NORANDA INCOME FUND

NORANDA INCOME FUND

November 07, 2006 13:49 ET

Noranda Income Fund Reports Third Quarter 2006 Net Earnings of $15.6 Million

VALLEYFIELD, QUEBEC--(Marketwire - Nov. 7, 2006) -

Attention Business/Financial Editors:

The Noranda Income Fund (the "Fund") reported net earnings of $15.6 million for the third quarter of 2006, compared to $8.2 million for the third quarter a year ago. The $7.4 million increase was due to higher recoveries, premiums and byproduct revenues, partially offset by a stronger Canadian dollar, higher production costs, lower sales volumes and a higher interest expense.

"We had a very good quarter, with premiums and byproduct credits higher than in the third quarter of 2005. We also benefited from higher zinc recoveries during the quarter." said Mario Chapados, President and Chief Executive Officer of the Noranda Income Fund's Manager.

Net earnings of $29.2 million were reported for the first nine months ending September 30, 2006 compared to $22.5 million in the first nine months of 2005. The $6.7 million increase was mainly due to the impact of higher recoveries, premiums and processing fee and improved byproduct revenues partially offset by higher production costs, lower zinc metal production and sales, higher interest expense and a stronger Canadian dollar.

The outlook for 2006 and the estimate for production, premiums and byproduct revenues 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 nine months ended September 30, 2006 and with the audited consolidated financial statements of the Fund and the notes thereto for the period ended December 31, 2005. All dollar amounts are shown in Canadian dollars unless otherwise specified.

The analysis has been prepared as of November 7, 2006. Additional information relating to the Fund, including the Fund's annual information form is available on SEDAR at www.sedar.com.



Q3/2006 Highlights

Third Quarter Year
2006 2005 2006 2005
---- ---- ---- ----
Zinc metal production (tonnes) 67,498 67,873 198,280 203,416
Zinc metal sales (tonnes) 66,954 73,119 197,411 203,918
Zinc metal premiums (US$/pound) 0.073 0.065 0.71 0.058
Byproduct revenues ($ millions) 7.7 6.2 27.5 16.4
Average US/Cdn. exchange rate 1.120 1.200 1.133 1.224

- Higher zinc recoveries from processing jarosite pond water.
- Realized premiums were higher - 7.3 cents US per pound in Q3/06 vs.
6.5 cents US in the same quarter of 2005.
- Higher byproduct revenues - $7.7 million in Q3/06 compared to
$6.2 million in Q3/05 as the result of strong copper prices.


RESULTS OF OPERATIONS

Consolidated Net Earnings (Third quarter 2006 compared to third quarter 2005)

Revenues less raw material purchase costs ("Net Revenues") in the third quarter of 2006 were $76.9 million compared to $70.3 million in the same period of 2005. The $6.6 million variance was due to higher recoveries, premiums, byproduct revenues and processing fee, partially offset by a stronger Canadian dollar and lower production and sales volumes. Each $C0.01 appreciation in the average Canadian/US exchange rate negatively impacts the Fund's annual net earnings by approximately $0.7 million.

The bulk of the Fund's Net Revenue in the third quarter of 2006 was realized from the processing fee on zinc concentrates. Another portion of the Fund's Net Revenue is derived from premiums realized on the sale of zinc metal and various value-added zinc products. These premiums have been steadily rising due to the increased tight supply of zinc metal in the North American market. The Fund also benefits from the sale of byproducts, such as copper, cadmium and sulphuric acid that are processed and extracted from the zinc concentrate.

The Processing Facility generates additional Net Revenue from metal recoveries. While it pays for 96% of the zinc metal contained in the concentrate, it typically recovers zinc at a rate higher than this. Higher recoveries in the third quarter of 2006 generated an additional $5 million of Net revenue.

Production costs in the third quarter were lower than a year ago at $38.9 million compared to $41.1 million. Strong sales volumes in 2005 resulted in higher production costs as inventory was drawn down. This was partially offset by higher electricity costs in 2006.

Selling, general and administration costs for the third quarter of 2006 were unchanged at around $4.5 million, from the third quarter of 2005. Amortization and reclamation was $7.5 million in the third quarter of 2006, compared to $8.1 million for the third quarter of 2005.

In the third quarter of 2006, net interest expense was $5.2 million, compared to $2.8 million in the same quarter a year ago due to higher levels of debt that has resulted from the increase in the zinc price and the corresponding increase in working capital during 2006. The Fund also incurred an additional interest charge because it was late in making its zinc concentrate payment to Falconbridge Limited ("Falconbridge"), a wholly owned subsidiary of Xstrata plc ("Xstrata").

Consolidated Net Earnings (Nine months 2006 compared to nine months 2005)

Net Revenues in the first nine months of 2006 were $206.5 million compared to $197.1 million in the same period of 2005. The $9.4 million variance was due to higher recoveries, premiums, byproduct revenues and processing fee, partially offset by a stronger Canadian dollar, lower production and sales volumes and higher transportation and distribution costs.

Production costs in the first nine months were $120.0 million compared to $119.8 million in the first nine months of 2005. During the year, production costs were reduced by $0.6 million related to an insurance settlement from an incident that occurred in 2005.

Selling, general and administration costs for the first nine months of 2006 were $13.9 million, compared to $14.5 million in the first nine months of 2005. Amortization and reclamation was $21.7 million in the first nine months of 2006, compared to $22.0 million in the same period of 2005.

In the first nine months of 2006, net interest expense was $12.5 million, compared to $8.3 million in the same period a year ago due to higher levels of debt that has resulted from the increase in the zinc price and the corresponding increase in working capital during 2006.

PRODUCTION

Zinc metal production in the third quarter of 2006 was 67,498 tonnes, mostly unchanged from 67,873 tonnes in the third quarter of 2005. For the first nine months of 2006, production totalled 198,280 tonnes compared to 203,416 tonnes in the same period a year ago. Year-to-date production in 2006 has been negatively impacted by the production problem in the first quarter and by the higher iron and lower zinc grades in the concentrate processed. The iron load is the current bottleneck of the process. As a result, the 2006 production is forecast to be 268,000 tonnes, down from 273,000 tonnes.

With high zinc prices in 2006, an alternate processing method was implemented to recover zinc from our jarosite pond water. Recovering the remaining zinc from the jarosite pond is expected to bring in an additional $3-4 million of revenue over the next 6 to 9 months. In addition to the water treatment, new equipment was put in place to increase zinc recovery during the year.

For the third quarter of 2006, sales of zinc metal totalled 66,954 tonnes, compared to 73,119 tonnes sold in the third quarter of 2005. Zinc sales for the first nine months were 197,411 tonnes, as compared to 203,918 from a year ago. The target for 2006 sales has also been reduced to 268,000 tonnes.

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 AND BYPRODUCTS

Zinc fundamentals have strengthened in 2006, with strong demand (estimated at 6.4% this year) and delays to new projects offsetting production growth in China. LME zinc prices have increased from US$0.88 a pound at the start of 2006 to current US$1.85 a pound range, and zinc stocks have fallen from 393,550 tonnes at the end of 2005 to 122,400 tonnes at the end of October.

Zinc's solid fundamentals have positively impacted zinc premiums. For the third quarter of 2006, premiums rose to 7.3 cents US per pound compared to 6.5 cents US a pound for the same period in 2005. The target for 2006 premiums has been increased to 7.1 cents US a pound from 6.9 cents US a pound. For 2006, almost all of the Fund's zinc metal sales are on an annual contract basis.

Looking out to 2007, North American zinc fundamentals continue to be strong. Guidance for 2007 production and premiums will be provided in the fourth quarter results as the Fund is currently negotiating next year's sales.

Copper fundamentals continue to look very healthy. Inventories of copper are close to a record low, producers are struggling to bring on new capacity and meet current production targets and the estimated 300,000 tonnes of copper de-stocking in China this year is not expected to be repeated in 2007. The market is expected to have a small surplus in 2006 and is expected to be fairly balanced in 2007. LME copper prices in the third quarter of 2006 averaged US$3.48 per pound compared to US$1.70 per pound in the third quarter of 2005. Sulphuric acid netbacks have weakened from a year ago because transportation costs have risen while prices have remained steady. Byproduct revenues in the third quarter of 2006 increased to $7.7 million compared to $6.2 million in the third quarter of 2005.

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

CAPITAL EXPENDITURES

In 2006, the Fund initiated a number of capital projects to improve productivity and increase revenues over the next few years. To date, three of the revenue generating projects have been completed and were commissioned. The remaining projects are expected to be completed during the balance of the year.

Capital spending during the third quarter and the first nine months of 2006 totalled $4.7 and $14.9 million, respectively compared to $4.6 and $9.9 million, respectively for the same periods in 2005. The budget for the year remains at $21.5 million of which approximately $7 million represents investments in revenue generating projects and $14.5 million represents sustaining capital required to maintain the plant's current capacity

The Fund is participating in Hydro-Québec's "Industrial Initiatives Program - Major Customers" program. During the third quarter, the Fund received $0.5 million (year-to-date - $1.8 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.

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

Cash realized from operations, before changes in non-cash working capital for the third quarter of 2006 was $27.7 million compared to $19.0 million in the third quarter of 2005. During the quarter, non-cash working capital increased by $45.8 million, due to higher zinc prices and replacing supplier financing from Falconbridge with a $35 million increase in the Revolving Facility.

Year-to-date cash realized from operations, before changes in non-cash working capital was $60.6 million compared to $52.8 million in 2005 as a result of higher net earnings. During the year, non-cash working capital increased by $68.7 million, due to higher zinc prices. Zinc prices impact the value of in-process and finished product inventories. The average monthly LME zinc price rose to US$1.54 per pound in September from US$0.83 per pound in December 2005.

Capital expenditures in the third quarter were $4.7 million compared to $4.6 million in the third quarter of 2005. Year-to-date capital expenditures rose to $14.8 million in 2006 from $9.9 million in 2005 as a result of revenue generating projects being developed.

Distributions paid to unitholders in the third quarter were $12.8 million, unchanged from the same period in 2005. Year-to-date distributions to unitholders for both 2006 and 2005 were $38.3 million.

The Fund has a Revolving Facility in place that is used for general corporate purposes, including financing working capital. On June 30, 2006, the Revolving Facility was extended to May 3, 2008 and was increased from $65 million to $100 million to finance the higher working capital levels. The Revolving Facility was extended at essentially the same terms that were in place with the prior Facility. 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. The Fund continues to review its options with respect to financing its working capital.

Fluctuations in working capital balances as a result of operations are generally funded by or used to repay the Revolving Facility. During the quarter, $198 million of debt was drawn and $154.4 million was repaid related to the fluctuations in working capital.

At September 30, 2006, the Fund's total debt was $249.3 million, up from $180.4 million at the end of December 2005.

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
-------------------------------------------------------------------------
October 31, 2006 November 27, 2006 8.5 cents
September 30, 2006 October 25, 2006 8.5 cents
August 31, 2006 September 25, 2006 8.5 cents
July 31, 2006 August 25, 2006 8.5 cents
June 30, 2006 July 25, 2006 8.5 cents
May 31, 2006 June 26, 2006 8.5 cents
-------------------------------------------------------------------------


In order to meet the Fund's goal to provide a stable monthly distribution the Fund utilizes a notional operating reserve. In a period during which Cash Generated is greater than the distribution declared, the operating reserve will increase. In a period during which Cash Generated is less than the distribution declared, the operating reserve will decrease. The 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.

Distributable Cash

Distributable Cash is not a measure defined by generally accepted accounting principles and is dependant upon the definition as contained in the trust indentures establishing the Fund. Distributable Cash under the Fund's indenture is based on 100% of the net earnings adjusted to account for non-cash transactions such as amortization, reclamation and minority interest, reduced by additions to capital assets, site restoration expenditures, reasonable reserves and repayment of long-term debt. Fluctuations in working capital balances as a result of operations are generally funded by or used to repay the Revolving Facility.

Cash Generated is defined as Distributable Cash before changes in operating reserves. Distributable Cash as calculated by the Fund may not be comparable to similar measures presented by other issuers. The Distributable Cash for the period is as follows:



Three Three Nine Nine
months months months months
ending ending ending ending
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
-------------------------------------------------------------------------
Net earnings $ 15,560 $ 8,165 $ 29,175 $ 22,475
Add:
Amortization, and
reclamation 7,504 8,060 21,674 21,954
Minority interest
in earnings 5,187 2,722 9,725 7,492
(Gain)/loss from sale
of assets (152) 12 244 349
Proceeds from sales
of assets 595 - 595 1

Less:
Additions to property,
plant and equip. (4,676) (4,554) (14,846) (9,886)
Hydro-Québec -
incentives 468 - 1,781 -
Site restoration
expenditures (414) - (443) -

Increase (decrease) in
capital and site
restoration reserve (1,087) (773) 87 (2,542)
-----------------------------------------------

Cash Generated during
the period 22,985 13,632 47,992 39,843
-----------------------------------------------

Increase in operating
reserve (10,235) (882) (9,742) (1,593)
-----------------------------------------------

Distributable Cash for
the period $ 12,750 $ 12,750 $ 38,250 $ 38,250
-----------------------------------------------


The following provides an alternative reconciliation of Distributable Cash based on the Fund's Consolidated Statement of Cash Flows:



Three Three Nine Nine
months months months months
ending ending ending ending
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash realized from
(used for) operations $ (18,036) $ 35,429 $ (8,145) $ 40,857

Increase/(decrease) in
non cash working capital 45,785 (16,417) 68,710 11,987
Mark-to-market gain/(loss)
on derivative financial
instrument - 12 - (369)

Add:
Proceeds from sales of
assets 595 - 595 1

Less:
Additions to property
plant and equip. (4,676) (4,554) (14,846) (9,886)
Hydro-Québec - incentives 468 - 1,781 -
Amortization of deferred
financing fees (64) (65) (190) (205)

Increase (decrease) in
capital and site
restoration reserve (1,087) (773) 87 (2,542)
-----------------------------------------------

Cash Generated during
the period 22,985 13,632 47,992 39,84
-----------------------------------------------

(Increase) decrease in
operating reserve (10,235) (882) (9,742) (1,593)
-----------------------------------------------

Distributable Cash for
the period $ 12,750 $ 12,750 $ 38,250 $ 38,250
-----------------------------------------------


In the third quarter of 2006, Cash Generated (Distributable Cash before changes in operating reserves) was $23.0 million and Distributable Cash to unitholders was $12.8 million: $9.6 million paid to Priority Unitholders and $3.2 million paid to Ordinary Unitholders.

Notional Operating Reserve

During the quarter, the notional operating reserve increased to $18.6 million (September 30, 2005 - $5.7 million) from $8.4 million at the end of June 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 special dividends at this time.

The Fund also utilizes a capital and site restoration reserve. As of September 30, 2006, the capital and site restoration reserve was $5.0 million (September 30, 2005 - $4.5 million).

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 awaiting final pricing at quarter-end could have a material effect on future revenues. As of September 30, 2006, there was $9.8 million in revenues awaiting 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. With zinc prices continuing to strengthen, month prior pricing is expected to have a negative impact on the fourth quarter results.

OTHER DEVELOPMENTS

We were saddened to learn that Don Wells, our Chairman, passed away on August 21, 2006. Since the Fund's inception in 2002, Don provided strong leadership and commitment. His broad business knowledge and financial expertise contributed enormously to the Fund's success. Don's ever questioning mind and dry sense of humour will be sadly missed.

Today the Board of Trustees appointed Lisa de Wilde as Chair. Ms de Wilde who has been a member of the Board since the inception of the Fund chairs the Governance and Nominating Committee and is a member of the Audit Committee. She is the Chief Executive Officer of TVOntario, the public educational media organisation of Ontario. Ms de Wilde is a member of the Law Society of Upper Canada and currently serves as a director of public companies and not-for-profit organizations. Previously, she was CEO of Astral Television Networks Inc. and a partner at Heenan Blaikie.

On August 17, 2006, Steven Douglas resigned as a Trustee of the Fund. We would like to thank him for his strong contribution to the Fund and we wish him well in his new endeavours.

RISKS AND UNCERTAINTIES

The Federal Government's Proposed Tax Fairness Plan

On November 1, 2006, the Federal Government released the Tax Fairness Plan. The proposed new tax structure has the intended impact of eliminating any tax advantage enjoyed by the trust structure over the corporate structure from the prospective of Canadian tax-exempt investors and foreign investors. These changes would be effective for existing trusts in 2011, and for corporations considering a trust structure from November 1, 2006 onwards in 2007. Investors are urged to read the full transcript of the government's plan at http://www.fin.gc.ca/news06/06-061e.html.

Cash distributions on Ordinary Units are subordinate to distributions on Priority Units until 2017, except on the occurrence of certain events. With respect to the Proposed Tax Fairness Plan, the Fund expects that the subordination will remain unchanged.

OUTLOOK

The Fund's goal for 2006 is to continue to provide stable monthly distributions of 8.5 cents per unit per month.



The 2006 targets for the key drivers of the Fund are:
Production: 268,000 tonnes
Sales: 268,000 tonnes
Processing fee: 36.5 cents per pound
Premium: 7.1 cents US/pound
Capital expenditures: $21.5 million


Forward-Looking Statements

This news release contains Forward-Looking Statements concerning the Noranda Income Fund's ("Fund") objectives and 2006 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 demand for zinc metal, sulphuric acid, and copper cake; (4) changes to the supply and demand for specific zinc metal products and the impact on the Fund's realized premiums; (5) the ability of the Fund to continue to service customers in the same geographic region; (6) the sensitivity of the Fund's net revenues to reductions/increases 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 (7) 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; (8) changes in recoveries and capital expenditure requirements; (9) the negotiation of collective agreement with its unionized employees; (10) general business and economic conditions; (11) transportation disruptions; (12) 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; (13) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; (14) loan default and (15) reliance on Falconbridge Limited for the operation and maintenance 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 release.

Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol "NIF.UN". The Noranda Income Fund was created to acquire Falconbridge's CEZ processing facility and ancillary assets (the "CEZ processing facility") located in Salaberry-de-Valleyfield, Quebec. The CEZ 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 byproducts 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.



NORANDA INCOME FUND

CONSOLIDATED BALANCE SHEETS

(unaudited)

($ thousands)

Sept. 30 Dec. 31
2006 2005
----------- -----------

ASSETS

Current assets:
Cash and cash equivalents 10,210 175
Accounts receivable
Other 125,675 72,022
Xstrata 15,760 13,120
Inventories 144,357 60,519
Prepaids and other assets 2,811 3,133
----------- -----------
298,813 148,969

Deferred financing fees 1,073 1,263

Property, plant and equipment 325,101 334,641

----------- -----------

624,987 484,873

----------- -----------

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable and accrued liabilities
Other 16,117 16,155
Xstrata 122,731 51,942
Distributions payable 4,250 4,250
----------- -----------
143,098 72,347

Future site restoration and reclamation 15,736 15,924

Long-term debt 249,300 180,400

Interets of Ordinairy Unitholders 54,213 54,050

Unitholders' Interest:
Unitholders' equity 191,293 191,293
Deficit (28,653) (29,141)
----------- -----------

162,640 162,152

----------- -----------

624,987 484,873

----------- -----------



NORANDA INCOME FUND

CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT

(unaudited)

($ thousands)

Three months Nine months
ended September 30 ended September 30
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues
Sales 270,681 134,533 743,298 372,733
Transportation and
distribution costs (4,253) (3,898) (11,844) (10,534)
----------- ----------- ----------- -----------
Net revenues 266,428 130,635 731,454 362,199
----------- ----------- ----------- -----------
Raw material purchase
costs 189,578 60,332 524,995 165,111
----------- ----------- ----------- -----------
Net revenues less raw
material purchase costs 76,850 70,303 206,459 197,088
----------- ----------- ----------- -----------
Other expenses
Production 38,891 41,137 120,040 119,775
Selling, general and
administration 4,493 4,555 13,882 14,487
Foreign exchange loss
(gain) (31) 2,867 (517) 2,623
Amortization and
reclamation 7,504 8,060 21,674 21,954
----------- ----------- ----------- -----------
50,857 56,619 155,079 158,839
----------- ----------- ----------- -----------
Earnings before interest
expense and minority
interest 25,993 13,684 51,380 38,249
----------- ----------- ----------- -----------
Interest expense, net 5,246 2,797 12,480 8,282
----------- ----------- ----------- -----------
Earnings before minority
interest 20,747 10,887 38,900 29,967
----------- ----------- ----------- -----------
Minority interest in
earnings for Ordinary
Unitholders 5,187 2,722 9,725 7,492
----------- ----------- ----------- -----------
Net earnings 15,560 8,165 29,175 22,475
----------- ----------- ----------- -----------
Deficit, beginning of
period (34,651) (28,515) (29,141) (23,700)
Distributions to Priority
Unitholders (9,562) (9,562) (28,687) (28,687)
----------- ----------- ----------- -----------
Deficit, end of period (28,653) (29,912) (28,653) (29,912)
----------- ----------- ----------- -----------

Net earnings per Priority
Unit (basic and diluted) $ 0.41 $ 0.22 $ 0.78 $ 0.60



NORANDA INCOME FUND

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

($ thousands)

Three months Nine months
ended September 30 ended September 30
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Cash realized from (used
for) operations:
Net earnings for the period 15,560 8,165 29,175 22,475
Items not affecting cash:
Amortization 7,265 8,060 21,419 21,954
Reclamation 239 - 255 -
Minority Interest in
earnings for Ordinary
Unitholders 5,187 2,722 9,725 7,492
Mark-to-market (gain)/
loss on derivative
financial instruments - (12) - 369
Amortization of deferred
financing fees 64 65 190 205
(Gain)/loss from sale of
assets (152) 12 244 349
Site restoration
expenditures (414) - (443) -
----------- ----------- ----------- -----------
27,749 19,012 60,565 52,844
----------- ----------- ----------- -----------
Net change in non cash
working capital items (45,785) 16,417 (68,710) (11,987)
----------- ----------- ----------- -----------
(18,036) 35,429 (8,145) 40,857
----------- ----------- ----------- -----------
Cash realized from (used
for) investment activities:
Purchases of property,
plant and equipment (4,676) (4,554) (14,846) (9,886)
Quebec Hydro - electricity
conservation grants 468 - 1,781 -
Proceeds on sale of
property, plant and
equipment 595 - 595 1
----------- ----------- ----------- -----------
(3,613) (4,554) (12,470) (9,885)
----------- ----------- ----------- -----------
Cash realized from (used
for) financing activities:
Distributions
- Priority Unitholders (9,562) (9,563) (28,687) (28,688)
- Ordinary Unitholders (3,188) (3,188) (9,563) (9,563)
Long-term debt issued from
the Revolving Facility 198,000 61,700 400,100 149,300
Long-term debt repaid to
the Revolving Facility (154,400) (72,300) (331,200) (144,300)
----------- ----------- ----------- -----------
30,850 (23,351) 30,650 (33,251)
----------- ----------- ----------- -----------
Change in cash and cash
equivalents during the
period 9,201 7,524 10,035 (2,279)
Cash and cash equivalents,
beginning of period 1,009 1,197 175 11,000
----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period 10,210 8,721 10,210 8,721
----------- ----------- ----------- -----------
Cash 3,518 5,321 3,518 5,321
Cash equivalents 6,692 3,400 6,692 3,400

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