SALABERRY-DE-VALLEYFIELD, Québec, April 25, 2019 (GLOBE NEWSWIRE) -- Noranda Income Fund (TSX: NIF.UN) (the "Fund") today reported its financial results for the three-month period ended March 31, 2019. All amounts are in U.S. currency unless otherwise stated.
2019 First Quarter Financial and Operating Highlights
"Following a successful end to 2018 with our facility producing at full capacity, the first quarter of 2019 presented a new challenge," said Liana Centomo, the Fund's recently appointed Chief Executive Officer. "Lower volumes of domestic concentrate receipts have been augmented by foreign concentrate which generally contains greater amounts of impurities, which in turn negatively impacts production. We are addressing the issues associated with the higher impurity levels with process optimisation efforts over the short term, whilst evaluating medium to long term modifications in the plant. We maintain our production and sales estimates of between 270,000 to 280,000 tonnes for the year."
First Quarter 2019 Financial and Operating Results
Loss before income taxes was $23.1 million in Q1 2019, compared to earnings before income taxes of $16.6 million in Q1 2018. The loss is a reflection of lower production volumes, zinc prices and commercial terms when compared to the first quarter of 2018, along with the negative impact of the derivative financial instrument loss. Adjusted EBITDA for the first quarter of 2019 was impacted for the same reasons.
Bottlenecks in impurities management and filtration capacity in the first quarter of 2019 negatively impacted volumes processed, whilst the processing of opening cathode inventories in 2018 positively impacted the production volumes in the first quarter of 2018.
Production costs before change in inventory in Q1 2019 were $32.6 million compared to $33.8 million recorded in Q1 2018.
Unit production costs remained relatively stable at $504 per tonne in the first quarter of 2019 compared to $491 per tonne in the comparable period in 2018 with some impact from lower production volumes.
As at March 31, 2019, the Fund's debt was $130.4 million, down slightly from $133.7 million at the end of December 2018. Inventory balances and accounts payables increased since December 2018 due to lower domestic arrivals requiring higher volume of offshore concentrates and the timing of vessels. Adequate facilities are available to finance the higher inventory levels.
Outlook for the Fund
The main challenge facing the Fund is the ability for the Processing Facility to continue to operate profitably under market terms, including market treatment charges.
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.
Wood Mackenzie further reported that as a result of the market tightness, Chinese smelters have curtailed production. A widespread crackdown from China's environmental agencies has resulted in further production decreases and in some cases the closure of smelters. As per Wood Mackenzie, the indicative spot treatment charges on Chinese imported concentrates rose to $187 per tonne in December 2018 and continued to rise to $257 in March 2019. Wood Mackenzie also forecasts Chinese smelter growth and increased mine production in 2019.
On February 28, 2019, the Fund reached an agreement with Glencore on the terms under which zinc concentrate will be purchased and zinc metal will be sold for the period of May 1, 2019 to April 30, 2020.
Over the last several months, as noted above, treatment charges have rebounded in favour of smelters but the pricing environment threatens to continue to be volatile. The Fund, in that context, has favoured and negotiated a combination of 50% of the concentrate feed at a fixed treatment charge and the remaining 50% at a variable treatment charge that will reflect market movement during that period, in addition to other provisions of the four-year agreement.
The Fund does not expect to realize the full impact of these terms until all inventory purchased prior to May 1, 2019 has been fully processed. This is expected to occur in the third quarter of 2019.
The market terms have not been disclosed, as the terms are commercially sensitive as reflected in the contractual requirement and market practice that the pricing information be kept confidential.
Illustrative Adjusted EBITDA
To illustrate the impact of the recently negotiated terms, the Adjusted EBITDA for a full twelve month period under those terms, using the assumptions below and excluding the impact of concentrate purchased under the terms of the previous contract, would be between $52 million and $85 million.
|Illustrative Adjusted EBITDA assumptions|
|Zinc price (US$ per pound)||$1.13 to $1.36|
|US$/CAD$ exchange rate||$0.77|
|Zinc metal production and sales (tonnes)||270,000 to 280,000|
|Zinc concentrate and secondary feed processed (tonnes)||540,000 to 560,000|
Assuming capital expenditures between $30 million and $35 million within the same twelve month period, the cash flow from operations after capital expenditures would be between $17 million and $55 million.
Note that the illustrative Adjusted EBITDA are estimates that may not be indicative of future results, which will be impacted by future prices of zinc metal, variations in treatment charges as well as other factors such as levels of production, foreign exchange, zinc premiums, by-product prices and production costs. Nor is the illustration to be construed as guidance for the 2019 calendar year results as the contractual period and calendar year are not coterminous. Further, the actual achieved cash flow within reporting periods may differ significantly due to changes in working capital including changes in financial derivative instruments among other balances and capital expenditures.
Quality and Availability of Zinc Concentrates
The global quality of zinc concentrates has been declining in terms of zinc grade and the level of impurities contained within. The impact on a smelter is an increase in the level of residues to be treated per tonne of zinc produced. The Fund is currently assessing the impact of this global trend on its operating capacities to determine what capital investments could be made to improve production capacity and overall profitability.
Production and Sales Outlook
The Fund's estimates for 2019 zinc metal production and sales continue to be as follows:
|Production:||270,000 to 280,000 tonnes|
|Sales:||270,000 to 280,000 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.
First Quarter 2019 Results Conference Call
When: April 26, 2019 at 8:30 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/4wnb56tr.
Conference Call Replay:
Dial-in number: 416-621-4642 or
Toll-free North American number: 1-800-585-8367
The conference ID is 7390798 and you will be prompted to provide your name and company. The recording will be available until midnight on May 3, 2019.
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.
Annual General Meeting Webcast and Dial-In
When: April 26, 2019 at 11:00 a.m. E.T.
Location: Gallery at the TMX Broadcast Centre, The Exchange Tower, 130 King Street West, Toronto, ON
To access the webcast and view the slide presentation from the Noranda Income Fund website: http://www.norandaincomefund.com/investor/presentations.php or click on this link: https://bit.ly/2FSG0tY.
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 March 31||2019||2018|
|Zinc concentrate and secondary processed (tonnes)||132,592||127,486|
|Zinc grade (%)||52.2||51.7|
|Zinc recovery (%)||96.3||97.2|
|Zinc metal production (tonnes)||64,654||68,861|
|Zinc metal sales (tonnes)||64,646||69,636|
|Realized zinc price (US$/pound)||1.30||1.61|
|Average LME zinc price (US$/pound)||1.23||1.55|
|By-product revenues ($ millions)||7.6||5.6|
|Copper in cake production (tonnes)||768||658|
|Copper in cake sales (tonnes)||543||431|
|Sulphuric acid production (tonnes)||97,321||104,171|
|Sulphuric acid sales (tonnes)||90,929||94,041|
|Average LME copper price (US$/pound)||2.82||3.16|
|Sulphuric acid netback (US$/tonne)||60||41|
|Average CAD/US exchange rate||0.75||0.79|
|* 1 tonne = 2,204.62 pounds|
|SELECTED FINANCIAL AND OPERATING INFORMATION|
|Three months ended March 31,|
|Statements of Comprehensive Income Information|
|Raw material purchase costs||137,469||183,827|
|Derivative financial instruments loss (gain)||30,251||(15,426||)|
|Net revenues less raw material purchase costs and derivative financial instruments loss (gain)||19,175||61,613|
|Selling and administration||3,756||4,186|
|Foreign currency loss (gain)||55||(630||)|
|Depreciation of property, plant and equipment||3,797||3,919|
|Rehabilitation expense (recovery)||587||(150||)|
|(Loss) earnings before finance costs and income taxes||(21,425||)||19,297|
|Finance costs, net||1,658||2,697|
|(Loss) earnings before income taxes||(23,083||)||16,600|
|Current and deferred income tax (recovery) expense||(3,956||)||2,555|
|(Loss) earnings attributable to Unitholders and Non-controlling interest||(19,127||)||14,045|
|Distributions to Unitholders||-||-|
|(Decrease) increase in net assets attributable to Unitholders and Non-controlling interest||(19,127||)||14,045|
|Other comprehensive loss||(1,099||)||(171||)|
|Comprehensive (loss) income||(20,226||)||13,874|
|Statements of Financial Position Information||March 31, 2019||Dec. 31, 2018|
|Income taxes receivable||2,971||-|
|Property, plant and equipment||105,664||106,807|
|Accounts payable and accrued liabilities||146,324||97,707|
|Total liabilities excluding net assets attributable to Unitholders||338,405||269,912|
|Three months ended March 31,|
|Statements of Cash Flows Information||2019||2018|
|Cash provided by operating activities before cash distributions and net change in non-cash working capital items||3,225||4,033|
|Cash distributions paid||(1,099||)||-|
|Net change in non-cash working capital items||5,341||(10,377||)|
|Cash provided by (used in) operating activities||7,467||(6,344||)|
|Cash used in investing activities||(4,774||)||(3,967||)|
|Cash (used in) provided by financing activities||(3,284||)||9,316|
|Net decrease in cash||(591||)||(995||)|
|Net Revenues Reconciled to Adjusted Net Revenues|
|For the three months ended March 31|
|Change in fair value of embedded derivatives||2.1||(1.2||)|
|Increase (decrease) in inventory margin net of change in fair value of embedded derivatives||13.9||(9.8||)|
|Adjusted Net Revenues||$||35.2||$||50.6|
1 Adjusted 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).
2 Unit 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.
For further information, please contact:
Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund's Manager
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