Noranda Income Fund Announces Agreement With Glencore Canada for Purchase of Concentrate and Sale of Metal

SALABERRY-DE-VALLEYFIELD, QUÉBEC–(Marketwired – Jan. 31, 2017) – Noranda Income Fund (TSX:NIF.UN) (the “Fund”) has reached an agreement in principle pursuant to which Glencore Canada will supply the Fund with all of its zinc concentrate requirements and purchase all of the Fund’s zinc metal and by-products for the 12 month period ending April 30, 2018. The agreement is being entered into in the ordinary course of the Fund’s business and has been unanimously approved by the independent trustees of Noranda Operating Trust, after consultation with their independent industry consultant.

The initial term of the Supply and Processing Agreement expires on May 2, 2017. Glencore Canada has renewed the Supply and Processing Agreement for a five year term that will end on May 2, 2022 (see press release dated November 3, 2016). Glencore Canada is the agent for the sale of zinc metal and by-products produced by the Fund and, starting on May 3, 2017, Glencore Canada will be obligated to arrange for the purchase of zinc concentrate required by the Fund, on market terms rather than the fixed processing fee the Fund has benefitted from since its inception.

As previously disclosed by the Fund, there has been a significant tightening of the zinc concentrate market throughout 2016 and continuing in 2017 as a result of several large closures over recent years, and the global demand for zinc concentrate leading to a shortage of supply. Spot treatment charges have declined from US$175 per dry metric tonne in December 2015 to US$40 per dry metric tonne in December 2016, with reports of transactions below this level in January 2017. Reflecting the tightness in the concentrate market, the market pricing terms for the 12-month period are not as favorable to the Fund as the fixed pricing enjoyed by the Fund since its inception. To illustrate the financial impact, management has calculated the Adjusted EBITDA1 the Fund would have realized for the nine months ended September 30, 2016 under the terms agreed for the 12 months ended April 2018 and using the current market price for zinc metal. Adjusted EBITDA would have been $5 million for the nine month period as compared to the $46 million of actual Adjusted EBITDA reported by the Fund for that period. This illustrative calculation is not necessarily indicative of future results, which will be impacted by future prices of zinc metal as well as other factors such as levels of production, foreign exchange, zinc premiums and by-product prices.

In light of the prevailing market conditions now facing the Fund, it is necessary for available cash, if any, to be used to augment reserves. The Board of Trustees has announced the suspension of future monthly distributions to unitholders. The previously declared January distribution will be paid on February 27, 2017. There is no assurance that monthly distributions will resume in the future.

“We are pleased to have certainty of supply and offtake of our products through April 2018,” said Ms. Eva Carissimi, President and Chief Executive Officer of Canadian Electrolytic Zinc, the Fund’s manager. “With the difficult market conditions facing zinc smelters around the world, it is important that we continue our focus on reducing costs, optimizing operations and ensuring plant safety at our processing facility in Valleyfield.”

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, market prices for zinc metal, foreign exchange rates, 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.

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. It is calculated by adjusting earnings (loss) before finance costs and income taxes 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.

Michael Boone
Vice President and Chief Financial Officer
Canadian Electrolytic Zinc Limited
Noranda Income Fund’s Manager
416-775-1561
[email protected]