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FOR: NORANDA INCOME FUND

Noranda Income Fund Reports 2017 Second Quarter Financial Results

Jul 25, 2017 - 07:45 ET

SALABERRY-DE-VALLEYFIELD, Québec, July 25, 2017 (GLOBE NEWSWIRE) -- Noranda Income Fund (TSX:NIF.UN) (the "Fund") today reported its financial results for the three- and six-month periods ended June 30, 2017. All amounts are in Canadian currency unless otherwise stated.

2017 Second Quarter Financial and Operating Highlights

  • Q2 marked the last quarter where the majority of the zinc metal was produced from concentrate purchased under the favourable fixed processing fee applicable under the initial term of the Supply and Processing Agreement.
  • Going forward, zinc metal will be produced from concentrate purchased at market terms.
  • Q2 2017 results were positively impacted by the 27,000 tonne one-time sale of zinc metal inventory to Glencore Canada on May 1, 2017.
  • Zinc metal sales totalled 74,447 tonnes, up 21% from 61,555 tonnes for last year.  
  • Adjusted Net Revenues1 were $85.6 million, up 52% from $56.4 million in Q2 2016
  • Earnings before income taxes were $10.2 million, compared to a loss of $3.2 million in Q2 2016.
  • The Fund’s Processing Facility continues to operate at partial production with eligible staff as a result of the strike initiated by unionized workers on February 12, 2017.
  • Zinc metal production decreased 27% to 50,521 tonnes.
  • By product revenue from the sale of copper in cake and sulphuric acid was $5.4 million, up from $5.3 million for Q2 2016.
  • Production costs before changes in inventory declined 38% to $30.3 million.
  • Non-cash working capital was reduced by $44.2 million as a result of lower zinc inventory, partially offset by an increase in accounts receivable and a decrease in accounts payable.

1 Adjusted Net Revenues means revenues less raw material purchase costs (“Net Revenues”) excluding unrealized concentrate settlement adjustments and after foreign currency gain/loss and derivative financial instruments gain/loss.

“While our performance in Q2 delivered strong financial results, it’s important to put our sales totals and profitability into proper perspective,” said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager.  “Our results were positively impacted by the one-time sale of zinc inventory to Glencore Canada, consistent with the terms of our 12-month purchase agreement.  At the same time, our results benefited from the processing of concentrate purchased under the favourable initial term of the Supply and Processing Agreement. These two circumstances are not expected to reoccur.”  

Ms. Carissimi added, “As of Q3 2017, our results going forward will be impacted by market terms, which are subject to more volatility and sensitivity to a number of factors, including zinc metal recoveries, zinc metal prices and the strength of the Canadian dollar.  As a result of this potential variability, it’s important that we continue our focus on reducing operating costs and improving plant capacity, efficiency and safety.”

The Processing Facility is currently operating at 50 to 60% of capacity with eligible staff. “We remain committed to renewing our collective bargaining agreement with our unionized employees, however, this collective agreement must balance the needs of the Fund with the needs of the employees,” concluded Ms. Carissimi.

Second Quarter 2017 Financial and Operating Results
In Q2 2017, the Fund reported earnings before income taxes of $10.2 million, up from a loss of $3.2 million for last year.  Q2 results were favourably impacted by the one-time sale of zinc inventory as well as the positive impact related to inventory margins. On a six-month basis, the Fund reported earnings before income taxes of $15.5 million in 2017, up from $1.1 million in 2016.

Zinc metal sales in Q2 2017 were 74,447 tonnes, up 21% from 61,555 tonnes in Q2 2016. The increase is largely due to the one time sale of zinc metal inventory to Glencore Canada effective with the start of the one-year purchase contract on May 3, 2017.  Zinc metal sales in the first six months of 2017 were 123,963 tonnes, down from 134,194 tonnes sold in the same period in 2016.  Under the one-year sales contract that came into effect on May 1, 2017, Glencore Canada purchases all of the Fund’s zinc production on a monthly basis providing a more predictable cash flow from the sale of zinc metal than experienced in the past.

Zinc metal production in Q2 2017 declined 27% to 50,521 tonnes from 69,289 tonnes in Q2 2016. Zinc metal production for the six months ended June 30, 2017 was 100,569, down 27% from 136,916 tonnes produced in the same period of 2016.

Production costs before changes in inventory was $30.3 million, down, 38%, compared to the $48.5 million recorded for the same period in 2016.  The decline in production costs was consistent with the decline in production as the Processing Facility is currently operating at approximately 50% to 60% of capacity due to the strike initiated by unionized workers.  Production costs before changes in inventory for the six-month period were $70.0 million, down 27% from $95.8 million for 2016.

Cash provided by operating activities for Q2 2017 was $70.0 million, and included a positive $44.2 million decrease in non-cash working capital due to a decrease in inventories though partially offset by an increase in accounts receivable and a reduction in accounts payable. In Q2 2016, cash used in operating activities was $17.7 million, which was negatively impacted by a $20.7 million increase in non-cash working capital due to an increase in accounts receivable and an increase in inventories, partly offset by an increase in accounts payables.

Cash provided by operating activities for the six month period of 2017 was $7.4 million, and included a negative $20.2 million increase in non-cash working capital due to an increase in accounts receivable and a decrease in accounts payable, though partially offset by a decrease in inventories. In the same period of 2016, cash provided by operating activities was $51.8 million, which was positively impacted by a $25.3 million decrease in non-cash working capital due to an increase in accounts payables.

As at June 30, 2017, the Fund’s debt was $64.8 million, slightly up from $64.0 million at the end of December 2016.

Effective with the start of Q3, the Fund will report its financial results in U.S. currency.  The change reflects the impact of the transition from a Canadian dollar processing fee to a U.S. dollar treatment charge.

Outlook for the Fund
The main challenge facing the Fund is the ability for the Processing Facility to continue to operate profitably now that Fund is required to purchase concentrates on market terms. Effective with 2017 third quarter results, the Fund's performance will be fully impacted by market treatment charges, as well as greater sensitivity to zinc price and the Canadian exchange rate, resulting in more variable operating results.

In light of the ongoing strike by unionized workers at the Fund's Processing Facility and the uncertainty about its duration, the Fund continues to evaluate all potential scenarios. As a result, the Fund has deferred providing guidance for zinc metal production and sales targets for 2017.

Second Quarter 2017 Results Conference Call:

When: July 25, 2017 at 10:30 a.m. E.T
Dial in number: 647-788-4919 or
Toll-free North American number: 1-877-291-4570

To access the webcast and view the slide presentation from the Noranda Income Fund website: http://www.norandaincomefund.com/investor/conference.php or click on this link: http://edge.media-server.com/m/p/xufxwp2a

Conference Call Replay:
Dial in number: 416-621-4642 or 
Toll-free North American number: 1-800-585-8367

The conference ID is 51525788 and you will be prompted to provide your name and company.

The recording will be available until midnight on August 8, 2017.

A full version of the second quarter 2017 Management’s Discussion and Analysis (MD&A) and unaudited Consolidated Financial Statements will be posted on http://www.sedar.com and on the Fund’s website at http://www.norandaincomefund.com/investor/financials.php later today.

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 Consolidated Financial Statements and MD&A because a reader relying on this summary alone might overlook decision critical information.

Forward-Looking Information

This press release contains forward-looking information and statements within the meaning of applicable securities laws. Forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause actual events, results or performance to be materially different from any future events, results or performance expressed or implied by the forward-looking information, and as a result, the Fund cannot guarantee that any forward-looking statements or information will materialize.

Such risks and uncertainties include, but are not limited to, the effect of general business and economic conditions, the Fund's ability to operate at normal production levels, the Fund's capital expenditure requirements and other general risks and uncertainties set out in the Fund's continuous disclosure documents on available on SEDAR at www.sedar.com.

Forward-looking information contained in this press release is based on, among other things, management's current estimates, expectations, assumptions, plans and intentions, which management believes are reasonable as of the current date, and which are subject to a number of risks and uncertainties. Except as required by law, the Fund does not undertake to update these forward-looking statements or information, whether written or oral, that may be made from time to time by the Fund or on the Fund's behalf.

Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol “NIF.UN”. Noranda Income Fund owns the electrolytic zinc processing facility and ancillary assets (the “Processing Facility”) located in Salaberry de-Valleyfield, Québec. The Processing Facility is the second-largest zinc processing facility in North America and the largest zinc processing facility in eastern North America, where the majority of zinc customers are located. It produces refined zinc metal and various by-products from sourced zinc concentrates. The Processing Facility is operated and managed by Canadian Electrolytic Zinc Limited, a wholly-owned subsidiary of Glencore Canada Corporation.

Except where otherwise indicated, all amounts in this press release are expressed in Canadian dollars.

Further information about Noranda Income Fund can be found at
www.norandaincomefund.com

Key Performance Drivers

The following table provides a summary of the performance of the Fund’s key drivers:

 

      
      
  Three months endedSix months ended
  June 30,June 30,
  2017201620172016
 Zinc concentrate and secondary feed processed (tonnes)98,437132,923220,494269,887
 Zinc grade (%)52.151.852.151.7
 Zinc recovery (%)97.097.497.097.4
 Zinc metal production (tonnes)50,52169,289100,569136,916
 Zinc metal sales (tonnes)74,44761,555123,963134,194
 Realized zinc price (US$/pound) (1)1.240.941.290.88
 Average LME zinc price (US$/pound)1.180.871.220.81
 By-product revenues ($ millions)5.45.37.711.6
 Copper in cake production (tonnes)4718179651,519
 Copper in cake sales (tonnes)5377488651,544
 Sulphuric acid production (tonnes)81,666107,619179,732219,544
 Sulphuric acid sales (tonnes)94,858113,170189,285219,148
 Average LME copper price (US$/pound)2.572.152.612.13
 Sulphuric acid netback (US$/tonne)27211724
 Average US/Cdn. exchange rate1.341.291.331.33
 * 1 tonne = 2,204.62 pounds    
 (1) Average LME zinc price plus premium    
      

 

SELECTED FINANCIAL AND OPERATING INFORMATION        
 Three months ended June 30, Six months ended June 30, 
($ thousands)2017  2016  2017  2016  
         
Statements of Comprehensive Income Information        
Revenues289,435  156,299  471,424  328,880  
Raw material purchase costs207,890  101,532  342,264  214,073  
Revenues less raw material purchase costs81,545  54,767  129,160  114,807  
Other expenses:        
Production52,617  44,406  82,760  93,916  
Selling and administration6,558  6,264  14,738  12,528  
Foreign currency (gain) loss(506) 1,467  (2,008) (11,985) 
Derivative financial instruments loss (gain)2,167  (4) 840  4,184  
Depreciation of property, plant and equipment8,818  6,331  14,100  13,911  
Rehabilitation expense (recovery)205  (1,388) 327  (798) 
Earnings (loss) before finance costs and income taxes11,686  (2,309) 18,403  3,051  
Finance costs, net1,536  910  2,899  1,910  
Earnings (loss) before income taxes10,150  (3,219) 15,504  1,141  
Current and deferred income tax expense (recovery)1,998  (791) 3,597  (318) 
Earnings (loss) attributable to Unitholders and Non-controlling interest8,152  (2,428) 11,907  1,459  
Distributions to Unitholders-  3,436  937  8,123  
Increase (decrease) in net assets attributable to Unitholders        
and Non-controlling interest8,152  (5,864) 10,970  (6,664) 
Other comprehensive loss(591) (3,498) (606) (7,453) 
Comprehensive income (loss)7,561  (9,362) 10,364  (14,117) 
         
Statements of Financial Position Information    June 30, 2017 Dec. 31, 2016 
Cash    2,347  2,567  
Inventories    172,080  242,585  
Accounts receivable    135,259  103,280  
Income taxes receivable    1,876  5,000  
Property, plant and equipment    129,191  138,309  
Total assets    463,006  516,014  
Accounts payable and accrued liabilities    110,932  175,521  
ABL revolving facility    64,848  63,987  
Total liabilities excluding net assets attributable to Unitholders    216,169  279,541  
         
 Three months ended June 30, Six months ended June 30, 
Statements of Cash Flows Information2017  2016  2017  2016  
Cash provided by operating activities before cash distributions        
and net change in non-cash working capital items25,916  6,517  28,524  34,623  
Cash distributions-  (3,436) (937) (8,123) 
Net change in non-cash working capital items44,155  (20,739) (20,173) 25,260  
Cash provided by (used in) operating activities70,071  (17,658) 7,414  51,760  
Cash used in investing activities(3,543) (5,514) (8,495) (9,430) 
Cash (used in) provided by financing activities(64,675) 22,281  861  (42,382) 
Net increase (decrease) in cash1,853  (891) (220) (52) 
         


FOR FURTHER INFORMATION PLEASE CONTACT:

For further information, please contact:
Michael Boone, Vice President & Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager 
Tel: 416-775-1561 
info@norandaincomefund.com



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