TDW Action Note 11 April 22 TDW Action Note copy/pasted below FWIW, not including all the numbers. Apologies for transgressing copyright rules.
Noranda Income Fund
(NIF.UN-T) C$1.68
Operational Issues Impact Q1; Rest of Year Expected to Normalize
Event
Noranda released Q1 production Friday after market close, which was below
expectations, and reduced full year guidance as a result.
Impact: MIXED
Q1 zinc production was 57.6k tonnes, ~14% below our estimate of 66.8k tonnes.
The first quarter was impacted by increased COVID-19-related absenteeism as well
as cold weather impacting maintenance activities resulting in a record number of
electricity curtailments. However, based on the new 2022 guidance, the company is
expecting production to normalize during the remainder of the year, with the second
half expected to benefit from strategic expansion projects.
Despite the lower production in Q1, we are increasing our 2022 and 2023 estimates
to reflect the significant rise in both zinc TCs and zinc metal premiums over the past
three months.
Q1/22 zinc production of 57.6k tonnes was below our estimate of 66.5k tonnes. Sales were 66.3k tonnes (TD: 66.5k tonnes).
2022 guidance now 255-265k tonnes -
down from previous guidance of 270-280k tonnes. The mid-point of the new guidance range would imply average production of ~67.5k tonnes for the remaining three quarters, an indication they expect production to normalize (and likely increase in the second half the year with the strategic expansion projects completed).
Spot TCs rise again in March:
Spot TCs rose again in March to $175/t (based on Wood MacKenzie). This is up from significantly from $85/t in December. The rising TCs largely relate to smelter curtailments in Europe due to high electricity prices; a situation we believe could get worse given the ongoing war in Ukraine.
Zinc premiums also surging:
Amid very tight markets for refined zinc, spot premiums in North America have spiked to a record $0.26/lb. This is up from $0.10/lb in 2021. Noranda is expected to have exposure to these rising premiums in the new contractual period (starting May 1), although the terms are not disclosed. We have increased our realized premiums estimates as a result.
TD Investment Conclusion
We are maintaining our BUY recommendation and increasing our target price to C$2.50 from C$1.85 previously. Our valuation continues to be based on a 3.5x EV/EBITDA multiple on our 2022 estimates.