# Noranda Income Fund :NIF.UN



## gibor365 (Apr 1, 2011)

Was wondering if anyone hold or/and following Noranda Income Fund :NIF.UN?
Their fundamentals are pretty good with P/E = 5.4, Payout ratio about 50%, P/B - 1.
Yield also very attractive just below 10%
Q3 results were pretty solid http://finance.yahoo.com/news/noranda-income-fund-reports-third-205655949.html


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## doctrine (Sep 30, 2011)

The reason it's so cheap is that their zinc supply contract runs out in 2017. It's uncertain how profitable they will be after that point. They think they'll still be profitable, but the numbers might change. On the other hand, they're very low on debt and could be debt free in a year or two and are currently trading for book value. Bit of a gamble but it's pretty likely you'll get 30-40% of your capital back by 2017 in dividends plus another 30-40% in increased book value as they go debt free and build up cash.


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## gibor365 (Apr 1, 2011)

Yes, I read that "contract runs out in 2017"... question how good is the management and how they prepared for company future. doctrine, if you would hold this stock. would you DRIP dividends or prefer cash?

On one hand Xstrata announced that they won't renew contract after may 2017, on the other hand they wanted to buy NIF.UN in 2010 for $3.90 per share, that was declined by NIF.UN....


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## doctrine (Sep 30, 2011)

I would definitely take the dividends as cash, perhaps put them in another company. Worst case they break up the company for its assets in 2017 or perhaps sell everything to someone else. 

The one thing I couldn't figure out is how good is their supply deal with Glencore Xstrata, i.e. if they are paying world price or have some kind of discount. If they're paying something like world price, then I'd say they're a pretty good deal as its likely they can find something to substitute. That is the one piece missing before I would have decided whether it is a buy for me.


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## gibor365 (Apr 1, 2011)

doctrine said:


> That is the one piece missing before I would have decided whether it is a buy for me.


This is probably why this stock is trading so cheap.


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## gibor365 (Apr 1, 2011)

NIF.UN 18% down today..... Q3 results weren't great, but does it justify 18% drop? What do you think?


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## londoncalling (Sep 17, 2011)

Not sure I do not follow the stock. May be an over reaction but it has been sliding since July after being essentially flat since 2012. I always get excited when I see a drop in price of that magnitude if I do not own the stock. In most cases odds are there is a bit of over reaction. Just a question of when the market takes it from oversold to overbought. I would wait for a bottom if considering to add or initiate a purchase but I think the future of the company is in doubt as they do not have much going on past a 2-3year horizon (2017). Commodities (both mining and energy) are in a downturn portion of the cycle. Interested to hear from someone a bit more knowledgeable of the report and company.

Cheers


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## al42 (Mar 5, 2011)

londoncalling said:


> Not sure I do not follow the stock. May be an over reaction but it has been sliding since July after being essentially flat since 2012. I always get excited when I see a drop in price of that magnitude if I do not own the stock. In most cases odds are there is a bit of over reaction. Just a question of when the market takes it from oversold to overbought. I would wait for a bottom if considering to add or initiate a purchase but I think the future of the company is in doubt as they do not have much going on past a 2-3year horizon (2017). Commodities (both mining and energy) are in a downturn portion of the cycle. Interested to hear from someone a bit more knowledgeable of the report and company.
> 
> Cheers



I think this is what spooked the market.

The initial term of the Supply and Processing Agreement ends on May 2, 2017, and with it the favourable pricing of concentrate supply comes to an end. There is a risk that zinc concentrate in quantities and the blend of qualities necessary for the smelter to operate profitably may not be available after May 2, 2017. The Fund is considering several scenarios including the possibility that operations be discontinued. As a result, reserves may be required in advance of May 2017, including to provide for the costs related to a potential discontinuance of operations, with a corresponding effect on cash available for distributions.


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## gibor365 (Apr 1, 2011)

al42 said:


> I think this is what spooked the market.
> 
> The initial term of the Supply and Processing Agreement ends on May 2, 2017, and with it the favourable pricing of concentrate supply comes to an end. There is a risk that zinc concentrate in quantities and the blend of qualities necessary for the smelter to operate profitably may not be available after May 2, 2017. The Fund is considering several scenarios including the possibility that operations be discontinued. As a result, reserves may be required in advance of May 2017, including to provide for the costs related to a potential discontinuance of operations, with a corresponding effect on cash available for distributions.



But this was known for a long time ...why 18% drop?


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## Canadian (Sep 19, 2013)

al42 said:


> The initial term of the Supply and Processing Agreement ends on May 2, 2017, and with it the favourable pricing of concentrate supply comes to an end. There is a risk that zinc concentrate in quantities and the blend of qualities necessary for the smelter to operate profitably may not be available after May 2, 2017. The Fund is considering several scenarios including the possibility that operations be discontinued. As a result, reserves may be required in advance of May 2017, including to provide for the costs related to a potential discontinuance of operations, with a corresponding effect on cash available for distributions.


This is a pretty normal risk for the ending of any supply contract. There is still 2 1/2 years until the expiry (2 1/2 years for management to figure something out or the company to be bought out) so I'm not concerned.

Down another 6% today. IMO the drop is not justified.

Earnings for the Q and YTD are pretty comparable to prior year. Production volumes and zinc premiums are up from prior year. The processing facility was completed during the Q on time and on budget - we should really see the impact in Q4.

Nothing negative has come to my attention since I purchased it a few months ago so I see no reason to sell. Thanks to the drop in price, the stock is currently trading at a 35% discount to net assets attributable to ordinary unit holders. At this price and with recent developments within the company I can only see the price going up or the company being bought out. I am considering buying more shares.


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## GOB (Feb 15, 2011)

Payouts are currently 100% Canadian eligible dividends, correct?


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## gardner (Feb 13, 2014)

Today's drop could be uncertainty over this item:



> The three-year labour agreement expired on October 31, 2014. Negotiations for a new agreement are ongoing


http://www.marketwired.com/press-re...-third-quarter-results-tsx-nif.un-1966629.htm


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## gibor365 (Apr 1, 2011)

Canadian said:


> Nothing negative has come to my attention since I purchased it a few months ago so I see no reason to sell. Thanks to the drop in price, the stock is currently trading at a 35% discount to net assets attributable to ordinary unit holders. At this price and with recent developments within the company I can only see the price going up or the company being bought out. I am considering buying more shares.


I also think to buy more shares


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## doctrine (Sep 30, 2011)

This is a sell for me. The CEO has outright stated operations might cease in 30 months. Whether or not it's a bargaining tactic with the union, or with Glencore Xstrata, or just a new reality, shareholders are fleeing. In contrast, in the past the CEO was more optimistic about the possibility of operating without the supply arrangement and as far as I can tell, never said they'd shut it down, just that it would be less profitable. They could be bargaining or panicking and it's not very clear.


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## Canadian (Sep 19, 2013)

GOB said:


> Payouts are currently 100% Canadian eligible dividends, correct?


Correct - 100% eligible since 2011.



doctrine said:


> The CEO has outright stated operations might cease in 30 months.


I'm willing to wait a while to see how it all develops. With the recent price drop and the discount to net assets I don't see a ton of risk. At this point the company is a pretty good buyout candidate. Debt / net assets looks pretty good and only a small portion of assets are intangible (deferred taxes, derivatives).


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## gibor365 (Apr 1, 2011)

doctrine said:


> This is a sell for me. The CEO has outright stated operations might cease in 30 months. Whether or not it's a bargaining tactic with the union, or with Glencore Xstrata, or just a new reality, shareholders are fleeing. In contrast, in the past the CEO was more optimistic about the possibility of operating without the supply arrangement and as far as I can tell, never said they'd shut it down, just that it would be less profitable. They could be bargaining or panicking and it's not very clear.


i hope just bargaining  and i just don't understand how it can be just shut down "The Processing Facility is the second-largest zinc processing facility in North America and the largest zinc processing facility in eastern North America , where the majority of zinc customers are located." No any Chinese company wants to buy it?!
btw, is anyone has some info about insider trading?

TD Investment Conclusion
We believe that the current supply agreement with Glencore offers a highly
attractive and safe level of income over the next two and a half years.
Furthermore, the asset should retain value beyond 2017, given the strategic
advantages of the plant. We are maintaining our BUY recommendation,
but lowering our target price to $6.00 from $7.00, reflecting lowered
multiples.


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## Canadian (Sep 19, 2013)

I would be quite happy for it to return to $6, especially if I decide to average down at current prices. If the agreement does not renew in 2017 then unit holders still have 36 months to collect distributions and wait for any price rebound before exit may be necessary. This is only a small portion of my portfolio so I'm ok with the current uncertainty.


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## Canadian (Sep 19, 2013)

Down another 25% today. Gibor, what are your thoughts?


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## gibor365 (Apr 1, 2011)

Canadian said:


> Down another 25% today. Gibor, what are your thoughts?


I think it should rebound .... but when?!
There any news today?


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## gibor365 (Apr 1, 2011)

As per Q3 MDA 


> The main challenges facing the Fund are the continued source of zinc concentrate and the ability for the Processing Facility to continue to operate profitably after the expiry of the initial term of the Supply and Processing Agreement between the Partnership and Glencore Canada Corporation (“Glencore Canada”) in May 2017. The agreement 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. Regardless of whether Glencore Canada renews or not, the Fund is expected to purchase concentrate on market terms, instead of the current fixed processing fee, to convert zinc concentrate into zinc metal after May of 2017.


So, we'll know only in Nov 2016 if Glencore provides this written notice... until than it mostly market speculations... and it's like rouletta.... if Glencore won't send notice, shareholders who bought NIF at current low prices can greatly benefit.....and opposite...


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## Canadian (Sep 19, 2013)

If distributions aren't cut it looks pretty attractive to take a chance.


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## gibor365 (Apr 1, 2011)

Canadian said:


> If distributions aren't cut it looks pretty attractive to take a chance.


This is also my opinion.... imho to have small position or to add to existing - it's fine... yes, it's a gamble , but I have a feeling that contract will be renewed , and even if new contract will on a bit worse conditions than existing - price should recover nicely considering recent slaughtering.. Looking at statement "_The agreement will automatically renew for a five-year term thereafter, unless... _ who knows ....maybe Glencore is playing game to renew contract on better for them conditions?!

and regarding dividends....NIF.UN knows very well what will be with stock if they suspend/cut dividend....so imho they will try everything to leave existing dividends.... 

I'd like to see insider traders activity , but sinse I left TDW, I don't have access to INK report


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## 604_Snooze (Jan 7, 2012)

ouch, price still dropping. -30% but with a 19+% div.
Gibor, let's hope both EGL and NIF don't drop or cancel their dividend.


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## gibor365 (Apr 1, 2011)

604_Snooze said:


> ouch, price still dropping. -30% but with a 19+% div.
> Gibor, let's hope both EGL and NIF don't drop or cancel their dividend.


Yeap. let's hope  I'd include here also SDRL


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## gibor365 (Apr 1, 2011)

link to TDDI Action Notes for NIF.UN
https://drive.google.com/file/d/0B6PUZVKt_5IIclFoUWF0MWdENW8/view?usp=sharing


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## Canadian (Sep 19, 2013)

Thanks for the link. I think the TD analysis is reasonable. With my own analysis I keep going back to the company's valuation. If the market tightens up and supply prices increase then I can see processing companies consolidating to gain more bargaining power. A company like Noranda with a brand new processing facility and trading at a near 50% discount to tangible net assets seems like a strong buy out candidate.

On the operations side, capex should taper off now since the facility is complete. This allows more cash flow to reduce debt and strengthen the company's balance sheet.


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## Canadian (Sep 19, 2013)

Down another 11% this morning.


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## gardner (Feb 13, 2014)

stuck my toe in at $2.50 -- this is a pure gamble for me


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## Canadian (Sep 19, 2013)

Up 12.5% this morning. Any idea why?


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## gibor365 (Apr 1, 2011)

Canadian said:


> Up 12.5% this morning. Any idea why?


Maybe shorts covering their positions?!


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## Canadian (Sep 19, 2013)

Maybe. I didn't see any news. Volume looks a bit higher than most days.

Did you add to your position? I haven't pulled the trigger yet. With everything happening to energy I'm thinking my cash might be better deployed elsewhere.


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## gibor365 (Apr 1, 2011)

i added , but did it too early.... can add more, but a bit scaried... It would be interesting to see insider trading....maybe there are some "internal" news about negotiations with Xtrata


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## Edgar (Mar 24, 2014)

I haven't bought yet, but it is hard to say no right now. Am I missing something because I see 259 mil in current assets, 132 mil in total liabilities and a market cap of 84 mil. The dividend seems unsustainable based on their recent earnings, but nonetheless, this seems like a good deal. What's the missing piece here? Or, what are people claiming the missing piece to be?


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## Canadian (Sep 19, 2013)

The reason earnings and cash flow won't currently sustain the dividends is for two reasons:

1) Production was unexpectedly interrupted earlier in the year. This has since been fixed.

2) Noranda was completing the construction of a new silica removal facility and it was completed towards the end of Q3. The increased capacity should be reflected in Q4 earnings.

At Q3 the company had a glut of raw materials in its inventory. With the completion of the silica removal facility a good portion of this should be transformed into finished goods and hopefully sold. Sales volumes have increased the past few quarters and I have found no reason why there would be an interruption during Q4. This inventory should soon be converted into cash and will hopefully improve cash flows.

Noranda has an unused line of credit that can be used for short-term cash obligations or dividend support if required. Given management's sentiment regarding the contract expiry I think they will do everything they can to maintain the dividend or they will see the share price really plummet.

Net assets attributable to priority unit holders (us) is $217M (~$5.78 per unit). Very few of the assets are intangible.

The reason the price has been hit so hard is because in the Q3 earnings release management used stronger language than they have in the past to describe the options they are exploring if the supply agreement is not renegotiated in May 2015, including the possibility of unwinding the company. Realistically, I don't see this happening. The supply agreement is with Glencore, who has a significant presence on the board of directors. Xstrata tendered a purchase offer of Noranda in 2010 but had withdrawn the offer. Glencore merged with Xstrata in 2013. There are obviously synergies and an interest in Noranda, whether it be as a going concern or purchasing its net assets. My theory is that Glencore is playing hardball with Noranda. The board would not have approved the silica removal project if there were no intentions of continuing the company beyond May 2015.

The way I see it the most significant risk to current shareholders is that Noranda will be acquired with the purchase price based on the market price of units, therefore locking those who have purchased at higher prices into a loss.

Hopefully this gives you a little bit of insight. Everything I have said is only my thoughts on the company so make sure you do your due diligence prior to buying any units.


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## Canadian (Sep 19, 2013)

I meant to post the other day that Noranda has recently hired a new VP of Manufacturing, Mike Griffin. I reviewed his work history and saw he's worked in the metals sector for the past 30 years. This includes VP of Operations at Ormet for the past 8 years. Hopefully he will bring some valuable experience to the company.


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## gibor365 (Apr 1, 2011)

Canadian, agreement is not renegotiated ... not in May 2015 , but in May 2017  Glencore need to send written notice until Nov 2016 if they don't want new agreement...



> management used stronger language than they have in the past to describe the options


 yes, iho, this is the major reason


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## Canadian (Sep 19, 2013)

Right - sorry 2017! For some reason I had the number 2015 in my head while I was typing. Everything else in my above statements remains


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## Edgar (Mar 24, 2014)

So from the sounds of it, I don't think there is any real reason for NIF to trade this low. Like I said, I acknowledge that the dividend will be cut, but with a current asset - total liabilities above the market cap, it seems like a no brainer. I'm going to throw some money in this tomorrow.


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## gibor365 (Apr 1, 2011)

NIF.UN is up 11% today .... finally some positive news 


> Noranda Income Fund (TSX: NIF.UN) (the "Fund") announced today that the unionized employees at its Salaberry-de-Valleyfield processing facility, which is operated and managed by Canadian Electrolytic Zinc Limited, voted in favour of a new collective agreement effective from November 1, 2014 to November 30, 2016. The processing facility's unionized employees are members of the United Steelworkers, local 6486.


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## Canadian (Sep 19, 2013)

I read that today too!  Now hoping for some decent Q4 results.


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## Tourist9394 (Jun 11, 2015)

Back in the green with this baby here. I stuck with this stock through a 33% downturn..My average is about 2.70-2.80, also collected 17% dividend....Just wish I brought more during downturn. With the auto marketing in China booming, zinc had it's worse already.


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## Holland (Apr 24, 2016)

Any thoughts on Q1? 

Divvy cut doesn't look good


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## doctrine (Sep 30, 2011)

Noranda has finally reduced the dividend by about 40%. It has really done well since the original sell off in 2014. Might be a good time to get out, even if there is a big drop tomorrow. I'm not sure what a take-out or buy-out value is if Glencore went after it, but I doubt the risk is worth the premium above $3.50 or so plus a year of dividends.

http://norandaincomefund.mwnewsroom...nnounces-a-cash-tsx-nif-un-201605161055183001


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## Jaberwock (Aug 22, 2012)

Tourist9394 said:


> Back in the green with this baby here. I stuck with this stock through a 33% downturn..My average is about 2.70-2.80, also collected 17% dividend....Just wish I brought more during downturn. With the auto marketing in China booming, zinc had it's worse already.


Do you understand the risk in this stock?

When this company was split off from Noranda, they put together a sweet deal to make the company an attractive investment for dividend seekers. This was in the days before Jim Flaherty changed the rules around taxation of income funds, and setting up all or part of your company as an income fund was in vogue. It was a way for Noranda to divert profits into an investment vehicle that paid lower taxes.

The deal had the Noranda Income Fund processing Noranda's zinc concentrates for a fixed fee and for a fixed time period, which is about to end. Since the deal was made, Noranda has been taken over and is now part of Glencore. 

Noranda Income Fund does not have any zinc mines, or any sources of zinc, they only process zinc concentrates for other companies. Now that the long term concentrate supply deal is ending, Noranda Income Fund will have to source concentrates on the market, and offer terms for processing those concentrates which are at market rates, not at the preferred rates they got in the original deal with Noranda. Zinc concentrate supply is limited, a lot of mines closed when prices collapsed, and there is an excess of processing capacity. 

Future earnings will be much less reliable, and probably much lower than we have seen in the past.


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## humble_pie (Jun 7, 2009)

Jaberwock said:


> Do you understand the risk in this stock ...
> 
> ... Future earnings will be much less reliable, and probably much lower than we have seen in the past.



the million dollar answer, thankx. Probably the majority of full-service brokers could not pinpoint this company so well.


EDIT: an illustration of why historic data bases, stock screeners & most simple charts can be misleading. An illustration of why digging for the underlying story is important.


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## Tourist9394 (Jun 11, 2015)

Jaberwock said:


> Do you understand the risk in this stock?
> 
> When this company was split off from Noranda, they put together a sweet deal to make the company an attractive investment for dividend seekers. This was in the days before Jim Flaherty changed the rules around taxation of income funds, and setting up all or part of your company as an income fund was in vogue. It was a way for Noranda to divert profits into an investment vehicle that paid lower taxes.
> 
> ...


I was very aware of the risk in this stock, especially involing Glencore. I sold half of my position right before the drop, will certainly accumulate more under 2.3. The dividend is also very attractive.


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## gardner (Feb 13, 2014)

After thinking about it in April when I could have made a few cents, I finally pulled the plug today at $1.53. I was in at $2.50, and made ~$1 in dividends -- the net was a wash, I guess, ignoring the opportunity cost on the capital.

Their new deal with Glencore will keep them in business, but their free cash is going to be zip going forward.


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## Jason Billy (Mar 5, 2017)

*Action ! Noranda*

action-noranda dot org

If you’re a Noranda Income Fund shareholder please consider adding your share total to the list of shareholders demanding accountability from minority owner Glencore. The following is taken from the Action ! Noranda website created by Eric Boucher, shareholder:

. . . . . . .

• Considering that Glencore's position equals to 12 500 000 shares for a total of 49 989 975 outstanding shares.

• Considering that it is necessary to have 12,500,001 shares out of a possibility of 37,489,975, representing approximately 33% of the shares not belonging to Glencore.

• Considering that it is clear that Glencore has too much influence on the Board of the Fund.

• Considering that the Board of Directors is elected by the shareholders.

• Considering that several shareholders are dissatisfied with the direction taken by the company in recent years.

• Considering the ease of creating a non-unanimous shareholder's agreement.

• It seems clear without going further that some shareholders of the Noranda Income Fund would benefit from the creation of a Shareholder's Agreement, which is why I, Eric Boucher, is calling for applications for the creation of Action! Noranda.

. . . . . . .

For more details please visit:

action-noranda dot org


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