SALABERRY-DE-VALLEYFIELD, QUÉBEC--(Marketwired - Nov. 9, 2015) - Noranda Income Fund (TSX:NIF.UN) (the "Fund") today released its results for the three and nine month periods ended September 30, 2015. All amounts are in Canadian currency unless otherwise stated.
Q3 2015 Highlights
- Net revenue1 was $69.6 million, up 2% from $68.2 million for Q3 2014;
- Production costs per tonne of zinc produced were $658, down 2% from $670 for Q3 2014;
- Earnings before income taxes were $13.1 million, down from $13.4 million;
- Zinc metal production totalled 65,800 tonnes;
- Zinc metal sales totalled 59,411 tonnes;
- Revenues from zinc premiums and by-products benefited from the weaker Canadian dollar during the quarter; and
- Declared monthly cash distributions from July to October 2015 of $0.04167 per priority unit.
"Against a backdrop of lower metal prices and declining global demand for commodities, we generated year-over-year improvements in net revenue and production costs," said Eva Carissimi, President and Chief Operating Officer of Noranda Income Fund. "Our earnings performance, which was relatively flat compared to last year, was impacted, however, by lower zinc metal sales and higher feed costs. We remain on track to produce approximately 270,000 tonnes of zinc metal for 2015."
Q3 Financial and Operating Results
Earnings before income taxes for Q3 2015 was $13.1 million, down from $13.4 million in the same period of 2014. The decline was attributable to lower zinc metal sales and higher feed acquisition costs, although partially offset by higher by-product sales revenue, a weaker average Canadian dollar and lower unit production costs.
Cash used in operating activities in Q3 2015 was $2.2 million, including a negative $21.5 million increase in non-cash working capital due to a growth in inventories and a decrease in accounts payable. These amounts were partially offset by a decrease in accounts receivable. In Q3 2014, cash used in operating activities was $20.9 million. The total in Q3 2014 was negatively impacted by a $30.6 million increase in non-cash working capital due to an increase in inventories and accounts receivable, partly offset by an increase in accounts payable.
Cash distributions of $4.7 million, or $0.125 per priority unit, were declared in both the 2015 and 2014 third quarter periods.
As at September 30 2015, the Fund's debt was $126.0 million, up from $79.0 million at December 31, 2014. The Fund's debt increased as a result of the increase in non-cash working capital during the period, which was partially off-set by operating cash flow.
Financial and Operating Results for Nine-Month Period
Earnings before income taxes for the nine-month period of 2015 was $48.9 million, up 123% from $21.9 million due to the positive impacts of a decrease in inventory margin, higher by-product revenue, a weaker average Canadian dollar, lower depreciation costs and lower unit production costs, partially offset by higher feed acquisition costs.
The Fund's inventory margin is impacted by the movement of zinc prices and fluctuations in the US$/Cdn$ exchange rate. A decrease in the Fund's inventory margin, as occurred in the nine-month period ending September 30, 2015, results in a positive impact on the Fund's earnings before income taxes. An increase in the Fund's inventory margin over a reporting period results in a negative impact on the Fund's earnings before income taxes.
Cash used in operating activities for the nine-month period ending September 30, 2015 was $27.7 million, including a negative $72.8 million increase in non-cash working capital due to an increase in inventories and a decrease in accounts payable. In the same nine-month period of 2014, cash used in operating activities was $20.6 million. The total in the first nine months of 2014 was negatively impacted by a $51.8 million increase in non-cash working capital due to an increase in inventories and partly offset by an increase in accounts payable as well as a reduction in accounts receivable. Cash distributions of $14.1 million, or $0.375 per priority unit, were declared in the first three quarters of both years.
Outlook for the Fund
The Board continues to work on the long-term strategy for the Fund.
The main challenges facing the Fund are (a) the continued supply of zinc concentrate and (b) the ability for the Processing Facility to continue to operate profitably after the expiry of the initial term of the Supply and Processing Agreement in May 2017, at which time the Fund expects that it will be required to purchase concentrate on market terms instead of the current fixed processing fee. The Fund's results under market terms will be subject to more volatility than under the current Supply and Processing Agreement.
The Fund (through the independent trustees) is in discussions with Glencore Canada regarding the supply of zinc concentrate following May 2, 2017. There is no assurance that the discussions will result in continued supply on terms that allow the Fund to continue profitable operations. Discussions with third parties are complex given the Fund's structure, including without limitation that the Supply and Processing Agreement and other contractual arrangements with Glencore Canada and its affiliates automatically renew with Glencore Canada for successive periods of five years unless Glencore Canada provides the Fund with written notice to the contrary at least 180 days prior to the expiry of the applicable term (by November 2016).
The Independent Committee is being assisted in its work by industry consultants Steve Hayes and Andrew Roebuck, whom the Independent Committee has retained to advise it with regards to the zinc market. In May 2014, TD Securities was engaged as financial advisor to the independent trustees.
Distribution Policy
When not restricted, and as may be considered appropriate by the Board, the Fund's policy is to make monthly distributions to Unitholders. In determining whether there shall be a distribution and the level thereof, the Board periodically reviews the Fund's financial performance, business environment and prospects, and determines the appropriate levels of reserves. The Board also continues to evaluate on a monthly basis the expected future cash flows of the Fund as well as the reserves that may be required in the future.
Given the challenges described above, the Board continues to evaluate the expected future cash flows in a variety of potential scenarios, as well as the required reserves under each of those scenarios. Given the uncertainty of future pricing and market conditions for zinc concentrate, and that several potential scenarios are being considered, including the discontinuation of operations following the expiry of the Supply and Processing Agreement, the Board is carefully reviewing and, if required, will augment the Fund's reserves. An increase in reserves would have an adverse effect on cash available for distributions. There is no assurance that monthly distributions will continue in the future; nor is there any assurance that, if they do continue, the level of such distributions will not vary from the level of the most recent monthly cash distribution.
| Conference Call and Webcast: |
| |
| November 9, 2015 at 10:30 a.m. E.T. |
| Dial in number: 647-788-4919 or |
| Toll-free North American number: 1-877-291-4570 |
To access the webcast and view the slide presentation from the Noranda Income Fund website: www.norandaincomefund.com/investor/conference.html or click on this link: www.gowebcasting.com/7068.
| Conference Call Replay: |
| Dial in number: 416-621-4642 or |
| Toll-free North American number: 1-800-585-8367 |
| The conference ID is 69640221 and you will be prompted for your name and company. The recording will be available until midnight on November 20, 2015. |
A full version of the third quarter 2015 Management's Discussion and Analysis (MD&A) and unaudited Consolidated Financial Statements will be posted on http://www.sedar.com and on the Fund's website at http://www.norandaincomefund.com/investor/financials.html later today.
Readers should be advised that the summarized communication presented in this press release is limited in its disclosure. It is not a suitable source of information for readers who are unfamiliar with the Fund, and it is not in any way a substitute for reading the Consolidated Financial Statements and MD&A because a reader relying on this summary alone might overlook decision critical information.
Forward-Looking Information
This press release contains forward-looking information and statements within the meaning of applicable securities laws. Forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause actual events, results or performance to be materially different from any future events, results or performance expressed or implied by the forward-looking information, and as a result, the Fund cannot guarantee that any forward-looking statements or information will materialize.
Such risks and uncertainties include, but are not limited to, the effect of general business and economic conditions, the Fund's ability to operate at normal production levels, the Fund's capital expenditure requirements and other general risks and uncertainties set out in the Fund's continuous disclosure documents on available on SEDAR at www.sedar.com.
Forward-looking information contained in this press release is based on, among other things, management's current estimates, expectations, assumptions, plans and intentions, which management believes are reasonable as of the current date, and which are subject to a number of risks and uncertainties. Except as required by law, the Fund does not undertake to update these forward-looking statements or information, whether written or oral, that may be made from time to time by the Fund or on the Fund's behalf.
Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol "NIF.UN". Noranda Income Fund owns the electrolytic zinc processing facility and ancillary assets (the "Processing Facility") located in Salaberry de-Valleyfield, Québec. The Processing Facility is the second-largest zinc processing facility in North America and the largest zinc processing facility in eastern North America, where the majority of zinc customers are located. It produces refined zinc metal and various by-products from sourced zinc concentrates. The Processing Facility is operated and managed by Canadian Electrolytic Zinc Limited, a wholly-owned subsidiary of Glencore Canada Corporation.
Except where otherwise indicated, all amounts in this press release are expressed in Canadian dollars.
Further information about Noranda Income Fund can be found at www.norandaincomefund.com.
Key Performance Drivers
The following table provides a summary of the performance of the Fund's key drivers:
| |
Three months ended |
Nine months ended |
| |
September 30, |
September 30, |
| |
2015 |
2014 |
2015 |
2014 |
| Zinc concentrate processed (tonnes) |
134,808 |
133,409 |
386,432 |
371,919 |
| Zinc secondary feed processed (tonnes) |
4,804 |
3,362 |
16,840 |
12,289 |
| Zinc grade (%) |
52.6 |
52.5 |
53.0 |
52.1 |
| Zinc recovery (%) |
97.2 |
97.5 |
97.3 |
97.2 |
| Zinc metal production (tonnes) |
65,800 |
68,653 |
200,890 |
190,842 |
| Zinc metal sales (tonnes) |
59,411 |
63,570 |
183,167 |
183,677 |
| Processing fee (cents/pound) |
40.5 |
40.0 |
40.5 |
40.0 |
| Realized zinc price (US$/pound) |
0.94 |
1.15 |
1.03 |
1.07 |
| Average LME zinc price (US$/pound) |
0.84 |
1.05 |
0.93 |
0.97 |
| By-product revenues ($ millions) |
9.6 |
8.1 |
25.8 |
22.5 |
| |
Copper in cake production (tonnes) |
717 |
707 |
2,012 |
1,799 |
| |
Copper in cake sales (tonnes) |
552 |
540 |
1,769 |
1,422 |
| |
Sulphuric acid production (tonnes) |
108,160 |
106,372 |
307,046 |
295,106 |
| |
Sulphuric acid sales (tonnes) |
106,545 |
110,149 |
306,162 |
298,200 |
| Average LME copper price (US$/pound) |
2.38 |
3.17 |
2.59 |
3.15 |
| Sulphuric acid netback (US$/tonne) |
56 |
51 |
53 |
51 |
| Average US/Cdn. exchange rate |
1.31 |
1.09 |
1.26 |
1.09 |
| * 1 tonne = 2,204.62 pounds |
| |
| SELECTED FINANCIAL AND OPERATING INFORMATION |
| |
Three months ended September 30, |
|
Nine months ended September 30, |
|
| ($ thousands) |
2015 |
2014 |
|
2015 |
|
2014 |
|
| Statements of Comprehensive Income Information |
|
|
|
|
|
|
|
| Revenues |
183,210 |
175,052 |
|
558,043 |
|
480,390 |
|
| Raw material purchase costs |
98,833 |
95,476 |
|
314,002 |
|
268,974 |
|
| Revenues less raw material purchase costs |
84,377 |
79,576 |
|
244,041 |
|
211,416 |
|
| Other expenses: |
|
|
|
|
|
|
|
| |
Production |
39,270 |
43,509 |
|
127,386 |
|
132,790 |
|
| |
Selling and administration |
5,781 |
6,211 |
|
17,740 |
|
17,159 |
|
| |
Foreign currency loss |
14,122 |
9,277 |
|
24,428 |
|
7,443 |
|
| |
Derivative financial instruments loss (gain) |
3,166 |
(3,151 |
) |
(1,897 |
) |
(1,112 |
) |
| |
Depreciation of property, plant and equipment |
7,101 |
8,539 |
|
22,308 |
|
26,178 |
|
| |
Rehabiliation expense |
447 |
389 |
|
1,085 |
|
3,122 |
|
| Earnings before finance costs and income taxes |
14,490 |
14,802 |
|
52,991 |
|
25,836 |
|
| Finance costs, net |
1,361 |
1,395 |
|
4,113 |
|
3,961 |
|
| Earnings before income taxes |
13,129 |
13,407 |
|
48,878 |
|
21,875 |
|
| Current and deferred income tax expense |
2,942 |
2,630 |
|
10,614 |
|
4,356 |
|
| Earnings attributable to Unitholders and Non-controlling interest |
10,187 |
10,777 |
|
38,264 |
|
17,519 |
|
| Distributions to Unitholders |
4,687 |
4,687 |
|
14,060 |
|
14,062 |
|
| Increase in net assets attributable to Unitholders and Non-controlling interest |
5,500 |
6,090 |
|
24,204 |
|
3,457 |
|
| Other comprehensive gain (loss) |
701 |
(2,542 |
) |
1,847 |
|
(4,633 |
) |
| Comprehensive income (loss) |
6,201 |
3,548 |
|
26,051 |
|
(1,176 |
) |
| |
|
|
| Statements of Financial Position Information |
September 30, 2015 |
December 31, 2014 |
| Cash and cash equivalents |
798 |
1,626 |
| Inventories |
182,383 |
118,948 |
| Accounts receivable |
97,142 |
94,552 |
| Income taxes receivable |
- |
4,103 |
| Property, plant and equipment |
219,743 |
228,879 |
| Total assets |
510,278 |
458,039 |
| Accounts payable and accrued liabilities |
53,876 |
76,256 |
| Income taxes payables |
3,023 |
- |
| Total bank and other loans |
125,952 |
78,970 |
| Total liabilities excluding net assets attributable to unitholders |
229,826 |
203,638 |
| |
|
|
| |
Three months ended September 30, |
|
Nine months ended September 30, |
|
| Statements of Cash Flows Information |
2015 |
|
2014 |
|
2015 |
|
2014 |
|
| Cash provided by operating activities before cash distributions and net change in non-cash working capital items |
23,955 |
|
14,415 |
|
59,124 |
|
45,306 |
|
| Cash distributions |
(4,687 |
) |
(4,687 |
) |
(14,060 |
) |
(14,062 |
) |
| Net change in non-cash working capital items |
(21,468 |
) |
(30,586 |
) |
(72,775 |
) |
(51,849 |
) |
| Cash used in operating activities |
(2,200 |
) |
(20,858 |
) |
(27,711 |
) |
(20,605 |
) |
| Cash used in investing activities |
(7,437 |
) |
(6,641 |
) |
(19,537 |
) |
(26,386 |
) |
| Cash provided by financing activities |
9,083 |
|
26,002 |
|
46,420 |
|
32,170 |
|
| Net decrease in cash and cash equivalents |
(554 |
) |
(1,497 |
) |
(828 |
) |
(14,821 |
) |
| Cash distributions declared per Priority Unit |
0.12501 |
|
0.12501 |
|
0.37503 |
|
0.37503 |
|
1 Revenue less raw material costs excluding concentrate settlement adjustments and impact of foreign exchange gain/loss and derivative financial instruments gain/loss.