Noranda Income Fund (the "Fund") (TSX:NIF.UN)
Q2 2014 Summary
-- Loss before income taxes of $(2.6) million compared to Q2 2013 -
earnings of $14.5 million
-- Zinc metal production of 62,645 tonnes compared to Q2 2013 - 68,286
tonnes
-- Zinc premiums averaged 10.2 cents US per pound (11.1 cents Cdn) compared
to Q2 2013 - 8.4 cents US per pound (8.6 cents Cdn)
-- Declared monthly cash distributions from May to June 2014 of $0.04167
per priority unit
-- Commissioning of the Processing Facility's silica removal capacity began
in May; two of the four tanks are now operational and the project is
expected to be completed in the third quarter.
"We have had a challenging second quarter. Zinc metal production was negatively
impacted by an unplanned maintenance outage and electrical equipment failures
which reduced the operating capacity of the cell house. These issues have since
been resolved. Lower zinc metal production and sales, the impact of the negative
concentrate payable adjustment and higher feed acquisition costs largely
resulted in the Fund recording a loss before income taxes of $2.6 million," said
Eva Carissimi, President and Chief Executive Officer of the Fund. "In the second
half of 2014, zinc metal production is expected to return to normal levels, with
the completion of the silica removal capacity project. In addition, a reduction
of in-process inventories that built up during the first half of 2014 is also
expected to support higher production and sales in the second half of the year."
The current three-year labour agreement will expire on October 31, 2014.
Negotiations are expected to begin in the third quarter.
Financial and Operating Highlights (Three month period ended June 30, 2014
compared to the three month period ended June 30, 2013)
Loss before income taxes in the three months ended June 30, 2014 was $2.6
million compared to earnings of $14.5 million in the same period of 2013. The
$17.1 million decrease was mainly due to lower zinc metal production, sales and
by-product revenues, higher concentrate acquisition costs and reclamation
expense, partially offset by higher premiums and a weaker Canadian dollar.
The table below provides a reconciliation of the net earnings before income
taxes for the three month period ending June 30, 2013 to the net loss before
income taxes for the three month period ending June 30, 2014.
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($ millions)
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Net earnings before income taxes for the three months ended June
30, 2013 $14.5
Volume (12.5)
Concentrate provisional payable adjustment (4.8)
Feed acquisition costs (3.6)
Derivative financial instruments (2.6)
Reclamation/Depreciation (2.0)
By-products (1.7)
Costs and other 5.9
Premiums 3.1
Processing fee 0.7
Finance costs 0.4
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Net loss before income taxes for the three months ended June 30,
2014 ($2.6)
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Cash provided by operating activities in the three months ended June 30, 2014,
was $12.6 million, including a negative $0.7 million increase in non-cash
working capital. In the same period of 2013, cash provided by operating
activities was $49.3 million, which was positively impacted by a $32.0 million
decrease in non-cash working capital. Cash distributions of $4.7 million were
declared in both the 2014 and 2013 quarterly periods.
For the three months ended June 30, 2014, non-cash working capital increased by
$0.7 million in a large part due to an increase in inventories, partially offset
by a reduction in accounts receivable and an increase in accounts payables and
accrued liabilities.
Financial and Operating Highlights (Six month period ending June 30, 2014
compared to the six month period ending June 30, 2013)
Earnings before income taxes in the six month period ending June 30, 2014 were
$8.5 million compared to $41.8 million in the same period a year ago. The $33.3
million decrease was mainly due to lower zinc metal production, sales and
by-product revenues and higher concentrate acquisition costs and reclamation
expense, partially offset by higher premiums and a weaker Canadian dollar.
The table below provides a reconciliation of the net earnings before income
taxes for the six month period ending June 30, 2013 to the net earnings before
income taxes for the six month period ending June 30, 2014.
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($ millions)
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Net earnings before income taxes for the six months ended June
30, 2013 $41.8
Volume (14.6)
Derivative financial instruments (7.8)
Feed acquisition costs (6.4)
By-products (6.2)
Reclamation/Depreciation (4.7)
Concentrate provisional payable settlement (3.4)
Premiums 7.0
Processing fee 1.3
Finance costs 1.0
Cost and other 0.5
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Net earnings before income taxes for the six months ended June
30, 2014 $8.5
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Cash provided by operating activities in the six months ended June 30, 2014, was
$0.2 million, including a negative $21.3 million increase in non-cash working
capital. In the same period of 2013, cash provided by operating activities was
$43.6 million, which was positively impacted by a $10.9 million decrease in
non-cash working capital. Cash distributions of $9.4 million were declared in
both six months of both years.
During the six month period ending June 30, 2014, non-cash working capital
increased by $21.3 million in a large part due to an increase in inventories
partly offset by an increase in accounts payables and accrued liabilities and by
a reduction in accounts receivables.
Conference Call and Webcast:
July 22nd, 2014 at 9:30 a.m. ET
Dial in number: 416-340-2216
Toll-free North American number: 1-866-223-7781
In addition, you can listen to the teleconference and view the slide
presentation from the Conference Call section of the Noranda Income Fund
website: http://www.norandaincomefund.com/investor/conference.html or click on
this link: www.gowebcasting.com/5662
Recording of the Conference Call:
Dial in number: 905-694-9451 or
Toll-free North American number: 1-800-408-3053.
The pass code is 9926 603# and you will be prompted for your name and company.
The recording will be available until midnight on August 5th, 2014.
A full version of the second quarter 2014 Management's Discussion and Analysis
("MD&A") and the unaudited Interim Condensed Consolidated Financial Statements
will be posted on www.sedar.com and on the Fund's website at
http://www.norandaincomefund.com/investor/financials.html today, July 22, 2014.
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 second quarter unaudited Interim Condensed
Consolidated Financial Statements and MD&A because a reader relying on this
summary alone might overlook decision critical information.
July Cash Distribution
The Fund also announced today that the Board of Trustees of Noranda Operating
Trust has approved a distribution for the month of July 2014 of $0.04167 per
Priority Unit payable on August 25, 2014 to Priority unitholders of record as at
the close of business on July 31, 2014.
When not restricted, the Fund's policy is to make monthly distributions to
Unitholders. In determining whether there is a distribution and the level
thereof, the Board of Trustees reviews periodically the Fund's financial
performance, business environment and prospects, and determines the appropriate
level of reserves.
FORWARD-LOOKING INFORMATION
This press release contains forward-looking information and statements within
the meaning of applicable securities laws, including statements on 2014 zinc
metal production. 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 Fund's ability
to operate at normal production levels 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, 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.
SELECTED FINANCIAL AND OPERATING INFORMATION
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Three months ended June Six months ended June
30, 30,
($ thousands) 2014 2013 2014 2013
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Statements of Comprehensive
(Loss) Income Information
Revenues 150,993 162,577 305,338 312,632
Raw material purchase costs 95,123 77,808 173,498 146,841
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Revenues less raw material
purchase costs 55,870 84,769 131,840 165,791
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Other expenses:
Production 45,297 51,158 89,281 90,310
Selling and administration 5,587 5,359 10,948 10,841
Foreign currency (gain)
loss (5,521) 3,611 (1,834) 7,102
Derivative financial
instruments loss (gain) 1,213 (112) 2,039 (3,420)
Depreciation of property,
plant and equipment 8,943 10,031 17,639 18,133
Rehabilitation expense
(recovery) 1,656 (1,476) 2,733 (2,505)
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(Loss) earnings before
finance costs and income
taxes (1,305) 16,198 11,034 45,330
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Finance costs, net 1,314 1,685 2,566 3,559
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(Loss) earnings before
income taxes (2,619) 14,513 8,468 41,771
Current and deferred income
tax (recovery) expense (854) 3,543 1,726 8,639
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(Loss) earnings attributable
to Unitholders and Non-
controlling interest (1,765) 10,970 6,742 33,132
Distributions to Unitholders 4,687 4,687 9,375 9,375
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(Decrease) increase in net
assets attributable to
Unitholders and Non-
controlling interest (6,452) 6,283 (2,633) 23,757
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Other comprehensive (loss)
income (330) 2,962 (2,091) 5,880
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Comprehensive (loss) income (6,782) 9,245 (4,724) 29,637
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Statements of Financial June 30, Dec. 31,
Position Information 2014 2013
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Cash 2,223 15,547
Inventories 124,522 77,580
Accounts receivable 77,208 91,898
Income taxes receivable 4,697 4,040
Property, plant and
equipment 272,696 272,341
Total assets 487,103 467,075
Accounts payable and accrued
liabilities 100,986 87,844
Total bank and other loans 57,991 51,322
Total liabilities excluding
net assets attributable to
unitholders 212,374 187,542
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Three months ended June Six months ended June
30, 30,
Statements of Cash Flows
Information 2014 2013 2014 2013
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Cash provided by operating
activities before cash
distributions and net
change in non-cash working
capital items 18,041 22,001 30,891 42,074
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Cash distributions (4,687) (4,687) (9,375) (9,375)
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(Increase) decrease in non-
cash working capital items (714) 31,956 (21,263) 10,855
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Cash provided by operating
activities 12,640 49,270 253 43,554
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Cash used in investing
activities (11,053) (5,954) (19,745) (9,917)
Cash (used in) provided by
financing activities (1,903) (43,941) 6,168 (33,803)
Net decrease in cash and
cash equivalents (316) (625) (13,324) (166)
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Cash distributions declared
per Priority Unit 0.12501 0.12501 0.25002 0.25002
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Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
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Zinc concentrate processed
(tonnes) 126,393 124,309 247,437 257,691
Zinc grade (%) 52.1 53.8 51.9 53.3
Zinc recovery (%) 97.2 98.2 97.1 97.0
Zinc metal production
(tonnes) 62,645 68,286 122,189 136,699
Zinc metal sales (tonnes) 59,598 75,081 120,107 138,139
Processing fee (cents/pound) 40.0 39.5 40.0 39.5
Zinc metal premium (US
cents/pound) 10.2 8.4 10.2 8.4
By-product revenues ($
millions) 7.9 9.6 14.4 20.6
Copper in cake production
(tonnes) 525 380 1,092 1,000
Copper in cake sales
(tonnes) 709 523 882 1,226
Sulphuric acid production
(tonnes) 96,760 103,270 188,734 209,061
Sulphuric acid sales
(tonnes) 93,690 104,072 188,051 207,305
Average LME copper price
(US$/pound) 3.08 3.24 3.14 3.42
Sulphuric acid netback
(US$/tonne) 47 72 51 72
Average LME zinc price
(US$/pound) 0.94 0.84 0.93 0.88
Average US/Cdn. exchange
rate 1.09 1.02 1.10 1.02
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(i) 1 tonne = 2,204.62 pounds
Adjusted Earnings before Distributions to Unitholders, Finance Costs, Income
Taxes, Depreciation and Amortization ("Adjusted EBITDA")
Adjusted EBITDA is used by the Fund as an indication of cash generated from
operations. Adjusted EBITDA is not a recognized measure under IFRS and therefore
the Fund's method of calculating Adjusted EBITDA is unlikely to be comparable to
methods used by other entities.
The Fund's Adjusted EBITDA is calculated by starting from earnings before
finance costs and income taxes and adjusting for all of the non-cash items such
as depreciation, gain or loss on the sale of assets, changes in fair value of
embedded derivatives and non- cash gain or loss on derivative financial
instruments. In addition, an adjustment is made to reflect the net change in the
rehabilitation liability (reclamation (recovery) expense less site restoration
expenditures) and the net change in employee benefits (non-cash employee benefit
expenses less employer contributions).
The Fund's Adjusted EBITDA is currently supported by the stability of the Supply
and Processing Agreement. It is expected that the Fund's Adjusted EBITDA will be
subject to more variability once this agreement expires in May 2017.
A reconciliation of Adjusted EBITDA for the three and six month periods ending
June 30, 2014 compared to the same periods in 2013 are provided below:
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Three months ended
June 30,
Adjusted EBITDA 2014 2013 Change
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($ thousands)
(Loss) earnings before finance costs and
income taxes $ (1,305) $ 16,198 $ (17,503)
Depreciation of property, plant and
equipment 8,943 10,031 (1,088)
Net change in rehabilitation liability 1,657 (1,693) 3,350
Loss (gain) on derivative financial
instruments 1,838 (724) 2,562
Change in fair value of embedded
derivatives 7,531 2,726 4,805
Loss (gain) on sale of assets 113 (233) 346
Net change in employee benefits (372) (134) (238)
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$ 18,405 $ 26,171 $ (7,766)
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Six months ended
June 30,
Adjusted EBITDA 2014 2013 Change
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($ thousands)
Earnings before finance costs and income
taxes $ 11,034 $ 45,330 $ (34,296)
Depreciation of property, plant and
equipment 17,639 18,133 (494)
Net change in rehabilitation liability 2,739 (2,739) 5,478
Loss (gain) on derivative financial
instruments 2,354 (5,410) 7,764
Change in fair value of embedded
derivatives 2,154 (1,229) 3,383
Loss (gain) on sale of assets 12 (562) 574
Net change in employee benefits (743) (332) (411)
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$ 35,189 $ 53,191 $ (18,002)
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FOR FURTHER INFORMATION PLEASE CONTACT:
Michael Boone
Vice President and Chief Financial Officer,
Canadian Electrolytic Zinc Limited
Noranda Income Fund's Manager
416-775-1561
info@norandaincomefund.com
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