Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today filed its
management information circular for the special meeting (the
“Meeting”) of unitholders scheduled for February 28, 2023.
At the Meeting, unitholders will be asked to
consider voting for an arrangement agreement
(the “Arrangement”) between the Fund and Glencore Canada
Corporation (“Glencore”) as a result of which Glencore will acquire
all issued and outstanding priority units of the Fund (the
“Priority Units”) for C$1.42 per unit. Voting FOR the Arrangement
will ensure that holders of Priority Units (“Priority Unitholders”)
receive an all-cash premium for their Priority Units.
For more information on the Arrangement, please
visit www.norandapremiumoffer.com
The full circular is available at the Fund’s
issuer profile at www.sedar.com.
Benefits of the Arrangement
The Arrangement has several benefits for the
Priority Unitholders including: immediate and attractive premium;
all-cash transaction not subject to a financing condition; and
removal of future dilution, commodity and execution risk.
The Fund was established in 2002 as an income
trust to distribute cash flow from the zinc processing facility in
Salaberry-de-Valleyfield, Quebec (the “Processing Facility”) to
Unitholders. While the Fund distributed significant cash flow to
Unitholders through to 2017, today the Fund faces various
challenges operating as a single-asset zinc processing facility in
an environment of rising costs and fluctuating commodity prices and
facing material near-term capital expenditure requirements, which
inhibits the Fund’s ability to recommence cash flow distributions
in the foreseeable future. The Arrangement provides Priority
Unitholders an opportunity to realize an immediate and attractive
premium for their Priority Units, which is 45% above the Toronto
Stock Exchange (“TSX”) closing price per Priority Unit before the
Arrangement was announced.
The Arrangement is recommended by the
Independent Committee of the Board of Trustees of Noranda Operating
Trust (the “Independent Committee”), as well as by the Board of
Trustees itself (with Glencore representative trustees abstaining).
The Independent Committee and the Board of Trustees recommend that
Priority Unitholders vote FOR the special
resolution approving the Arrangement in order to receive C$1.42 per
Priority Unit. The Independent Committee is comprised entirely of
trustees who are independent of both the Fund and Glencore. Prior
to making its recommendation, the Independent Committee engaged in
an extensive and meaningful process to identify and consider all
reasonably available alternatives that would allow for the Fund to
ensure the long-term sustainability of the Fund and realize
meaningful benefits for Unitholders. The Arrangement is the result
of this process. Considering associated risks and with challenges
still on the horizon for the Fund, the Independent Committee
concluded that the consideration of C$1.42 per Priority Unit
represents a compelling value for Priority Unitholders compared to
the status quo.
The management information circular describes
the Arrangement, the extensive review process that led to it and
the reasons for the Independent Committee and the Board of Trustees
recommendations in greater detail. Your vote is very
important.
Extensive Review Process
Following the extensive review process
undertaken by the Independent Committee over the past two years,
the Independent Committee concluded that, other than the
Arrangement, none of the options identified and considered, which
are further outlined in detail in the management information
circular, were deemed viable to ensure the long-term sustainability
of the Fund and realize meaningful benefits for Unitholders. By
contrast, the Arrangement offers Priority Unitholders an immediate
and attractive cash premium.
It is important for Priority Unitholders to
remember that the Fund was originally conceived under an
advantageous 15-year supply and processing agreement and since 2017
has been on market terms subject to the cyclical nature of resource
industries primarily exposed to variations in treatment charges and
zinc prices. This has proved challenging as the Fund has only one
asset, the Processing Facility, with no mines or trading operations
to bolster cash flows, which is unique in the zinc smelting
industry. Today, the Fund has a highly leveraged capital structure,
significant working capital requirements and difficulties
generating distributable cash. In addition, the Fund’s unique
structure and the inherent contractual restrictions embedded in the
foundational arrangements and the material contracts of the Fund in
place since its inception in 2002 make it highly improbable that a
transaction could be executed with another party.
Challenges Ahead for the Processing
Facility
The challenges on the horizon for the Fund,
including financial, liquidity and leverage challenges facing its
business and the disappearance of predictable local feed, are
further compounded by the condition of the asset itself. Capital
investments into the Processing Facility are estimated at US$100
million which is on top of the recurring annual investments
expected in the range of US$25 million per year. These US$100
million capital investments are required in order to complete a
refurbishment of the cellhouse, including cell and overhead crane
replacements, which is necessary to stabilize and improve operating
conditions at the Processing Facility. These investments are not
optional. They cannot be deferred. Furthermore, it is noted that
the US$100M capital expenditure and the recurring annual capital
expenditures only reflect necessary, mandatory capital expenditures
to ensure continuity of operations at the Processing Facility. In
light of the very same challenges that have hampered the Fund in
most recent years, additional material capital expenditures would
need to be made if there is any hope of modernizing the Processing
Facility sufficiently to allow it to succeed going forward. The
Independent Committee sought advice from independent financial
advisors on the leverage challenges facing the Fund’s balance sheet
and reached the conclusion that taking on debt to finance these
capital investments was not an option that is realistically
available to the Fund at this time.
Negotiation Process
The Arrangement is the result of extensive
arm’s-length negotiations between the Independent Committee and
Glencore, with the oversight and participation of the Independent
Committee’s external financial and legal advisors, as well as the
external legal advisor to the Fund’s manager.
Before recommending and agreeing on the price
per Priority Unit, the Independent Committee received an
independent valuation and two fairness opinions to ensure that the
price agreed upon was fair for Priority Unitholders.
Independent Committee’s View
The choice before the Independent Committee was
clear, to proceed with the relative certainty of an all-cash
privatization and ensure that Priority Unitholders could realize
value for their Priority Units or contemplate an uncertain
alternative path for the Fund, with limited options, none of which
are certain to succeed. Therefore, the Independent Committee
determined that the Arrangement was in the best interests of the
Fund and fair to Priority Unitholders and unanimously recommends
that Priority Unitholders vote FOR the
Arrangement. The Board of Trustees (with Glencore representative
trustees abstaining) also unanimously recommends that Priority
Unitholders vote FOR the special resolution
approving the Arrangement.
In reaching this conclusion, the Independent
Committee and the Board of Trustees took into consideration several
factors, including:
- Compelling Value to
Priority Unitholders: The C$1.42 per Priority Unit
purchase price represents a 45% premium on the closing price on the
TSX on January 6, 2023, the last trading day prior to the
announcement of the arrangement agreement, and a 62% premium on the
20-day volume weighted average price per Priority Unit on the TSX
for the period ending on January 6, 2023.
- Certainty of Value and
Immediate Liquidity: The Arrangement allows Priority
Unitholders to realize an attractive price for their Priority Units
through an all-cash transaction, thereby providing certainty of
value and immediate liquidity.
- Inability to Generate
Distributable Cash: In 2017, following the initial 15-year
favourable supply and processing agreement put in place at the
Fund’s inception in 2002, the Fund’s ability to generate cash flow
became subject to market volatility in treatment charges and zinc
prices. The Fund has not been able to generate distributable cash
to proceed with monthly distributions for Priority Unitholders
since 2017. With immediate and long-term capital expenditures
needed in the Processing Facility it is unlikely the Fund would be
able to recommence such distributions in the foreseeable
future.
- Pressing CAPEX
Requirements: The operations of the Fund necessitate
meaningful capital expenditure requirements to maintain zinc
smelting operations, which is reflective of the heavy industrial
nature of the Fund’s business. These CAPEX requirements are
necessary to ensure the maintenance, stability, safety and
efficiency of its operations. The cost of a full cell and crane
replacement in the cellhouse, required to fully address underlying
operational issues, is estimated to be approximately US$100
million. Obtaining financing for this will present a challenge for
the Fund given the leverage challenges currently facing the Fund’s
balance sheet.
- Independent Valuation and
Fairness Opinion: Accuracy Canada provided an independent
valuation to the Independent Committee, which determined that, as
at December 31, 2022, based upon and subject to the
assumptions, limitations and qualifications contained therein, the
price ultimately agreed to by the Fund fell approximately at the
mid-point of the range presented. Accuracy Canada also provided the
Independent Committee a fairness opinion to the effect that, as at
January 8, 2023, the consideration to be received by the
Priority Unitholders under the Arrangement is fair, from a
financial point of view, to such holders, subject to the
limitations, qualifications, assumptions and other matters set
forth therein.
- Additional Fairness
Opinion: Paradigm Capital, acting as financial advisor to
the Independent Committee and the Fund, provided an opinion to the
effect that, as at January 8, 2023, the consideration to be
received by the Priority Unitholders under the Arrangement is fair,
from a financial point of view, to such holders, subject to the
limitations, qualifications, assumptions, and other matters set
forth therein.
- Minimal
Conditionality: The Arrangement is not subject to any due
diligence condition or financing condition and the Independent
Committee and the Board of Trustees believe that there are limited
closing conditions that are outside of the control of the Fund and,
as such, there is a reasonable likelihood of completion.
- Arrangement
Structure: The Arrangement is structured as a court
approved plan of arrangement, which provides procedural benefits to
Priority Unitholders such as dissent rights and which also allows
for structural flexibility which may be desirable given the Fund’s
complex structure.
Based on the extensive review process
undertaken by the Independent Committee, the Arrangement presents
the most compelling value proposition reasonably available to
Priority Unitholders to realize value for their Priority
Units.
The Independent Committee is convinced that the
Arrangement is in the best interests of the Fund and its Priority
Unitholders in the face of the challenges that remain on the
horizon for the Fund.
Your Vote
The management information circular contains a
detailed description of the Arrangement and additional information
concerning the Independent Committee and the Board of Trustees
recommendations and the extensive review process undertaken by the
Independent Committee. Please give the accompanying materials your
careful consideration.
As noted, the Arrangement presents you with the
opportunity for immediate and certain cash value of C$1.42 for each
Priority Unit that you own. To receive this value, it is
imperative that you vote FOR the
Arrangement today. Do not wait.
If you have any questions or if you
require assistance with voting, please contact the Fund’s strategic
unitholder advisor and proxy solicitation agent, Kingsdale
Advisors, by calling or texting 1-888-213-0093. Kingsdale Advisors
can also help you by email at
contactus@kingsdaleadvisors.com.
Forward-Looking Information
Certain information in this press release,
including statements regarding the proposed privatization of the
Fund by Glencore, profitability prospects of the Fund and prospects
for raising capital, the cost of and financing of a full cell and
crane replacement and the unitholder meeting, are forward-looking
information. In some cases, but not necessarily in all cases,
forward-looking information can be identified by the use of
forward-looking terminology such as "plans", "targets", "expects"
or "does not expect", "is expected", "an opportunity exists", "is
positioned", "estimates", "intends", "assumes", "anticipates" or
"does not anticipate" or "believes", or variations of such words
and phrases or state that certain actions, events or results "may",
"could", "would", "might", "will" or "will be taken", "occur" or
"be achieved". Statements containing forward-looking information
are not historical facts but instead represent management's
expectations, estimates and projections regarding future
events.
Forward-looking information is necessarily based
on a number of opinions, assumptions and estimates that, while
considered reasonable as of the date of this press release, are
subject to known and unknown risks, uncertainties, assumptions and
other factors that may cause the actual results, level of activity,
performance or achievements to be materially different from those
expressed or implied by such forward-looking information, including
but not limited to the factors described in greater detail in the
"Risk Factors" section of the Fund’s Annual Information Form dated
March 30, 2022 for the year ended December 31, 2021 and the Fund’s
other periodic filings available at www.sedar.com. These factors
are not intended to represent a complete list of the factors that
could affect the Fund; however, these factors should be considered
carefully. There can be no assurance that such estimates and
assumptions will prove to be correct. The forward-looking
statements contained in this press release are made as of the date
of this press release, and the Fund expressly disclaims any
obligation to update or alter statements containing any
forward-looking information, or the factors or assumptions
underlying them, whether as a result of new information, future
events or otherwise, except as required by law.
About the Noranda Income
FundNoranda Income Fund is an income trust whose priority
units trade on the Toronto Stock Exchange under the symbol
“NIF.UN”. Noranda Income Fund owns the electrolytic zinc processing
facility and ancillary assets (the “Processing Facility”) located
in Salaberry-de-Valleyfield, Quebec. The Processing Facility is the
second-largest zinc processing facility in North America and the
largest zinc processing facility in eastern North America, where
the majority of zinc customers are located. It produces refined
zinc metal and various by-products from sourced zinc concentrates.
The Processing Facility is operated and managed by Canadian
Electrolytic Zinc Limited, a wholly-owned subsidiary of Glencore
Canada Corporation. Further information about Noranda Income Fund
can be found at: www.norandaincomefund.com.
For more information: |
Andrew SidnellVice President, Special SituationsKingsdale
Advisors647-265-4522 asidnell@kingsdaleadvisors.com |
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