News Centre

FOR: NORANDA INCOME FUND

Noranda Income Fund Reports Third Quarter Results

Nov 11, 2014 - 07:45 ET

SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - Nov. 11, 2014) -

Noranda Income Fund (the "Fund") (TSX: NIF.UN)

Q3 2014 Highlights

  • Earnings before income taxes of $13.4 million compared to Q3 2013 - earnings of $13.9 million
  • Zinc concentrate processed of 136,771 tonnes compared to Q3 2013 - 122,216 tonnes
  • Zinc metal production of 68,653 tonnes compared to Q3 2013 - 61,331 tonnes
  • Zinc premiums averaged 10.2 cents US per pound (11.1 cents Cdn) compared to Q3 2013 - 8.4 cents US per pound (8.7 cents Cdn)
  • Declared monthly cash distributions from July to October 2014 of $0.04167 per priority unit
  • Commissioning of the Processing Facility's silica removal project was completed in the third quarter, on time and on budget. Present feed quality only requires the use of two tanks.
  • The three-year labour agreement expired on October 31, 2014. Negotiations for a new agreement are ongoing.

"Operations were back to normal and zinc metal production was strong after a challenging first half of the year." said Eva Carissimi, President and Chief Executive Officer of the Fund. "With the silica project commissioned, we are now able to focus on optimizing process control."

Distribution Policy and Outlook

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 reviews periodically the Fund's financial performance, business environment and prospects, and determines the appropriate level of reserves. There is no assurance that distributions will continue in the future, nor is there any assurance that if they do continue, the level or frequency of such distributions will not vary from the level of the most recent monthly cash distribution.

The initial term of the Supply and Processing Agreement ends on May 2, 2017, and with it the favourable pricing of concentrate supply comes to an end. There is a risk that zinc concentrate in quantities and the blend of qualities necessary for the smelter to operate profitably may not be available after May 2, 2017. The Fund is considering several scenarios including the possibility that operations be discontinued. As a result, reserves may be required in advance of May 2017, including to provide for the costs related to a potential discontinuance of operations, with a corresponding effect on cash available for distributions.

Financial and Operating Highlights (Comparing the three months ended September 30, 2014 to September 30, 2013)

Earnings before income taxes in the three months ended September 30, 2014 was $13.4 million compared to earnings of $13.9 million in the same period of 2013. The $0.5 million decrease was mainly due to lower zinc metal sales and by-product revenues, higher concentrate acquisition costs and reclamation expense, partially offset by higher premiums and a weaker Canadian dollar.

Cash used by operating activities in the three months ended September 30, 2014 was $20.9 million, including a negative $30.6 million increase in non-cash working capital. In the same period of 2013, cash provided by operating activities was $26.0 million, which was positively impacted by a $10.1 million decrease in non-cash working capital. Cash distributions of $4.7 million were declared in the third quarter of both 2014 and 2013.

Three months ended
Increase in Non-Cash Working Capital September 30, 2014
($thousands)
Increase in accounts receivable and other assets 10,832
Increase in inventories 35,276
Increase in accounts payable and accrued liabilities (15,365 )
Interest and taxes related decrease (157 )
Increase in non-cash working capital 30,586

For the three months ended September 30, 2014, non-cash working capital increased by $30.6 million due to an increase in inventories and accounts receivable, partially offset by an increase in accounts payable and accrued liabilities:

  • Accounts receivable increased by $10.8 million reflecting the increase in sales in the third quarter compared to the second quarter and from an increase in the price of zinc.
  • Inventories were up by $35.3 million mostly due to an 11,000 tonne increase in concentrate inventory, a 5,100 tonne increase in zinc metal inventory and an increase in the price of zinc.
  • Accounts payable and accrued liabilities increased by $15.4 million reflecting the volume of concentrate receipts in the third quarter and the increase in the price of zinc.

During the quarter, the $30.6 million increase in non-cash working capital was funded by borrowing from the Fund's asset-backed credit facility.

Financial and Operating Highlights (Comparing the nine months ended September 30, 2014 to September 30, 2013)

Earnings before income taxes in the nine months ended September 30, 2014 were $21.9 million compared to $55.7 million in the same period of 2013. The $33.8 million decrease was mainly due to lower zinc metal sales and by-product revenues and higher concentrate acquisition costs and reclamation expenses offset by higher premiums and a weaker average Canadian dollar compared to the US dollar.

Cash used by operating activities in the nine months ended September 30, 2014 was $20.6 million, including a negative $51.8 million increase in non-cash working capital. In the same period of 2013, cash provided by operating activities was $69.5 million, which was positively impacted by a $21.0 million decrease in non-cash working capital. Cash distributions of $14.1 million were declared in the first nine months of both years.

Nine months ended
Increase in Non-Cash Working Capital September 30, 2014
($thousands)
Decrease in accounts receivable and other assets (3,030 )
Increase in inventories 81,650
Increase in accounts payable and accrued liabilities (27,298 )
Interest and taxes related increase 527
Increase in non-cash working capital 51,849

For the nine months ended September 30, 2014, non-cash working capital increased by $51.8 million, largely due to an increase in inventories partly offset by an increase in accounts payable and accrued liabilities and by a reduction in accounts receivable:

  • Inventories were up by $81.7 million mostly due to a 44,400 tonne increase in concentrate inventory, a 7,200 tonne increase in zinc metal inventory and an increase in the price of zinc.
  • Accounts payable and accrued liabilities increased by $27.3 million reflecting the volume of concentrate receipts and the increase in the price of zinc.

During the nine months ended September 30, 2014, the $51.8 million increase in non- cash working capital was funded by borrowing from the Fund's asset-backed credit facility and a drawdown in cash.

Conference Call and Webcast:

November 11th, 2014 at 12:00 p.m. ET

Dial in number: 416-340-2216
Toll-free North American number: 1-866-223-7781

In addition, you can listen to the teleconference and view the slide presentation from the Conference Call section of the Noranda Income Fund website: http://www.norandaincomefund.com/investor/conference.html or click on this link: http://www.gowebcasting.com/6115

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 6640 569# and you will be prompted for your name and company.

The recording will be available until midnight on November 25th, 2014.

A full version of the third quarter 2014 Management's Discussion and Analysis ("MD&A") and the unaudited Interim Condensed Consolidated Financial Statements will be posted on www.sedar.com and on the Fund's website at http://www.norandaincomefund.com/investor/financials.html today, November 11, 2014. 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 third quarter unaudited Interim Condensed Consolidated Financial Statements and MD&A because a reader relying on this summary alone might overlook critical information required to make an investment decision.

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.

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

SELECTED FINANCIAL AND OPERATING INFORMATION

Three months ended September 30, Nine months ended September 30,
($ thousands) 2014 2013 2014 2013
Statements of Comprehensive Income (loss) Information
Revenues 175,052 148,460 480,390 461,092
Raw material purchase costs 95,476 72,001 268,974 218,842
Revenues less raw material purchase costs 79,576 76,459 211,416 242,250
Other expenses:
Production 43,509 46,596 132,790 136,906
Selling and administration 6,211 4,421 17,159 15,262
Foreign currency loss (gain) 9,277 (2,016 ) 7,443 5,086
Derivative financial instruments (gain) loss (3,151 ) 3,333 (1,112 ) (87 )
Depreciation of property, plant and equipment 8,539 9,433 26,178 27,566
Rehabilitation expense (recovery) 389 (659 ) 3,122 (3,164 )
Earnings before finance costs and income taxes 14,802 15,351 25,836 60,681
Finance costs, net 1,395 1,444 3,961 5,003
Earnings before income taxes 13,407 13,907 21,875 55,678
Current and deferred income tax expense 2,630 3,098 4,356 11,737
Earnings attributable to Unitholders and Non-controlling interest 10,777 10,809 17,519 43,941
Distributions to Unitholders 4,687 4,688 14,062 14,063
Increase in net assets attributable to Unitholders and Non-controlling interest 6,090 6,121 3,457 29,878
Other comprehensive (loss) income (2,542 ) 1,154 (4,633 ) 7,034
Comprehensive income (loss) 3,548 7,275 (1,176 ) 36,912
Statements of Financial Position Information September 30, 2014 Dec. 31, 2013
Cash 726 15,547
Inventories 160,754 77,580
Accounts receivable 88,491 91,898
Income taxes receivable 5,335 4,040
Property, plant and equipment 269,327 272,341
Total assets 532,570 467,075
Accounts payable and accrued liabilities 114,708 87,844
Total bank and other loans 84,226 51,322
Total liabilities excluding net assets attributable to unitholders 254,293 187,542
Three months ended September 30, Nine months ended September 30,
Statements of Cash Flows Information 2014 2013 2014 2013
Cash provided by operating activities before cash and net change in non-cash working capital items 14,415 20,525 45,306 62,599
Cash distributions (4,687 ) (4,688 ) (14,062 ) (14,063 )
(Increase) decrease in non-cash working capital items (30,586 ) 10,133 (51,849 ) 20,988
Cash (used in) provided by operating activities (20,858 ) 25,970 (20,605 ) 69,524
Cash used in investing activities (6,641 ) (7,738 ) (26,386 ) (17,655 )
Cash provided by (used in) financing activities 26,002 (4,179 ) 32,170 (37,982 )
Net (decrease) increase in cash and cash equivalents (1,497 ) 14,053 (14,821 ) 13,887
Cash distributions declared per Priority Unit 0.12501 0.12501 0.37503 0.37503
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Zinc concentrate processed (tonnes) 136,771 122,216 384,208 379,907
Zinc grade (%) 52.5 53.2 52.1 53.2
Zinc recovery (%) 97.5 97.3 97.2 97.3
Zinc metal production (tonnes) 68,653 61,331 190,842 198,030
Zinc metal sales (tonnes) 63,570 66,420 183,677 204,559
Processing fee (cents/pound) 40.0 39.5 40.0 39.5
Zinc metal premium (US cents/pound) 10.2 8.4 10.2 8.4
By-product revenues ($ millions) 8.1 9.2 22.5 29.8
Copper in cake production (tonnes) 707 330 1,799 1,330
Copper in cake sales (tonnes) 540 373 1,422 1,599
Sulphuric acid production (tonnes) 106,372 97,700 295,106 306,761
Sulphuric acid sales (tonnes) 110,149 97,964 298,200 305,269
Average LME copper price (US$/pound) 3.17 3.21 3.15 3.35
Sulphuric acid netback (US$/tonne) 51 73 51 72
Average LME zinc price (US$/pound) 1.05 0.84 0.97 0.87
Average US/Cdn. exchange rate 1.09 1.04 1.09 1.02
* 1 tonne = 2,204.62 pounds

Adjusted Earnings before Distributions to Unitholders, Finance Costs, Income Taxes, Depreciation and Amortization ("Adjusted EBITDA")

Adjusted EBITDA is used by the Fund as an indication of cash generated from operations. Adjusted EBITDA is not a recognized measure under IFRS and therefore the Fund's method of calculating Adjusted EBITDA is unlikely to be comparable to methods used by other entities.

The Fund's Adjusted EBITDA is calculated by starting from earnings before finance costs and income taxes and adjusting for all of the non-cash items such as depreciation, gain or loss on the sale of assets, changes in fair value of embedded derivatives and non- cash gain or loss on derivative financial instruments. In addition, an adjustment is made to reflect the net change in the rehabilitation liability (reclamation (recovery) expense less site restoration expenditures) and the net change in employee benefits (non-cash employee benefit expenses less employer contributions).

The Fund's Adjusted EBITDA is currently supported by the stability of the Supply and Processing Agreement. It is expected that the Fund's Adjusted EBITDA will be subject to more variability once this agreement expires in May 2017.

A reconciliation of Adjusted EBITDA for the three months and nine months ending September 30, 2014 compared to the same periods in 2013 are provided below:

Three months ended
September 30,
Adjusted EBITDA 2014 2013 Change
($ thousands)
Earnings before finance costs and income taxes $ 14,802 $ 15,351 $ (549 )
Depreciation of property, plant and equipment 8,539 9,433 (894 )
Net change in rehabilitation liability 223 (791 ) 1,014
Loss on derivative financial instruments 452 484 (32 )
Change in fair value of embedded derivatives (5,320 ) 223 (5,543 )
(Gain) loss on sale of assets (169 ) 41 (210 )
Net change in employee benefits (372 ) (253 ) (119 )
$ 18,155 $ 24,488 $ (6,333 )
Nine months ended
September 30,
Adjusted EBITDA 2014 2013 Change
($ thousands)
Earnings before finance costs and income taxes $ 25,836 $ 60,681 $ (34,845 )
Depreciation of property, plant and equipment 26,178 27,566 (1,388 )
Net change in rehabilitation liability 2,962 (3,530 ) 6,492
Loss (gain) on derivative financial instruments 2,806 (4,926 ) 7,732
Change in fair value of embedded derivatives (3,166 ) (1,006 ) (2,160 )
Gain on sale of assets (157 ) (521 ) 364
Net change in employee benefits (1,115 ) (585 ) (530 )
$ 53,344 $ 77,679 $ (24,335 )


FOR FURTHER INFORMATION PLEASE CONTACT:

Michael Boone
Vice President and Chief Financial Officer
Canadian Electrolytic Zinc Limited
Noranda Income Fund's Manager
416-775-1561
info@norandaincomefund.com



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