Noranda Income Fund 31 2013 Financial Statements final.pdf · Noranda Income Fund (the “Fund”) is an income trust established under the laws of the province of Ontario, Canada

Noranda Income Fund

Consolidated Financial Statements

December 31, 2013 and 2012

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MANAGEMENT’S STATEMENT OF RESPONSIBILITY

The accompanying consolidated financial statements of the Noranda Income Fund (the “Fund”) have been prepared

by management in accordance with International Financial Reporting Standards (“IFRS”). Financial statements are not precise, since they include certain amounts based on estimates and judgments. When alternative methods exist, management has chosen those which it deems most appropriate in the circumstances in order to ensure that the consolidated financial statements are presented fairly, in all material respects, in accordance with IFRS. Management maintains adequate systems of internal accounting and administrative controls, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that the financial information is relevant and reliable, and that the Fund’s assets are appropriately accounted for and adequately safeguarded. The board of trustees oversees management’s responsibility for financial reporting and internal control systems through an audit committee. This committee meets periodically with management and the external auditors to discuss internal controls, auditing matters and financial reporting issues, and to satisfy itself that each party is properly discharging its responsibilities. The committee reviews the consolidated financial statements and reports to the board of trustees. The external auditors have full and direct access to the audit committee.

Eva Carissimi Michael Boone

Chief Executive Officer Chief Financial Officer Canadian Electrolytic Zinc Limited Canadian Electrolytic Zinc Limited Noranda Income Fund’s Manager Noranda Income Fund’s Manager

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INDEPENDENT AUDITORS’ REPORT To the Unitholders of Noranda Income Fund: We have audited the accompanying consolidated financial statements of Noranda Income Fund, which comprise the consolidated statements of financial position as at December 31, 2013 and 2012, and the consolidated statements of comprehensive income, changes in net assets attributable to Unitholders and non-controlling interest and cash

flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Noranda Income Fund as at December 31, 2013 and 2012, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Ernst & Young, LLP

Montréal, Canada

February 11, 2014

1 CPA auditor, CA, public accounting permit no. A122227

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December 31 December 31,

Notes 2013 2012

Assets

Current assets

Cash and cash equivalents 15,547 1,303

Accounts receivable

Trade and other receivables 72,933 86,101

Glencore Canada and affiliates 17 18,965 12,246

Inventories 10 77,580 91,697

Income taxes receivable 4,040 4,801

Derivative financial assets 18 706 712

Prepaids and other assets 1,025 1,925

190,796 198,785

Non-current assets

Property, plant and equipment 9 272,341 270,867

Deferred tax assets 8 3,334 7,920

Employee benefits 14 604 -

Derivative financial assets 18 - 57

276,279 278,844

467,075 477,629

Liabilities

Current liabilities

Accounts payable and accrued liabilities

Trade and other payables 33,622 29,564

Glencore Canada and affiliates 17 54,222 42,884

Income taxes payable - 5,837

Derivative financial liabilities 18 125 1,094

Distributions payable 1,562 1,562

Bank and other loans 15 15,204 15,192

104,735 96,133

Non-current liabilities

Derivative financial liabilities 18 - 61

Residue ponds rehabilitation liability 13 21,116 24,691

Employee benefits 14 13,000 29,442

Bank and other loans 15 36,118 80,317

Deferred tax liabilities 8 12,573 11,977

82,807 146,488

Total liabilities excluding net assets attributable

to unitholders and Non-controlling interest 187,542 242,621

Net assets attributable to unitholders and

Non-controlling interest 279,533 235,008

Net assets attributable to:

Priority Unitholders 11 214,823 190,932

Ordinary Unitholders 11 71,609 63,645

286,432 254,577

Non-controlling interest (6,899) (19,569)

279,533 235,008

(See accompanying notes)

NORANDA INCOME FUND

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ thousands)

On behalf of the Board of Trustees of the Noranda Operating Trust:

John J. Swidler Barry Tissenbaum

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Year ended Year ended

December 31, December 31,

Notes 2013 2012

(Re sta te d - se e Note 4 )

Revenues

Sales 17 626,509 594,600

Transportation and distribution costs (17,104) (16,924)

609,405 577,676

Raw material purchase costs 17 294,459 288,047

Revenues less raw material purchase costs 314,946 289,629

Other expenses

Production 7 182,725 169,593

Selling and administration 7 21,794 21,201

Foreign currency loss (gain) 7,446 (681)

Derivative financial instruments gain 18 (1,080) (940)

Depreciation of property, plant and equipment 36,351 33,502

Rehabilitation (recovery) expense 6,13 (3,683) 922

Earnings before finance costs and income taxes 71,393 66,032

Finance costs, net 6 6,371 7,981

Earnings before income taxes 65,022 58,051

Current income tax expense 8 13,443 15,302

Deferred income tax expense (recovery) 8 804 (7,820)

Earnings attributable to Unitholders and

Non-controlling interest 50,775 50,569

Distributions to Unitholders 12 18,750 18,750

Current income tax recovery on distributions 8 (603) (4,136)

Increase in net assets attributable to Unitholders

and Non-controlling interest 32,628 35,955

Other comprehensive income

Item not to be reclassified to earnings attributable

to Unitholders and Non-controlling interest:

Remeasurement gain (loss) on employee benefit plans 14 16,275 (6,963)

Deferred income tax expense (recovery) 4,378 (1,872)

11,897 (5,091)

Comprehensive income 44,525 30,864

Increase in net assets attributable to:

Priority Unitholders 23,891 25,883

Ordinary Unitholders 7,964 8,628

31,855 34,511

Non-controlling interest 773 1,444

32,628 35,955

Comprehensive income attributable to:

Priority Unitholders 23,891 25,883

Ordinary Unitholders 7,964 8,628

31,855 34,511

Non-controlling interest 12,670 (3,647)

44,525 30,864


NORANDA INCOME FUND

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ thousands)

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NORANDA INCOME FUND

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS ATTRIBUTABLE TO

UNITHOLDERS AND NON-CONTROLLING INTEREST

($ thousands)

Earnings

Attributable Remeasurement

Priority to Unitholders Gain (Loss) Attributable to

Units and and Non- Distributions on Employee Non-

Ordinary controlling to Benefits, Priority Ordinary controlling

Units interest Unitholders Net of Tax Total Units Units interest

(Restated - see Note 4) (Restated - see Note 4)

Balance at January 1, 2013 255,037 375,098 (375,703) (19,424) 235,008 190,932 63,645 (19,569)

Comprehensive income (loss) - 51,378 (18,750) 11,897 44,525 23,891 7,964 12,670

Balance at December 31, 2013 255,037 426,476 (394,453) (7,527) 279,533 214,823 71,609 (6,899)

Earnings

Attributable Remeasurement

Priority to Unitholders Gain (Loss) Attributable to

Units and and Non- Distributions on Employee Non-

Ordinary controlling to Benefits, Priority Ordinary controlling

Units interest Unitholders Net of Tax Total Units Units interest

(Restated - see Note 4) (Restated - see Note 4)

Balance at January 1, 2012 255,037 320,393 (356,953) (14,333) 204,144 165,049 55,017 (15,922)

Comprehensive income (loss) - 54,705 (18,750) (5,091) 30,864 25,883 8,628 (3,647)

Balance at December 31, 2012 255,037 375,098 (375,703) (19,424) 235,008 190,932 63,645 (19,569)


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Year ended Year ended


Notes 2013 2012

Operating activities


Adjustments to reconcile earnings before income taxes:

to cash provided

Depreciation of property, plant and equipment 36,351 33,502

Net change in residue ponds rehabilitation liability 6,13 (4,098) 521

Derivative financial instruments gain 18 (5,761) (2,899)

Change in fair value of embedded derivatives 18 2,309 5,593

Finance costs, net 6 6,371 7,981

Gain on sale of assets (457) (380)

Net change in employee benefits (771) (1,709)

Working capital adjustments:

Decrease (increase) in accounts receivable and

other assets 8,110 (5,215)

Decrease (increase) in inventories 13,504 (32,020)

Increase in accounts payable, accrued liabilities and

derivative financial liabilities 12,221 7,875

Interest paid (4,940) (6,024)

Income taxes paid (17,916) (21,212)

Distributions to Unitholders (18,750) (18,750)

Cash provided by operating activities 91,195 25,314

Investing activities

Purchase of property, plant and equipment (33,395) (27,013)

Proceeds from government assistance 211 -

Proceeds from sale of property, plant and equipment 1,527 2,381

Cash used in investing activities (31,657) (24,632)

Financing activities

Proceeds from bank loans 15 739,016 712,107

Repayment of bank and other loans 15 (784,310) (712,983)

Cash used in financing activities (45,294) (876)

Net increase (decrease) in cash 14,244 (194)

Cash and cash equivalents at beginning of year 1,303 1,497

Cash and cash equivalents at end of year 15,547 1,303


NORANDA INCOME FUND

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ thousands)

Notes to the Consolidated Financial Statements

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NOTE 1. CORPORATE INFORMATION Noranda Income Fund (the “Fund”) is an income trust established under the laws of the province of Ontario, Canada and its Priority Units are publicly traded on the Toronto Stock Exchange (the “TSX”). The registered office is located at 100 King Street West, First Canadian Place, Suite 6900, P.O. Box 403, Toronto, Ontario, Canada, M5X 1E3. The Fund was created in 2002, initially to acquire from Noranda Inc., indirectly through the Noranda Operating Trust (the “Operating Trust”) and the Noranda Income Limited Partnership (the “Partnership”), the CEZinc Processing Facility (the “Processing Facility”). The Processing Facility produces refined zinc metal and various by-products from zinc concentrates and is located in Salaberry-de-Valleyfield, Québec.

As at June 30, 2005, Noranda Inc. changed its name to Falconbridge Limited (“Falconbridge”) pursuant to a corporate amalgamation. Falconbridge subsequently changed its name to Xstrata Canada Corporation (“Xstrata Canada”) after being acquired by Xstrata plc (“Xstrata”). On May 2, 2013, Xstrata merged with Glencore International plc (“Glencore”) with the combined company being called Glencore Xstrata plc (“Glencore Xstrata”). On December 7, 2012, the Fund completed an internal reorganization. Upon completion of the reorganization, the Operating Trust owns all the shares of a newly-formed company, 1884699 Ontario Inc. (“Ontario Inc.”). Ontario Inc. in turn owns the Partnership’s Class A Partnership Units that were previously owned by the Operating Trust. Glencore Xstrata is an integrated producer and marketer of commodities and is listed on the London, Hong Kong and Johannesburg stock exchanges. On July 30, 2013, Xstrata Canada changed its name to Glencore Canada Corporation (“Glencore Canada”).

Supply and processing agreement Pursuant to a 15-year Supply and Processing Agreement (“SPA”) signed on May 3, 2002 between Glencore Canada and the Partnership, Glencore Canada is obligated to sell to the Processing Facility, except in certain circumstances, up to 550,000 tonnes of zinc concentrate annually at a concentrate price based on the price of zinc metal on the London Metal Exchange (“LME”) for “payable zinc metal” contained in the concentrate less a processing fee initially set at $0.352 per pound of that “payable zinc metal.” Starting in 2004, the processing fee is the processing fee in the previous year adjusted annually (i) upward by 1% and (ii) upward or downward by 10% of the year-over-year percentage change in average cost of electricity per megawatt hour for the Processing Facility. “Payable zinc metal” in respect of a quantity of concentrate is equal to 96% of the assayed zinc metal content of the concentrate under the SPA. The processing fee for 2013 was $0.395 (2012 - $0.392) per pound. Under the SPA, Glencore Canada acts as the exclusive agent for the Partnership to arrange the sale of zinc metal and by-products and related hedging and derivative arrangements. The initial term of the SPA will end on May 2, 2017 and will automatically renew for a five-year term thereafter, unless Glencore Canada provides the Partnership with written notice to the contrary at least 180 days prior. Under any renewal, Glencore Canada would act as agent for the Partnership for the purchase of zinc concentrate and the Partnership is expected to pay the market cost of the zinc concentrate that it receives. Glencore Canada would also act as exclusive agent for the sale of zinc metal and by-products and related hedging and derivative arrangements. Under the terms of an administration agreement between the Fund and Canadian Electrolytic Zinc Limited (the

“Manager”), a wholly-owned subsidiary of Glencore Canada, a management services agreement between the Operating Trust and the Manager and an operating and management agreement between the Partnership and the Manager, the Manager provides administrative services to the Fund and management services to the Operating Trust and the Partnership, respectively. The initial term of these agreements will end on May 2, 2017 and will automatically renew for a five-year term thereafter, unless terminated in accordance with the terms. Upon the termination of the operating and management agreement, the Partnership is required to acquire the Manager from Glencore Canada.

NOTE 2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES

Basis of preparation The consolidated financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value and the employee benefits which are recognized as plan assets less the present value of the defined benefit obligation. The consolidated financial statements are prepared in Canadian dollars and all values are rounded to the nearest thousand (CAD$ thousand), except where otherwise indicated.


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The board of trustees approved these consolidated financial statements on February 11, 2014.

Basis of consolidation The consolidated financial statements comprise the financial statements of the Fund and its wholly-owned subsidiaries and the Manager, a structured entity as at December 31, 2013. Control is achieved when the Fund is exposed, or has rights, to variable returns from its involvement with the investee and had the ability to affect those returns through its power over the investee. Specifically, the Fund controls an investee if, and only if, the Fund has all of the following:

Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns.

When the Fund has less than majority of the voting, or similar, rights of an investee, it considers relevant facts and circumstances in assessing whether it has power over the investee, as applicable, including:

The contractual arrangement with the other vote holders of the investee; Rights arising from other contractual arrangements; and The Fund’s voting rights and potential voting rights.

The Fund reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Fund obtains control over the subsidiary and ceases when the Fund loses control of the subsidiary. Assets, liabilities, revenues and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statements of comprehensive income from the date the Fund gains control until the date the Fund ceases to control the subsidiary. All intra-group assets and liabilities, revenues, expenses and cash flows relating to intra-group transactions are eliminated in full on consolidation. Non-controlling interests represent the portion of the profit or loss and net assets attributable to the Manager and are presented separately in the statements of comprehensive income and within the statements of financial position. Losses within a subsidiary are attributable to the non-controlling interests even if that results in a deficit balance. The financial statements of the subsidiaries are prepared using the same reporting period and same accounting policies as the Fund.

Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the date of the financial statements. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

Judgments In particular, the Fund has identified the following areas where significant judgments, estimates and assumptions

are required. Changes in these assumptions may materially impact the financial position or financial results reported in future periods. Further, the information on each of these areas and how they impact the various accounting policies are described below and also the relevant notes to the consolidated financial statements. Consolidation of a structured entity The Manager was incorporated in the province of Québec on December 14, 1961. Since May 3, 2002, the Manager has been operating as a management company that provides management and administrative services to the Fund and its subsidiaries. Upon the termination of the operating and management agreement, the Partnership is required to acquire the Manager from Glencore Canada and set up a pension plan for the employees of the Manager. The Fund considers that it controls the Manager even though it does not have any voting rights. This is because the sole purpose of the Manager is to provide operating and management services to the Fund. In addition, the contractual arrangements between the Fund and the Manager result in the Fund being exposed to the variability of returns from its involvement with the Manager. The Fund also has the ability to direct the Manager through the


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approval of relevant activities such as the annual operating plans by the board of trustees which affects the Fund’s returns. Accordingly, the Fund has concluded that the Fund controls the Manager and it should be consolidated within the Fund’s consolidated financial statements.

Use of estimates The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Fund based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur. Impairment of non-financial assets Impairment exists when the carrying value of a non-financial asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Management uses the value in use calculation to determine the recoverable amount which is based on a discounted cash flow model with cash flows expected to be generated from the Processing Facility over its remaining useful life. Cash flows do not include

restructuring activities, if any, that the Fund is not yet committed to or significant future investments that may enhance the non-financial assets’ performance of the cash-generating unit being tested. The recoverable amount is based on detailed budgets and forecasts and requires estimates and assumptions such as the availability of concentrate and the market treatment charges after the end of the initial term of the SPA, the price of zinc, copper and sulphuric acid, zinc premium, discount rate, foreign exchange rate, useful life of the assets, capital expenditures, closure and rehabilitation expenditures and operating costs. In determining the discount rate, management uses the Fund’s weighted average cost of capital as a starting point and applies adjustments to take into account specific risks. Therefore, there is a possibility that changes in circumstances, in particular the availability of concentrate beyond the term of the SPA, may impact the recoverable amount calculated by management. Taxes (Note 8) To determine the extent to which deferred income tax assets can be recognized, management must estimate the amount of probable future taxable profits that will be available against which deductible temporary differences. Such estimates are made as part of the budgets by tax jurisdiction on an undiscounted basis and are reviewed at each reporting date. Management exercises judgment to determine the extent to which realization of future taxable benefits is probable, considering factors such as the number of years to include in the forecast period and the history of taxable profits. Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the range of business relationships and the long-term nature of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to income taxes already recorded. The Fund establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities. Employee benefits (Note 14) The Manager participates in defined benefit pension plans administered by Glencore Canada. Assets are allocated to the Manager based upon the Pension and Benefits Agreement with Glencore Canada, based on the Manager’s share of the benefit obligation and its share of contributions made. The cost of defined benefit pension plans and other post-retirement benefits and the present value of the pension obligation are required to be determined annually using actuarial valuations. An actuarial valuation involves making various estimates and assumptions including discount rate, future salary increases, mortality rates, expected remaining periods of service of employees and future pension increases. Due to the complexity of the valuation, the underlying assumptions, and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rate spreads of corporate bonds in Canada with at least AA rating or government bonds with similar maturities. As Canada is not considered to have a deep market in long-term corporate bonds, Canadian provincial bonds with similar maturities is used taking into consideration the interest rate spread on the short- and medium-term corporate bonds, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The underlying bonds are further reviewed for quality, and those having excessive credit spreads are removed from the population of bonds on which the discount rate is based, on the basis that they do not represent high-quality bonds.

The mortality rate is based on publicly available mortality tables for Canada. Future salary increases and pension increases are based on expected future inflation rates for Canada, average wage growth and historical information and future expectations.


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Residue ponds rehabilitation liability (Note 13) The Fund has recognized a rehabilitation liability solely related to the residue ponds on the Processing Facility site as their rehabilitation is required under the Québec Mining Act. The Fund assesses its rehabilitation provision at each reporting date. Significant estimates and assumptions are made in determining the provision for rehabilitation as there are numerous factors that will affect the ultimate amount payable. These factors include estimates of the extent and costs of reclamation of the residue ponds and the expected timing of those costs, technological changes, regulatory changes, cost increases as compared to the inflation rates and changes in discount rates (2013 – 2.99%, 2012 – 2.16%). These uncertainties may result in future actual expenditure differing from amounts currently provided. To the extent the actual costs and timing of expenditures differ from these estimates, adjustments will be recorded in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. The provision at the reporting date represents management’s best estimate of the present value of the future rehabilitation costs required. The Fund’s operations are affected by federal, provincial, and local laws and regulations concerning environmental protection. The Fund’s provisions for rehabilitation are based on known requirements. It is not currently possible to estimate the impact on operating results, if any, of future legislative or regulatory developments. Inventories Inventories are stated at the lower of cost and net realizable value. Cost of raw materials, work-in-process and finished products is determined on a weighted average basis and includes all costs incurred in the normal course of business including direct material and direct labour costs and an allocation of production overheads, depreciation and amortization and other costs, based on normal production capacity, incurred in bringing each product to its present location and condition.

Stockpiles are measured by estimating the number of tonnes added to and removed from the stockpile, the number of contained pounds is based on assay data, and the estimated recovery percentage is based on the expected processing method. Stockpile tonnages are verified by periodic surveys. Fair Value Measurement (Notes 18 and 19) The Fund measures financial instruments, such as derivatives, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Changes in estimates and assumptions about these inputs could affect the reported fair value.

NOTE 3. PRINCIPAL ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Foreign currency Transactions in foreign currencies are translated at the exchange rates prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates at the reporting date. All differences that arise are recorded in earnings attributable to Unitholders and non-controlling interest on

the consolidated statements of comprehensive income. Non-monetary assets measured at historical cost in a foreign currency are translated using the exchange rates at the date of the initial transactions.

Cash and cash equivalents Cash and cash equivalents comprise cash bank balances, cash in hand and highly-liquid short-term deposits with an original maturity of three months or less. Due to the short-term nature of these financial assets, the Fund has elected to classify them as held-for-trading. As at December 31, 2013, cash equivalents included an overnight deposit in the amount of $7,000 with a Canadian chartered bank maturing on January 2, 2014 at a rate of 0.85% (December 31, 2012 – nil).

Revenue The Fund recognizes revenue from the sale of refined metals and by-products when all significant risks and rewards of ownership of the asset sold are transferred to the buyer, which generally occurs upon shipment. Revenue is recognized, at fair value of the consideration received or receivable, to the extent that it is probable that economic


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benefits will flow to the Fund and the revenue can be reliably measured. Revenues from the sale of by-products are also included in sales revenue. For a portion of the Fund’s sales contracts, the sales price is determined provisionally at the date of sale, with the final price determined at a mutually agreed date (generally between one and three months from the date of the sale), generally at a quoted market price at that time. This provisional pricing arrangement has the characteristics of an embedded derivative which does not qualify for hedge accounting and is recorded at fair value based on the forward metal prices for the relevant contract period. All subsequent mark-to-market adjustments are recorded in sales revenue up to the date of final settlement. Price changes for shipments awaiting final pricing at period-end could have a material effect on future revenues. As at December 31, 2013, there was $3,035 (December 31, 2012 - $8,497) in revenues that were awaiting final pricing. The following table provides an analysis of the revenues awaiting final pricing as at December 31, 2013 and 2012:

Accountable metal

content (pounds)

Average provisional

price (US$/pound)

Accountable metal

content (pounds)

Average provisional

price (US$/pound)

Zinc metal 1,188,936 0.90 6,335,048 0.89

Copper in cake 604,126 3.34 1,064,056 3.59

Revenues are recorded net of sales taxes.

2013 2012

Property, plant and equipment On initial acquisition, property, plant and equipment are valued at cost, being the purchase price and the directly attributable costs of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management. The cost also includes borrowing costs on qualifying assets under construction, if any, less any applicable government assistance. The capitalized value of a finance lease is also included in property, plant and equipment. Depreciation is recorded on a straight-line basis over the estimated useful life of the asset taking into account the estimated residual value. Estimates of remaining useful lives, residual values and methods of depreciation are reviewed at each reporting date and adjusted prospectively, if appropriate. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate components and are depreciated over their useful lives. The expected useful lives are as follows:

Buildings and plant equipment 10 - 40 years

Anodes (included in buildings and plant equipment) 3 years

Mobile equipment 5 - 10 years

Computers 4 years

Automobiles and trucks 4 years

Capital spare parts are depreciated when they are put into use over the estimated useful lives of the associated equipment. Insurance spare parts are amortized over the estimated useful lives of the associated equipment. When significant parts of property, plant and equipment are required to be replaced at intervals, the Fund derecognizes the replaced part, and recognizes the new part with its own associated useful life and depreciation. All other repair and maintenance costs are recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income as incurred. Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Fund through an extended life, the expenditure is capitalized. When an item of property, plant and equipment is disposed of or when no future economic benefits are expected from its use, it is derecognized and the gain or loss on the difference between its carrying value and proceeds from sale is included in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income.


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Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Leases are classified as financing or operating depending on the terms and conditions of the contracts. Lease agreements where the Fund assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. However, if there is no reasonable certainty that the Fund will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Obligations recorded under finance leases are reduced by lease payments, net of imputed interest. Leases where the Fund does not assume substantially all of the risks and rewards are classified as operating leases. Payments made under operating leases are recognized in earnings attributable to Unitholders and non-

controlling interest on the consolidated statements of comprehensive income on a straight-line basis over the term of the lease.

Impairment of non-financial assets The Fund assesses at each reporting date whether there is an indication that an asset may be impaired. If there are indications of impairment, a review is undertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher of its fair value less costs to sell and its value-in-use. Such reviews are undertaken on an asset-by-asset basis, except where assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash-generating unit level. The Fund has only one cash-generating unit. If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income to reflect the asset at the lower amount. In assessing the value-in-use, the relevant future cash flows expected to arise from the continuing use of such assets and from their disposal are discounted to their present value using a market-determined pre-tax discount rate that reflects current market assessments of the time value of money and asset-specific risks for which the cash flow estimates have not been adjusted. Fair value less costs to sell is determined as the amount that would be obtained from the sale of the asset in an arm’s-length transaction between knowledgeable and willing parties. If no such transactions can be identified, an appropriate valuation model is used. An impairment loss is reversed in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income if there is a change in the estimates used to determine the recoverable amount since the prior impairment loss was recognized. The carrying amount is increased to the recoverable amount, but not beyond the carrying amount, net of depreciation or amortization that would have arisen if the prior impairment loss had not been recognized. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Financial instruments Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. Financial liabilities are classified as financial liabilities at fair value through profit or loss, other liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Fund determines the classification of its financial assets or

liabilities at initial recognition. When financial assets or liabilities are recognized initially, they are measured at fair value. The subsequent measurement of financial assets and liabilities depends on their classification. Financial assets and liabilities are offset and the net amount reported in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into current or non-current portions based on an assessment of the facts and circumstances (i.e. the underlying contracted cash flows). Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and a non-current portion only if a reliable allocation can be made.


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The Fund financial assets and liabilities are classified and measured as follows:

Classification Measurement

Cash and cash equivalents Held for trading Fair value

Accounts receivable Loans and receivable Amortized cost

Derivative financial assets Held for trading Fair value

Derivative financial liabilities Held for trading Fair value

Bank and other loans Other liabilities Amortized cost

Accounts payable and accrued liabilities Other liabilities Amortized cost

Distribution payable Other liabilities Amortized cost

Derecognition of financial assets and liabilities A financial asset is derecognized when the rights to receive cash flows from the asset have expired or the Fund has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Gains and losses on derecognition are recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. Financial assets or liabilities at fair value through profit or loss Financial assets or liabilities classified as held-for-trading are included in the category financial assets or liabilities at fair value through profit or loss. Financial assets or liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held-for-trading unless they are designated as and are effective hedging instruments. Gains or losses on these items are presented in derivative financial instrument gain on the consolidated statements of comprehensive income. The Fund considers whether a contract contains an embedded derivative when it becomes a party to the contract. Embedded derivatives are separated from the host contract if it is not measured at fair value through profit and loss and when the economic characteristics and risks are not closely related to the host contract.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or available-for-sale. Such assets are carried at amortized cost using the effective interest method, less impairment. Losses are recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Trade and other receivables are recognized and carried at their original invoiced value and are non-interest bearing, and are adjusted, where appropriate, for provisional pricing or their recoverable amount if this differs from the invoiced amount. Where the time value of money is material, receivables are discounted and are carried at their present value. A provision is made where the estimated recoverable amount is lower than the carrying amount. Other liabilities Other liabilities are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Other liabilities are presented as current if payment is due within twelve months. Otherwise, and in cases where the Fund has an unconditional right to defer settlement for at least twelve months after the reporting period, they are presented as non-current liabilities. Finance costs are recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income using the effective interest method. Fair values The Fund measures derivatives at fair value at each balance-sheet date. Also, fair values of financial instruments measured at amortized costs are disclosed in Note 19. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

In the principal market for the asset or liability, or


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In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Fund. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described, as follows, based on the lowest-level input that is significant to the fair value measurement as a whole:

Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities, or Level 2 — Valuation techniques for which the lowest-level input that is significant to the fair value

measurement is directly or indirectly observable, or Level 3 — Valuation techniques for which the lowest-level input that is significant to the fair value

measurement is unobservable. For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Fund determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based

on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Notes 18 and 19. Impairment of financial assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets carried at amortized costs are impaired. A financial asset or a group of financial assets carried at amortized cost are deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset, such as debtors experiencing significant financial difficulty, and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced and the amount of the loss is recognized in the statements of comprehensive income. Objective evidence of impairment of loans and receivables exists if the counter-party is experiencing significant financial difficulty, there is a breach of contract, concessions are granted to the counter-party that would not normally be granted, or it is probable that the counter-party will enter into bankruptcy or a financial reorganization. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Derivative financial instruments and hedging The Fund periodically uses derivative financial instruments such as commodity contracts to hedge the risks associated with commodity price fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivative financial instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The Fund periodically uses commodity forward contracts to hedge the effect of price changes relating to its firm fixed commitments on the commodities it sells. Hedge accounting is permitted when there is a high degree of correlation between price movements in the derivative instrument and the item designated as being hedged. The relationship between the Fund’s firm fixed sales commitments and the commodity forward contracts purchased to hedge these commitments permits the use of hedge accounting on these fair value hedges.


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The Fund has determined that its derivatives which were contracted in connection with its inventory management hedging program do not meet the hedging requirements. As a result, these derivatives have been recognized on the consolidated statements of financial position as a derivative financial asset or liability with the change in their fair values at each reporting period recognized as a gain or a loss in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. Fair value hedges are hedges of the Fund’s exposure to changes in the fair value of a recognized asset or liability that could affect profit or loss. The carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is re-measured at fair value, and gains and losses from both are taken to earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. At the inception of a hedge relationship, the Fund formally designates and documents the hedge relationship to which the Fund wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Hedges that are expected to be highly effective in achieving offsetting changes in fair value or cash flows are assessed on an ongoing basis to determine if they actually have been highly effective throughout the financial reporting periods for which they were designated. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a

corresponding gain or loss recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. The subsequent cumulative change in the fair value of the hedging instrument, the commodity forward contracts, is recognized as an asset or liability with a corresponding gain or loss recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. If the hedged item is derecognized, the unamortized fair value is recognized immediately in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are recorded in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income.

Inventories Inventories are stated at the lower of cost and net realizable value. Cost of raw materials, work-in-process and finished products is determined on a weighted average basis and includes all costs incurred in the normal course of business including direct material and direct labour costs and an allocation of production overheads, depreciation and amortization and other costs, based on normal production capacity, incurred in bringing each product to its present location and condition. Spare parts inventory is valued at the lower of cost and net realizable value, where cost is determined using a first-in first-out basis and includes direct material costs incurred. Any provision for obsolescence is determined by reference to the aging of items as well as review of specific items in stock. A regular review is undertaken to determine the extent of any provision for obsolescence. Inventories are categorised, as follows:

Spare parts; Raw materials: zinc concentrate to be consumed in the production process; Work-in-process: items stored in an intermediate state that have not yet passed through all the stages of

production; and Finished products: zinc metal and by-products that have passed all stages of the production process.

Net realizable value is the estimated selling price in the ordinary course of business less estimated costs to completion and the estimated costs necessary to make the sale.

Government grants Government grants are recognized where there is reasonable assurance that the grant will be received and all the attaching conditions will be complied with. Government grants in respect of capital expenditures are credited to the carrying amount of the related asset and are released to earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income in equal amounts over the expected useful lives of the relevant assets. Grants that are not associated with an asset are credited to earnings so as to match them with the expense to which they relate.


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Grant amounts from government assistance programs are reflected as reductions in the cost of the assets or in the expenses to which they relate at the time which the assistance becomes receivable and when there is reasonable assurance that the assistance will be received. For the year ended December 31, 2013, the Fund received $200, which was recorded as a reduction of the related plant equipment (2012 – nil). There are no ongoing obligations related to the assistance, which is subject to audit by the government agency.

Residue ponds rehabilitation liability The Fund records a rehabilitation provision for legal and constructive asset retirement obligations. The rehabilitation of the residue ponds is recognized as an obligation resulting from their recognition as mining waste under Québec’s Mining Act. Provision is made for restoration and for environmental rehabilitation costs in the financial period when the related environmental disturbance occurs, based on the estimated future costs and timing of expenditures using information available at year end. The provision is discounted using a pre-tax rate that reflects the risk specific to the rehabilitation liability and the unwinding of the discount is recognized in finance costs. At the time of establishing the provision, a corresponding asset is capitalized, where it gives rise to a future benefit, and depreciated over future production from the operations to which it relates. Subsequent changes in the estimated costs are recognized immediately in the statements of comprehensive income.

The estimated future costs of rehabilitation are reviewed on a regular basis for changes to obligations, timing of expenditures, legislation or discount rates that impact estimated costs. The cost of the related asset is adjusted for changes in the provision resulting from changes in the estimated cash flows or discount rate and the adjusted cost of the asset is depreciated prospectively unless the corresponding asset is fully depreciated, as is the case for the Fund, in which case the change is recognized immediately in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. The unwinding of the discount rate is recorded in earnings attributable to Unitholders and non-controlling interest in the consolidated statements of comprehensive income as part of finance costs, net.

Taxes Income tax expense comprises current and deferred tax. Current income tax and deferred income tax are recognized in earnings attributable to Unitholders and non-controlling interest except to the extent that it relates to a business combination, or items recognized directly in other comprehensive income, in which case the current and/or deferred tax is also recognized directly in other comprehensive income. The Fund and the Operating Trust are trusts for income tax purposes and are subject to Canadian income taxes on certain income distributed to its unitholders at the same combined federal and provincial corporate tax rate applicable to a Canadian taxable corporation. Income not distributed to unitholders is subject to a top marginal individual income tax rates. IAS 12 requires that current and deferred tax assets and liabilities be measured at the tax rate applicable to undistributed profits until such time that the distribution becomes payable. The Fund’s corporate subsidiaries are taxed at the corporate tax rates. Current income tax Current income tax assets and liabilities for the current reporting period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is recognized using the statement of financial position method in respect of all temporary differences between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax

assets and liabilities will be realized simultaneously. Deferred income tax assets and liabilities are presented as non-current. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. To the extent that an asset not previously recognized fulfils the criteria for recognition, a deferred income tax asset is recorded.


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Deferred tax is measured on an undiscounted basis at the tax rates applicable to undistributed profits that are expected to apply in the periods in which the asset is realized or the liability is settled, based on tax rates and tax laws enacted or substantively enacted at the balance sheet date.

Employee benefits The Manager participates in deferred benefit pension plans and unfunded post-retirement benefit plans, managed and administered by Glencore Canada. Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net interest), are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to net assets attributable to unitholders and non-controlling interest through other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Fund recognizes the following changes in the net defined benefit obligation under ‘production expenses’ and in ‘selling and administration expenses’ in the consolidated statement of comprehensive income:

Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and

Net interest expense or income. Past service costs, if any, are recognized through production expenses and selling and administration expenses in the statements of comprehensive income on the earlier of:

The date of the plan amendment or curtailment, and The date that the Fund recognizes restructuring-related costs.

Plan assets are measured at fair value based on market price information and, in the case of quoted securities, the published bid prices, while plan liabilities are measured on an actuarial basis using the projected unit credit method and discounted at an interest rate equivalent to the current rate of return on Canadian provincial bonds with equivalent currency and term to the plan liabilities, taking into consideration the interest rate spread on corporate bonds with at least AA rating. When the calculation results in a benefit to the Fund, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan of the Fund. An economic benefit is available to the Fund if it is realizable during the life of the plan, or on settlement of the plan liabilities. When the payment in the future of minimum funding requirements related to past service would result in a net defined benefit surplus or an increase in a surplus, the minimum funding requirements are recognized as a liability to the extent that the surplus would not be fully available as a refund or a reduction in future contributions. Re-measurement of this liability is recognized in other comprehensive income in the period in which the re-measurement occurs. The full pension surplus or deficit is recorded in the consolidated statements of financial position.

Other provisions Provisions are recognized when the Fund has a present obligation (legal or constructive), as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect is material, the provision is discounted to net present value using an appropriate pre-tax rate that reflects, where appropriate, the risk specific to the liability and the unwinding of the discount is included in finance costs.

Net assets Balance sheet presentation In accordance with IAS 32 Financial Instruments: Presentation, puttable instruments are generally classified as financial liabilities. The Fund’s Priority Units are puttable instruments, meeting the definition of financial liabilities in IAS 32. There are exception tests within IAS 32 which could result in classification as equity, however, the Fund’s Priority Units do not meet the exception requirements, primarily because the Fund has a contractual obligation to distribute taxable income to unitholders on an annual basis (Note 12). The Partnership’s Class B Ordinary Units (the “Ordinary Units”) with the attached Special Fund Units (as defined below) are exchangeable into Priority Units are considered a financial liability. Accordingly, the Fund has no instrument qualifying for equity classification on its consolidated statements of financial position. The classification of all units as financial liabilities with presentation as net assets attributable to


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unitholders of the Fund (the “Unitholders”) does not alter the underlying economic interest of the Unitholders in the net assets and net operating results attributable to Unitholders. Balance sheet measurement Priority Units and Ordinary Units are carried on the consolidated statements of financial position at net asset value. The net asset value is split based on the number of units outstanding (75% for the Priority Units and 25% for the Ordinary Units) prior to the distribution deficiency noted in Note 12. Although instruments classified as financial liabilities are generally required to be re-measured to fair value at each reporting period, including the embedded derivative relating to the conversion feature of the Ordinary Units, the alternative presentation as net assets attributable to Unitholders reflects that, in total, the interest of the Unitholders is limited to the net assets of the Fund. Statement of comprehensive income presentation As a result of the classification of all units as financial liabilities, the consolidated statements of comprehensive income recognize distributions to Unitholders in earnings attributable to Unitholders and non-controlling interest. The re-measurement of income taxes on distribution is also recorded in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income. In addition, terminology such as Net income has been replaced by Increase in net assets attributable to Unitholders to reflect the absence of an equity component on the consolidated statements of financial position. Presentation of per unit measures As a result of the classification of all units as financial liabilities, the Fund has no equity instrument; therefore, in accordance with IAS 33 Earnings per Share, there is no denominator for purposes of calculation of per unit

measures. Non-controlling interest Non-controlling interests represent the portion of the profit or loss and net assets attributable to the Manager and are presented separately in the statements of comprehensive income and within the statements of financial position. Losses within a subsidiary are attributable to the non-controlling interests even if that results in a deficit balance. Allocation of comprehensive income The components of comprehensive income are allocated between the Priority Units and Ordinary Units based on the weighted average number of units outstanding during the reporting period.

NOTE 4. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY

THE FUND The nature and the impact of each new standard/amendment are described below: IAS 1 Presentation of Financial Statements - Components of Other Comprehensive Income The amendments to IAS 1 change the grouping of items presented in other comprehensive income (“OCI”). Items that could be reclassified (or “recycled”) to profit or loss at a future point in time would be presented separately from items that will never be reclassified such as remeasurement gain (loss) on employee benefits. The Fund

adopted IAS 1 on January 1, 2013 and the amendment affects presentation only and therefore had no impact on the Fund’s financial position or performance. IAS 1 Clarification of the Requirement for Comparative Information (Amendment) The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the consolidated financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntary comparative information does not need to be presented in a complete set of financial statements. IFRS 10 Consolidated Financial Statements IFRS 10 establishes a single control model that applies to all entities including structured entities. IFRS 10 replaces the parts of previously existing IAS 27, Consolidated and Separate Financial Statements, that dealt with consolidated financial statements and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 changed the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including: a) an investor has power over the investee; b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and c) the investor has the ability to use its power over the investee to affect the amount of the investor’s returns. The Fund adopted IFRS 10 on January 1, 2013 and it did not have impact on its consolidated financial statements, as the Fund continues to consolidate the Manager.


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IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (“JCEs”) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The Fund adopted IFRS 11 on Janaury 1, 2013 and it did not have any impact on the Fund’s consolidated financial statements. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 sets out the requirements for disclosures relating to an entity’s interest in subsidiaries, joint arrangements, associates and structured entities. The Fund adopted IFRS 12 on January 1, 2013. See Note 17 for required disclosures.

IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. IFRS 13 also defines fair value as an exit price and also

requires additional disclosures. The Fund adopted IFRS 13 on January 1, 2013 and the application of IFRS 13 has not impacted the fair value measurements of the Fund. See Notes 18 and 19 for required disclosures. IAS 19 Employee Benefits (Revised 2011) (IAS 19R) The Fund applied IAS 19R retrospectively in the current period in accordance with the transitional provisions set out in the revised standard. IAS 19R changes, amongst other things, the accounting for defined benefit plans. Some of the key changes that impacted the Fund include the following:

All past service costs, if any, are recognized at the earlier of when the amendment/curtailment occurs or when the related restructuring or termination costs are recognized. As a result, unvested past service costs can no longer be deferred and recognized over the future vesting period.

The interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net-interest amount under IAS 19R, which is calculated by applying the discount rate to the net defined benefit liability or asset at the start of each annual reporting period.

IAS 19R also requires more extensive disclosures. These have been provided in Note 14. IAS 19R has been applied retrospectively, except for the permitted exceptions relating to sensitivity disclosures for the employee benefit liability for comparative period (year ended 31 December 2012). The Fund implemented IAS 19R effective January 1, 2012 and there was no impact on the Fund’s opening net assets attributable to Unitholders and non-controlling interest as a result of the implementation other than a decrease of $446 in the earnings attributable to Unitholders and non-controlling interest and a corresponding decrease in remeasurement loss on employee benefits, net of tax. For the year ended December 31, 2012, the Fund’s earnings attributable to Unitholders and non-controlling interest decreased by $454 with a corresponding decrease in remeasurement loss on employee benefit plans, net of tax. The Fund’s net employee benefit expense in 2013 under IAS19R was $4,250, and would have been $3,150 if IAS 19R had not been implemented.

NEW STANDARDS ISSUED BUT NOT YET EFFECTIVE

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Fund’s consolidated financial statements are disclosed below. The Fund intends to adopt these standards, if applicable, when they become effective. IFRS 9 Financial Instruments IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after January 1, 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to January 1, 2015. In subsequent phases, the IASB is addressing hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Fund’s financial assets, but will not have an impact on classification and measurements of the Fund’s financial liabilities. The Fund will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued.


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IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after January 1, 2014. These amendments are not expected to be relevant to the Fund. IFRIC Interpretation 21 Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The Fund does not expect that IFRIC 21 will have material financial impact in future financial statements. IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after January 1, 2014. The Fund has not novated its derivatives during the current reporting period. However, these amendments would be considered for future novations.

NOTE 5. OPERATING SEGMENT For management purposes, the Fund is organized into one business unit and has one reportable operating segment. All assets and liabilities of the Fund are held in Canada. The following table presents revenue from customers based on their geographic location and product type for the years ended December 31, 2013 and 2012.

Years ended

December 31,

2013 2012

Canada 200,633 167,562

United states 416,641 414,632

Other 9,235 12,406

626,509 594,600

Zinc 587,693 551,153

Sulphuric acid 29,523 31,017

Copper and other 9,293 12,430

626,509 594,600

Management determines revenue concentration based on customers who account for more than 10% of revenues. Revenue from one customer amounted to $133,966 or 21% during the year ended December 31, 2013 (December 31, 2012 – one customer amounted to $130,558 or 22%), arising from sales of zinc metal.


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NOTE 6. FINANCE COSTS, NET Finance costs, net for the years ended December 31, 2013 and 2012, were as follows:

Years ended

December 31,

2013 2012

Interest on bank and other loans 4,853 6,135

Accretion on bank and other loans 1,107 1,284

Interest income (112) (2)

Accretion of rehabilitation expense 523 564

6,371 7,981

NOTE 7. EMPLOYEE BENEFITS EXPENSE Employee benefits expense included in production and selling and administration expense for the years ended December 31, 2013 and 2012 was as follows:

Years ended

December 31,

2013 2012

(restated)

Wages and salaries (note 17) 52,412 51,462

Benefit costs 9,662 9,175

Defined contribution pension costs 713 644

Pension costs (note 14) 4,250 3,425

Post-retirement benefit plan costs (note 14) 1,076 1,104

68,113 65,810

NOTE 8. INCOME TAXES A reconciliation of income tax charge applicable to accounting earnings before income taxes at the weighted average statutory income tax rate to income tax charge at the Fund effective income tax rate for the years ended December 31, 2013 and 2012 was as follows:


23

2013 2012


Partnership income allocated to Ordinary Units (14,121) (12,846)

50,901 45,205

Expected tax charge at the average statutory income tax rate

(2013 - 49.97%; 2012 - 48.22%) 25,435 21,798

Effect of subsidiary tax rate differential (11,139) (5,614)

Re-measurement of deferred tax liabilities at subsidiary tax rate differential - (9,051)

Other (49) 349

Tax charge at an effective income tax rate before distributions 14,247 7,482

Tax recovery on distribution of non-portfolio earnings (Note 12) (603) (4,136)

Tax charge at an effective income tax rate 13,644 3,346

Income tax expense is composed of the following on the consolidated statements of comprehensive income:

2013 2012

Current income tax expense 13,443 15,302

Deferred income tax expense (recovery) 804 (7,820)

Income tax expense before distributions 14,247 7,482

Current income tax recovery on distribution of non-portfolio earnings (Note 12) (603) (4,136)

Income tax expense after distributions 13,644 3,346

The deferred tax assets and liabilities of the Fund consisted of the following:


2013 2012

Deferred tax assets

Employee benefits 3,334 7,920

3,334 7,920

Deferred tax liabilities

Property, plant and equipment 26,153 27,026

Bank and other loans - finance lease (152) (194)

Debt issuance costs 16 38

Rehabilitation liability (4,627) (5,412)

Eligible capital property (8,817) (9,481)

12,573 11,977

As at December 31, 2013, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognized is $21,000 (2012 - $37,000). The Fund is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.


24

As a result of an internal reorganization that was completed on December 7, 2012, and since Ontario Inc. is not subject to specified investment flow-through (“SIFT”) rules, deferred tax assets and liabilities were re-measured in 2012 in accordance with the IFRS Standing Interpretations Committee (“SIC”) Interpretation No. 25: Changes in Tax Structure of an Entity, using the tax rate applicable to a corporation which does not vary depending on whether earnings are distributed or not.

NOTE 9. PROPERTY, PLANT AND EQUIPMENT

Land and buildings

Plant equipment

Mobile equipment Computers

Auto and trucks Total

At January 1, 2013, net of

depreciation 41,241 227,629 452 636 909 270,867

Additions 1,521 36,026 175 423 136 38,281

Disposals (18) (1,047) (5) - - (1,070)

Depreciation charge (2,883) (32,222) (119) (349) (164) (35,737)

At December 31, 2013, net of

accumulated depreciation 39,861 230,386 503 710 881 272,341

At January 1, 2012, net of accumulated

depreciation 44,343 231,918 263 569 42 277,135

Additions 462 27,584 271 385 883 29,585

Disposals (690) (1,016) - (295) - (2,001)

Depreciation charge (2,874) (30,857) (82) (23) (16) (33,852)

At December 31, 2012, net of

accumulated depreciation 41,241 227,629 452 636 909 270,867

At December 31, 2013

Cost 144,848 775,947 2,736 3,415 1,353 928,299

Accumulated depreciation (104,987) (545,561) (2,233) (2,705) (472) (655,958)

Net carrying amount 39,861 230,386 503 710 881 272,341

At December 31, 2012

Cost 144,030 748,979 2,723 3,236 1,273 900,241

Accumulated depreciation (102,789) (521,350) (2,271) (2,600) (364) (629,374)

Net carrying amount 41,241 227,629 452 636 909 270,867

Land and buildings as at December 31, 2013 included non-depreciating land amounting to $3,142 (December 31, 2012 - $3,142). The carrying value of plant equipment held under finance leases as at December 31, 2013 was $691 (December 31, 2012 - $ 882). Assets under construction included in plant equipment as at December 31, 2013 were $26,744 (December 31, 2012 - $13,073), and are not amortized until put in use.

NOTE 10. INVENTORIES


2013 2012

Spare parts 6,846 6,895

Raw materials 36,545 43,681

Work-in-process 11,414 11,571

Finished products 22,775 29,550

77,580 91,697


25

During the year ended December 31, 2013, $513,535 (December 31, 2012 - $491,142) of inventory was expensed including amortization related to property, plant and equipment of $36,351 (December 31, 2012 - $33,502). As at December 31, 2013, raw material, work-in-process and finished goods were all carried at cost.

NOTE 11. PRIORITY AND ORDINARY UNITHOLDERS


2013 2012

37,497,975 Priority Units 214,823 190,932

12,500,000 Ordinary Units and Special Fund Units 71,609 63,645

As at December 31, 2013, the Fund had 37,497,975 Priority Units outstanding. Priority Unitholders can redeem their units at a present formula price, to a maximum of $50 per month, subject to the Fund’s banking covenants. Pursuant to the Fund’s trust indenture as amended and restated (the “Trust Indenture”), an unlimited number of Priority Units are issuable. Each Priority Unit represents an equal, undivided beneficial interest in the Fund and in distributions of the Fund. Each Priority Unit is transferable and entitles the holder thereof to participate equally in distributions of the Fund and to one vote. The Partnership has 12,500,000 Ordinary Units outstanding, which are exchangeable into Priority Units on a one-for-one basis only after May 2, 2017, or earlier upon the occurrence of certain events. Each Ordinary Unit is entitled to receive a cash distribution on a monthly basis in an amount that is equal to the monthly cash distribution paid to each Priority Unit, provided each Priority Unit is first paid an amount that is equal to the monthly cash distribution of not less than $0.08333 per Priority unit (the “Base Distribution”) before any amount is paid to holders of Ordinary Units. See Note 12 for further details. The 12,500,000 outstanding special voting units of the Fund listed above (the “Special Fund Units”) provide voting rights in respect of the Fund to the holder of Ordinary Units and vote with the Priority Unitholders together as one class. All Ordinary Units and Special Fund Units are held by a wholly-owned subsidiary of Glencore Canada.

NOTE 12. DISTRIBUTIONS When not restricted, and as may be considered appropriate by the board of trustees of the Operating Trust, the Fund’s policy is to make monthly distributions to Unitholders, equal to the distributable cash flows from operations, before variations in working capital and after permanent debt reductions and such reserves as may be considered appropriate by the board. The Fund determines the cash available for distribution, if any, on a monthly basis for the Unitholders of record of the Fund on the last business day of each calendar month and these distributions are to be paid on or about 25 days thereafter. The Fund, as a SIFT, is subject to tax on its "non-portfolio earnings" (as defined in the Income Tax Act (Canada) (“ITA”) (the "NPE") at the same rate as a Canadian corporation provided it distributes a sufficient portion of such earnings to Unitholders (Note 8). The Fund is required by its Trust Indenture to distribute each year amounts equal to the sum of its non-NPE and a specified percentage of its NPE (2013 – 73.1%; 2012 – 73.1%) for the year so as, to the extent possible, minimize its liability for tax under the ITA in the year. Such distributions are to be made in cash, unless the Fund is restricted from distributing cash or sufficient cash is not available, in which case such distributions are to be satisfied in whole or in part by the issuance of additional Priority Units having a value equal to the amount of cash which is unavailable for distribution. Following such an “in-kind” distribution, the Priority Units are automatically consolidated such that each certificate representing a number of units prior to the in-kind distribution of additional units is deemed to represent the same number of units after the distribution of additional units and the consolidation. In December, 2012, the Fund completed an internal reorganization which eliminated the requirement for an “in-kind” distribution commencing in fiscal 2012 (Notes 1 and 8). Cash distributions on Ordinary Units of the Partnership are subordinated to distributions on Priority Units of the Fund until May 2017 except upon the occurrence of certain events. Each Ordinary Unit is entitled to receive a cash

distribution on a monthly basis in an amount equal to the monthly cash distribution paid to each Priority Unit, provided each Priority Unit is first paid an amount that is equal to the monthly cash distribution of not less than $0.08333 per Priority Unit (the “Base Distribution”) before any amount is paid to the holder of the Ordinary Units.


26

If, notwithstanding the subordination of the Ordinary Units, the cash distribution is not sufficient to make the Base Distribution on the Priority Units in a month, the amount of the deficiency does not accumulate and is not paid to holders of the Priority Units. However, if the cash available for distribution in a month is not sufficient to make a distribution on the Ordinary Units that is equal to the distribution on the Priority Units, the amount of the deficiency does accumulate (the “Deficiency Amount”) and is to be paid to the holder of the Ordinary Units if and when there is excess cash available for distribution, above the Base Distribution amount, in a subsequent month. Any accumulated Deficiency Amount related to the Ordinary Units is not accrued by the Fund until excess cash is available for distribution above the Base Distribution amount and a cash distribution is approved by the board of trustees. If at any time there is an accumulated Deficiency Amount owing on the Ordinary Units, any distributions on the Ordinary Units must be declared on the last business day of the month on which the Partnership has distributable cash flow in that month in excess of any amount required to be paid by the Partnership to the holders of the Ordinary Units so as to ensure the declaration of the Base Distribution by the Fund to the holders of Priority Units for that month together with a declaration of an amount equal to the Base Distribution by the Partnership to the holders of Ordinary Units for that month, until the Deficiency Amount is paid in full. In the event of an exchange of Ordinary Units on a one-to-one basis for Priority Units on or after May 2, 2017 or earlier upon the occurrence of an early exchange event (Note 11), any accumulated Deficiency Amount related to the Ordinary Units prior to the exchange is not accrued by the Fund until such time as excess cash is available for distribution above the Base Distribution and a cash distribution is approved by the board of trustees. Upon the exchange, the holder of Ordinary Units has the right to receive any distributions declared and not paid on the Ordinary Units as of that time and a promissory note in the amount of the outstanding accumulated Deficiency Amount. Subsequent to an exchange, the promissory note continues, however, there is no further accumulation of the accumulated Deficiency Amount. As at December 31, 2013 and February 11, 2014, the accumulated Deficiency Amount was $17,049 and $17,551, respectively (December 31, 2012 - $10,834).

NOTE 13. RESIDUE PONDS REHABILITATION LIABILITY


2013 2012

Opening balance 24,691 23,606

Accretion of rehabilitation expense 523 564

Site rehabilitation expenditures (415) (401)

Change in estimates (3,683) 922

Closing balance 21,116 24,691

The Fund has recognized a rehabilitation liability solely related to the residue ponds within the Processing Facility. The Fund has determined the fair value of this rehabilitation liability as at December 31, 2013, by using a discount rate of 2.99% (December 31, 2012 - 2.16%). The liability accretes to its future value until the obligation is completed. The estimated rehabilitation expenditures may vary based on changes in operations, cost of rehabilitation activities, and legislative or regulatory requirements. Although the ultimate amount to be incurred is uncertain, the liability for rehabilitation on an undiscounted basis is estimated to be approximately $35,900. The cash flows required to settle the liability are expected to be incurred from now until 2046.

NOTE 14. EMPLOYEE BENEFITS The Manager participates in two defined benefit pension plans managed and administered by Glencore Canada. The defined benefit obligations recorded by the Fund represent the obligations for those employees who are working for the Manager since the Fund’s inception in May 2002. Assets are allocated to the Manager based upon the Pension and Benefits Agreement with Glencore Canada, based on the Manager’s share of the defined benefit obligations and its share of contributions made. The first plan is for staff employees (“Staff Plan”) and is a final salary plan based on a set formula. The Staff Plan is entirely funded based upon funding requirements of the plan as determined by the actuarial valuations and the Pension and Benefits Agreement between the Manager and Glencore Canada and has been closed to new entrants since 2002. The second plan is for unionized employees (“Unionized Plan”) and membership is based on defined periods of continuous employment and pension benefit rates are determined by negotiated labour agreements. Contributions are made by the employer with no contributions from employees. Contributions are based upon funding


27

requirements of the plan as determined by actuarial valuations and the Pension and Benefits Agreement between the Manager and Glencore Canada. The normal retirement date is the first day of the month coincident with or next following the member’s 65th birthday. A member who retires at normal retirement date is entitled to a monthly pension equal to the member’s total year of credited service calculated in accordance with the plan text multiplied by the member’s effective negotiated rate at the time of retirement. Both pension plans are registered in Québec with each plan’s assets being held within a registered pension trust. Each of the pension plans has established a separate Pension Committee. The role of these Pension Committees, with the input from expert advisors, is to closely monitor the status of all aspects of the plans (i.e. assets and liabilities) to make sure they are prudently managed and in compliance with regulatory requirements. Currently the mix of the pension plan portfolio is approximately 40% in equity and 60% in fixed income instruments. The Manager’s funding policy for the two defined benefit pension plans is to contribute amounts sufficient to meet minimum funding requirements as set forth by the Pension and Benefits Agreement with Glencore Canada plus such additional amounts as the Manager may determine to be appropriate. The Manager also participates in unfunded post-retirement benefit plans that are managed and administered by Glencore Canada, for a number of current and former employees. The benefit obligation recorded by the Fund represents the obligations for those employees who are working for the Manager as of the reporting period or who have retired while working for the Manager. The principal assumptions used in determining pension and post-retirement benefit obligations for the Manager’s plans are as follows:

Post- Post-

retirement retirement

Pension benefit Pension benefit

plans plans plans plans

Rate of salary increases 3.25% 3.25% 3.25% 3.25%

Discount rate 4.70% 4.70% 3.85% 3.90%

Inflation rate 2.00% - 2.00% -

Rate of medical cost increases (1) - 8.00% - 8.00%

Mortality tables

(1) Grading down to 4% in and after 2021

December 31, 2013 December 31, 2012

1994 Uninsured Table with

generational improvement

using scale AA

1994 Uninsured Table with

generational improvement

using 150% of scale AA

The Manager’s share of assets and liabilities of the pension and post-retirement benefit plans and the amounts recognized in the Fund’s consolidated statements of financial position are as follows:


Post- Post-




Defined benefit obligations 68,155 13,000 75,066 13,476

Fair value of plan assets (68,759) - (59,100) -

Net employee benefit (asset) liability (604) 13,000 15,966 13,476

The reconciliation of the Manager’s share of net employee benefit asset (liability) movement during the years ended December 31, 2013 and 2012 in the pension and post-retirement benefit plans are as follows:


28


Post- Post-




Net employee benefit liability, beginning of year 15,966 13,476 11,879 12,309

Net employee benefit expense 4,250 1,076 3,425 1,104

Remeasurement (gain) loss (15,720) (555) 5,762 1,127

Employer contributions (5,100) (997) (5,100) (1,064)

Net employee benefit (asset) liability, end of year (604) 13,000 15,966 13,476

The components of Manager’s share of benefit expense recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income during the years ended December 31, 2013 and 2012 were as follows:

Post- Post-




2013 2013 2012 2012

Current service cost 3,647 543 2,899 537

Interest cost 2,871 533 2,800 567

Interest income (2,268) - (2,274) -

Net employee benefit expense 4,250 1,076 3,425 1,104

The components of the Manager’s share of actuarial losses recognized in other comprehensive income on the consolidated statements of comprehensive income (loss) during the years ended December 31, 2013 and 2012 were as follows:

Post- Post-




2013 2013 2012 2012

Actuarial gain/(loss):

Changes in demographic assumptions (1,090) - - -

Changes in financial assumptions 8,773 555 (4,537) (1,127)

Effect of experience adjustments 4,402 - (3,955) -

Return on plan assets (excluding interest income) 3,635 - 2,094 -

Change in allocation of plan assets - - 636 -

Remeasurement gain (loss) 15,720 555 (5,762) (1,127)

The reconciliation of the present value of benefit obligations and fair value of plan asset movements during the years ended December 31, 2013 and 2012 was as follows:


29


Post- Post-




Plan assets fair value as at January 1 59,100 - 49,997 -

Interest income 2,268 2,274 -

Return on plan assets (excluding interest income) 3,635 - 2,094 -

Employer contributions 5,100 997 5,100 1,064

Benefits paid (1,344) (997) (1,001) (1,064)

Change in allocation of plan assets - - 636 -

Plan assets fair value at at December 31 68,759 - 59,100 -


Post- Post-




Benefit obligation present value as at January 1 75,066 13,476 61,876 12,309

Current service cost 3,647 543 2,899 537

Interest cost 2,871 533 2,800 567

Actuarial (gain) loss (12,085) (555) 8,492 1,127

Benefit payments (1,344) (997) (1,001) (1,064)

Benefit obligation present value at at December 31 68,155 13,000 75,066 13,476

A breakdown of the plan assets by major asset category of the pension benefit plans was as follows:


2013 2012

Cash 2% 1%

Short-term notes 1% 2%

Fixed income - Government of Canada 20% 20%

Fixed income - Provincial and municipal 15% 16%

Fixed income - corporate, preferred shares and foreign government 17% 19%

Equities - Canadian 8% 8%

Equities - US and international 37% 34%

100% 100%

The expected contributions to be made in 2014 to the pension plans are $3,600. The average duration of the defined benefit plan obligation as at December 31, 2013 is 14.5 years (December 31, 2012 – 14.5 years).

Pre-May 2, 2002 The estimated liability of the pension plans covering the pension obligation of the Manager’s employees prior to May 2, 2002, was approximately $89,800 as at December 31, 2013 (December 31, 2012- $95,900). There was approximately $92,000 of assets within the pension plan as at December 31, 2013 (December 31, 2012 - $89,400). The benefit obligation and plan assets for pre-May 2002 would only revert to the Fund upon the


30

termination of the administration agreement between the Manager and the Fund and establishment of a pension plan by the Manager and will be subject to regulatory approval.

Sensitivity analysis A quantitative sensitivity analysis for significant assumption as at December 31, 2013 is as shown below:

Assumptions

Sensitivity Level 1% increase 1% decrease 1% increase 1% decrease 1% increase 1% decrease

Impact on

benefit obligation 793 (707) (8,733) 10,166 673 (655)

Estimates healthcare Discount rate Future salary

cost increase rate increases

The impact of a one year improvement in life expectancy rate would increase benefit obligations by $1,700. The sensitivity analyses above have been determined based on a method that extrapolates the impact on the present value of defined benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the reporting period.

NOTE 15. BANK AND OTHER LOANS


2013 2012

Senior secured notes 52,500 67,500

ABL revolving facility 237 30,340

Obligation under finance lease 691 882

Total bank and other loans 53,428 98,722

Less: unamortized deferred financing fees (2,106) (3,213)

Less: current portion (15,204) (15,192)

Long-term portion 36,118 80,317

Senior secured notes On July 28, 2011, the Operating Trust closed its private placement of Notes, for an aggregate principal amount of $90,000, bearing interest at 6.875%. The Notes amortize by an amount of $7,500 on a semi-annual basis on June 28 and December 28 of each year prior to December 28, 2016. The $15,000 remaining principal balance will be repayable at maturity on December 28, 2016. The senior secured notes (“Notes”) are redeemable at the option of the Operating Trust in whole or in part, at any time on or after: December 28, 2013 at 103.438% of the principal amount; December 28, 2014 at 101.719% of the principal amount; December 28, 2015 and thereafter at 100% of the principal amount; plus, in each case, accrued and unpaid interest to the redemption date. The prepayment options are considered to be closely related to the Notes and are therefore not considered to be an embedded derivative. The Notes’ governing trust indenture lists events that constitute an event of default, should they occur. They include the non-payment by the Operating Trust of principal, interest or other obligations of the Operating Trust in respect of the Notes and a breach of any covenant pursuant to the ABL Facility credit agreement (discussed below), subject to customary cure periods where applicable. If any event of default occurs under the Notes’ trust indenture, the holders of the Notes may require the Operating Trust to repay any outstanding obligations pursuant to the Notes trust indenture. ABL revolving facility On July 28, 2011, the Operating Trust entered into a 5-year secured asset-backed revolving credit facility (the “ABL Facility”) providing availability of up to $150,000. The ABL Facility is an asset-based credit facility and the loans thereunder are made available to the Operating Trust based on a borrowing base test with the maximum amount available thereunder to be the lesser of (a) $150,000 and (b) the aggregate of (i) 85% of eligible accounts receivable (90% in the case of insured accounts receivable or that are owed by qualified investment grade account


31

debtors) plus (ii) the lesser of (A) 70% of the lower of cost or fair market value of eligible inventory, and (B) 85% of the appraised net orderly liquidation value of eligible inventory, with availability from inventory subject to a cap of 100% of availability under clause (i), minus customary priority payables and reserves. The borrowing base is tested on a monthly basis so long as excess availability is equal to or greater than $15,000 and on a weekly basis if excess availability over the most recent 45-day period is less than $15,000. The borrowing base on the ABL Facility was $82,075 based on the Fund’s working capital position as at December 31, 2013. As at December 31, 2013, there was $624 drawn down on the ABL Facility (including letters of credit of $387), leaving an excess availability of $81,451. Borrowings under the ABL Facility are available by way of Canadian prime rate advances, US base rate advances, bankers’ acceptances, US dollar Libor advances and Canadian and US dollar letters of credit. The ABL Facility bears interest at rates that vary with the Canadian prime rate, US base rate, the bankers’ acceptance rate and Libor rates plus applicable margins between -0.25% and 2.25% depending on the average excess availability for the preceding quarter. The effective interest rate as at December 31, 2013, including the accretion of deferred financing costs, is 3.9% (December 31, 2012 – 3.9%). As at December 31, 2013, the US dollar portion payable on the ABL Facility was US$174 ($185). The maturity of the ABL Facility is July 28, 2016. The credit agreement entered into in connection with the ABL Facility contains covenants that restrict the Operating Trust (and the Fund, the Manager, Ontario Inc., the Partnership and its general partner, NILP General Partner Ltd., as guarantors) in several respects, including their ability to make distributions or repurchase the Notes. The ABL Facility also contains customary representations,

warranties and covenants and conditions to funding. The ABL Facility credit agreement does not contain financial covenants, provided the Fund’s average excess availability over the most recent 45-day period is equal to or greater than $15,000. In the event that the Fund’s average excess availability is less than $15,000 for any 45-day period, the Fund will be required to maintain (i) adjusted tangible net worth of the Fund and its subsidiaries at a level prescribed in the credit agreement and (ii) annual capital expenditures at a level not to exceed 120% of budgeted annual capital expenditures. The ABL Facility credit agreement lists events that constitute an event of default, should they occur. They include the non-payment by the Operating Trust of principal, interest or other obligations of the Operating Trust in respect of the ABL Facility credit agreement, a default under the Notes’ trust indenture that permits, or has resulted in, the acceleration of the obligations owing to the holders of Notes, and a breach of any covenant pursuant to the ABL Facility credit agreement, subject to customary cure periods where applicable. If any event of default occurs under the ABL Facility credit agreement, the ABL Facility lenders will be under no further obligation to make advances to the Operating Trust and may require the Operating Trust to repay any outstanding obligations pursuant to the ABL Facility credit agreement. The Notes and the ABL Facility are fully and unconditionally guaranteed, on a senior secured basis (subject to the terms of an inter creditor agreement with the lenders under the new ABL Facility), by the Fund, the Manager, Ontario Inc., the Partnership and NILP General Partner Ltd., the Partnership’s general partner. Under the Notes' trust indenture and the ABL Facility credit agreement, the Fund is permitted to distribute excess cash flows to its Unitholders subject to maintaining the minimum excess availability, compliance with certain financial covenants and other customary restrictions. The proceeds of the ABL Facility are used for working capital and other general corporate purposes.

NOTE 16. COMMITMENTS AND CONTINGENCIES Leases and purchase commitments As at December 31, 2013, the Fund had commitments under leases requiring annual rental payments as follows:

2014 599

2015 744

2016 and after 159

1,502


32

As at December 31, 2013, the Fund had purchase commitments requiring payments as follows:

2014 15,151

Included in the above is $6,335 of purchase commitments to related parties as described in Note 17. Certain agreements for operating costs require the Fund to make minimum purchases, or be subject to penalties. Included in the above is $13,810 of capital commitments relating to the purchase of replacement anodes for the cell house, stainless steel for the silica treatment project and other plant equipment.

Litigation In August 2004, the Manager was served with a motion to institute a class action before the Québec Superior Court, following an accidental discharge of sulphur trioxide. In June 2008, the Québec Superior Court dismissed the motion to institute a class action. The plaintiff appealed the decision. In August 2009, the Québec Court of Appeal dismissed the appeal. In December 2009, the Manager was served a new motion to institute a class action. On March 19, 2012, the Québec Superior Court authorized the motion to institute a class action against the Manager. In August 2012, the class action statement of claim was served upon the Manager and was filed in Court, and the class representative

has made a motion to add the Fund as a “mis en cause” (interested party) and add Xstrata plc and Glencore Canada as co-defendants with the Manager. The Court is currently in the process of determining whether the Fund should be recognized as a “mis en cause” and whether Xstrata plc and Glencore Canada should be added as co-defendants with the Manager. The Manager continues to maintain that the class action suit is unfounded and intends to vigorously defend the claim.

Appropriation of land The Fund is currently in discussion with Québec’s Ministry of Transportation regarding land that the Fund is currently using. This land was appropriated by the provincial government a number of years ago. The Fund is in discussions for the potential purchase of this land.

Guarantees Some of the Fund’s inceptive agreements, specifically those related to the acquisition of the Processing Facility and the debt, include indemnification provisions in which the Fund may be required to make payments to Glencore Canada or lenders for breach of fundamental representations and warranty terms in the agreements. As at December 31, 2013, the Fund does not believe these indemnification provisions would require any material cash payments by the Fund. The Fund indemnifies its trustees and officers against claims reasonably incurred and resulting from the performance of their services to the Fund, and maintains liability insurance for its trustees and officers. No amounts have been recorded for the contingencies outlined above.

NOTE 17. RELATED PARTIES The consolidated financial statements include the financial statements of the Fund, the subsidiaries and the structured entity listed in the following table:

2013 2012

Subsidiaries:

Noranda Income Limited Partnership1 Canada 81% 81%

1884699 Ontario Inc. Canada 100% 100%

Noranda Operating Trust Canada 100% 100%

Structured Entity:

Canadian Electrolytic Zinc Limited Canada 0% 0%

1 Represents percentage of taxable income allocated to the Fund’s subsidiaries.

Name

Country of

Incorporation

% Equity Interest


33

The Manager’s financial information consolidated before eliminations by the Fund are as follows:

2013 2012

Revenue 305 299

Increase in net assets attributable to Non-controlling interest 773 1,444

Other comprehensive income (loss), net of tax 11,897 (5,091)

Increase/(decrease) in comprehensive income attributable to Non-controlling interest 12,670 (3,647)

2013 2012

Current assets 4,657 5,039

Non-current assets 3,938 7,920

Total assets 8,595 12,959

Current liabilities 2,494 3,086

Non-current liabilities 13,000 29,442

Total liabilities 15,494 32,528

Net assets attributable to Non-controlling interest (6,899) (19,569)

2013 2012

Cash provided by operating activities 210 193

December 31,

Years ended

December 31,

December 31,

Years ended

During the years ended December 31, 2013 and 2012, the Company entered into the following transactions in the ordinary course of business with Glencore Canada, its subsidiaries and its affiliates:

2013 2012

Sales of zinc metal 59,757 22,180

Sales of by-products 29,524 31,017

Purchases of zinc concentrate 277,823 317,104

Purchases of plant equipment, raw materials

and operating supplies 5,976 4,862

Support services 2,089 1,246

Sales agency services 1,965 1,984


2013 2012

Accounts receivable 18,965 12,246

Accounts payable 54,222 42,884

Years ended

December 31,

Except for the zinc concentrate transactions governed by the SPA, the sales to and purchases from related parties are made at terms equivalent to those that prevail for arm’s length transactions. All amounts due to and from related parties are non-interest bearing and are due in the ordinary course of business.


34

Compensation of key management personnel of the Fund During the years ended December 31, 2013 and 2012, the Fund recorded the following as an expense related to executive management personnel.

2013 2012

Salaries and other short-term benefits 1,113 1,320

Employee benefits 38 461,151 1,366

Years ended

December 31,

NOTE 18. DERIVATIVES AND HEDGES The Fund’s derivatives recognized in the consolidated statements of comprehensive income (loss) are as follows:

2013 2012

Derivative financial instruments (gain) loss:

Inventory management program (1,027) (1,069)

Hedges of fixed firm commitments (53) 129

(1,080) (940)

Years ended

December 31,

The Fund’s derivatives recognized in the consolidated statements of financial position are as follows:


2013 2012

Assets

Derivative financial assets:

Hedges of fixed firm commitments 23 701

Inventory management program 683 -

US dollar overnight transactions - 11

706 712

Long-term derivative financial assets:

Hedges of fixed firm commitments - 57

- 57

Liabilities

Derivative financial liabilities:

US dollar overnight transactions 102 -

Firm commitments 23 750

Inventory management program - 344

125 1,094

Long-term derivative financial liabilities:

Long-term firm commitments - 61

- 61

Inventory management program The Fund purchases zinc concentrate to be processed eventually into refined zinc metal for sale to customers. As agent of the Fund, Glencore Canada provides the hedging arrangements in the event that the structure of the Fund’s sales and purchase contracts does not minimize exposure to changes in zinc prices during the period in which the zinc is refined. The derivatives associated with the Fund’s inventory management program do not meet the requirements for hedge accounting. As a result, these derivative financial instruments have been recognized on the consolidated statements of financial position as either a derivative financial asset or liability with the change in their fair value at each reporting period date recognized as a gain or a loss on derivative financial instruments. As at


35

December 31, 2013, the Fund had bought forward approximately 27 million pounds of zinc (December 31, 2012 – sold forward 50 million pounds of zinc). During the year ended December 31, 2013, the change in fair value of these derivatives was a gain of $1,027 which was recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income in gain on derivative financial instruments (December 31, 2012 - gain on derivative financial instruments of $1,069). As at December 31, 2013, the fair value of these positions was a current derivative financial asset of $683 (December 31, 2012 - current derivative financial liability of $344).

Hedges of fixed firm commitments Certain customers request a fixed sales price instead of the LME average price in the month of shipment. Glencore Canada enters into commodity forward and futures contracts on behalf of the Fund that will allow the Fund to receive the LME price in the month of shipment while customers pay the agreed-upon fixed price. Glencore Canada accomplishes this by settling the futures contracts during the month of shipment. In the event that the futures contracts have to be terminated early, due to the customer cancelling a fixed price order, Glencore Canada has the right to charge the customer with the cost of settling the LME futures contract. A high degree of correlation between the changes in the fair value of the contracts and the fixed sales commitments permits hedge accounting

to be used. As at December 31, 2013, Glencore Canada had futures contracts hedging approximately 0.4 million pounds of zinc (December 31, 2012 - 11 million pounds) to be sold pursuant to firm commitments at fixed prices and delivery dates related to the Fund. As at December 31, 2013, the fair value of these contracts was recognized as a current derivative financial asset of $23 (December 31, 2012 - current derivative financial asset of $701 and non-current derivative financial asset of $57) and the fair value of the firm fixed sales commitments was recognized as a current derivative financial liability of $23 and (December 31, 2012 - current derivative financial liability of $750 and a non-current derivative financial liability of $61). The net change in fair value of these net positions, representing the ineffective portion of the hedge position for the year ended December 31, 2013 was recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive income as a gain on derivative financial instruments of $53 (December 31, 2012 - loss of $129).

Embedded derivatives For the year ended December 31, 2013, the Fund recorded $2,309 as an increase of raw material purchase costs related to the change in fair value of the embedded derivatives resulting from the quotational pricing feature of its zinc concentrate payables (December 31, 2012 - increase of $5,593).

NOTE 19. FINANCIAL INSTRUMENTS Fair value The Fund’s significant financial instruments, other than derivatives, comprise bank and other loans, and cash and cash equivalents. The main purpose of these financial instruments is to finance the Fund’s ongoing operations. The Fund’s derivatives are already carried at fair value using a Level 1 valuation technique in both years (with no transfers between fair value levels during the year ended December 31, 2013). The Fund enters into derivative financial instruments (Note 18) with various counterparties, principally financial institutions with investment-grade credit ratings. The fair value recorded is net of counterparty default risk which had no material effect on the fair value recorded by the Fund. The fair value of the Fund’s Senior Secured Notes as at December 31, 2013 amounted to $53,550. The fair value was determined using a Level II valuation technique by using discounted cash flow models that use discount rates that reflect the Fund’s borrowing rate as at December 31, 2013. The Fund’s own non-performance risk as at December 31, 2013 was assessed to be insignificant.

Principles of risk management The Fund’s primary risk management objective is to protect the Fund’s financial position, comprehensive income, and cash flow in support of providing, when possible, monthly cash distributions to Unitholders. The main risks arising from the Fund’s financial instruments are credit risk, liquidity risk, interest rate risk, foreign currency risk and commodity price risk. These risks arise from exposures that occur in the normal course of business. From time-to-time, the Fund may use foreign exchange forward contracts and commodity price contracts to manage exposure to fluctuations in foreign exchange and metal prices. The Fund’s use of derivatives is based on


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established practices and parameters, which are subject to the oversight of the board of trustees of the Operating Trust. Credit risk Exposure to credit risk arises as a result of transactions in the Fund’s ordinary course of business and is applicable to all financial assets. Derivative instruments and similar assets are with approved counter-party banks and other financial institutions. Counter-parties are assessed prior to, during, and after the conclusion of transactions to ensure exposure to credit risk is limited to an acceptable level. The Fund’s major exposure to credit risk is in respect of trade receivables. Trade receivable credit risk is mitigated through established credit monitoring activities. These include conducting financial and other assessments to establish and monitor a customer’s creditworthiness, setting customer limits, monitoring exposure against these limits, and in some instances moving the customer to cash-in-advance terms. The Fund does not hold collateral as security. Management determines credit risk based on customers who account for more than 10% of accounts receivable. As at December 31, 2013 two customers (including Glencore Canada and affiliates) represented 46% of the accounts receivable balance (December 31, 2012 – three customers (including Glencore Canada and affiliates) represented 55% of the accounts receivable balance). As at December 31, 2013 and December 31, 2012 respectively, $591 and $967 of the accounts receivable – trade were fifteen days past due. The requirement for impairment is analyzed at each reporting date on an individual basis for major clients. The calculation is based on actually incurred historical data. The Fund’s maximum exposure to counterparty credit risk

at the reporting date is the carrying value of cash and cash equivalents, accounts receivables, firm commitments, and derivative financial instruments. Liquidity risk Liquidity risk is the risk that the Fund may not be able to settle or meet its obligations on time or at a reasonable price. The Fund manages liquidity risk by maintaining adequate cash and cash equivalent balances, and by appropriately using the Fund’s ABL Facility. The Fund continuously reviews both actual and forecasted cash flows to ensure that the Fund has appropriate ABL Facility capacity. The operational, tax, capital and regulatory requirements and obligations of the Fund are considered in the management of liquidity risk. As at December 31, 2013, the Fund had $14,648 of cash (excluding cash held by the Manager) and $81,451 of unutilized ABL Facility. See Note 15 for additional information on the Fund’s debt position. The following table summarizes the amount of contractual undiscounted future cash flow requirements for financial instruments as at December 31, 2013 (excluding finance costs (Note 6 and Note 15) and commitments (Note 16)):

Total Q1 2014 Q2 2014 Q3 2014

Q4 2014

and

thereafter

ABL revolving facility 237 - - 237

Senior secured notes 52,500 - 7,500 - 45,000

Capital lease 691 60 60 60 511

Accounts payable and accrued liabilities 87,844 82,455 1,026 2,179 2,184

Derivative financial liabilities 125 125 - - -

Distribution payable 1,562 1,562 - - -

Total 142,959 84,202 8,586 2,239 47,932

Market risk analysis Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and commodity price risk. Financial instruments affected by market risk include bank and other loans, trade receivables, accounts payable and accrued liabilities and derivative financial instruments. The sensitivity analyses has been prepared on the basis that the amount of bank and other loans, trade receivables, accounts payable and accrued liabilities and derivative financial instruments. The sensitivity analyses is intended to illustrate the sensitivity to changes in market variables on the Fund’s financial instruments and show the impact on consolidated statements of comprehensive income and net assets attributable to Unitholders and non-controlling interest where applicable.


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The following assumptions have been made in calculating the sensitivity analyses:

The statement of financial position sensitivity relates to derivatives and US dollar denominated cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued liabilities, and the ABL Facility.

The sensitivity of the relevant earnings before income taxes or earnings before finance costs and income taxes is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at December 31, 2013 and 2012 and constant throughout the year.

The impact on unitholders and non-controlling interest where applicable is the same as the impact on earnings before income tax.

Interest rate risk Interest rate risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Fund is exposed to interest rate risk primarily as a result of exposures to movements in the short term interest rates on the ABL Facility bearing interest at a floating rate. The interest rate sensitivity analysis excludes the interest rate movements on the carrying value of employee benefits and rehabilitation liability. If the market interest rates had been 100 basis points higher (lower) at December 31, 2013 earnings before income taxes would have been $2 lower (higher) (December 31, 2012 - $303 lower (higher)). Foreign currency risk

Foreign exchange risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund’s foreign exchange risk arises primarily with respect to the US dollar. The Fund’s revenue and raw material purchase costs are exposed to foreign exchange risk as commodity sales and raw material purchase costs are denominated in US dollars. The majority of operating expenses, principally labour costs and energy costs, are payable in Canadian dollars. The US dollar revenue exposure is higher than the US dollar raw material purchase cost exposure due to the realization of zinc metal premiums, the sale of copper in cake and sulphuric acid and zinc metal recovery gains in US dollars. The Fund also has exposure to the US dollar for its cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued liabilities, and the ABL Facility. The Fund attempts to manage the overall economic exposure to the US dollar by matching US dollar assets to US dollar liabilities. This currency exposure is managed in part through US dollar overnight transactions. As at December 31, 2013, the Fund had sold forward US dollars with a notional amount of US$92,700 (December 31, 2012 – US$109,000) and bought forward dollars with a notional amount of $98,494 (December 31, 2012 – $108,456). An unrealized loss of $102 related to these open positions was recorded as at December 31, 2013 (December 31, 2012 – an unrealized gain of $11). The impact of foreign currencies has been determined based on the balances of financial assets and liabilities at December 31, 2013. This sensitivity does not represent the statement of comprehensive income impact that would be expected from a movement in foreign currency exchange rates over the course of a period of time. If the Canadian dollar had gained or lost 5% against the US dollar, the increase (decrease) on earnings before finance costs and income taxes would have been $4,804/($4,804) as at and for the year ended December 31, 2013. Commodity price risk The Fund is subject to price risk from fluctuations in market prices of commodities. The Fund uses future contracts to manage its exposure to fluctuations in commodity prices. The use of the future contracts is based on established practices and parameters. The Fund’s commodity price risk associated with financial instruments primarily relates to changes in fair value caused by settlement adjustments to receivables and payables and other financial instruments, including firm commitments. The impact of commodity prices has been determined based on the balances of financial assets and liabilities at December 31, 2013. This sensitivity does not represent the statement of comprehensive income (loss) impact that would be expected from a movement in commodity prices over the course of a period of time. The following represents the financial instruments’ effect on earnings before finance costs and income taxes as at and for the year ended December 31, 2013 from a 10% change to metal prices based on December 31, 2013 LME forward prices:


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Zinc: 10% increase/decrease (13,699)/13,699

Copper: 10% increase/decrease 215/(215)

Capital management The Fund’s capital consists of net assets attributable to Unitholders and non-controlling interest. The Fund’s objectives when managing capital is to ensure the Fund has the capital and capacity to support the Fund’s ability to continue as a going concern, and to enable the Fund to make sustaining and revenue generating capital expenditures. The Fund’s long-term objective is to maximize unitholder value and, when possible, provide monthly distributions to Unitholders. The Fund’s capital consists of net assets attributable to unitholders and bank and other loans. The Fund’s capital structure reflects the requirements of a business in the zinc processing industry that has long-term fixed processing fee supply contracts. The Fund is reducing the amount of debt within the capital structure as it moves closer to the end of the SPA. The Fund’s investment in working capital is directly correlated to the price of zinc and is funded by the ABL Facility. The Fund continually assesses the adequacy of its capital structure and capacity and makes adjustments within the context of the Fund’s strategy, economic conditions and the risk characteristics of the business.

Documents

Noranda Income Fund 31 2013 Financial Statements final.pdf · Noranda Income Fund (the “Fund”) is an income trust established under the laws of the province of Ontario, Canada