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Noranda Income Fund Reports First Quarter Earnings Before Income Taxes of $15.4 Million

May 13, 2015 - 07:45 ET

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - May 13, 2015) - Noranda Income Fund (TSX:NIF.UN) (the "Fund") today released its results for the first quarter of 2015.

Q1 2015 Overview

  • Earnings before income taxes of $15.4 million (Q1 2014 -$11.1 million)
  • Declared monthly distribution of $0.04167 per unit from January to April 2015
  • Zinc metal production was 67,804 tonnes (Q1 2014 - 59,544 tonnes)
  • Zinc metal sales of 52,497 tonnes (Q1 2014 - 60,509)
  • Zinc premiums averaged 10.1 cents US per pound or 12.5 cents Cdn (Q1 2014 - 10.3 cents US per pound or 11.3 cents Cdn)

"With our major capital projects behind us, the facility is running well. In the first quarter, we met our processing and production targets and have established a good run rate moving forward. In terms of revenues, while zinc sales were off to a slow start, we benefitted from higher by-product revenues and a weaker Canadian dollar. A gradual improvement in demand is expected during the second half of the year," said Eva Carissimi, President and CEO of Canadian Electrolytic Zinc Limited, Noranda Income Fund's Manager.

Financial and Operating Results (First quarter 2015 compared to the first quarter 2014)

The Fund reported earnings before income taxes of $15.4 million in the three months ended March 31, 2015 compared to earnings of $11.1 million in the same period of 2014. The $4.3 million increase was mainly due to higher by-product revenues, Canadian dollar premiums and processing fees, lower production unit cost resulting from increased production and the movement in the margin in inventory, offset by lower zinc metal sales.

Cash used in operating activities in the three months ended March 31, 2015 was $28.3 million, including a $42.0 million increase in non-cash working capital due to an increase in inventory, partially offset by lower accounts receivable and an increase in accounts payable. For the same period in 2014, cash used in operating activities was $12.4 million, including a $20.5 million increase in non-cash working capital.

Zinc metal production for the three months ended March 31, 2015 was 67,804 tonnes compared to 59,544 tonnes in 2014. Production was 14% higher than for the same period in 2014 due to higher volumes of zinc concentrate processed and higher zinc grade in the feed consumed.

Zinc metal sales for the quarter were 52,497 tonnes compared to 60,509 tonnes for the same period of 2014. During the three months ended March 31, 2015, zinc metal inventories increased by approximately 15,300 tonnes. Zinc demand in North America is being impacted by high levels of galvanized steel imports, which increased 60% in 2014, resulting in high inventories of finished steel products. For example, according to the Metal Service Center Institute, steel inventories of US service centers reached a seven-year high at the end of January 2015. As these inventories are reduced, the Fund expects zinc demand to gradually improve over the second half of the year, and therefore the Fund has not reduced its estimates for 2015.

Outlook for the Fund

The Board continues to work on the long-term strategy for the Fund.

The main challenges facing the Fund are (a) the continued supply of zinc concentrate and (b) the ability for the Processing Facility to continue to operate profitably after the expiry of the initial term of the Supply and Processing Agreement in May 2017, at which time the Fund expects that it will be required to purchase concentrate on market terms instead of the current fixed processing fee. The Fund's results under market terms will be subject to more volatility than under the current Supply and Processing Agreement.

The Fund (through the independent trustees) is in discussions with Glencore Canada regarding the supply of zinc concentrate following May 2, 2017. There is no assurance that the discussions will result in continued supply on terms that allow the Fund to continue profitable operations. Discussions with third parties are complex given the Fund's structure, including without limitation that the Supply and Processing Agreement and other contractual arrangements with Glencore Canada and its affiliates automatically renew with Glencore Canada for successive periods of five years unless Glencore Canada provides the Fund with written notice to the contrary at least 180 days prior to the expiry of the applicable term (by November 2016).

The Independent Committee is being assisted in its work by an industry consultant, Steve Hayes, whom the Independent Committee retained in December 2012 to advise it with regards to the zinc concentrate market. In May 2014, TD Securities was engaged as financial advisor to the independent trustees.

Distribution Policy

When not restricted, and as may be considered appropriate by the Board, the Fund's policy is to make monthly distributions to Unitholders. In determining whether there shall be a distribution and the level thereof, the Board periodically reviews the Fund's financial performance, business environment and prospects, and determines the appropriate levels of reserves. The Board also continues to evaluate on a monthly basis the expected future cash flows of the Fund as well as the reserves that may be required in the future.

Given the challenges described above, the Board continues to evaluate the expected future cash flows in a variety of potential scenarios, as well as the required reserves under each of those scenarios. Given the uncertainty of future pricing and market conditions for zinc concentrate, and that several potential scenarios are being considered, including the discontinuation of operations following the expiry of the Supply and Processing Agreement, the Board is carefully reviewing and, if required, will augment the Fund's reserves. An increase in reserves would have an adverse effect on cash available for distributions. There is no assurance that monthly distributions will continue in the future; nor is there any assurance that, if they do continue, the level of such distributions will not vary from the level of the most recent monthly cash distribution.

Conference Call and Webcast:

May 13, 2015 at 10:30 a.m. EST

Dial in number: 647-788-4919 or

Toll-free North American number: 1-877-291-4570

In addition, you can listen to the teleconference and view the slide presentation from the Noranda Income Fund website: or click on this link:

Conference Call Replay:

Dial in number: 416-621-4642 or

Toll-free North American number: 1-800-585-8367

The conference ID is 34842161 and you will be prompted for your name and company. The recording will be available until midnight on May 27, 2015.

A full version of the first quarter 2015 Management's Discussion and Analysis (MD&A) and unaudited Consolidated Financial Statements will be posted on and on the Fund's website at 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

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

Three months ended March 31,
($ thousands) 2015 2014
Statements of Comprehensive Income Information
Revenues 160,471 154,345
Raw material purchase costs 77,145 78,375
Revenues less raw material purchase costs 83,326 75,970
Other expenses:
Production 35,703 43,984
Selling and administration 5,836 5,361
Foreign currency loss 14,014 3,687
Derivative financial instruments loss 2,649 826
Depreciation of property, plant and equipment 6,499 8,696
Rehabiliation expense 2,004 1,077
Earnings before finance costs and income taxes 16,621 12,339
Finance costs, net 1,266 1,252
Earnings before income taxes 15,355 11,087
Current and deferred income tax expense 3,315 2,580
Earnings attributable to Unitholders and Non-controlling interest 12,040 8,507
Distributions to Unitholders 4,687 4,688
Increase in net assets attributable to Unitholdersand Non-controlling interest 7,353 3,819
Other comprehensive loss (1,325 ) (1,761 )
Comprehensive income 6,028 2,058
Statements of Financial Position Information March 31, 2015 December 31, 2014
Cash 3,015 1,626
Inventories 200,423 118,948
Accounts receivable 85,749 94,552
Income taxes receivable 3,097 4,103
Property, plant and equipment 223,072 228,879
Total assets 523,906 458,039
Accounts payable and accrued liabilities 97,838 76,256
Total bank and other loans 113,453 78,970
Total liabilities excluding net assets attributable to unitholders 263,477 203,638
Three months ended March 31,
Statements of Cash Flows Information 2015 2014
Cash provided by operating activities before cash distributions and net change in non-cash working capital items
18,377 12,850
Cash distributions (4,687 ) (4,688 )
Net change in non-cash working capital items (42,030 ) (20,549 )
Cash used in operating activities (28,340 ) (12,387 )
Cash used in investing activities (4,568 ) (8,692 )
Cash provided by financing activities 34,297 8,071
Net increase (decrease) in cash and cash equivalents 1,389 (13,008 )
Cash distributions declared per Priority Unit 0.12501 0.12501
Key Performance Drivers
The following table provides a summary of the performance of the Fund's key drivers:
Three months ended March 31,
2015 2014
Zinc concentrate processed (tonnes) 125,369 118,214
Zinc secondary feed processed (tonnes) 4,910 2,830
Zinc grade (%) 53.5 51.7
Zinc recovery (%) 97.0 97.0
Zinc metal production (tonnes) 67,804 59,544
Zinc metal sales (tonnes) 52,497 60,509
Processing fee (cents/pound) 40.5 40.0
Zinc metal premium (US cents/pound) 10.1 10.3
By-product revenues ($ millions) 7.6 6.5
Copper in cake production (tonnes) 625 567
Copper in cake sales (tonnes) 605 173
Sulphuric acid production (tonnes) 99,100 91,974
Sulphuric acid sales (tonnes) 91,827 94,361
Average LME copper price (US$/pound) 2.64 3.19
Sulphuric acid netback (US$/tonne) 52 55
Average LME zinc price (US$/pound) 0.94 0.92
Average US/Cdn. exchange rate 1.24 1.10
* 1 tonne = 2,204.62 pounds


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

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