ZINC SMELTER

REVENUE
MODEL
Disclaimer / Important information
Information contained in this presentation is based on historical industry data, benchmarks, examples of
common calculations, as well as certain assumptions and hypothetical information that can be used to
model and understand the market in which Noranda Income Fund (the “Fund”) and its zinc processing
facility operate and the various drivers that may impact its performance.
This information is presented solely for informational, illustrative and background purposes in order to help
the reader better understand a zinc smelter’s revenue model. Worked examples do not reflect the terms of
any individual contract that the Fund has previously entered into, is currently subject to, or is likely to enter
into in future. In no way should the reader rely on any illustrated calculations or other financial information
contained herein as indicators of the Fund’s performance or financial results. For information on the
Fund’s financial position and results of operations, readers should only rely on the information contained
in the Fund’s periodic filings, available at www.sedar.com, including the factors described in the "Risk
Factors" section of the Fund’s Annual Information Form each year. The information provided herein is not
exhaustive.
The information in this presentation, dated June 7, 2021, may also be subject to updating, completion,
revision and amendment and such information may change materially over the course of time. Except as
required by law, the Fund does not undertake to update or keep this information current. As a result, you
should not place undue importance on the information provided herein.
All amounts in this presentation are in US dollars unless otherwise indicated.

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Zinc market overview
Zinc is the fourth most used metal worldwide, behind iron,
aluminum, and copper.
Zinc metal serves many important purposes. Protecting
steel against corrosion is the most important market for zinc,
representing 60% of zinc use globally. Zinc is also used in
automotive components, batteries, fertilizers and medical
applications.
Zinc metal is derived from the processing of zinc
concentrates (ore that contains zinc) which are produced by
zinc mines around the world and then shipped to smelting
facilities for further processing and refining.
Through a pyrometallurgical or electrolysis process, smelters
convert zinc concentrates into pure or refined zinc metal
products destined for these various markets and end-uses.

Source: zinc.org

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Primary raw material: Zinc concentrate
7%
Zinc concentrate is the smelter’s primary raw material,
and as such is an important cost and revenue driver. It is 9%
primarily composed of zinc and sulphur, and smaller
amounts of other metals, which may be considered
revenue drivers or waste depending on a smelter’s ability
to recover these elements. For example, it may contain
copper, silver, iron, lead, silica, magnesium, manganese Typical
or mercury. composition of 52%
32% zinc concentrates
Secondary materials, such as zinc oxides (namely zinc
clinker and Waeltz oxides), can be used by smelters in
their feed mix.
Historically, North American smelters sourced lower-
impurity zinc concentrates domestically, but over the last
decade, mine production has increasingly shifted
overseas, where concentrates contain greater impurities,
adding complexity to the refining process. Zinc Sulphur Iron Other

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Smelter revenue model overview
A smelter generates revenue from four main sources: free metal, treatment charges, by-products and metal
premiums.

01 02 03 04

Free metal + Treatment

charges + By-products +
Metal
premiums

Typically, smelters buy concentrate and pay for approximately 85% of the contained metal, or less, if the grade
is low. A smelter recovers around 96% of the zinc, allowing it to generate free zinc revenue (01). Smelters also
charge mines a fee (treatment charges or TCs) based on the tonnes of concentrate to be processed (02). To a
lesser extent, a smelter also generates revenue from the sale of zinc metal by-products (03) and from metal
premiums on the zinc sold (04).

Smelters who derive their revenues on market terms (whether in part or in their entirety) are subject to
changing market dynamics impacting pricing, including smelter treatment charges and zinc commodity prices.

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 01
Source of revenue: Free metal LME Zinc price

4000
Free metal is an important component of revenue that 3500
comes from the zinc metal recovered from the treatment
3000
process. Free metal is comprised of four components: the

US$/t ZINC
price of zinc on the London Metal Exchange (LME), the 2500

zinc content of the concentrate, the smelter zinc recovery 2000

rate and the percentage paid by the smelter for the zinc 1500

concentrate. 1000

500
The below example illustrates typical industry percentage
rates, although these may vary based on a number 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

of factors.
Source: Wood Mackenzie

01
Value of
free metal
LME
zinc price X
Zinc
content
X
Zinc
recovery _Concentrate
cost
52% 96% 84.6%1

1 Under typical smelter terms, smelters pay for 85% of the zinc contained in the concentrate, subject to a minimum deduction of 8% based on the zinc content (at 52% of zinc content in concentrate, the
smelter pays for only 84.6% of the zinc contained).

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 02
Source of revenue: Treatment charges Spot vs Benchmark TC

350
Treatment charges (TCs) are an important component of revenue 300

US$/t CONCENTRATE
for a smelter. They represent the cost of converting a tonne of
concentrate into zinc metal paid by miners. 250

200
TCs are negotiated between miners, traders and smelters on
150
the benchmark or spot1 market, or via fixed contracts. Benchmark
represents the annual view of the global zinc concentrate market 100

typically negotiated between major smelters and miners, whereas 50

spot represents a current negotiation and is more indicative of
0
current market conditions. As a result, TCs are affected by both 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

current and annual views of supply and demand. Spot TC Benchmark TC

Source: CRU

02
In 2020, Spot treatment charges ranged
Treatment from $85/tonne to $305/tonne1.
charges
As at December 31, 2020, Spot TC stood at $85/tonne

1 Figures based on CRU monthly data

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 03
Source of revenue: Sulphuric Acid - North American Market Prices

By-products 160

140
A smaller component of revenue comes 120
from by-products. Common by-products 100
include sulphuric acid, which is used for

US$/t
80
illustrative purposes below, in addition to
60
copper, lead-silver and other value-
40
added metals.
20

Sulphuric acid prices are affected 0

2014 2015 2016 2017 2018 2019 2020 2021
by supply and demand dynamics.
Tampa Sulphur CFR USG min CFR USG max CFR Chile Spot

Source: Acuity, Argus

03
1 tonne of zinc
Value of Sulphuric acid concentrate with 32%
by-products
(sulphuric
Sulphuric acid
price X recovery sulphur content
= 1 tonne of sulphuric
acid) 96%
acid

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 04
Source of revenue: Metal Premiums

Metal premiums 250.0

The last component of revenue comes 200.0

from metal premiums. Essentially, these

premiums reflect the supply and demand 150.0

US$/t
situation, the quality and shape of the
100.0
product and its alloys, and value-added
services such as transportation. 50.0

Typically, premiums go up as the metal

0.0
market tightens (deficit) and go down as the 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

metal market loosens (surplus).

Source: CRU (US Midwest Refined Metal Delivered)

04
Metal
premiums
Premium X Zinc metal sales1

1 Zinc metal sales = tonnes of concentrate processed x zinc content x zinc recovery

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Illustrative revenue mix example
Excluding price protection strategies and hedging ($/tonne of concentrate processed)

2019
Average 01 02 03 04 Metal
Free metal Treatment premiums
$593/t = (Zn= $2,549/t)
$151
+ charges
$273
+ By-products
$77
+ ($0.083/lb)
$92

2020
Average 01 02 03 04 Metal
Free metal Treatment premiums
$450/t = (Zn= $2,264/t)
$134
+ charges
$179
+ By-products
$52
+ ($0.077/lb)
$85

Both total smelter revenue and revenue mix are subject to variability due to market volatility impacting its
key revenue components.

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Managing profit driver volatility
Market-driven prices, such as for treatment charges and zinc
pricing, bring volatility to zinc smelter revenues, as shown in
the previous slide.
Various strategies are employed to reduce the potentially
negative impact on profit resulting from decreasing zinc prices,
treatment charges and other products. These include, but are
not limited to:
 Entering into future free zinc sales or hedging sales of other
by-products on the market
 Entering into fixed-term contracts for treatment charges,
metal premiums or other by-product sales with
counterparties
 Contracting all or a portion of by-product
sales with counterparties
These same strategies may also mitigate upside potential in
the event of sudden price increases.

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Long-term evolution of treatment
charges compared to free zinc
revenues
Illustrative TCs and Free Zinc Revenues
In this presentation, we have outlined the four main (in millions of dollar, based on 600kt of concentrate
smelter revenue drivers: free metal, treatment charges processed and 300kt of zinc metal produced)
(TCs), by-products and metal premiums, with TCs 300

and free metal representing the two most important 250

of these drivers.
200

Using the example of a smelter that processes 150

approximately 600,000 tonnes of concentrate annually,
100
and with a refined zinc metal production capacity of
about 300,000 tonnes, the graph on the right illustrates 50

that revenues generated from TCs based on spot 0

market pricing deliver higher value over time compared
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

to free zinc revenue based on LME pricing, but would Free zinc revenue at LME TC Revenue on market spot

also deliver higher volatility. Source: TCs and zinc price data from Wood Mackenzie

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Smelter revenue model conclusion
This presentation has allowed us to understand the following
elements of a typical smelter’s revenue model:
 Zinc smelters process and refine zinc concentrates
to produce and sell zinc metal and select by-products
 A typical smelter’s revenue model consists of four main
components: (01) free metal, (02) treatment charges,
(03) by-products and (04) metal premiums
 All revenue components are market-driven and subject to
volatility
 Free metal and treatment charges are the two main
revenue drivers, subject to high pricing volatility
 Smelters use various strategies to reduce metal price
volatility including hedging, future sales and fixed contracts

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ZINC SMELTER
REVENUE
MODEL