Noranda Income Fund says low zinc treatment charges a challenge

Noranda Income Fund said its main challenge currently is for its zinc processing facility to continue to operate profitably amid current low treatment charges.

The Toronto, Canada-headquartered company said spot TCs averaged roughly $38 per tonne in 2017 and around $20-$25 per tonne in the first half of 2018, noting market tightness due to the closure of several large mines in recent years and strong demand for zinc concentrate.

Metal Bulletin assessed spot zinc concentrate TCs at $20-40 per tonne cif Asia-Pacific at the end of June.

Compare this with the annual contract terms, which were set at $147 per tonne for 2018.

“Reflecting the tightness in the concentrate market, the market pricing terms were not as favorable to Noranda Income Fund as the fixed pricing enjoyed by the Fund from its inception to May 2, 2017,” the company said.

Miners are typically able to negotiate a lower TC when the zinc concentrate market is tight because it increases competition among smelters for concentrate supply.

Glencore Canada Corp has an agreement to supply Noranda Income Fund (NIF) with all of its zinc concentrate requirements and purchase all of its zinc metal for a four-year period ending April 30, 2022.

Under the contract, the TCs for the supply will be negotiated on an annual basis, based on market conditions and with a fixed treatment charge for the 12-month period starting May 2018 to April 2019.

In the second quarter, NIF sold 27,000 tonnes of its inventory to Glencore Canada.

NIF owns the second-largest zinc processing facility in North America - in Salaberry-de-Valleyfield, Québec. The facility is operated and managed by Canadian Electrolytic Zinc, a wholly-owned subsidiary of Glencore Canada.

The tightness in the zinc concentrate market, which resulted in low refining charges (RCs), has had a negative impact on the company’s second quarter earnings before taxes, the company said earlier on Tuesday July 24.

Earnings before taxes in the quarter were $6.1 million, down 18% from $7.4 million in the same period of 2017 on lower zinc metal sales volumes being partially offset by the positive impact of a decrease in inventory margins.

The lower sales volume was due to the one-time sale of zinc metal inventory to Glencore Canada in the second quarter of 2017. The lower prices were the result of the lower net revenues from market terms compared to the prior processing fee, partially offset by higher byproduct prices and premiums.

Zinc metal production increased 31% to 66,325 tonnes in the second quarter from 50,521 tonnes in the same period of 2017, reflecting the return to full capacity in 2018 following last year’s labor disruption.

The company has upped its estimate for 2018 zinc metal production to 255,000-265,000 tonnes from 250,000-260,000 tonnes.

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