Tour of the Noranda Income Fund Processing Facility. September 26, 2007

Transcription

1 Tour of the Noranda Income Fund Processing Facility September 26,

2 Agenda Background/What We Do Business & Agreements Key Drivers Strategy Environmental Management Discussion Period 2

3 Forward-Looking Statements This presentation contains forward-looking statements concerning the Noranda Income Fund s ( Fund") objectives and 2007 general business outlook, zinc metal production and sales targets, estimated processing fee, zinc premium target, estimated tax deferral and capital expenditures forecast; and 2007 cash flow. Examples of such risks, uncertainties and other factors include, but are not limited to, the following: (1) the Fund s ability to operate at normal production levels; (2) the dependence upon the continuing supply of zinc concentrates (terms of the Supply and Processing Agreement); (3) the impact of new tax legislation; (4) the demand for zinc metal, sulphuric acid and copper cake; (5) changes to the supply and demand for specific zinc metal products and the impact on the Fund s realized premiums; (6) the impact of month prior pricing; (7) the ability of the Fund to continue to service customers in the same geographic region; (8) the sensitivity of the Fund s Net Revenues to reductions in realized zinc metal prices including premiums, copper prices, sulphuric acid prices; the strengthening of the Canadian dollar vis-à-vis the US dollar; and increasing transportation and distribution costs; (9) the sensitivity of the Fund s production costs to increases in electricity rates, other energy costs, labour costs and operating supplies used in its operations, the sensitivity of the Fund s interest expense to increases in interest rates; (10) changes in recoveries and capital expenditure requirements; (11) the negotiation of collective agreements with its unionized employees; (12) general business and economic conditions; (13) transportation disruptions; (14) the legislation governing air emissions, discharges into water, waste, hazardous materials and workers health and safety, as well as the impact of future legislation and regulations on expenses, capital expenditures, taxation and restrictions on the operation of the Processing Facility; (15) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; (16) loan default; and (17) reliance on Falconbridge Limited for the operation, maintenance and short-term financing of the Processing Facility. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied in the forward-looking statements contained herein. All dollar amounts are in Canadian, except otherwise noted. 3

4 Fund Owns Zinc Refinery Processing Facility, Valleyfield, Quebec 4

5 What We Do Zinc Concentrate Processing Facility Zinc Products 5

6 Noranda Income Fund Highlights TSX - NIF.UN Issued May 3, 2002 Market Cap * 52-week high/low Falconbridge Average daily turnover Cash distribution Yield * $495 M $12.00/$7.40 Wholly owned subsidiary of Xstrata 60,000 units $1.02/unit 10.3% * Includes Ordinary and Priority Units as at September 24,

7 All Distributions Paid Since May, 2002 $0.833 $0.85 paid since February 2003 M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J

8 CEZ - A Modern Plant Refinery consists of: 4 Lurgi roasters/3 acid plants Outokumpu Leach and Union Miniere purification circuit Union Miniere jumbo Cellhouse Casting and distribution Workforce complement of unionized workers - United Steel Workers of America - local 6486 Current contract continues to October 31st,

9 Highlights Capacity Active mt/year employees 1963 CEZinc comes on-stream Roasters Nos 1 and 2 and Acid Plant No New Jarosite conversion process introduced Roaster No 3, Acid Plant No 2 and Cellhouse No Roaster No 4 and Acid P. No Cellhouse No Optimization completed State of the art Jumbo Line Continuous improvement

10 History of Operations Highlights Capacity Active mt/year employees 1963 CEZinc comes on-stream 65, Roasters 1 & 2; and Acid Plant 1 130, Conversion process 140, Roaster 3, Acid Plant 2, Cellhouse 2 210, Roaster 4 and Acid Plant 3 230, UM Cellhouse 3 230, Optimization completed 250, State of the art Jumbo Line 260, Continuous improvement ,

11 Annual Production Zinc - 266,427 tonnes Ingot Jumbo Shot Powder By-products Sulphuric acid - 442,000 tonnes Copper cake - 5,800 tonnes 11

12 How Zinc Is Used Zinc First Use Zinc End Use Other 5% Rolled Zinc 6% Chemicals 8% Galvanizing 50% Infrastructure 9% Consumer Durables 10% Construction 48% Die Cast 13% Equipment 10% Brass 18% Transport 23% 12

13 Noranda Income Fund Business & Agreements 13

14 Corporate Structure 14

15 Two Unique Features Of The Fund Enhanced Stability PRIORITY UNITHOLDERS Supply and Processing Agreement Subordination Agreement Guaranteed supply of concentrate to support production at CEZinc Fixed processing fee in C$ to

16 Supply and Processing Agreement 15-year agreement whereby Falconbridge is obliged to supply up to 550,000 tonnes of zinc concentrate Processing fee for any year will be the Processing Fee of the previous year adjusted annually by 1% In addition, the Fee will be adjusted upwards or downwards by 10% of the year-over-year change in electricity costs. Since the electricity costs represent approximately 20% of the processing Fee, this adjustment to the processing Fee was designed to share increases in electricity costs approximately equally between Falconbridge and the Fund Falconbridge acts as agent for the purchases of the concentrate and the sales of zinc metal and byproducts 16

17 Two Unique Features Of The Fund Subordination Agreement Extends to 2017 PRIORITY UNITHOLDERS Supply and Processing Agreement Guaranteed supply of concentrate to support production at CEZinc Fixed processing fee in C$ to 2017 Subordination Agreement Distributions to Ordinary Unitholders occur only after base distribution to Priority Unitholders are met Since inception, subordination feature not exercised Subordination feature remains in place with new tax legislation 17

18 Other Agreements Management Services Agreement Manager will provide management and support services for 15 years Administration Agreement Manager will provide administration services for 15 years Operating and Management Agreement Manager will operate and maintain the Processing Facility in accordance with prudent industry practices for 15 years 18

19 Noranda Income Fund Key Drivers 19

20 The Four Drivers Of Net Revenues The Processing Fee Provides the Bulk of Net Revenues* Premiums 11% Zinc Recoveries 4% Byproducts 13% Advantage: Processing fee is not exposed to Currency markets Commodity prices Processing Fee 72% * Note: these % s relate to 12 months ending Dec 31,

21 1. Processing Fee Processing fee paid on 96% of the zinc metal content in the concentrate To the extent that the Processing Facility can recover greater than 96%, this represents the metal gain Started at 35.2 cents per pound Increases annually by 1% to compensate for costs 21

22 The Processing Fee Accounted for 72% of Net Revenues in (C cents/lb)

23 Production Zinc Metal ( 000 tonnes) Production F 23

24 Zinc in Concentrate Grade, % % YTD 24

25 2. Premiums Accounted For 11% of Net Revenues in (US cents/lb)

26 What Generates the Premiums? Market proximity Realized on the sale of zinc products to customers Zinc metal is sold based on the LME price, plus a premium negotiated between the buyer and seller Value-added products Premiums vary according to product form, quantity, quality, payment terms, etc. And supply/demand factors in the individual markets 26

27 3. Byproduct Revenues (Cu & H 2 SO 2 ) Accounted 13% of Net Revenues in 2006 $40.0 $35.7 ($M) $30.0 $20.0 $21.7 $24.6 $10.0 $3.5 $9.9 $ Note: 2002 is from May 2 to December 31 27

28 4. Recoveries Accounted for 4% of Net Revenues in 2006 Zinc recoveries Metal gain difference between what the Facility pays for the zinc (96%) and what it recovers 28

29 Zinc Recoveries % YTD 29

30 Cash Costs $800 $600 $598 $647 $656 $662 $688 ($/tonne) $400 $200 $

31 2006 Operating Cost Breakdown 22% 4% 39% 35% Labour Energy Supplies Other 31

32 Labour At December 31, 2006, CEZinc had 680 employees 467 were unionized 474 are represented by the United Steel Workers of America, Local 6486 The current contract expires October 31, 2007 Three other employees operate a water treatment plant under another agreement 32

33 Total Employees (year end)

34 Productivity (lbs/hr worked) F 34

35 The Processing Facility Has Competitive Energy Costs Energy: 35% of production costs Breakdown of energy costs hydro 89% natural gas, propane, oil, gasoline and 11% The Processing Facility currently purchases 1,200 million kilowatt hours of electricity from Hydro-Quebec Today the Facility is paying 4.2 cents per kilowatt hour 35

36 Operating Supplies & Other Costs Operating Supplies reagents, cathodes, mechanical and maintenance supplies, equipment rental costs and safety supplies Other Costs contractors and consultants 36

37 Capital Expenditures $25 $20 $7 ($M) $15 $10 $5 $15 $ Sustaining Capital Revenue Generating Projects 37

38 Noranda Income Fund Strategy 38

39 Clear Strategy Maximize production Increase byproduct revenues and recoveries Develop new premium products Minimize costs 39

40 Outlook for 2007: Production F 40

41 Operations Update Two issues negatively affecting production In hydrometallurgical section of the plant New process to produce copper cake without arsenic has increased zinc dust consumption. Engineering team in place to reduce zinc dust consumption Concentrate supply to the plant has been at a lower grade. 41

42 Concentrate Supply Under the Supply and Processing Agreement, Falconbridge is obliged to sell to the Processing Facility up to 550,000 tonnes of zinc concentrate annually Falconbridge acts as agent to procure the right amount Concentrate supply coming from 6 sources 4 Xstrata related and 2 third party (Duck Pond and Gonzague). Xstrata is expected to start Perseverance in 2008 Short-term objective: produce 265,000 tonnes in 2007 Longer term objective: increase production up to the maximum of the Supply and Processing Agreement. 42

43 Concentrate Processed ' D M T F 2010F 43

44 Sales 7% 93% Canada/USA Other In 2006, 10 customers accounted for 59% of total sales 2 largest customers accounted for 12% each Traditionally the Processing Facility s largest customers have been the North American steel industry where zinc is used to galvanize steel 44

45 Sales 24% 6% truck rail ship 70% Most of the Facility s sales are in northeastern and mid-western US and in central and eastern Canada Which results in relatively low transport cost relative to its competitors The majority of the customers are within same day delivery 45

46 Outlook for 2007: Capital Expenditures $25 $20 $7 $7 $15 ($M) $10 $5 $15 $17 $ F Sustaining Capital Revenue Generating Projects 46

47 Recent Capital Expenditure Projects Project completed 2 tanks to increase recovery Roaster de-bottleneck Hydro increase capacity phase 1 (1 tank) Project being worked on Hydro increase capacity phase 2 (2007) Hydro increase capacity phase 3 (2008) 47

48 Noranda Income Fund Environmental Management 48

49 Reduced SO 2 Emissions Kg SO 2 /TmH 2 SO Year 49

50 Reduced Emissions in the Water Kg Zn / Tm Zinc Metal

51 46% Reduction in Greenhouse Gas Emissions Tonnes CO 2 (eq)/tonne Production

52 Quality Assurance 1988 Quality assurance policy and system implemented 1990 First zinc refinery in the world to obtain ISO 9003 certification 1992 First refinery in the world to obtain ISO 9002 certification for every step in the zinc production process 1993 Continuous quality improvement program implemented 1995 ISO 9002 certification, for sulphuric acid production 1999 Environmental management system 2000 Integration of management system for Health and Safety, Environment 2002 ISO 9001 certification 2005 ISO Environnemental certification 2007 ISO re-certification 52

53 Noranda Income Fund Discussion Period 53

54 Investor Presentation September 2007 Appendix Mario Chapados President & CEO Michael Boone Vice President & CFO 54

55 1H 2007 Net Revenue* $130M $129M EBITDA $54M $40M 1H 06 1H 07 * Revenues less raw material purchase costs 1H 06 1H 07 55

56 Impact of Bill C-52 On June 22, 2007 the Federal Government enacted the bill that existing income and royalty trusts would be taxed as corporations, effective Jan 1/ NIF estimates that the unrecognized temporary difference that will remain as of Jan 1, 2011 is approx. $60 million. This future tax liability is being recorded as a charge to future income tax expense and an increase in LT future tax liabilities of $14.6 million in Q2/07, based on an effective tax rate of 31%. 56

57 1H 2007 Net Earnings* Earnings before Income Taxes $23M $14M $14M $9M 1H 06 1H 07 1H 06 1H 07 * Net earnings for 2007 include $14.6 million tax provision. 57

58 1H 2007 Cash Flow* $40M $33M 1H 06 1H 07 * Cash flow before working capital changes 58

59 Estimated Tax Treatment for 2007 Distributions 90% income 10% return of capital 59