Noranda Income Fund Unit NNDIF

RE:RE:RE:RE:RE:RE:RE:Yes the numbers are out......Now take a deep breath......

[Bigbird999]

Totally agree with westcoast......

Quarterly resuls are very misleading because of huge swings in the inventory valuation and sales volumes, exacerbated by rapidly changing LME metal prices. NIF is not uniqe in this respect.  All Zn producers have about 6  - 12 months of production locked up as WIP (work in process). 

As discussed many times, the Zn price has little effect on the earnings of NIF.  This is true over the longer term but not over a short term (like 3 months).  The reason lies in the large amount (6 to 8 month's of production) of working capital (inventory) that is required to operate an electrolytic zinc plant.  The plant requires about 6 months (150,000 tonnes) of Zn production as "working inventory " in order to operate.  Roughly 3 months as concentrate (150,000 tonnes of concentrate = 80000 tonnes Zn), 1 month (25000 tonnes of Zn) in process tanks, cells, etc. and about 2 months (50000 tonnes Zn) as finished product.  This means that today with an LME price of US$2200, there is about US$250 million ($325 million CAD) worth of sales value of  Zn metal inside the plant.   (Note that this is the sales value not the inventory value based on cost) .  At the end of Q1 the value of Zn in the plant was about 20% lower (= $60 million) because the LME was $1900 vs $2200 today.  Add to that an increase in the tonnage of finished goods of 2700 tonnes and it is easy to  see that the quarterly sales revenues and earnings can swing up or down by $60 - $70 million. Depending on timing of deliveries, a change in the concentrate inventory of 1 - 2 months of production is not unusual. This alone could cause a change of $30 - $40 million in working capital.

Don't focus soley on the reported quarterly earnings.  Look at the cash flow and EBITDA as well.  The 6 month adjusted EBITDA is $35 million vs. $45 million last year. 

The point is, they will not be able to hide the cash that flows in when the inventory is sold.

BB