Noranda Income Fund Unit T.NIF.UN

RE:RE:RE:RE:AGM Toronto

[Bigbird9999]

The calculated cash cost of converting con to metal is a function of the cost of labour, energy, supplies.  Cost of each of these is about equal at CEZ.  These are very sensitive to FX rates and government support/incentives such as subsidized power cost.  The cumulative cost curve for zinc smelters is very flat between the bottom quartile and the top quartile (ie Quartiles 2 & 3). The top quartile is generally unresponsive to "conventional" economic forces.  In general, because they are state owned or heavily subsidized by tax incentives or some other "special" situation such as import duties, etc.  The bottom quartile producers may have similar tax incentives as well special  situations such as low cost feed material or higher byproduct netback or recovery of unique by products such as germanium or indium.

The median (50th percentile) cash conversion cost is about 30 cents per lb.  The difference between the bottom of Q2 (26 th percentile) and and top of Q3 (74th percentile) is about 10 cents per pound (25 -35 cents).  The difference between the top of Q2 and bottom of Q3 is 2 cents per lb ($44 per tonne).  On CEZ production of 275000 t = $12 million EBITDA. 

Consider the following as an example:
For CEZ, labour, energy and supplies are equal at say, 10.33 cents per lb (31 cents total).  In order to reduce the total cost by 2 cents per lb. (to 29 cents) and move from the 3rd quartile to the 2nd quartile, they would have to reduce any one of the costs by 20% (or 7% across the board).  Incremental reductions of 1 - 2% across the board might be possible but 7% across the board (or 20% of power or labour or reagents ) is simply not possible.

By far the biggest effect on profitability is the concentrate purchase terms which according to the calculation they have provided will reduce EBITDA by $75 - $100 milion.   Is there some fat in the operation?  Of course there is but not in the amount necessary to offset the massive loss in TC revenue. 

That's my 2 cents......no pun intended.

BB