SALABERRY-DE-VALLEYFIELD, Québec, April 25, 2019 (GLOBE NEWSWIRE) -- Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its financial results for the three-month period ended March 31, 2019. All amounts are in U.S. currency unless otherwise stated.

2019 First Quarter Financial and Operating Highlights

  • Loss before income taxes of $23.1 million in Q1 2019 compared to an earnings before income taxes of $16.6 million in Q1 2018.
  • Excluding the impact of derivative instrument gains and losses, the income before income taxes in the quarter was $7.2 million compared to $1.2 million in the same quarter last year.
  • Adjusted EBITDA1 of $(0.8) million in Q1 2019 compared to Adjusted EBITDA of $11.2 million in Q1 2018.
  • Zinc metal production decreased 6% to 64,654 tonnes from 68,861 tonnes in Q1 2018.
  • Zinc metal sales totalled 64,646 tonnes, down 7% from 69,636 tonnes in Q1 2018.
  • Unit production costs2 increased slightly by 2.6% from Q1 2018.
  • Inventories increased to $208.5 million at quarter end up from $149.9 million at year end 2018 due to lower domestic feed receipts and impact of vessel scheduling.

“Following a successful end to 2018 with our facility producing at full capacity, the first quarter of 2019 presented a new challenge,” said Liana Centomo, the Fund’s recently appointed Chief Executive Officer. “Lower volumes of domestic concentrate receipts have been augmented by foreign concentrate which generally contains greater amounts of impurities, which in turn negatively impacts production. We are addressing the issues associated with the higher impurity levels with process optimisation efforts over the short term, whilst evaluating medium to long term modifications in the plant. We maintain our production and sales estimates of between 270,000 to 280,000 tonnes for the year.”

First Quarter 2019 Financial and Operating Results

Loss before income taxes was $23.1 million in Q1 2019, compared to earnings before income taxes of $16.6 million in Q1 2018. The loss is a reflection of lower production volumes, zinc prices and commercial terms when compared to the first quarter of 2018, along with the negative impact of the derivative financial instrument loss. Adjusted EBITDA for the first quarter of 2019 was impacted for the same reasons.

Bottlenecks in impurities management and filtration capacity in the first quarter of 2019 negatively impacted volumes processed, whilst the processing of opening cathode inventories in 2018 positively impacted the production volumes in the first quarter of 2018.
Production costs before change in inventory in Q1 2019 were $32.6 million compared to $33.8 million recorded in Q1 2018.

Unit production costs remained relatively stable at $504 per tonne in the first quarter of 2019 compared to $491 per tonne in the comparable period in 2018 with some impact from lower production volumes.

As at March 31, 2019, the Fund’s debt was $130.4 million, down slightly from $133.7 million at the end of December 2018. Inventory balances and accounts payables increased since December 2018 due to lower domestic arrivals requiring higher volume of offshore concentrates and the timing of vessels. Adequate facilities are available to finance the higher inventory levels.

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, including market treatment charges.

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, 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 continued to rise to $257 in March 2019. Wood Mackenzie also forecasts Chinese smelter growth and increased mine production in 2019.
                                                                                                                                    
On February 28, 2019, the Fund reached an agreement with Glencore on the terms under which zinc concentrate will be purchased and zinc metal will be sold for the period of May 1, 2019 to April 30, 2020.

Over the last several months, as noted above, treatment charges have rebounded in favour of smelters but the pricing environment threatens to continue to be volatile.  The Fund, in that context, has favoured and negotiated a combination of 50% of the concentrate feed at a fixed treatment charge and the remaining 50% at a variable treatment charge that will reflect market movement during that period, in addition to other provisions of the four-year agreement.

The Fund does not expect to realize the full impact of these terms until all inventory purchased prior to May 1, 2019 has been fully processed. This is expected to occur in the third quarter of 2019.

The market terms have not been disclosed, as the terms are commercially sensitive as reflected in the contractual requirement and market practice that the pricing information be kept confidential.

Illustrative Adjusted EBITDA
To illustrate the impact of the recently negotiated terms, the Adjusted EBITDA for a full twelve month period under those terms, using the assumptions below and excluding the impact of concentrate purchased under the terms of the previous contract, would be between $52 million and $85 million.

Illustrative Adjusted EBITDA assumptions
Zinc price (US$ per pound) $1.13 to $1.36
US$/CAD$ exchange rate $0.77
Zinc metal production and sales (tonnes)270,000 to 280,000
Zinc concentrate and secondary feed processed (tonnes)540,000 to 560,000

Assuming capital expenditures between $30 million and $35 million within the same twelve month period, the cash flow from operations after capital expenditures would be between $17 million and $55 million.

Note that the illustrative Adjusted EBITDA are estimates that may not be indicative of future results, which will be impacted by future prices of zinc metal, variations in treatment charges as well as other factors such as levels of production, foreign exchange, zinc premiums, by-product prices and production costs. Nor is the illustration to be construed as guidance for the 2019 calendar year results as the contractual period and calendar year are not coterminous. Further, the actual achieved cash flow within reporting periods may differ significantly due to changes in working capital including changes in financial derivative instruments among other balances and capital expenditures.

Quality and Availability of Zinc Concentrates
The global quality of zinc concentrates has been declining in terms of zinc grade and the level of impurities contained within.  The impact on a smelter is an increase in the level of residues to be treated per tonne of zinc produced. The Fund is currently assessing the impact of this global trend on its operating capacities to determine what capital investments could be made to improve production capacity and overall profitability.

Production and Sales Outlook

The Fund’s estimates for 2019 zinc metal production and sales continue to be as follows:

Production:270,000 to 280,000 tonnes
Sales:270,000 to 280,000 tonnes

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 “Forward-Looking Information” below.

First Quarter 2019 Results Conference Call

When: April 26, 2019 at 8:30 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/4wnb56tr.

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

The conference ID is 7390798 and you will be prompted to provide your name and company. The recording will be available until midnight on May 3, 2019.

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 Webcast and Dial-In

When: April 26, 2019 at 11:00 a.m. E.T.
Location: Gallery at the TMX Broadcast Centre, The Exchange Tower, 130 King Street West, Toronto, ON

To access the webcast and view the slide presentation from the Noranda Income Fund website: http://www.norandaincomefund.com/investor/presentations.php or click on this link: https://bit.ly/2FSG0tY.

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 US 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 March 3120192018
Zinc concentrate and secondary processed (tonnes)132,592127,486
Zinc grade (%)52.251.7
Zinc recovery (%)96.397.2
Zinc metal production (tonnes)64,65468,861
Zinc metal sales (tonnes)64,64669,636
Realized zinc price (US$/pound)1.301.61
Average LME zinc price (US$/pound)1.231.55
By-product revenues ($ millions)7.65.6
Copper in cake production (tonnes)768658
Copper in cake sales (tonnes)543431
Sulphuric acid production (tonnes)97,321104,171
Sulphuric acid sales (tonnes)90,92994,041
Average LME copper price (US$/pound)2.823.16
Sulphuric acid netback (US$/tonne)6041
Average CAD/US exchange rate0.750.79
* 1 tonne = 2,204.62 pounds  


SELECTED FINANCIAL AND OPERATING INFORMATION    
 Three months ended March 31,
 
($ thousands)2019 2018 
     
Statements of Comprehensive Income Information    
Net revenues  186,895   230,014 
Raw material purchase costs  137,469   183,827 
Derivative financial instruments loss (gain)  30,251   (15,426)
Net revenues less raw material purchase costs and derivative financial instruments loss (gain)19,175 61,613 
Other expenses:    
Production  32,405   34,991 
Selling and administration  3,756   4,186 
Foreign currency loss (gain)  55   (630)
Depreciation of property, plant and equipment  3,797   3,919 
Rehabilitation expense (recovery)  587   (150)
(Loss) earnings before finance costs and income taxes  (21,425)  19,297 
Finance costs, net1,658 2,697 
(Loss) earnings before income taxes  (23,083)  16,600 
Current and deferred income tax (recovery) expense  (3,956)  2,555 
(Loss) earnings attributable to Unitholders and Non-controlling interest  (19,127)  14,045 
Distributions to Unitholders  -   - 
(Decrease) increase in net assets attributable to Unitholders and Non-controlling interest  (19,127)  14,045 
Other comprehensive loss  (1,099)  (171)
Comprehensive (loss) income  (20,226)  13,874 
     
Statements of Financial Position InformationMarch 31, 2019 Dec. 31, 2018 
Cash  141   732 
Inventories  208,462   149,916 
Accounts receivable  157,650   163,635 
Income taxes receivable  2,971   -  
Property, plant and equipment  105,664   106,807 
Total assets  487,444   439,177 
Accounts payable and accrued liabilities  146,324   97,707 
Deferred revenues  1,755   2,412 
ABL facility  130,388   133,672 
Total liabilities excluding net assets attributable to Unitholders  338,405   269,912 
     
 Three months ended March 31,   
Statements of Cash Flows Information2019 2018 
Cash provided by operating activities before cash distributions and net change in non-cash working capital items  3,225   4,033 
Cash distributions paid  (1,099)  - 
Net change in non-cash working capital items5,341 (10,377)
Cash provided by (used in) operating activities7,467 (6,344)
Cash used in investing activities  (4,774)  (3,967)
Cash (used in) provided by financing activities  (3,284)  9,316 
Net decrease in cash  (591)  (995)


    
Net Revenues Reconciled to Adjusted Net Revenues   
For the three months ended March 31   
($ million)20192018 
Net Revenues$  19.2$  61.6 
Change in fair value of embedded derivatives  2.1  (1.2)
Increase (decrease) in inventory margin net of change in fair value of embedded derivatives  13.9  (9.8)
Adjusted Net Revenues$  35.2$  50.6 

1 Adjusted EBITDA is used by the Fund as an indication of cash generated from operations.  Adjusted EBITDA is not a recognized measure under International Financial Reporting Standards 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 non-cash items such as depreciation, gain or loss on the sale of assets and changes in fair value of embedded derivatives. In addition, an adjustment is made to reflect the net change in the rehabilitation liabilities (reclamation (recovery) expense less site restoration expenditures), the increase (decrease) in inventory margin and the net change in employee benefits (non-cash employee benefit expenses less employer contributions).

2 Unit production costs is not a recognized measure under International Financial Reporting Standards and therefore the Fund’s method of calculating unit production costs may not be comparable to methods used by other entities. Unit production costs means production costs divided by total tonnes of zinc produced. The Fund uses unit production costs as it believes it provides the best indication of the costs of production in a period and provides the ability to compare production costs in different periods.                  

For further information, please contact:
Paul Einarson,
Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager
Tel: 514-745-9380
info@norandaincomefund.com