Noranda Income Fund Reports 2017 Third Quarter Financial Results
SALABERRY-DE-VALLEYFIELD, Québec, Nov. 10, 2017 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX:NIF.UN) (the “Fund”) today reported its financial results for the three-and nine-month periods ended September 30, 2017. All amounts are in US currency unless otherwise stated.
2017 Third Quarter Financial and Operating Highlights
- Q3 was the first quarter during which almost all the zinc metal was produced from concentrate purchased at market terms.
- The Fund’s Processing Facility continues to operate at partial production levels with eligible staff as a result of the strike initiated by unionized workers on February 12, 2017.
- Zinc metal production decreased 50% to 33,802 tonnes from 67,815 tonnes in Q3 2016.
- Zinc metal sales totaled 33,395 tonnes, down 52% from 69,662 tonnes in Q3 2016.
- Loss before income taxes was $16.2 million, compared to a loss of $7.5 million in Q3 2016. The 2016 loss included a $16.0 million non-cash impairment charge.
- By-product revenue from the sale of copper in cake and sulphuric acid was $4.0 million, down from $4.7 million for Q3 2016.
- Production costs before changes in inventory declined 32% to $22.9 million.
- Non-cash working capital increased by $40.7 million as a result of higher inventory, partially offset by a decrease in accounts receivable and an increase in accounts payable.
The Processing Facility is currently operating at approximately between 50% and 60% of capacity with eligible staff. The Fund remains committed to renewing its collective agreement with the unionized employees, however, any collective agreement must balance the needs of the Fund with the needs of the employees, and take into account the market terms now affecting the Fund. On October 31, 2017, at the joint request of the Union and the Manager, the Quebec Minister of Labour appointed a special mediator to assist in finding solutions to the conflict.
“As we have been anticipating for some time, the transition to market terms has had a significant negative impact on our results. We have been preparing for this eventuality by focusing on costs and productivity,” said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager. “This work has continued despite the ongoing labour dispute. We have continued to make investments to improve operational efficiencies at the plant while reducing costs. Our objective is to create a sustainable business.”
Third Quarter 2017 Financial and Operating Results
Effective July 1, 2017, the Fund adopted the US dollar as its functional and reporting currency, reflecting the change from a Canadian dollar processing fee to US dollar treatment charges.
In Q3 2017, the Fund reported a loss before income taxes of $16.2 million, down from a loss of $7.5 million for the same quarter last year. On a nine-month basis, the Fund reported a loss before income taxes of $4.7 million in 2017, up from a loss of $6.6 million in 2016.
Zinc metal sales in Q3 2017 were 33,395 tonnes, down 52% from 69,662 tonnes in Q3 2016. Zinc metal sales in the nine months ended September 30, 2017 were 157,358 tonnes, down from 203,856 tonnes sold in the same period in 2016. The decrease is the result of lower operating rates due to the ongoing strike.
Zinc metal production in Q3 2017 decreased 50% to 33,802 tonnes from 67,815 tonnes in Q3 2016. Zinc metal production for the nine months ended September 30, 2017 was 134,371 tonnes compared to 204,731 tonnes in 2016.
Production costs before changes in inventory in the three months ended September 30, 2017 were $22.9 million, $10.5 million lower than the $33.4 million recorded in the same period of 2016. Production costs before changes in inventory for the nine months ended September 30, 2017 were $75.4 million, $30.1 million lower than the $105.5 million recorded in the same period in 2016. The decrease was due to a number of factors, including lower labour, energy and supplies costs, as well as the lower zinc metal production volumes in the quarter, all resulting from the labour disruption, partially offset by a stronger Canadian dollar.
Cash used in operating activities for the three months ended September 30, 2017 was $41.4 million, including a negative $40.7 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. In the same period of 2016, cash used in operating activities was $23.4 million, which was negatively impacted by a $28.1 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 used in operating activities for the nine months ended September 30, 2017 was $35.3 million, including a negative $55.1 million increase in non-cash working capital due to an increase inventories and a decrease in accounts payable, partially offset by a decrease in accounts receivable. In the same period of 2016, cash provided by operating activities was $11.9 million, which was negatively impacted by a $12.0 million increase in non-cash working capital due to an increase in accounts receivable and inventories, partly offset by an increase in accounts payable.
In November 2017, the Fund sold 20,000 tonnes of zinc cathode to Glencore Canada. The extra cathode had been generated as a result of the roasters, leaching plant and cell house operating at 70% of capacity during the third quarter, while the zinc casting facility operated at 50% of capacity during the quarter. The sale of cathode helps the Fund to manage its working capital requirements in this period of high zinc prices.
As at September 30, 2017, the Fund’s debt was $93.0 million, up from $47.7 million at the end of December 2016. The Fund’s cash as at September 30, 2017 decreased to $0.3 million from $1.9 million as at December 31, 2016.
Outlook for the Fund
The third quarter of 2017 marked the first quarter during which almost all the zinc metal sold was produced from concentrate that was purchased at market terms. The main challenge facing the Fund is the ability for the Processing Facility to operate profitably under market terms. Under market terms, the Fund’s results are expected to be more volatile due to a greater sensitivity to zinc price, treatment charges and the Canadian/US exchange rate.
In an ongoing effort to reduce costs to ensure the sustainability of the Fund’s operations, in November 2016, the Fund filed an application to qualify for the Quebec Government’s program for electricity rate reduction for large industrial electricity consumers. The program offers a maximum reduction of 20% for up to four years. The electricity discount requires specific project capital expenditures and certain other conditions be met on the part of the Fund. All capital expenditures must be completed by December 31, 2020. The Fund was accepted to the program in February 2017. In October 2017, based on the capital expenditures completed to date, the initial requirements of the program were met and the Fund started to receive a 20% rebate on its electricity bills. Future electricity rebates through this program will be dependent on the Fund’s ability to continue to make the required project capital expenditures and meet the other program conditions. There can be no assurance that the Fund will be able to make the required capital expenditures or to meet other conditions.
In light of the ongoing strike by unionized workers at the Fund’s Processing Facility and the uncertainty about its duration, the Fund has deferred providing guidance for zinc metal production and sales targets for 2017.
Third Quarter 2017 Results Conference Call:
When: November 10, 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: https://edge.media-server.com/m6/p/d24dok84
Conference Call Replay:
Dial in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367
The conference ID is 8896499 and you will be prompted to provide your name and company.
The recording will be available until midnight on November 24, 2017.
A full version of the third 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.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.
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
Key Performance Drivers
The following table provides a summary of the performance of the Fund’s key drivers:
|Three months ended||Nine months ended|
|September 30,||September 30,|
|Zinc concentrate and secondary feed processed (tonnes)||96,786||134,273||317,280||404,160|
|Zinc grade (%)||52.9||53.3||52.4||52.2|
|Zinc recovery (%)||96.6||98.2||96.7||97.7|
|Zinc metal production (tonnes)||33,802||67,815||134,371||204,731|
|Zinc metal sales (tonnes)||33,395||69,662||157,358||203,856|
|Realized zinc price ($/pound) (1)||1.41||1.10||1.33||0.96|
|Average LME zinc price ($/pound)||1.34||1.02||1.26||0.88|
|By-product revenues ($ millions)||4.0||4.7||9.8||13.3|
|Copper in cake production (tonnes)||502||519||1,467||2,038|
|Copper in cake sales (tonnes)||495||545||1,360||2,089|
|Sulphuric acid production (tonnes)||81,682||108,545||261,414||328,089|
|Sulphuric acid sales (tonnes)||82,136||122,846||271,421||341,994|
|Average LME copper price ($/pound)||2.88||2.17||2.70||2.14|
|Sulphuric acid netback ($/tonne)||26||32||20||27|
|Average US/Cdn. exchange rate||0.80||0.76||0.76||0.76|
|* 1 tonne = 2,204.62 pounds|
|(1) Average LME zinc price plus premium|
|SELECTED FINANCIAL AND OPERATING INFORMATION|
|Three months ended Sept. 30,||Nine months ended Sept. 30,|
|($ US thousands)||2017||2016||2017||2016|
|Statements of Comprehensive Income Information|
|Raw material purchase costs||85,473||99,615||341,931||261,506|
|Revenues less raw material purchase costs||9,317||53,784||105,970||140,458|
|Selling and administration||4,810||4,504||15,857||13,947|
|Foreign currency (gain) loss||(166||)||1,425||(1,715||)||(7,595||)|
|Derivative financial instruments loss (gain)||702||(2,084||)||1,426||1,055|
|Depreciation of property, plant and equipment||3,210||5,316||13,762||15,817|
|Rehabilitation (recovery) expense||(1,066||)||375||(821||)||(255||)|
|Impairment of non-financial assets||–||16,020||–||16,020|
|Loss before finance costs and income taxes||(14,961||)||(6,787||)||(1,266||)||(4,470||)|
|Finance costs, net||1,241||699||3,408||2,132|
|Loss before income taxes||(16,202||)||(7,486||)||(4,674||)||(6,602||)|
|Current and deferred income tax recovery||(3,990||)||(1,804||)||(1,307||)||(2,037||)|
|Loss attributable to Unitholders and Non-controlling interest||(12,212||)||(5,682||)||(3,367||)||(4,565||)|
|Distributions to Unitholders||–||2,154||711||8,236|
|Decrease in net assets attributable to Unitholders|
|and Non-controlling interest||(12,212||)||(7,836||)||(4,078||)||(12,801||)|
|Other comprehensive income (loss)||2,248||(1,743||)||8,207||5,273|
|Comprehensive (loss) income||(9,964||)||(9,579||)||4,129||(7,528||)|
|Statements of Financial Position Information||Sept. 30, 2017||Dec. 31, 2016|
|Income taxes receivable||6,023||3,724|
|Property, plant and equipment||99,532||103,008|
|Accounts payable and accrued liabilities||124,613||130,723|
|ABL revolving facility||93,009||47,655|
|Total liabilities excluding net assets attributable to Unitholders||249,113||208,194|
|Three months ended Sept. 30,||Nine months ended Sept. 30,|
|Statements of Cash Flows Information||2017||2016||2017||2016|
|Cash (used in) provided by operating activities before cash|
|distributions and net change in non-cash working capital items||(694||)||6,830||20,527||32,129|
|Net change in non-cash working capital items||(40,664||)||(28,054||)||(55,107||)||(11,969||)|
|Cash (used in) provided by operating activities||(41,358||)||(23,378||)||(35,291||)||11,924|
|Cash used in investing activities||(3,217||)||(2,636||)||(9,544||)||(9,709||)|
|Cash provided by (used in) financing activities||43,044||25,715||43,265||(2,381||)|
|Effect of functional currency change||–||14||(64||)||(72||)|
|Net decrease in cash||(1,531||)||(285||)||(1,634||)||(238||)|
For further information, please contact:
Michael Boone, Vice President & Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager