Noranda Income Fund

Welcome to the Noranda Income Fund First Quarter 2022 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 followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded today, April 29 at 8.30 a.m. Eastern Time. I will now turn the conference over to Mr. Paul Interson, CEO of Canadian Electrolytic Zinc Limited, Noranda Income Funds Manager. Sir, please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us. Also joining me this morning is our CFO, Sylvain Lorette. 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, the Rand Income Fund cannot guarantee that any forward-looking statement will materialize and you were cautioned not to place undue reliance on these forward-looking statements. Please note that all dollar amounts in this presentation are in US dollars unless otherwise indicated. Turning to slide four, first quarter of 2022 was a challenging one for the fund from an operational perspective, and this is reflected in our financial results. For the quarter, we registered a loss before income taxes of $35.6 million. This is compared to earnings of $11 million in the same period in 2021. This reflects lower production volumes and sales and includes a $17.4 million unrealized derivative financial instrument loss. The high unrealized derivative financial instrument loss results from a large volume of zinc in the hedge book combined with the rapid increase in zinc prices in the quarter. This is a similar trend to what we saw in the first quarter of 2021. It is important to keep in mind that the derivative instruments are designed to provide zinc price protection, and the loss is mainly explained by timing. The underlying zinc will drive gains in subsequent quarters as the concentrated inventory is processed and the refined zinc metal is sold, depending on future zinc prices. After removing the unrealized derivative financial instrument loss and other adjustments, adjusted EBITDA came in at a negative $1.1 million. This is compared to adjusted EBITDA of $17.1 million in the same period last year. On the operational front, the team is working hard to address our ongoing production challenges and on completing our strategic projects with commissioning slated for the second quarter of this year. As you will recall, our Q4 production had been challenged by some unplanned maintenance, thereby impacting operational efficiency. This situation was further exacerbated in the new year, resulting in a deterioration in production quality and volumes for the first quarter. This resulted in a revision to our full year production and sales guidance. As announced earlier this month, our annual zinc production target has been revised to between 255,000 and 265,000 tons. The processing facility team continues to work diligently to improve conditions in the cell house, which is a complex process. Two factors intensified our operational challenges. The first was cold weather. which made it difficult to complete required maintenance and which led to a record number of power interruptions. The cold weather is now behind us, and our focus is on completing required maintenance and stabilizing operations. The second factor was labor shortages coupled with increased COVID-19 related absenteeism. The absenteeism has improved to date, but labor availability remains a challenge. While the facility benefits from a strong team, there are still positions that need to be filled, and this is more challenging than it has been historically. Our team is working actively to recruit and fill these vacancies in a competitive job market. I'll now turn it over to Sylvain to review our financial and operating results in more detail.

Thank you, Paul, and good morning, everyone. Let's start with our key performance drivers in Q1 on slide six. Link concentrate and secondary fee process was lower than in the same period in 2021. Average LME zinc price was $1.70 a pound, reflecting continued strength in zinc prices. Byproduct revenues increased as a result of higher commodity prices, offset by lower volumes. Finally, the average exchange rate remained steady year over year at 79 cents. Turning now to slide seven, in Q1, there was a significant decrease in zinc metal production in cells. This is due to ongoing operational challenges in the cell house as discussed previously. Lower sulfuric acid cells volume is primarily related to lower volumes of concentrate process. Turning now to slide eight, as a reminder, the adjusted EBITDA method of calculation changed last quarter to meet new non-GAAP measure rules. The main change is replacing the inventory margin impact with the inventory margin program unrealized gain or loss. This has introduced some volatility on this metric. After removing the unrealized derivative financial instrument impact and other adjustments, adjusted EBITDA in Q1 was a negative $1.1 million compared to a positive $17.1 million in Q1 of 2021. Negative adjusted EBITDA preliminary reflects lower volumes and financial instrument losses realized in the quarter. In Q1, CAPEX was $7.8 million. This includes $3.3 million on our strategic projects. The balance is sustained in CAPEX, necessary for the maintenance of our operations. Turning now to cash flow on slide 10, Excluding changes in working capital, interest, and tax payments, cash flow from operation was negative $1 million in Q1. This is compared to a positive $17.2 million for the same period last year. Cash flow in Q1 of 2022 was primarily impacted by derivative financial instrument losses and lower volumes, partly offset by higher commodity prices. Looking now to our ABL, as at March 31, 2022, it was at $172.1 million, including letters of credit, leaving an excess availability of $7.9 million. Our senior secure metal liability stood at $46.1 million. Working capital decreased, as at March 31, 2022, to $123.2 million, down from $155.5 million as of December 31st, 2021. Paul, back to you.