Noranda Income Fund
TSX : NIF.UN

Noranda Income Fund

July 22, 2014 07:00 ET

Noranda Income Fund Reports Second Quarter Results and Announces a Cash Distibution for the Month of July

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - July 22, 2014) - Noranda Income Fund (the "Fund") (TSX:NIF.UN)

Q2 2014 Summary

  • Loss before income taxes of $(2.6) million compared to Q2 2013 - earnings of $14.5 million
  • Zinc metal production of 62,645 tonnes compared to Q2 2013 - 68,286 tonnes
  • Zinc premiums averaged 10.2 cents US per pound (11.1 cents Cdn) compared to Q2 2013 - 8.4 cents US per pound (8.6 cents Cdn)
  • Declared monthly cash distributions from May to June 2014 of $0.04167 per priority unit
  • Commissioning of the Processing Facility's silica removal capacity began in May; two of the four tanks are now operational and the project is expected to be completed in the third quarter.

"We have had a challenging second quarter. Zinc metal production was negatively impacted by an unplanned maintenance outage and electrical equipment failures which reduced the operating capacity of the cell house. These issues have since been resolved. Lower zinc metal production and sales, the impact of the negative concentrate payable adjustment and higher feed acquisition costs largely resulted in the Fund recording a loss before income taxes of $2.6 million," said Eva Carissimi, President and Chief Executive Officer of the Fund. "In the second half of 2014, zinc metal production is expected to return to normal levels, with the completion of the silica removal capacity project. In addition, a reduction of in-process inventories that built up during the first half of 2014 is also expected to support higher production and sales in the second half of the year."

The current three-year labour agreement will expire on October 31, 2014. Negotiations are expected to begin in the third quarter.

Financial and Operating Highlights (Three month period ended June 30, 2014 compared to the three month period ended June 30, 2013)

Loss before income taxes in the three months ended June 30, 2014 was $2.6 million compared to earnings of $14.5 million in the same period of 2013. The $17.1 million decrease was mainly due to lower zinc metal production, sales and by-product revenues, higher concentrate acquisition costs and reclamation expense, partially offset by higher premiums and a weaker Canadian dollar.

The table below provides a reconciliation of the net earnings before income taxes for the three month period ending June 30, 2013 to the net loss before income taxes for the three month period ending June 30, 2014.

($ millions)
Net earnings before income taxes for the three months ended June 30, 2013 $14.5
Volume (12.5 )
Concentrate provisional payable adjustment (4.8 )
Feed acquisition costs (3.6 )
Derivative financial instruments (2.6 )
Reclamation/Depreciation (2.0 )
By-products (1.7 )
Costs and other 5.9
Premiums 3.1
Processing fee 0.7
Finance costs 0.4
Net loss before income taxes for the three months ended June 30, 2014 ($2.6 )

Cash provided by operating activities in the three months ended June 30, 2014, was $12.6 million, including a negative $0.7 million increase in non-cash working capital. In the same period of 2013, cash provided by operating activities was $49.3 million, which was positively impacted by a $32.0 million decrease in non-cash working capital. Cash distributions of $4.7 million were declared in both the 2014 and 2013 quarterly periods.

For the three months ended June 30, 2014, non-cash working capital increased by $0.7 million in a large part due to an increase in inventories, partially offset by a reduction in accounts receivable and an increase in accounts payables and accrued liabilities.

Financial and Operating Highlights (Six month period ending June 30, 2014 compared to the six month period ending June 30, 2013)

Earnings before income taxes in the six month period ending June 30, 2014 were $8.5 million compared to $41.8 million in the same period a year ago. The $33.3 million decrease was mainly due to lower zinc metal production, sales and by-product revenues and higher concentrate acquisition costs and reclamation expense, partially offset by higher premiums and a weaker Canadian dollar.

The table below provides a reconciliation of the net earnings before income taxes for the six month period ending June 30, 2013 to the net earnings before income taxes for the six month period ending June 30, 2014.

($ millions)
Net earnings before income taxes for the six months ended June 30, 2013 $41.8
Volume (14.6 )
Derivative financial instruments (7.8 )
Feed acquisition costs (6.4 )
By-products (6.2 )
Reclamation/Depreciation (4.7 )
Concentrate provisional payable settlement (3.4 )
Premiums 7.0
Processing fee 1.3
Finance costs 1.0
Cost and other 0.5
Net earnings before income taxes for the six months ended June 30, 2014 $8.5

Cash provided by operating activities in the six months ended June 30, 2014, was $0.2 million, including a negative $21.3 million increase in non-cash working capital. In the same period of 2013, cash provided by operating activities was $43.6 million, which was positively impacted by a $10.9 million decrease in non-cash working capital. Cash distributions of $9.4 million were declared in both six months of both years.

During the six month period ending June 30, 2014, non-cash working capital increased by $21.3 million in a large part due to an increase in inventories partly offset by an increase in accounts payables and accrued liabilities and by a reduction in accounts receivables.

Conference Call and Webcast:

July 22nd, 2014 at 9:30 a.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/5662

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 9926 603# and you will be prompted for your name and company.

The recording will be available until midnight on August 5th, 2014.

A full version of the second 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, July 22, 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 second quarter unaudited Interim Condensed Consolidated Financial Statements and MD&A because a reader relying on this summary alone might overlook decision critical information.

July Cash Distribution

The Fund also announced today that the Board of Trustees of Noranda Operating Trust has approved a distribution for the month of July 2014 of $0.04167 per Priority Unit payable on August 25, 2014 to Priority unitholders of record as at the close of business on July 31, 2014.

When not restricted, the Fund's policy is to make monthly distributions to Unitholders. In determining whether there is a distribution and the level thereof, the Board of Trustees reviews periodically the Fund's financial performance, business environment and prospects, and determines the appropriate level of reserves.

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

Three months ended June 30, Six months ended June 30,
($ thousands) 2014 2013 2014 2013
Statements of Comprehensive (Loss) Income Information
Revenues 150,993 162,577 305,338 312,632
Raw material purchase costs 95,123 77,808 173,498 146,841
Revenues less raw material purchase costs 55,870 84,769 131,840 165,791
Other expenses:
Production 45,297 51,158 89,281 90,310
Selling and administration 5,587 5,359 10,948 10,841
Foreign currency (gain) loss (5,521 ) 3,611 (1,834 ) 7,102
Derivative financial instruments loss (gain) 1,213 (112 ) 2,039 (3,420 )
Depreciation of property, plant and equipment 8,943 10,031 17,639 18,133
Rehabilitation expense (recovery) 1,656 (1,476 ) 2,733 (2,505 )
(Loss) earnings before finance costs and income taxes (1,305 ) 16,198 11,034 45,330
Finance costs, net 1,314 1,685 2,566 3,559
(Loss) earnings before income taxes (2,619 ) 14,513 8,468 41,771
Current and deferred income tax (recovery) expense (854 ) 3,543 1,726 8,639
(Loss) earnings attributable to Unitholders and Non-controlling interest (1,765 ) 10,970 6,742 33,132
Distributions to Unitholders 4,687 4,687 9,375 9,375
(Decrease) increase in net assets attributable to Unitholders and Non-controlling interest (6,452 ) 6,283 (2,633 ) 23,757
Other comprehensive (loss) income (330 ) 2,962 (2,091 ) 5,880
Comprehensive (loss) income (6,782 ) 9,245 (4,724 ) 29,637
Statements of Financial Position Information June 30, 2014 Dec. 31, 2013
Cash 2,223 15,547
Inventories 124,522 77,580
Accounts receivable 77,208 91,898
Income taxes receivable 4,697 4,040
Property, plant and equipment 272,696 272,341
Total assets 487,103 467,075
Accounts payable and accrued liabilities 100,986 87,844
Total bank and other loans 57,991 51,322
Total liabilities excluding net assets attributable to unitholders 212,374 187,542
Three months ended June 30, Six months ended June 30,
Statements of Cash Flows Information 2014 2013 2014 2013
Cash provided by operating activities before cash distributions and net change in non-cash working capital items 18,041 22,001 30,891 42,074
Cash distributions (4,687 ) (4,687 ) (9,375 ) (9,375 )
(Increase) decrease in non-cash working capital items (714 ) 31,956 (21,263 ) 10,855
Cash provided by operating activities 12,640 49,270 253 43,554
Cash used in investing activities (11,053 ) (5,954 ) (19,745 ) (9,917 )
Cash (used in) provided by financing activities (1,903 ) (43,941 ) 6,168 (33,803 )
Net decrease in cash and cash equivalents (316 ) (625 ) (13,324 ) (166 )
Cash distributions declared per Priority Unit 0.12501 0.12501 0.25002 0.25002
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Zinc concentrate processed (tonnes) 126,393 124,309 247,437 257,691
Zinc grade (%) 52.1 53.8 51.9 53.3
Zinc recovery (%) 97.2 98.2 97.1 97.0
Zinc metal production (tonnes) 62,645 68,286 122,189 136,699
Zinc metal sales (tonnes) 59,598 75,081 120,107 138,139
Processing fee (cents/pound) 40.0 39.5 40.0 39.5
Zinc metal premium (US cents/pound) 10.2 8.4 10.2 8.4
By-product revenues ($ millions) 7.9 9.6 14.4 20.6
Copper in cake production (tonnes) 525 380 1,092 1,000
Copper in cake sales (tonnes) 709 523 882 1,226
Sulphuric acid production (tonnes) 96,760 103,270 188,734 209,061
Sulphuric acid sales (tonnes) 93,690 104,072 188,051 207,305
Average LME copper price (US$/pound) 3.08 3.24 3.14 3.42
Sulphuric acid netback (US$/tonne) 47 72 51 72
Average LME zinc price (US$/pound) 0.94 0.84 0.93 0.88
Average US/Cdn. exchange rate 1.09 1.02 1.10 1.02
* 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 or loss 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 three and six month periods ending June 30, 2014 compared to the same periods in 2013 are provided below:

Three months ended
June 30,
Adjusted EBITDA 2014 2013 Change
($ thousands)
(Loss) earnings before finance costs and income taxes $ (1,305 ) $ 16,198 $ (17,503 )
Depreciation of property, plant and equipment 8,943 10,031 (1,088 )
Net change in rehabilitation liability 1,657 (1,693 ) 3,350
Loss (gain) on derivative financial instruments 1,838 (724 ) 2,562
Change in fair value of embedded derivatives 7,531 2,726 4,805
Loss (gain) on sale of assets 113 (233 ) 346
Net change in employee benefits (372 ) (134 ) (238 )
$ 18,405 $ 26,171 $ (7,766 )
Six months ended
June 30,
Adjusted EBITDA 2014 2013 Change
($ thousands)
Earnings before finance costs and income taxes $ 11,034 $ 45,330 $ (34,296 )
Depreciation of property, plant and equipment 17,639 18,133 (494 )
Net change in rehabilitation liability 2,739 (2,739 ) 5,478
Loss (gain) on derivative financial instruments 2,354 (5,410 ) 7,764
Change in fair value of embedded derivatives 2,154 (1,229 ) 3,383
Loss (gain) on sale of assets 12 (562 ) 574
Net change in employee benefits (743 ) (332 ) (411 )
$ 35,189 $ 53,191 $ (18,002 )

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