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FOR: NORANDA INCOME FUND

Noranda Income Fund Reports 2007 Earnings of $27.4 Million, Fourth Quarter Earnings of $13.7 Million and the February Monthly Distribution of 8.5 Cents Per Unit

Feb 19, 2008 - 07:00 ET

VALLEYFIELD, QUEBEC--(Marketwire - February 19, 2008) -

Attention Business/Financial Editors:

The Noranda Income Fund (the "Fund") (TSX:NIF.UN) reported net earnings of $27.4 million in 2007, compared to $33.2 million in 2006. The $5.8 million decrease was mainly due to the recognition of a $13.1 million future income tax expense which was recorded in 2007 and resulted from the enactment of new tax laws including Bill C-52, lower volumes of zinc metal production and sales, lower byproduct revenues, a stronger Canadian dollar and higher interest expense, partially offset by higher zinc metal premiums and processing fee and the impact of month prior pricing.

Net earnings of $13.7 million were reported in the fourth quarter of 2007, compared to $4.0 million in the same quarter a year ago. The increase in net earnings was due to higher premiums and zinc metal sales, the impact of prior month pricing and commodity hedging gains, offset by a stronger Canadian dollar and lower production and byproduct revenue.

"2007 results benefited significantly from strong premiums." said Mario Chapados, President and Chief Executive Officer of the Noranda Income Fund's Manager. Looking forward to 2008, production and sales are forecast to be higher than last year however, premiums are expected to be reduced from the 2007 levels."

The outlook for 2008 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 Information" below.

Financial Results

This analysis of the financial position and results of operations of the Fund should be read in conjunction with the unaudited consolidated financial statements of the Fund for the three months and twelve months ended December 31, 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 Information" below.) All dollar amounts are shown in Canadian dollars unless otherwise specified.

The analysis has been prepared as of February 18, 2008. Additional information relating to the Fund, including the Fund's annual information form is available on SEDAR at www.sedar.com.



Q4 2007 Highlights

Fourth Quarter Year
2007 2006 2007 2006
---- ---- ---- ----
Zinc metal production
(tonnes) 66,697 68,147 262,133 266,427
Zinc metal sales
(tonnes) 67,540 62,520 248,801 259,446
Zinc metal premiums
(US$/pound) 0.097 0.075 0.112 0.072
Byproduct revenues
($ millions) 5.5 8.2 30.5 35.7
Recoveries (%) 96.9 95.1 96.3 97.3
Average US/Cdn.
exchange rate 0.982 1.139 1.074 1.134

- Realized premiums for the quarter per pound were higher - 9.7 cents US
in 2007 compared to 7.5 cents US in 2006.
- All of the monthly distributions were paid at the 8.5 cents per unit
level.
- Cash realized from operations, before changes in non-cash working
capital, increased to $20.9 million from $12.6 million in the fourth
quarter of 2006.
- The Credit Facility was amended to provide more flexibility, and to
better match the Fund's credit capacity to its working capital
requirements.
- An agreement in principle was reached with the Union in February 2008

 


RESULTS OF OPERATIONS

Consolidated Earnings (Twelve months 2007 compared to twelve months 2006)

Revenues less raw material purchase costs ("Net Revenues") in 2007 were $262.8 million, compared to $273.8 million in 2006. The $11.0 million decrease was due to lower volumes of zinc metal sales and lower byproduct revenues offset by higher zinc metal premiums and processing fee and the impact of prior month pricing. During 2007, Net Revenues were negatively impacted by the strengthening of the Canadian dollar (see foreign exchange gains below).

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. In 2007, month prior pricing had a positive impact of approximately $8.8 million on the Fund's Net Revenues, as the average monthly zinc price decreased from US$2.00 per pound in December 2006 to US$1.07 per pound in December 2007.

Production costs in 2007 were $158.5 million, $0.3 million lower than the $158.8 million recorded in 2006. Lower contractor costs and a positive cost of sales adjustment were partially offset by higher energy costs. During 2006, production costs were reduced by $0.6 million related to an insurance settlement and by a positive cost of sales adjustment.

Selling, general and administration costs ("SG&A") in 2007 were $19.6 million, compared to $18.8 million in 2006. The higher costs in 2007 were in part due to the transaction costs relating to amending the Credit Facility.

The foreign exchange gain for 2007 was $18.5 million, compared to a loss of $5.6 million in 2006. The $24.1 million increase was a result of a stronger Canadian dollar on the Fund's net monetary liability. The foreign exchange gain was largely offset by a decrease in the value of in-process and finished inventory. The decrease in the value of inventory is realized in Net Revenues as the metal is sold to customers (thereby reducing the Net Revenue recorded by the Fund). The Fund maintains cash and cash equivalents, accounts receivable and accounts payable and a portion of its long-term debt in US dollars.

In 2007, the commodity financial instruments loss was $0.2 million and the commodity hedging gain was $0.6 million. Effective January 1, 2007, the Fund adopted new accounting policies relating to financial instruments and hedging. During the year, the change in the market value of the Fund's financial instruments resulted in these amounts being recorded.

In 2007, amortization and reclamation were $27.4 million, $1.2 million lower than the $28.6 million incurred in 2006. An increase in amortization of $1.5 million was more than offset by the $2.7 million decrease in reclamation expense. The decrease in reclamation expense was due to a reduction in the expected future reclamation spending, which resulted in a reduction in the present value of future site restoration and reclamation liabilities. During the first quarter of 2007, the Fund and a third-party engineering firm completed a review of the site restoration and reclamation expenditures. 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 this material to the plant. 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 2007, net interest expense was $22.3 million compared to $17.8 million in 2006. The higher level of expense was due to an increase in debt outstanding and delayed concentrate payments as a result of higher working capital requirements, as well as higher interest rates.

Income tax expense in 2007 was $13.1 million. On June 22, 2007, the Federal Government substantively enacted 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 had 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.

Minority interest in earnings of subsidiaries in 2007 was $13.5 million, up from $11.1 million in 2006 due to the Fund's higher earnings before minority interest and income taxes.

Consolidated Earnings (Fourth quarter 2007 compared to fourth quarter 2006)

Net Revenues in the fourth quarter of 2007 totalled $72.7 million, compared to $67.3 million in the same period of 2006. The $5.4 million increase was due to higher sales, premiums and processing fee, and the impact of prior month pricing offset by lower byproduct revenue and a stronger Canadian dollar.

In the fourth quarter of 2007, month prior pricing had a positive impact of approximately $1.8 million on the Fund's Net Revenues, as the average monthly zinc price decreased from US $1.31 per pound in September 2007 to US $1.07 per pound in December 2007. This compared to a negative impact of $5 million from the fourth quarter of 2006, a period of rising zinc prices.

Production costs in the fourth quarter of 2007 were higher at $43.0 million, compared to $38.7 million recorded in the same quarter a year ago. Higher energy costs were partially offset by lower contractor costs. Production costs were $3.0 million lower in 2006 due to a positive cost of sales adjustment.

SG&A costs for the fourth quarter of 2007 were $4.6 million compared to $4.9 million in the fourth quarter of 2006.

The foreign exchange gain in the fourth quarter of 2007 was $0.8 million, compared to a loss of $6.1 million in the same quarter a year ago. In the fourth quarter of 2006, the weakening Canadian dollar had a negative impact on the Fund's net monetary liability. The foreign exchange loss largely was offset by an increase in the value of in-process and finished inventory. The increase in the value of the inventory is realized in Net Revenues as the metal is sold to customers.

During the fourth quarter of 2007, the financial instruments gain was $3.3 million. During the quarter, the change in the market value of the Fund's financial instruments and hedges resulted in a gain being recorded.

Amortization and reclamation costs in the quarter were $8.5 million, an increase of $1.6 million from the fourth quarter in 2006. The increase was due in part to higher capital spending over the last twelve months. This resulted in $0.8 million of higher amortization.

In the fourth quarter of 2007, net interest expense was $4.5 million compared to $5.3 million in the fourth quarter of 2006, due to the impact of lower zinc metal prices on the Fund's working capital requirements.

Minority interest in earnings in the fourth quarter of 2007 was $4.1 million, up from $1.3 million in 2006 due to the earnings of the Fund.

PRODUCTION
----------

In the fourth quarter of 2007, zinc metal production was 66,697 tonnes, compared to 68,147 tonnes in the same period of 2006. Production for the quarter was negatively impacted by lead contamination in the cellhouse. Production for 2007 was 262,133 tonnes, compared to 266,427 tonnes for 2006. Production in 2007 was negatively impacted by higher zinc dust consumption, lower zinc content in the feed and process difficulties in the hydrometallurgical and cellhouse sections of the plant. Production was also negatively impacted by the reduction in zinc recovery from 97.3% to 96.3% in 2007.

During the year, work to reduce the higher zinc dust consumption within the operation progressed. During the fourth quarter, the zinc dust consumption was 2% lower, compared to the average in the first nine months of 2007. This improvement should help the Fund to increase its overall output.

The 2008 production is planned at 275,000 tonnes. Capital investment to increase production in the last two years, and an increase in zinc recoveries (estimated at 97.3% in 2008 compared to 96.3% in 2007) are expected to result in higher production volumes.

SALES
-----

Zinc metal sales in the fourth quarter totalled 67,540 tonnes, compared to 62,520 tonnes in the same quarter of 2006. In 2007, a total of 248,801 tonnes of zinc were sold, compared to 259,446 tonnes in 2006.

Zinc metal inventories as of December 31, 2007 were 17,000 tonnes higher than the Fund's normal operating level. Demand for zinc metal in North America remained soft during the fourth quarter as sheet steel producers continued to experience weak order levels from the housing, appliance and automotive markets. This response was due to the credit-driven constraint in US consumer spending. Non-residential construction demand for sheet steel for private and public construction remained steady and continued to show positive growth. The high inventory levels at the end of 2007 were in part due to the lead contamination issues in the cell house and due to some of the Fund's inventory being in the form of slow moving product types.

Spot sales were required to offset reduced contract order volumes. Sales exceeded production in the fourth quarter. Spot sales will be required in 2008 to offset continued soft contract sales volumes.

The Fund's ability to reduce inventories in 2008 will depend on the demand for zinc in the North American marketplace and the ability for the Fund to make spot sales. The current target for zinc metal sales in 2008 is 275,000 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 Information" below.

PREMIUMS
--------

In the fourth quarter of 2007, zinc metal premiums were 9.7 cents US per pound, compared to 7.5 cents US per pound in the same period of 2006 and 11.3 cents US for the first nine months of 2007. The increased spot sales in the quarter had a negative impact on premiums. In 2007, premiums averaged 11.2 cents US per pound, compared to 7.2 cents US per pound in 2006. The increase in 2007 was due to higher premiums on contract volumes.

The weakness in the North American zinc markets has had a negative impact on the 2008 contract premiums, with the current forecast for the average 2008 premiums being 6.5 cents US per pound.

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

BYPRODUCTS
----------

In the fourth quarter, byproduct revenues were reduced to $5.5 million from $8.2 million a year earlier, due to the stronger Canadian dollar and negative copper price settlements.

In 2007, the Fund generated $19.8 million in revenue from the sale of its byproduct copper cake compared to $25.3 million in 2006. The $5.5 million decrease was due to lower sales volumes, a stronger Canadian dollar and the impact of negative price settlements, offset by a stronger copper price and higher sulphuric acid netbacks. LME copper prices in 2007 averaged US$3.23 per pound, compared to US$3.05 per pound in 2006.

Sulphuric acid netbacks improved to US$19.84 per tonne, compared to US$16.88 per tonne in 2006. The increase was due to an improvement in the demand for sulphuric acid in North America, which in turn resulted in a higher selling price.

EXCHANGE RATE
-------------

The Canadian dollar appreciated throughout 2007. A stronger Canadian dollar has a negative impact on the Fund's financial results. In 2007, a one-cent Canadian appreciation in the average Canadian/US exchange rate negatively impacted the Fund's annual cash available for distribution by approximately $0.8 million. The average Canadian/US exchange rate appreciated from $1.134 in 2006 to $1.074 in 2007.

CAPITAL EXPENDITURES
--------------------

Capital expenditures for 2007 were $26.0 million, compared to $22.2 million in 2006. In 2007, approximately $19.5 million was spent on maintenance capital and $6.5 million was invested in debottlenecking the hydrometallurgical section of the plant. This compares to $15.0 million for maintenance capital and $7.2 million for new plant equipment in 2006. These investments are part of the program which will allow the Fund to take advantage of the maximum concentrate supply of 550,000 tonnes under the Supply and Processing Agreement. In 2007, only 514,000 tonnes were processed. Processing the maximum supply of concentrate will increase processing fees, and revenues from zinc premiums and byproducts.

In the fourth quarter of 2007, $8.1 million was spent on plant and equipment, compared to $7.4 million in the fourth quarter of 2006.

The Fund participated in Hydro-Quebec's "Industrial Initiatives Program for Major Customers" which generated $2.5 million in 2007, compared to $1.8 million in 2006. In the fourth quarter, the Program generated $0.7 million compared to nil in the fourth quarter of 2006. These incentives have been recorded as a reduction of property, plant and equipment as they relate to capital expenditures incurred to reduce electricity consumption.

In the past two years, zinc concentrate supplied to the Processing Facility, while within the specification of the Supply and Processing Agreement, has changed. As a result of mine closures, the feed over the last few years has contained more iron and other impurities and has been of a lower grade. At the same time, there are certain areas in the Processing Facility where the equipment needs to be replaced. While addressing these two issues will lead to higher capital spending over the next few years, they will allow the Processing Facility to operate at a higher level and enable it to process a wider variety of zinc concentrate feeds.

The budgeted capital expenditure for 2008 is $33 million, an increase of $7 million compared to 2007. During the planning process for 2008, it was identified that the cell house requires an estimated capital budget of $18 million over a six year period on rehabilitation of the electrolysis cells. Also, the Processing Facility will process a new zinc concentrate feed from Northern Quebec containing higher magnesium and selenium. The estimated capital investment to treat these impurities is $10 million, spread out over two years. Upon completion of this project, the Fund should be in a better position to process a wider variety of feeds. Approximately $19 million is planned for other maintenance capital.



Capital spending on maintenance projects in 2008 is expected to be allocated
as follows:

Rehabilitation of electrolysis cells $3.0 million
Magnesium and selenium treatment $5.0 million
Other maintenance projects $19.0 million
--------------
Total $27.0 million

 


The remaining $6 million will be spent on revenue generating projects of which $5.7 million will be invested to increase the hydraulic capacity of the hydrometallurgy process.

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

Operating Cash Flows

In the fourth quarter of 2007, cash realized from operations, before changes in non-cash working capital was $20.9 million, compared to $12.6 million in the same period in 2006. The $8.3 million increase was due to an increase in earnings for the quarter. During the quarter, non-cash working capital decreased by $8.1 million.

Cash realized from operations, before net change in non-cash working capital items for 2007, was $81.8 million, compared to $73.2 million at the end of 2006. During 2007, non-cash working capital decreased by $14.0 million due to the reduction in the accounts payable and accrued liabilities offset by a reduction in the accounts receivable and inventory. As of December 31, 2006, late concentrate payments totalled $86 million. During 2007, the Fund paid all late concentrate amounts, thereby, increasing its use of cash. The average monthly LME zinc price decreased to US$1.07 per pound in December 2007, from US$2.00 per pound in December 2006. This resulted in a decrease in the value of the Fund's accounts receivable and inventory.

Distribution Policy

The Fund makes monthly distributions at the discretion of the Trustees, to its Unitholders, based on the monthly declarations of cash available for distribution. The Fund's goal is to provide stable monthly distributions.

The Fund announced today the monthly cash distribution of $0.085 per unit for the month of February 2008. The distribution will be payable on March 25, 2008 to unitholders of record at the close of business on February 29, 2008.

Cash Available for Distribution

The computation and disclosure of cash available for distribution 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 cash available for distribution 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 cash available for distribution to cash realized from operations. On July 6, 2007, the CSA issued revised National Policy 41-201, Income Trusts and Other Indirect Offerings.

During the third quarter, the Canadian Performance Reporting Board of the CICA ("CPRB") also published recently an Interpretive Release titled Standardized Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure. The Fund is currently reviewing the document to determine its impact on Distributable Cash disclosures in the December 31, 2007 MD&A. The disclosure in the fourth quarter press release does not comply with the guidance.

Cash available for distribution 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, cash available for distribution 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 cash available for distribution 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 cash available for distribution for the purposes of this press release may differ from that used by other issuers and, accordingly, cash available for distribution in this press release may not be comparable to cash available for distribution used by others.



A reconciliation of cash realized from operations to cash available for
distribution is provided below:

Three Three Twelve Twelve
months months months months
ending ending ending ending
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
($ thousands) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash realized from
operations $ 29,067 $ 28,400 $ 67,870 $ 20,255

Capital adjustments:
Purchase of property
plant and equipment (8,072) (7,384) (25,997) (22,230)
Proceeds from
government assistance 694 56 2,526 1,837
Proceeds from sale
of assets 2 - 65 595
Accretion on
long-term debt (64) (64) (254) (254)

Other adjustments
including
discretionary items:
Increase (decrease)
in non cash
working capital (8,121) (15,765) 13,975 52,945
-------------------------------------------------------------------------
Cash available for
distribution for
the period 13,506 5,223 58,185 53,128
-------------------------------------------------------------------------

Decrease in capital
and site restoration
reserve - - - 87
(Increase) decrease
in operating reserve (757) 7,527 (7,187) (2,215)
-------------------------------------------------------------------------
Distributions
declared to
unitholders $ 12,749 $ 12,750 $ 50,998 $ 51,000
-------------------------------------------------------------------------

Weighed average
number of units
outstanding 49,997,975 49,498,652 49,997,975 50,000,000
Distributions
declared per unit $ 0.255 $ 0.255 $ 0.255 $ 0.255
Payout ratio 94% 244% 88% 96%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

 


In 2007, cash available for distribution was $38.2 million and distributions declared to Priority Unitholders were $38.3 million. In the fourth quarter of 2007, cash available for distribution was $14.9 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, current business conditions and other items considered to be prudent.

As we calculate the Fund's cash available for distribution, we take into consideration our debt management strategy and our productive capacity maintenance strategy. Cash available for distribution 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 Revolving Facility.

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 where standardized distributable cash, net of the changes in non-cash working capital attributable to Priority Unitholders, is greater than the distributions declared to the Priority Unitholders, the notional operating reserve will increase. In a period where standardized distributable cash, net of the changes in non-cash working capital attributable to Priority Unitholders, is less than the distributions declared to the Priority Unitholders, the notional operating 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 2007, the notional operating reserve increased by $7.2 million to $18.3 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. The strengthening in the Canadian dollar and the continued softness for the demand for zinc in the North American markets may negatively impact the Fund's ability to generate cash in 2008. The Fund is also planning an increase in its 2008 capital expenditures. For these reasons, the Fund considers it prudent at this time not to increase the distribution or issue a special distribution.

The Fund also utilizes a notional capital and site restoration reserve. In a period where 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 December 31, 2007, the notional capital and site restoration reserve was $5.0 million (December 31, 2006 - $5.0 million).



The following table provides additional analysis of cash distributions to
Priority Unitholders:

Three
months
ending
Dec. 31,
($ thousands) 2007 2007 2006 2005
-------------------------------------------------------------------------
A. Cash realized
from operations $ 29,067 $ 67,870 $ 20,255 $ 50,592
B. Net earnings
before minority
interest 17,709 40,876 $ 44,253 $ 43,745
C. Actual cash
distributions
paid or payable 12,749 50,998 $ 51,000 $ 51,000

Excesses
(shortfalls) of
cash realized from
operations over
cash distributions 16,318 16,872 $ (30,745) $ (408)

Excess
(shortfalls) of
net earnings over
cash distributions 4,960 (10,122) $ (6,747) $ (7,255)

D. Percentage of
excess (shortfall)
of cash realized
from operations
over cash
distributions 128% 33% (60%) (1%)
E. Shortfall of net
earnings over cash
distributions 39% (20%) (13%) (14%)

 


Excesses/Shortfalls of cash realized from operations over cash distributions
----------------------------------------------------------------------------

For the year ending December 31, 2007, cash realized from operations was greater than cash distributions by $16.9 million. The reasons for this were a $14.0 million decrease in non-cash working capital and a $7.2 million increase in the notional operating reserve. The decrease in the working capital was due to the decrease in zinc price (the average monthly LME price fell from US$2.00 per pound in December 2006 to US$1.07 in December 2007). Cash realized from the reduction in the non-cash working capital was used to repay the delayed payments owed to Xstrata Canada.

In the year ending December 31, 2006, cash distributions paid or payable were greater than cash realized from operations by $30.7 million. The main reason for this was the $52.9 million increase in non-cash working capital. The increase in working capital was mainly due to the increase in zinc prices (the average monthly LME price rose from US$0.83 per pound in December 2005 to $2.00 per pound in December 2006). The Fund was able to finance the increase in working capital requirements by way of its Revolving Facility and by delaying payments to Xstrata Canada.

In the year ending December 31, 2005, cash distributions paid or payable were greater than cash realized from operations by $0.4 million. The main reason for this was the $24.0 million increase in non-cash working capital. The increase in working capital was mainly due to the significant increase in zinc prices (the average monthly LME price rose from US$0.54 per pound in December 2004 to $0.83 per pound in December 2005). The Fund was able to finance the increase in working capital requirements from its own cash, and by way of its Revolving Facility.

The Fund believes that using its Revolving Facility in 2005 and in 2006 to fund its working capital requirements did not represent an economic return of capital as both its trust indenture and debt agreements allowed for this funding to occur without limiting the Fund's ability to make distributions.

Shortfalls of net earnings over cash distributions
--------------------------------------------------

For the 2005-2007 reporting years, the Fund's cash distributions paid or payable were in excess of the Fund's net earnings. This was as a result of the following items:



- Amortization and reclamation expenses have been higher than the Fund's
cash used for investment activities.
- In 2007, there was a $13.1 million non-cash future income tax expense
relating to changes to tax legislation.

 


The Fund does not use net earnings as a basis to calculate distributions. Other non-cash items, such as amortization and reclamation are items which will fluctuate from period to period depending upon various factors or are based on long-term assumptions and as such may not be indicative of the cash generation capacity of the Fund. In all periods, the Fund does not believe that it has provided an economic return of capital.

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2007, the Fund's total debt was $240.3 million, down from $244.5 million at the end of December 2006. The Fund's cash and cash equivalents totalled $3.7 million, down from $13.7 million at December 31, 2006. At the end of 2006, the Fund was operating at the limit of its credit facility and was receiving credit from Xstrata Canada by way of delayed payment terms. As of December 31, 2006, the amount of the delayed payments was $85.6 million. The following provides an analysis of the Fund's overall net debt position as of December 31, 2006 and December 31, 2007:



December 31, December 31,
($millions) 2007 2006
-------------------------------------------------------------------------
Revolving facility 87.5 91.0
Notes 152.8 153.5
Delayed concentrate payments - 85.6
Cash and cash equivalents (3.7) (13.7)
-------------------------------------------------------------------------
Net debt position 236.6 316.4

 


Overall, the Fund's net debt position has improved by $79.8 million from the end of 2006 to the end of 2007. The reason for this improvement is due to the reduction in the zinc price from December 2006 to 2007. The lower zinc price reduces the value of the inventory and receivables in the Fund's working capital.

The Fund has a Revolving Facility in place that is used for general corporate purposes, including financing working capital. In October 2007, the Fund completed an amendment with a syndicate of six Canadian chartered banks to its Revolving Facility. The amended Revolving Facility has been extended to May 1, 2009. The amount available to be drawn on the Revolving Facility varies on a quarterly basis and will be based on percentages of the Fund's eligible inventory and accounts receivable from the previous quarter. The maximum available to be drawn at any time is $200 million and the minimum available to be drawn is $55 million. The amount available to be drawn based on the Fund's December 31, 2007 balance sheet is $135 million. Prior to the amendment, the Revolving Facility limit was $100 million. Borrowings under the Revolving Facility bear interest at rates that vary with the prime rate, the bankers' acceptance rate, or Libor rates plus applicable margins, and vary based on certain financial ratios of the Fund.

Fluctuations in working capital balances as a result of operations are generally funded by, or used to repay, the Revolving Facility. In the fourth quarter, $191.5 million of debt was drawn and $158.7 million was repaid related to the fluctuations in working capital. In 2007, $659 million of debt was drawn and $662.5 million was repaid related to the fluctuations in working capital.

The Fund has $153.5 million of senior secured notes (the "Notes") outstanding. The Notes have a term of seven years and will mature on December 20, 2010. The Notes offering was made by way of a private placement and the proceeds were used to repay a term facility that had been outstanding since the inception of the Fund.

Both the Revolving Facility and the Notes contain customary representations, warranties, covenants and conditions to funding. The Fund's inability to meet these representations, warranties, covenants and conditions may require it to seek additional funding sources and may impact the Fund's ability to make distributions. All of the assets of the Fund have been pledged in support of the obligations under the Notes and the Revolving Facility.

All of the covenants under the Revolving Facility agreement were complied with as at December 31, 2007 and 2006. The Fund expects to further extend the Revolving Facility beyond May 1, 2009 and to refinance the Notes as they approach their maturity date of December 20, 2010. If the Fund was unable to further extend the Revolving Facility or refinance the Notes, it may be required to seek additional funding and it may impact the Fund's ability to make distributions.

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 December 31, 2007, there was $5.6 million in revenues waiting final pricing.

OTHER DEVELOPMENTS

On February 7th, 2008, the Fund announced that an Agreement in Principle had been concluded between the Fund's Manager and the United Steelworkers of America, local 6486. The Union negotiating committee was expected to give this Agreement in Principle a unanimous recommendation at a meeting with its members within the two weeks from the aforementioned date.



Outlook

The 2008 targets for the key drivers of the Fund are:

Zinc metal production: 275,000 tonnes
Zinc metal sales: 275,000 tonnes
Processing fee: 37.5 cents per pound
Zinc metal premiums: 6.5 cents US/pound
Capital expenditures: $33 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 Information" below.

Forward-looking Information

The Fund provides Forward-looking Information for the upcoming year on zinc metal production, zinc metal sales, processing fee, zinc metal premiums and capital expenditures. The Fund provides this Information to shareholders and analysts because they are the key drivers of the business. Readers are cautioned that the Information may not be appropriate for other reasons.

The Fund updates its Forward-looking Information in each of its quarterly MD&As.

This press release contains Forward-looking Information concerning the Noranda Income Fund's ("Fund") objectives and 2008 general business outlook, zinc metal production and sales targets, estimated processing fee, zinc premium target, capital expenditures forecast and cash flow projections. Forward-looking Information 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 Information involves 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 Information.

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 impact of month prior pricing; (6) the ability of the Fund to continue to service customers in the same geographic region; (7) 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-a-vis the US dollar; and increasing transportation and distribution costs; (8) 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; (9) changes in recoveries and capital expenditure requirements; (10) the negotiation of collective agreements with its unionized employees; (11) general business and economic conditions; (12) transportation disruptions; (13) 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; (14) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; (15) loan default and refinancing risk; and (16) reliance on Xstrata Canada for the operation and maintenance of the Processing Facility.

The Forward-looking Information represents our views as of the date of this press release. The Fund anticipates that subsequent events and developments may cause the Fund's views to change.

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.



NORANDA INCOME FUND

INTERIM CONSOLIDATED BALANCE SHEETS

(unaudited)
($ thousands)


Dec. 31 Dec. 31
2007 2006
------------ -------------
ASSETS

Current assets:
Cash and cash equivalents 3,702 13,712
Accounts receivable
Trade 64,210 143,438
Xstrata Canada 22,617 35,817
Commodity financial instruments 964 -
Firm commitments 719 -
Inventories 129,066 188,161
Prepaids and other assets 2,195 3,566
------------ -------------
223,473 384,694

Deferred financing fees - 1,009

Property, plant and equipment 314,489 324,063
------------ -------------
537,962 709,766
------------ -------------

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable and accrued liabilities
Trade 18,547 17,596
Xstrata Canada 44,801 218,780
Commodity financial instruments 735 -
Distributions payable 4,250 4,250
------------ -------------
68,333 240,626

Future tax liability 13,147 -
Future site restoration and reclamation 12,130 15,205
Long-term debt 240,269 244,500
Interests of Ordinary Unitholders 54,312 52,363

Unitholders' Interest:
Unitholders' equity 191,273 191,273
Deficit (41,502) (34,201)
------------ -------------
149,771 157,072
------------ -------------
537,962 709,766
------------ -------------


NORANDA INCOME FUND

INTERIM CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
AND COMPREHENSIVE INCOME

(unaudited)
($ thousands)

Three months Twelve months
ended December 31 ended December 31
------------------------- -------------------------
2007 2006 2007 2006
------------ ------------ ------------ -------------

Revenues
Sales 202,590 311,771 1,000,913 1,055,069
Transportation and
distribution costs (4,408) (3,955) (15,642) (15,799)
------------ ------------ ------------ -------------
198,182 307,816 985,271 1,039,270
------------ ------------ ------------ -------------

Raw material purchase
costs 125,484 240,469 722,433 765,464
------------ ------------ ------------ -------------
Revenues less raw
material purchase
costs 72,698 67,347 262,838 273,806
------------ ------------ ------------ -------------
Other expenses
Production 42,992 38,716 158,511 158,756
Selling, general and
administration 4,589 4,916 19,637 18,798
Foreign exchange loss
(gain) (804) 6,092 (18,528) 5,575
Commodity financial
instruments loss
(gain) (2,563) - 150 -
Commodity hedging
gain (754) - (642) -
Amortization and
reclamation 8,514 6,938 27,400 28,612
------------ ------------ ------------ -------------
51,974 56,662 186,528 211,741
------------ ------------ ------------ -------------
Earnings before
interest, minority
interest and income
tax 20,724 10,685 76,310 62,065
------------ ------------ ------------ -------------
Interest expense, net 4,504 5,332 22,287 17,812
------------ ------------ ------------ -------------
Earnings before
minority interest and
income tax 16,220 5,353 54,023 44,253
------------ ------------ ------------ -------------
Minority interest in
earnings for Ordinary
Unitholders 4,055 1,338 13,506 11,063
------------ ------------ ------------ -------------
Earning before income
tax 12,165 4,015 40,517 33,190
------------ ------------ ------------ -------------
Income tax expense (1,489) - 13,147 -
------------ ------------ ------------ -------------
Net earnings and
comprehensive income 13,654 4,015 27,370 33,190
------------ ------------ ------------ -------------
Deficit as originally
reported beginning of
period (45,594) (28,653) (34,201) (29,141)
Adjustment for
derivatives - - 3,236 -
Adjustment for
financial instruments - - 341 -
------------ ------------ ------------ -------------
Deficit after
adjustment beginning
of period (45,594) (28,653) (30,624) (29,141)
------------ ------------ ------------ -------------
Distributions to
Priority Unitholders (9,562) (9,563) (38,248) (38,250)
------------ ------------ ------------ -------------
Deficit end of period (41,502) (34,201) (41,502) (34,201)
------------ ------------ ------------ -------------

Net earnings (loss)
per Priority Unit
(basic and diluted) $ 0.36 $ 0.11 $ 0.73 $ 0.89

Weighted average
Priority Units
outstanding 37,497,975 37,498,652 37,497,975 37,499,663



NORANDA INCOME FUND

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
($ thousands)

Three months Twelve months
ended December 31 ended December 31
------------------------- --------------------------
2007 2006 2007 2006
------------ ------------ ------------ -------------

Cash realized from
(used for) operations:
Net earnings for the
period 13,654 4,015 27,370 33,190
Items not affecting
cash:
Amortization of
property, plant and
equipment 8,179 7,369 30,281 28,788
Reclamation 335 (431) (2,881) (176)
Minority interest in
earnings for
Ordinary Unitholders 4,055 1,338 13,506 11,063
Future income tax
expense (1,489) - 13,147 -
Mark-to-market gain
on commodity
financial instruments (3,317) - (492) -
Change in fair value
of embedded
derivatives (720) - 55 -
Accretion on
long-term debt 64 64 254 254
Loss from sale of
assets 271 380 799 624
Site restoration
expenditures (86) (100) (194) (543)
------------ ------------ ------------ -------------
20,946 12,635 81,845 73,200
------------ ------------ ------------ -------------
Net change in non
cash working capital
items 8,121 15,765 (13,975) (52,945)
------------ ------------ ------------ -------------
29,067 28,400 67,870 20,255
------------ ------------ ------------ -------------

Cash realized from
(used for) investment
activities:
Purchases of property,
plant and equipment (8,072) (7,384) (25,997) (22,230)
Proceeds from
government assistance 694 56 2,526 1,837
Proceeds on sales of
property, plant and
equipment 2 - 65 595
------------ ------------ ------------ -------------
(7,376) (7,328) (23,406) (19,798)
------------ ------------ ------------ -------------

Cash realized from
(used for) financing
activities:

Redemption
- Priority
Unitholders - (20) - (20)
Distributions
- Priority
Unitholders (9,562) (9,563) (38,248) (38,250)
- Ordinary
Unitholders (3,187) (3,187) (12,750) (12,750)
Long-term debt issued
under the Revolving
Facility 191,524 158,700 659,024 558,800
Long-term debt repaid
under the Revolving
Facility (197,800) (163,500) (662,500) (494,700)
------------ ------------ ------------ -------------
(19,025) (17,570) (54,474) 13,080
------------ ------------ ------------ -------------
Change in cash and
cash equivalents
during the period 2,666 3,502 (10,010) 13,537

Cash and cash
equivalents,
beginning of
period 1,036 10,210 13,712 175
------------ ------------ ------------ -------------
Cash and cash
equivalents, end of
period 3,702 13,712 3,702 13,712
------------ ------------ ------------ -------------

 


%SEDAR: 00017578EF



FOR FURTHER INFORMATION PLEASE CONTACT:

Financial information:
Canadian Electrolytic Zinc Limited, Noranda Income Fund's Manager
Michael Boone
Vice President & Chief Financial Officer
(416) 775-1561
Email: mboone@xstrata.ca


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