Noranda Income Fund (the "Fund") (TSX:NIF.UN) reported third
quarter earnings before income taxes which were supported by the
continued high premiums.
Q3 2012 and Subsequent Highlights:
-- Earnings before income taxes of $8.9 million (Q3 2011 - $16.6 million)
-- Cash provided by operations of $29.3 million (Q3 2011 - $22.1 million)
-- Zinc premiums at 7.6 cents US per pound (Q3 2011 - 5.8 cents US per
pound)
-- Sulphuric acid netback at US$79 per tonne (Q3 2011 - US$78 per tonne)
-- Declared monthly cash distributions consistently from July to October
2012 of $0.04167 per priority unit (each a "Priority Unit")
-- Debt as at September 30, 2012 totalled $71.6 million (net of deferred
financing fees), down from $94.2 million at the end of December 2011
-- The Fund will complete an internal reorganization that is expected to be
finalized prior to year end and it will eliminate the requirement for an
in-kind distribution, starting in fiscal 2012. The Fund will not at this
time convert to a corporation.
Conference Call and Webcast:
November 13th at 9:30 a.m. EST
Dial in number: 416-641-6145
Toll-free North American number: 1-866-303-6430
In addition, you can listen to the teleconference and view the
slide presentation from the Noranda Income Fund website:
http://www.norandaincomefund.com/investor/conference.html or click
on this link:
http://events.digitalmedia.telus.com/noranda/111312/index.php.
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 4051 902# and you will be prompted for your
name and company.
The recording will be available until midnight on November 27th,
2012.
Structure
The Independent Committee of the board of trustees of the
Operating Trust (the "Board"), together with the Board, has
reviewed the tax impact and other consequences to the Fund and its
Unitholders for the Fund to convert to a corporation, while also
considering the impact of remaining as a trust. The Independent
Committee engaged Canaccord Genuity to act as an independent
advisor to assist them in this regard.
The Independent Trustees have decided at this time, not to
pursue a conversion of the Fund to a corporation. The conversion
could only have been completed on terms that were acceptable to
both unitholders of the Fund and Xstrata Canada Corporation
("Xstrata Canada"), the holder of the ordinary units of the Noranda
Income Limited Partnership ("Partnership"). The Independent
Trustees and Xstrata Canada discussed the terms on which such a
conversion could occur, but they were unable to reach an
agreement.
As an alternative to a conversion to a corporation, the Trustees
and Xstrata Canada have approved, in principle, a reorganization
that is low cost to implement, and it will eliminate the
requirement for the Fund to declare an annual in-kind distribution
to reduce its effective tax rate. The reorganization is expected to
be completed prior to year end and it will eliminate the
requirement for an in-kind distribution, starting in fiscal 2012.
It is expected that unitholders will be taxed only on the income
they effectively receive as cash distributions. The reorganization
will not affect any of the arrangements between Xstrata Canada and
the Fund or the Partnership, including the subordination of
distributions on Xstrata Canada's units of the Partnership.
Financial and Operating Highlights (Third quarter 2012 compared
to the third quarter 2011)
Earnings before income taxes were $8.9 million in the third
quarter of 2012, compared to $16.6 million in the same quarter a
year ago. The $7.7 million decrease was mainly due to lower zinc
sales and by-product revenues, partially offset by higher zinc
premiums and processing fee, and lower finance costs.
Cash provided by operating activities in the third quarter of
2012, before net changes in non-cash working capital items, was
$15.1 million compared to $18.9 million during the same period of
2011. Cash distributions of $4.7 million were declared in 2012
compared to $1.6 million in 2011. During the third quarter of 2012,
non-cash working capital decreased by $14.2 million in large part
due to an increase in accounts payable and accrued liabilities.
During the third quarter of 2011, non-cash working capital
decreased by $3.3 million due to a decrease in accounts receivable
and inventories, partially offset by a decrease in accounts payable
and accrued liabilities.
Financial and Operating Highlights (First nine months 2012
compared to the first nine months 2011)
Earnings before income taxes were $36.4 million in the first
nine months of 2012, compared to $43.6 million in the same period a
year ago. The $7.2 million decrease was mainly due to lower zinc
sales and by-product revenues, partially offset by higher zinc
premiums and processing fee, and lower finance costs.
Cash provided by operating activities in the first nine months
of 2012, before net changes in non-cash working capital items, was
$47.2 million compared to $53.5 million during the same period of
2011. Cash distributions of $14.1 million were declared in 2012
compared to $1.6 million in 2011. During the first nine months of
2012, non-cash working capital increased by $2.8 million due to a
decrease in income taxes payable and accrued liabilities and an
increase in inventories, partially offset by a decrease in accounts
receivable and an increase in accounts payable and accrued
liabilities. During the first nine months of 2011, non-cash working
capital decreased by $27.0 million due to a decrease in accounts
receivable, an increase in income taxes payable and the impact of
the change in the fair value of the embedded derivative related to
the zinc concentrate payable, partially offset by lower inventories
and accounts receivable.
A full version of the third quarter 2012 Management's Discussion
and Analysis ("MD&A") and the Unaudited Interim Financial
Statements will be posted on the Fund's website,
http://www.norandaincomefund.com/investor/financials.html today,
November 12, 2012 and they will be available on www.sedar.com on
November 13, 2012. 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 Unaudited Interim Financial Statements
and MD&A because a reader relying on this summary alone might
overlook decision critical information.
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 electrolytic zinc processing facility and
ancillary assets (the "CEZinc processing facility") located in
Salaberry-de-Valleyfield, Quebec. 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 zinc customers are located. It produces
refined zinc metal and various by-products from zinc concentrates
purchased from mining operations. The CEZinc processing facility is
operated and managed by Canadian Electrolytic Zinc Limited.
Except where otherwise indicated, all amounts in this press
release are expressed in Canadian dollars.
Further information about the Noranda Income Fund can be found
at www.norandaincomefund.com.
SELECTED FINANCIAL AND OPERATING INFORMATION
----------------------------------------------------------------------------
Third Quarter Year-to-date
($ thousands) 2012 2011 2012 2011
----------------------------------------------------------------------------
Statements of Comprehensive Income
Information
Revenues 128,555 160,866 426,897 506,468
Raw material purchase costs 70,810 72,851 222,044 266,832
----------------------------------------------------------------------------
Revenues less raw material purchase
costs 57,745 88,015 204,853 239,636
----------------------------------------------------------------------------
Other expenses:
Production 38,662 42,737 126,316 132,084
Selling and administration 4,699 3,774 15,718 14,585
Foreign currency loss (gain) (2,522) 6,470 (2,094) 2,763
Loss (gain) on derivative financial
instruments (1,896) 2,907 (2,581) 3,588
Depreciation of property, plant and
equipment 7,905 8,654 24,440 26,003
Rehabilitation expense 168 2,954 656 3,163
----------------------------------------------------------------------------
Earnings before finance costs and income
taxes 10,729 20,519 42,398 57,450
----------------------------------------------------------------------------
Finance costs, net 1,827 3,968 5,972 13,829
----------------------------------------------------------------------------
Earnings before income taxes 8,902 16,551 36,426 43,621
Current and deferred income tax expense 2,733 5,718 12,781 15,522
----------------------------------------------------------------------------
Earnings attributable to Unitholders and
Non-controlling interest 6,169 10,833 23,645 28,099
Distributions to Unitholders 4,688 1,562 14,063 1,562
Current income tax recovery on
distribution (1,367) (310) (4,101) (310)
----------------------------------------------------------------------------
Increase in net assets attributable to
Unitholders and Non-controlling
interest 2,848 9,581 13,683 26,847
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other comprehensive income (loss) (1,418) (2,025) (3,174) (2,209)
----------------------------------------------------------------------------
Comprehensive income 1,430 7,556 10,509 24,638
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statements of Financial Position
Information Sept 30, 2012 Dec. 31, 2011
----------------------------------------------------------------------------
Cash and cash equivalents 6,085 1,497
Inventories 68,751 61,017
Accounts receivable 80,804 92,803
Property, plant and equipment 268,881 277,135
Total assets 436,386 447,389
Accounts payable and accrued liabilities 74,650 60,795
Total bank and other loans 71,550 94,216
Total liabilities excluding net assets
attributable to unitholders 221,733 243,245
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Third Quarter Year-to-date
Statements of Cash Flows Information 2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by operating activities
before cash distributions and net
change in non-cash working capital
items 19,772 20,430 61,261 55,056
----------------------------------------------------------------------------
Cash distributions (4,688) (1,562) (14,063) (1,562)
----------------------------------------------------------------------------
Net change in non-cash working capital
items 14,194 3,265 (2,847) 27,022
----------------------------------------------------------------------------
Cash provided by operating activities 29,278 22,133 44,351 80,516
----------------------------------------------------------------------------
Cash used in investing activities (5,730) (5,763) (16,133) (17,277)
Cash used in financing activities (19,853) (17,463) (23,630) (65,836)
Net increase in cash and cash
equivalents 3,695 (1,093) 4,588 (2,597)
----------------------------------------------------------------------------
Cash distributions declared per Priority
Unit 0.12504 0.04167 0.37504 0.04167
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Third Quarter Year-To-Date
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Zinc concentrate processed (tonnes) 120,899 119,117 372,887 377,500
Zinc grade (%) 54.5 54.4 54.2 54.1
Zinc recovery (%) 97.1 96.7 96.6 96.7
Zinc metal production (tonnes) 60,615 63,923 188,949 195,782
Zinc metal sales (tonnes) 60,953 66,219 192,890 203,159
Processing fee (cents/pound) 39.2 38.9 39.2 38.9
Zinc metal premium (US$/pound) 0.076 0.058 0.075 0.060
By-product revenues ($ millions) 9.2 11.7 31.3 39.2
Copper in cake production (tonnes) 584 577 1,736 2,010
Copper in cake sales (tonnes) 307 908 1,541 2,811
Sulphuric acid production (tonnes) 100,259 99,982 308,965 314,205
Sulphuric acid sales (tonnes) 95,344 100,502 312,939 313,469
Average LME copper price (US$/pound) 3.50 4.08 3.61 4.20
Sulphuric acid netback (US$/tonne) 79 78 74 72
Average LME zinc price (US$/pound) 0.86 1.01 0.88 1.04
Average US/Cdn. exchange rate 0.995 0.98 1.002 0.98
----------------------------------------------------------------------------
Adjusted Earnings before Distributions to Unitholders, Finance
Costs, Income Taxes, Depreciation and Amortization ("Adjusted
EBITDA")
Adjusted EBITDA is used by the Fund as an indication of cash
generated from operations. Adjusted EBITDA is not a recognized
measure under IFRS and therefore the Fund's method of calculating
Adjusted EBITDA is unlikely to be comparable to methods used by
other entities.
The Fund's Adjusted EBITDA is calculated by starting with
earnings before finance costs and income taxes and adjusting for
all of the non-cash items such as depreciation, rehabilitation
expense, net change in employee benefits, changes in fair value of
embedded derivatives and non-cash gains/(losses) on derivative
financial instruments. A reconciliation of earnings before finance
costs and income taxes to Adjusted EBITDA for the third quarter and
first nine months of 2012 compared to the same periods of 2011 is
provided below:
----------------------------------------------------------------------------
Adjusted EBITDA Q3/2012 Q3/2011 Change
----------------------------------------------------------------------------
($ thousands)
Earnings before finance costs and income
taxes $ 10,729 $ 20,519 $ (9,790)
Depreciation of property, plant and
equipment 7,905 8,654 (749)
Net change in rehabilitation liability 164 3,039 (2,875)
Loss on derivative financial instruments (1,073) 3,953 (5,026)
Change in fair value of embedded
derivatives 5,402 (8,169) 13,571
Loss on sale of assets (420) 80 (500)
Net change in employee benefits (641) (321) (320)
----------------------------------------------------------------------------
$ 22,066 $ 27,755 $ (5,689)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted EBITDA YTD/2012 YTD/2011 Change
----------------------------------------------------------------------------
($ thousands)
Earnings before finance costs and income
taxes $ 42,398 $ 57,450 $ (15,052)
Depreciation of property, plant and
equipment 24,440 26,003 (1,563)
Net change in rehabilitation liability 466 3,132 (2,666)
Loss on derivative financial instruments (2,200) 3,590 (5,790)
Change in fair value of embedded
derivatives 10,263 (12,108) 22,371
Loss on sale of assets (112) 478 (590)
Net change in employee benefits (1,629) (959) (670)
----------------------------------------------------------------------------
$ 73,626 $ 77,586 $ (3,960)
----------------------------------------------------------------------------
Contacts: Michael Boone Vice President & Chief Financial
Officer of Canadian Electrolytic Zinc Limited, Noranda Income
Fund's Manager 416 775-1561info@norandaincomefund.com
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