Maple Leaf Memo
The Liberals have put an offer on the table, a counterproposal that’s as much a policy alternative as it is a price tag on restoring investor confidence.
Though it basically reflects the numbers thrown about in the fall of 2005–numbers that then shook the sector to its core–the Liberal alternative now represents sweet relief.
It’s ironic that what seemed like poison then would now seem prudent; it’s now easier to understand what that band leader must have been thinking when Vito Corleone came back, with Luca Brasi.
From the Liberals’ Web site:
After hearing from numerous witnesses at the Standing Committee on Finance, the Liberal Opposition has a plan. It is proposing that the government repeal its planned 31.5 per cent tax regime and replace it with a modest 10 per cent tax, to be paid by the companies, that would be refundable to Canadian residents. The tax would be imposed immediately with the revenue shared equitably with provincial governments.“Rather than considering what is best for Canadians, the Prime Minister simply decided that he was going to put an end to the income trust sector,” said [Liberal Finance Critic David] McCallum. “After hearing from dozens of expert witnesses we have developed a proposal that is fair to Canadian investors, to corporations and the income trust sector as well as federal and provincial governments.”
Underpinning the Liberal proposals are four main policy objectives that should have been considered by the government:
The Liberal Opposition also proposes that the ban on new trust formations be continued, but that the government should commit to considering representations from sectors which can conform to the policy objectives listed above.
The proposal has already received support from Gordon Tait, an analyst with BMO Capital Markets, who had previously told members of the Finance Committee that extending the phase out period to ten years would likely return one-third of the investors lost savings.
“This new proposal would likely return at least of two-thirds of the losses experienced by the holders of income trusts after the October 31 announcement,” said Mr. Tait. “It would also ensure that Canadian investors continue to have a high-yield investment vehicle available to them.”
Dirk Lever, Managing Director for RBC Capital Markets, agreed with that assessment.
“I would concur with Gordon Tait’s view that at least two thirds of the lost value will be recovered,” said Mr. Lever. “It could be more.”
Yves Fortin, a noted economist who formerly worked for the Department of Finance, indicated that the proposal would put an end to any tax leakage alleged by the government.
“While I am not convinced that there is tax leakage, and expert opinions differ as to the existence or the extent of the tax leakage, this proposed 10 per cent tax would more than cover the problem,” said Mr. Fortin.
It’s clear now that the Liberals intend to use the income trust tax issue as more than a tool to attack Stephen Harper’s credibility. The alternative policy should appeal to the millions of investors/voters who collectively lost more than CD23 billion. But the approach in Canadian Edge is to proceed as though there will be no changes to the tax proposal and that taxation of trusts will begin in 2011. The only trusts worth owning now are those that will profit under this worst-case scenario.
The good news is that 2011 trust taxation is more than priced in already. The CE Conservative Portfolio includes trusts that will continue to pay big dividends in 2011 and beyond, whether they convert to corporations or remain trusts. Some are wholly exempt from the government’s regulations. Others are in high cash flow businesses with ample ways to shelter income that will let them keep paying out at a high level.
The CE Aggressive Portfolio is comprised of trusts that are deeply undervalued but whose businesses are becoming ever-more valuable. In a worst case, they’ll either be worth more as corporations or will be taken over for solid premiums. Note many members of the Conservative Portfolio are also takeover targets, particularly in the power sector.
If the proposal to tax Canadian trusts is changed, we can expect a mighty recovery for all trusts, including the weakest. But only the best of the bunch–those we’re focusing on–will provide strong returns if there are no changes. The strong will also hand us the biggest profits if things are changed.
One further caveat: Energy producing trusts and energy service trusts will continue to mirror the ups and downs of energy prices, regardless of what happens in Ottawa. That means we could see more dividend cuts before things turn up, particularly among the weaker trusts. Recovery will happen, but patience and prudent purchases are essential.
It Was The Professor
After all the noise, it boiled down to a well-connected, professorial bureaucrat.
Liberals are demanding apologies for campaign ads they say falsely impugned their integrity. There’s even talk of will continue to run ads attacking the Grits on the issue.
The Royal Canadian Mounted Police (RCMP) have found their man, one man with no evident connections to Liberal politicians.
More Henry Higgins than Gordon Gekko, general director of analysis in the tax policy branch, Serge Nadeau, has been charged with criminal breach of trust for allegedly using inside information about income trust tax changes to play the market for personal gain.
According to a report in the Toronto Globe and Mail, he was intimately involved in the frantic process leading up to then-Finance Minister Ralph Goodale’s November 2005 announcement that trusts wouldn’t be taxed. Nadeau was part of a crash team assembled to put together a policy before the opposition called an election.
The RCMP said the charge brings to an end an exhaustive investigation into allegations that someone leaked information on coming changes to tax laws just hours before Goodale announced them.
“Based on everything we gathered, this was the single charge that we had the evidence to move ahead on,” said RCMP Chief Superintendent Dan Killam.
Nadeau studied taxation for more than two decades as an economist, professor and senior tax expert within the Finance Department. In a bureaucracy where fashion sense often ends at dark blue suits, the senior bureaucrat stood out. “He was always impeccably dressed,” a former colleague told the Globe and Mail. “He was very conscious of his appearance, very well put together. I don’t think he bought his suits at Moores.” (Moores is Canada’s answer to Men’s Wearhouse.)
Nadeau, who worked at the Finance Department at least twice in his career, earned his master’s in business administration from Laval University and a doctorate in public policy from Carnegie Mellon University. He taught economics at the University of Victoria, and then he left for a career as a bureaucrat, which included a stint at Industry Canada.
The Roundup
Earning reports continue to come in, and there are interesting operational developments at several <i>CE</i>-covered trusts.
Here’s the latest, and we’ll provide a full earnings wrapup in the March <i>Canadian Edge</i>.
Oil & Gas Trusts
Advantage Energy Income Fund (AVN.UN, NYSE: AAV) has taken additional hedging positions to help protect cash flows in 2007 and early 2008. Overall, 48 percent of net gas production is now hedged for the 2007 calendar year at a floor of USD7.55 per million cubic feet (mcf). For the first quarter of 2007, Advantage has secured 58 percent of its net gas production at an USD8.42/mcf floor price. For the summer months, 54 percent of net gas production is hedged at a floor of USD7.08/mcf.
Advantage has further hedged approximately 11 percent of net gas production for winter 2007-08 at a floor price of USD8.44/mcf. And it’s currently hedged 14 percent of its 2007 net crude oil production at an average floor price of USD65 per barrel. Also, Advantage closed its previously announced bought deal financing. At closing, 7.8 million trust units were issued at a price of CD12.80 per unit, for total gross proceeds of approximately CD99.8 million. Advantage has granted the underwriters an over-allotment option, exercisable in whole or in part up to 30 days following closing, to purchase up to an additional 1.17 million trust units at the same offering price.
The first distribution for which new-unit purchasers will be eligible will be for February, payable March 15, 2007. The net proceeds of the offering will initially be used to repay indebtedness outstanding as of Oct. 31, 2006, and to subsequently fund capital and general corporate expenditures. Hold Advantage Energy Income Fund.
Baytex Energy Trust (BTE.UN, NYSE: BTE) announced its 2006 year-end reserves as evaluated by Sproule Associates Limited, an independent reserves evaluator, in compliance with Canadian oil and gas disclosure legislation, National Instrument 51-101. The report noted finding, development and acquisition (FD&A) costs of USD7.36 per barrel of oil equivalent (BOE) for 2006 and USD7.37/BOE for the 2004-06 period. Baytex also boasted a 145 percent replacement of production for 2006.
The trust achieved a recycle ratio of 3.6 times for 2006 and 3.3 times for the two-year period of 2004-06. (The recycle ratio is calculated as operating income per BOE divided by FD&A costs per BOE; it’s an indication of the value creation of each dollar invested.) Total proved plus probable reserves increased to 145 million BOE from 140 million BOE a year ago, with proved reserves increasing to 103 million BOE from 102 million BOE. Reserves per trust unit remained constant compared to one year ago at 1.8 BOE/unit on a proved plus probable basis and 1.3 BOE/unit on a proved basis.
Baytex’s reserve life index increased to 11.6 years based on proved plus probable reserves and 8.2 years based on proved reserves compared to 11 years and 7.9 years one year ago, respectively. Sproule established net asset values per trust unit of CD17.55 under forecast prices and CD17.69 under constant prices. Baytex Energy Trust is a buy up to USD20.
Paramount Energy Trust (PMT.UN, PMGYF) cut its distribution 30 percent, setting its February payment at 14 cents Canadian per unit, down from January’s 20 Canadian cents. Paramount adjusted the distribution level based on assumptions on 2007 forward natural gas strip pricing, estimated production volumes and capital spending levels. Sell Paramount Energy Trust.
Penn West Energy Trust (PWT.UN, NYSE: PWE) is planning to buy oil and natural gas fields in northwestern Alberta for CD339 million (USD289.1 million). According to the trust, the areas produce daily about 3,200 barrels of light oil and 10.2 mcf of gas. Penn West didn’t identify the seller.
The purchase is a sign that trusts will be in the game for accretive acquisitions in their areas of operations, according to Calgary’s <i>Sayer Energy Advisors</i>. Penn West said it bought production for the equivalent of about CD61.50 per barrel of oil a day. That’s more than an average transaction price in the fourth quarter that ranged between CD50 and CD55, based on Sayer’s data. The acquisition will give Penn West light crude to blend at its oil sands project, making it easier to be transported in pipelines, and the trust paid a reasonable premium for it. Buy Penn West up to USD33.
Peyto Energy Trust (PEY.UN, PEYUF) also reported the results of an independent report of its reserve assets conducted by <i>Paddock Lindstrom and Associates</i> in compliance with Canadian oil and gas disclosure legislation, National Instrument 51-101. Peyto completed its seventh consecutive year of reserves growth with proved producing, total proved and proved plus probable additional reserves increasing 11, 7 and 7 percent, respectively, from 2005 to 2006. The value of Peyto’s proven assets, or the before-tax net present value (NPV) discounted at 5 percent of the total proved reserves, grew 13 percent from CD2.5 billion in 2005 to CD2.9 billion in 2006. Adjusting for changes in debt and the number of units outstanding, this NPV/unit grew 6 percent to CD23.08/unit.
The before-tax NPV discounted at 5 percent of the proved plus probable additional reserves grew 14 percent from CD3.2 billion in 2005 to CD3.7 billion in 2006. Adjusting for changes in debt and the number of units outstanding, this NPV/unit grew 9 percent to CD30.75/unit. The proved producing reserve life increased 9 percent from 11 years in 2005 to 12 years in 2006, while the proved plus probable additional reserve life increased 5 percent from 19 years to 20 years. This growth in reserve life is in part due to the natural maturation of Peyto’s tight gas wells, but it also reflects its ability to internally generate its own solid investments.
Peyto replaced more than 210 percent of its annual production with new proved producing reserves while replacing 220 percent with new proved plus probable additional reserves. The distribution life of the undiscounted proved producing assets increased from 19 years in 2005 to 23 years in 2006, indicating that distributions are more sustainable today than a year ago. Buy Peyto Energy Trust up to USD22.
True Energy Trust (TUI.UN, TUIJF) is selling noncore properties that currently produce about 950 BOE output a day. The Calgary-based oil and gas trust said the assets are largely small, non-operated wells and don’t fit into its long-term strategy. The producer has hired <i>Tristone Capital</i> to help sell the properties. True has also scheduled a meeting of unitholders for March 30 to vote on the trust’s plan to reorganize into a dividend-paying, intermediate exploration and production corporation. Sell True Energy Trust.
Electric Power
Northland Power Income Fund (NPI.UN, NPIFF) reported that total distributable cash increased 1 percent in the fourth quarter and 7 percent year-over-year. Total distributions paid to unitholders for the year amounted to CD1.08 per unit, an increase of 3 percent over 2005, and a payout ratio of 92 percent of distributable cash. Net income for the fourth quarter of 2006 was up 5 percent from a year ago.
Distributable cash generated in the fourth quarter 2006 exceeded distributions declared to unitholders by CD0.5 million. Distributions to unitholders declared for the quarter were CD0.2875 per unit, as in 2005. Revenue rose 29 percent over 2005, primarily because of acquisitions. Net income of CD10.2 million was lower than the previous year because of additional costs associated with the acquisitions, including contract amortization, and because 2005 results were affected by the one-time impact of the sale of the Panda-Rosemary facility and subsequent principal prepayment on the senior loan in February 2005. The fund’s 92 percent payout ratio provides it with flexibility for future investments and further increases in distributions. Buy Northland Power Income Fund up to USD13.25.
Gas/Propane
Precision Drilling Trust (PD.UN, NYSE: PDS) reported sharply higher profits in the fourth quarter, but it saw its revenues fall 23 percent because of lower energy drilling. Precision said it earned CD127.4 million, or CD1.01 a trust unit, for the three months ended December 31. That compared with earnings of CD83.5 million, or 66 cents Canadian a unit, for the same 2005 period.
Revenue in the quarter was down 23 percent to CD328 million from CD427.9 million, with the contract drilling services division decreasing 28 percent to CD223 million and the completion and production services segment decreasing 13 percent to CD108 million. Equipment utilization declined significantly while pricing held firm. Drilling rig operating days fell by 18 percent over the third quarter 2006 and 33 percent from the fourth quarter of 2005. Demand for services was hurt by the persistent decline in natural gas and oil prices.
For the full year, the company’s profits fell to CD579.6 million from CD1.6 billion, while annual revenues rose to CD1.43 billion from CD1.27 billion. During 2006, the downward trend in commodity prices, natural gas in particular, led to lower fourth quarter demand for all of Precision’s services in western Canada. To close out the fourth quarter, 3,595 new well licenses were issued in western Canada in December, the second-highest monthly total in 2006.
For January 2007, Precision‘s drilling rig operating day utilization was 66 percent compared to 83 percent in January 2006. Despite the slowdown in oil patch activity, Precision will keep adding more rigs during the next two years. Western Canadian drilling activity is forecast to drop in 2007 for the first time in four years, falling about 15 percent to about 19,000 wells as producers weigh lower prices against higher costs to drill wells. Precision still plans to add 19 new drilling rigs–already contracted by oil and gas firms–for a total of 260 in Canada and the US by the end of 2008. Buy Precision Drilling up to USD30.
Business Trusts
Arctic Glacier Income Fund (AG.UN, AGUNF) said on Monday, February 19, that it sees “minimum financial effect” on its units from changes to the way the Canadian government taxes income trusts. The packaged ice maker said the new legislation, which was unveiled in October and will come into effect in 2011, could prove favorable for the fund, as the new rules wouldn’t apply to income from US operations, which the fund projects would account for about 70 percent of its income by 2011. The company said the amount of US income, coupled with other tax considerations, would result in only 15 percent of its cash distributions subject to the new regulations.
It estimates that the tax cost to the fund of the new rules would be 5 cents Canadian a unit beginning in 2011. The fund also said that, when combined with the current payout ratio, it “does not anticipate any reductions in future cash distributions as a result of the proposed distribution tax.” Last week, the fund said it would pay 9.17 cents Canadian per unit to unitholders as its February distribution for an annual distribution of CD1.10 per unit. Buy Arctic Glacier Income Fund up to USD11.
Chemtrade Logistics Income Fund (CHE.UN, CGIFF) reported that cash available for distribution for the quarter ended Dec. 31, 2006, was CD8.9 million, or 26 cents Canadian per unit, versus CD9.7 million, or 29 cents Canadian per unit, in 2005. Net earnings for the fourth quarter were CD5.4 million compared with CD3.1 million in the same period in 2005. The results for the fourth quarter of 2006 include restructuring costs of CD2.7 million related to the cessation of SHS powder production at the Leeds plant.
Excluding restructuring costs, for the fourth quarter of 2006, cash available for distribution was CD11.6 million, or 35 cents Canadian per unit. Chemtrade expects to record additional restructuring charges of approximately CD1.5 million in future periods for certain costs related to the shutdown that hadn’t been incurred by year’s end. For the year ended Dec. 31, 2006, cash available for distribution was up to CD46.4 million from CD43.2 million in 2005, but it was down to CD1.38 from CD1.58 on a per-unit basis. In addition to the fourth quarter restructuring charge, the net earnings for 2006 included a noncash charge of CD12.3 million with respect to impairment in the value of property, plant and equipment used to manufacture SHS. Buy Chemtrade Logistics up to USD7.
CI Financial Income Fund (CIX.UN, CIXUF) reported a rise in quarterly profit on the back of strong mutual fund sales as well as a gain from the sale of Amvescap PLC shares. Net income at Canada’s third-biggest investment fund manager was CD149.9 million, or 53 cents Canadian a unit, in the three months ended December 31. That was up from CD75.7 million, or 26 cents Canadian a unit, in the three months to the end of November 2005. CI changed its financial year-end to December 31 when it started trading as an income trust on June 30, 2006.
Earnings before interest, taxes, depreciation and amortization (EBITDA) rose to CD181.7 million, or 65 cents Canadian a unit, up 29 percent from CD140.7 million, or 49 cents Canadian, in the quarter ended Nov. 30, 2005. Assets under management grew 18 percent to CD62.7 billion as of December 31 from CD53.1 billion at Nov. 30, 2005. Hold CI Financial Income Fund.
KCP Income Fund’s (KCP.UN, KCPIF) chief executive says a planned sale of the fund may not happen in the near future if the market doesn’t offer the household cleaning products firm the value it deserves as its earnings rise. The company is “by no means committed to a conclusion of this transaction or any change of our structure at the end of this process,” CEO David Cynamon told investors in a quarterly conference call Monday.
“We really want to understand it and see what our options are,” he said. “We feel that we can always be patient and wait and decide if some of the options are better achieved later–maybe this time next year.”
KCP said last November it was considering “strategic alternatives” to enhance unitholder value in the wake of the federal announcement to start taxing existing trusts in 2011. The trust–which operating as <i>KIK Custom Products</i> owns 19 North American plants that make national brand and store brand laundry detergent, household cleaners, over-the-counter remedies and personal care products, ranging from deodorants and sunscreen to shampoo and shaving cream–reported fourth quarter revenue of USD263.1 million, up from USD242.4 million in the year-ago period. Net income increased to USD10 million from USD6.5 million. Full year revenue was USD1.07 billion, compared with USD626.9 million in 2005. Sell KCP Income Fund.
Menu Foods Income Fund (MEW.UN, MNUFF) scraped out a CD1.8 million profit in the fourth quarter, thanks to higher prices, but the pet food maker’s distribution remains suspended. Menu Foods reported fourth quarter sales of CD87.9 million, up 3.6 percent from CD84.8 million in the final three months of 2005, while cost of sales was cut to CD74.3 million from CD77.1 million. The CD1.8 million in net income was worth 9.4 cents Canadian per unit and compared with a year-ago loss of CD13.8 million, or 78 cents Canadian per unit.
With its distribution suspended, the fund used its cash to fund operations and reduce debt, paying off CD27.7 million in bank loans and long-term debt during the year. The trust said its board “is monitoring the future business prospects, growth opportunities and cash requirements and will determine an appropriate distribution policy.” Hold Menu Foods Income Fund.
Yellow Pages Income Fund (YLO.UN, YLWPF) unit Yellow Pages Group said Monday that it will buy the 87 percent of Aliant Directory Services currently owned by Bell Aliant Income Fund (BA.UN, BLIAF) for CD330 million. Yellow Pages is paying cash for Bell Aliant’s 87.14 percent stake in the business. Yellow Pages already owns the remaining share. The transaction is expected to close in April.
Aliant Directories, which produces 35 directories with a total circulation of 1.8 million copies, had 2006 revenue of about CD65 million and operating cash flow of about CD37 million. The deal gives the Yellow Pages Group control over most of Canada’s phone directories companies, except in Saskatchewan.
In other developments, Bell Aliant announced that it’s increasing its monthly cash distribution, and Yellow Pages said it will help pay for the Aliant deal by raising CD300 million through an issue of preferred shares. At Bell Aliant, distributions will rise 2.9 percent to 23.5 cents Canadian a month, from 22.83 cents Canadian, representing an annual payment of CD2.82 per unit. The distribution increase takes effect with February’s monthly distribution to be paid March 15. Meanwhile, Yellow Pages said its subsidiary, YPG Holdings, will issue 12 million redeemable preferred shares to raise CD300 million in a bought deal with a syndicate of underwriters. Buy Yellow Pages up to USD13; Bell Aliant is a buy up to USD30.
Real Estate Trusts
Boardwalk REIT (BEI.UN, BOWFF) reported a sharp increase in fourth quarter net profits on higher rental revenues from the booming Alberta economy. The trust reported that it earned CD6.5 million or 12 cents Canadian a unit for the three months ended December 31. That compared with profits of CD1.2 million, or 2 cents Canadian per unit, for the same 2005 period.
Rental revenues jumped to CD83.6 million from CD75.5 million, while funds from operations (FFO)–a key measure of financial health for real estate investment trusts (REITs)–rose to CD25 million from CD17.8 million. For the full year, earnings rose to CD25.4 million on rental revenues of CD319.4 million, compared with earnings of CD5 million on revenues of CD296.5 million for 2005. Boardwalk has 52 percent of its properties in Alberta, so the trust benefited from solid growth in the province’s energy-focused economy. Boardwalk REIT is a buy up to USD33.
Canadian REIT (REF.UN, CRXIF) reported a 16 percent drop in fourth quarter profit to CD14.4 million from CD17.2 million a year ago. FFO improved 1 percent to CD28.1 million from CD27.9 million. The Toronto-based REIT’s full year net income fell to CD64.2 million, CD1.12 per unit, from CD59 million, CD1.04 per unit, in the prior year. Revenue for the year was CD269.8 million, compared with CD240.9 million in 2005. Buy Canadian REIT up to USD26.
Cominar REIT (CUF.UN, CMLEF) has until February 21 to equal or surpass a sweetened takeover bid for fellow REIT <i>Alexis Nihon</i> by <i>Homburg Invest</i>. Alexis Nihon deemed Homburg’s all-cash CD18.60 a unit offer–improved from a previous offer of CD18.50–superior within the meaning of an agreement with Cominar. Cominar upped its offer in late January to CD18.50 per unit in cash up to a maximum of CD138.75 million, with the rest of the transaction in Cominar units at a ratio of 0.77 Cominar unit for each unit of Alexis Nihon. Homburg already owns 19.5 percent of Alexis Nihon and is considering combining on nonfinancial terms similar to the Cominar proposal. The Cominar proposal was announced in December and is scheduled to be voted on February 22 by Alexis Nihon unitholders. Buy Cominar REIT up to USD20.
Natural Resources Trusts
Acadian Timber Income Fund (ADN.UN, ATBUF) reported net sales of CD19.5 million on a consolidated log sales volume of 371,000 cubic meters in the fourth quarter of 2006. Consolidated log sales volumes in the fourth quarter of 2005 were 399,000 cubic meters, resulting in net sales of CD22.5 million. The lower sales volumes reflected planned reductions in harvest volumes and deliveries as well as unseasonably warm and wet weather that restricted our ability to operate.
EBITDA of CD5.2 million was CD1.4 million lower than the same period of 2005 because of lower harvest volumes and a lower value species mix. For the 11 months ended Dec. 31, 2006, Acadian generated net sales of CD69.5 million on a consolidated log sales volume of 1,328,000 cubic meters. Consolidated log sales volumes for the 11 months ended Dec. 31, 2005, were 1,356,000 cubic meters, for net sales of CD72.8 million. The slight year-over-year decrease is attributable to a weaker fourth quarter as described above.
Acadian operated within its five-year harvest volume framework, designed to ensure harvest levels are consistent with the Long Run Sustained Yield of its timberlands estate. EBITDA of CD18.3 million for the 11 months ended Dec. 31, 2006, was CD0.4 million, or 2 percent, lower than the same period of last year. Acadian said its was able to maintain a consistent year-over-year EBITDA in a challenging operating environment by harvesting and merchandising desired products, establishing stable cash flows and keeping costs low. Buy Acadian Timber Income Fund up to USD10.
Noranda Income Fund (NIF.UN, NNDIF) reported that lower zinc production and sales dragged down the fourth quarter profit to CD4 million from CD10.4 million in the corresponding quarter of 2005. Profit for 2006 came in at CD33.2 million, up slightly from CD32.8 million in 2005. Gains from higher zinc metal premiums and revenues from by-products were offset by lower production volumes and sales, higher foreign exchange losses, higher interest expense and the impact of prior-month pricing. For the year, sales of zinc metal totaled 259,446 tonnes, down 5 percent from the 271,830 tonnes sold in 2005. Zinc sales for the fourth quarter of 2006 were 9 percent lower, at 62,035 tonnes, compared with sales in the corresponding period a year earlier.
The target for 2007 sales is 282,000 tonnes, the company said, adding that the volume is greater than production because Noranda plans to reduce inventories to normal levels. Net revenues were CD273.8 million in 2006, compared with CD265.9 million in 2005. Noranda said it makes a portion of its sales based on prior month pricing–the average price from the previous month. In a market where prices are rising, a portion of the income fund’s revenues will lag behind the higher zinc prices; while in a market where zinc prices are falling, a portion of the fund’s revenues will benefit from higher zinc prices from the prior month. In 2006, prior month pricing had a negative impact of approximately CD10 million on the fund’s net revenues as the zinc price rose from 83 cents US per pound in December 2005 to USD2 per pound in December 2006. Noranda Income Fund is a hold.
SFK Pulp Fund (SFK.UN, SFKUF) boosted its monthly distribution to unitholders to 5 cents Canadian from 3 cents Canadian, a 67 percent increase. The company, which supplies pulp to the paper industry, said improved market conditions, recent acquisitions and a lower level of debt helped raise its distributable cash. Buy SFK Pulp Fund up to USD4.