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Noranda's CEZinc may see output decline

Keywords: Tags  Noranda Income Fund, zinc, Canadian Electrolytic Zinc, CEZinc, Glencore Xstrata, Brunswick Mine, Anne Riley


NEW YORK — Noranda Income Fund reported a boost in zinc production in the first quarter, but output rates may be reduced going forward as the closure of Xstrata Zinc Canada’s Brunswick Mine forces Noranda’s refinery to process feed mix with a higher impurity content, the company said.

Salaberry-de-Valleyfield, Quebec-based Noranda processes zinc for Baar, Switzerland-based Glencore Xstrata Plc at the Canadian Electrolytic Zinc Ltd. (CEZinc) facility under a deal that expires in 2017. In the first quarter, Noranda’s zinc production totaled 68,413 tonnes, up nearly 9 percent from 62,813 tonnes in the same quarter last year due to slightly higher volumes of zinc concentrate and a build-up of work-in-progress inventory last year, it said.

But with CEZinc’s major supplier—Glencore Xstrata’s Brunswick Mine—permanently closing last month, Noranda said it could start facing lower output levels and higher costs due to an increased level of impurities found in other mines’ concentrate sent to CEZinc for refining.

“While future feeds are expected to still be within the specifications set out in the supply and processing agreement, the processing facility may experience an increase in its operating costs, working capital requirements and/or capital expenditures as a result of being required to treat a more varied feed quality stream,” Noranda said. “Higher amounts of impurities may also negatively impact the volume of zinc concentrate that can be processed, resulting in a lower overall production.”

In addition, the company expects its inventory levels to fluctuate more following the Brunswick Mine shutdown “as larger and more irregular seaborne deliveries of concentrate will replace some of the regular rail deliveries from Ontario, Québec and New Brunswick,” it said.

But while the shutdown of the aging Brunswick operation may impact Noranda’s future output, the company said it had enough advanced warning to prepare for the change. For example, in the fourth quarter CEZinc received increased deliveries of zinc concentrate containing higher silica content, which it said it is blending with the historical concentrate mix to ensure a gradual transition to the new material.

“The fact that the processing facility successfully treated higher levels of silica in concentrate feeds in the first quarter of 2013 was very encouraging,” Noranda said, citing a Canadian $20-million investment announced in December to increase the refinery’s ability to remove silica (amm.com, Dec. 17).

“The bulk of the investment is expected to occur in 2013 and the project is scheduled to be completed by June 2014,” the company said this week.

In the first quarter, Noranda reported earnings before income taxes (Ebit) of C$27.3 million ($26.9 million) on revenues of C$150.1 million ($147.5 million) vs. Ebit of C$15.4 million on sales of C$145.8 million in the year-ago quarter.

Partially contributing to the stronger financial quarter was the rise in production as well as firmer premiums, which averaged 8.4 cents per pound in the first quarter vs. 7.5 cents per pound in the same quarter last year as both contract and spot premiums rose, the company said.

Looking forward, zinc demand is likely to improve—albeit from low levels­—as the quarter progresses, Noranda said.

“Zinc demand emerged from the seasonally slow December and January period showing only modest growth in March,” the company said. “Customers are maintaining a cautious outlook and are continuing to maintain low purchase inventories. A gradual improvement in customer demand is expected during the second quarter.”

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