At the Meeting, unitholders will be asked to consider voting for an arrangement agreement (the “Arrangement”) between the Fund and
For more information on the Arrangement, please visit www.norandapremiumoffer.com
The full circular is available at the Fund’s issuer profile at www.sedar.com.
Benefits of the Arrangement
The Arrangement has several benefits for the Priority Unitholders including: immediate and attractive premium; all-cash transaction not subject to a financing condition; and removal of future dilution, commodity and execution risk.
The Fund was established in 2002 as an income trust to distribute cash flow from the zinc processing facility in
The Arrangement is recommended by the Independent Committee of the
The management information circular describes the Arrangement, the extensive review process that led to it and the reasons for the Independent Committee and the
Extensive Review Process
Following the extensive review process undertaken by the Independent Committee over the past two years, the Independent Committee concluded that, other than the Arrangement, none of the options identified and considered, which are further outlined in detail in the management information circular, were deemed viable to ensure the long-term sustainability of the Fund and realize meaningful benefits for Unitholders. By contrast, the Arrangement offers Priority Unitholders an immediate and attractive cash premium.
It is important for Priority Unitholders to remember that the Fund was originally conceived under an advantageous 15-year supply and processing agreement and since 2017 has been on market terms subject to the cyclical nature of resource industries primarily exposed to variations in treatment charges and zinc prices. This has proved challenging as the Fund has only one asset, the Processing Facility, with no mines or trading operations to bolster cash flows, which is unique in the zinc smelting industry. Today, the Fund has a highly leveraged capital structure, significant working capital requirements and difficulties generating distributable cash. In addition, the Fund’s unique structure and the inherent contractual restrictions embedded in the foundational arrangements and the material contracts of the Fund in place since its inception in 2002 make it highly improbable that a transaction could be executed with another party.
Challenges Ahead for the Processing Facility
The challenges on the horizon for the Fund, including financial, liquidity and leverage challenges facing its business and the disappearance of predictable local feed, are further compounded by the condition of the asset itself. Capital investments into the Processing Facility are estimated at
Negotiation Process
The Arrangement is the result of extensive arm’s-length negotiations between the Independent Committee and Glencore, with the oversight and participation of the Independent Committee’s external financial and legal advisors, as well as the external legal advisor to the Fund’s manager.
Before recommending and agreeing on the price per Priority Unit, the Independent Committee received an independent valuation and two fairness opinions to ensure that the price agreed upon was fair for Priority Unitholders.
Independent Committee’s View
The choice before the Independent Committee was clear, to proceed with the relative certainty of an all-cash privatization and ensure that Priority Unitholders could realize value for their Priority Units or contemplate an uncertain alternative path for the Fund, with limited options, none of which are certain to succeed. Therefore, the Independent Committee determined that the Arrangement was in the best interests of the Fund and fair to Priority Unitholders and unanimously recommends that Priority Unitholders vote FOR the Arrangement.
In reaching this conclusion, the Independent Committee and the
- Compelling Value to Priority Unitholders: The
C$1.42 per Priority Unit purchase price represents a 45% premium on the closing price on the TSX onJanuary 6, 2023 , the last trading day prior to the announcement of the arrangement agreement, and a 62% premium on the 20-day volume weighted average price per Priority Unit on the TSX for the period ending onJanuary 6, 2023 . - Certainty of Value and Immediate Liquidity: The Arrangement allows Priority Unitholders to realize an attractive price for their Priority Units through an all-cash transaction, thereby providing certainty of value and immediate liquidity.
- Inability to Generate Distributable Cash: In 2017, following the initial 15-year favourable supply and processing agreement put in place at the Fund’s inception in 2002, the Fund’s ability to generate cash flow became subject to market volatility in treatment charges and zinc prices. The Fund has not been able to generate distributable cash to proceed with monthly distributions for Priority Unitholders since 2017. With immediate and long-term capital expenditures needed in the Processing Facility it is unlikely the Fund would be able to recommence such distributions in the foreseeable future.
- Pressing CAPEX Requirements: The operations of the Fund necessitate meaningful capital expenditure requirements to maintain zinc smelting operations, which is reflective of the heavy industrial nature of the Fund’s business. These CAPEX requirements are necessary to ensure the maintenance, stability, safety and efficiency of its operations. The cost of a full cell and crane replacement in the cellhouse, required to fully address underlying operational issues, is estimated to be approximately
US$100 million . Obtaining financing for this will present a challenge for the Fund given the leverage challenges currently facing the Fund’s balance sheet. - Independent Valuation and Fairness Opinion: Accuracy
Canada provided an independent valuation to the Independent Committee, which determined that, as atDecember 31, 2022 , based upon and subject to the assumptions, limitations and qualifications contained therein, the price ultimately agreed to by the Fund fell approximately at the mid-point of the range presented. AccuracyCanada also provided the Independent Committee a fairness opinion to the effect that, as atJanuary 8, 2023 , the consideration to be received by the Priority Unitholders under the Arrangement is fair, from a financial point of view, to such holders, subject to the limitations, qualifications, assumptions and other matters set forth therein. - Additional Fairness Opinion:
Paradigm Capital , acting as financial advisor to the Independent Committee and the Fund, provided an opinion to the effect that, as atJanuary 8, 2023 , the consideration to be received by the Priority Unitholders under the Arrangement is fair, from a financial point of view, to such holders, subject to the limitations, qualifications, assumptions, and other matters set forth therein. - Minimal Conditionality: The Arrangement is not subject to any due diligence condition or financing condition and the Independent Committee and the
Board of Trustees believe that there are limited closing conditions that are outside of the control of the Fund and, as such, there is a reasonable likelihood of completion. - Arrangement Structure: The Arrangement is structured as a court approved plan of arrangement, which provides procedural benefits to Priority Unitholders such as dissent rights and which also allows for structural flexibility which may be desirable given the Fund’s complex structure.
Based on the extensive review process undertaken by the Independent Committee, the Arrangement presents the most compelling value proposition reasonably available to Priority Unitholders to realize value for their Priority Units.
The Independent Committee is convinced that the Arrangement is in the best interests of the Fund and its Priority Unitholders in the face of the challenges that remain on the horizon for the Fund.
Your Vote
The management information circular contains a detailed description of the Arrangement and additional information concerning the Independent Committee and the
As noted, the Arrangement presents you with the opportunity for immediate and certain cash value of
If you have any questions or if you require assistance with voting, please contact the Fund’s strategic unitholder advisor and proxy solicitation agent,
Forward-Looking Information
Certain information in this press release, including statements regarding the proposed privatization of the Fund by Glencore, profitability prospects of the Fund and prospects for raising capital, the cost of and financing of a full cell and crane replacement and the unitholder meeting, are forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events.
Forward-looking information is necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable as of the date of this press release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in greater detail in the "Risk Factors" section of the Fund’s Annual Information Form dated
About the
For more information: | Vice President, Special Situations 647-265-4522 asidnell@kingsdaleadvisors.com |
Source:
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