Noranda Income Fund

TSX : NIF.UN


Noranda Income Fund

February 12, 2013 16:25 ET

Noranda Income Fund Reports Fourth Quarter Earnings Before Finance Costs and Income Taxes of $24.3 Million

SALABERRY-DE-VALLEYFIELD, QUEBEC--(Marketwire - Feb. 12, 2013) - Noranda Income Fund (the "Fund") (TSX:NIF.UN) had a strong fourth quarter.

Q4 2012 and Subsequent Highlights
  • The Fund completed an internal reorganization that eliminated the requirement for an in-kind distribution, starting in fiscal 2012
  • The Fund issued a monthly cash distribution of $0.04167 per unit to Priority Unitholders in all twelve months of 2012, and in January of 2013
  • The Fund increased its 2013 capital investment program by $20 million to improve the Processing Facility's silica removal capability
  • The Board of Trustees, through its Independent Committee, has retained the services of an industry consultant to assist in identifying possible alternative sources of zinc concentrate after the expiry of the Supply and Processing Agreement
  • Earnings before finance costs and income taxes were $24.3 million (Q4 2011 - $2.4 million)
  • Zinc metal production set a new quarterly record at 74,748 tonnes (Q4 2011 - 67,504 tonnes). The previous record was 70,358 tonnes in the third quarter of 2002
  • Zinc metal sales were 67,511 tonnes (Q4 2011 - 63,655 tonnes)
  • Zinc premiums were 7.5 cents US per pound (Q4 2011 - 5.8 cents US per pound)
  • By-product revenues were $12.2 million (Q4 2011 - $11.2 million)
    • Sulphuric acid netback was US$80 per tonne (Q4 2011 - US$73 per tonne)
    • Copper in cake production was 790 tonnes (Q4 2011 - 594 tonnes)
    • Copper in cake sales were 734 tonnes (Q4 2011 - 585 tonnes).
Conference Call and Webcast:
February 13th at 8:30 a.m. EST
Dial in number: 416-340-8527
Toll-free North American number: 1-877-240-9772

In addition, you can listen to the teleconference and view the slide presentation from the Noranda Income Fund website: http://www.norandaincomefund.com/investor/conference.html or click on this link: http://events.digitalmedia.telus.com/noranda/021313/index.php

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 8788 350# and you will be prompted for your name and company. The recording will be available until midnight on February 27th, 2013.

Zinc Concentrate Supply

In 2012, the Fund advised that with the closure of Brunswick Mine, the Processing Facility may be required to treat concentrate with higher levels of impurities in the future. While the feed mix is expected to be within the specifications set out in the Supply and Processing Agreement, the Fund determined it was important to increase its silica removal capability. In the fourth quarter of 2012, the Fund increased its 2013 capital investment program so that the Processing Facility could treat a more varied feed quality mix. Approximately $20 million will be invested in 2013 to do so.

Also in the fourth quarter of 2012, the Processing Facility received an increased supply of zinc concentrate. Over 2013, the increased concentrate availability will allow for flexibility in blending the new with the current feed mix and it will ensure a gradual transition. Going forward, the ability of the Processing Facility to treat a wide variety of zinc concentrate feeds is required so that it can continue to operate at full capacity.

Other Developments

In 2012, the Board, through its Independent Committee, felt it would be prudent, and has since retained the services of an industry consultant to assist in identifying possible alternative sources of zinc concentrate after the expiry of the Supply and Processing Agreement.

Financial and Operating Highlights (Fourth quarter 2012 compared to the fourth quarter 2011)

Earnings before finance costs and income taxes in the fourth quarter of 2012 were $24.3 million compared to $2.4 million in the same quarter a year ago. The $21.9 million increase was mainly due to higher zinc sales, premiums, processing fee and recoveries. In addition, the fourth quarter of 2012 also benefitted from the absence of a non-recurring $7.1 million cost increase for additional pension benefits and early retirement provisions for the collective agreement, which was recorded in the fourth quarter of 2011.

Cash provided from operating activities, before net changes in non-cash working capital items in the fourth quarter of 2012 was $17.4 million compared to $18.0 million in the fourth quarter of 2011. During the fourth quarter of 2012, non-cash working capital increased by $36.5 million. The increase in working capital resulted primarily from an increase in inventories and accounts receivable, partially offset by an increase in accounts payable and accrued liabilities. The increase in inventories in the fourth quarter was a result of additional deliveries of zinc concentrate that were received. The increased concentrate availability allows for more flexibility in blending the various feeds, ensuring a gradual transition to the new feed mix in 2013.

Financial and Operating Highlights (2012 compared to 2011)

Earnings before finance costs and income taxes in 2012 were $66.7 million compared to $59.9 million in 2011. The $6.8 million increase was mainly due to higher zinc premiums and processing fee, partially offset by lower zinc sales and by-product revenues.

Cash provided by operating activities in 2012, before net changes in non-cash working capital items, was $64.6 million compared to $71.5 million in 2011. During 2012, non- cash working capital increased by $39.3 million due to an increase in accounts receivable and inventories and a decrease in the income taxes payable. During 2011, non-cash working capital decreased by $55.3 million due to a decrease in accounts receivable and inventories and an increase in the income taxes payable.

OTHER DEVELOPMENTS

Today, Bob Sippel resigned from the Fund's Board of Trustees. Mr. Sippel has been a Board member since April of 2004. His expertise in both zinc markets and the zinc industry was invaluable to the Fund. John Swidler, on behalf of the Board would like to thank Mr. Sippel for his support and contribution.

Neil Wardle joined the Board of Trustees today. Mr. Wardle was appointed Chief Operating Officer of Xstrata Zinc Canada in July 2012. Prior to this, he was the Executive General Manager of Britannia Refined Metals Limited which is part of Xstrata plc. Mr. Wardle has also held various other mining and metallurgical roles in Australia. He holds a Bachelor of Applied Science in Metallurgy from the South Australian Institute of Technology.

A full version of the year-end 2012 Management's Discussion and Analysis ("MD&A") and the Audited Consolidated Financial Statements will be posted on the Fund's website, http://www.norandaincomefund.com/investor/financials.html today, February 12, 2013 and they will be available on www.sedar.com on February 13, 2013. 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 Audited Consolidated Financial Statements and MD&A because a reader relying on this summary alone might overlook decision critical information.

Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol "NIF.UN". The Noranda Income Fund owns the electrolytic zinc processing facility and ancillary assets (the "CEZinc processing facility") located in Salaberry-de-Valleyfield, Québec. The CEZinc 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 zinc concentrates purchased from mining operations. The CEZinc processing facility is operated and managed by Canadian Electrolytic Zinc Limited, a wholly-owned subsidiary of Xstrata Canada Corporation.

Except where otherwise indicated, all amounts in this press release are expressed in Canadian dollars.

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

SELECTED FINANCIAL AND OPERATING INFORMATION
Fourth Quarter Year
($ thousands) 2012 2011 2012 2011
Statements of Comprehensive Income Information
Revenues 150,779 137,803 577,676 644,271
Raw material purchase costs 66,003 73,614 288,047 340,446
Revenues less raw material purchase costs 84,776 64,189 289,629 303,825
Other expenses:
Production 42,717 49,125 169,033 181,209
Selling and administration 5,421 5,516 21,139 20,101
Foreign currency loss (gain) 1,413 (1,844 ) (681 ) 919
Loss (gain) on derivative financial instruments 1,641 (115 ) (940 ) 3,473
Depreciation of property, plant and equipment 9,062 8,123 33,502 34,126
Rehabiliation expense 266 974 922 4,137
Earnings before finance costs and income taxes 24,256 2,410 66,654 59,860
Finance costs, net 2,009 2,281 7,981 16,110
Earnings before income taxes 22,247 129 58,673 43,750
Current and deferred income tax (recovery) expense (5,131 ) (114 ) 7,650 15,408
Earnings attributable to Unitholders and Non-controlling interest 27,378 243 51,023 28,342
Distributions to Unitholders 4,687 26,436 18,750 27,998
Current income tax recovery on distribution (35 ) (7,441 ) (4,136 ) (7,751 )
Increase in net assets attributable to Unitholders
and Non-controlling interest 22,726 (18,752 ) 36,409 8,095
Other comprehensive income (loss) (2,371 ) (5,888 ) (5,545 ) (8,097 )
Comprehensive income 20,355 (24,640 ) 30,864 (2 )
Statements of Financial Position Information Dec. 31, 2012 Dec. 31, 2011
Cash 1,303 1,497
Inventories 91,697 61,017
Accounts receivable 98,347 92,779
Income taxes receivable 4,801 24
Property, plant and equipment 270,867 277,135
Total assets 477,629 447,389
Accounts payable and accrued liabilities 72,448 60,795
Total bank and other loans 95,509 94,216
Total liabilities excluding net assets attributable to unitholders 242,621 243,245
Fourth Quarter Year
Statements of Cash Flows Information 2012 2011 2012 2011
Cash provided by operating activities before cash distributions and net change in non-cash working capital items
22,100

22,697

83,361

77,754
Cash distributions (4,687 ) (4,687 ) (18,750 ) (6,250 )
Net change in non-cash working capital items (36,450 ) 28,244 (39,297 ) 55,266
Cash provided by operating activities (19,037 ) 46,254 25,314 126,770
Cash used in investing activities (8,499 ) (8,540 ) (24,632 ) (25,817 )
Cash used in financing activities 22,754 (37,018 ) (876 ) (102,854 )
Net (decrease) increase in cash and cash equivalents (4,782 ) 696 (194 ) (1,901 )
Cash distributions declared per Priority Unit 0.12501 0.12501 0.50004 0.16668
Fourth Quarter Year
2012 2011 2012 2011
Zinc concentrate processed (tonnes) 124,296 127,351 497,183 504,851
Zinc grade (%) 53.5 54.2 54.0 54.1
Zinc recovery (%) 97.6 96.6 97.2 96.8
Zinc metal production (tonnes) 74,748 67,504 263,697 263,286
Zinc metal sales (tonnes) 67,511 63,655 260,401 266,814
Processing fee (cents/pound) 39.2 38.9 39.2 38.9
Zinc metal premium (US$/pound) 0.075 0.058 0.075 0.059
By-product revenues ($ millions) 12.2 11.2 43.4 50.4
Copper in cake production (tonnes) 790 594 2,202 2,604
Copper in cake sales (tonnes) 734 585 1,951 3,396
Sulphuric acid production (tonnes) 99,884 104,798 408,849 419,003
Sulphuric acid sales (tonnes) 97,419 100,541 410,358 414,010
Average LME copper price (US$/pound) 3.59 3.40 3.61 4.00
Sulphuric acid netback (US$/tonne) 80 73 76 72
Average LME zinc price (US$/pound) 0.89 0.86 0.88 0.99
Average US/Cdn. exchange rate 0.99 1.02 1.00 0.99
* 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 adjusting earnings before finance costs and income taxes for all of the non-cash items such as depreciation, rehabilitation expense, net change in employee benefits, loss on the sale of assets, changes in fair value of embedded derivatives and non-cash gains/(losses) on derivative financial instruments.

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

A reconciliation of Adjusted EBITDA for the fourth quarters and years of 2012 and 2011 is provided below:

Adjusted EBITDA Q4/2012 Q4/2011 Change
($ thousands)
Earnings before finance costs and income taxes $ 24,256 $ 2,410 $ 21,846
Depreciation of property, plant and equipment 9,062 8,123 939
Net change in rehabiliation liability 55 979 (924 )
Derivative financial instruments (gain) loss (699 ) 167 (866 )
Change in fair value of embedded derivatives (4,670 ) 854 (5,524 )
(Gain) loss on sale of assets (268 ) 268 (536 )
Net change in employee benefits (702 ) 7,204 (7,906 )
$ 27,034 $ 20,005 $ 7,029
Adjusted EBITDA 2012 2011 Change
($ thousands)
Earnings before finance costs and income taxes $ 66,654 $ 59,860 $ 6,794
Depreciation of property, plant and equipment 33,502 34,126 (624 )
Net change in rehabiliation liability 521 4,111 (3,590 )
Derivative financial instruments (gain) loss (2,899 ) 3,757 (6,656 )
Change in fair value of embedded derivatives 5,593 (11,254 ) 16,847
(Gain) loss on sale of assets (380 ) 746 (1,126 )
Net change in employee benefits (2,331 ) 6,245 (8,576 )
$ 100,660 $ 97,591 $ 3,069

Contact Information

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