Noranda Income Fund

Good morning, ladies and gentlemen. Welcome to the Noranda Income Fund second 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 difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this call is being recorded today, July the 26th at 8.30 a.m. Eastern Time. I will now turn the conference over to Paul Enerson, CEO of Canadian Electrolytic Zinc Limited, Noranda Income Funds Manager. Please go ahead, sir.

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'd 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, Naranda 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. Turning to slide four, the second quarter of 2022 has been challenging for the Fund, both from a financial and operational perspective. Our financial results continue to be negatively impacted by lower zinc production and sales, primarily reflecting our ongoing production challenges. We are also dealing with an inflationary environment creating various input cost pressures. From an operational perspective, the second quarter was dominated by continued labor availability constraints and ongoing difficulties in cell house operating conditions. Corrective actions taken in the first quarter have not yet fully materialized. The tight labor market and increased employee turnover has decreased our operational effectiveness. As previously communicated, While the facility benefits from a strong team, there are positions that need to be filled, and this is more challenging than it has been historically. Once filled, additional training and coaching is required as we look to build up operator experience. Our team is working actively to recruit and fill vacancies in a competitive job market. We have also implemented action plans to effectively onboard new operators who may have less experience as the team continues to work to address ongoing production challenges. But this is no easy feat. COVID-related absenteeism has also been a contributing factor. Regarding cellhouse conditions and equipment performance, these unexpectedly deteriorated in the second quarter. This included a planned cellhouse shutdown in June that took much longer than anticipated and which subsequently negatively impacted operational efficiency for part of the month. With respect to the degradation in cellhouse conditions and equipment fragility, Management is carefully evaluating the potential capital investments required to address these underlying issues. As a result of our ongoing challenges, both on the operational and labor front, we have no choice but to further revise our production and sales guidance for 2022 to between 225,000 and 240,000 tons. Achieving the low end of this new range is dependent on maintaining our current pace of production through to the end of the year. Achieving the higher end of the range is dependent on an improvement in our labor position and operational efficiency before the end of the year. Falling within our revised guidance range is also dependent on the situation not further deteriorating in terms of the labor situation, equipment failures, and unplanned maintenance, and a new wave of COVID. During the quarter, we did complete the two expansion projects as planned. While we will be unable to fully leverage the benefits of our filtration investments until the production challenges are behind us. We have already utilized our additional cooling tower capacity with several hot stretches this summer. I will 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 Q2 on slide 6. Zinc concentrate in secondary feed processed was lower than in the same period in 2021, as a result of lower production levels. Commodity prices have mostly remained high in the first half of the year, as reflected in the higher average LME Zinc price. However, the Zinc price decreased sharply in the last half of June. The concentrated inventory is protected against the zinc price decrease through the inventory management program, which we will talk again in the next slide. Byproducts revenues increase as a result of higher sulfuric acid net back offset by lower volumes. Finally, the average exchange rate was lower at 78 cents. Turning now to slide seven. In Q2, there was a significant decrease in zinc metal production in cells. This is due to the ongoing labor and operation challenges in the cell house as previously discussed. Lower sulfuric acid cells volume is mainly related to lower volumes of concentrate processed. Turning now to slide eight, earning before income taxes were $111.9 million. it is important to keep in mind that these include an unrealized derivative financial instrument gain of $130 million, reduced by an inventory write-down of $16.8 million. This is compared to a loss before income taxes of $13.3 million for the same period last year, which include an unrealized derivative financial instrument gain of $0.9 million, and no write-down of the inventory value. After removing the unrealized derivative financial instrument impacts and other adjustments, adjusted EBITDA in Q2 was a negative $2.3 million compared to a negative $11.4 million in Q2 of 2021. Adjusted EBITDA compared to the same prior year period mainly reflect reflects higher commodity prices and treatment charges, partly upset by lower zinc and acid volumes in the quarter. In Q2, CAPEX was $12.3 million. This includes strategic expansion projects of $5.4 million, which were both commissioned during the second quarter. The balance is sustaining CAPEX necessary for maintaining our operations. Turning now to cash flow on slide 10, excluding changes in working capital, interest, and tax payments, cash flow from operation was a negative $1.7 million in Q2. This is compared to a negative cash flow of $11.2 million for the same period last year. Cash flow in Q2 of 2022 was primarily impacted by lower volumes partly offset by higher commodity prices and treatment charges. Looking now to our ABL, as of June 30, 2022, it was at $179.1 million, including letters of credit, living and accessibility of $0.9 million. Our senior secured metal liability stood at $39.9 million. Working capital increased to $234.6 million, up from $155.5 million as of December 31, 2021. Paul, back to you.