DBRS Comments on Restoration of Full Zinc Operations by Noranda

DBRS notes today that Noranda Income Fund (the Fund) has announced that it expects its CEZinc processing facility at Salaberry-de-Valleyfield, Québec (CEZinc) to return to full capacity production by the beginning of October 2009. This follows a curtailment of CEZinc operations to 80% of capacity since March 2009, due to an inability to sell or store byproduct sulphuric acid.

DBRS views the restoration of CEZinc to full concentrate processing capacity as potentially marking the end of a period of extraordinary circumstances that led to the suspension of distributions by the Fund, resulting in a downgrade of its stability rating and of the Trust’s debt rating. The restoration of CEZinc to full production capacity is also an important first step in the potential resumption of the Fund’s distribution payments.

In addition, DBRS expects that this action will aid Noranda Operating Trust (the Trust) in its efforts to resolve with lenders the impact of potential covenant breaches in its operating facility, as a result of the Trust’s Senior Secured Notes becoming a current liability in the fourth quarter of 2009 and the decline in EBITDA experienced by the Trust (due to the period of 80% concentrate processing experienced year to date). Full capacity zinc processing will also aid in discussions with lenders on the renewal of the operating facility, which matures in May 2010.

If CEZinc is able to maintain near-full capacity operations and the Fund is able to restore distributions, DBRS expects to remove the Fund’s STA-3 (low) stability rating from Under Review with Negative Implications, where it was placed on February 18, 2009. Similarly, if the Trust can successfully resolve the potential covenant breaches and achieve renewal of its short-term borrowing facility with its lenders, DBRS expects to remove its BBB instrument rating from Under Review with Negative Implications. Failure to achieve either resolution could lead to further negative rating actions.

Notes:
The applicable methodology is Rating Mining, which can be found on our website under Methodologies.

This is a Corporate rating.

For further details, see press releases dated February 9, 18, 23, and July 20, 2009 and rating reports of March 31, 2009.