Noranda Income Fund
TSX : NIF.UN

Noranda Income Fund

March 02, 2016 07:45 ET

Noranda Income Fund Reports Fourth Quarter and FY2015 Financial Results

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - March 2, 2016) - Noranda Income Fund (TSX:NIF.UN) (the "Fund") today reported its financial results for the three and 12 month periods ended December 31, 2015. All amounts are in Canadian currency unless otherwise stated.

2015 Fiscal Year Highlights

  • Adjusted Net Revenues1 was $306.7 million, up 5% from $290.9 million for 2014.
  • Production costs per tonne of zinc produced were $688, down 6% from $735 for 2014.
  • Earnings before income taxes were $49.8 million, up from a loss before income taxes of $6.0 million for 2014.
  • Zinc metal production was 272,861 tonnes, surpassing the Fund's target for the year, and 4% higher than the 262,049 tonnes produced in 2014.
  • Zinc metal sales totaled 262,719 tonnes, up 2% from the 258,160 tonnes sold in 2014.
  • The Fund repaid $15 million of Senior Secured Notes throughout 2015.
  • Asset-based revolving credit facility was extended to April 3, 2017.
  • Monthly cash distribution of $0.04167 per unit was declared to Priority Unitholders in each of the twelve months of 2015.

"We generated strong results in 2015 and showed improvements against each of the key financial and operational metrics we use to measure the Fund's performance despite very challenging market conditions," said Eva Carissimi, President and Chief Executive Officer of Noranda Income Fund's Manager. "We grew our revenue and generated a positive earnings turnaround for the year."

2015 Financial and Operating Results

Earnings before income taxes for 2015 was $49.8 million and included as asset impairment charge of $10.3 million. In 2014, the Fund incurred a loss before income taxes of $6.0 million in 2014 largely due to a $40.5 million asset impairment charge.

The year-over-year improvement in earnings was also due to a combination of factors besides the net change in impairment charges of $30.2 million. Improved earnings were also due to a weaker average Canadian dollar in 2015 compared to the US dollar, which benefitted zinc metal premiums and by-product revenues. The decline in the value of the Canadian dollar positively impacts the Fund's zinc metal premiums and by-product revenues as all zinc and by-product sales are priced in US currency.

Lower depreciation and reclamation, higher zinc metal sales and lower unit production costs also contributed to higher earnings, though partially offset by higher zinc feed acquisition costs.

Cash provided by operating activities in 2015 was $16.2 million, which represented a positive turnaround of $23.2 million when compared to cash used in operating activities of $7.0 million for 2014.

Unit production costs were $688 per tonne, down 6% from 2014. The production cost decreases, which were driven largely by lower contractor costs and lower labour costs, helped to drive the Fund's earnings improvements.

Cash distributions of $18.7 million or $0.50004 per priority unit were declared in both the 2015 and 2014 fiscal years.

The Fund remains committed to reducing its debt as it prepares for the expiry of the initial term of the Supply and Processing Agreement. As at December 31, 2015, the Fund's debt was $92.8 million (net of deferred financing fees), up from $79.0 million at the end of December 2014. The Fund's debt increased as a result of the increase in non-cash working capital during the period, which was partially offset by operating cash flow. The Fund's cash as at December 31, 2015 totalled $1.9 million.

On March 1, 2016 the Fund extended the maturity of the ABL Facility to April 3, 2017. The terms of the ABL Facility remain substantially the same, except in the circumstances where the Supply and Processing Agreement is not renewed on terms and conditions satisfactory to the lenders. In that circumstance the following amendments become effective on the earlier of i) the earlier of a) the date of the deemed non-renewal (or termination) of the Supply and Processing Agreement and b) the date that is five days following receipt by the Fund of notice by Glencore Canada of such non-renewal (or termination) of the Supply and Processing Agreement and ii) November 3, 2016:

  • ABL Facility availability would be reduced from $175 million to $150 million
  • An additional reserve of $17.5 million would be required by the lenders for purposes of the borrowing base
  • Distributions to Unitholders only permitted with lenders' consent
  • Applicable margins for interest would be at the upper levels.

The above amendments would no longer be in effect if one or more alternate zinc concentrate supply agreements (including an amendment to the Supply and Processing Agreement) is entered into by the Fund on terms and conditions satisfactory to the lenders.

Fourth Quarter 2015 Highlights

  • Adjusted Net Revenues1 were $87.6 million, down from $89.0 million for Q4 2014.
  • Production costs per tonne of zinc produced were $673, down 11% from $754 for Q4 2014.
  • Earnings before income taxes were $0.9 million, up from a loss of $27.9 million for Q4 2014.
  • Earnings were impacted by a $10.3 million asset impairment charge, down from $40.5 million in Q4 2014.
  • Zinc metal sales reached 79,552 tonnes.
  • Zinc metal production of 71,971 tonnes.

Fourth Quarter Financial and Operating Results

Earnings before income taxes of $0.9 million in the three months ended December 31, 2015 compared to a loss before income taxes of $27.9 million in the same period a year ago.

The Fund recorded an asset impairment charge to its property, plant and equipment of $10.3 million in the fourth quarter of 2015. The Fund incurred an impairment charge of $40.5 million in the comparative period of 2014.

Zinc metal production in Q4 2015 totalled 71,971 tonnes up 1% from last year. Production in Q4 2015 enabled the Fund to surpass its target for FY2015. Zinc metal sales in Q4 2015 totalled 79,552 tonnes, up 7% from the same period last year.

Cash provided by operating activities in Q4 2015 was $43.9 million and included a positive $18.9 million decrease in non-cash working capital due to a reduction in accounts receivable and inventory as well as an increase in accounts payable. In Q4 2014, cash provided by operating activities was $13.6 million, which was negatively impacted by a $1.9 million increase in non-cash working capital due to an increase in accounts receivable and a decrease in accounts payable, partially offset by a decrease in inventory.

Outlook for the Fund

Eva Carissimi added, "Given current industry trends and demand, we estimate our 2016 production and sales of zinc metal to be between 265,000 to 275,000 tonnes. We also anticipate a processing fee of 41 cents per pound or $904 per tonne. These totals build on the momentum we have established over the past year."

The main challenges facing the Fund are (a) the continued source of zinc concentrate after the expiry of the initial term of the Supply and Processing Agreement on May 2, 2017 and (b) the ability for the Processing Facility to continue to operate profitably after the expiry of the initial term of the Supply and Processing Agreement on May 2, 2017, at which time the Fund expects that it will be required to purchase concentrate on market terms, including market treatment charges, instead of the current fixed processing fee, regardless of whether or not Glencore Canada Corporation ("Glencore Canada") renews the Supply and Processing Agreement.

Even if zinc concentrate is available after the expiry of the initial term of the Supply and Processing Agreement on May 2, 2017, the Fund's financial results could differ materially from those achieved under the Supply and Processing Agreement, which provides stable treatment charges for concentrate.

The Fund (through the independent trustees) is in discussions with Glencore Canada regarding the supply of zinc concentrate following May 2, 2017. There is no assurance that the discussions will result in continued supply on terms that allow the Fund to continue profitable operations. Discussions with third parties are complex given the Fund's structure, including without limitation that the Supply and Processing Agreement and other contractual arrangements with Glencore Canada and its affiliates automatically renew with Glencore Canada for successive periods of five years unless Glencore Canada provides the Fund with written notice to the contrary at least 180 days prior to the expiry of the applicable term (by November 2016).

Distribution Policy

When not restricted, and as may be considered appropriate by the Board, the Fund's policy is to make monthly distributions to Unitholders equal to the distributable cash flows from operations, before variations in working capital and after permanent debt reductions and such reserves as may be considered appropriate by the Trustees. The Fund determines the cash available for distribution, if any, on a monthly basis for the Unitholders of record of the Fund on the last business day of each calendar month and these distributions are to be paid on or about 25 days thereafter. In 2015, the Board approved monthly cash distributions of $0.04167 per Priority Unit in each of the twelve months of the year.

In determining whether there shall be a distribution and the level thereof, the Board periodically reviews the Fund's financial performance, business environment and prospects, and determines the appropriate levels of reserves. The Board also continues to evaluate on a monthly basis the expected future cash flows of the Fund as well as the reserves that may be required in the future. There is no assurance that monthly distributions will continue in the future; nor is there any assurance that, if they do continue, the level of such distributions will not vary from the level of the most recent monthly cash distribution.

Fourth Quarter & 2015 Annual Results Conference Call:

When: March 2, 2016 at 10:00 a.m. EST
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, please access the following address: http://www.norandaincomefund.com/investor/conference.html or click on this link: http://www.gowebcasting.com/7227.

Conference Call Replay:
Dial in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367
The conference ID is 26744284 and you will be prompted for your name and company.
The recording will be available until midnight on March 13, 2016.

A full version of the annual 2015 Management's Discussion and Analysis (MD&A) and audited 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 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 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

SELECTED FINANCIAL AND OPERATING INFORMATION
Three months ended December 31, Year ended December 31,
($ thousands)2015 2014 2015 2014
Statements of Comprehensive Income Information
Revenues205,473 214,646 763,516 695,036
Raw material purchase costs108,958 119,776 422,960 388,750
Revenues less raw material purchase costs96,515 94,870 340,556 306,286
Other expenses:
Production54,271 56,519 181,657 189,309
Selling and administration5,587 5,780 23,327 22,939
Foreign currency loss7,900 6,508 32,328 13,951
Derivative financial instruments loss (gain)6,398 (475)4,501 (1,587)
Depreciation of property, plant and equipment9,146 10,382 31,454 36,560
Rehabilitation expense626 2,192 1,711 5,314
Impairments of non-financial assets10,300 40,500 10,300 40,500
Earnings (loss) before finance costs and income taxes2,287 (26,536)55,278 (700)
Finance costs, net1,380 1,319 5,493 5,280
Earnings (loss) before income taxes907 (27,855)49,785 (5,980)
Current and deferred income tax expense (recovery)560 (5,234)11,174 (878)
Earnings (loss) attributable to Unitholders and Non-controlling interest347 (22,621)38,611 (5,102)
Distributions to Unitholders4,686 4,686 18,746 18,748
Current income tax recovery on distribution(231)(660)(231)(660)
(Decrease) increase in net assets attributable to Unitholders and Non-controlling interest(4,108)(26,647)20,096 (23,190)
Other comprehensive gain (loss)3,190 2,771 5,037 (1,862)
Comprehensive (loss) income(918)(23,876)25,133 (25,052)
Statements of Financial Position InformationDecember 31, 2015 December 31, 2014
Cash 1,878 1,626
Inventories 171,086 118,948
Accounts receivable 87,909 94,552
Income taxes receivable - 4,103
Property, plant and equipment 211,542 228,879
Total assets 480,331 458,039
Accounts payable and accrued liabilities 59,669 76,256
Income taxes payables 2,443 -
Total bank and other loans 92,836 78,970
Total liabilities excluding net assets attributable to unitholders 200,797 203,638
Three months ended December 31, Year ended December 31,
Statements of Cash Flows Information2015 2014 2015 2014
Cash provided by operating activities before cash distributions and net change in non-cash working capital items29,667 20,210 88,791 65,516
Cash distributions(4,686)(4,686)(18,746)(18,748)
Net change in non-cash working capital items18,910 (1,900)(53,865)(53,749)
Cash provided by (used in) operating activities43,891 13,624 16,180 (6,981)
Cash used in investing activities(9,504)(7,232)(29,041)(33,618)
Cash (used in) provided by financing activities(33,307)(5,492)13,113 26,678
Net increase (decrease) in cash1,080 900 252 (13,921)
Cash distributions declared per Priority Unit0.12501 0.12501 0.50004 0.50004

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

Net Revenues Reconciled to Adjusted Net Revenues
For the three months ended December 31
($ million)2015 2014
Net Revenues$96.6 $94.9
Concentrate payable settlement adjustments 5.3 0.2
Foreign exchange loss (7.9) (6.6)
Derivative financial instruments (loss) gain (6.4) 0.5
Adjusted Net Revenues$87.6 $89.0
Net Revenues Reconciled to Adjusted Net Revenues
For the year ended December 31
($ million) 2015 2014
Net Revenues$340.6 $306.3
Concentrate payable settlement adjustments 2.9 (3.0)
Foreign exchange loss (32.3) (14.0)
Derivative financial instruments (loss) gain (4.5) 1.6
Adjusted Net Revenues$306.7 $290.9
Key Performance Drivers
The following table provides a summary of the performance of the Fund's key drivers:
Three months ended Year ended
December 31, December 31,
2015 2014 2015 2014
Zinc concentrate processed (tonnes) 133,075 125,094 519,507 497,013
Zinc secondary feed processed (tonnes) 3,450 4,530 20,290 16,819
Zinc grade (%) 52.3 53.3 52.8 52.8
Zinc recovery (%) 97.0 97.5 97.2 97.3
Zinc metal production (tonnes) 71,971 71,207 272,861 262,049
Zinc metal sales (tonnes) 79,552 74,483 262,719 258,160
Processing fee (cents/pound) 40.5 40.0 40.5 40.0
Realized zinc price (US$/pound) 0.82 1.11 0.98 1.08
Average LME zinc price (US$/pound) 0.73 1.01 0.88 0.98
By-product revenues ($ millions) 9.7 8.6 35.5 31.1
Copper in cake production (tonnes) 794 633 2,806 2,432
Copper in cake sales (tonnes) 1,229 796 2,998 2,218
Sulphuric acid production (tonnes) 108,431 96,263 415,477 391,369
Sulphuric acid sales (tonnes) 104,786 98,424 410,948 396,624
Average LME copper price (US$/pound) 2.22 3.00 2.50 3.11
Sulphuric acid netback (US$/tonne) 45 51 51 51
Average US/Cdn. exchange rate 1.34 1.14 1.28 1.10
* 1 tonne = 2,204.62 pounds

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