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Noranda Income Fund Reports Fourth Quarter and Year End 2010 Results

Feb 17, 2011 - 06:00 ET

SALABERRY-DE-VALLEYFIELD, QUEBEC--(Marketwire - Feb. 17, 2011) - Noranda Income Fund (TSX:NIF.UN) - 

Q4 2010 Highlights

-- Zinc production was 5% higher than in 2009.
-- Byproduct revenues were 89% higher than in 2009.
-- The Fund obtained the Bridge Facility for an amount of $250 million from
a syndicate of lenders. The Bridge Facility enables the Fund to continue
to pursue a long-term refinancing plan.


Conference Call

The Noranda Income Fund will host an Investor Conference Call to discuss its Q4/2010 and year end financial results at 09:00 Eastern Standard Time on Thursday, February 17, 2011.

-- For those participating by phone, please dial 416-695-6617 toll free
-- A live audio webcast of the conference call, together with supporting
presentation slides, will be available on our website at
-- A recording of the webcast will be available at 905-694-9451 or toll
free at 1-800-408-3053 with the pass code of 1483 731# until midnight on
March 3, 2011.


Noranda Income Fund (the "Fund") (TSX:NIF.UN) reported net earnings of $3.4 million for the fourth quarter of 2010, compared to $1.4 million in the same quarter a year ago. The $2.0 million increase was mainly due to higher zinc metal premiums and byproduct revenues, partially offset by higher selling, general and administration expense and a stronger Canadian dollar.

The Fund's consolidated net earnings for 2010 totalled $21.1 million, compared to a net loss of $3.3 million in 2009. The $24.4 million increase was mainly due to higher production, sales, byproduct revenues and premiums, partially offset by higher interest expense, reclamation expense, selling, general and administration expense and a stronger Canadian dollar. Net earnings for the fourth quarter of 2010 and for the full year 2010 would have been $2.8 million and $3.6 million, respectively higher, due to higher than normal selling, general and administration costs. These costs arose as a result of the work and expenses incurred by the Fund on the strategic review, the costs incurred related to the change in the Independent Trustees during the year, the preparation work related to the special unitholder meeting requisitioned by the Requisitioning Unitholders and costs incurred for the Bridge Facility.

For a full version of the 2010 Annual Management Discussion and Analysis ("MD&A") and the Financial Statements, go to A copy of the MD&A, financial statements and notes is also available on SEDAR at 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 financial statements and MD&A because a reader relying on this summary alone might overlook decision- critical information.

"We've had a good quarter with production and sales performing well, supported by strengthening premiums and sulphuric acid netbacks." said Mario Chapados, President and CEO of the Fund. "The outlook for 2011 is for improving fundamentals for our metals and sulphuric acid."


The Fund provides annual guidance for a number of its key performance drivers, including production, sales, processing fee and capital expenditures. Guidance for 2011 key drivers can be found in "Outlook" below.

The following table provides a summary of the performance of these key drivers for the fourth quarters and years ended December 31, 2010 and December 31, 2009, respectively. The discussion of key performance drivers that follows is subject to various risks and uncertainties, some of which are discussed under "Risks and Uncertainties" and "Forward-Looking Information" below, which investors are encouraged to read carefully.

Q4 2010 Q4 2009 2010 2009

Zinc concentrate processed (tonnes) 121,985 124,908 482,376 447,059
Zinc grade (%) 54.2 54.0 54.2 53.8
Zinc recovery (%) 97.0 97.4 97.4 97.5
Zinc metal production (tonnes) 69,113 65,587 267,328 228,600
Zinc metal sales (tonnes) 65,716 65,337 269,114 243,969
Processing fee (cents/pound) 38.5 38.0 38.5 38.0
Zinc metal premium (US$/pound) 0.047 0.037 0.044 0.035
Byproduct revenues ($ millions) 12.5 6.6 34.5 27.6
Copper in cake production (tonnes)
(ii) 696 969 2,537 3,054
Copper in cake sales (tonnes) 780 520 2,257 2,378
Sulphuric acid production (tonnes) 103,701 105,499 403,779 372,156
Sulphuric acid sales (tonnes) 97,290 99,692 411,220 359,909
Average LME copper price (US$/pound) 3.92 3.02 3.42 2.34
Sulphuric acid netback (US$/tonne) 51 23 41 31
Average LME zinc price (US$/pound) 1.01 1.00 0.98 0.75
Average US/Cdn. exchange rate 1.01 1.06 1.03 1.14
(i) 1 tonne = 2,204.62 pounds
(ii) 2010 production includes a negative inventory adjustment of 476 tonnes.



Zinc metal production for the fourth quarter of 2010 was 5% higher at 69,113 tonnes (2010 - 267,328 tonnes), compared to 65,587 tonnes in the fourth quarter of 2009 (2009 - 228,600 tonnes). Metal production in 2010 was 17% higher than in 2009. Production in 2009 was negatively impacted by the fact that the Processing Facility ran at 80% of its capacity for the seven month period from March 1, 2009 to September 30, 2009.

In 2010, the average grade of the zinc concentrate was 54.2% compared to 53.8% in 2009. The zinc recovery in 2010 was 97.4%, comparable to the 97.5% recovery that was achieved in 2009. The Fund pays for 96% of the zinc in the concentrate it purchases; therefore, any recovery over 96% results in additional revenue for the Fund.


Zinc metal is used in a wide range of industries. Its major use is in the production of galvanized steel. Zinc sales in the fourth quarter were 65,716 tonnes (2010 - 269,114 tonnes), compared to 65,337 tonnes in the fourth quarter of 2009 (2009 - 243,969 tonnes). The increase in sales in 2010 is directly related to an improvement in sales to all end-users, particularly the steel industry.

Inventories of zinc metal were reduced by approximately 2,000 tonnes during 2010.


Premiums averaged 4.7 cents U.S. per pound in the fourth quarter of 2010 (2010 - 4.4 cents U.S. per pound), compared to 3.7 cents U.S. per pound in the fourth quarter of 2009 (2009 - 3.5 cents U.S. per pound). The increase in realized premiums compared to the previous year reflects the impact of improved annual contract premiums and an increase in the level of spot premiums.


In 2010, the processing fee was $0.385 per pound, compared to $0.38 per pound in 2009. The processing fee is adjusted annually: (i) upward by 1% and (ii) upward or downward by 10% of the year-over-year percentage change in the average cost of electricity per megawatt hour for the Processing Facility.


The Fund produces copper in cake and sulphuric acid as byproducts from refining zinc concentrates. In the fourth quarter of 2010, the Fund generated $12.5 million in revenue from the sale of its copper in cake and sulphuric acid (2010 - $34.5 million), compared to $6.6 million in the fourth quarter of 2009 (2009 - $27.6 million).


A stronger Canadian dollar has had a negative impact on the Fund's financial results. In 2010, a one-cent Canadian strengthening in the average Canadian/US exchange rate would have negatively impacted the Fund's annual cash available for distribution by approximately $0.6 million. In 2010, the average Canadian dollar strengthened to $1.030 per US dollar from $1.142 per US dollar in 2009.


Production costs include labour, energy, supplies and other costs directly associated with the production process, plus or minus changes in inventory levels. Production costs in 2010 were $177.3 million (2009 - $165.7 million). In 2009, production ran from March until the end of September at about 80% of the normal operating level. The increase in costs in 2010 is mostly due to an increase in the cost of labour, energy and operating supplies, as a result of higher zinc metal production in 2010 compared to 2009.


Capital spending in the fourth quarter of 2010 was $7.9 million (2010 - $24.2 million), compared to $ 5.9 million in the fourth quarter of 2009 (2009 - $24.0 million). Most of the 2010 capital was spent on sustaining the Fund's operation, including $3.6 million on the cell house rehabilitation project and $7.6 million on replacement anodes for the cell house.


Cash realized from operations, before net changes in non-cash working capital items in the fourth quarter of 2010 was $15.5 million (2010 - $66.9 million) compared to $16.9 million in the fourth quarter of 2009 (2009 - $36.5 million). During the fourth quarter of 2010, non-cash working capital increased by $12.0 million (2009 - $12.8 million) due to a decrease in accounts payable and accrued liabilities and a $2.0 million increase in cash and cash equivalents.


As at December 31, 2010, the Fund's debt was $191.5 million (net of deferred financing fees), down from $207.9 million at the end of December 2009. The Fund's cash and cash equivalents as at December 31, 2010 totalled $2.9 million, unchanged from December 31, 2009.

The Fund has a $250 million Bridge Facility in place. The Bridge Facility is comprised of a $130 million term loan ("Term Loan Tranche") and a $120 million operating line of credit ("Revolving Facility Tranche"). The Bridge Facility was put in place to refinance the prior Revolving Facility of the Operating Trust that matured on December 3, 2010 and to fully repay all amounts outstanding in respect of the Operating Trust's $153.5 million Senior Notes that matured on December 20, 2010. Its purpose is to enable the Fund to continue to pursue a long- term refinancing plan. The amount available to be drawn on the Revolving Facility portion will vary on a monthly basis and is based on percentages of the Fund's inventory and accounts receivable from the previous month. The amount available on the Revolving Facility Tranche of the Bridge Facility as at December 31, 2010 was $112 million, of which $65.0 million was drawn, including letters of credit outstanding.

The maturity of the Bridge Facility is June 2, 2011, subject to further extension of six months at the option of the Operating Trust at similar terms and conditions, and mandatory principal repayments in certain circumstances. The Fund is currently in discussions with a number of lenders and is exploring financing alternatives with the expectation of completing a refinancing prior to the expiry of the Bridge Facility.


The January 2011 survey of the ISM Purchasing Manager's Index reported a reading of 60.8, which was better than analysts had expected. A reading above 50 indicates that the economy is expanding while readings under 50 indicate that the economy is contracting. The manufacturing sector grew at the highest level since May 2004 when the index registered 61.4. Stronger growth in United States manufacturing was also supported by the ISM New Orders Index which rose to 67.8. Automotive sales in January were at a pace of 12.62 million units per year which is 17% higher than January 2010. However residential and non-residential construction continues to be weak. In spite of slow construction activity, zinc demand is expected to steadily build during the first half of 2011 as customers experience better order levels and rebuild their inventories as the general outlook improves.

The trend of improving sulphuric acid market fundamentals has continued from 2010 into 2011. It is supported by continued growth in industrial demand, strong demand from non-industrial markets such as copper leaching and fertilizer, as well as continued improvements in United States Gulf sulphur prices.

The Fund's estimates for 2011 production, sales, processing fee and 
capital expenditures are as follows: 

Production: 265,000 tonnes
Sales: 265,000 tonnes
Processing fee: 38.9 cents per pound
Capital expenditures $27 million


The Fund's ability to meet the targets identified above is subject to various risks, uncertainties and assumptions, some of which can be found in the "Forward-Looking Information" below.


This press release, including sections entitled "Liquidity and Capital Resources" and "Outlook", contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. Amongst others, the Fund has made forward-looking statements for 2011 expected targets and performance, production, sales, the processing fee and capital expenditures, and the Fund's future refinancing plans and business plans and operation of the Processing Facility. The Fund provides this information because they are the key drivers of the business. Readers are cautioned that this information may not be appropriate for other reasons.

These statements and information are based, among others, on the Fund's current assumptions, expectations, estimates, objectives, plans and intentions regarding projected revenues and expenses, the economic and industry environments in which he Fund operates or which could affect the Fund's activities, the Fund's ability to attract and retain clients and consumers as well as the Fund's operating costs, raw materials and energy supplies which are subject to a number of risks and uncertainties.

Forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause the actual events, results or performance to be materially different from any future events, 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: (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 in cake; (4) the ability to manage sulphuric acid inventories; (5) changes to the supply and demand for specific zinc metal products and the impact on the Fund's realized premiums; (6) the ability of the Fund to continue to service customers in the same geographic region; (7) general business and economic conditions and the condition of financial and credit markets; (8) legislation governing the operation of the Fund including, without limitation, air emissions, discharges into water, waste, hazardous materials, workers' health and safety, and many other aspects of the Fund's operations, as well as the impact of current legislation and regulations on expenses, capital expenditures, taxation and restrictions on the operation of the Processing Facility; (9) reliance on Xstrata Canada and certain of its affiliates for the management, operation and maintenance of the Processing Facility, the Fund and the Operating Trust and credit support in connection with the Bridge Facility and any refinancing of the Bridge Facility; (10) loan default and refinancing risk associated with the Bridge Facility and refinancing alternatives relating thereto; (11) 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; (12) the impact of month prior pricing; (13) 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; (14) changes in recoveries and capital expenditure requirements; (15) the negotiation of collective agreements with its unionized employees; (16) transportation disruptions; (17) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; and (18) the other general risks and uncertainties set out in the Fund's continuous disclosure documents on file with the Canadian Securities Regulatory Authorities.

Forward-looking statements can generally be identified by the use of words such as "anticipates", "believes", "plans", "intends", "estimates", "are expected", "is forecast", "approximately" or variations of such words and phrases, or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved, or words and expressions of similar nature. Forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause the actual events, results or performance to be materially different from any future events, results or performance expressed or implied by the forward-looking information. As a result, the Fund cannot guarantee that any forward-looking statements will materialize. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause the Fund's actual events, results or performance to differ materially from the Fund's current expectations are discussed throughout this document and in our other continuous disclosure materials available on SEDAR at Forward-looking information contained in this press release is based on management's current estimates, expectations and assumptions, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Except as required by law, the Fund does not undertake to update these forward-looking statements, whether written or oral, that may be made from time to time by the Fund or on the Fund's behalf.

Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol "NIF.UN". 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 CEZ processing facility is operated and managed by Canadian Electrolytic Zinc Limited.

Further information about the Noranda Income Fund can be found at




($ thousands)

Dec. 31 Dec. 31
2010 2009
------------- ---------

Current assets:
Cash and cash equivalents 2,899 2,895
Accounts receivable
Trade 76,692 77,126
Xstrata Canada 34,203 8,270
Commodity hedging instruments 3,478 4,409
Commodity financial instruments 2,159 -
Inventories 78,555 110,875
Prepaids and other assets 2,891 949
Future tax asset 242 -
------- -------
201,119 204,524

Long-term commodity hedging instruments 377 1,110
Property, plant and equipment 285,739 295,756
------- -------
487,235 501,390
------- -------


Current liabilities:
Accounts payable and accrued liabilities
Trade 18,495 16,254
Xstrata Canada 47,556 72,477
Commodity financial instruments - 3,587
Firm commitments 3,499 4,112
Bank and other loans 191,455 207,886
------- -------
261,005 304,316

Long-term firm commitments 379 1,111
Future tax liability 14,137 13,147
Future site restoration and reclamation 9,460 9,006
Ordinary Unitholders' interest 55,917 48,619

Priority Unitholders' interest:
Priority Unitholders' equity 209,272 191,273
Deficit (62,935) (66,082)
------- -------
146,337 125,191
------- -------
487,235 501,390
------- -------




($ thousands)

Three months Twelve months
ended Dec 31 ended Dec 31
--------------------- -------------------
2010 2009 2010 2009
---- ---- ---- ----

Sales 173,207 158,816 659,146 483,175
Transportation and distribution
costs (4,556) (3,729) (16,141) (14,321)
------- ------- ------- -------
168,651 155,087 643,005 468,854
------- ------- ------- -------

Raw material purchase costs 105,681 94,073 371,559 253,276
------- ------- ------- -------
Revenues less raw material
purchase costs 62,970 61,014 271,446 215,578
------- ------- ------- -------

Other expenses
Production 43,860 41,231 177,278 165,716
Selling, general and
administration 8,383 4,455 23,751 17,609
Foreign exchange gain (2,832) (1,860) (1,240) (9,605)
Commodity financial instruments
(gain) loss (2,077) 2,342 (5,746) 2,957
Commodity hedging (gain) loss (25) (293) 319 (224)
Amortization of property, plant
and equipment 8,282 9,165 33,709 36,021
Reclamation 156 305 692 (3,595)
------- ------- ------- -------
55,747 55,345 228,763 208,879
------- ------- ------- -------

Earnings before interest, non-
controlling interest and
income tax 7,223 5,669 42,683 6,699
------- ------- ------- -------
Interest expense, net 3,739 3,786 13,491 11,104
------- ------- ------- -------
Earnings (loss) before non-
controlling interest and
income tax 3,484 1,883 29,192 (4,405)
------- ------- ------- -------
Ordinary Unitholders' non-
controlling interest in
earnings (loss) 871 471 7,298 (1,101)
------- ------- ------- -------
Earnings (loss) before income
tax 2,613 1,412 21,894 (3,304)
------- ------- ------- -------
Future Income tax (recovery)
expense (746) - 748 -
------- ------- ------- -------
Net earnings (loss) and
comprehensive income (loss) 3,359 1,412 21,146 (3,304)
------- ------- ------- -------

Deficit, beginning of period (48,295) (67,494) (66,082) (52,091)

Distributions to Priority
Unitholders (17,999) - (17,999) (10,687)
------- ------- ------- -------

Deficit, end of period (62,935) (66,082) (62,935) (66,082)
------- ------- ------- -------

Net earnings (loss) per
Priority Unit (basic and
diluted) $ 0.09 $ 0.04 $ 0.56 $ (0.09)

Weighted average number of
Priority Units outstanding
(basic and fully diluted) 37,497,975 37,497,975 37,497,975 37,497,975




($ thousands)

Three months Twelve Months
ended Dec 31 ended Dec 31
------------------- ---------------
2010 2009 2010 2009
---- ---- ---- ----

Cash realized from (used for)
Net earnings (loss) for the period 3,359 1,412 21,146 (3,304)
Items not affecting cash:
Amortization of property, plant and
equipment 8,282 9,165 33,709 36,021
Reclamation 156 305 692 (3,595)
Ordinary Unitholders'
non-controlling interest in
earnings (loss) 871 471 7,298 (1,101)
Future income tax (recovery)
expense (746) - 748 -
Mark-to-market (gain) loss on
commodity financial instruments (2,563) 2,342 (2,484) 2,957
Mark-to-market (gain) loss on hedging
financial instruments (25) (293) 319 (224)
Change in fair value of embedded
derivatives 4,923 2,966 2,501 4,290
Accretion on bank and other loans 529 62 720 255
Write-down of inventory - - 1,144 -
Loss on sale of assets 856 485 1,385 1,356
Site restoration expenditures (114) (40) (238) (205)
----- ----- ------ ------
15,528 16,875 66,940 36,450
----- ----- ------ ------
Net change in non-cash working
capital items (12,014) (12,849) (25,997) (8,070)
----- ----- ------ ------
3,514 4,026 40,943 28,380
----- ----- ------ ------

Cash realized from (used for)
investment activities:
Purchases of property, plant and
equipment (7,854) (5,931) (24,194) (23,964)
Proceeds from government assistance 234 - 234 -
Proceeds on sales of property, plant
and equipment - 2 172 7
----- ----- ------ ------
(7,620) (5,929) (23,788) (23,957)
----- ----- ------ ------

Cash realized from (used for)
financing activities:

Distributions - Priority
Unitholders - - - (13,874)
- Ordinary
Unitholders - - - (2,125)
Bank debt issued 277,093 85,904 527,283 297,263
Bank debt repaid (113,772) (82,400) (387,184) (286,247)
Deferred financing fees paid (3,750) - (3,750) -
Senior secured notes repaid (153,500) - (153,500) -
----- ----- ------ ------
6,071 3,504 (17,151) (4,983)
----- ----- ------ ------

Change in cash and cash equivalents
during the period 1,965 1,601 4 (560)

Cash and cash equivalents, beginning
of period 934 1,294 2,895 3,455
----- ----- ------ ------
Cash and cash equivalents, end of
period 2,899 2,895 2,899 2,895
----- ----- ------ ------


Financial Information: Michael Boone
Vice President & Chief Financial Officer of
Canadian Electrolytic Zinc Limited,
Noranda Income Fund's Manager

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