NORANDA INCOME FUND

NORANDA INCOME FUND

July 30, 2007 14:16 ET

Noranda Income Fund Reports Second Quarter Financial Results

VALLEYFIELD, QUEBEC--(Marketwire - July 30, 2007) -

Attention Business/Financial Editors:

The Noranda Income Fund (the "Fund") reported earnings before income taxes of $6.8 million for the second quarter of 2007, compared to $9.3 million in the same quarter a year ago. The decrease was due to lower production, sales and byproduct revenue, and higher interest expense partially offset by higher premiums and processing fee, and commodity financial instruments gains.

"The Fund continues to benefit from strong premiums and a higher processing fee, but the quarter was negatively impacted by the lower production and sales," said Mario Chapados, President and Chief Executive Officer of the Noranda Income Fund's Manager.

Earnings before income taxes of $23.2 million were reported for the first six months ending June 30, 2007 compared to $13.6 million in the first six months of 2006. The $9.5 million increase was mainly due to higher premiums and processing fee, and lower amortization and reclamation costs partially offset by lower production, sales and byproduct revenue, and higher interest expense.

Due mainly to the June substantive enactment of Bill C-52 Budget Implementation Act, 2007, which contains legislative provisions to tax publicly traded income trusts in Canada, the Fund recorded a $14.6 million future income tax expense, resulting in a net loss for the second quarter 2007 of $7.9 million. This compares to a net earnings of $9.3 million in the second quarter of 2006. For the first half of 2007, net earnings of $8.5 million were recorded, compared to net earnings of $13.6 million in the first half of 2006. Future income tax is a non-cash item that has no current impact on our cash from operating activities.

"Although we reported positive earnings before income taxes for the second quarter, we also reported a net loss as a result of accounting for a new tax on income trusts that will take effect in 2011," said Mr. Chapados. "The tax has no immediate cash impact. With premiums and byproduct revenue expected to remain healthy in 2007, we remain on track to generate strong cash from operations."

The outlook for 2007 and the estimate for production, sales, premiums and byproduct revenue are subject to various risks and uncertainties. The assumptions can be found in the "forward-looking statements" below.

Financial Results

This analysis of the financial position and results of operations of the Fund should be read in conjunction with the unaudited interim consolidated financial statements of the Fund for the three months and six months ended June 30, 2007 and with the audited consolidated financial statements of the Fund and the notes thereto for the period ended December 31, 2006.

This discussion is based on various assumptions (see "forward-looking statements" below.) All dollar amounts are shown in Canadian dollars unless otherwise specified.

The analysis has been prepared as of July 30, 2007. Additional information relating to the Fund, including the Fund's annual information form is available on SEDAR at www.sedar.com.



Q2 2007 Highlights

2007 2006
---- ----
Zinc metal production (tonnes) 63,247 69,098
Zinc metal sales (tonnes) 59,897 67,851
Processing fee (cents/pound) 37.0 36.5
Zinc metal premiums (US cents/pound) 12.6 7.1
Byproduct revenues ($ millions) 9.2 11.3
Average US/Cdn. exchange rate 1.098 1.122

- Distributable Cash(1) by the Fund was $10.3 million and distributions
paid out were $12.8 million.
- All of the monthly distributions were paid at the 8.5 cents per unit
level.
- Realized premiums per pound were higher - 12.6 cents US in 2007
vs. 7.1 cents US in 2006.


RESULTS OF OPERATIONS

Consolidated Earnings (Second quarter 2007 compared to second quarter 2006)

Revenues less raw material purchases ("Net Revenues") for the second quarter of 2007 totalled $56.4 million, compared to $68.8 million in the same period of 2006. The $12.4 million decrease was due to lower zinc metal sales and lower byproduct revenue, offset by higher premiums and processing fee.

The Fund makes a portion of its sales based on the average price from the previous month (month prior pricing). This form of pricing is often used for those customers for whom cash-in-advance terms have been negotiated as a way to manage the Fund's liquidity position and credit exposure. In a market in which zinc prices are falling, a portion of the Fund's revenues will benefit from the higher zinc prices from the prior month. In a market where zinc prices are rising, a portion of the Fund's revenues will lag behind the higher zinc prices. In the second quarter of 2007, month prior pricing had a negative impact of approximately $2.2 million on the Fund's Net Revenues, as the average monthly zinc price increased from US $1.48 per pound in March 2007 to US $1.63 per pound in June 2007.

Production costs in the second quarter of 2007 were $40.0 million, compared to $41.6 million in the same quarter a year ago. Costs were lower due to lower zinc metal production during 2007 and the recognition of $0.6 million insurance claim settlement in 2006 that resulted in a reduction in the corresponding period last year.

SG&A costs for the second quarter of 2007 were $5.0 million vs. $4.6 million in the second quarter of 2006.

The foreign exchange gain in the second quarter of 2007 was $8.7 million compared to a foreign exchange gain of $1.1 million for the same period in 2006. The $7.6 million increase was due to the impact of a strengthening Canadian dollar on the Fund's net monetary liability. The foreign exchange gain was partially offset by an estimated $6 million decrease in the value of in-process and finished inventory. This decrease in value is realized in Net Revenues as the metal is sold to customers. The Fund maintains cash and cash equivalents, accounts receivable and accounts payable in US dollars.

During the second quarter of 2007, the financial instruments gain was $2.8 million. Effective January 1, 2007, the Fund adopted new accounting policies relating to financial instruments and hedging. During the quarter, the change in the market value of the Fund's financial instruments and hedges resulted in the gain being recorded.

Amortization and reclamation costs in the quarter were $8.0 million, an increase of $1.0 million from the same period in 2006. The increase was due in part to higher capital spending over the last 12 months, which has resulted in higher amortization.

In the second quarter of 2007, net interest expense was $5.6 million compared to $4.3 million in the second quarter of 2006 due to an increase in interest rates and debt outstanding as a result of higher working capital requirements, and higher interest expense related to delayed concentrate payments.

On June 22, 2007, the Federal Government substantially enacted its tax legislation relating to the taxation of existing income and royalty trusts, at effective rates similar to Canadian corporations commencing in 2011. Prior to June 22, 2007, the Fund estimated the future income tax on certain temporary differences between amounts recorded on its balance sheet for book and tax purposes at a nil effective tax rate. Under the legislation, the Fund now estimates the effective tax rate on post 2010 reversal of these temporary differences to be 31%. Temporary differences reversing before 2011 will still give rise to nil future income taxes. The Fund has estimated its future income taxes based on its best estimates of future results of operations, tax pool claims and cash distributions and assuming no material changes to the Fund's organizational structure. The Fund estimates that the unrecognized temporary differences outstanding as of June 30, 2007 that will remain outstanding as of January 1, 2011 are approximately $60 million. The recording of this future tax liability related to these temporary differences resulted in the Fund recording a non-cash charge to future income tax expense and an increase in long-term future tax liabilities of $14.6 million during the second quarter of 2007, based on an effective tax rate of 31%. The Fund's estimate of its future income taxes will vary based on actual results of the factors described above, and such variations may be material (see also "Income Taxes").

Minority interest in earnings (loss) in the second quarter of 2007 was $2.3 million, down from $3.1 million in 2006 due to the lower earnings of the Fund.

Consolidated Earnings (Six months 2007 compared to six months 2006)

Revenues less raw material purchases ("Net Revenues") for the first six months of 2007 totalled $129.1 million, compared to $129.6 million in the same period of 2006. The $0.5 million decrease was due to lower sales, and lower byproduct revenue, offset by higher premiums and processing fee.

Production costs in the first six months of 2007 were $77.0 million, compared to $81.1 million in the same period a year ago. The decrease is due to the lower zinc metal sales and production and cost reduction initiatives.

SG&A costs for the first six months of 2007 were relatively stable at $9.9 million compared to $9.4 million in the same period of 2006.

The foreign exchange gain in the first six months of 2007 of $9.3 million compared to a foreign exchange gain of $0.5 million for the same period in 2006. The majority of the foreign exchange gain occurred in the second quarter of 2007.

Amortization and reclamation costs in the first half of 2007 were $11.0 million, a decrease of $3.2 million from the same period in 2006. The decrease was due to a reduction in the expected future reclamation spending, which has resulted in a reduction in the present value of future site restoration and reclamation liabilities. During the first quarter of 2007, the Fund completed a review of the site restoration and reclamation expenditures including work performed by a third party engineering firm. The reduction in the present value resulted from the Fund identifying a source for one of the main reclamation materials on its property, thereby significantly reducing the cost of sourcing and transporting the material. In addition, the timing of some of the expenditures was deferred based on the current expectations relating to when the projects would be completed.

In the first half of 2007, net interest expense was $11.9 million compared to $7.2 million in the same period of 2006 due to an increase in interest rates and debt outstanding as a result of higher working capital requirements, and higher interest expense related to delayed concentrate payments.

Production and sales

In the second quarter of 2007, zinc metal production was 63,247 tonnes, compared to 69,098 tonnes in the same period of 2006. Zinc metal production in the first half of 2007 was 126,194 tonnes compared to 130,782 tonnes in the same period of 2006.

Production in 2007 has been negatively impacted by process difficulties in the hydrometallurgical section of the plant. In the second quarter, production was reduced due to a series of problems in the leaching and purification processes. Organic contamination in the purification process, followed by a combination of loss of jarosite crystals and instrumentation bias in the neutral leaching circuit, resulted in reduced throughput of the plant. In addition, the lower zinc content in the feed and higher zinc dust consumption further reduced zinc metal production. The hydrometallurgical section production problems were resolved at the end of June, while the low metal content in the feed is expected to remain for the rest of the year.

In the second half of 2006, the change in process to produce no-arsenic containing copper cake, negatively impacted zinc metal production by increasing zinc dust consumption. The optimization work to reduce zinc dust consumption at the beginning of the year was halted due to process instabilities. Efforts will be reinitiated in the third quarter to reduce zinc dust consumption to normal levels.

Production in July returned to planned operating throughput. We remain on target for our revised production forecast of 265,000 tonnes.

With high zinc prices last year, an alternate processing method to recover zinc from our jarosite pond water generated additional revenue. In the second quarter of 2007, approximately $0.7 million of additional revenue was generated.

As mentioned last quarter, the slowdown was expected to continue into the second quarter. Demand for zinc remained soft during the second quarter as North American sheet steel producers sustained weak order levels from their automotive and steel service centre customers. By the end of June, vehicle and service centre inventories had returned to normal levels and economic indicators now point to a stronger second half. The US housing sector continues to be weak, which will have a dampening effect on the recovery in demand for galvanized sheet steel. Spot sales year to date are above plan to offset reduced contract orders from steel customers. We are expecting a recovery in contract order volumes by the end of the third quarter. Zinc sales in the second quarter of 2007 were 12% lower at 59,897 tonnes, compared to 67,851 from a year ago.

Zinc metal sales in the first half of 2007 totalled 119,926 tonnes, compared to 130,457 tonnes in the first half of 2006. The target for 2007 sales is 272,000 tonnes. The volume is greater than production because the Fund plans to reduce inventories to normal levels during the second half of 2007.

The preceding targets for production and sales are subject to various risks and uncertainties. The assumptions for them can be found in the "Forward-Looking Statements" below.

Premiums

For the second quarter of 2007, premiums rose to 12.6 cents US per pound compared to 7.1 cents US per pound for the same period in 2006. The increase in realized premiums reflects a significant increase in 2007 contract premiums.

The target for 2007 premiums is 10 cents US per pound, reflecting expected realizations from spot and contract sales.

The Fund's target for premiums is subject to various risks and uncertainties. The assumptions can be found in the "Forward-Looking Statements" below.

BYPRODUCTS

Byproduct revenues in the second quarter of 2007 were $9.2 million, compared to $11.3 million in the second quarter of 2006. Both copper cake and sulphuric acid revenues were lower during the quarter than a year ago. The decrease in copper cake revenues was due to lower shipments during the quarter. Sulphuric acid netbacks were US $15 per tonne in the second quarter of 2007, compared to US $17 per tonne a year ago.

CAPITAL EXPENDITURES

For 2007, capital spending is forecasted at $23.5 million, $1.5 million higher than the previous forecast. The capital spending was revised to include the increase in price of metal in equipment cost and for some additional sustaining capital requirements. $17 million will be spent on sustaining capital and $6.5 million will be for revenue generating projects. The focus of these expenditures is to increase treatment of zinc concentrate towards the maximum available concentrate supply under the terms of the Supply and Processing Agreement with Falconbridge. The Fund currently processes approximately 535,000 tonnes, which are 15,000 tonnes below the Supply and Processing Agreement's maximum level. Closing the gap to 550,000 tonnes will increase processing fees, and revenue from zinc premiums and byproducts. The extra capital expenditures will be allocated toward de-bottlenecking the plant to increase capacity, potentially generating an additional $4 million in incremental cash flow starting in 2008.

In the second quarter of 2007, $6.2 million was spent on plant and equipment, compared to $7.0 million in the second quarter of 2006. The revenue generating projects were on schedule at the end of the second quarter.

The Fund has been participating in Hydro-Québec's "Industrial Initiatives Program for Major Customers". During the second quarter, the Fund received $1.7 million in the form of incentives. The incentives have been recorded as a reduction of property, plant and equipment as they relate to capital expenditures incurred to reduce electricity consumption. A further $300,000 of incentives is expected to be recorded during the balance of the year.

The Fund's target for capital spending is subject to various risks and uncertainties. The assumptions can be found in the "Forward-Looking Statements" below.

Cash Flows, Liquidity and Capital Resources

For the second quarter of 2007, cash realized from operations, before changes in non-cash working capital was $14.8 million compared to $19.7 million for the same period in 2006. The $4.9 million decrease was due to the reduction in earnings before income taxes for the quarter. During the quarter, non-cash working capital decreased by $0.9 million.

Year-to-date cash realized from operations, before changes in non-cash working capital was $40.1 million compared to $32.8 million for the same period in 2006. The $7.3 million increase was a result of the increase in earnings before income taxes during 2007. Year-to-date non-cash working capital has increased by $22.3 million as the Fund used the cash realized from operations to reduce its accounts payable balances.

Year-to-date capital expenditures were $12.0 million compared to $10.2 million in the prior year.

Distributions paid to unitholders in the second quarter of 2007 were $12.8 million, and year-to-date was $25.5 million unchanged from the same period in 2006.

The Fund has a $100 million Revolving Facility in place that is used for general corporate purposes, including financing working capital. As a result of the high zinc price, the Fund is now operating at the limit of its credit facilities and is currently receiving credit from Falconbridge by way of delayed payment terms. As of June 30, 2007 the amount of the delayed payments owed to Falconbridge was $78.4 million. The Fund is working with its current Noteholder and Revolving Facility lenders to pursue additional financing alternatives.

The Fund's Revolving Facility matures on May 3, 2008. It is the Fund's intention to extend the Revolving Facility to May 3, 2009 during the third quarter of 2007.

Fluctuations in working capital balances as a result of operations are generally funded by or used to repay the Revolving Facility. During the quarter, $141.9 million of debt was drawn and $141.7 million was repaid related to the fluctuations in working capital.

At June 30, 2007, the Fund's total debt was $248.6 million (net of deferred financing fees of $0.9 million), up from $244.5 million at the end of December 2006.

Distribution Policy

The Fund makes monthly distributions to its Unitholders based on the monthly Distributable Cash (see "Distributable Cash" below) declarations. The Fund's goal is to provide stable monthly distributions and will seek to increase distributions through sustainable improvements, such as operating efficiencies and revenue enhancing opportunities.

The schedule below sets out the history of the Fund's cash distributions for the past six months:



-------------------------------------------------------------------------
RECORD DATE PAYMENT DATE DISTRIBUTION PER UNIT
-------------------------------------------------------------------------
July 31, 2007 August 27, 2007 8.5 cents
June 30, 2007 July 25, 2007 8.5 cents
May 31, 2007 June 25, 2007 8.5 cents
April 30, 2007 May 25, 2007 8.5 cents
March 31, 2007 April 25, 2007 8.5 cents
February 28, 2007 March 26, 2007 8.5 cents
-------------------------------------------------------------------------


Distributable Cash

The computation and disclosure of Distributable Cash is, in all material respects, in accordance with the revised Staff Notice 52-306 issued by the Canadian Securities Administrators ("CSA") in August 2006. The CSA concluded that the most directly comparable measure calculated in accordance with generally accepted accounting principles ("GAAP") for Distributable Cash is cash flow from operating activities. We adopted their recommendations retroactive to January 1, 2005 and have presented in the table below a reconciliation of Distributable Cash to cash realized from operations.

Distributable Cash is not a measure defined by GAAP and should not be seen as a measurement of liquidity or be used as a substitute for other measures, in accordance with GAAP. Management believes that, in addition to net earnings, Distributable Cash is a useful supplemental measure for evaluating the Fund's performance as it provides investors with an indication of cash available for distributions and working capital needs. Investors are cautioned, however, that Distributable Cash should not be construed as an alternative to the statement of cash flows as a measure of liquidity and cash flows. The method of calculating Distributable Cash for the purposes of this press release may differ from that used by other issuers and, accordingly, Distributable Cash in this press release may not be comparable to distributable cash used by others. Fluctuations in working capital balances as a result of operations are generally funded by, or used to repay, the Revolving Facility.

A reconciliation of cash realized from operations to Distributable Cash is provided below:



($ Thousands)

Three Three Six Six
months months months months
ending ending ending ending
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
-------------------------------------------------------------------------
Cash realized from
operations $ 15,676 $ 2,301 $ 17,752 $ 9,891

Increase (decrease)
in non cash
working capital (853) 17,356 22,317 22,925

Less:
Purchase of property
plant and equipment (6,178) (6,971) (12,016) (10,170)
Hydro-Quebec
incentives 1,745 1,313 1,745 1,313
Proceeds on sale
of assets 60 - 60 -
Amortization of
deferred financing
fees (63) (64) (126) (126)
-------------------------------------------------------------------------
Distributable Cash
for the period 10,387 13,935 29,732 23,833
-------------------------------------------------------------------------
Decrease in capital
and site restoration
reserve - 393 - 1,174
(Increase) decrease
in operating reserve 2,363 (1,578) (4,233) 493
-------------------------------------------------------------------------
Distributions
declared to
unitholders $ 12,750 $ 12,750 $ 25,499 $ 25,500
-------------------------------------------------------------------------
Weighed average
number of units
outstanding 49,997,975 50,000,000 49,997,975 50,000,000
Distributions
declared per unit $ 0.255 $ 0.255 $ 0.255 $ 0.255
Payout ratio 123% 91% 86% 107%
-------------------------------------------------------------------------


In the second quarter of 2007, Distributable Cash was $10.4 million and distribution declared to unitholders was $12.8 million: $9.6 million paid to Priority Unitholders and $3.2 million paid to Ordinary Unitholders.

We periodically review cash distributions taking into account our current and prospective performance. Some of the factors considered in making decisions related to distributions include cash amounts to service debt obligations, maintenance capital expenditures, taxes, working capital requirements and other items considered to be prudent.

As we calculate the Fund's Distributable Cash, we take into consideration our debt management strategy and our productive capacity maintenance strategy.

Notional Operating Reserve and Capital and Site Restoration Reserve

In order to meet the Fund's goal to provide a stable, monthly distribution, a notional operating reserve is utilized. In a period in which Distributable Cash is greater than the distributions declared, the notional reserve will increase. In a period in which Distributable Cash is less than the distributions declared, the notional reserve will decrease. The notional operating reserve provides flexibility so that the Fund can maintain a stable, monthly distribution while adhering to the Fund's trust indentures and debt covenants. During the second quarter of 2007, the notional operating reserve decreased by $2.4 million to $15.3 million. This compares to a reserve of $11.1 million at the end of 2006.

While the operating reserve is now above the Fund's target three-month payout level, the Fund's financial flexibility has been reduced. Higher zinc prices have significantly increased working capital requirements, resulting in higher leverage and interest expense. The Fund is now operating at the limit of its credit facilities and is currently receiving credit from Falconbridge by way of delayed payment terms. For these reasons, the Fund is not considering any increase in distributions or a special distribution at this time.

The Fund also utilizes a notional capital and site restoration reserve. In a period in which unexpected or unusually high capital expenditures are required, the Fund has the ability to reduce the notional capital and site restoration reserve, while adhering to the Fund's trust indentures and debt covenants. As of June 30, 2007, the capital and site restoration reserve was $5.0 million (December 31, 2006 - $5.0 million).

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates remain substantially the same as reported in our Management's Discussion and Analysis for the year ended December 31, 2006, except as discussed in Changes in Accounting Policies and in Income Taxes.

Revenue Recognition

The Fund recognizes revenue from the sale of refined metals and byproducts at the time of the sale, when the rights and obligations of ownership pass to the buyer. This generally occurs upon shipment. Prices for provisionally priced sales are based on market prices and exchange rates prevailing at the time of shipment and are adjusted based upon market prices and exchange rates until final settlement with customers, pursuant to the terms of sales contracts. Price changes for shipments waiting final pricing at quarter-end could have a material effect on future revenues. As of June 30, 2007, there was $10.3 million in revenues waiting final pricing.

The Fund makes a portion of its sales based on the average price from the previous month (month prior pricing). This form of pricing is often used for those customers where cash-in-advance terms have been negotiated as a way to manage the Fund's liquidity position and credit exposure. In a market where zinc prices are rising, a portion of the Fund's revenues will lag behind the higher zinc prices; while in a market where zinc prices are falling, a portion of the Fund's revenues will benefit from higher zinc prices from the month prior.

Income Taxes

The Fund follows the liability method of accounting for future income taxes. Under the liability method, future income tax assets and liabilities are determined based on differences between the accounting basis and the tax basis of the assets and liabilities, and are measured using the currently enacted tax rates and laws expected to apply when these differences reverse. The effect of a change in income tax rates on future tax liabilities and assets is recognized in income in the period in which the change occurs.

On June 22, 2007, the Federal Government enacted its tax legislation relating to the taxation of existing income and royalty trusts, at effective rates similar to Canadian corporations commencing in 2011. The Fund estimates that the unrecognized temporary differences outstanding as of June 30, 2007 that will remain outstanding as of January 1, 2011 are approximately $60 million. The recording of this future tax liability related to these temporary differences resulted in the Fund recording a charge to future income tax expense and an increase in long-term future tax liabilities of $14.6 million during the second quarter of 2007, based on an effective tax rate of 31%.

Currently, the Fund does not pay income tax as long as distributions to Unitholders exceed the amount of the Fund's income that would otherwise be taxable. However Canadian Unitholders who receive the distributions personally (i.e., outside an RRSP or other tax deferred plan) are liable for income tax at full personal tax rates on the taxable portion of distributions. Bill C-52 will result in a two-tiered tax structure similar to that of corporations whereby the taxable portion of distributions will be subject to income tax payable by the Fund at a rate of 31% while taxable Canadian Unitholders will receive the favourable tax treatment on distributions currently applicable to qualifying dividends. As a result, there will be essentially no impact on taxable Canadian Unitholders arising from these changes, as the new tax payable by the Fund will be offset by the reduced rate of tax applicable to dividends.

At present, Canadian registered pension plans, RRSPs and RRIFs ("Canadian Tax Exempt Entities") are not subject to current income tax on distributions received from the Fund (their tax obligation is deferred). Under Bill C-52, Canadian Tax Exempt Entities would receive distributions after provision by the Fund for the new tax, as will investors located outside Canada.

The new tax legislation will apply to the Fund and its Priority Unitholders effective January 1, 2011. Cash distributions on Ordinary Units are subordinate to distributions on Priority Units until 2017, except on the occurrence of certain events. With respect to Bill C-52, the Fund expects that the subordination will remain unchanged.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2007, the Fund adopted section 3855, Financial Instruments - Recognition and Measurement, section 3865, Hedges and section 1530, Comprehensive Income. Section 3855 contains comprehensive requirements for recognition and measurement of financial instruments. Section 3865 introduces new requirements for hedge accounting. Section 1530 describes how to report and disclose comprehensive income and its components.

The Fund periodically uses forward contracts to hedge the effect of price changes relating to its firm commitments on the commodities it sells. Hedge accounting is used when there is a high degree of correlation between price movements in the derivative instrument and the item designated as being hedged. As of December 31, 2006, the hedge was effective at 99.4%. The initial measurement of these contracts and the Fund's firm commitments resulted in an unrealized gain of $21.2 million and an unrealized loss of $21.1 million, respectively. As set out in the transitional provisions of the section, the initial measurement of these contracts and the Fund's firm commitments resulted in a reduction in the deficit by $100,000 and an increase in interests of Ordinary Unitholders of $34,000.

The Fund's commodity hedging program includes inventory management, which hedges the purchases and sales of zinc metal. The Fund has determined that these financial instruments do not meet the requirements for hedge accounting under the new requirements. The fair market value of these positions was an unrealized gain of $321,000, which pursuant to the transitional provisions of the section, is reported as a reduction in the deficit by $241,000 and an increase in interests in Ordinary Unitholders of $80,000. These contracts are classified as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

In accordance with the new sections the Fund reclassified its $1.0 million deferred financing fees from long-term assets to long-term debt as of January 1, 2007.

OTHER DEVELOPMENTS

The Fund will be negotiating a new three-year labour contract with the United Steel Workers of America, Local 6486 this fall. The current contract expires October 31, 2007.

Outlook

The Fund's primary goal is to continue to provide stable monthly distributions.



The 2007 targets for the key drivers of the Fund are:
Zinc metal production: 265,000 tonnes
Zinc metal sales: 272,000 tonnes
Processing fee: 37 cents per pound
Zinc metal premiums: 10 cents US/pound
Capital expenditures: $23.5 million


The Manager's ability to provide for stable monthly distributions and meet the targets identified above is subject to the various risks and the assumptions that can be found in the "forward-looking statements" below.

Forward-Looking Statements

This news release contains Forward-Looking Statements concerning the Noranda Income Fund's ("Fund") objectives and 2007 general business outlook, zinc metal production and sales targets, estimated processing fee, zinc premium target, capital expenditures forecast and cash flow projections. Forward-Looking Statements can be identified by the use of words, such as "are expected", "is forecast", approximately or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-Looking Statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, or performance to be materially different from any future results or performance expressed or implied by the Forward-Looking Statements.

Examples of such risks, uncertainties and other factors include, but are not limited to, the following: (1) the Fund's ability to operate at normal production levels; (2) the dependence upon the continuing supply of zinc concentrates (terms of the Supply and Processing Agreement); (3) the impact of new tax legislation; (4) the demand for zinc metal, sulphuric acid and copper cake; (5) changes to the supply and demand for specific zinc metal products and the impact on the Fund's realized premiums; (6) the impact of month prior pricing; (7) the ability of the Fund to continue to service customers in the same geographic region; (8) the sensitivity of the Fund's Net Revenues to reductions in realized zinc metal prices including premiums, copper prices, sulphuric acid prices; the strengthening of the Canadian dollar vis-à-vis the US dollar; and increasing transportation and distribution costs; (9) the sensitivity of the Fund's production costs to increases in electricity rates, other energy costs, labour costs and operating supplies used in its operations, the sensitivity of the Fund's interest expense to increases in interest rates; (10) changes in recoveries and capital expenditure requirements; (11) the negotiation of collective agreements with its unionized employees; (12) general business and economic conditions; (13) transportation disruptions; (14) the legislation governing air emissions, discharges into water, waste, hazardous materials and workers' health and safety, as well as the impact of future legislation and regulations on expenses, capital expenditures, taxation and restrictions on the operation of the Processing Facility; (15) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; (16) loan default; and (17) reliance on Falconbridge Limited for the operation, maintenance and short-term financing of the Processing Facility. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied in the forward-looking statements contained herein.

These Forward-Looking Statements represent our views as of the date of this report. The Fund anticipates that subsequent events and developments may cause the Fund's views to change. The Fund does not undertake to update any forward-looking statements, either written or oral, that may be made from time to time by or on behalf of the Fund subsequent to the date of this report.

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 CEZinc processing facility and ancillary assets (the "CEZinc processing facility") located in Salaberry-de-Valleyfield, Quebec. 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 its customers are located. It produces refined zinc metal and various by-products from zinc concentrates purchased from mining operations. The Processing Facility is operated and managed by Canadian Electrolytic Zinc Limited.

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



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(1) Distributable Cash excludes changes in non-cash working capital as
the changes within the working capital components are often temporary by
nature and, if needed, can be financed with the Fund's operating line of
credit.



NORANDA INCOME FUND

INTERIM CONSOLIDATED BALANCE SHEETS

(unaudited)

($ thousands)

June 30 Dec. 31
2007 2006
------------ ------------

ASSETS

Current assets:
Cash and cash equivalents 754 13,712
Accounts receivable
Trade 113,714 143,438
Falconbridge 35,533 35,817
Commodity financial instruments 2,795 -
Firm commitments 90 -
Inventories 185,455 188,161
Prepaids and other assets 2,479 3,566
------------ ------------
340,820 384,694

Deferred financing fees - 1,009

Property, plant and equipment 317,986 324,063
------------ ------------
658,806 709,766
------------ ------------

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable and accrued liabilities
Trade 14,651 17,596
Falconbridge 164,285 218,780
Commodity financial instruments 109 -
Distributions payable 4,250 4,250
Long-term debt due within one year 96,000 -
------------ ------------
279,295 240,626

Future tax liability 14,636 -

Future site restoration and reclamation 11,621 15,205

Long-term debt 152,617 244,500

Interests of Ordinary Unitholders 53,823 52,363

Unitholders' Interest:
Unitholders' equity 191,273 191,273
Deficit (44,459) (34,201)
------------ ------------
146,814 157,072
------------ ------------
658,806 709,766
------------ ------------



NORANDA INCOME FUND

INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND DEFICIT
AND COMPREHENSIVE INCOME

(unaudited)

($ thousands)

Three months Six months
ended June 30 ended June 30
------------------------- -------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Revenues
Sales 270,497 288,280 543,033 472,617
Transportation and
distribution costs (3,920) (4,011) (7,181) (7,591)
------------ ------------ ------------ ------------
266,577 284,269 535,852 465,026
------------ ------------ ------------ ------------
Raw material
purchase costs 210,151 215,500 406,743 335,417
------------ ------------ ------------ ------------
Revenues less raw
material
purchase costs 56,426 68,769 129,109 129,609
------------ ------------ ------------ ------------
Other expenses
Production 39,951 41,568 76,965 81,149
Selling, general
and administration 5,003 4,608 9,940 9,389
Foreign exchange
gain (8,667) (1,132) (9,272) (486)
Commodity financial
instruments gain (2,822) - (2,474) -
Commodity
hedging loss 263 - 153 -
Amortization and
reclamation 8,015 7,005 10,989 14,170
------------ ------------ ------------ ------------
41,743 52,049 86,301 104,222
------------ ------------ ------------ ------------
Earnings before
interest, minority
interest and
income tax 14,683 16,720 42,808 25,387
Interest expense,
net 5,637 4,345 11,926 7,234
------------ ------------ ------------ ------------
Earnings before
minority interest
and income tax 9,046 12,375 30,882 18,153
Minority interest
in earnings for
Ordinary
Unitholders 2,262 3,094 7,721 4,538
------------ ------------ ------------ ------------
Earnings before
income tax 6,784 9,281 23,161 13,615
Income tax expense 14,636 - 14,636 -
------------ ------------ ------------ ------------
Net earnings (loss)
and comprehensive
income (7,852) 9,281 8,525 13,615
------------ ------------ ------------ ------------
Deficit as
originally reported
beginning of period (27,045) (34,370) (34,201) (29,141)
Adjustment for
financial
instruments - - 341 -
------------ ------------ ------------ ------------
Deficit after
adjustment
beginning of period (27,045) (34,370) (33,860) (29,141)
------------ ------------ ------------ ------------
Distributions to
Priority
Unitholders (9,562) (9,562) (19,124) (19,125)
------------ ------------ ------------ ------------
Deficit end of
period (44,459) (34,651) (44,459) (34,651)
------------ ------------ ------------ ------------
Net earnings (loss)
per Priority Unit
(basic and diluted) $ (0.21) $ 0.25 $ 0.23 $ 0.36

Weighted average
Priority Units
outstanding 37,497,975 37,500,000 37,497,975 37,500,000



NORANDA INCOME FUND

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

($ thousands)

Three months Six months
ended June 30 ended June 30
------------------------- -------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Cash realized from
(used for)
operations:
Net earnings for
the period (7,852) 9,281 8,525 13,615
Items not affecting
cash:
Amortization 7,744 7,289 14,519 14,154
Reclamation 271 (284) (3,530) 16
Minority interest 2,262 3,094 7,721 4,538
Mark-to-market
loss on commodity
financial
instruments (2,559) - (2,321) -
Future income tax
expense 14,636 - 14,636 -
Amortization of
deferred financing
fees 63 64 126 126
Loss from sale of
assets 299 233 447 396
Site restoratio
expenditures (41) (20) (54) (29)
------------ ------------ ------------ ------------
14,823 19,657 40,069 32,816
------------ ------------ ------------ ------------
Net change in non
cash working
capital items 853 (17,356) (22,317) (22,925)
------------ ------------ ------------ ------------
15,676 2,301 17,752 9,891
------------ ------------ ------------ ------------
Cash realized from
(used for)
investment
activities:
Purchases of
property, plant
and equipment (6,178) (6,971) (12,016) (10,170)
Proceeds from
Hydro Quebec
- incentives 1,745 1,313 1,745 1,313
Proceeds on sales
of property,
plant and
equipment 60 - 60 -
------------ ------------ ------------ ------------
(4,373) (5,658) (10,211) (8,857)
------------ ------------ ------------ ------------
Cash realized from
(used for) financing
activities:
Distributions
- Priority
Unitholders (9,562) (9,562) (19,124) (19,125)
- Ordinary
Unitholders (3,187) (3,188) (6,375) (6,375)
Long-term debt
issued under the
Revolving Facility 141,900 81,400 303,100 202,100
Long-term-debt
repaid under the
Revolving Facility (141,700) (64,100) (298,100) (176,800)
Change in bank
indebtedness - (184) - -
------------ ------------ ------------ ------------
(12,549) 4,366 (20,499) (200)
------------ ------------ ------------ ------------
Change in cash and
cash equivalents
during the period (1,246) 1,009 (12,958) 834
Cash and cash
equivalents,
beginning of period 2,000 - 13,712 175
------------ ------------ ------------ ------------
Cash and cash
equivalents,
end of period 754 1,009 754 1,009
------------ ------------ ------------ ------------

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