Noranda Income Fund Files Circular, Independent Committee urges Unitholders to Vote for the Arrangement and Secure their All-Cash Offer - Seite 2

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.