Noranda Income Fund Announces Third Quarter 2023 Results; Executive Officer Appointments

TORONTO, Nov. 02, 2023 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today reported its financial results for the third quarter ended September 30, 2023. Except where otherwise indicated, all amounts in this press release are expressed in US dollars.

Third Quarter 2023 Highlights (compared to same period in 2020)

• Earnings before income taxes of $5.9 million compared to a loss of $4.1 million
• Adjusted EBITDA¹ of $5.7 million compared to $14.3 million
• Zinc metal production of 64,063 tonnes compared to 64,748 tonnes
• Zinc metal sales of 63,676 tonnes compared to 64,749 tonnes
• Sulphuric acid sales of 95,821 tonnes compared to 93,588 tonnes

“Our third quarter financial results reflect both higher zinc and by-product prices and suppressed treatment charges in what remained a tight zinc concentrate market,” said Paul Einarson, Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager. “From an operational standpoint, we are on track to achieve our 2023 zinc production and sales target of between 260,000 and 270,000 tonnes and continue to move forward with our strategic expansion projects. While labour and supply chain challenges are putting pressure on our budget and timeline, these continue to be manageable and to date, have not impacted the planned gradual ramp up of our zinc production by an additional 10,000 tonnes in 2023,” added Mr. Einarson.

“Looking ahead to the remainder of the year and 2023, our sector continues to be impacted by global supply chain pressures, rising energy prices in Europe, anticipated metal production curtailments and power availability concerns in China. While this has led to an increase in commodity prices, it has not yet translated into an increase in spot treatment charges. In this context, there is uncertainty if there will be a meaningful increase in this key revenue driver for the Fund before 2023 when the projected zinc concentrate market surplus materializes,” concluded Mr. Einarson.

Executive Officer Appointments
The Fund also announced today the appointment of Paul Einarson as Chief Executive Officer (CEO) and Sylvain Lirette as Chief Financial Officer (CFO) of the Fund’s manager.

“Both Paul and Sylvain bring a deep understanding of our industry as well as the unique nature of the Fund, and have been instrumental in supporting the Fund in the achievement of its business objectives over the last several years, with the support of CEZInc’s management team. On behalf of the Board of Trustees, I wish to congratulate them on these well-deserved appointments and look forward to their continued leadership as we work diligently to improve the Fund’s long-term profitability,” said Anthony Lloyd, Chair of the Board of Trustees.

Paul Einarson, CPA, CA, has been interim CEO of the Fund’s manager since early 2023, and CFO since 2018. A seasoned finance executive, Mr. Einarson has spent over 20 years in senior management positions with various publicly traded companies, including the last 15 years in the resource sector. He joined Glencore Canada Corporation in 2014. Mr. Einarson holds a Bachelor of Commerce (Honours) from the University of Manitoba.

Sylvain Lirette, CPA, CA, has been Manager of Finance and Administration of the Fund’s manager since joining CEZinc in 2014. Prior to that, Mr. Lirette held senior finance roles for over 15 years in various industries. He has a Bachelor of Business Administration and Accounting from Université Laval.

Financial Results for the Third Quarter 2023
Revenues were $204.8 million compared to $136.5 million for the same period of 2020. The increase of 50% is mainly due to higher zinc and by-product prices.

Revenues less raw material purchase costs and derivative financial instruments loss (gain) (“Net Revenues”) were $44.9 million compared to $39.1 million for the same period of 2020. The increase was a net result of higher zinc prices, lower treatment charges and the loss on derivative instruments in 2023 versus a gain in 2020.

Adjusted Net Revenues² were $41.0 million compared to $49.3 million in the same period last year. Lower Adjusted Net Revenues reflect lower treatment charges partially offset by higher zinc prices compared to 2020.

Production costs before change in inventory were $32.8 million, $1.4 million higher than the $31.4 million recorded for the same period in 2020.

Unit production costs³ were $512 per tonne for the three months ended September 30, 2023 compared to $485 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.

Liquidity Position and Distribution Policy
As at September 30, 2023, the Fund’s asset-based revolving credit facility (the “ABL Facility”) was $132.4 million, down from $141.8 million at the end of December 31, 2020. The Fund’s senior secured metal liability, as at September 30, 2023, was $45.1 million, up from $31.1 million as at December 31, 2020. The Fund’s cash as at September 30, 2023 increased to $1.0 million from $0.2 million as at December 31, 2020.

Cash provided by operating activities for the three months ended September 30, 2023 was $29.8 million, including a positive $21.3 million decrease in non-cash working capital mainly due to a decrease in inventories and a decrease in accounts receivables. In the same period of 2020, cash used in operating activities was $3.1 million, including a positive $18.6 million decrease in non-cash working capital due to an increase in accounts payables and a decrease in inventories partially offset by an increase in accounts receivables.

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.

Production and Sales Outlook for 2023 & 2023
The Fund’s annual production and sales target for 2023 is between 260,000 to 270,000 tonnes. For 2023, 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, expected to be completed in the first quarter of 2023, barring any additional delays due to materials and contractor availability.

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.

Market Outlook
The general global economic disruption and uncertainty caused by the COVID-19 pandemic has resulted in a tight global concentrate market that until this point in 2023 has 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 September 2023 ($80 per tonne). Over the same period, the prices of zinc, copper and sulphuric acid have increased. Most recently, there has been an increased level of discussion on the impact of supply chain pressures, energy price increases in Europe and the availability of power in China. Specifically in Europe, there have been news reports of zinc smelters constraining production due to the high power costs. Similarly, there is discussion that Chinese zinc production has also been affected by power availability, which is related to coal availability and carbon emission controls. As a result, zinc and copper prices increased sharply in October 2023 even in the absence of a clear quantification of potential or actual production curtailment. There is limited evidence to date of the actual or potential impact of smelter production cuts on spot treatment charges. However, prior to the news of European smelters curtailing production, industry experts were forecasting improved treatment charges, on the basis that their supply and demand analysis projected a concentrate surplus in 2023.

Zinc premiums are also being impacted. North American zinc producers have experienced disruptions in 2020 such as Teck’s Trail smelter in British Columbia being affected by forest fires. In 2023, HudBay will close their Flin Flon smelter. Further, there is concern that the zinc volumes previously imported to North America from Europe will no longer be available in the same volumes as in the past. Finally, the transportation industry is also experiencing labour shortages and cost increases. With these contributing factors, CRU is indicating 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 2023 to a deficit in 2023.

The same supply chain and energy challenges that are affecting the zinc smelting industry are also expected to have an impact on other sectors and potentially on the demand for other commodities. As an example, zinc galvanizers in China, another energy-intensive industry and an important end user of zinc, were asked to curtail production in September by 10-15%. Overall, Chinese manufacturing is experiencing challenges due to a slowdown in the real estate sector, supply chain disruptions and power shortages. China’s National Bureau of Statistics manufacturing Purchasing Manager’s Index has been decreasing over the last six consecutive months to 49.6% in September, the first time the index has been below 50% since February 2020. The 50-point mark separates growth from contraction.

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.

Third Quarter 2023 Results Conference Call

The recording will be available until midnight on November 10, 2023, conference ID 2177923 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, 2023 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

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).

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.

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.