Noranda Income Fund Unit T.NIF.UN

New TD analysis

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(Price target is still $1.85...)

Noranda Income Fund (NIF.UN-T) C$1.49 Spot TCs Continue to Rise Amid Tight Market Conditions Steven Green, CFA

Event

Spot Treatment Charges (TCs) have risen again in March 2022. This is in-line with our expectations, and should benefit NIF in future quarters with the smelter's treatment charges partially dependent on the spot TC market.

Impact: POSITIVE

Spot TCs continue to move higher: Based on the latest Wood Mackenzie zinc report, published today, spot treatment charges for zinc has increased to $175/ t in March 2022, up from $145/t in February and $85/t in December 2021. Spot TCs were flat in 2021 and averaged $78/t for the year. This is a continuation of the rebound off of the pandemic related lows and we expect the positive momentum to continue.

Premiums remain strong: Amid tightness in the refined market, zinc spot premiums also remain strong, rising to around $0.20/lb in Europe and $0.26/lb in North America. High energy costs for European smelters have resulted in numerous smelter curtailments (with two plants, Portovesme and Auby, closing altogether). Wood MacKenzie's view is that these higher TCs were necessary for many European smelters to remain profitable.

European energy crisis could continue for some time, given gas supply disruptions out of Russia: We expect the war in Ukraine (and resulting high natural-gas prices) will further contribute to high electricity prices in Europe, and keep upward pressure on TCs.

As a reminder, NIF's energy supply is relatively low-cost and stable, based on hydro-electric power in Quebec. We view this current environment as positive for NIF. Our estimates reflect an increase in spot TCs in 2022 compared to 2021 (effectively returning to close to pre-pandemic levels).