SALABERRY-DE-VALLEYFIELD, Québec, Nov. 09, 2018 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its financial results for the three-month period ended September 30, 2018. All amounts are in U.S. currency unless otherwise stated.
2018 Third Quarter Financial and Operating Highlights
- Earnings before income taxes were $1.8 million compared to a loss before income taxes of $16.2 million in Q3 2017
- Zinc metal production increased 78% to 60,214 tonnes from 33,802 tonnes in Q3 2017.
- Zinc metal sales totalled 60,975 tonnes, up 83% from 33,395 tonnes in Q3 2017.
- Stronger by-product revenue from the sale of copper in cake and sulphuric acid was $8.8 million, up from $4.0 million for Q3 2017.
- Unit production costs increased by 6.1% from Q3 2016.
- On July 27, 2018, the Fund increased the asset-backed revolving credit facility (“ABL Facility”) from $150 million to $180 million.
“Thanks to the collaboration of our employees and other stakeholders, the Processing Facility has continued ramping up production capacity while tolling the cathode accumulated in 2017 as a result of the labour disruption,” said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s manager. “As a result of the Processing Facility’s returning metal to Glencore Canada, as per the tolling agreement, the Processing Facility’s zinc production was lower than in the comparable period in 2016, leading to higher unit costs. Our focus in the fourth quarter is to operate at full capacity.”
Third Quarter 2018 Financial and Operating Results
Earnings before income taxes were $1.8 million in Q3 2018, compared to a loss before income taxes of $16.2 million in Q3 2017. This reflects the ramp up towards near-normal operating capacity in 2018 following the labour disruption that occurred in 2017.
Adjusted Net Revenues1 for Q3 2018 was $44.0 million, a 116% increase from $20.4 million for Q3 2017. The increase was mainly due to higher zinc metal sales volumes partially offset by lower prices. The higher sales volume reflects the ramp up to full capacity in 2018 following the labour disruption that occurred in 2017. The lower prices were the result of lower zinc prices, partially offset by higher by-product prices.
Zinc metal production in Q3 2018 increased by 78% to 60,214 tonnes from 33,802 tonnes in Q3 2017.
Zinc metal sales in Q3 2018 increased by 83% to 60,975 tonnes from 33,395 tonnes sold in Q3 2017.
Production costs before change in inventory in Q3 2018 were $31.5 million compared to $22.9 million in Q3 2017. The $8.6 million increase was a result of higher labour, operating supplies and contractor costs due to operating at normal operations in 2018 compared to the labour disruption that reduced operating capacity in the three months ended September 30, 2017. These higher costs were partially offset by lower energy costs that resulted from participation in the Quebec electricity rate reduction program.
As noted above, the Fund is participating in the Quebec electricity rate reduction program for large industrial electricity consumers. In October 2017, the Fund’s first report on eligible investment projects resulted in the Fund’s electricity bill being reduced by 20% from October 2017 to August 2018. The second report on eligible investment projects was accepted on October 29th, 2018 and will result in a reduced electricity bill for a period of six to eight months as a result of delays in the engineering of investment projects in 2017. The Fund expects to be able to benefit from the electricity rate reductions until 2021, provided it can continue to spend capital and meet the program milestones going forward.
Unit production costs were $523 per tonne in Q3 2018 compared to $493 in the comparable period in 2016. Production cost comparison to 2017 is not meaningful due to the impact of the strike on 2017 production and cost profile.
Cash provided by operating activities for the three months ended September 30, 2018 was $26.5 million, including a negative $14.6 million increase in non-cash working capital due to a decrease in accounts payable and accrued liabilities and a decrease in deferred revenues, partially offset by a decrease in inventories and a decrease in accounts receivables. In the same period of 2017, cash used in operating activities was $41.4 million, which was negatively impacted by a $36.2 million increase in non-cash working capital due to an increase in inventories, partially offset by a decrease in accounts receivable and an increase in accounts payable.
As at September 30, 2018, the Fund’s debt was $102.5 million, down from $108.7 million at the end of December 2017. The Fund’s debt decreased due to cash provided by operating activities during the period.
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 into 2018. The market tightness was a result of several large mine closures in recent years and the global demand for zinc concentrate leading to a shortage of supply. Spot treatment charges declined from $175 per dry metric tonne in December 2015 to $40 per dry metric tonne in December 2016. With the continued tightness in the zinc concentrate market, spot treatment charges averaged approximately $38 per dry metric tonne throughout 2017 and averaged approximately $40 per dry metric tonne in the nine months of 2018, and approximately $70 per dry metric tonne in Q3 2018. Reflecting the tightness in the concentrate market, the market pricing terms were not as favourable to the Fund as the fixed pricing enjoyed by the Fund from its inception to May 2, 2017. Miners are typically able to negotiate a lower treatment charge when the zinc concentrate market is tight as it increases competition among smelters for concentrate supply.
Despite the tight market conditions, the Fund was able to secure supply of the required qualities and quantities of zinc concentrates via agreements with Glencore Canada for the 12 month period ended April 30, 2018, and subsequently for a four-year period from May 2018 to April 2022. Under the four-year supply contract, the treatment charges for the supply will be negotiated on an annual basis.
In light of the discussion above, the main challenge facing the Fund continues to be the ability for the Processing Facility to operate profitably under market conditions
Production and Sales Outlook
The Fund’s estimates for 2018 zinc metal production and sales are as follows:
| Production: | 260,000 to 270,000 tonnes |
| Sales: | 260,000 to 270,000 tonnes |
| Cathode processing: | 20,000 tonnes |
The Fund’s ability to meet the targets identified above is subject to various risks, uncertainties and assumptions, some of which can be found in “Forward-Looking Information” below.
Third Quarter 2018 Results Conference Call
When: November 9, 2018 at 10:30 a.m. E.T
Dial in number: 416-621-4642 or
Toll-free North American number: 1-877-585-8367
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: https://edge.media-server.com/m6/p/q6b3g797.
Conference Call Replay
The recording will be available until midnight on November 16, 2018.
Dial in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367
The conference ID is 3558509 and you will be prompted to provide your name and company.
A full version of the third quarter 2018 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 US 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 | ||
| September 30, | ||
| 2018 | 2017 | |
| Zinc concentrate and secondary feed processed (tonnes) | 138,944 | 96,786 |
| Zinc grade (%) | 53.2 | 52.9 |
| Zinc recovery (%) | 97.6 | 96.6 |
| Zinc metal production (tonnes) | 60,214 | 33,802 |
| Zinc metal sales (tonnes) | 60,975 | 33,395 |
| Zinc cathode converted into zinc metal | 14,173 | – |
| Realized zinc price ($/pound) | 1.22 | 1.41 |
| Average LME zinc price ($/pound) | 1.15 | 1.34 |
| By-product revenues ($ millions) | 8.8 | 4.0 |
| Copper in cake production (tonnes) | 617 | 502 |
| Copper in cake sales (tonnes) | 844 | 495 |
| Sulphuric acid production (tonnes) | 112,646 | 81,682 |
| Sulphuric acid sales (tonnes) | 122,054 | 82,136 |
| Average LME copper price ($/pound) | 2.77 | 2.88 |
| Sulphuric acid netback ($/tonne) | 52 | 26 |
| Average CAD/US exchange rate | 0.77 | 0.80 |
| * 1 tonne = 2,204.62 pounds | ||
| SELECTED FINANCIAL AND OPERATING INFORMATION | ||||
| Three months ended |
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| September 30, |
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| ($ thousands) | 2018 | 2017 | ||
| Statements of Comprehensive Income (Loss) Information | ||||
| Net revenues | 243,245 | 94,790 | ||
| Raw material purchase costs | 171,963 | 85,473 | ||
| Derivative financial instruments loss (gain) | 27,000 | 702 | ||
| Net revenues less raw material purchase costs and derivative financial instruments loss (gain) | 44,282 | 8,615 | ||
| Other expenses: | ||||
| Production | 33,635 | 16,788 | ||
| Selling and administration | 3,491 | 4,810 | ||
| Foreign currency loss (gain) | 234 | (166 | ) | |
| Depreciation of property, plant and equipment | 4,312 | 3,210 | ||
| Rehabilitation recovery | (657 | ) | (1,066 | ) |
| Earnings (loss) before finance costs and income taxes | 3,267 | (14,961 | ) | |
| Finance costs, net | 1,493 | 1,241 | ||
| Earnings (loss) before income taxes | 1,774 | (16,202 | ) | |
| Current and deferred income tax (recovery) expense | 332 | (3,990 | ) | |
| Earnings (loss) attributable to Unitholders and Non-controlling interest | 1,442 | (12,212 | ) | |
| Distributions to Unitholders – net of tax recovery | – | – | ||
| Increase (decrease) in net assets attributable to Unitholders and Non-controlling interest | 1,442 | (12,212 | ) | |
| Other comprehensive income | 744 | 2,248 | ||
| Comprehensive income (loss) | 2,186 | (9,964 | ) | |
| Statements of Financial Position Information | Sept. 30, 2018 | Dec. 31, 2017 | ||
| Cash | 561 | 1,819 | ||
| Inventories | 155,555 | 232,031 | ||
| Accounts receivable | 142,860 | 136,823 | ||
| Income taxes receivable | – | 9,918 | ||
| Property, plant and equipment | 103,933 | 104,579 | ||
| Total assets | 417,677 | 500,840 | ||
| Accounts payable and accrued liabilities | 83,641 | 124,210 | ||
| Deferred revenues | 1,696 | 61,459 | ||
| ABL facility | 102,463 | 108,696 | ||
| Total liabilities excluding net assets attributable to Unitholders | 238,338 | 343,032 | ||
| Three months ended |
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| September 30, |
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| Statements of Cash Flows Information | 2018 | 2017 | ||
| Cash provided by (used in) operating activities before cash distributions and net change in non-cash working capital items | 41,043 | (5,198 | ) | |
| Cash distributions | – | – | ||
| Net change in non-cash working capital items | (14,574 | ) | (36,160 | ) |
| Cash provided by (used in) operating activities | 26,469 | (41,358 | ) | |
| Cash used in investing activities | (3,849 | ) | (3,217 | ) |
| Cash (used in) provided by financing activities | (22,976 | ) | 43,044 | |
| Effect of functional currency change | – | – | ||
| Net decrease in cash | (356 | ) | (1,531 | ) |
| Net Revenues Reconciled to Adjusted Net Revenues | |||||
| For the three months ended September 30 | |||||
| ($ millions) | 2018 | 2017 | |||
| Net Revenues | $ | 44.3 | $ | 8.6 | |
| Change in fair value of embedded derivatives | 1.2 | 7.4 | |||
| (Decrease) increase in inventory margin net of change in fair value of embedded derivatives | (1.5 | ) | 4.4 | ||
| Adjusted Net Revenues | $ | 44.0 | $ | 20.4 | |
1 Adjusted Net Revenues means revenues less raw material purchase costs plus (minus) derivative financial instruments gain (loss) (“Net Revenues”) excluding change in fair value of embedded derivatives and after the change in the inventory margin. Net Revenues is reconciled to Adjusted Net Revenues below. The Fund uses Adjusted Net Revenue as it believes it provides the best indication of the net revenues generated in a period and provides the ability to compare net revenues generated in different periods.
2Production costs comparison to 2017 is not meaningful due to the impact of the strike on 2017 production and cost profile.
For further information, please contact:
Paul Einarson, Vice President & Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager
Tel: 514-745-7380
info@norandaincomefund.com