Noranda Income Fund
TSX : NIF.UN

Noranda Income Fund

May 15, 2014 07:45 ET

Noranda Income Fund Reports First Quarter Earnings Before Income Taxes of $11.1 Million

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - May 15, 2014) - Noranda Income Fund (the "Fund") (TSX:NIF.UN)

Q1 2014 and Subsequent Highlights

  • Zinc premiums averaged 10.3 cents US per pound (11.3 cents Cdn) compared to Q1 2013 – 8.4 cents US per pound (8.5 cents Cdn)
  • Declared monthly cash distributions from January to April 2014 of $0.04167 per priority unit
  • Two major capital projects have or are about to be completed:
    • The four-year rehabilitation project to replace the liners in the cell house was completed in the first quarter of 2014 on budget.
    • The project to increase the Processing Facility's silica removal capacity is expected to be completed this quarter, on time and under budget.

Financial and Operating Highlights (First quarter 2014 compared to the first quarter 2013)

Earnings before income taxes in the first quarter of 2014 were $11.1 million compared to $27.3 million in the same quarter a year ago. The $16.2 million decrease was mainly due to lower zinc metal sales and by-product revenues and higher costs resulting from increased volumes of seaborne concentrates, partially offset by a weaker Canadian dollar and by a higher processing fee, premiums and recoveries.

Cash used by operating activities in the first quarter of 2014, was $12.4 million, including a negative $24.2 million increase in non-cash working capital. In the same period of 2013, cash used by operating activities was $5.7 million, which was negatively impacted by a $20.8 million increase in non-cash working capital. Cash distributions of $4.7 million were paid in both the 2014 and 2013 quarterly periods.

During the first quarter of 2014, non-cash working capital increased by $24.2 million in a large part due to an increase in concentrate inventories partly offset by an increase in accounts payables and accrued liabilities and by a reduction in accounts receivables.

In March of 2014, two seaborne deliveries of concentrate were received causing inventories to rise. Going forward, inventory levels are expected to be less stable because of the irregularity of the shipments compared to the rail deliveries. During the first quarter of 2013, non-cash working capital increased by $20.8 million in a large part due to an increase in accounts receivable and a reduction in accounts payable and accrued liabilities.

"We had a challenging first quarter as the Processing Facility increased its consumption of seaborne concentrate, production was constrained by limited silica treatment capacity and unit costs were negatively impacted by the lower production," said Eva Carissimi, President and Chief Executive Officer of the Fund. "The second half of 2014 is expected to be positively impacted by the completion of our two major investment projects, with production recovering to normal levels."

Annual General Meeting

May 15th, 2014 at 2 pm ET

Location: Gallery Room at the TSX Broadcast & Conference Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario

Come and join us at the TSX Broadcast and Conference Centre, or listen to the AGM and view the slides from the Investor Centre/Presentations section of the Fund website: http://www.norandaincomefund.com/investor/presentations.html or click on this link: www.gowebcasting.com/5529

Conference Call and Webcast:

May 15th, 2014 at 4:30 p.m. ET

Dial in number: 416-340-2216
Toll-free North American number: 1-866-223-7781

In addition, you can listen to the teleconference and view the slide presentation from the Conference Call section of the Noranda Income Fund website: http://www.norandaincomefund.com/investor/conference.html or click on this link: www.gowebcasting.com/5528

Recording of the Conference Call:

Dial in number: 905-694-9451 or
Toll-free North American number: 1-800-408-3053.

The pass code is 2869 628# and you will be prompted for your name and company.

The recording will be available until midnight on May 29th, 2014.

A full version of the first quarter 2014 Management's Discussion and Analysis ("MD&A") and the unaudited Interim Condensed Consolidated Financial Statements will be posted on www.sedar.com and on the Fund's website at http://www.norandaincomefund.com/investor/financials.html today, May 15, 2014. 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 first quarter 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, including statements on 2014 zinc metal production. 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 Fund's ability to operate at normal production levels 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.

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

SELECTED FINANCIAL AND OPERATING INFORMATION
First Quarter
($ thousands) 2014 2013
Statements of Comprehensive Income Information
Revenues 154,345 150,055
Raw material purchase costs 78,375 69,033
Revenues less raw material purchase costs 75,970 81,022
Other expenses:
Production 43,984 39,152
Selling and administration 5,361 5,482
Foreign currency loss 3,687 3,491
Loss (gain) on derivative financial instruments 826 (3,308 )
Depreciation of property, plant and equipment 8,696 8,102
Rehabilitation expense (recovery) 1,077 (1,029 )
Earnings before finance costs and income taxes 12,339 29,132
Finance costs, net 1,252 1,874
Earnings before income taxes 11,087 27,258
Current and deferred income tax expense 2,580 5,096
Earnings attributable to Unitholders and Non-controlling interest 8,507 22,162
Distributions to Unitholders 4,688 4,688
Current income tax recovery on distribution - -
Increase in net assets attributable to Unitholders and Non-controlling interest 3,819 17,474
Other comprehensive income (loss) gain (1,761 ) 2,918
Comprehensive income 2,058 20,392
Statements of Financial Position Information Mar. 31, 2014 Dec. 31, 2013
Cash 2,539 15,547
Inventories 106,552 77,580
Accounts receivable 87,346 91,898
Income taxes receivable 1,205 4,040
Property, plant and equipment 271,124 272,341
Total assets 474,771 467,075
Accounts payable and accrued liabilities 82,717 87,844
Total bank and other loans 59,622 51,322
Total liabilities excluding net assets attributable to Unitholders 193,180 187,542
First Quarter
Statements of Cash Flows Information 2014 2013
Cash provided by operating activities before cash distributions and net change in non-cash working capital items 12,850 20,073
Cash distributions (4,688 ) (4,688 )
Net change in non-cash working capital items (20,549 ) (21,101 )
Cash used in operating activities (12,387 ) (5,716 )
Cash used in investing activities (8,692 ) (3,963 )
Cash provided by financing activities 8,071 10,138
Net (decrease) increase in cash (13,008 ) 459
Cash distributions declared per Priority Unit 0.12501 0.12501
First Quarter
2014 2013
Zinc concentrate processed (tonnes) 121,044 133,382
Zinc grade (%) 51.7 52.9
Zinc recovery (%) 97.0 96.0
Zinc metal production (tonnes) 59,544 68,413
Zinc metal sales (tonnes) 60,509 63,058
Processing fee (cents/pound) 40.0 39.5
Zinc metal premium (US cents/pound) 10.3 8.4
By-product revenues ($ millions) 6.5 11.0
Copper in cake production (tonnes) 567 620
Copper in cake sales (tonnes) 173 703
Sulphuric acid production (tonnes) 91,974 105,791
Sulphuric acid sales (tonnes) 94,361 103,233
Average LME copper price (US$/pound) 3.19 3.60
Sulphuric acid netback (US$/tonne) 55 72
Average LME zinc price (US$/pound) 0.92 0.92
Average US/Cdn. exchange rate 1.10 1.01
* 1 tonne = 2,204.62 pounds

Adjusted Earnings before Distributions to Unitholders, Finance Costs, Income Taxes, Depreciation and Amortization ("Adjusted EBITDA")

Adjusted EBITDA is used by the Fund as an indication of cash generated from operations. Adjusted EBITDA is not a recognized measure under IFRS and therefore the Fund's method of calculating Adjusted EBITDA is unlikely to be comparable to methods used by other entities.

The Fund's Adjusted EBITDA is calculated by starting from earnings before finance costs and income taxes and adjusting for all of the non-cash items such as depreciation, gain or loss on the sale of assets, changes in fair value of embedded derivatives and non-cash gain on derivative financial instruments. In addition, an adjustment is made to reflect the net change in the rehabilitation liability (reclamation (recovery) expense less site restoration expenditures) and the net change in employee benefits (non-cash employee benefit expenses less employer contributions).

The Fund's Adjusted EBITDA is currently supported by the stability of the Supply and Processing Agreement. It is expected that the Fund's Adjusted EBITDA will be subject to more variability once this agreement expires in May 2017.

A reconciliation of Adjusted EBITDA for the first quarter of 2014 compared to the same period in 2013 is provided below:

Adjusted EBITDA Q1/2014 Q1/2013 Change
($ thousands)
Earnings before finance costs and income taxes $ 12,339 $ 29,132 $ (16,793 )
Depreciation of property, plant and equipment 8,696 8,102 594
Net change in rehabilitation liability 1,082 (1,046 ) 2,128
Non-cash loss (gain) on derivative financial instruments 516 (4,686 ) 5,202
Change in fair value of embedded derivatives (5,377 ) (3,955 ) (1,422 )
Gain on sale of assets (101 ) (329 ) 228
Net change in employee benefits (371 ) (198 ) (173 )
$ 16,784 $ 27,020 $ (10,236 )

Contact Information

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