Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its
financial results for the second quarter ended June 30, 2021.
Except where otherwise indicated, all amounts in this press release
are expressed in US dollars.
Second Quarter 2021 Highlights (compared
to same period in 2020)
- Loss before income taxes of $13.3
million compared to a loss of $20.5 million
- Adjusted EBITDA1 was a negative
$0.2 million compared to $9.7 million
- Zinc metal production of 67,579 tonnes compared to 66,993
tonnes
- Zinc metal sales of 67,348 tonnes compared to 66,992
tonnes
- Sulphuric acid sales of 94,652 tonnes compared to 104,282
tonnes
- The Fund received the final advance payment of $16 million from
its stream agreement with BaseCore Metals LP (“BaseCore”)
“While we continue to face challenging market
conditions on treatment charges – one of our principal revenue and
cash flow drivers – the Fund is focused on successfully managing
the elements within its control. We are keeping a tight control on
operational costs and actively managing our balance sheet, all
while maintaining safe operations and our annual sales and
production levels in the context of the ongoing pandemic. Our
strategic expansion projects are also advancing as planned, having
recently reached a project milestone triggering the final advance
payment from BaseCore,” said Paul Einarson, Interim Chief Executive
Officer and Chief Financial Officer of Canadian Electrolytic Zinc
Limited, the Fund’s manager.
Mr. Einarson added, “Although we expect market
terms on treatment charges to remain low through the remainder of
the year, we are confident that following the completion and
commissioning of our strategic projects at the beginning of 2022,
we will be in a solid position to capitalize on improving market
conditions, with increased production capacity and robust
operations better adapted to treating more varied and
higher-impurity zinc concentrate.”
Financial Results for the Second Quarter
2021Revenues were $207.2 million compared to $166.9
million for the same period of 2020. The main factors explaining
this increase of 24% were higher zinc prices and, to a lesser
extent, higher zinc metal sales volume.
Revenues less raw material purchase costs and
derivative financial instruments gain (loss) (“Net Revenues”) were
$38.0 million compared to $28.6 million for the same period of
2020. The increase was a net result of higher zinc prices, lower
treatment charges and the small gain in 2021 versus a loss on
derivative instruments in 2020.
Adjusted Net Revenues2 were $42.4 million
compared to $48.4 million in the same period last year. Lower
Adjusted Net Revenues2 reflect lower treatment charges partly
offset by higher zinc prices compared to 2020. The three months
ended June 30, 2021 were also negatively impacted by lower
sulphuric acid volume compared to the same period of 2020.
Production costs before change in inventory for
the three months ended June 30, 2021 were $37.8 million, $4.1
million higher than the $33.7 million recorded for the same periods
in 2020.
Unit production costs3 were $559 per tonne for
the three months ended June 30, 2021 compared to $503 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.
The Fund reported a loss before income taxes of
$13.3 million in the three months ended June 30, 2021
compared to loss before income taxes of $20.5 million in the same
period a year ago.
Adjusted EBITDA1 was a negative $0.2 million
compared to $9.7 million in the same period of 2020.
Liquidity Position and Distribution
PolicyAs at June 30, 2021, there was $169.5 million drawn
down on the ABL Facility (including letters of credit of $22.9
million (CAD$28.4 million)), leaving an excess availability of
$10.5 million. The Fund’s debt was $146.6 million, up from $141.8
million at the end of December 31, 2020. The Fund’s senior secured
metal liability as at June 30, 2021 was $48.0 million, up from
$31.1 million as at December 31, 2020. The Fund’s cash as at June
30, 2021 increased to $0.3 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 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.
2021/2022 Contractual Period
TermsAs previously announced, for the period of May 1,
2021, to April 30, 2022 (“2021/2022 contractual period”), the Fund
agreed upon a fixed premium price on zinc metal sales with Glencore
Corporation Canada (“Glencore Canada”). The purchase of
concentrates continues to be made as per the agreement’s fallback
position while negotiations with Glencore Canada on these terms are
ongoing. The fallback position is a treatment charge based on
market variations, among other conditions. Detailed terms are not
disclosed as they are considered commercially sensitive and
confidential.
Sales and Production Outlook and
COVID-19 ImpactTo date, and since the pandemic was
declared on March 11, 2020, the Fund has maintained its operations
at levels comparable to those prior to the declaration of the
pandemic. Additional costs have been incurred but impacts on our
supply chain have not resulted in production reduction and the
physical sale and delivery of zinc and by-products have not been
significantly impacted. The Fund’s annual production and sales
target for 2021 remains between 260,000 to 270,000 tonnes.
The Processing Facility continues to maintain
strict COVID-19 measures within the Processing Facility in
accordance with provincial government and public health directives
to protect the health and safety of its onsite employees and
contractors. However, disruptions in mine production have
dramatically reduced the global availability of concentrate to be
processed. The Fund has contingency plans in place to minimize the
impact of COVID-19 on its operations, which include strategies to
adapt to various potential scenarios, including but not limited to
securing adequate resources in terms of manpower, supplies,
logistics and concentrate, but the Fund may incur losses or
expenses relating to such events outside of its control despite
maintaining measures within the Processing Facility. Given the
evolving and dynamic nature of COVID-19, it is difficult to predict
how significant or adverse the impact of the pandemic may be on the
Fund’s business, its operations, and the market for its
securities.
Market OutlookAs 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 as low as $70 per tonne in March and
then gradually improving through the second quarter of 2021 to $80
per tonne in June as mines continue to increase production and some
Chinese smelters curtailed or halted production in the second
quarter due to energy consumption control issues or routine
maintenance.
The general global economic disruption and
uncertainty caused by the COVID-19 pandemic resulted in a decrease
in zinc prices throughout the first half of 2020, with the second
half of the 2020 experiencing strong increases. Both mine supply of
concentrate 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 a risk in 2021 in the event mines experience additional
disruptions due to additional COVID-19 waves driven by variants. In
certain markets such as Peru, concentrate shipments are also
affected by vessel availability and higher freight costs
restraining concentrate exports. Wood Mackenzie forecasts that mine
production will increase 5.3% in 2021 however due to aforementioned
issues, the current tightness in the concentrate market is expected
to continue with concentrate markets remaining in a deficit but
moving closer to a balance. Analysts are expecting mine production
to improve over the next two years (Wood Mackenzie forecasts mine
production increases of 3.8% and 2.2% in 2022 and 2023,
respectively) and 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 stable as
COVID vaccinations result in decreasing restrictions increasing
economic activity, as well as expected government stimulus in
infrastructure spending. Chip shortages are affecting the
automotive industry and curtailing production. However, broader
demand across all manufacturing sectors is supporting galvanized
steel demand. CRU is forecasting that the 2021 global concentrates
market deficit will moderate to a deficit of 51,000 tonnes from a
deficit of 152,000 tonnes in 2020 and that the global refined
market surplus will decrease to 250,000 tonnes in 2021, following
last year’s 528,000 tonne surplus.
Second Quarter 2021 Results Conference Call
When: |
Tuesday, July 27, 2021, at 8:30 a.m. ET |
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Dial-in: |
1-877-291-4570 (toll-free North America) or 647-788-4919 |
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|
To access webcast: |
http://www.norandaincomefund.com/investor/conference.php or
http://snwebcastcenter.com/webcast/nifq22021 |
The recording will be available until midnight on August 3,
2021, conference ID 1254367 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.
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 EinarsonInterim Chief
Executive Officer and Chief Financial 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 EBITDA |
For the three months ended June 30 |
($ millions) |
2021 |
|
2020 |
|
(Loss) earnings before finance costs and income taxes |
$(11.0 |
) |
$(18.0 |
) |
Depreciation of property, plant and equipment |
3.8 |
|
3.7 |
|
Net change in residue ponds rehabilitation liabilities |
0.6 |
|
3.7 |
|
Senior secured metal liability - embedded derivative change in fair
value |
2.1 |
|
- |
|
Derivative financial instrument gain |
(0.8 |
) |
- |
|
Change in fair value of embedded derivatives |
(5.9 |
) |
1.6 |
|
Increase in inventory margin net of change in fair value of
embedded derivatives |
10.3 |
|
18.2 |
|
(Gain) loss on sale of assets |
(0.1 |
) |
0.1 |
|
Net change in employee benefits |
0.8 |
|
0.4 |
|
|
$(0.2 |
) |
$9.7 |
|
2Adjusted Net Revenues is not a recognized
measure under International Financial Reporting Standards and
therefore the Fund’s method of calculating Adjusted Net Revenues is
unlikely to be comparable to methods used by other entities.
Adjusted Net Revenues means net revenues less raw material purchase
costs plus (minus) derivative financial instrument gain (loss)
(“Net Revenues”) excluding change in fair value of embedded
derivatives and after the change in the inventory margin. The Fund
uses Adjusted Net Revenues as it believes it provides the best
indication of the net revenues generated in a period and provides
the ability to compare net revenues generated in different
periods.
Reconciliation of Net Revenues to Adjusted Net
Revenues |
|
|
|
For the three months ended June 30 |
|
|
|
($ millions) |
2021 |
|
2020 |
|
Net Revenues |
$38.0 |
|
$28.6 |
|
Change in fair value of embedded derivatives |
(5.9 |
) |
1.6 |
|
Increase in inventory margin net of change in fair value of
embedded derivatives |
10.3 |
|
18.2 |
|
Adjusted Net Revenues |
$42.4 |
|
$48.4 |
|
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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