Vancouver – Xstrata (XTA-L, XSRAF-O) is looking to take full control of Noranda Income Fund (NIF.UN-T) after entering into a non-binding letter of intent with the income trust.
Noranda Income Fund’s only operating asset is the CE zinc refinery and processing facility in Salaberry-de-Valleyfield, Quebec. Xstrata already supplies the zinc concentrate for the facility and also owns an effective 25% voting and economic interest in the fund.
The two entities have a long-term fixed processing fee supply contract that ends in 2017.
The potential deal has Xstrata acquiring all outstanding priority units of the fund for $3.40 in cash per unit, representing a premium of 33% over the July 15 closing price of the units. The fund currently has 37.5 million priority units outstanding while Xstrata, through its Falconbridge acquisition, holds 12.5 million ordinary units.
Like the letter of intent, the proposed terms are not binding except for a 30-day minimum exclusivity period and some non-materials matters.
The CEZinc facility is the second-largest zinc processing plant in North America and the largest on the eastern seaboard. Zinc production in the second quarter was 645,144 tonnes, a 23% increase over the 53,062 tonnes produced in the second quarter last year when the facility ran at 80% of its normal operating level.
In the last quarter Noranda Income Fund earned $8.5 million compared with a net loss of $700,000 for the same quarter a year ago. The fund currently has $193 million in debt including $153.5 million in senior secured notes.
The company recently extended a credit facility maturity date from May 3 to November 3 to pursue the refinancing of the notes that mature in December. One of the requirements of the extension of the revolving facility is that no cash distributions can be paid to unit holders during the extension period.
The fund’s share price jumped 59¢ or 19.3% on the news to close at $3.65. The company has a 52-week share price range between $1.53 and $3.95.
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