Noranda Income Fund Unit T.NIF.UN

RE:RE:RE:Smelter charge

[Bigbird9999]

The EBITDA and earnings can be affected negatively (or positively) by changes in the inventory, changes in the LME Zn price and gains or losses in the inventory management (hedging) program, derivitives and foreign currency gains/losses..  They reference this in the MD&A and FS notes.  2016 has these issues: derivitive losses of $3 million, foreign exchange losses of $3 million, the LME climbed steadily for the entire year from $1400 to $2800 resulted in a large increase ($72 million) and a hedging loss of $44 million.  All of these items compicat and skew the EBITDA calculation which they have done.  They have not presented the details of the calculations, only the result in the form of a single number. 

In order to develop the table that I posted I calculated the PROJECTED revenues for the 12 months of the contract from first priciples.  This calculation was done under a scenario that eliminates all of the possible variation in EBITDA caused by swings in inventory, LME, and FX by using AVERAGE values for the entire year.  Namely:   Sales = production = 270000 T, FX = 1.33 and concentrate treated = 529452 T @52.2% Zn.  Byproduct revenue $24 million and premium to LME =7 cents per lb.  The calculation was done for TC from $40 to $100 and LME $2600 - $3200 and tabulated.  In a year where the FX ,LME and invrentory tonnages remain in a narrow range the calculation will be quite accurate

NIF warns that results will be much more volatile in the future so we can expect large quarter to quarter variations due to the delivery schedule of concentrate and fluctuation in the LME and FX.

BB