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FOR: NORANDA INCOME FUND

Noranda Income Fund Reports First Quarter Earnings Attributable to Unitholders of $10.7 Million

Q1 2011 Highlights:

- Earnings attributable to unitholders of $10.7 million compared to $8.7 million in the first quarter of 2010.

- Premiums averaged 6.2 cents US per pound compared to an average of 3.9 cents US per pound in the first quarter of 2010.

- Byproduct revenues of $13.1 million were 122% higher than in the same quarter a year ago.

- Zinc metal sales were 4% higher than in the first quarter of 2010.

- Finished inventories of zinc metal were reduced by more than 5,000 tonnes.

- Debt was reduced by $33.1 million from year-end 2010.

Jun 14, 2011 - 08:00 ET

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwire - June 14, 2011) - Noranda Income Fund (the "Fund") (TSX:NIF.UN)

Annual General Meeting
June 14th, 2011 at 2 pm
Location: Gallery Room at the TSX Broadcast & Conference Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario

Come and join us at the TSX Broadcast and Conference Centre, or listen to the AGM and view the slides from the Investor Centre/Conference Calls section of the Fund website: http://www.norandaincomefund.com/ or click on this link: http://events.digitalmedia.telus.com/noranda/061411/index.php.

Conference Call and Webcast:
June 15 at 9:00 a.m. EST
Dial in number: 416-695-6616
Toll-free North American number: 1-800-355-4959
In addition, you can listen to the teleconference and view the slide presentation from the Noranda Income Fund website http://www.norandaincomefund.com/.
Recording of the Conference Call:
Dial in number: 905-694-9451 or
Toll-free North American number: 1-800-408-3053.
The pass code is 3083 727# and you will be prompted for your name and company.
The recording will be available until midnight on June 28, 2011.

Noranda Income Fund (the "Fund") (TSX:NIF.UN) reported earnings attributable to unitholders of $10.7 million for the first quarter of 2011, compared to $8.7 million in the same quarter a year ago. The $2.0 million increase was mainly due to higher sales, zinc metal premiums and byproduct revenues, partially offset by higher income taxes and a stronger Canadian dollar.

"We've had a good quarter with zinc sales performing well, supported by strengthening premiums and higher byproduct revenues." said Mario Chapados, President and CEO of the Fund's Manager. "While growth in the US economy is expected to moderate over the remainder of the year, the outlook for our metals and sulphuric acid remains healthy."

Adoption of International Financial Reporting Standards ("IFRS")

The Fund prepared its consolidated interim financial statements for the three-months ended March 31, 2011 in accordance with IFRS. For all periods up to and including the year ended December 31, 2010, the Fund prepared its consolidated financial statements in accordance with the previous Canadian generally accepted accounting principles ("Canadian GAAP"). The Fund adopted IFRS in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards. The first date at which IFRS was applied was January 1, 2010 ("Transition Date").

Note 20 of the interim unaudited consolidated financial statements for the three-month period ended March 31, 2011 describes in detail the transitional adjustments under IFRS as at January 1, 2010 and the subsequent comparative periods of 2010. The reader should refer to the Fund's interim consolidated financial statements for the period ended March 31, 2011 and to the 2010 annual MD&A disclosures about IFRS transition and related adjustments for more detailed information.

Copies of the first quarter MD&A and interim consolidated financial statements will be posted on the Fund's website today, June 14 and they will be available on SEDAR at www.sedar.com on June 15, 2011.

Structureof the Fund, Conversion and Taxation

The Independent Committee and the Board are currently considering the taxation implications of conversion while also considering the implications to the Fund and its Unitholders of remaining as a trust. While the conversion to a corporation is being considered, the immediate focus of the Board is to put in place a long-term financing and a business plan.

Regardless of the course that the Board recommends, it is expected that the conversion of the Fund to a corporation will require the approval of the Fund's unitholders and Xstrata Canada. There is no assurance that the Unitholders or Xstrata Canada would provide their approval.

In addition to the adoption of IFRS this quarter, another important change occurred. On January 1, 2011, the specified flow-through entity legislation came into effect, making the Fund a taxable entity.

KEY PERFORMANCE DRIVERS

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 the key drivers for the quarters ended March 31, 2011 and March 31, 2010, respectively. The discussion of key performance drivers that follows is subject to various risks and uncertainties, some of which are discussed under "Forward-Looking Information" below, which investors are encouraged to read carefully.

First Quarter20112010
Zinc concentrate processed (tonnes)128,045121,303
Zinc grade (%)53.953.6
Zinc recovery (%)96.597.0
Zinc metal production (tonnes)63,95366,466
Zinc metal sales (tonnes)69,37366,554
Processing fee (cents/pound)38.938.5
Processing fee ($/tonne)858849
Zinc metal premium (US$/pound)0.0620.039
Byproduct revenues ($ millions)13.15.9
Copper in cake production (tonnes)858698
Copper in cake sales (tonnes)881490
Sulphuric acid production (tonnes)106,737103,177
Sulphuric acid sales (tonnes)105,612102,490
Average LME copper price (US$/pound)4.383.28
Sulphuric acid netback (US$/tonne)5921
Average LME zinc price (US$/pound)1.091.04
Average Cdn./US exchange rate0.991.04
* 1 tonne = 2,204.62 pounds

Production

Production in the first quarter of 2011 was 63,953 tonnes compared to 66,466 tonnes in the same period of 2010. Production was lower in the first quarter of 2011 than the same period of 2010 for the following reasons:

  • lower recoveries (96.5% compared to 97%), and
  • the build up of work-in-process inventories in 2011 compared to the drawdown of work-in-process inventories in 2010.

In 2010, the Processing Facility began a three to four year project to replace the liners protecting the concrete walls in the cell house. It is expected to be completed by mid-2013, without having to take a major shutdown to complete the work. However, the project requires two cells to be off-line at any time, thereby reducing availability by approximately 2%.

Sales

Zinc metal is used in a wide range of industries. Its major use is in the production of galvanized steel. Sales in the first quarter of 2011 were 69,373 tonnes compared to 66,554 tonnes in the first quarter of 2010. The increase in sales in 2011 is directly related to strong orders across all end use sectors, particularly the steel industry. Inventories of zinc metal were reduced by over 5,000 tonnes during the quarter and are within the Fund's targeted range of two to three weeks of production.

Premiums

The improvement in sales was accompanied by an increase in premiums, which averaged US$0.062 per pound in the first quarter of 2011 compared to US$0.039 per pound in the first quarter of 2010. 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 North America.

Processing Fee

In the first quarter of 2011, the processing fee was $0.389 per pound ($858 per tonne), compared to $0.385 per pound ($849 per tonne) in 2010. 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.

Byproducts

The Fund produces copper in cake and sulphuric acid as byproducts from refining zinc concentrates. In the first quarter of 2011, the Fund generated $13.1 million in revenue from the sale of its copper in cake and sulphuric acid, compared to $5.9 million in the same period of 2011.

Exchange Rate

The stronger Canadian dollar had a negative impact on the Fund's financial results. In the first quarter of 2011, a one-cent Canadian strengthening in the average Canadian/US exchange rate would have negatively impacted the Fund's annual cash flow from operations before working capital changes by approximately $0.6 million. In the first quarter of 2011, the Canadian dollar strengthened to $0.99 per US dollar from $1.04 per US dollar in the same period a year ago.

Costs

Production costs include labour, energy, supplies and other costs directly associated with the production process, plus or minus changes in inventory levels. Production costs before change in inventory in the first quarter of 2011 were $44.1 million, $2.0 million higher than the $42.1 million recorded in the first quarter of 2010. The increase in costs is mostly due to higher operating supplies and contractor costs, partially offset by lower energy costs.

Capital Expenditures

Capital spending was $4.3 million in the first quarter of 2011, compared to $6.2 million in the same quarter a year ago. Most of the forecasted 2011 capital spending of $27 million is expected to be spent on sustaining the Fund's operation, including $4.3 million on the cell house rehabilitation project and $7.0 million on replacement anodes for the cell house.

OPERATING CASH FLOWS

Cash realized from operations in the first quarter of 2011 was $43.8 million compared to $4.4 million in the first quarter of 2010. During the first quarter of 2011, non-cash working capital decreased by $30.5 million due to an decrease in accounts receivable, an increase in accounts payable and accrued liabilities and the impact of the change in the fair value of the embedded derivative related to the zinc concentrate payable. In the first quarter of 2010, non-cash working capital increased by $13.0 million due to a reduction in accounts payable and accrued liabilities that resulted from the timing of concentrate arrivals.

LIQUIDITY AND CAPITAL RESOURCES

The Fund improved its financial position during the first quarter. Debt was lower and cash balances were higher than at year-end 2010. Debt as at March 31, 2011 totalled $157.2 million (net of deferred financing fees), compared to $190.3 million at the end of December 2010. The Fund's cash and cash equivalents as at March 31, 2011 totalled $7.2 million, up from $3.4 million as at December 31, 2010.

In early December 2010, the Fund obtained a $250 million Bridge Facility. It was comprised of a $130 million Term Loan Tranche and a $120 million Revolving Facility Tranche (see press release December 2, 2010). The Bridge Facility was put in place to refinance the prior revolving facility and to fully repay the $153.5 million senior notes. On June 2, 2011, the Fund made a voluntary reduction of the Revolving Facility Tranche of $20 million, thereby, reducing it to $100 million. On June 2, 2011, the Fund also made a $5 million instalment payment under the Term Loan Tranche, in addition to the $5 million mandatory repayment that was made on March 31, 2011, reducing the amount outstanding on the Term Loan Tranche to $120 million.

Update on the Refinancing

On June 10, 2011, the Fund executed a commitment letter with CIBC Asset-Based Lending Inc. and Roynat Asset Finance, a division of Roynat Inc. pursuant to which such lenders have committed to provide the Operating Trust with a 5-year secured asset-based revolving credit facility in the amount of up to $150 million.

Xstrata Canada Corporation ("Xstrata Canada") has agreed to certain accommodations required by the lenders in respect of such credit facility. These accommodations are not subject to conditions (except for satisfactory legal documentation) nor do they require the payment of a support fee.

Under the new credit facility, the Fund will be permitted to distribute excess cash flow to its Unitholders subject to a minimum excess availability and other customary restrictions. The Board of Trustees of the Operating Trust has not yet made a determination as to the reinstatement and the level, if any, of future distributions. For further details, please see the June 10, 2011 press release.

The closing of the financing contemplated by the commitment letter is expected to occur by the end of August 2011 and is subject to the satisfaction of certain conditions precedent, including the lenders being satisfied with the results of their due diligence, the negotiation of definitive legal documentation and the concurrent closing of a term debt financing having net proceeds of at least $90 million. The Operating Trust is in advanced discussions regarding the implementation of a term debt financing, but no commitment or written understanding has been executed to date. Xstrata Canada has indicated its willingness to provide accommodations to facilitate the efforts of the Operating Trust to obtain the term debt financing. There is no assurance that the Operating Trust will enter into definitive agreements with lenders and Xstrata Canada with respect to its long-term refinancing.

OUTLOOK

Zinc demand remained steady during the second quarter. A key leading indicator of manufacturing activity in the United States, the ISM Purchasing Manager's Index, came in at 53.5 for May, down 6.9 from the April reading but still in expansionary territory. US industrial output in April was flat month-over-month, mainly due to a drop in auto production following the disruption in parts supplies from Japan, but up 5% year-over-year. Automotive sales in May were at a pace of 11.8 million units per year which is 1.4% higher than in May 2010. Residential and non-residential construction activity has yet to show any sustained improvement and is expected to remain weak for the most of the year. In spite of slowing manufacturing activity, sales remained firm for the second quarter.

Improving sulphuric acid market fundamentals continued through the first quarter of 2011. The strong market fundamentals have been supported by industrial demand growth due to continued recovery in the US economy as well as tightness of supply due to unexpected plant shutdowns. The increasing price for sulphur in the US Gulf region is also supporting a positive trend in sulphuric acid pricing.

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

Production:265,000 tonnes
Sales:267,500 tonnes
Processing fee:38.9 cents per pound or $858.00 per tonne
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.

FORWARD-LOOKING INFORMATION

This press release, including sections entitled "Key Performance Drivers", "Liquidity and Capital Resources", "Update on Refinancing" 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, the Fund and the Operating Trust's future refinancing plans and business plans and operation of the Processing Facility, future liabilities and obligations of the Fund, the dependence upon the continuing supply of zinc concentrates and competition relating thereto, anticipated trends in zinc concentrate supply and demand, smelting capacity, acid market demand and supply, and treatment charges, future conversion, structuring and other strategic options available to the Fund, and the anticipated financial and operating results of the Fund and distributions to Unitholders. 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 impact of costs and liabilities related to the closure, decommissioning, reclamation and rehabilitation of the Processing Facility and surrounding lands, including employee severance, pensions, and environmental and reclamation and rehabilitation liabilities if an acceptable replacement arrangement is not put in place after the expiration of the Supply and Processing Agreement; (12) 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-à-vis the US dollar; and increasing transportation and distribution costs; (13) the impact of month prior pricing; (14) 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; (15) changes in recoveries and capital expenditure requirements; (16) the negotiation of collective agreements with its unionized employees; (17) transportation disruptions; (18) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; and (19) 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 www.sedar.com. 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, Québec. The CEZinc processing facility is the second-largest zinc processing facility in North America and the largest zinc processing facility in eastern North America, where the majority of its customers are located. It produces refined zinc metal and various byproducts 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 www.norandaincomefund.com.



FOR FURTHER INFORMATION PLEASE CONTACT:

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



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