Noranda Income Fund Unit NNDIF

Noranda Outlook

[Bwrbhk]

At June 30, 2022 the book value of the company was US $185.5 million or US$3.71/share.  At todays exchange rate that is equivalent to CDN $4.71/share.  Why are the shares trading at a 75% discount to book value?  In four of the last 5 years (2017 to 2021) the company lost money and the cumulative net loss was $65 million. In the first half of 2022, the company posted a profit of $59.1 million, which almost wiped out the cumulative losses over the past 5 years.  Looking ahead over the next several quarters, Noranda will likely post significantly higher earnings because of higher TC's, high zinc premiums and hopefully a resolution of their operating issues.  As the company posts positive quarterly earnings, the discount to book value will likely decline.  Also, should Glencore decide to make a takeover offer, it would be difficult to justify an offer a less than book value.

[schocor]

This issue is that they can't actually run their plant well at the moment. The $4+ book value is - in my mind - probably a little low when you want to look at replacing a refinery of this size in todays dollars.  There is alot to be done at this company before we see share price appreciation. 

[ljp0101]

NIF is sitting on a huge hedging loss in Q3 even with the price move today. TCRCs don't really matter quarter to quarter. Book value isn't synonymous with liqudiation value. Book is on a going concern basis and doesn't reflect the cost of shutting down CEZ, which management has suggested is substantial due to environmental remediation. I'm somewhat skeptical of this argument but

[Scotch12]

LJP I don't buy the book value argument either but more so because you can get fair value for the smelter because of Glencore. It is a company of dubious ethics that has no compunction abut screwing the shareholders.   Glencore paid well over a billion dollars US in fines last year.   https://www.justice.gov/opa/pr/glencore-entered-guilty-pleas-foreign-bribery-and-market

[ljp0101]

Probably wouldn't get involved again; CEZ is a decent smelter with some long term structural advantages and I though there was good optionality in the stock around the top of the cycle medium term and China smelting cost structure moving up long term. NIF is easily worth >5/share with control and my basis is ~20% of that so I thought it was decent value. My mistake was underestimating the

[Bwrbhk]

One additional bullish factor for Noranda is the weak Canadian dollar.  All of Noranda's sales are in US dollars and most of their costs (Approximately 75 to 80%) are in Canadian dollars.  In the first half of 2022, the CDN/US $ exchage rate was $0.79 and the current rate is just under $0.75 or about 5% lower. On an annual basis, each 1% change impacts pretax earnings and cash flow