TORONTO, Feb. 25, 2020 (GLOBE NEWSWIRE) -- Noranda Income Fund (TSX:NIF.UN) (the “Fund”) today reported its financial results for the fourth quarter and full year ended December 31, 2019. Except where otherwise indicated, all amounts in this press release are expressed in US dollars.  

Full-Year 2019 Overview

• Loss before income taxes were $0.2 million in 2019, compared to earnings before income taxes of $16.3 million in 2018
• Adjusted EBITDA¹ of $23.4 million in 2019 compared to $17.0 million in 2018
• Zinc metal production decreased 3% to 262,965 tonnes from 270,076 tonnes in 2018
• Zinc metal sales were 262,341 tonnes, down 5% from 275,676 tonnes in 2018
• By-product revenues from the sale of copper in cake and sulphuric acid of $34.7 million, compared to $28.3 million for 2018
• On December 19, 2019, the Board of Trustees of the Fund announced a special cash distribution of CAD$0.03 per unit, payable on January 27, 2020, to Priority and Ordinary Unitholders

Q4 2019 Overview

• Adjusted EBITDA¹ of $11.2 million in Q4 2019 compared to a loss of $7.1 million in Q4 2018
• 6% decrease in zinc metal production to 70,053 tonnes from 74,676 tonnes in Q4 2018
• 8% decrease in zinc metal sales to 69,446 tonnes from 75,265 tonnes in Q4 2018

“2019 was characterized by production challenges in the first half of the year, which impacted our annual production and sales volumes. Importantly, our operations teams worked diligently throughout the second half of the year to successfully stabilize production and address equipment maintenance issues. This enabled us to achieve our revised 2019 annual production and sales targets and kick off 2020 on more solid footing.

“As we continue to adjust our operations to the processing of higher volumes of higher-impurity zinc concentrate, we have set our 2020 annual production and sales target to between 260,000 and 270,000 tonnes,” said Liana Centomo, Chief Executive Officer of Canadian Electrolytic Zinc Limited, the Fund’s manager.

Full Year 2019 Financial and Operating Results

Loss before income taxes were $0.2 million in 2019, compared to earnings before income taxes of $16.3 million in 2018. The $16.5 million decrease mainly relates to lower revenues in 2019 resulting from lower sales volume and lower zinc prices as well as higher production costs combined with the $19.8 million favourable impact in 2018 related to the derivative financial instrument gain recorded in 2018 due to the change in market value of the Fund’s financial instruments.

Adjusted EBITDA¹ was $23.4 million in 2019 compared to $17.0 million in 2018. The $6.4 million increase mainly relates to the $20.6 million favourable impact of fluctuating zinc prices on inventory values (net of change in fair value of embedded derivatives) in 2019 compared to 2018, partially offset by the decrease in sales volume and higher production costs in 2019. For the three months ended December 31, 2019, Adjusted EBITDA was $11.2 million compared to a loss of $7.1 million for the corresponding period of 2018. The $18.3 million favourable variance is mainly due to lower raw material costs partially offset by lower zinc prices in 2019 compared to 2018.

Production costs before change in inventory in 2019 were $140.3 million, $7.0 million higher than $133.3 million recorded for the same period in 2018. The higher production costs in 2019 were a result of higher costs of energy and operating supplies mainly due to unplanned maintenance events and increased residue management.

Unit production costs² were $534 per tonne in the year ended December 31, 2019 compared to $494 in the comparable period in 2018, as a result of higher production costs and lower production.

Cash provided by operating activities in 2019 was $19.0 million, including positive $14.3 million decrease in non-cash working capital due mainly to a decrease in accounts receivable partly offset by a decrease in accounts payables and accrued liabilities and a decrease in deferred revenues. In 2018, cash used in operating activities was $7.5 million, including a negative $41.9 million increase in non-cash working capital due mainly to a decrease in accounts payables and accrued liabilities, a decrease in deferred revenues and an increase in accounts receivable partly offset by a decrease in inventories.

As at December 31, 2019, the Fund’s debt was $136.0 million, up from $133.7 million at the end of December 2018. The Fund’s cash as at December 31, 2019 increased to $1.1 million from $0.7 million as at December 31, 2018.

Outlook for the Fund

According to industry analysts such as Wood Mackenzie and CRU, the zinc concentrate market tightness that began in 2016 continued throughout 2017 and 2018. A turnaround has occurred due to higher mine production in 2019 and cuts to smelter production resulting from a widespread crackdown from China’s environmental agencies combined with production issues at various smelters around the world. Chinese refined metal production has increased but was partially offset by declines outside of China. The slight increase in global production, however, was insufficient to meet global metal demand. The refined deficit maintained historically low metal stocks. The refined market is expected to move into a small surplus in 2020 without much impact on global metal stocks. Commodity prices, including zinc, may be subdued by the ongoing US-China trade war regardless of the favourable underlying fundamentals.

Wood Mackenzie further reported that over the next few years, an increasing concentrate surplus will increase treatment charges.  Consequences of excessive concentrate stocks may lead to unsold concentrate and higher treatment charges which may also result in mine production cuts or closures. Wood Mackenzie is predicting improvements in Chinese smelter utilization rate to curtail rising excess concentrate levels.

As per Wood Mackenzie, the indicative spot treatment charges on Chinese imported concentrates rose from $15 per tonne in December 2017 to $187 per tonne in December 2018, $270 per tonne in June 2019 and $305 per tonne in December 2019.

The impact of the Covid-19 epidemic on the Chinese zinc industry is starting to be seen in both supply and demand. The long-term impact will depend on the length and extent of the epidemic.

Production and Sales Outlook
The Fund’s estimates for its 2020 zinc metal production and sales are as follows:

Production:	260,000 to 270,000 tonnes
Sales:	260,000 to 270,000 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”.

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 continually focused on optimizing its existing facilities and is 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.

Concentrate inventory levels continue to be variable, due to large and irregular offshore deliveries of concentrate and the requirement to mix feed qualities to maximize the Processing Facility’s production. Variations in feed quality and feed mix could impact production and inventory levels.

Fourth Quarter and Full Year 2019 Earnings Conference Call

When: Wednesday, February 26, at 8:30 a.m. ET
Dial-in: 1 (877) 291-4570 (toll-free North America) or 647-788-4919
To access webcast: http://www.norandaincomefund.com/investor/conference.php

The recording will be available until midnight on March 3, 2020, conference ID 5569077 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

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.

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		Twelve months ended
	December 31,		December 31,
	2019	2018	2019	2018
Zinc concentrate and secondary feed processed (tonnes)	124,464	130,051	510,560	523,960
Zinc grade (%)	52.9	51.5	52.6	52.1
Zinc recovery (%)	96.3	97.7	96.5	97.5
Zinc metal production (tonnes)	70,053	74,676	262,965	270,076
Zinc metal sales (tonnes)	69,446	75,265	262,341	275,676
Zinc cathode converted into zinc metal	-	-	-	20,000
Realized zinc price (US$/pound)	1.15	1.26	1.23	1.40
Average LME zinc price (US$/pound)	1.08	1.19	1.16	1.33
By-product revenues ($ millions)	10	6.5	34.7	28.3
Copper in cake production (tonnes)	626	775	2,658	2,547
Copper in cake sales (tonnes)	731	559	2,625	2,497
Sulphuric acid production (tonnes)	96,899	98,755	394,610	421,714
Sulphuric acid sales (tonnes)	99,400	93,998	390,599	425,678
Average LME copper price (US$/pound)	2.67	2.80	2.72	2.96
Sulphuric acid netback (US$/tonne)	74	48	67	46
Average CAD/US exchange rate	0.76	0.76	0.75	0.77
* 1 tonne = 2,204.62 pounds

SELECTED FINANCIAL AND OPERATING INFORMATION
	Three months ended  December 31,						Twelve months ended  December 31,
($ thousands)	2019			2018			2019			2018
Statements of Comprehensive Income (Loss) Information
Net revenues	168,608			192,114			727,043			909,144
Raw material purchase costs	128,486			171,554			542,634			726,576
Derivative financial instruments gain	(16,166	)		(19,616	)		(146	)		(19,900	)
Net revenues less raw material purchase costs and derivative financial instruments gain	56,288			40,176			184,555			202,468
Other expenses:
Production	36,707			38,061			140,806			145,712
Selling and administration	4,243			3,337			15,668			15,068
Foreign currency loss (gain)	446			185			743			(379	)
Depreciation of property, plant and equipment	4,544			4,551			15,949			17,569
Rehabilitation (recovery) expense	(965	)		869			2,202			79
Earnings (loss) before finance costs and income taxes	11,313			(6,827	)		9,187			24,419
Finance costs, net	2,995			1,390			9,337			8,150
Earnings (loss) before income taxes	8,318			(8,217	)		(150	)		16,269
Current and deferred income tax expense (recovery)	1,389			(948	)		502			4,298
Earnings (loss) attributable to Unitholders and Non-controlling interest	6,929			(7,269	)		(652	)		11,971
Distributions to Unitholders - net of tax recovery	914			855			914			855
Increase (decrease) in net assets attributable to Unitholders and Non-controlling interest	6,015			(8,124	)		(1,566	)		11,116
Other comprehensive income (loss)	4,623			(1,950	)		840			341
Comprehensive income (loss)	10,638			(10,074	)		(726	)		11,457
Statements of Financial Position Information							Dec. 31, 2019			Dec. 31, 2018
Cash							1,082			732
Inventories							157,975			149,916
Accounts receivable							144,157			163,635
Income taxes receivable							4,187			-
Property, plant and equipment							113,776			106,807
Total assets							437,779			439,177
Accounts payable and accrued liabilities							96,286			97,707
Deferred revenues							879			2,412
ABL revolving facility							136,019			133,672
Total liabilities excluding net assets attributable to Unitholders							269,240			269,912
	Three months ended  December 31,						Twelve months ended  December 31,
Statements of Cash Flows Information	2019			2018			2019			2018
Cash (used in) provided by operating activities before cash
distributions and net change in non-cash working capital items	(4,946	)		(21,150	)		5,735			34,437
Cash distributions	-			-			(1,099	)		-
Net change in non-cash working capital items	(11,612	)		(3,539	)		14,315			(41,905	)
Cash (used in) provided by operating activities	(16,558	)		(24,689	)		18,951			(7,468	)
Cash used in investing activities	(7,259	)		(6,349	)		(20,948	)		(18,595	)
Cash provided by financing activities	24,461			31,209			2,347			24,976
Net increase (decrease) in cash	644			171			350			(1,087	)

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).

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:
Paul Einarson,
Chief Financial Officer of Canadian Electrolytic Zinc Limited, Noranda Income Fund’s Manager
Tel: 514-745-9380
info@norandaincomefund.com