Noranda Income Fund

Welcome to Naranda Fund's second quarter 2021 financial results conference call and webcast. At this time, all participants are in a listen-only mode. Following management's presentation, there will be a question and answer session open to financial analysts and investors only. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for the operator assistance at any time. I would like to remind everyone that this conference is being recorded today, July 27th at 8.30 a.m. Eastern Standard Time. I will now turn the call over to Paul Anderson, interim CEO and CFO of Canadian Electrolytic Zinc Limited Naranda Income Funds Manager. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us. Also joining me this morning is Sylvain Larette, manager of finance and administration of SEAS, Inc., the funds manager. Before we start, I would like to draw your attention to slide three of the presentation regarding forward-looking information. During the course of today's presentation, we will be making a number of forward-looking statements that are based on certain assumptions and subject to a number of risk factors outlined in this slide. As a result, the RAND Income Fund cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements. Please note that all dollar amounts in this presentation are in U.S. dollars unless otherwise indicated. Let's begin with a brief overview of our performance in the second quarter of 2021. We registered a loss before income taxes of $13.3 million compared to a loss of $20.5 million in the comparable period. For its part, adjusted EBITDA was a negative $0.2 million compared to a positive $9.7 million in the same quarter last year. We continue to face challenging market conditions, globally, which are putting downward pressure on some of our key revenue and cash flow drivers since the beginning of the pandemic, namely treatment charges. While the decrease in spot treatment charges slowed during the beginning of this year from a low of $70 per ton in March, spot was still at just $80 per ton in June. Lower treatment charges have negatively impacted our earnings, only partly offset by higher zinc prices. In this context, the fund is focused on successfully managing the elements within its control. We are keeping a tight control on operational costs and actively managing our balance sheet. The processing facility team continues to maintain safe operations as well as our production levels, as well as our production levels in the context of the ongoing pandemic. Halfway through the year, we are on plan to achieve our annual production sales guidance of between 260 and 270,000 tons of zinc. Our strategic expansion projects are advancing well. having recently reached a project milestone which triggered the final stream agreement advance payment of $60 million from Base Core Metals. Looking at annual terms. Last quarter, we confirmed that for the 2021-2022 contractual period, which began on May 1st, the fund reached fixed fee terms for the sale of zinc metal by Glencore, but not on the purchase of zinc concentrates. These negotiations are ongoing, and in the meantime, zinc concentrate purchases are being made at a variable treatment charge among other conditions. This is as per the supply and processing agreements fallback position. Early in the second quarter, we also announced that we were taking part in the financing and implementation of a vaccine clinic for the Salaberry to Valleyfield region. With a capacity of 180 vaccine doses daily, the clinic recently reached a milestone of 10,000 vaccines administered. We are pleased to see that large numbers of our employees and their families are taking part, as well as we continue to operate our facility relatively COVID-free since the start of the pandemic. Let's now look at some of our key performance drivers in Q2 on slide five. Zinc concentrates and secondary feed process was lower than in the same period in 2020. Zinc grade and recovery were both slightly higher compared to the same period last year. Average LME zinc price was at $1.32 a pound, so significantly higher than the same period last year. As mentioned, while zinc prices have been strong, this has been more than offset by lower treatment charges. Byproduct revenues stood at $8.9 million compared to $4.1 million in the same prior year period. The significant quarterly increase in byproduct revenues primarily reflects the higher value of copper and the volumes of copper in cake sales, and to a lesser extent, higher sulfuric acid net back prices compared to the same period last year. Finally, the average exchange rate was $0.81. The negative impact of the strengthening of the Canadian dollar compared to the U.S. dollar is reflected in unit production costs and ultimately in our earnings. Before I turn it over to Sylvain, let's look at our progress on the strategic projects front on slide six. The addition of two additional belt filters will improve our residue filtration capacity. Reception of the belt filters was the project milestone, which triggered the last payment from Base Core. They arrived in June. As you can see, the installation process is already well underway. While several crucial steps remain, this project, which we began last summer, is advancing well. The second project is the addition of a cooling tower to increase production capacity in the summer months. This project began a bit later, and at this stage, the supporting structure is being erected. Much of the equipment is already on site. Overall, moving forward with these necessary projects during the pandemic has added complexity and posed some additional challenges, as was expected. Material pricing and contractor availability due to the pandemic have started to have some impact on the projects. However, overall, both continue to advance on plan and are expected to be commissioned on time and within budget, so by the first quarter of 2022. This really speaks to the careful management, flexibility, and execution excellence of the project teams. I'll turn it over to Sylvain now to review our financial and operating results in more detail.

Thank you, Paul, and good morning, everyone. Turning now to slide eight, in Q2, zinc metal production and sales increased slightly. Lower sulfuric acid sales volume is mainly due to lower sulfur content in concentrate proceeds, resulting in reduced production. Unit production costs were $559 per ton in Q2 compared to $503 per ton in the same period of 2020. The increase is mainly due to the impact of a stronger Canadian dollar. Adjusted net revenues were $42.4 million compared to $48.4 million in Q2 of 2020. The decrease reflects lower treatment charges, partly upset by higher zinc and copper prices. Q2 was also negatively impacted by lower sulfuric acid volumes. Adjusted EBITDA was a negative $0.2 million compared to a positive $9.7 million in Q2 of 2020. This decrease reflects lower treatment charges and foreign exchange, partly offset by higher zinc and copper prices. CAPEX came in at $10.1 million, compared to $4.2 million for the same period last year. $5.4 million is sustained in CAPEX. $4.7 million went toward our strategic projects. This is compared to no strategic project CAPEX in Q2 2020 and explains the period-over-period increase. Turning now to cash flow from operations on slide 12. Excluding changes in working capital, interest, and tax payments, cash flow from operation came in at the negative $11.2 million in Q2 of 2021. This is compared to a positive $15.8 million for the same period last year. Cash flow in Q2 of 2021 was negatively impacted by lower treatment charges and an increase in margin in inventory, offset by higher zinc metal prices. Looking now to our EBL, as of June 30th, there was $146.6 million drawdown when excluding letters of credit, leaving an excess availability of $10.5 million. Our senior secured metal liabilities stood at $48 million. Working capital was $218.9 million compared to $214.3 million at the end of last year. Paul, back to you.