SALABERRY-DE-VALLEYFIELD, Québec, Feb. 27, 2019 (GLOBE NEWSWIRE) -- Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its financial results for the three-month period and full-year ended December 31, 2018. All amounts are in U.S. currency unless otherwise stated.
2018 Fiscal Year Highlights
- On March 8, 2018 Glencore Canada Corporation (“Glencore Canada”) and the Fund reached an agreement whereby Glencore Canada is supplying all of the Processing Facility’s zinc concentrate requirements and purchasing all the zinc metal production for the four-year period ending April 30, 2022.
- Zinc metal production increased 50% to 270,076 tonnes from 180,375 tonnes in 2017.
- Zinc metal sales were 275,676 tonnes, up 36% from 203,106 tonnes in 2017.
- Earnings before income taxes of $16.3 million in 2018, compared to loss before income taxes of $33.1 million in 2017.
- On April 12, 2018, the lenders exercised their subsequent maturity extension on the Fund’s asset-based revolving credit facility (“ABL Facility”) resulting in the maturity being extended from April 13, 2018 to July 20, 2020, and on July 27, 2018, the Fund increased the ABL Facility from $150 million to $180 million.
- On December 17, 2018 the Board of Trustees of the Fund announced a special cash distribution of CAD$0.03 per unit, payable on January 25, 2019, to Priority and Ordinary Unitholders.
“In 2018, we focused our attention on ramping up operations and tolling the cathode we had accumulated the year prior. We had a strong finish to the year as our processing facility operated at full capacity during the fourth quarter,” said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager. “Our agreement with Glencore to supply our concentrate needs and purchase all of our zinc metal production provided stability in a challenging zinc concentrate market and during a period of falling zinc prices. In 2018, we were also able to resume our investment program under the Electricity Rebate Program which will allow us to increase our plant capacity in future years.”
“With a return to full production capacity and broader economic indicators pointing to stable zinc prices and improvements in treatment charges, the Fund is increasing 2019 estimates for zinc metal production and sales to be between 270,000 and 280,000 tonnes per year,” said Ms. Carissimi.
Fourth Quarter 2018 Highlights
- Adjusted Net Revenues1 were $40.4 million, up from $19.1 million for Q4 2017.
- Zinc metal production increased to 74,676 from 46,004 tonnes for Q4 2017.
- Zinc metal sales were 75,265, up from 45,748 tonnes for Q4 2017.
Fiscal Year 2018 Financial and Operating Results
Earnings before income taxes were $16.3 million in 2018, compared to a loss before income taxes of $33.1 million in 2017. The 2018 earnings reflect the steady ramp-up to full production capacity throughout the year following the labour disruption in 2017. The increase also included a $19.9 million derivative financial instrument gain, compared to the 2017 loss which included a $15.0 million derivative financial instrument loss and an $8.8 million increase in labour costs related to early retirement provision in the new collective agreement.
Adjusted Net Revenues for 2018 were $177.9 million, an increase of 23% from $144.8 million for 2017. The increase was mainly due to higher sales volumes in 2018 compared to 2017, partly offset by the negative impact of lower treatment charges as a result of a tight concentrate market in 2018, as compared to 2017, and the more favourable fixed processing fees under the initial terms of the Supply and Processing Agreement during 2017.
Zinc metal production in 2018 increased by 50% to 270,076 tonnes from 180,375 tonnes in 2017.
Zinc metal sales in 2018 increased by 36% to 275,676 tonnes from 203,106 tonnes in 2017.
Cash used in operating activities in 2018 was $7.5 million, including a negative $41.9 million increase in non-cash working capital due mainly to a decrease in accounts payables and accrued liabilities, a decrease in deferred revenues and an increase in accounts receivable partly offset by a decrease in inventories. In 2017, cash used in operating activities was $43.9 million, including a negative $49.4 million increase in non-cash working capital due mainly to an increase in accounts receivables, an increase in inventory and a decrease in accounts payable, partially offset by an increase in deferred revenues.
Production costs before change in inventory in 2018 were $133.3 million compared to $110.4 million recorded in 2017. The $22.9 million increase was due to higher production volume compared to 2017, partially offset by an $8.8 million increase in labour costs related to early retirement provisions in the new collective agreement recorded in 2017.
In October 2017, the Fund’s first report on eligible investment projects resulted in the Fund’s electricity bill being reduced by 20% from October 2017 to August 2018. The second report on eligible investment projects was accepted on October 29, 2018 and will result in a reduced electricity bill for a period of six to eight months. In December 2018, the newly elected Provincial government announced a one-year extension to the program. The Fund submitted an amendment to its original application, as a result of delays resulting from the labour disruption in 2017, and submitted a new application in order to take advantage of the extension. The Fund has not yet received confirmation of acceptance. Future electricity savings will be dependent on the Fund’s ability to continue to spend capital and meet the program milestones going forward. The Fund is expected to benefit from the electricity rate reductions until 2021, provided it can meet the milestones. There can be no assurance that the Fund will be able to spend the capital and meet those milestones.
As at December 31, 2018, the Fund’s debt was $133.7 million, up from $108.7 million at the end of December 2017. The Fund’s debt increased mostly due to the increase in the Fund’s working capital. The Fund’s cash as at December 31, 2018 decreased to $0.7 million from $1.8 million as at December 31, 2017.
April 12, 2018, the Fund extended the maturity of the ABL Facility from April 13, 2018 to July 20, 2020 with the terms remaining substantially the same except for an increase in availability from $150 million to $180 million. Distributions to Unitholders are only permitted with the lenders’ consent.
Outlook for the Fund
The main challenge facing the Fund is the ability for the Processing Facility to continue to operate profitably under market terms versus operating under the fixed fee processing agreement.
According to industry analysts such as Wood Mackenzie and CRU, the zinc concentrate market tightness that began in 2016 continued throughout 2017 and into 2018. The market tightness was a result of several large mine closures in recent years and the global demand for zinc concentrate leading to a shortage of supply.
Wood Mackenzie further reported that as a result of the market tightness, some Chinese smelters have curtailed production. A widespread crackdown from China’s environmental agencies has resulted in further production decreases and in some cases the closure of smelters. As per Wood Mackenzie, the indicative spot treatment charges on Chinese imported concentrates rose to $187 per tonne in December 2018 and $213 in January 2019. Wood Mackenzie also forecasts Chinese smelter growth and increased mine production in 2019.
The treatment charge to be in effect for concentrate purchases for the period from May 1, 2019 to April 30, 2020 is not yet determined.
Fourth Quarter and Fiscal Year 2018 Results Conference Call:
When: February 27, 2019 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: https://edge.media-server.com/m6/p/3d5kr6t7.
Conference Call Replay:
Dial in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367
The conference ID is 8788896 and you will be prompted to provide your name and company.
The recording will be available until midnight on March 6, 2019.
A full version of the fourth quarter and fiscal year 2018 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.html 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.
Annual General Meeting
The Fund will be holding its Annual General Meeting (“AGM”) on April 26, 2019 at the TMX Broadcast Centre at 10:00am ET in Toronto, Ontario.
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 ended | Twelve months ended | ||||
| December 31, | December 31, | ||||
| 2018 | 2017 | 2018 | 2017 | ||
| Zinc concentrate and secondary feed processed (tonnes) | 130,051 | 97,632 | 523,960 | 414,912 | |
| Zinc grade (%) | 51.5 | 51.8 | 52.1 | 52.2 | |
| Zinc recovery (%) | 97.7 | 95.4 | 97.5 | 96.5 | |
| Zinc metal production (tonnes) | 74,676 | 46,004 | 270,076 | 180,375 | |
| Zinc metal sales (tonnes) | 75,265 | 45,748 | 275,676 | 203,106 | |
| Zinc cathode converted into zinc metal | - | - | 20,000 | - | |
| Realized zinc price (US$/pound) | 1.26 | 1.53 | 1.40 | 1.38 | |
| Average LME zinc price (US$/pound) | 1.19 | 1.47 | 1.33 | 1.31 | |
| By-product revenues ($ millions) | 6.5 | 2.4 | 28.3 | 12.2 | |
| Copper in cake production (tonnes) | 775 | 413 | 2,547 | 1,880 | |
| Copper in cake sales (tonnes) | 559 | 220 | 2,497 | 1,580 | |
| Sulphuric acid production (tonnes) | 98,755 | 79,566 | 421,714 | 340,980 | |
| Sulphuric acid sales (tonnes) | 93,998 | 72,059 | 425,678 | 343,480 | |
| Average LME copper price (US$/pound) | 2.80 | 3.09 | 2.96 | 2.80 | |
| Sulphuric acid netback (US$/tonne) | 48 | 20 | 46 | 20 | |
| Average CAD/US exchange rate | 0.76 | 0.79 | 0.77 | 0.77 | |
| * 1 tonne = 2,204.62 pounds | |||||
| SELECTED FINANCIAL AND OPERATING INFORMATION | |||||||||||||
| Three months ended December 31, | Twelve months ended December 31, | ||||||||||||
| ($ thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||
| Statements of Comprehensive (Loss) Income Information | |||||||||||||
| Net revenues | 192,114 | 157,888 | 909,144 | 605,789 | |||||||||
| Raw material purchase costs | 171,554 | 129,427 | 726,576 | 471,358 | |||||||||
| Derivative financial instruments (gain) loss | (19,616 | ) | 13,585 | (19,900 | ) | 15,011 | |||||||
| Net revenues less raw material purchase costs and derivative financial instruments (gain) loss | 40,176 | 14,876 | 202,468 | 119,420 | |||||||||
| Other expenses: | |||||||||||||
| Production | 38,061 | 32,447 | 145,712 | 111,174 | |||||||||
| Selling and administration | 3,337 | 4,525 | 15,068 | 20,382 | |||||||||
| Foreign currency loss (gain) | 185 | 208 | (379 | ) | (1,507 | ) | |||||||
| Depreciation of property, plant and equipment | 4,551 | 3,390 | 17,569 | 17,152 | |||||||||
| Rehabilitation expense (recovery) | 869 | 398 | 79 | (423) | |||||||||
| (Loss)earnings before finance costs and income taxes | (6,827 | ) | (26,092 | ) | 24,419 | (27,358 | ) | ||||||
| Finance costs, net | 1,390 | 2,336 | 8,150 | 5,744 | ) | ||||||||
| (Loss) earnings before income taxes | (8,217 | ) | (28,428 | ) | 16,269 | (33,102 | |||||||
| Current and deferred income tax (recovery) expense | (948 | ) | (6,459 | ) | 4,298 | (7,766 | ) | ||||||
| (Loss)earnings attributable to Unitholders and Non-controlling interest | (7,269 | ) | (21,969 | ) | 11,971 | (25,336 | ) | ||||||
| Distributions to Unitholders - net of tax recovery | 855 | - | 855 | 711 | |||||||||
| (Decrease) increase in net assets attributable to Unitholders and Non-controlling interest | (8,124 | ) | (21,969 | ) | 11,116 | (26,047 | ) | ||||||
| Other comprehensive (loss) income | (1,950 | ) | (470 | ) | 341 | 7,737 | |||||||
| Comprehensive (loss) income | (10,074 | ) | (22,439 | ) | 11,457 | (18,310 | ) | ||||||
| Statements of Financial Position Information | Dec. 31, 2018 | Dec. 31, 2017 | |||||||||||
| Cash | 732 | 1,819 | |||||||||||
| Inventories | 149,916 | 232,031 | |||||||||||
| Accounts receivable | 163,635 | 136,823 | |||||||||||
| Income taxes receivable | - | 9,918 | |||||||||||
| Property, plant and equipment | 106,807 | 104,579 | |||||||||||
| Total assets | 439,177 | 500,840 | |||||||||||
| Accounts payable and accrued liabilities | 97,707 | 124,210 | |||||||||||
| Deferred revenues | 2,412 | 61,459 | |||||||||||
| ABL revolving facility | 133,672 | 108,696 | |||||||||||
| Total liabilities excluding net assets attributable to Unitholders | 269,912 | 343,032 | |||||||||||
| Three months ended December 31, | Twelve months ended December 31, | ||||||||||||
| Statements of Cash Flows Information | 2018 | 2017 | 2018 | 2017 | |||||||||
| Cash (used in) provided by operating activities before cash | |||||||||||||
| distributions and net change in non-cash working capital items | (21,150 | ) | (12,402 | ) | 34,437 | 6,211 | |||||||
| Cash distributions | - | - | - | (711 | ) | ||||||||
| Net change in non-cash working capital items | (3,539 | ) | 3,825 | (41,905 | ) | (49,368 | ) | ||||||
| Cash (used in) provided by operating activities | (24,689 | ) | (8,577 | ) | (7,468 | ) | (43,868 | ) | |||||
| Cash used in investing activities | (6,349 | ) | (6,269 | ) | (18,595 | ) | (15,813 | ) | |||||
| Cash provided by financing activities | 31,209 | 16,387 | 24,976 | 59,652 | |||||||||
| Effect of functional currency change | - | - | - | (64 | ) | ||||||||
| Net increase (decrease) in cash | 171 | 1,541 | (1,087 | ) | (93 | ) | |||||||
| Net Revenues Reconciled to Adjusted Net Revenues | |||||||
| For the three months ended December 31 | |||||||
| ($ millions) | 2018 | 2017 | |||||
| Net Revenues | $ | 40.2 | $ | 14.9 | |||
| Change in fair value of embedded derivatives | (0.7 | ) | (9.2 | ) | |||
| Increase (decrease) in inventory margin net of change in fair value of embedded derivatives | 0.9 | 13.4 | |||||
| Adjusted Net Revenues | $ | 40.4 | $ | 19.1 | |||
| Net Revenues Reconciled to Adjusted Net Revenues | |||||||
| For the twelve months ended December 31 | |||||||
| ($ millions) | 2018 | 2017 | |||||
| Net Revenues | $ | 202.5 | $ | 119.4 | |||
| Change in fair value of embedded derivatives | (0.1 | ) | (2.3 | ) | |||
| (Decrease) increase in inventory margin net of change in fair value of embedded derivatives | (24.5 | ) | 27.7 | ||||
| Adjusted Net Revenues | $ | 177.9 | $ | 144.8 | |||
1 Adjusted Net Revenues means revenues less raw material purchase costs plus (minus) derivative financial instruments gain (loss) (“Net Revenues”) excluding change in fair value of embedded derivatives and after the change in the inventory margin. Net Revenues is reconciled to Adjusted Net Revenues below. The Fund uses Adjusted Net Revenue as it believes it provides the best indication of the net revenues generated in a period and provides the ability to compare net revenues generated in different periods.
For further information, please contact:
Paul Einarson, Vice President & Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager
Tel: 514-745-9380
info@norandaincomefund.com