Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its
financial results for the fourth quarter and fiscal year ended
December 31, 2021. Except where otherwise indicated, all amounts in
this press release are expressed in US dollars.
Fourth Quarter 2021 Highlights (compared
to same period in 2020)
- Loss before income taxes was $42.8
million compared to $13.7 million which included an unrealized
derivative loss of $31.4 million compared to $0.6 million
- Adjusted EBITDA1 was nil compared to
($0.9) million
- Zinc metal production of 66,059
tonnes compared to 69,221 tonnes
- Zinc metal sales of 66,311 tonnes
compared to 69,148 tonnes
- Sulphuric acid sales of 84,683
tonnes compared to 94,090 tonnes
- On December 17, 2021, the Board of
Trustees announced a special cash distribution of CAD$0.02 per
unit, payable on January 25, 2022
Fiscal 2021 Highlights (compared to same
period in 2020)
- Loss before income taxes was $39.1
million compared to $26.7 million which included an unrealized
derivative loss of $30.5 million compared to $6.9 million
- Adjusted EBITDA1 was $13.5 million
compared to $17.4 million
- Zinc metal production of 264,046
tonnes compared to 268,387 tonnes
- Zinc metal sales of 263,612 tonnes
compared to 268,948 tonnes
- Sulphuric acid sales of 368,730
tonnes compared to 389,840 tonnes
- The Fund received the final advance
payment of $16 million from the senior secured metal liability
agreement with BaseCore in June 2021
“Our financial results reflect a tight global
concentrate market which negatively impacted one of our key revenue
sources, treatment charges, which were significantly lower in 2021
compared to historical averages. Higher zinc, copper and sulphuric
acid prices only partially offset the lower treatment charges. Also
impacting our fourth quarter results were the high unrealized
derivative instrument losses driven by a larger zinc hedge book and
sharp zinc price increases late in the quarter. From an operational
standpoint, we achieved the mid-range of our annual production
target for 2021. However, our operating efficiency was negatively
impacted in the fourth quarter of 2021 mainly by unplanned
maintenance events, resulting in lower zinc metal output than
anticipated,” said Paul Einarson, Chief Executive Officer of
Canadian Electrolytic Zinc Limited, Noranda Income Fund’s
Manager.
“As we closely monitor the zinc concentrate
market dynamics that will drive our revenues in 2022, we are
working diligently to maintain our production cadence and to
complete our strategic expansion projects, now targeted for
completion in the second quarter of 2022 following pandemic-related
material and labour availability delays. Despite the challenges we
faced in early 2021, we continue to aim to gradually ramp up our
annual production through the second half of the year to between
270,000 and 280,000 tonnes,” added Mr. Einarson.
Financial Results for the Fourth Quarter
2021Revenues were $229.6 million compared to $182.8
million for the same period of 2020. The increase of 26% is mainly
due to higher zinc and by-product prices.
Revenues less raw material purchase costs and
derivative financial instruments loss (“Net Revenues”) were $10.9
million compared to $33.8 million for the same period of 2020. The
decrease was a net result of a higher unrealized loss on derivative
instruments, higher zinc prices and lower treatment charges in
2021.
Production costs before change in inventory were
$39.8 million, $6.5 million higher than the $33.3 million
recorded for the same period in 2020.
Unit production costs2 were $602 per tonne
compared to $481 per tonne in the same period of 2020, mainly
explained by the increase in operating supplies, contractors and
the strengthening of the Canadian dollar compared to the US
dollar.
Financial Results for Fiscal
2021Revenues were $837.2 million compared to $666.5
million for the same period of 2020. The increase of 25.6% is
mainly due to higher zinc and by-product prices slightly offset by
lower zinc metal sales.
Net Revenues were $144.3 million compared to
$158.1 million for the same period of 2020. The decrease was a net
result of a higher unrealized loss on derivative instruments, lower
treatment charges and higher zinc price in 2021 versus 2020.
Production costs before change in inventory were
$143.4 million, $12.0 million higher than the $131.4 million
recorded for the same period in 2020.
Unit production costs2 were $543 per tonne
compared to $489 per tonne in the same period of 2020 mainly
explained by the increase in operating supplies, contractors and
also impact by the strengthening of the Canadian dollar compared to
the US dollar.
Liquidity Position and Distribution
PolicyAs at December 31, 2021, the Fund’s asset-based
revolving credit facility was $141.7 million, compared to $141.8
million at the end of December 31, 2020. The Fund’s senior secured
metal liability, as at December 31, 2021, was $44.6 million, up
from $31.1 million as at December 31, 2020. The Fund’s
cash as at December 31, 2021 increased to $0.3 million from $0.2
million as at December 31, 2020.
Cash provided by operating activities in 2021
was $36.7 million, including a positive $27.6 million decrease in
non-cash working capital mainly due to an increase in accounts
payable and accrued liabilities, partly offset by an increase in
accounts receivables and an increase in inventories. In 2020, cash
used in operating activities was $1.4 million, including a negative
$10.0 million increase in non-cash working capital mainly due to an
increase in accounts receivables and inventories, partly offset by
an increase in accounts payables and accrued liabilities.
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, to
determine its ability to pay distributions to unitholders in
future.Expansion Projects UpdateIn alignment with
its long-term strategy to decrease its production costs and
increase profitability, the Fund is investing in expansion projects
with the installation of additional belt filters and related
equipment to increase the Processing Facility’s filtration
capacity, and two additional cooling towers in the cell house to
improve cooling capacity in the summer months. The cost of the
expansion projects was originally estimated at $32 million however
is now estimated at $38M due to cost increases incurred in the
fourth quarter related to material and contractor costs, and due to
foreign exchange fluctuations.
Commissioning is now targeted for the second
quarter of 2022 as material and manpower shortages have negatively
impacted the timeline of the projects. Both projects have received
the required permits from the Government of Quebec. Once
commissioned, the expansion projects will allow the Processing
Facility to maintain its current production levels as well as
increase zinc production by approximately 20,000 tonnes per year to
a target of 290,000 tonnes annually.
2022 Production and Sales
OutlookFor 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.
Market OutlookThe general
global economic disruption and uncertainty caused by the COVID-19
pandemic continued through the end of 2021, resulting in a tight
global concentrate market and 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 December
2021. Over the same period, the prices of zinc, copper and
sulphuric acid increased. More recently, there has been an
increased impact from supply chain pressures, energy price
increases in Europe and the availability of power in China.
Specifically in Europe, zinc smelters have been forced to constrain
production due to the high power costs, and in some cases, been put
into care and maintenance. Similarly, Chinese zinc production has
been affected by power availability, which is related to coal
supply 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.
Industry experts are forecasting slightly higher zinc treatment
charges in 2022 on the basis that their supply and demand analysis
projects a concentrate surplus in 2022.
Refined zinc premiums are also being impacted.
In 2022, HudBay will close its Flin Flon smelter. Further, there is
concern that zinc metal previously imported into North America from
Europe will no longer be available in the same volumes as in the
past due to the tightness in that market. Finally, the
transportation industry is also experiencing labour shortages and
cost increases. With these contributing factors, CRU reported that
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.
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.
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.
Fourth Quarter and Fiscal 2021 Results
Conference Call
When: |
Friday, February 25, 2022, 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
https://onlinexperiences.com/Launch/QReg/ShowUUID=7F4C8BA6-AF01-46CB-9571-0A312FC82F39 |
The recording will be available until midnight
on March 4, 2022, conference ID 4969899 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
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For more information: |
Paul EinarsonChief Executive Officer of Canadian Electrolytic
Zinc Limited, Noranda Income Fund’s ManagerTel.:
514-745-9380info@norandaincomefund.com |
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Reconciliation of Non-IFRS Financial
Measures1Adjusted EBITDA (“Earnings before income taxes,
depreciation and amortization”) is used by the Fund as an
indication of cash generated from operations. Adjusted EBITDA is
not a recognized measure under IFRS and therefore the Fund’s method
of calculating Adjusted EBITDA is unlikely to be comparable to
methods used by other entities. The calculation methodology has
been revised to remove the increase or decrease in inventory margin
and instead adjust for the impact of unrealized derivative
instrument gains or losses. The comparative information also
reflects the revised calculation methodology. 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, senior secured
metal liability embedded derivative change in fair value,
derivative financial instrument loss or gain 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), inventory management program unrealized gain (loss)
and the net change in employee benefits (non-cash employee benefit
expenses less employer contributions).
Reconciliation of Adjusted EBITDA($ millions,
except per-unit amounts) |
Three months endedDecember
31, |
Year endedDecember 31, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Loss before finance costs and income taxes |
$(40.5 |
) |
$(11.9 |
) |
$(30.7 |
) |
$(18.8 |
) |
Depreciation of property, plant and equipment |
4.0 |
|
3.8 |
|
15.1 |
|
14.7 |
|
Net change in residue ponds rehabilitation liabilities |
1.7 |
|
(0.6 |
) |
(2.2 |
) |
4.5 |
|
Derivative financial instrument gain |
(1.8 |
) |
(2.1 |
) |
(2.8 |
) |
(1.8 |
) |
Change in fair value of embedded derivatives |
2.3 |
|
8.4 |
|
(0.9 |
) |
10.8 |
|
Inventory management program - unrealized |
31.4 |
|
0.6 |
|
30.5 |
|
6.9 |
|
Loss on sale of assets |
0.6 |
|
0.5 |
|
0.6 |
|
0.8 |
|
Net change in employee benefits |
2.3 |
|
0.4 |
|
3.9 |
|
0.3 |
|
|
$ - |
|
$(0.9 |
) |
$13.5 |
|
$17.4 |
|
2Unit 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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