SALABERRY-DE-VALLEYFIELD, Québec, July 25, 2017 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX:NIF.UN) (the “Fund”) today reported its financial results for the three- and six-month periods ended June 30, 2017. All amounts are in Canadian currency unless otherwise stated.
2017 Second Quarter Financial and Operating Highlights
- Q2 marked the last quarter where the majority of the zinc metal was produced from concentrate purchased under the favourable fixed processing fee applicable under the initial term of the Supply and Processing Agreement.
- Going forward, zinc metal will be produced from concentrate purchased at market terms.
- Q2 2017 results were positively impacted by the 27,000 tonne one-time sale of zinc metal inventory to Glencore Canada on May 1, 2017.
- Zinc metal sales totalled 74,447 tonnes, up 21% from 61,555 tonnes for last year.
- Adjusted Net Revenues1 were $85.6 million, up 52% from $56.4 million in Q2 2016
- Earnings before income taxes were $10.2 million, compared to a loss of $3.2 million in Q2 2016.
- The Fund’s Processing Facility continues to operate at partial production with eligible staff as a result of the strike initiated by unionized workers on February 12, 2017.
- Zinc metal production decreased 27% to 50,521 tonnes.
- By product revenue from the sale of copper in cake and sulphuric acid was $5.4 million, up from $5.3 million for Q2 2016.
- Production costs before changes in inventory declined 38% to $30.3 million.
- Non-cash working capital was reduced by $44.2 million as a result of lower zinc inventory, partially offset by an increase in accounts receivable and a decrease in accounts payable.
1 Adjusted Net Revenues means revenues less raw material purchase costs (“Net Revenues”) excluding unrealized concentrate settlement adjustments and after foreign currency gain/loss and derivative financial instruments gain/loss.
“While our performance in Q2 delivered strong financial results, it’s important to put our sales totals and profitability into proper perspective,” said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager. “Our results were positively impacted by the one-time sale of zinc inventory to Glencore Canada, consistent with the terms of our 12-month purchase agreement. At the same time, our results benefited from the processing of concentrate purchased under the favourable initial term of the Supply and Processing Agreement. These two circumstances are not expected to reoccur.”
Ms. Carissimi added, “As of Q3 2017, our results going forward will be impacted by market terms, which are subject to more volatility and sensitivity to a number of factors, including zinc metal recoveries, zinc metal prices and the strength of the Canadian dollar. As a result of this potential variability, it’s important that we continue our focus on reducing operating costs and improving plant capacity, efficiency and safety.”
The Processing Facility is currently operating at 50 to 60% of capacity with eligible staff. “We remain committed to renewing our collective bargaining agreement with our unionized employees, however, this collective agreement must balance the needs of the Fund with the needs of the employees,” concluded Ms. Carissimi.
Second Quarter 2017 Financial and Operating Results
In Q2 2017, the Fund reported earnings before income taxes of $10.2 million, up from a loss of $3.2 million for last year. Q2 results were favourably impacted by the one-time sale of zinc inventory as well as the positive impact related to inventory margins. On a six-month basis, the Fund reported earnings before income taxes of $15.5 million in 2017, up from $1.1 million in 2016.
Zinc metal sales in Q2 2017 were 74,447 tonnes, up 21% from 61,555 tonnes in Q2 2016. The increase is largely due to the one time sale of zinc metal inventory to Glencore Canada effective with the start of the one-year purchase contract on May 3, 2017. Zinc metal sales in the first six months of 2017 were 123,963 tonnes, down from 134,194 tonnes sold in the same period in 2016. Under the one-year sales contract that came into effect on May 1, 2017, Glencore Canada purchases all of the Fund’s zinc production on a monthly basis providing a more predictable cash flow from the sale of zinc metal than experienced in the past.
Zinc metal production in Q2 2017 declined 27% to 50,521 tonnes from 69,289 tonnes in Q2 2016. Zinc metal production for the six months ended June 30, 2017 was 100,569, down 27% from 136,916 tonnes produced in the same period of 2016.
Production costs before changes in inventory was $30.3 million, down, 38%, compared to the $48.5 million recorded for the same period in 2016. The decline in production costs was consistent with the decline in production as the Processing Facility is currently operating at approximately 50% to 60% of capacity due to the strike initiated by unionized workers. Production costs before changes in inventory for the six-month period were $70.0 million, down 27% from $95.8 million for 2016.
Cash provided by operating activities for Q2 2017 was $70.0 million, and included a positive $44.2 million decrease in non-cash working capital due to a decrease in inventories though partially offset by an increase in accounts receivable and a reduction in accounts payable. In Q2 2016, cash used in operating activities was $17.7 million, which was negatively impacted by a $20.7 million increase in non-cash working capital due to an increase in accounts receivable and an increase in inventories, partly offset by an increase in accounts payables.
Cash provided by operating activities for the six month period of 2017 was $7.4 million, and included a negative $20.2 million increase in non-cash working capital due to an increase in accounts receivable and a decrease in accounts payable, though partially offset by a decrease in inventories. In the same period of 2016, cash provided by operating activities was $51.8 million, which was positively impacted by a $25.3 million decrease in non-cash working capital due to an increase in accounts payables.
As at June 30, 2017, the Fund’s debt was $64.8 million, slightly up from $64.0 million at the end of December 2016.
Effective with the start of Q3, the Fund will report its financial results in U.S. currency. The change reflects the impact of the transition from a Canadian dollar processing fee to a U.S. dollar treatment charge.
Outlook for the Fund
The main challenge facing the Fund is the ability for the Processing Facility to continue to operate profitably now that Fund is required to purchase concentrates on market terms. Effective with 2017 third quarter results, the Fund’s performance will be fully impacted by market treatment charges, as well as greater sensitivity to zinc price and the Canadian exchange rate, resulting in more variable operating results.
In light of the ongoing strike by unionized workers at the Fund’s Processing Facility and the uncertainty about its duration, the Fund continues to evaluate all potential scenarios. As a result, the Fund has deferred providing guidance for zinc metal production and sales targets for 2017.
Second Quarter 2017 Results Conference Call:
When: July 25, 2017 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: http://www.norandaincomefund.com/investor/conference.php or click on this link: http://edge.media-server.com/m/p/xufxwp2a.
Conference Call Replay:
Dial in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367
The conference ID is 51525788 and you will be prompted to provide your name and company.
The recording will be available until midnight on August 8, 2017.
A full version of the second quarter 2017 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.php 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 | Six months ended | ||||
| June 30, | June 30, | ||||
| 2017 | 2016 | 2017 | 2016 | ||
| Zinc concentrate and secondary feed processed (tonnes) | 98,437 | 132,923 | 220,494 | 269,887 | |
| Zinc grade (%) | 52.1 | 51.8 | 52.1 | 51.7 | |
| Zinc recovery (%) | 97.0 | 97.4 | 97.0 | 97.4 | |
| Zinc metal production (tonnes) | 50,521 | 69,289 | 100,569 | 136,916 | |
| Zinc metal sales (tonnes) | 74,447 | 61,555 | 123,963 | 134,194 | |
| Realized zinc price (US$/pound) (1) | 1.24 | 0.94 | 1.29 | 0.88 | |
| Average LME zinc price (US$/pound) | 1.18 | 0.87 | 1.22 | 0.81 | |
| By-product revenues ($ millions) | 5.4 | 5.3 | 7.7 | 11.6 | |
| Copper in cake production (tonnes) | 471 | 817 | 965 | 1,519 | |
| Copper in cake sales (tonnes) | 537 | 748 | 865 | 1,544 | |
| Sulphuric acid production (tonnes) | 81,666 | 107,619 | 179,732 | 219,544 | |
| Sulphuric acid sales (tonnes) | 94,858 | 113,170 | 189,285 | 219,148 | |
| Average LME copper price (US$/pound) | 2.57 | 2.15 | 2.61 | 2.13 | |
| Sulphuric acid netback (US$/tonne) | 27 | 21 | 17 | 24 | |
| Average US/Cdn. exchange rate | 1.34 | 1.29 | 1.33 | 1.33 | |
| * 1 tonne = 2,204.62 pounds | |||||
| (1) Average LME zinc price plus premium | |||||
| SELECTED FINANCIAL AND OPERATING INFORMATION | ||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| ($ thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||
| Statements of Comprehensive Income Information | ||||||||||||
| Revenues | 289,435 | 156,299 | 471,424 | 328,880 | ||||||||
| Raw material purchase costs | 207,890 | 101,532 | 342,264 | 214,073 | ||||||||
| Revenues less raw material purchase costs | 81,545 | 54,767 | 129,160 | 114,807 | ||||||||
| Other expenses: | ||||||||||||
| Production | 52,617 | 44,406 | 82,760 | 93,916 | ||||||||
| Selling and administration | 6,558 | 6,264 | 14,738 | 12,528 | ||||||||
| Foreign currency (gain) loss | (506 | ) | 1,467 | (2,008 | ) | (11,985 | ) | |||||
| Derivative financial instruments loss (gain) | 2,167 | (4 | ) | 840 | 4,184 | |||||||
| Depreciation of property, plant and equipment | 8,818 | 6,331 | 14,100 | 13,911 | ||||||||
| Rehabilitation expense (recovery) | 205 | (1,388 | ) | 327 | (798 | ) | ||||||
| Earnings (loss) before finance costs and income taxes | 11,686 | (2,309 | ) | 18,403 | 3,051 | |||||||
| Finance costs, net | 1,536 | 910 | 2,899 | 1,910 | ||||||||
| Earnings (loss) before income taxes | 10,150 | (3,219 | ) | 15,504 | 1,141 | |||||||
| Current and deferred income tax expense (recovery) | 1,998 | (791 | ) | 3,597 | (318 | ) | ||||||
| Earnings (loss) attributable to Unitholders and Non-controlling interest | 8,152 | (2,428 | ) | 11,907 | 1,459 | |||||||
| Distributions to Unitholders | – | 3,436 | 937 | 8,123 | ||||||||
| Increase (decrease) in net assets attributable to Unitholders | ||||||||||||
| and Non-controlling interest | 8,152 | (5,864 | ) | 10,970 | (6,664 | ) | ||||||
| Other comprehensive loss | (591 | ) | (3,498 | ) | (606 | ) | (7,453 | ) | ||||
| Comprehensive income (loss) | 7,561 | (9,362 | ) | 10,364 | (14,117 | ) | ||||||
| Statements of Financial Position Information | June 30, 2017 | Dec. 31, 2016 | ||||||||||
| Cash | 2,347 | 2,567 | ||||||||||
| Inventories | 172,080 | 242,585 | ||||||||||
| Accounts receivable | 135,259 | 103,280 | ||||||||||
| Income taxes receivable | 1,876 | 5,000 | ||||||||||
| Property, plant and equipment | 129,191 | 138,309 | ||||||||||
| Total assets | 463,006 | 516,014 | ||||||||||
| Accounts payable and accrued liabilities | 110,932 | 175,521 | ||||||||||
| ABL revolving facility | 64,848 | 63,987 | ||||||||||
| Total liabilities excluding net assets attributable to Unitholders | 216,169 | 279,541 | ||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| Statements of Cash Flows Information | 2017 | 2016 | 2017 | 2016 | ||||||||
| Cash provided by operating activities before cash distributions | ||||||||||||
| and net change in non-cash working capital items | 25,916 | 6,517 | 28,524 | 34,623 | ||||||||
| Cash distributions | – | (3,436 | ) | (937 | ) | (8,123 | ) | |||||
| Net change in non-cash working capital items | 44,155 | (20,739 | ) | (20,173 | ) | 25,260 | ||||||
| Cash provided by (used in) operating activities | 70,071 | (17,658 | ) | 7,414 | 51,760 | |||||||
| Cash used in investing activities | (3,543 | ) | (5,514 | ) | (8,495 | ) | (9,430 | ) | ||||
| Cash (used in) provided by financing activities | (64,675 | ) | 22,281 | 861 | (42,382 | ) | ||||||
| Net increase (decrease) in cash | 1,853 | (891 | ) | (220 | ) | (52 | ) | |||||
Michael Boone, Vice President & Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager
Tel: 416-775-1561
[email protected]
