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spk00: Welcome to the NARANDA Income Fund third quarter 2021 financial results conference call and webcast. At this time, our 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 followed by zero for operator assistance at any time. I would like to remind everyone that this conference is being recorded today, November 3rd, at 8.30 a.m. Eastern Time. I will now turn the conference over to Paul Anderson, CEO of Canadian Electrolytic Zinc Limited, and Renda Income Funds Manager. Please go ahead.
spk01: Thank you, Misty, and good morning, everyone. Thank you for joining us. Also joining me this morning is Sylvain Larette, the CFO of C-E-Zinc. 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 on this slide. As a result, Miranda 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 third quarter of 2021. Earnings before income taxes came in at $5.9 million compared to a loss before income taxes of $4.1 million in the comparable period. Adjusted EBITDA was $5.7 million compared to $14.3 million in the same quarter last year. Our third quarter financial results reflect higher zinc and byproduct prices, as well as suppressed treatment charges in what remained a tight zinc concentrate market. Looking at our operations, the processing facility continues to maintain strict COVID-19 measures on site to protect the health and safety of our employees and contractors. To date, COVID-19 related labor or production disruptions have been minimal. We have also been able to maintain our supply of concentrate despite disruptions in mine production globally. We continue to monitor this situation closely. From an annual production standpoint and three quarters into the year, we are on track to achieve our 2021 target of between 260,000 and 270,000 tons of zinc produced and sold. We also continue to move forward with our strategic expansion projects. Turning to slide five, let's take a look at our progress on this front. As you may recall, we received our new bell filters this past June. Since then, several steps have been completed, including the installation of the bell filters. Looking at the cooling towers, the structure went up this summer, and since then, both towers have been installed. Overall, the projects are moving along, but we are experiencing materials delays regarding some key equipment. The team is working diligently to mitigate the impact of these supply chain issues, which are unfortunately outside of our control. We are also experiencing some contractor availability related delays, which are impacting both projects. We knew that moving forward with these projects during the pandemic would add complexity and pose some additional challenges, and the team is doing a fantastic job managing these. Our safety records through these two projects to date has been excellent. This really speaks to everyone's hard work and dedication, and I'd like to recognize that. While labor and materials challenges are putting pressure on the project budget and timeline, these continue to be manageable. To date, they have not impacted the planned gradual ramp-up of our zinc production in 2022. We will also have, starting next year, more robust processing operations, better adapted to treating more varied and higher impurity zinc concentrate. Looking at our guidance, that means that looking ahead to 2022, our annual production should be in the range of 270,000 to 280,000 tons. As a reminder, our strategic projects are planned to allow us to increase our annual production by approximately 20,000 tons, but due to the nature of smelting operations, we need to gradually ramp up to that additional capacity. As a result, we expect to get halfway there in 2022, with the remainder expected to come on in 2023. I'll now turn over to Sylvain to review our financial and operating results in more detail.
spk02: Thank you Paul and good morning everyone. Let's start by taking a look at some of our performance drivers in Q3 on slide 8. Zinc concentrates and secondary feed consumed was lower than in the same period in 2020. Zinc rate was slightly lower compared to the same period last year. Zinc recovery was slightly higher. Average LME zinc price was at $1.36 a pound, so significantly higher than the same period last year. Byproduct revenues stood at $8.7 million compared to $7.9 million in the same period last year. The increase reflects higher byproduct prices compared to last year. Finally, the average exchange rate was at 79 cents. Turning now to slide nine, in Q3, zinc metal production in sales decreased slightly. Higher sulfuric acid sales volume is mainly due to higher sulfur content and concentrated consumption. Unit production cost was $512 per ton in Q3 compared to $485 per ton in the same period of 2020. The increase is mainly due to the impact of a stronger Canadian dollar. Adjusted net revenue were $41 million compared to $49.3 million in Q3 of 2020. The decrease reflects lower treatment charges, partly upset by higher zinc price compared to 2020. Adjusted EBITDA was $5.7 million compared to $14.3 million in Q3 of 2020. CAPEX came in at $13.2 million compared to $4.2 million for the same period last year. $7.2 million went to our strategic projects. The balance is sustaining CAPEX necessary for the maintenance of our operations. Turning now to cash flow from operations on slide 13, Excluding changes in working capital, interest, and tax payments, cash flow from operation came in at $8.4 million in Q3 2021. This is compared to a negative $22.5 million for the same period last year. Cash flow in Q3 of 2021 was positively impacted by higher metal prices and a decrease in margin in inventory. offset by lower treatment charges compared to the same period in prior year. Looking now to our ABL, as at September 30th, it was at $132.4 million, excluding letters of credit, down from $141.8 million at December 31st, 2020. and living and excess availability of $23.9 million. Our senior secured metal liabilities stood at $45.1 million. Working capital was $198.9 million compared to $214.3 million at the end of 2020. Paul, back to you. Thank you, Sylvain.
spk01: Looking ahead to the remainder of the year and 2022, our sector continues to be impacted by global supply chain pressures, rising energy prices, anticipated metal production curtailments, and power availability concerns in China and Europe. While this has led to an increase in commodity prices for zinc, copper, and sulfuric acid, it has not yet translated into an increase in treatment charges. The sharp increases seen for zinc in early 2021 were based on the announcement of energy cost-related production cuts, but these increases occurred in the absence of clear quantification of potential or actual production curtailment. Recent analyst reports discuss not only uncertainty in the zinc supply, but also zinc demand. October zinc prices closed lower than their mid-month peak, but higher than those at the beginning of the month. Looking at zinc premiums, we're seeing some movement on this front due to robust demand, as well as due to producer disruptions in North America. and concerns that previous imported volumes from Europe may no longer be available at the same level in the future. To illustrate, as per CRU, the premium for zinc in North America has doubled since the end of 2020. When looking at all the revenue drivers for the fund, treatment charges are a key element, and market terms on these have remained suppressed to date. As per Wood Mackenzie, the indicative spot treatment charges on Chinese imported concentrates have remained relatively flat finishing 2020 at $85 per ton and reported at $80 per ton this past September. Based on what the experts are forecasting, a projected zinc concentrate market surplus is expected for 2022. However, the timing and impact on treatment charge levels remains to be seen. Electricity rates have been a concern in Europe, but as you know, in Quebec, we do benefit from rate reductions pursuant to a provincial program for large industrial electricity consumers, To continue to benefit from these rate reductions, we must meet required milestones, which are based on capital improvements to the processing facility. In the near term, our priorities are clear and remain unchanged. We're keeping our eye on the ball in terms of maintaining safe and efficient operations to keep production on track with the pandemic as a backdrop. We continue to monitor the supply chain situation very carefully, and our operations team is working hard to ensure that our strategic projects stay the course in what continues to be a complex situation. That concludes our formal remarks. Operator, back to you for the Q&A.
spk00: At this time, if you would like to ask a question, press star then the number one on your telephone keypad. Again, that is star and the number one. We will pause just for a moment to compile the Q&A roster. Again, that's star and the number one on your telephone keypad for any questions. And at this time, there are no questions at this time. We may now conclude the conference call. If everyone can please disconnect.
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