Noranda Income Fund Unit NNDIF

Leverage to zinc prices

[Bwrbhk]

Here are some interesting numbers for Noranda.  In the 1st hald of 2021 the price of zinc averaged $1.28/lb. and Noranda broke even after taxes.  Had the current zinc price ($1.71/lb.) been in effect during the first half of 2021 and everything else stayed the same, Noranda would have earned about $13 million pre-tax.  On an annualized basis, this would be $26 million pre-tax or $19 million after tax.  This is equivalent to US $0.38/share or CDN $0.47/share.  This is not a forecast, but it gives one an idea what Noranda's earnings power is at current zinc prices, current (depressed) treatment charges, current byproduct revenue and current costs.  Noranda produces approximately 70 million lbs. of free zinc each year.  Thus a 10 cent change in the price of zinc impacts revenue and pre-tax earnings by about $7 million annualy.
The other major variable impacting Noranda's earnings are treatment charges.  As many Noranda shareholders are painfully aware, current spot TC's are depressed, having declined from over $300 per tonne in early 2020 to the current level of $90 to 100 per tonne.  The decline in TC's was caused by cutbacks in zinc concentrate production due to COVID.  Prior to the recent cutbacks in zinc refinery production in Europe and China, industry observers were expecting spot TC's to slowly recover as mine production recovered to pre-COVID levels.  With the recent cutbacks in zinc metal production at refineries in Europe and China the recovery in TC's should accelerate.  Every $10 per tonne increase in TC's impacts Noranda's pre-tax earnings by about $5 million.  Noranda do not disclose what they receive for TC's, but it is estimated that during the first half of 2021 it was around $100 per tonne.  All figures in US $'s unless otherwise noted.