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

TORONTO, Jan. 26, 2023 (GLOBE NEWSWIRE) — Noranda Income Fund (TSX: NIF.UN) (the “Fund”) today filed its management information circular for the…

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TORONTO, Jan. 26, 2023 (GLOBE NEWSWIRE) — 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 [email protected].

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 Fund
Noranda 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 Sidnell
Vice President, Special Situations
Kingsdale Advisors
647-265-4522 
[email protected] 

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