Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its
financial results for the third quarter ended September 30, 2021.
Except where otherwise indicated, all amounts in this press release
are expressed in US dollars.
Third Quarter 2021 Highlights (compared
to same period in 2020)
- Earnings before income taxes of $5.9 million compared to a loss
of $4.1 million
- Adjusted EBITDA1 of $5.7 million compared to $14.3 million
- Zinc metal production of 64,063 tonnes compared to 64,748
tonnes
- Zinc metal sales of 63,676 tonnes compared to 64,749
tonnes
- Sulphuric acid sales of 95,821 tonnes compared to 93,588
tonnes
“Our third quarter financial results reflect
both higher zinc and by-product prices and suppressed treatment
charges in what remained a tight zinc concentrate market,” said
Paul Einarson, Chief Executive Officer of Canadian Electrolytic
Zinc Limited, the Fund’s manager. “From an operational standpoint,
we are on track to achieve our 2021 zinc production and sales
target of between 260,000 and 270,000 tonnes and continue to move
forward with our strategic expansion projects. While labour and
supply chain challenges are putting pressure on our budget and
timeline, these continue to be manageable and to date, have not
impacted the planned gradual ramp up of our zinc production by an
additional 10,000 tonnes in 2022,” added Mr. Einarson.
“Looking ahead to the remainder of the year and
2022, our sector continues to be impacted by global supply chain
pressures, rising energy prices in Europe, anticipated metal
production curtailments and power availability concerns in China.
While this has led to an increase in commodity prices, it has not
yet translated into an increase in spot treatment charges. In this
context, there is uncertainty if there will be a meaningful
increase in this key revenue driver for the Fund before 2022 when
the projected zinc concentrate market surplus materializes,”
concluded Mr. Einarson.
Executive Officer
AppointmentsThe Fund also announced today the appointment
of Paul Einarson as Chief Executive Officer (CEO) and Sylvain
Lirette as Chief Financial Officer (CFO) of the Fund’s manager.
“Both Paul and Sylvain bring a deep
understanding of our industry as well as the unique nature of the
Fund, and have been instrumental in supporting the Fund in the
achievement of its business objectives over the last several years,
with the support of CEZInc’s management team. On behalf of the
Board of Trustees, I wish to congratulate them on these
well-deserved appointments and look forward to their continued
leadership as we work diligently to improve the Fund’s long-term
profitability,” said Anthony Lloyd, Chair of the Board of
Trustees.
Paul Einarson, CPA, CA, has been interim CEO of
the Fund’s manager since early 2021, and CFO since 2018. A seasoned
finance executive, Mr. Einarson has spent over 20 years in senior
management positions with various publicly traded companies,
including the last 15 years in the resource sector. He joined
Glencore Canada Corporation in 2014. Mr. Einarson holds a Bachelor
of Commerce (Honours) from the University of Manitoba.
Sylvain Lirette, CPA, CA, has been Manager of
Finance and Administration of the Fund’s manager since joining
CEZinc in 2014. Prior to that, Mr. Lirette held senior finance
roles for over 15 years in various industries. He has a Bachelor of
Business Administration and Accounting from Université Laval.
Financial Results for the Third Quarter
2021Revenues were $204.8 million compared to $136.5
million for the same period of 2020. The increase of 50% is mainly
due to higher zinc and by-product prices.
Revenues less raw material purchase costs and
derivative financial instruments loss (gain) (“Net Revenues”) were
$44.9 million compared to $39.1 million for the same period of
2020. The increase was a net result of higher zinc prices, lower
treatment charges and the loss on derivative instruments in 2021
versus a gain in 2020.
Adjusted Net Revenues2 were $41.0 million
compared to $49.3 million in the same period last year. Lower
Adjusted Net Revenues reflect lower treatment charges partially
offset by higher zinc prices compared to 2020.
Production costs before change in inventory were
$32.8 million, $1.4 million higher than the $31.4 million
recorded for the same period in 2020.
Unit production costs3 were $512 per tonne for
the three months ended September 30, 2021 compared to $485 per
tonne in the same period of 2020, mainly explained by the impact of
the strengthening of the Canadian dollar compared to the US
dollar.
Liquidity Position and Distribution
PolicyAs at September 30, 2021, the Fund’s asset-based
revolving credit facility (the “ABL Facility”) was $132.4 million,
down from $141.8 million at the end of December 31, 2020.
The Fund’s senior secured metal liability, as at September 30,
2021, was $45.1 million, up from $31.1 million as at December 31,
2020. The Fund’s cash as at September 30, 2021 increased to $1.0
million from $0.2 million as at December 31, 2020.
Cash provided by operating activities for the
three months ended September 30, 2021 was $29.8 million,
including a positive $21.3 million decrease in non-cash working
capital mainly due to a decrease in inventories and a decrease in
accounts receivables. In the same period of 2020, cash used in
operating activities was $3.1 million, including a positive $18.6
million decrease in non-cash working capital due to an increase in
accounts payables and a decrease in inventories partially offset by
an increase in accounts receivables.
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, in
order to determine its ability to pay distributions to unitholders
in future.
Production and Sales Outlook for 2021
& 2022The Fund’s annual production and sales target
for 2021 is between 260,000 to 270,000 tonnes. 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, expected to be completed in the first quarter
of 2022, barring any additional delays due to materials and
contractor availability.
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.
Market OutlookThe general
global economic disruption and uncertainty caused by the COVID-19
pandemic has resulted in a tight global concentrate market that
until this point in 2021 has 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 September
2021 ($80 per tonne). Over the same period, the prices of zinc,
copper and sulphuric acid have increased. Most recently, there has
been an increased level of discussion on the impact of supply chain
pressures, energy price increases in Europe and the availability of
power in China. Specifically in Europe, there have been news
reports of zinc smelters constraining production due to the high
power costs. Similarly, there is discussion that Chinese zinc
production has also been affected by power availability, which is
related to coal availability 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. There is limited evidence to date of
the actual or potential impact of smelter production cuts on spot
treatment charges. However, prior to the news of European smelters
curtailing production, industry experts were forecasting improved
treatment charges, on the basis that their supply and demand
analysis projected a concentrate surplus in 2022.
Zinc premiums are also being impacted. North
American zinc producers have experienced disruptions in 2020 such
as Teck’s Trail smelter in British Columbia being affected by
forest fires. In 2022, HudBay will close their Flin Flon smelter.
Further, there is concern that the zinc volumes previously imported
to North America from Europe will no longer be available in the
same volumes as in the past. Finally, the transportation industry
is also experiencing labour shortages and cost increases. With
these contributing factors, CRU is indicating 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.
The same supply chain and energy challenges that
are affecting the zinc smelting industry are also expected to have
an impact on other sectors and potentially on the demand for other
commodities. As an example, zinc galvanizers in China, another
energy-intensive industry and an important end user of zinc, were
asked to curtail production in September by 10-15%. Overall,
Chinese manufacturing is experiencing challenges due to a slowdown
in the real estate sector, supply chain disruptions and power
shortages. China’s National Bureau of Statistics manufacturing
Purchasing Manager’s Index has been decreasing over the last six
consecutive months to 49.6% in September, the first time the index
has been below 50% since February 2020. The 50-point mark separates
growth from contraction.
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.
Third Quarter 2021 Results Conference Call
When: |
Wednesday, November 3, 2021, at 8:30 a.m. ET |
Dial-in: |
1-877-291-4570 (toll-free North
America) or 647-788-4919 |
To access webcast: |
http://www.norandaincomefund.com/investor/conference.php or
https://onlinexperiences.com/Launch/QReg/ShowUUID=85F1FA23-78FA-4F92-88BA-76845ED9A481 |
The recording will be available until midnight on November 10,
2021, conference ID 2177923 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
FundNoranda 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
For more information: |
Paul EinarsonChief Executive Officer of Canadian Electrolytic
Zinc Limited, Noranda Income Fund’s ManagerTel.:
514-745-9380info@norandaincomefund.com |
Reconciliation of Non-IFRS
Measures1Adjusted 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).
Adjusted EBITDAFor the three months ended
September 30 |
|
($ millions) |
|
2021 |
|
|
|
2020 |
|
|
Earnings (loss) before finance costs and income taxes |
$ |
7.8 |
|
|
$ |
(2.6 |
) |
|
Depreciation of property, plant and equipment |
|
3.7 |
|
|
|
3.5 |
|
|
Net change in residue ponds rehabilitation liabilities |
|
(0.6 |
) |
|
|
(0.6 |
) |
|
Senior secured metal liability - embedded derivative change in fair
value |
|
(2.0 |
) |
|
|
2.9 |
|
|
Derivative financial instrument loss |
|
0.1 |
|
|
|
0.3 |
|
|
Change in fair value of embedded derivatives |
|
(1.9 |
) |
|
|
(1.0 |
) |
|
(Decrease) increase in inventory margin net of change in fair value
of embedded derivatives |
|
(2.0 |
) |
|
|
11.2 |
|
|
Loss on sale of assets |
|
0.1 |
|
|
|
0.1 |
|
|
Net change in employee benefits |
|
0.5 |
|
|
|
0.5 |
|
|
|
$ |
5.7 |
|
|
$ |
14.3 |
|
|
2Adjusted Net Revenues is not a recognized
measure under International Financial Reporting Standards and
therefore the Fund’s method of calculating Adjusted Net Revenues is
unlikely to be comparable to methods used by other entities.
Adjusted Net Revenues means net revenues less raw material purchase
costs plus (minus) derivative financial instrument gain (loss)
(“Net Revenues”) excluding change in fair value of embedded
derivatives and after the change in the inventory margin. The Fund
uses Adjusted Net Revenues 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.
Reconciliation of Net Revenues to Adjusted Net
Revenues |
|
|
|
|
For the three months ended September 30 |
|
|
|
|
($ millions) |
|
2021 |
|
|
|
2020 |
|
|
Net Revenues |
$ |
44.9 |
|
|
$ |
39.1 |
|
|
Change in fair value of embedded derivatives |
|
(1.9 |
) |
|
|
(1.0 |
) |
|
(Decrease) increase in inventory margin net of change in fair value
of embedded derivatives |
|
(2.0 |
) |
|
|
11.2 |
|
|
Adjusted Net Revenues |
$ |
41.0 |
|
|
$ |
49.3 |
|
|
3Unit 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.
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