Noranda Income Fund reports 2007 earnings of $27.4 million, fourth quarter earnings of $13.7 million and the February monthly distribution of 8.5 cents per unit



    VALLEYFIELD, QC, Feb. 19 /CNW/ - The Noranda Income Fund (the "Fund")
reported net earnings of $27.4 million in 2007, compared to $33.2 million in
2006. The $5.8 million decrease was mainly due to the recognition of a
$13.1 million future income tax expense which was recorded in 2007 and
resulted from the enactment of new tax laws including Bill C-52, lower volumes
of zinc metal production and sales, lower byproduct revenues, a stronger
Canadian dollar and higher interest expense, partially offset by higher zinc
metal premiums and processing fee and the impact of month prior pricing.
    Net earnings of $13.7 million were reported in the fourth quarter of
2007, compared to $4.0 million in the same quarter a year ago. The increase in
net earnings was due to higher premiums and zinc metal sales, the impact of
prior month pricing and commodity hedging gains, offset by a stronger Canadian
dollar and lower production and byproduct revenue.
    "2007 results benefited significantly from strong premiums." said Mario
Chapados, President and Chief Executive Officer of the Noranda Income Fund's
Manager. Looking forward to 2008, production and sales are forecast to be
higher than last year however, premiums are expected to be reduced from the
2007 levels."
    The outlook for 2008 and the estimate for production, sales, premiums and
byproduct revenue are subject to various risks and uncertainties. The
assumptions can be found in the "Forward-looking Information" below.

    Financial Results

    This analysis of the financial position and results of operations of the
Fund should be read in conjunction with the unaudited consolidated financial
statements of the Fund for the three months and twelve months ended
December 31, 2007 and with the audited consolidated financial statements of
the Fund and the notes thereto for the period ended December 31, 2006.
    This discussion is based on various assumptions (see "Forward-looking
Information" below.) All dollar amounts are shown in Canadian dollars unless
otherwise specified.
    The analysis has been prepared as of February 18, 2008. Additional
information relating to the Fund, including the Fund's annual information form
is available on SEDAR at www.sedar.com.

    
    Q4 2007 Highlights

                                 Fourth Quarter                 Year
                                2007         2006         2007         2006
                                ----         ----         ----         ----
    Zinc metal production
     (tonnes)                 66,697       68,147      262,133      266,427
    Zinc metal sales
     (tonnes)                 67,540       62,520      248,801      259,446
    Zinc metal premiums
     (US$/pound)               0.097        0.075        0.112        0.072
    Byproduct revenues
     ($ millions)                5.5          8.2         30.5         35.7
    Recoveries (%)              96.9         95.1         96.3         97.3
    Average US/Cdn.
     exchange rate             0.982        1.139        1.074        1.134

    - Realized premiums for the quarter per pound were higher - 9.7 cents US
      in 2007 compared to 7.5 cents US in 2006.
    - All of the monthly distributions were paid at the 8.5 cents per unit
      level.
    - Cash realized from operations, before changes in non-cash working
      capital, increased to $20.9 million from $12.6 million in the fourth
      quarter of 2006.
    - The Credit Facility was amended to provide more flexibility, and to
      better match the Fund's credit capacity to its working capital
      requirements.
    - An agreement in principle was reached with the Union in February 2008
    


    RESULTS OF OPERATIONS

    Consolidated Earnings (Twelve months 2007 compared to twelve months 2006)

    Revenues less raw material purchase costs ("Net Revenues") in 2007 were
$262.8 million, compared to $273.8 million in 2006. The $11.0 million decrease
was due to lower volumes of zinc metal sales and lower byproduct revenues
offset by higher zinc metal premiums and processing fee and the impact of
prior month pricing. During 2007, Net Revenues were negatively impacted by the
strengthening of the Canadian dollar (see foreign exchange gains below).
    The Fund makes a portion of its sales based on the average price from the
previous month (month prior pricing). This form of pricing is often used for
those customers where cash-in-advance terms have been negotiated as a way to
manage the Fund's liquidity position and credit exposure. In a market where
zinc prices are rising, a portion of the Fund's revenues will lag behind the
higher zinc prices; while in a market where zinc prices are falling, a portion
of the Fund's revenues will benefit from higher zinc prices from the month
prior. In 2007, month prior pricing had a positive impact of approximately
$8.8 million on the Fund's Net Revenues, as the average monthly zinc price
decreased from US$2.00 per pound in December 2006 to US$1.07 per pound in
December 2007.
    Production costs in 2007 were $158.5 million, $0.3 million lower than the
$158.8 million recorded in 2006. Lower contractor costs and a positive cost of
sales adjustment were partially offset by higher energy costs. During 2006,
production costs were reduced by $0.6 million related to an insurance
settlement and by a positive cost of sales adjustment.
    Selling, general and administration costs ("SG&A") in 2007 were
$19.6 million, compared to $18.8 million in 2006. The higher costs in 2007
were in part due to the transaction costs relating to amending the Credit
Facility.
    The foreign exchange gain for 2007 was $18.5 million, compared to a loss
of $5.6 million in 2006. The $24.1 million increase was a result of a stronger
Canadian dollar on the Fund's net monetary liability. The foreign exchange
gain was largely offset by a decrease in the value of in-process and finished
inventory. The decrease in the value of inventory is realized in Net Revenues
as the metal is sold to customers (thereby reducing the Net Revenue recorded
by the Fund). The Fund maintains cash and cash equivalents, accounts
receivable and accounts payable and a portion of its long-term debt in US
dollars.
    In 2007, the commodity financial instruments loss was $0.2 million and
the commodity hedging gain was $0.6 million. Effective January 1, 2007, the
Fund adopted new accounting policies relating to financial instruments and
hedging. During the year, the change in the market value of the Fund's
financial instruments resulted in these amounts being recorded.
    In 2007, amortization and reclamation were $27.4 million, $1.2 million
lower than the $28.6 million incurred in 2006. An increase in amortization of
$1.5 million was more than offset by the $2.7 million decrease in reclamation
expense. The decrease in reclamation expense was due to a reduction in the
expected future reclamation spending, which resulted in a reduction in the
present value of future site restoration and reclamation liabilities. During
the first quarter of 2007, the Fund and a third-party engineering firm
completed a review of the site restoration and reclamation expenditures. The
reduction in the present value resulted from the Fund identifying a source for
one of the main reclamation materials on its property, thereby significantly
reducing the cost of sourcing and transporting this material to the plant. In
addition, the timing of some of the expenditures was deferred, based on the
current expectations relating to when the projects would be completed.
    In 2007, net interest expense was $22.3 million compared to $17.8 million
in 2006. The higher level of expense was due to an increase in debt
outstanding and delayed concentrate payments as a result of higher working
capital requirements, as well as higher interest rates.
    Income tax expense in 2007 was $13.1 million. On June 22, 2007, the
Federal Government substantively enacted tax legislation relating to the
taxation of existing income and royalty trusts, at effective rates similar to
Canadian corporations commencing in 2011. Prior to June 22, 2007, the Fund had
estimated the future income tax on certain temporary differences between
amounts recorded on its balance sheet for book and tax purposes at a nil
effective tax rate.
    Minority interest in earnings of subsidiaries in 2007 was $13.5 million,
up from $11.1 million in 2006 due to the Fund's higher earnings before
minority interest and income taxes.

    Consolidated Earnings (Fourth quarter 2007 compared to fourth quarter
    2006)

    Net Revenues in the fourth quarter of 2007 totalled $72.7 million,
compared to $67.3 million in the same period of 2006. The $5.4 million
increase was due to higher sales, premiums and processing fee, and the impact
of prior month pricing offset by lower byproduct revenue and a stronger
Canadian dollar.
    In the fourth quarter of 2007, month prior pricing had a positive impact
of approximately $1.8 million on the Fund's Net Revenues, as the average
monthly zinc price decreased from US $1.31 per pound in September 2007 to
US $1.07 per pound in December 2007. This compared to a negative impact of
$5 million from the fourth quarter of 2006, a period of rising zinc prices.
    Production costs in the fourth quarter of 2007 were higher at
$43.0 million, compared to $38.7 million recorded in the same quarter a year
ago. Higher energy costs were partially offset by lower contractor costs.
Production costs were $3.0 million lower in 2006 due to a positive cost of
sales adjustment.
    SG&A costs for the fourth quarter of 2007 were $4.6 million compared to
$4.9 million in the fourth quarter of 2006.
    The foreign exchange gain in the fourth quarter of 2007 was $0.8 million,
compared to a loss of $6.1 million in the same quarter a year ago. In the
fourth quarter of 2006, the weakening Canadian dollar had a negative impact on
the Fund's net monetary liability. The foreign exchange loss largely was
offset by an increase in the value of in-process and finished inventory. The
increase in the value of the inventory is realized in Net Revenues as the
metal is sold to customers.
    During the fourth quarter of 2007, the financial instruments gain was
$3.3 million. During the quarter, the change in the market value of the Fund's
financial instruments and hedges resulted in a gain being recorded.
    Amortization and reclamation costs in the quarter were $8.5 million, an
increase of $1.6 million from the fourth quarter in 2006. The increase was due
in part to higher capital spending over the last twelve months. This resulted
in $0.8 million of higher amortization.
    In the fourth quarter of 2007, net interest expense was $4.5 million
compared to $5.3 million in the fourth quarter of 2006, due to the impact of
lower zinc metal prices on the Fund's working capital requirements.
    Minority interest in earnings in the fourth quarter of 2007 was
$4.1 million, up from $1.3 million in 2006 due to the earnings of the Fund.

    PRODUCTION
    ----------

    In the fourth quarter of 2007, zinc metal production was 66,697 tonnes,
compared to 68,147 tonnes in the same period of 2006. Production for the
quarter was negatively impacted by lead contamination in the cellhouse.
Production for 2007 was 262,133 tonnes, compared to 266,427 tonnes for 2006.
Production in 2007 was negatively impacted by higher zinc dust consumption,
lower zinc content in the feed and process difficulties in the
hydrometallurgical and cellhouse sections of the plant. Production was also
negatively impacted by the reduction in zinc recovery from 97.3% to 96.3% in
2007.
    During the year, work to reduce the higher zinc dust consumption within
the operation progressed. During the fourth quarter, the zinc dust consumption
was 2% lower, compared to the average in the first nine months of 2007. This
improvement should help the Fund to increase its overall output.
    The 2008 production is planned at 275,000 tonnes. Capital investment to
increase production in the last two years, and an increase in zinc recoveries
(estimated at 97.3% in 2008 compared to 96.3% in 2007) are expected to result
in higher production volumes.

    SALES
    -----

    Zinc metal sales in the fourth quarter totalled 67,540 tonnes, compared
to 62,520 tonnes in the same quarter of 2006. In 2007, a total of
248,801 tonnes of zinc were sold, compared to 259,446 tonnes in 2006.
    Zinc metal inventories as of December 31, 2007 were 17,000 tonnes higher
than the Fund's normal operating level. Demand for zinc metal in North America
remained soft during the fourth quarter as sheet steel producers continued to
experience weak order levels from the housing, appliance and automotive
markets. This response was due to the credit-driven constraint in US consumer
spending. Non-residential construction demand for sheet steel for private and
public construction remained steady and continued to show positive growth. The
high inventory levels at the end of 2007 were in part due to the lead
contamination issues in the cell house and due to some of the Fund's inventory
being in the form of slow moving product types.
    Spot sales were required to offset reduced contract order volumes. Sales
exceeded production in the fourth quarter. Spot sales will be required in 2008
to offset continued soft contract sales volumes.
    The Fund's ability to reduce inventories in 2008 will depend on the
demand for zinc in the North American marketplace and the ability for the Fund
to make spot sales. The current target for zinc metal sales in 2008 is
275,000 tonnes.
    The preceding targets for production and sales are subject to various
risks and uncertainties. The assumptions for them can be found in the
"Forward-looking Information" below.

    PREMIUMS
    --------

    In the fourth quarter of 2007, zinc metal premiums were 9.7 cents US per
pound, compared to 7.5 cents US per pound in the same period of 2006 and
11.3 cents US for the first nine months of 2007. The increased spot sales in
the quarter had a negative impact on premiums. In 2007, premiums averaged
11.2 cents US per pound, compared to 7.2 cents US per pound in 2006. The
increase in 2007 was due to higher premiums on contract volumes.
    The weakness in the North American zinc markets has had a negative impact
on the 2008 contract premiums, with the current forecast for the average 2008
premiums being 6.5 cents US per pound.
    The Fund's target for premiums is subject to various risks and
uncertainties. The assumptions can be found in the "Forward-looking
Information" below.

    BYPRODUCTS
    ----------

    In the fourth quarter, byproduct revenues were reduced to $5.5 million
from $8.2 million a year earlier, due to the stronger Canadian dollar and
negative copper price settlements.
    In 2007, the Fund generated $19.8 million in revenue from the sale of its
byproduct copper cake compared to $25.3 million in 2006. The $5.5 million
decrease was due to lower sales volumes, a stronger Canadian dollar and the
impact of negative price settlements, offset by a stronger copper price and
higher sulphuric acid netbacks. LME copper prices in 2007 averaged US$3.23 per
pound, compared to US$3.05 per pound in 2006.
    Sulphuric acid netbacks improved to US$19.84 per tonne, compared to
US$16.88 per tonne in 2006. The increase was due to an improvement in the
demand for sulphuric acid in North America, which in turn resulted in a higher
selling price.

    EXCHANGE RATE
    -------------

    The Canadian dollar appreciated throughout 2007. A stronger Canadian
dollar has a negative impact on the Fund's financial results. In 2007, a
one-cent Canadian appreciation in the average Canadian/US exchange rate
negatively impacted the Fund's annual cash available for distribution by
approximately $0.8 million. The average Canadian/US exchange rate appreciated
from $1.134 in 2006 to $1.074 in 2007.

    CAPITAL EXPENDITURES
    --------------------

    Capital expenditures for 2007 were $26.0 million, compared to
$22.2 million in 2006. In 2007, approximately $19.5 million was spent on
maintenance capital and $6.5 million was invested in debottlenecking the
hydrometallurgical section of the plant. This compares to $15.0 million for
maintenance capital and $7.2 million for new plant equipment in 2006. These
investments are part of the program which will allow the Fund to take
advantage of the maximum concentrate supply of 550,000 tonnes under the Supply
and Processing Agreement. In 2007, only 514,000 tonnes were processed.
Processing the maximum supply of concentrate will increase processing fees,
and revenues from zinc premiums and byproducts.
    In the fourth quarter of 2007, $8.1 million was spent on plant and
equipment, compared to $7.4 million in the fourth quarter of 2006.
    The Fund participated in Hydro-Québec's "Industrial Initiatives Program
for Major Customers" which generated $2.5 million in 2007, compared to
$1.8 million in 2006. In the fourth quarter, the Program generated
$0.7 million compared to nil in the fourth quarter of 2006. These incentives
have been recorded as a reduction of property, plant and equipment as they
relate to capital expenditures incurred to reduce electricity consumption.
    In the past two years, zinc concentrate supplied to the Processing
Facility, while within the specification of the Supply and Processing
Agreement, has changed. As a result of mine closures, the feed over the last
few years has contained more iron and other impurities and has been of a lower
grade. At the same time, there are certain areas in the Processing Facility
where the equipment needs to be replaced. While addressing these two issues
will lead to higher capital spending over the next few years, they will allow
the Processing Facility to operate at a higher level and enable it to process
a wider variety of zinc concentrate feeds.
    The budgeted capital expenditure for 2008 is $33 million, an increase of
$7 million compared to 2007. During the planning process for 2008, it was
identified that the cell house requires an estimated capital budget of
$18 million over a six year period on rehabilitation of the electrolysis
cells. Also, the Processing Facility will process a new zinc concentrate feed
from Northern Quebec containing higher magnesium and selenium. The estimated
capital investment to treat these impurities is $10 million, spread out over
two years. Upon completion of this project, the Fund should be in a better
position to process a wider variety of feeds. Approximately $19 million is
planned for other maintenance capital.

    
    Capital spending on maintenance projects in 2008 is expected to be
allocated as follows:

    Rehabilitation of electrolysis cells                       $3.0 million
    Magnesium and selenium treatment                           $5.0 million
    Other maintenance projects                                $19.0 million
                                                              --------------
    Total                                                     $27.0 million
    

    The remaining $6 million will be spent on revenue generating projects of
which $5.7 million will be invested to increase the hydraulic capacity of the
hydrometallurgy process.
    The Fund's target for capital spending is subject to various risks and
uncertainties. The assumptions can be found in the "Forward-looking
Information" below.

    Operating Cash Flows

    In the fourth quarter of 2007, cash realized from operations, before
changes in non-cash working capital was $20.9 million, compared to
$12.6 million in the same period in 2006. The $8.3 million increase was due to
an increase in earnings for the quarter. During the quarter, non-cash working
capital decreased by $8.1 million.
    Cash realized from operations, before net change in non-cash working
capital items for 2007, was $81.8 million, compared to $73.2 million at the
end of 2006. During 2007, non-cash working capital decreased by $14.0 million
due to the reduction in the accounts payable and accrued liabilities offset by
a reduction in the accounts receivable and inventory. As of December 31, 2006,
late concentrate payments totalled $86 million. During 2007, the Fund paid all
late concentrate amounts, thereby, increasing its use of cash. The average
monthly LME zinc price decreased to US$1.07 per pound in December 2007, from
US$2.00 per pound in December 2006. This resulted in a decrease in the value
of the Fund's accounts receivable and inventory.

    Distribution Policy

    The Fund makes monthly distributions at the discretion of the Trustees,
to its Unitholders, based on the monthly declarations of cash available for
distribution. The Fund's goal is to provide stable monthly distributions.
    The Fund announced today the monthly cash distribution of $0.085 per unit
for the month of February 2008. The distribution will be payable on March 25,
2008 to unitholders of record at the close of business on February 29, 2008.

    Cash Available for Distribution

    The computation and disclosure of cash available for distribution is, in
all material respects, in accordance with the revised Staff Notice 52-306
issued by the Canadian Securities Administrators ("CSA") in August 2006. The
CSA concluded that the most directly comparable measure calculated in
accordance with generally accepted accounting principles ("GAAP") for cash
available for distribution is cash flow from operating activities. We adopted
their recommendations retroactive to January 1, 2005 and have presented in the
table below a reconciliation of cash available for distribution to cash
realized from operations. On July 6, 2007, the CSA issued revised National
Policy 41-201, Income Trusts and Other Indirect Offerings.
    During the third quarter, the Canadian Performance Reporting Board of the
CICA ("CPRB") also published recently an Interpretive Release titled
Standardized Cash in Income Trusts and Other Flow-Through Entities: Guidance
on Preparation and Disclosure. The Fund is currently reviewing the document to
determine its impact on Distributable Cash disclosures in the December 31,
2007 MD&A. The disclosure in the fourth quarter press release does not comply
with the guidance.
    Cash available for distribution is not a measure defined by GAAP and
should not be seen as a measurement of liquidity or be used as a substitute
for other measures, in accordance with GAAP. Management believes that, in
addition to net earnings, cash available for distribution is a useful
supplemental measure for evaluating the Fund's performance as it provides
investors with an indication of cash available for distributions and working
capital needs. Investors are cautioned, however, that cash available for
distribution should not be construed as an alternative to the statement of
cash flows as a measure of liquidity and cash flows. The method of calculating
cash available for distribution for the purposes of this press release may
differ from that used by other issuers and, accordingly, cash available for
distribution in this press release may not be comparable to cash available for
distribution used by others.

    
    A reconciliation of cash realized from operations to cash available for
distribution is provided below:

                               Three        Three       Twelve       Twelve
                              months       months       months       months
                              ending       ending       ending       ending
                             Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,
    ($ thousands)               2007         2006         2007         2006
    -------------------------------------------------------------------------
    Cash realized from
     operations           $   29,067   $   28,400   $   67,870   $   20,255

    Capital adjustments:
      Purchase of property
       plant and equipment    (8,072)      (7,384)     (25,997)     (22,230)
      Proceeds from
       government assistance     694           56        2,526        1,837
      Proceeds from sale
       of assets                   2            -           65          595
      Accretion on
       long-term debt            (64)         (64)        (254)        (254)

    Other adjustments
     including
     discretionary items:
      Increase (decrease)
       in non cash
       working capital        (8,121)     (15,765)      13,975       52,945
    -------------------------------------------------------------------------
    Cash available for
     distribution for
     the period               13,506        5,223       58,185       53,128
    -------------------------------------------------------------------------

      Decrease in capital
       and site restoration
       reserve                     -            -            -           87
      (Increase) decrease
       in operating reserve     (757)       7,527       (7,187)      (2,215)
    -------------------------------------------------------------------------
    Distributions
     declared to
     unitholders          $   12,749   $   12,750   $   50,998   $   51,000
    -------------------------------------------------------------------------

    Weighed average
     number of units
     outstanding          49,997,975   49,498,652   49,997,975   50,000,000
    Distributions
     declared per unit    $    0.255   $    0.255   $    0.255   $    0.255
    Payout ratio                  94%         244%          88%          96%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In 2007, cash available for distribution was $38.2 million and
distributions declared to Priority Unitholders were $38.3 million. In the
fourth quarter of 2007, cash available for distribution was $14.9 million and
distribution declared to unitholders was $12.8 million: $9.6 million paid to
Priority Unitholders and $3.2 million paid to Ordinary Unitholders.
    We periodically review cash distributions taking into account our current
and prospective performance. Some of the factors considered in making
decisions related to distributions include cash amounts to service debt
obligations, maintenance capital expenditures, taxes, working capital
requirements, current business conditions and other items considered to be
prudent.
    As we calculate the Fund's cash available for distribution, we take into
consideration our debt management strategy and our productive capacity
maintenance strategy. Cash available for distribution excludes changes in
non-cash working capital as the changes within the working capital components
are often temporary by nature and, if needed, can be financed with the Fund's
Revolving Facility.

    Notional Operating Reserve and Capital and Site Restoration Reserve

    In order to meet the Fund's goal to provide a stable, monthly
distribution, a notional operating reserve is utilized. In a period where
standardized distributable cash, net of the changes in non-cash working
capital attributable to Priority Unitholders, is greater than the
distributions declared to the Priority Unitholders, the notional operating
reserve will increase. In a period where standardized distributable cash, net
of the changes in non-cash working capital attributable to Priority
Unitholders, is less than the distributions declared to the Priority
Unitholders, the notional operating reserve will decrease. The notional
operating reserve provides flexibility so that the Fund can maintain a stable,
monthly distribution while adhering to the Fund's trust indentures and debt
covenants. During 2007, the notional operating reserve increased by
$7.2 million to $18.3 million. This compares to a reserve of $11.1 million at
the end of 2006.
    While the operating reserve is now above the Fund's target three-month
payout level, the Fund's financial flexibility has been reduced. The
strengthening in the Canadian dollar and the continued softness for the demand
for zinc in the North American markets may negatively impact the Fund's
ability to generate cash in 2008. The Fund is also planning an increase in its
2008 capital expenditures. For these reasons, the Fund considers it prudent at
this time not to increase the distribution or issue a special distribution.
    The Fund also utilizes a notional capital and site restoration reserve.
In a period where unexpected or unusually high capital expenditures are
required, the Fund has the ability to reduce the notional capital and site
restoration reserve, while adhering to the Fund's trust indentures and debt
covenants. As of December 31, 2007, the notional capital and site restoration
reserve was $5.0 million (December 31, 2006 - $5.0 million).

    
    The following table provides additional analysis of cash distributions to
Priority Unitholders:

                               Three
                              months
                              ending
                             Dec. 31,
    ($ thousands)               2007         2007         2006         2005
    -------------------------------------------------------------------------
    A. Cash realized
        from operations   $   29,067   $   67,870   $   20,255   $   50,592
    B. Net earnings
        before minority
        interest              17,709       40,876   $   44,253   $   43,745
    C. Actual cash
        distributions
        paid or payable       12,749       50,998   $   51,000   $   51,000

       Excesses
        (shortfalls) of
        cash realized from
        operations over
        cash distributions    16,318       16,872   $  (30,745)  $     (408)

       Excess
        (shortfalls) of
        net earnings over
        cash distributions     4,960      (10,122)  $   (6,747)  $   (7,255)

    D. Percentage of
        excess (shortfall)
        of cash realized
        from operations
        over cash
        distributions            128%          33%         (60%)         (1%)
    E. Shortfall of net
        earnings over cash
        distributions             39%         (20%)        (13%)        (14%)
    


    Excesses/Shortfalls of cash realized from operations over cash
    --------------------------------------------------------------
    distributions
    -------------

    For the year ending December 31, 2007, cash realized from operations was
greater than cash distributions by $16.9 million. The reasons for this were a
$14.0 million decrease in non-cash working capital and a $7.2 million increase
in the notional operating reserve. The decrease in the working capital was due
to the decrease in zinc price (the average monthly LME price fell from US$2.00
per pound in December 2006 to US$1.07 in December 2007). Cash realized from
the reduction in the non-cash working capital was used to repay the delayed
payments owed to Xstrata Canada.
    In the year ending December 31, 2006, cash distributions paid or payable
were greater than cash realized from operations by $30.7 million. The main
reason for this was the $52.9 million increase in non-cash working capital.
The increase in working capital was mainly due to the increase in zinc prices
(the average monthly LME price rose from US$0.83 per pound in December 2005 to
$2.00 per pound in December 2006). The Fund was able to finance the increase
in working capital requirements by way of its Revolving Facility and by
delaying payments to Xstrata Canada.
    In the year ending December 31, 2005, cash distributions paid or payable
were greater than cash realized from operations by $0.4 million. The main
reason for this was the $24.0 million increase in non-cash working capital.
The increase in working capital was mainly due to the significant increase in
zinc prices (the average monthly LME price rose from US$0.54 per pound in
December 2004 to $0.83 per pound in December 2005). The Fund was able to
finance the increase in working capital requirements from its own cash, and by
way of its Revolving Facility.
    The Fund believes that using its Revolving Facility in 2005 and in 2006
to fund its working capital requirements did not represent an economic return
of capital as both its trust indenture and debt agreements allowed for this
funding to occur without limiting the Fund's ability to make distributions.

    Shortfalls of net earnings over cash distributions
    --------------------------------------------------

    For the 2005-2007 reporting years, the Fund's cash distributions paid or
payable were in excess of the Fund's net earnings. This was as a result of the
following items:
    
    - Amortization and reclamation expenses have been higher than the Fund's
      cash used for investment activities.
    - In 2007, there was a $13.1 million non-cash future income tax expense
      relating to changes to tax legislation.
    

    The Fund does not use net earnings as a basis to calculate distributions.
Other non-cash items, such as amortization and reclamation are items which
will fluctuate from period to period depending upon various factors or are
based on long-term assumptions and as such may not be indicative of the cash
generation capacity of the Fund. In all periods, the Fund does not believe
that it has provided an economic return of capital.

    LIQUIDITY AND CAPITAL RE

SOURCES As at December 31, 2007, the Fund's total debt was $240.3 million, down from $244.5 million at the end of December 2006. The Fund's cash and cash equivalents totalled $3.7 million, down from $13.7 million at December 31, 2006. At the end of 2006, the Fund was operating at the limit of its credit facility and was receiving credit from Xstrata Canada by way of delayed payment terms. As of December 31, 2006, the amount of the delayed payments was $85.6 million. The following provides an analysis of the Fund's overall net debt position as of December 31, 2006 and December 31, 2007: December 31, December 31, ($millions) 2007 2006 ------------------------------------------------------------------------- Revolving facility 87.5 91.0 Notes 152.8 153.5 Delayed concentrate payments - 85.6 Cash and cash equivalents (3.7) (13.7) ------------------------------------------------------------------------- Net debt position 236.6 316.4 Overall, the Fund's net debt position has improved by $79.8 million from the end of 2006 to the end of 2007. The reason for this improvement is due to the reduction in the zinc price from December 2006 to 2007. The lower zinc price reduces the value of the inventory and receivables in the Fund's working capital. The Fund has a Revolving Facility in place that is used for general corporate purposes, including financing working capital. In October 2007, the Fund completed an amendment with a syndicate of six Canadian chartered banks to its Revolving Facility. The amended Revolving Facility has been extended to May 1, 2009. The amount available to be drawn on the Revolving Facility varies on a quarterly basis and will be based on percentages of the Fund's eligible inventory and accounts receivable from the previous quarter. The maximum available to be drawn at any time is $200 million and the minimum available to be drawn is $55 million. The amount available to be drawn based on the Fund's December 31, 2007 balance sheet is $135 million. Prior to the amendment, the Revolving Facility limit was $100 million. Borrowings under the Revolving Facility bear interest at rates that vary with the prime rate, the bankers' acceptance rate, or Libor rates plus applicable margins, and vary based on certain financial ratios of the Fund. Fluctuations in working capital balances as a result of operations are generally funded by, or used to repay, the Revolving Facility. In the fourth quarter, $191.5 million of debt was drawn and $158.7 million was repaid related to the fluctuations in working capital. In 2007, $659 million of debt was drawn and $662.5 million was repaid related to the fluctuations in working capital. The Fund has $153.5 million of senior secured notes (the "Notes") outstanding. The Notes have a term of seven years and will mature on December 20, 2010. The Notes offering was made by way of a private placement and the proceeds were used to repay a term facility that had been outstanding since the inception of the Fund. Both the Revolving Facility and the Notes contain customary representations, warranties, covenants and conditions to funding. The Fund's inability to meet these representations, warranties, covenants and conditions may require it to seek additional funding sources and may impact the Fund's ability to make distributions. All of the assets of the Fund have been pledged in support of the obligations under the Notes and the Revolving Facility. All of the covenants under the Revolving Facility agreement were complied with as at December 31, 2007 and 2006. The Fund expects to further extend the Revolving Facility beyond May 1, 2009 and to refinance the Notes as they approach their maturity date of December 20, 2010. If the Fund was unable to further extend the Revolving Facility or refinance the Notes, it may be required to seek additional funding and it may impact the Fund's ability to make distributions. Revenue Recognition The Fund recognizes revenue from the sale of refined metals and byproducts at the time of the sale, when the rights and obligations of ownership pass to the buyer. This generally occurs upon shipment. Prices for provisionally priced sales are based on market prices and exchange rates prevailing at the time of shipment and are adjusted based upon market prices and exchange rates until final settlement with customers, pursuant to the terms of sales contracts. Price changes for shipments waiting final pricing at quarter-end could have a material effect on future revenues. As of December 31, 2007, there was $5.6 million in revenues waiting final pricing. OTHER DEVELOPMENTS On February 7th, 2008, the Fund announced that an Agreement in Principle had been concluded between the Fund's Manager and the United Steelworkers of America, local 6486. The Union negotiating committee was expected to give this Agreement in Principle a unanimous recommendation at a meeting with its members within the two weeks from the aforementioned date. Outlook The 2008 targets for the key drivers of the Fund are: Zinc metal production: 275,000 tonnes Zinc metal sales: 275,000 tonnes Processing fee: 37.5 cents per pound Zinc metal premiums: 6.5 cents US/pound Capital expenditures: $33 million The Manager's ability to provide for stable monthly distributions and meet the targets identified above is subject to the various risks and the assumptions that can be found in the "Forward-looking Information" below. Forward-looking Information The Fund provides Forward-looking Information for the upcoming year on zinc metal production, zinc metal sales, processing fee, zinc metal premiums and capital expenditures. The Fund provides this Information to shareholders and analysts because they are the key drivers of the business. Readers are cautioned that the Information may not be appropriate for other reasons. The Fund updates its Forward-looking Information in each of its quarterly MD&As. This press release contains Forward-looking Information concerning the Noranda Income Fund's ("Fund") objectives and 2008 general business outlook, zinc metal production and sales targets, estimated processing fee, zinc premium target, capital expenditures forecast and cash flow projections. Forward-looking Information can be identified by the use of words, such as "are expected", "is forecast", approximately or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking Information involves known and unknown risks, uncertainties and other factors, which may cause the actual results, or performance to be materially different from any future results or performance expressed or implied by the Forward-looking Information. Examples of such risks, uncertainties and other factors include, but are not limited to, the following: (1) the Fund's ability to operate at normal production levels; (2) the dependence upon the continuing supply of zinc concentrates (terms of the Supply and Processing Agreement); (3) the demand for zinc metal, sulphuric acid and copper cake; (4) changes to the supply and demand for specific zinc metal products and the impact on the Fund's realized premiums; (5) the impact of month prior pricing; (6) the ability of the Fund to continue to service customers in the same geographic region; (7) the sensitivity of the Fund's Net Revenues to reductions in realized zinc metal prices including premiums, copper prices, sulphuric acid prices; the strengthening of the Canadian dollar vis-à-vis the US dollar; and increasing transportation and distribution costs; (8) the sensitivity of the Fund's production costs to increases in electricity rates, other energy costs, labour costs and operating supplies used in its operations, the sensitivity of the Fund's interest expense to increases in interest rates; (9) changes in recoveries and capital expenditure requirements; (10) the negotiation of collective agreements with its unionized employees; (11) general business and economic conditions; (12) transportation disruptions; (13) the legislation governing air emissions, discharges into water, waste, hazardous materials and workers' health and safety, as well as the impact of future legislation and regulations on expenses, capital expenditures, taxation and restrictions on the operation of the Processing Facility; (14) potential negative financial impact from regulatory investigations, claims, lawsuits and other proceedings; (15) loan default and refinancing risk; and (16) reliance on Xstrata Canada for the operation and maintenance of the Processing Facility. The Forward-looking Information represents our views as of the date of this press release. The Fund anticipates that subsequent events and developments may cause the Fund's views to change. Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol "NIF.UN". The Noranda Income Fund owns the CEZinc processing facility and ancillary assets (the "CEZinc processing facility") located in Salaberry-de-Valleyfield, Quebec. The CEZinc 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 its customers are located. It produces refined zinc metal and various by-products from zinc concentrates purchased from mining operations. The Processing Facility is operated and managed by Canadian Electrolytic Zinc Limited. Further information about the Noranda Income Fund can be found at www.norandaincomefund.com NORANDA INCOME FUND INTERIM CONSOLIDATED BALANCE SHEETS (unaudited) ($ thousands) Dec. 31 Dec. 31 2007 2006 ------------ ------------- ASSETS Current assets: Cash and cash equivalents 3,702 13,712 Accounts receivable Trade 64,210 143,438 Xstrata Canada 22,617 35,817 Commodity financial instruments 964 - Firm commitments 719 - Inventories 129,066 188,161 Prepaids and other assets 2,195 3,566 ------------ ------------- 223,473 384,694 Deferred financing fees - 1,009 Property, plant and equipment 314,489 324,063 ------------ ------------- 537,962 709,766 ------------ ------------- LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued liabilities Trade 18,547 17,596 Xstrata Canada 44,801 218,780 Commodity financial instruments 735 - Distributions payable 4,250 4,250 ------------ ------------- 68,333 240,626 Future tax liability 13,147 - Future site restoration and reclamation 12,130 15,205 Long-term debt 240,269 244,500 Interests of Ordinary Unitholders 54,312 52,363 Unitholders' Interest: Unitholders' equity 191,273 191,273 Deficit (41,502) (34,201) ------------ ------------- 149,771 157,072 ------------ ------------- 537,962 709,766 ------------ ------------- NORANDA INCOME FUND INTERIM CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT AND COMPREHENSIVE INCOME (unaudited) ($ thousands) Three months Twelve months ended December 31 ended December 31 ------------------------- ------------------------- 2007 2006 2007 2006 ------------ ------------ ------------ ------------- Revenues Sales 202,590 311,771 1,000,913 1,055,069 Transportation and distribution costs (4,408) (3,955) (15,642) (15,799) ------------ ------------ ------------ ------------- 198,182 307,816 985,271 1,039,270 ------------ ------------ ------------ ------------- Raw material purchase costs 125,484 240,469 722,433 765,464 ------------ ------------ ------------ ------------- Revenues less raw material purchase costs 72,698 67,347 262,838 273,806 ------------ ------------ ------------ ------------- Other expenses Production 42,992 38,716 158,511 158,756 Selling, general and administration 4,589 4,916 19,637 18,798 Foreign exchange loss (gain) (804) 6,092 (18,528) 5,575 Commodity financial instruments loss (gain) (2,563) - 150 - Commodity hedging gain (754) - (642) - Amortization and reclamation 8,514 6,938 27,400 28,612 ------------ ------------ ------------ ------------- 51,974 56,662 186,528 211,741 ------------ ------------ ------------ ------------- Earnings before interest, minority interest and income tax 20,724 10,685 76,310 62,065 ------------ ------------ ------------ ------------- Interest expense, net 4,504 5,332 22,287 17,812 ------------ ------------ ------------ ------------- Earnings before minority interest and income tax 16,220 5,353 54,023 44,253 ------------ ------------ ------------ ------------- Minority interest in earnings for Ordinary Unitholders 4,055 1,338 13,506 11,063 ------------ ------------ ------------ ------------- Earning before income tax 12,165 4,015 40,517 33,190 ------------ ------------ ------------ ------------- Income tax expense (1,489) - 13,147 - ------------ ------------ ------------ ------------- Net earnings and comprehensive income 13,654 4,015 27,370 33,190 ------------ ------------ ------------ ------------- Deficit as originally reported beginning of period (45,594) (28,653) (34,201) (29,141) Adjustment for derivatives - - 3,236 - Adjustment for financial instruments - - 341 - ------------ ------------ ------------ ------------- Deficit after adjustment beginning of period (45,594) (28,653) (30,624) (29,141) ------------ ------------ ------------ ------------- Distributions to Priority Unitholders (9,562) (9,563) (38,248) (38,250) ------------ ------------ ------------ ------------- Deficit end of period (41,502) (34,201) (41,502) (34,201) ------------ ------------ ------------ ------------- Net earnings (loss) per Priority Unit (basic and diluted) $ 0.36 $ 0.11 $ 0.73 $ 0.89 Weighted average Priority Units outstanding 37,497,975 37,498,652 37,497,975 37,499,663 NORANDA INCOME FUND INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) ($ thousands) Three months Twelve months ended December 31 ended December 31 ------------------------- -------------------------- 2007 2006 2007 2006 ------------ ------------ ------------ ------------- Cash realized from (used for) operations: Net earnings for the period 13,654 4,015 27,370 33,190 Items not affecting cash: Amortization of property, plant and equipment 8,179 7,369 30,281 28,788 Reclamation 335 (431) (2,881) (176) Minority interest in earnings for Ordinary Unitholders 4,055 1,338 13,506 11,063 Future income tax expense (1,489) - 13,147 - Mark-to-market gain on commodity financial instruments (3,317) - (492) - Change in fair value of embedded derivatives (720) - 55 - Accretion on long-term debt 64 64 254 254 Loss from sale of assets 271 380 799 624 Site restoration expenditures (86) (100) (194) (543) ------------ ------------ ------------ ------------- 20,946 12,635 81,845 73,200 ------------ ------------ ------------ ------------- Net change in non cash working capital items 8,121 15,765 (13,975) (52,945) ------------ ------------ ------------ ------------- 29,067 28,400 67,870 20,255 ------------ ------------ ------------ ------------- Cash realized from (used for) investment activities: Purchases of property, plant and equipment (8,072) (7,384) (25,997) (22,230) Proceeds from government assistance 694 56 2,526 1,837 Proceeds on sales of property, plant and equipment 2 - 65 595 ------------ ------------ ------------ ------------- (7,376) (7,328) (23,406) (19,798) ------------ ------------ ------------ ------------- Cash realized from (used for) financing activities: Redemption - Priority Unitholders - (20) - (20) Distributions - Priority Unitholders (9,562) (9,563) (38,248) (38,250) - Ordinary Unitholders (3,187) (3,187) (12,750) (12,750) Long-term debt issued under the Revolving Facility 191,524 158,700 659,024 558,800 Long-term debt repaid under the Revolving Facility (197,800) (163,500) (662,500) (494,700) ------------ ------------ ------------ ------------- (19,025) (17,570) (54,474) 13,080 ------------ ------------ ------------ ------------- Change in cash and cash equivalents during the period 2,666 3,502 (10,010) 13,537 Cash and cash equivalents, beginning of period 1,036 10,210 13,712 175 ------------ ------------ ------------ ------------- Cash and cash equivalents, end of period 3,702 13,712 3,702 13,712 ------------ ------------ ------------ ------------- %SEDAR: 00017578EF

For further information:

For further information: Financial information: Michael Boone, Vice
President & Chief Financial Officer of Canadian Electrolytic Zinc Limited,
Noranda Income Fund's Manager, Tel: (416) 775-1561, mboone@xstrata.ca

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NORANDA INCOME FUND

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