NORANDA INCOME FUND ANNOUNCES TERMS FOR 2020/2021 CONTRACTUAL PERIOD
TORONTO, March 12, 2020 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX:NIF.UN) (the “Fund”) today reported the terms under which zinc concentrate will be purchased and zinc metal will be sold for the period of May 1, 2020, to April 30, 2021. Except where otherwise indicated, all amounts in this press release are expressed in US dollars.
On March 8, 2018, the Fund announced that it had reached an agreement pursuant to which Glencore Canada, as principal, supplies the Fund with all of its zinc concentrate requirements, and purchases all of the Fund’s zinc metal for the four-year period ending April 30, 2022. The terms are to be agreed upon annually in-line with prevailing market conditions and in consultation with the Independent Trustees’ independent industry consultants. For the period between May 1, 2020, and April 30, 2021, the purchases of primary zinc concentrates will be made at variable treatment charges that fluctuate in-line with market movements, as well as at with other provisions in the four-year agreement. The Fund and Glencore Canada agreed upon a fixed premium price on zinc metal sales for the same May 1 to April 30 contractual period.The terms have not been disclosed as the terms are considered commercially sensitive and subject to the contractual requirement and the market practice of keeping pricing information confidential.Illustrative Adjusted EBITDA1
Adjusted EBITDA, applying these contract terms to twelve months of production and using the assumptions below, would be between $57 million and $88 million.Assuming capital expenditures between $30 million and $35 million, cash flow from operations after capital expenditures would be between $22 million and $58 million.Note that the illustrative Adjusted EBITDA are estimates that may not be indicative of future results, which will be impacted by future prices of zinc metal, variations in treatment charges as well as other factors such as levels of production, foreign exchange, zinc premiums, by-product prices and production costs. Nor is the illustration to be construed as guidance for the 2020 calendar year results as the contractual period and calendar year are not coterminous. Further, the actual achieved cash flow within reporting periods may differ significantly due to changes in working capital including changes in financial derivative instruments among other balances and capital expenditures.The Fund’s ability to meet the assumptions identified above is subject to various risks, uncertainties and assumptions, some of which can be found in “Forward-Looking Information”.Outlook for the Fund
According to industry analysts such as Wood Mackenzie and CRU, the zinc concentrate market tightness that began in 2016 continued throughout 2017 and 2018. A turnaround has occurred due to higher mine production in 2019 and cuts to smelter production resulting from a widespread crackdown from China’s environmental agencies combined with production issues at various smelters around the world. Chinese refined metal production has increased but was partially offset by declines outside of China. The slight increase in global production, however, was insufficient to meet global metal demand. The refined market deficit maintained historically low metal stocks. The refined market is expected to move into a small surplus in 2020 without much impact on global metal stocks. Commodity prices, including zinc, may be subdued by the ongoing US-China trade war regardless of the favourable underlying fundamentals. The impact of the Covid-19 epidemic on the Chinese zinc industry is starting to be seen in both supply and demand. The long-term impact will depend on the length and extent of the epidemic.Wood Mackenzie further reported that over the next few years, an increasing concentrate surplus will increase treatment charges. Consequences of excessive concentrate stocks may lead to unsold concentrate and higher treatment charges which may also result in mine production cuts or closures. Wood Mackenzie is predicting improvements in Chinese smelter utilization rate to curtail rising excess concentrate levels.Quality and Availability of Zinc Concentrates
The global quality of zinc concentrates has been declining in terms of zinc grade and the level of impurities contained within. The impact on a smelter is an increase in the level of residues to be treated per tonne of zinc produced. The Fund is continually focused on optimizing its existing facilities and is assessing the impact of this global trend on its operating capacities to determine what capital investments could be made to improve production capacity and overall profitability.Concentrate inventory levels continue to be variable, due to large and irregular offshore deliveries of concentrate and the requirement to mix feed qualities to maximize the Processing Facility’s production. Variations in feed quality and feed mix could impact production and inventory levels.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 InformationThis 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.Further information about Noranda Income Fund can be found at:
www.norandaincomefund.com.1Adjusted EBITDA is used by the Fund as an indication of cash generated from operations. Adjusted EBITDA is not a recognized measure under International Financial Reporting Standards and therefore the Fund’s method of calculating Adjusted EBITDA is unlikely to be comparable to methods used by other entities. 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 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), the increase (decrease) in inventory margin and the net change in employee benefits (non-cash employee benefit expenses less employer contributions).For further information, please contact:
Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager