Noranda Income Fund

TSX : NIF.UN


Noranda Income Fund

November 12, 2012 18:01 ET

Noranda Income Fund Reports Third Quarter Earnings Before Income Taxes of $8.9 Million

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwire - Nov. 12, 2012) - Noranda Income Fund (the "Fund") (TSX:NIF.UN) reported third quarter earnings before income taxes which were supported by the continued high premiums.

Q3 2012 and Subsequent Highlights:

  • Earnings before income taxes of $8.9 million (Q3 2011 - $16.6 million)
  • Cash provided by operations of $29.3 million (Q3 2011 - $22.1 million)
  • Zinc premiums at 7.6 cents US per pound (Q3 2011 - 5.8 cents US per pound)
  • Sulphuric acid netback at US$79 per tonne (Q3 2011 - US$78 per tonne)
  • Declared monthly cash distributions consistently from July to October 2012 of $0.04167 per priority unit (each a "Priority Unit")
  • Debt as at September 30, 2012 totalled $71.6 million (net of deferred financing fees), down from $94.2 million at the end of December 2011
  • The Fund will complete an internal reorganization that is expected to be finalized prior to year end and it will eliminate the requirement for an in-kind distribution, starting in fiscal 2012. The Fund will not at this time convert to a corporation.
Conference Call and Webcast:
November 13th at 9:30 a.m. EST
Dial in number: 416-641-6145
Toll-free North American number: 1-866-303-6430

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/111312/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 4051 902# and you will be prompted for your name and company.

The recording will be available until midnight on November 27th, 2012.

Structure

The Independent Committee of the board of trustees of the Operating Trust (the "Board"), together with the Board, has reviewed the tax impact and other consequences to the Fund and its Unitholders for the Fund to convert to a corporation, while also considering the impact of remaining as a trust. The Independent Committee engaged Canaccord Genuity to act as an independent advisor to assist them in this regard.

The Independent Trustees have decided at this time, not to pursue a conversion of the Fund to a corporation. The conversion could only have been completed on terms that were acceptable to both unitholders of the Fund and Xstrata Canada Corporation ("Xstrata Canada"), the holder of the ordinary units of the Noranda Income Limited Partnership ("Partnership"). The Independent Trustees and Xstrata Canada discussed the terms on which such a conversion could occur, but they were unable to reach an agreement.

As an alternative to a conversion to a corporation, the Trustees and Xstrata Canada have approved, in principle, a reorganization that is low cost to implement, and it will eliminate the requirement for the Fund to declare an annual in-kind distribution to reduce its effective tax rate. The reorganization is expected to be completed prior to year end and it will eliminate the requirement for an in-kind distribution, starting in fiscal 2012. It is expected that unitholders will be taxed only on the income they effectively receive as cash distributions. The reorganization will not affect any of the arrangements between Xstrata Canada and the Fund or the Partnership, including the subordination of distributions on Xstrata Canada's units of the Partnership.

Financial and Operating Highlights (Third quarter 2012 compared to the third quarter 2011)

Earnings before income taxes were $8.9 million in the third quarter of 2012, compared to $16.6 million in the same quarter a year ago. The $7.7 million decrease was mainly due to lower zinc sales and by-product revenues, partially offset by higher zinc premiums and processing fee, and lower finance costs.

Cash provided by operating activities in the third quarter of 2012, before net changes in non-cash working capital items, was $15.1 million compared to $18.9 million during the same period of 2011. Cash distributions of $4.7 million were declared in 2012 compared to $1.6 million in 2011. During the third quarter of 2012, non-cash working capital decreased by $14.2 million in large part due to an increase in accounts payable and accrued liabilities. During the third quarter of 2011, non-cash working capital decreased by $3.3 million due to a decrease in accounts receivable and inventories, partially offset by a decrease in accounts payable and accrued liabilities.

Financial and Operating Highlights (First nine months 2012 compared to the first nine months 2011)

Earnings before income taxes were $36.4 million in the first nine months of 2012, compared to $43.6 million in the same period a year ago. The $7.2 million decrease was mainly due to lower zinc sales and by-product revenues, partially offset by higher zinc premiums and processing fee, and lower finance costs.

Cash provided by operating activities in the first nine months of 2012, before net changes in non-cash working capital items, was $47.2 million compared to $53.5 million during the same period of 2011. Cash distributions of $14.1 million were declared in 2012 compared to $1.6 million in 2011. During the first nine months of 2012, non-cash working capital increased by $2.8 million due to a decrease in income taxes payable and accrued liabilities and an increase in inventories, partially offset by a decrease in accounts receivable and an increase in accounts payable and accrued liabilities. During the first nine months of 2011, non-cash working capital decreased by $27.0 million due to a decrease in accounts receivable, an increase in income taxes payable and the impact of the change in the fair value of the embedded derivative related to the zinc concentrate payable, partially offset by lower inventories and accounts receivable.

A full version of the third quarter 2012 Management's Discussion and Analysis ("MD&A") and the Unaudited Interim Financial Statements will be posted on the Fund's website, http://www.norandaincomefund.com/investor/financials.html today, November 12, 2012 and they will be available on www.sedar.com on November 13, 2012. 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 Unaudited Interim 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.

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
Third Quarter Year-to-date
($ thousands) 2012 2011 2012 2011
Statements of Comprehensive Income Information
Revenues 128,555 160,866 426,897 506,468
Raw material purchase costs 70,810 72,851 222,044 266,832
Revenues less raw material purchase costs 57,745 88,015 204,853 239,636
Other expenses:
Production 38,662 42,737 126,316 132,084
Selling and administration 4,699 3,774 15,718 14,585
Foreign currency loss (gain) (2,522 ) 6,470 (2,094 ) 2,763
Loss (gain) on derivative financial instruments (1,896 ) 2,907 (2,581 ) 3,588
Depreciation of property, plant and equipment 7,905 8,654 24,440 26,003
Rehabilitation expense 168 2,954 656 3,163
Earnings before finance costs and income taxes 10,729 20,519 42,398 57,450
Finance costs, net 1,827 3,968 5,972 13,829
Earnings before income taxes 8,902 16,551 36,426 43,621
Current and deferred income tax expense 2,733 5,718 12,781 15,522
Earnings attributable to Unitholders and Non-controlling interest 6,169 10,833 23,645 28,099
Distributions to Unitholders 4,688 1,562 14,063 1,562
Current income tax recovery on distribution (1,367 ) (310 ) (4,101 ) (310 )
Increase in net assets attributable to Unitholders and Non-controlling interest 2,848 9,581 13,683 26,847
Other comprehensive income (loss) (1,418 ) (2,025 ) (3,174 ) (2,209 )
Comprehensive income 1,430 7,556 10,509 24,638
Statements of Financial Position Information Sept 30, 2012 Dec. 31, 2011
Cash and cash equivalents 6,085 1,497
Inventories 68,751 61,017
Accounts receivable 80,804 92,803
Property, plant and equipment 268,881 277,135
Total assets 436,386 447,389
Accounts payable and accrued liabilities 74,650 60,795
Total bank and other loans 71,550 94,216
Total liabilities excluding net assets attributable to unitholders 221,733 243,245
Third Quarter Year-to-date
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 19,772 20,430 61,261 55,056
Cash distributions (4,688 ) (1,562 ) (14,063 ) (1,562 )
Net change in non-cash working capital items 14,194 3,265 (2,847 ) 27,022
Cash provided by operating activities 29,278 22,133 44,351 80,516
Cash used in investing activities (5,730 ) (5,763 ) (16,133 ) (17,277 )
Cash used in financing activities (19,853 ) (17,463 ) (23,630 ) (65,836 )
Net increase in cash and cash equivalents 3,695 (1,093 ) 4,588 (2,597 )
Cash distributions declared per Priority Unit 0.12504 0.04167 0.37504 0.04167
Third Quarter Year-To-Date
2012 2011 2012 2011
Zinc concentrate processed (tonnes) 120,899 119,117 372,887 377,500
Zinc grade (%) 54.5 54.4 54.2 54.1
Zinc recovery (%) 97.1 96.7 96.6 96.7
Zinc metal production (tonnes) 60,615 63,923 188,949 195,782
Zinc metal sales (tonnes) 60,953 66,219 192,890 203,159
Processing fee (cents/pound) 39.2 38.9 39.2 38.9
Zinc metal premium (US$/pound) 0.076 0.058 0.075 0.060
By-product revenues ($ millions) 9.2 11.7 31.3 39.2
Copper in cake production (tonnes) 584 577 1,736 2,010
Copper in cake sales (tonnes) 307 908 1,541 2,811
Sulphuric acid production (tonnes) 100,259 99,982 308,965 314,205
Sulphuric acid sales (tonnes) 95,344 100,502 312,939 313,469
Average LME copper price (US$/pound) 3.50 4.08 3.61 4.20
Sulphuric acid netback (US$/tonne) 79 78 74 72
Average LME zinc price (US$/pound) 0.86 1.01 0.88 1.04
Average US/Cdn. exchange rate 0.995 0.98 1.002 0.98

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 with earnings before finance costs and income taxes and adjusting for all of the non-cash items such as depreciation, rehabilitation expense, net change in employee benefits, changes in fair value of embedded derivatives and non-cash gains/(losses) on derivative financial instruments. A reconciliation of earnings before finance costs and income taxes to Adjusted EBITDA for the third quarter and first nine months of 2012 compared to the same periods of 2011 is provided below:

Adjusted EBITDA Q3/2012 Q3/2011 Change
($ thousands)
Earnings before finance costs and income taxes $ 10,729 $ 20,519 $ (9,790 )
Depreciation of property, plant and equipment 7,905 8,654 (749 )
Net change in rehabilitation liability 164 3,039 (2,875 )
Loss on derivative financial instruments (1,073 ) 3,953 (5,026 )
Change in fair value of embedded derivatives 5,402 (8,169 ) 13,571
Loss on sale of assets (420 ) 80 (500 )
Net change in employee benefits (641 ) (321 ) (320 )
$ 22,066 $ 27,755 $ (5,689 )
Adjusted EBITDA YTD/2012 YTD/2011 Change
($ thousands)
Earnings before finance costs and income taxes $ 42,398 $ 57,450 $ (15,052 )
Depreciation of property, plant and equipment 24,440 26,003 (1,563 )
Net change in rehabilitation liability 466 3,132 (2,666 )
Loss on derivative financial instruments (2,200 ) 3,590 (5,790 )
Change in fair value of embedded derivatives 10,263 (12,108 ) 22,371
Loss on sale of assets (112 ) 478 (590 )
Net change in employee benefits (1,629 ) (959 ) (670 )
$ 73,626 $ 77,586 $ (3,960 )

Contact Information

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