to update the resource model for Kabanga. The Company will draw upon its nickel processing, project development and engineering expertise to bring the project towards feasibility. It will establish a dedicated team in Tanzania to coordinate and advance the work plan. Upon conclusion of the work plan, should Falconbridge decide to proceed with the project, it would fund the first $95 million of project development expenditures. Thereafter, Falconbridge and Barrick will equally share joint-venture revenues and expenditures.

A scoping study for this project was initiated in April 2005, with completion expected in the first quarter of 2006.

Copper

Collahuasi

Conceptual study on the second expansion of the copper concentrator at Collahuasi is continuing, with emphasis on upgrading current production levels with minor capital expenditures.

The work on the molybdenum circuit is 54% complete. Start-up of the molybdenum recovery circuit is anticipated for early 2006. The circuit will allow for the recovery of up to 12,000 tonnes per year of concentrates.

Fortuna de Cobre

As part of the Company's review of the Fortuna de Cobre deposit, the development of the exploration tunnel began in March 2005. The pre-feasibility study is progressing with the exploration ramp at 238 metres, or 39% completion at the end of the quarter. A drill-hole resample program is underway, as is preliminary metallurgical testing.

Kidd Mine D Project

A new target schedule and budget were finalized in April and will become the project baseline once approved. Production from blocks 2 and 3 is now expected to begin in the fourth quarter of 2005 and the third quarter of 2006, respectively. Overall project progress is 79.6% based on this new target schedule and budget.

OTHER

Three collective agreements will expire in 2005 at the Kidd Metallurgical site (September 30), Gramercy alumina refinery (September 30) and Falcondo ferronickel mine and processing plant (November 30).

DIVIDENDS

The following dividends have been declared:

--------------------------------------------------------------------- Name of new Falconbridge Trading Dividend Record Payable Security Symbol Amount Date Date Per Share --------------------------------------------------------------------- Common Shares FAL.LV CDN $0.12 August 31 September 15 --------------------------------------------------------------------- Preferred Shares, Series 1 N/A CDN $0.02 August 15 September 1 --------------------------------------------------------------------- Preferred Shares, Series 2 FAL.PR.A Floating August September rate 31 12 Floating September October rate 30 12 Floating October November rate 31 12 --------------------------------------------------------------------- Preferred Shares, CDN Series 3 FAL.PR.B $0.2863 August 15 September 1 --------------------------------------------------------------------- Preferred Shares, Series F FAL.PR.F Floating August September rate 31 12 Floating September October Rate 30 12 Floating October November Rate 31 12 --------------------------------------------------------------------- Preferred Shares, CDN Series G FAL.PR.G $0.38125 October 15 November 1 --------------------------------------------------------------------- Preferred Shares, CDN Series H FAL.PR.H $0.40625 September September 30 15 --------------------------------------------------------------------- Junior Preference Shares, Series 1 FAL.PR.X US$0.375 September September 30 15 --------------------------------------------------------------------- Junior Preference Shares, Series 2 FAL.PR.Y US$0.3906 September September 30 15 --------------------------------------------------------------------- Junior Preference Shares, Series 3 FAL.PR.Z US$0.4063 September September 30 15 ---------------------------------------------------------------------

This news release contains forward-looking statements concerning the Company's business and operations. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and the Company's actual results could differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Information Form for a description of the major risk factors.

Falconbridge Limited is a leading copper and nickel company with investments in fully-integrated zinc and aluminum assets. Its primary focus is the identification and development of world-class copper and nickel mining deposits. It employs 14,500 people at its operations and offices in 18 countries. Falconbridge's common shares are listed on the New York Stock Exchange (FAL) and the Toronto Stock Exchange (FAL.LV). Falconbridge's website can be found at www.falconbridge.com.

Note: All dollar amounts are expressed in U.S. dollars unless otherwise noted. Condensed consolidated financial statements are attached.

To participate in the first quarter analyst conference call scheduled for Friday, July 29, 2005, at 1:00 p.m., please call (416) 620-2407 for local and overseas callers and 1-800-682-5077 toll free in North America, or visit the Company's website at www.falconbridge.com to listen to a live webcast.

FALCONBRIDGE LIMITED CONSOLIDATED RESULTS (US$ millions, unaudited) Six months ended Second Quarter(1) June 30(1) ---------------------------------------- 2005 2004(2) 2005 2004(2) ---------------------------------------- Revenues $ 2,124 $ 1,694 $ 4,100 $ 3,347 ----------------------------------------- Operating expenses Cost of operations 682 535 1,310 999 Purchased raw materials 831 749 1,606 1,460 Depreciation, amortization and accretion 147 126 265 243 ----------------------------------------- 1,660 1,410 3,181 2,702 ----------------------------------------- Income generated by operating assets 464 284 919 645 Interest expense, net 44 40 76 69 Corporate and general administration 19 15 36 28 Research, development and exploration 15 12 27 19 Minority interest in earnings of subsidiaries 55 64 149 143 ----------------------------------------- Income before undernoted 331 153 631 386 Other income (1) (12) - (17) Tax expense 130 57 253 143 ----------------------------------------- Net Income $ 202 $ 108 $ 378 $ 260 Dividends on preferred shares 4 3 7 7 ----------------------------------------- Net Income attributable to common shares $ 198 $ 105 $ 371 $ 253 ----------------------------------------- Basic earnings per common share $ 0.62 $ 0.35 $ 1.20 $ 0.86 ----------------------------------------- Diluted earnings per common share $ 0.61 $ 0.35 $ 1.19 $ 0.85 ----------------------------------------- Basic weighted average number of shares - 000s 322,566 296,249 309,782 295,922 Diluted weighted average number of shares - 000s 329,262 303,483 316,552 303,161 --------------------------------------------------------------------- (1) The 2004 and 2005 results represent the consolidated results of Noranda Inc. which was renamed to "Falconbridge Limited" after the Amalgamation on June 30, 2005. (2) Effective January 1, 2005, Noranda retroactively adopted the new Canadian Institute of Chartered Accountants standards for variable interest entities and classification and measurement of convertible debentures and preferred shares. FALCONBRIDGE LIMITED CONSOLIDATED BALANCE SHEETS (US$ millions, unaudited) June 30 December 31 2005(1) 2004(1)(2) ----------------------------- Assets Current assets Cash and cash equivalents $ 1,517 $ 884 Accounts receivable 980 948 Metals and other inventories 1,505 1,436 ------------------------------ 4,002 3,268 Operating capital assets 6,699 4,870 Development projects 1,527 1,166 Investments and other assets 287 324 ------------------------------ $ 12,515 $ 9,628 ------------------------------ Liabilities and Equity Current Liabilities Accounts and taxes payable $ 1,205 $ 1,265 Debt due within one year 1,003 570 ------------------------------ 2,208 1,835 Long-term debt 3,027 2,736 Preferred share liabilities 870 122 Future income taxes 1,087 304 Asset retirement obligation, pension and other provisions 703 595 Stockholders' interests: Interests of other shareholders 49 1,197 Shareholders' equity 4,571 2,839 ------------------------------ $12,515 $ 9,628 ------------------------------ (1) The consolidated balance sheet as at June 30, 2005 and December 31, 2004 represents the consolidated balance sheet of Noranda Inc. which was renamed to "Falconbridge Limited" after the Amalgamation on June 30, 2005. (2) Effective January 1, 2005, Noranda retroactively adopted the new Canadian Institute of Chartered Accountants standards for variable interest entities and classification and measurement of convertible debentures and preferred shares. FALCONBRIDGE LIMITED CONSOLIDATED STATEMENTS OF CASHFLOWS (US$ millions, unaudited) Six months ended Second Quarter(1) June 30(1) -------------------------------------- 2005 2004(2) 2005 2004(2) -------------------------------------- Cash realized from (used for): Operations Net income $ 202 $ 108 $ 378 $ 260 Charges (credits) not affecting cash: Depreciation and amortization 131 121 256 227 Future taxes 49 10 124 53 Minority interest 55 64 149 143 Foreign exchange, and other (13) (10) (32) (42) -------------------------------------- 424 293 875 641 Net change in accounts receivable, inventories and payables (70) (40) (136) (128) -------------------------------------- Cash from operations 354 253 739 513 -------------------------------------- Investment activities Capital investments (162) (146) (272) (270) Investments and advances (2) 118 (5) 128 Proceeds on dispositions 3 1 6 3 -------------------------------------- Cash used in investment activities (161) (27) (271) (139) -------------------------------------- Financing activities Long-term debt, including current portion Issued 501 113 514 141 Repaid (125) (300) (279) (344) Issue of shares - common 4 5 12 18 Share purchase plan repayment 2 - 2 - Dividends paid (31) (29) (64) (59) Issue of shares - minority shareholders 2 3 18 14 Dividends paid to minority shareholders (29) (9) (38) (17) -------------------------------------- 324 (217) 165 (247) -------------------------------------- Increase in cash and cash equivalents 517 9 633 127 Cash and cash equivalents, beginning of period 1,000 619 884 501 -------------------------------------- Cash and cash equivalents, end of period $1,517 $ 628 $1,517 $ 628 -------------------------------------- (1) The consolidated statement of cashflows for the three and six months ended June 30, 2005 and June 30, 2004 represent the consolidated statement of cashflows of Noranda Inc. which was renamed to "Falconbridge Limited" after the Amalgamation on June 30, 2005. (2) Effective January 1, 2005, Noranda retroactively adopted the new Canadian Institute of Chartered Accountants standards for variable interest entities and classification and measurement of convertible debentures and preferred shares. FALCONBRIDGE LIMITED SALES VOLUMES & REALIZED PRICES Six months ended Second quarter June 30 ---------------------------------------- 2005 2004 2005 2004 ---------------------------------------- Metal Sales (tonnes, except as noted) -------------------- 100% basis, except as noted --------------- Copper Copper business CCR 66,558 65,686 135,610 150,672 Kidd Creek 28,045 13,930 51,405 36,720 Horne - (concentrates) - 11,338 - 15,190 Antamina - (concentrates) (33.75%) 14,218 18,500 44,238 35,951 Collahuasi - (concentrates) (44%) 29,171 30,390 65,147 49,365 Collahuasi (44%) 7,094 11,114 13,780 17,028 Lomas Bayas 16,330 13,645 33,835 28,681 Altonorte - (anodes) 41,526 43,567 72,724 98,664 ---------------------------------------- 202,942 208,170 416,739 432,271 Nikkelverk 15,476 11,464 30,953 24,661 ---------------------------------------- 218,418 219,634 447,692 456,932 ---------------------------------------- Nickel 22,002 18,025 43,268 36,143 Ferronickel 6,738 7,808 13,253 14,585 Zinc Copper business Kidd Creek 38,727 33,675 73,251 60,200 Kidd Creek - (concentrates) 10,171 - 16,579 - Antamina - (concentrates) (33.75%) 10,687 19,931 25,837 34,150 ---------------------------------------- 59,585 53,606 115,667 94,350 Zinc business Brunswick/Matagami - (concentrates) 55,704 70,997 115,833 145,131 ---------------------------------------- 115,289 124,603 231,500 239,481 ---------------------------------------- Aluminum Primary Aluminum - shipments 61,834 65,680 123,644 126,425 Norandal - shipments 43,548 45,796 89,162 88,184 Alumina - shipments (50%) 89,679 - 179,598 - Bauxite - shipments (50%) 243,514 - 451,066 - Lead 22,435 29,263 44,158 50,474 Molybdenum concentrate Antamina (33.75%) 587 114 1,179 157 Gold - 000 ounces 202 225 386 461 Silver - 000 ounces CCR 9,166 10,193 17,480 19,519 Kidd Creek 1,781 83 2,255 741 Antamina (33.75%) 383 655 763 1,078 ---------------------------------------- 11,330 10,931 20,498 21,338 ---------------------------------------- Average Realized Prices - (US$ per pound, except as noted) ----------------------------- Copper 1.57 1.27 1.55 1.21 Nickel 7.64 5.76 7.34 6.32 Ferronickel 7.55 5.85 7.13 6.29 Zinc 0.63 0.51 0.63 0.52 Aluminum 0.90 0.83 0.91 0.81 Lead 0.50 0.40 0.50 0.41 Gold - (US$ per ounce) 419.74 394.71 426.80 399.24 Silver - (US$ per ounce) 7.06 6.41 7.08 6.37 Exchange Rate (US$1 = Cdn$1) 0.80 0.74 0.81 0.75 ----------------------------- FALCONBRIDGE LIMITED PRODUCTION VOLUMES Six months ended Second Quarter June 30 ---------------------------------------- 2005 2004 2005 2004 ---------------------------------------- Mine Production (tonnes, except as noted) -------------------------- 100% basis, except as noted --------------- Copper Copper business Kidd Creek 9,943 14,292 21,098 23,588 Antamina (33.75%) 30,968 30,976 61,998 56,533 Collahuasi (44%) 43,228 46,433 90,202 81,802 Lomas Bayas 16,202 14,914 32,525 30,642 ---------------------------------------- 100,341 106,615 205,823 192,565 Matagami - 2,024 - 3,880 Brunswick 1,553 1,357 2,825 3,199 Sudbury 7,005 7,476 12,991 11,279 Montcalm 1,114 128 2,164 177 Raglan 1,377 1,605 2,902 3,338 Other 3,959 2,943 7,280 7,373 ---------------------------------------- 115,349 122,148 233,985 221,811 ---------------------------------------- Nickel Sudbury 5,566 5,728 11,688 10,132 Montcalm 2,203 280 4,153 280 Raglan 5,239 6,229 11,217 12,897 ---------------------------------------- 13,008 12,237 27,058 23,309 ---------------------------------------- Ferronickel 7,675 6,871 14,149 14,870 Zinc Zinc business Brunswick 72,001 62,280 139,068 135,860 Matagami - 31,771 - 58,445 ---------------------------------------- 72,001 94,051 139,068 194,305 Kidd Creek 36,763 10,700 64,189 31,492 Antamina (33.75%) 18,314 18,309 38,486 40,778 Other 2,539 2,847 5,127 4,391 ---------------------------------------- 129,617 125,907 246,870 270,966 ---------------------------------------- Lead 20,449 17,138 39,342 37,425 Silver - 000 ounces Copper business Kidd Creek 1,037 757 1,864 1,951 Antamina (33.75%) 832 736 1,754 1,389 ---------------------------------------- 1,869 1,493 3,618 3,340 Brunswick 1,603 1,363 3,089 2,965 Matagami - 119 - 233 Other 103 73 169 123 ---------------------------------------- 3,575 3,048 6,876 6,661 ---------------------------------------- Metal Production (tonnes, except as noted) -------------------------- Refined copper Copper business CCR 67,221 68

Source: Business Wire

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