Noranda Income Fund Announces Fourth Quarter and Fiscal 2021 Results

TORONTO, Feb. 24, 2022 (GLOBE NEWSWIRE) -- Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its financial results for the fourth quarter and fiscal year ended December 31, 2021. Except where otherwise indicated, all amounts in this press release are expressed in US dollars.

Fourth Quarter 2021 Highlights (compared to same period in 2020)

• Loss before income taxes was $42.8 million compared to $13.7 million which included an unrealized derivative loss of $31.4 million compared to $0.6 million
• Adjusted EBITDA1 was nil compared to ($0.9) million
• Zinc metal production of 66,059 tonnes compared to 69,221 tonnes
• Zinc metal sales of 66,311 tonnes compared to 69,148 tonnes
• Sulphuric acid sales of 84,683 tonnes compared to 94,090 tonnes
• On December 17, 2021, the Board of Trustees announced a special cash distribution of CAD$0.02 per unit, payable on January 25, 2022

Fiscal 2021 Highlights (compared to same period in 2020)

• Loss before income taxes was $39.1 million compared to $26.7 million which included an unrealized derivative loss of $30.5 million compared to $6.9 million
• Adjusted EBITDA1 was $13.5 million compared to $17.4 million
• Zinc metal production of 264,046 tonnes compared to 268,387 tonnes
• Zinc metal sales of 263,612 tonnes compared to 268,948 tonnes
• Sulphuric acid sales of 368,730 tonnes compared to 389,840 tonnes
• The Fund received the final advance payment of $16 million from the senior secured metal liability agreement with BaseCore in June 2021

“Our financial results reflect a tight global concentrate market which negatively impacted one of our key revenue sources, treatment charges, which were significantly lower in 2021 compared to historical averages. Higher zinc, copper and sulphuric acid prices only partially offset the lower treatment charges. Also impacting our fourth quarter results were the high unrealized derivative instrument losses driven by a larger zinc hedge book and sharp zinc price increases late in the quarter. From an operational standpoint, we achieved the mid-range of our annual production target for 2021. However, our operating efficiency was negatively impacted in the fourth quarter of 2021 mainly by unplanned maintenance events, resulting in lower zinc metal output than anticipated,” said Paul Einarson, Chief Executive Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager.

“As we closely monitor the zinc concentrate market dynamics that will drive our revenues in 2022, we are working diligently to maintain our production cadence and to complete our strategic expansion projects, now targeted for completion in the second quarter of 2022 following pandemic-related material and labour availability delays. Despite the challenges we faced in early 2021, we continue to aim to gradually ramp up our annual production through the second half of the year to between 270,000 and 280,000 tonnes,” added Mr. Einarson.

Financial Results for the Fourth Quarter 2021
Revenues were $229.6 million compared to $182.8 million for the same period of 2020. The increase of 26% is mainly due to higher zinc and by-product prices.

Revenues less raw material purchase costs and derivative financial instruments loss (“Net Revenues”) were $10.9 million compared to $33.8 million for the same period of 2020. The decrease was a net result of a higher unrealized loss on derivative instruments, higher zinc prices and lower treatment charges in 2021.

Production costs before change in inventory were $39.8 million, $6.5 million higher than the $33.3 million recorded for the same period in 2020.

Unit production costs2 were $602 per tonne compared to $481 per tonne in the same period of 2020, mainly explained by the increase in operating supplies, contractors and the strengthening of the Canadian dollar compared to the US dollar.

Financial Results for Fiscal 2021
Revenues were $837.2 million compared to $666.5 million for the same period of 2020. The increase of 25.6% is mainly due to higher zinc and by-product prices slightly offset by lower zinc metal sales.

Net Revenues were $144.3 million compared to $158.1 million for the same period of 2020. The decrease was a net result of a higher unrealized loss on derivative instruments, lower treatment charges and higher zinc price in 2021 versus 2020.

Production costs before change in inventory were $143.4 million, $12.0 million higher than the $131.4 million recorded for the same period in 2020.

Unit production costs2 were $543 per tonne compared to $489 per tonne in the same period of 2020 mainly explained by the increase in operating supplies, contractors and also impact by the strengthening of the Canadian dollar compared to the US dollar.

Liquidity Position and Distribution Policy
As at December 31, 2021, the Fund’s asset-based revolving credit facility was $141.7 million, compared to $141.8 million at the end of December 31, 2020. The Fund’s senior secured metal liability, as at December 31, 2021, was $44.6 million, up from $31.1 million as at December 31, 2020. The Fund’s cash as at December 31, 2021 increased to $0.3 million from $0.2 million as at December 31, 2020.

Cash provided by operating activities in 2021 was $36.7 million, including a positive $27.6 million decrease in non-cash working capital mainly due to an increase in accounts payable and accrued liabilities, partly offset by an increase in accounts receivables and an increase in inventories. In 2020, cash used in operating activities was $1.4 million, including a negative $10.0 million increase in non-cash working capital mainly due to an increase in accounts receivables and inventories, partly offset by an increase in accounts payables and accrued liabilities.

Based on the Fund’s current liquidity position and capital requirements, as well as continued challenging market conditions, the Fund has limited ability to pay regular distributions, which are subject to the approval of its ABL Facility lenders. The Board continues to carefully monitor and review the Fund’s financial performance, capital requirements, business environment and prospects on a periodic basis as well as its required levels of reserves and expected future cash flows, to determine its ability to pay distributions to unitholders in future.

Expansion Projects Update
In alignment with its long-term strategy to decrease its production costs and increase profitability, the Fund is investing in expansion projects with the installation of additional belt filters and related equipment to increase the Processing Facility’s filtration capacity, and two additional cooling towers in the cell house to improve cooling capacity in the summer months. The cost of the expansion projects was originally estimated at $32 million however is now estimated at $38M due to cost increases incurred in the fourth quarter related to material and contractor costs, and due to foreign exchange fluctuations.

Commissioning is now targeted for the second quarter of 2022 as material and manpower shortages have negatively impacted the timeline of the projects. Both projects have received the required permits from the Government of Quebec. Once commissioned, the expansion projects will allow the Processing Facility to maintain its current production levels as well as increase zinc production by approximately 20,000 tonnes per year to a target of 290,000 tonnes annually.

2022 Production and Sales Outlook
For 2022, the Fund expects its annual production and sales target to be between 270,000 to 280,000 tonnes, reflecting the planned gradual production ramp up following the commissioning of its strategic expansion projects.

Market Outlook
The general global economic disruption and uncertainty caused by the COVID-19 pandemic continued through the end of 2021, resulting in a tight global concentrate market and suppressed treatment charges. As per Wood Mackenzie, the indicative spot treatment charges on Chinese imported concentrates have remained relatively flat, finishing 2020 at $85 per tonne, and are reported at similar levels in December 2021. Over the same period, the prices of zinc, copper and sulphuric acid increased. More recently, there has been an increased impact from supply chain pressures, energy price increases in Europe and the availability of power in China. Specifically in Europe, zinc smelters have been forced to constrain production due to the high power costs, and in some cases, been put into care and maintenance. Similarly, Chinese zinc production has been affected by power availability, which is related to coal supply and carbon emission controls. As a result, zinc and copper prices increased sharply in October 2021, even in the absence of a clear quantification of potential or actual production curtailment. Industry experts are forecasting slightly higher zinc treatment charges in 2022 on the basis that their supply and demand analysis projects a concentrate surplus in 2022.

Refined zinc premiums are also being impacted. In 2022, HudBay will close its Flin Flon smelter. Further, there is concern that zinc metal previously imported into North America from Europe will no longer be available in the same volumes as in the past due to the tightness in that market. Finally, the transportation industry is also experiencing labour shortages and cost increases. With these contributing factors, CRU reported that the premium for zinc in North America has doubled since the end of 2020. As well, in their market outlooks, many analysts are of the opinion that the zinc metal market is transitioning from a surplus in 2021 to a deficit in 2022.

For more information on the Fund’s ongoing expansion projects and the impact of COVID-19, please consult our latest Consolidated Financial Statements and MD&A, available on SEDAR and our corporate website.

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.

Fourth Quarter and Fiscal 2021 Results Conference Call

The recording will be available until midnight on March 4, 2022, conference ID 4969899 at 1-800-585-8367 (toll-free North America) or 416-621-4642.

Forward-Looking Information
Certain information in this press release, including statements regarding the Fund’s production and sales, future business plans and operation of the Processing Facility, future liabilities and obligations of the Fund (including capital expenditures), the ability of the Fund to operate profitably, the dependence upon the continuing supply of zinc concentrates and competition relating thereto, the ability of the Processing Facility to treat a more varied feed quality stream, anticipated trends in zinc concentrate supply and demand, smelting capacity, sulphuric acid market demand and supply, zinc concentrate treatment charges, the anticipated financial and operating results of the Fund, distributions to Unitholders, the scope, timing and completion of the Expansion Projects, the impact of the Expansion Projects on the operations of the Processing Facility, the operating and financial results of the Fund, and the impact of the amendments to the SPA, the Operating and Management Agreement, the Management Services Agreement, the Administration Agreement and the agreements relating to purchases of zinc concentrate and sale of zinc metal are forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events.

Forward-looking information is necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable as of the date of this press release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in greater detail in the "Risk Factors" section of the Fund’s Annual Information Form dated March 31, 2021 for the year ended December 31, 2020 and the Fund’s other periodic filings available at www.sedar.com. These factors are not intended to represent a complete list of the factors that could affect the Fund; however, these factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. The forward-looking statements contained in this press release are made as of the date of this press release, and the Fund expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law.

About the Noranda Income Fund
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, Quebec. 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. Further information about Noranda Income Fund can be found at: www.norandaincomefund.com

Reconciliation of Non-IFRS Financial Measures
1Adjusted EBITDA (“Earnings before income taxes, depreciation and amortization”) is used by the Fund as an indication of cash generated from operations. Adjusted EBITDA is not a recognized measure under IFRS and therefore the Fund’s method of calculating Adjusted EBITDA is unlikely to be comparable to methods used by other entities. The calculation methodology has been revised to remove the increase or decrease in inventory margin and instead adjust for the impact of unrealized derivative instrument gains or losses. The comparative information also reflects the revised calculation methodology. The Fund’s Adjusted EBITDA is calculated by starting from earnings before finance costs and income taxes and adjusting for non-cash items such as depreciation, gain or loss on the sale of assets, senior secured metal liability embedded derivative change in fair value, derivative financial instrument loss or gain and changes in fair value of embedded derivatives. In addition, an adjustment is made to reflect the net change in the rehabilitation liabilities (reclamation (recovery) expense less site restoration expenditures), inventory management program unrealized gain (loss) and the net change in employee benefits (non-cash employee benefit expenses less employer contributions).

2Unit production costs is not a recognized measure under International Financial Reporting Standards and therefore the Fund’s method of calculating unit production costs may not be comparable to methods used by other entities. Unit production costs means production costs divided by total tonnes of zinc produced. The Fund uses unit production costs as it believes it provides the best indication of the costs of production in a period and provides the ability to compare production costs in different periods.