Noranda Income Fund
TSX : NIF.UN

Noranda Income Fund

April 27, 2017 18:42 ET

Noranda Income Fund Reports 2017 First Quarter Financial Results

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - April 27, 2017) - Noranda Income Fund (TSX:NIF.UN) (the "Fund") today reported its financial results for the three month period ended March 31, 2017. All amounts are in Canadian currency unless otherwise stated.

Q1 2017 Financial and Operating Highlights

  • Glencore Canada and the Fund reached an agreement whereby Glencore will supply all of the Fund's zinc concentrate requirements for its processing facility located in Salaberry-de-Valleyfield, Quebec (the "Processing Facility") and will purchase all the zinc metal production for the 12-month period ending April 30, 2018.
  • On February 12, 2017, unionized workers initiated a strike at the Processing Facility. In response, management secured operations and resumed partial production with eligible staff. The production of zinc metal is currently at 50% to 60% of normal operating levels.
  • Adjusted Net Revenues1 were $43.9 million, down 45% from $80.4 million in Q1 2016.
  • Earnings before income taxes were $5.4 million, up 23% from $4.4 million in Q1 2016.
  • Zinc metal production decreased 26% to 50,048 tonnes from 67,627 tonnes in Q1 2016.
  • Zinc metal sales totaled 49,516 tonnes, down 32% from 72,639 tonnes in Q1 2016.
  • By product revenue from the sale of copper in cake and sulphuric acid was $2.3 million, down from $6.3 million for Q1 2016.
  • Production costs before changes in inventory declined 16% to $39.7 million.
  • Non-cash working capital grew by $64.3 million as a result of increased inventory and a reduction in accounts payable.

1 Adjusted Net Revenues means revenues less raw material purchase costs ("Net Revenues") excluding unrealized concentrate settlement adjustments and after foreign currency gain/loss and derivative financial instruments gain/loss. Adjusted Net Revenues is reconciled to Net Revenues below.

CEO Commentary

"In a few days, we will begin to purchase concentrate on market terms. This transition requires that we operate as efficiently and cost-effectively as possible in light of tight zinc concentrate supply conditions and low treatment charges," said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc Limited. "Within this context, we are disappointed that we have been unable to settle the dispute with the unionized employees."

Ms. Carissimi added, "Our Q1 financial and operating results were impacted by the effects of the strike initiated by unionized workers at our Processing Facility. We are very happy to report that staff have sustained an operating rate of 60% of normal levels in March and that we have been able to re-establish the supply of metal to customers."

Q1 2017 Financial and Operating Results

The Fund reported earnings before income taxes of $5.4 million in Q1 2017, up from $4.4 million for Q1 2016. The year-over-year increase was largely due to higher processing fees, reduced production costs, the impact of inventory margin during the quarter and lower depreciation costs. These gains were partially offset, however, by lower sales volumes, lower by-product revenue and by the impact of a stronger average Canadian dollar compared to the US dollar. In Q1 2017, realized zinc prices were US$1.33 per pound and zinc premiums were US$0.07 per pound. These compare to US$0.83 and US$0.07, respectively, for Q1 2016.

Through its Processing Facility, the Fund produces refined zinc metal and various by-products from zinc concentrates purchased from mining operations and sells refined zinc products to customers in the open market. The Fund earns a processing fee from transforming zinc concentrate into zinc metal and earns additional revenue from premiums, by-product sales and metal gains.

Production costs before changes in inventory for Q1 2017 were $39.7 million, down 16%, or $7.6 million, from the $47.3 million recorded in the same period of 2016. The decrease was due to a number of factors, including lower labour, energy and supplies costs, as well as the lower zinc metal production volumes in the quarter.

Adjusted Net Revenues(2) for Q1 2017 were $43.9 million, down 45% from $80.4 million for the comparative period of 2016. The decline was due to a number of factors, including lower sales volumes and the impact of inventory margin during the quarter.

Zinc metal production in Q1 2017 declined 26% to 50,048 tonnes from 67,627 tonnes in Q1 2016. The reduced metal production was due to the strike initiated by unionized workers at the Fund's Processing Facility. Partial production resumed once the Processing Facility was secured, and production has since been stabilized at 50% to 60% of normal operating levels.

Zinc metal sales in Q1 2017 were 49,516 tonnes, down 32% from 72,639 tonnes in Q1 2016. The lower sales totals were consistent with reduced production totals for the quarter.

Cash used in operating activities totalled $62.7 million and included a $64.3 million increase in non-working capital due to an increase in inventories and a decrease in accounts payables. In Q1 2016, cash provided by operating activities totalled $69.4 million. Cash used in operating activities in Q1 2017 was funded by the Fund's asset-backed credit facility.

The Fund declared cash distributions of $0.9 million in Q1 2017 or $0.025 per unit. In Q1 2016, the Fund declared distributions of $4.7 million or $0.125 per unit. In light of prevailing market conditions and the need to be prudent with cash reserves, the Fund's Board of Trustees suspended monthly distributions to unitholders following the distribution paid on February 27, 2017. There is no assurance that monthly distributions will resume in the future.

As at March 31, 2017, the Fund's debt was $129.5 million, up from $64.0 million as at December 31, 2016. The Fund's cash as at March 31, 2017 decreased to $0.5 million from $2.6 million as at December 31, 2016. The Fund's debt increased primarily as a result of the increase in working capital during the period. Zinc metal inventory will be sold to Glencore Canada under the one year contract that comes into effect on May 1, 2017.

Outlook for the Fund

The main challenge facing the Fund is the ability for the Processing Facility to continue to operate profitably once the fixed processing fee available during the initial term of the Supply and Processing Agreement ends on May 2, 2017 and the Fund is required to purchase concentrates on market terms. The Fund's results after May 2, 2017 will be impacted by market treatment charges, as well as greater sensitivity to zinc price and the Canadian exchange rate, resulting in more variable operating results.

In light of the strike by unionized workers at the Fund's Processing Facility and the uncertainty about its duration, the Fund has deferred providing guidance for zinc metal production and sales targets for 2017 until an appropriate time.

First Quarter 2017 Results Conference Call:
When: April 28, 2017 at 8:30 a.m. E.T
Dial in number: 647-788-4919 or
Toll-free North American number: 1-877-291-4570

To access the webcast and view the slide presentation from the Noranda Income Fund website: http://www.norandaincomefund.com/investor/conference.html or click on this link: http://www.gowebcasting.com/8454.

Conference Call Replay:
Dial in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367

The conference ID is 9088200 and you will be prompted to provide your name and company. The recording will be available until midnight on May 12, 2017.

A full version of the Fund's Q1 2017 Management's Discussion and Analysis (MD&A) and unaudited Interim Condensed Consolidated Financial Statements will be posted on http://www.sedar.com and on the Fund's website at http://www.norandaincomefund.com/investor/financials.html later today.

Readers should be advised that the summarized communication presented in this press release is limited in its disclosure. It is not a suitable source of information for readers who are unfamiliar with the Fund, and it is not in any way a substitute for reading the unaudited Interim Condensed Consolidated Financial Statements and MD&A because a reader relying on this summary alone might overlook decision critical information.

Forward-Looking Information

This press release contains forward-looking information and statements within the meaning of applicable securities laws. Forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause actual events, results or performance to be materially different from any future events, results or performance expressed or implied by the forward-looking information, and as a result, the Fund cannot guarantee that any forward-looking statements or information will materialize.

Such risks and uncertainties include, but are not limited to, the effect of general business and economic conditions, the Fund's ability to operate at normal production levels, the demand and price for zinc concentrate, zinc metal, sulphuric acid and copper in cake, the dependence upon continuing supply of zinc concentrate and the terms of that supply, the Fund's capital expenditure requirements and other general risks and uncertainties set out in the Fund's continuous disclosure documents on available on SEDAR at www.sedar.com.

Forward-looking information contained in this press release is based on, among other things, management's current estimates, expectations, assumptions, plans and intentions, which management believes are reasonable as of the current date, and which are subject to a number of risks and uncertainties. Except as required by law, the Fund does not undertake to update these forward-looking statements or information, whether written or oral, that may be made from time to time by the Fund or on the Fund's behalf.

Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol "NIF.UN". Noranda Income Fund owns the electrolytic zinc processing facility and ancillary assets (the "Processing Facility") located in Salaberry de-Valleyfield, Québec. The Processing Facility is the second-largest zinc processing facility in North America and the largest zinc processing facility in eastern North America, where the majority of zinc customers are located. It produces refined zinc metal and various by-products from sourced zinc concentrates. The Processing Facility is operated and managed by Canadian Electrolytic Zinc Limited, a wholly-owned subsidiary of Glencore Canada Corporation.
Except where otherwise indicated, all amounts in this press release are expressed in Canadian dollars.

Further information about Noranda Income Fund can be found at www.norandaincomefund.com

Key Performance Drivers
The following table provides a summary of the performance of the Fund's key drivers:
Three months ended March 31 2017 2016
Zinc concentrate processed (tonnes) 117,892 135,727
Zinc secondary feed processed (tonnes) 4,165 1,237
Zinc grade (%) 52.1 51.6
Zinc recovery (%) 96.9 97.5
Zinc metal production (tonnes) 50,048 67,627
Zinc metal sales (tonnes) 49,516 72,639
Processing fee (cents/pound) 41.4 41.0
Realized zinc price (US$/pound) 1.33 0.83
Average LME zinc price (US$/pound) 1.26 0.76
By-product revenues ($ millions) 2.3 6.3
Copper in cake production (tonnes) 494 702
Copper in cake sales (tonnes) 328 796
Sulphuric acid production (tonnes) 98,066 111,925
Sulphuric acid sales (tonnes) 94,427 105,978
Average LME copper price (US$/pound) 2.65 2.12
Sulphuric acid netback (US$/tonne) 7 28
Average US/Cdn. exchange rate 1.32 1.37
* 1 tonne = 2,204.62 pounds
SELECTED FINANCIAL AND OPERATING INFORMATION
Three months ended March 31,
($ thousands) 2017 2016
Statements of Comprehensive Income Information
Revenues 181,989 172,581
Raw material purchase costs 134,374 112,541
Revenues less raw material purchase costs 47,615 60,040
Other expenses:
Production 30,143 49,510
Selling and administration 8,180 6,264
Foreign currency gain (1,502 ) (13,452 )
Derivative financial instruments (gain) loss (1,327 ) 4,188
Depreciation of property, plant and equipment 5,282 7,580
Rehabilitation expense 122 590
Earnings before finance costs and income taxes 6,717 5,360
Finance costs, net 1,363 1,000
Earnings before income taxes 5,354 4,360
Current and deferred income tax expense 1,599 473
Earnings attributable to Unitholders and Non-controlling interest 3,755 3,887
Distributions to Unitholders 937 4,687
Increase (decrease) in net assets attributable to Unitholders
and Non-controlling interest 2,818 (800 )
Other comprehensive loss (15 ) (3,955 )
Comprehensive income (loss) 2,803 (4,755 )
Statements of Financial Position Information March 31, 2017 December 31, 2016
Cash 494 2,567
Inventories 284,112 242,585
Accounts receivable 93,054 103,280
Income taxes receivable 6,206 5,000
Property, plant and equipment 133,181 138,309
Total assets 542,057 516,014
Accounts payable and accrued liabilities 133,702 175,521
ABL revolving facility 129,523 63,987
Total liabilities excluding net assets attributable to Unitholders 302,781 279,541
Three months ended March 31,
Statements of Cash Flows Information 2017 2016
Cash provided by operating activities before cash distributions
and net change in non-cash working capital items 2,608 28,106
Cash distributions (937 ) (4,687 )
Net change in non-cash working capital items (64,328 ) 45,999
Cash (used in) provided by operating activities (62,657 ) 69,418
Cash used in investing activities (4,952 ) (3,916 )
Cash provided by (used in) financing activities 65,536 (64,663 )
Net (decrease) increase in cash (2,073 ) 839

Contact Information

  • Michael Boone, Vice President &
    Chief Financial Officer of
    Canadian Electrolytic Zinc Limited
    Noranda Income Fund's Manager
    416-775-1561
    info@norandaincomefund.com