Noranda Income Fund Unit T.NIF.UN

RE:Re: SPA

[Bigbird9999]

I did not say that the market terms would be better than current SPA.  If you read a back the past couple of months, I said  (or at least tried to say) that I did not believe that the EBITDA under market terms was going to be nearly as bad as they we saying it could be.   Obviously I did not make that clear....

What I did say was that market terms gave a better result than the current SPA in Q4 - 15 and Q1-16.   If you check the quarterly reports you will see this in the calculation that is done in the MDA.  The current SPA was initiated 15 years ago an dapproximated what both parties thought would be the equivalent of market terms over the next 15 years.  The initial TC of the SPA was 34 cents CAD per lb and increased 0.5 cents per lb each year to the current 41 cents per lb.  The objective was to provide a stable platform to provide a stable income and for that it worked....  In the past 15 years the LME Zn price has fluctuated between $1000 and $3000 and the CAD US FX has varied between 85 cents to 1.33 today. 

At any point in the past 15 years, the SPA was either better, worse or equivalent to market terms at the prevailing LME and FX at the time, so one party would be happy while the other was unhappy because because market terms would be better for one and worse for the other. 

The board has warned that the results under market terms will be different and MUCH MORE VOLATILE than under the current SPA.  My last post was meant to illustrate this.  The LME has jumped $500 in November.  If the current price were to be maintained for all of 2017 the EBITA  under market terms would be impacted positively by about $37 million.  2016 market terms TCs have been about $200.  2017 TCs will be lower but not in the gloom and doom range of $100 that are feared.  TCs will likely be settled in the $160 range which is sufficient for NIF to sustain the dividend.  If the Zn price stays where it is there will be an extra $35 million to distribute.

Right now there is a shortage of concentrates which is depressing  the TCs.  If the Zn prices stay where they are, the miners will be pulling out all stops to mine more tonnage which will increase the concentrate availability and ultimately the trend of depressed TCs will be reversed
Don't forget that Glencore closed thier Oz mines and took 500000 tones of Zn (1000000 tonnes con) of line in Jan.  These mines could be restarted pretty quickly.

I don't know if this makes what I was trying to say more clear or just muddies the waters. 

BB