Noranda Income Fund Unit T.NIF.UN

RE:Distribution cut question

[Bigbird9999]

Short answer is that custom zinc smelters are very expensive to build and operate.  A new greenfield Zn plant costs about US$5000 per annual tonne.  When they are trying to justify building one they say $3000 but when it is finally built it is $5000 per annual tonne.  That makes a replacement plant for NIF to be about US$750 million - US$1 billion.  Think how long it would take to pay one of these off with $75 million annual EBITDA?  This is the reason that zinc plants operate for so long.  Hud Bay and Teck started 100 years ago, Most western world plants in operation today were built in the 70s.  Kidd Creek was shut down and razed in 2011.  Big River Zinc in St Louis was shut down in 2008 with the intention of converting it to a secondary treatment plant.  Technicaly it is mothballed but it will never be restarted as it is a very old, inefficient design.  Horsehead was built and commissioned in 2015 as a secondary plant.  It cost >$500 million for ~120000 tonnes of Znm produced from EAF dust (steel mill dust).  It went into receivership in 2016 and there are plans to restart it but it does not treat concentrate and it does not bring new Zn to the NA market as it replaced Horsehead's Monacca facility which was shut down by EPA requirements.  Hud Bay (120,000 tonnes) is running out of con after this year.  They can't afford to import con because they are landlocked  Imported cons would cost them >$100 per tonne to import.  There is a very real danger theycould shut down in the next few years.

North America is not self sufficient in mined production of Zn.  There is enough smelter capacity to produce the 1.2 million tonnes of Zn VUT to do this concentrate must be imported.  If they don't import concentrate they will have to import metal.  Nobody is going to build a new billion dollar Zn plant to try and attract concentrate when there is a perfectly good, efficient plant, with cheap power sitting on tidewater that they have to compete against.  And nobody is going to pay $100 - $150 per tonne of Zn metal to try and feed the NA market from offshore....

So yes, I believe CEZ will still be running in 10 years, owned 100% by Glencore.  The question is, how much can they squeeze us to sell it for pennies when it is worth dollars?

The Zn world is going nuts now.  >$2 per pound Zn is a real possibility this year.  NIF has value, but getting paid for that value is proving to be very difficult....
BB