TORONTO, April 29, 2021 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX:NIF) (the “Fund”) today reported its financial results for the first quarter ended March 31, 2021. The Fund also provided an update on the terms under which zinc concentrate will be purchased and zinc metal will be sold for the period of May 1, 2021, to April 30, 2022. Except where otherwise indicated, all amounts in this press release are expressed in US dollars.
First Quarter 2021 Highlights (compared to same period in 2020)
- Earnings before income taxes of $11.0 million compared to $11.5 million
- Adjusted EBITDA1 of $9.5 million compared to $17.2 million
- Zinc metal production of 66,345 tonnes compared to 67,425 tonnes
- Zinc metal sales of 66,277 tonnes compared to 68,059 tonnes
- Sulphuric acid sales of 93,574 tonnes compared to 97,880 tonnes
“Lower treatment charges and strong copper and zinc prices, as well as solid operational execution resulted in earnings in line with the same period last year and positive EBITDA for the Fund for the first quarter of 2021. This is despite extremely challenging market conditions for zinc smelters globally, with indicative spot treatment charges remaining low throughout the first quarter,” said Liana Centomo, Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager.
Ms. Centomo added: “We expect tightness in the concentrate market to continue negatively impacting treatment charges while zinc prices are expected to be supported by investor confidence, infrastructure spending and a weaker US dollar. Our team is also working diligently to manage variations in concentrate feed quality and mix in order to maintain production levels with existing infrastructure, as we move forward with our strategic expansion projects aimed at improving our residue filtration capacity and increasing our production capacity.”
“Despite the additional complexity and challenges caused by the ongoing pandemic, the Processing Facility has continued to maintain a safe operating environment while successfully moving forward with our strategic expansion projects. This is thanks to everyone’s hard work and dedication and I am extremely proud of all that has been achieved during my tenure as CEO. I have full confidence in the management team in place to continue supporting the Fund in achieving its business objectives with the support of our Board of Trustees,” concluded Ms. Centomo.
Financial Results for the First Quarter 2021
Revenues were $195.6 million compared to $180.3 million for the same period of 2020. The main factors explaining this increase of 8.5% were higher zinc prices partly offset by lower zinc metal sales, lower acid volume and lower acid net-back prices for the sulphuric acid sales. Lower acid volume is mainly due to lower sulphur contained in the concentrates processed in the quarter.
Net Revenues (Revenues less raw material purchase costs and derivative financial instruments gain) were $50.5 million compared to $56.5 million for the same period of 2020. The decrease was a net result of lower market terms on concentrates partly offset by higher zinc prices.
Adjusted Net Revenues2 were $46.8 million compared to $55.1 million in the same period last year. Lower Adjusted Net Revenues2 reflect lower market terms on concentrates slightly offset by higher zinc prices compared to 2020. The three months ended March 31, 2021 were also negatively impacted by lower sulphuric acid prices and volume compared to the same period of 2020.
Production costs before change in inventory for the three months ended March 31, 2021 and the same period in 2020 were $33.0 million.
Unit production costs3 were $498 per tonne compared to $490 per tonne in the same period of 2020, mainly explained by the strengthening of the Canadian dollar compared to the US dollar.
The Fund reported earnings before income taxes of $11.0 million compared to earnings before income taxes of $11.5 million in the same period a year ago.
Adjusted EBITDA1 was $9.5 million compared to $17.2 million in the same period of 2020.
Liquidity Position and Distribution Policy
As at March 31, 2021, there was $168.0 million drawn down on the ABL Facility (including letters of credit of $22.6 million (CAD$28.4 million)), leaving an excess availability of $12.0 million. The Fund’s debt was $145.4 million, up from $141.8 million at the end of December 31, 2020. The Fund’s senior secured metal liability as at March 31, 2021 was $31.2 million up from $31.1 million as at December 31, 2020. The Fund’s cash as at March 31, 2021 increased to $0.6 million from $0.2 million as at December 31, 2020.
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 Fund’s objective is to return to stable, monthly cash distributions to Unitholders if and when conditions allow. The Fund’s focus is on ensuring the stability of operations, enhancing its ability to maintain profitability in more volatile markets and on the completion of its ongoing strategic expansion projects. 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 regular distributions to Unitholders in future.
Update on Terms for 2021/2022 Contractual Period
For the period of May 1, 2021, to April 30, 2022 (“2021/2022 contractual period”), the Fund and Glencore Canada Corporation have agreed upon a fixed premium price on zinc metal sales but have not reached terms on the purchases of primary zinc concentrates. As such, the parties have mutually agreed to extend the negotiation for a three-month period, or until July 31, 2021, while adopting the agreement’s fallback position regarding the purchase of concentrates for the same period. As per the terms of the agreement, the fallback position is a treatment charge based on market variations, among other conditions.
As per the agreements in place, Glencore Canada, as principal, supplies the Fund with all of its zinc concentrate requirements and purchases all of its zinc metal for the five-year period ending April 30, 2025. The terms for each contractual period (commencing May 1 of the respective calendar year) are to be agreed upon annually in-line with prevailing market conditions and in consultation with the Independent Trustees’ independent industry consultants. Detailed terms are not disclosed as they are considered commercially sensitive and confidential as per the agreement in place.
Fund Outlook and COVID-19 Impact
To date, and since the COVID-19 pandemic was declared on March 11, 2020, the Fund has maintained its operations, while adhering to strict safety measures within the Processing Facility in accordance with public health directives in order to protect the health and safety of onsite employees and contractors. Additional costs have been incurred but the Fund’s production and supply chain as well as the physical sale and delivery of zinc and by-products have not been significantly impacted. The Fund’s previously disclosed annual production and sales target for 2021 is between 260,000 to 270,000 tonnes.
The Fund has contingency plans in place to minimize the impact of the pandemic on its operations and to adapt to various scenarios, including but not limited to, securing adequate resources in terms of labour, supplies, logistics and concentrates. However, the Fund may incur losses or expenses relating to such events outside of its control despite maintaining strict measures within the Processing Facility. Given the evolving and dynamic nature of the ongoing pandemic, it is difficult to predict how significant or adverse its impact may be on the Fund’s financial and operational performance or the market for its securities.
As per Wood Mackenzie, the indicative spot treatment charges on Chinese imported concentrates fell from $305 per tonne in December 2019 to $85 per tonne in December 2020. The decline slowed in the first quarter of 2021, with Wood Mackenzie reporting indicative spot treatment charges on Chinese imported concentrates at $70 per tonne in January, $75 per tonne in February and $70 per tonne in March.
Both mine supply of concentrates and refined zinc metal consumption decreased during 2020, but smelter production was relatively unaffected and modest growth is forecasted for 2021. Concentrate supply in the market may remain at risk in 2021 in the event mines experience additional disruptions due to COVID-19 outbreaks. As such, the current tightness in the concentrates market is expected to continue negatively impacting treatment charges in 2021. Analysts are expecting mine production to improve over the next two years resulting in a return to a situation where mine production exceeds smelter consumption. The refined zinc market is also expected to remain in surplus but zinc prices are expected to be supported by investor confidence, infrastructure spending and a weaker US dollar. CRU is forecasting that the 2021 global concentrates market deficit will moderate to a deficit of 86,000 tonnes from a deficit of 152,000 tonnes in 2020 and that the global refined market surplus will decrease to 365,000 tonnes in 2021, following last year’s 528,000 tonne surplus.
First Quarter 2021 Results Conference Call
The recording will be available until midnight on May 7, 2021, conference ID 9698474 at 1-800-585-8367 (toll-free North America) or 416-621-4642.
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.
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.
|For more information:||Paul Einarson
Chief Financial Officer of Canadian Electrolytic Zinc Limited Noranda Income Fund’s Manager
Tel.: 514 745-9380
Reconciliation of Non-IFRS Measures
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).
|Adjusted EBITDA||For the three months ended March 31|
|Earnings before finance costs and income taxes||$ 13.0||$ 13.7|
|Depreciation of property, plant and equipment||3.6||3.7|
|Net change in residue ponds rehabilitation liabilities||(3.9||)||2.1|
|Senior secured metal liability – embedded derivative change in fair value||0.5||–|
|Derivative financial instrument gain||(0.3||)||–|
|Change in fair value of embedded derivatives||4.0||(1.1||)|
|Decrease in inventory margin net of change in fair value of embedded derivatives||(7.7||)||(0.3||)|
|Loss on sale of assets||–||0.1|
|Net change in employee benefits||0.3||(1.0||)|
|$ 9.5||$ 17.2|
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 March 31|
|Net Revenues||$ 50.5||$ 56.5|
|Change in fair value of embedded derivatives||4.0||(1.1||)|
|Decrease in inventory margin net of change in fair value of embedded derivatives||(7.7||)||(0.3||)|
|Adjusted Net Revenues||$ 46.8||$ 55.1|
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.