Noranda Income Fund Annual Report 2016

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Table of contents Management’s Discussion and Analysis 2

Interim Condensed Consolidated Financial Statements 37

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Noranda Income Fund Management’s Discussion and Analysis

December 31, 2016

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MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) of the financial position and results of operations of Noranda Income Fund (TSX: NIF.UN) is the responsibility of management and it has been prepared as at February 28, 2017. The board of trustees of Noranda Operating Trust carries out its responsibility by reviewing this disclosure principally through its Audit Committee and it approves this disclosure prior to its publication. This MD&A provides a review of the consolidated financial position, results of operations and performance of Noranda Income Fund (the “Fund”), Noranda Operating Trust (the “Operating Trust”), 1884699 Ontario Inc. (“Ontario Inc.”), Canadian Electrolytic Zinc Limited (the “Manager” and, alternatively, the “Administrator”) and Noranda Income Limited Partnership (the “Partnership”) for the years ended December 31, 2016 and 2015. The Partnership owns an electrolytic zinc plant and processing facility (the “Processing Facility”). The Processing Facility produces refined zinc metal and various by-products from zinc concentrate purchased from mining operations and sells refined zinc products to customers in the open market. The Fund earns a processing fee for transforming zinc concentrate into zinc metal and it earns additional revenue from premiums, by-product revenues and metal gains. See “Net Revenues under Market Terms” below. The Processing Facility is located in the town of Salaberry-de-Valleyfield, Quebec, approximately 70 kilometres southwest of Montreal, on a site situated on the St. Lawrence Seaway along major transportation networks which connect it to its principal markets in the United States and Canada. Zinc is central to our daily lives. Its main use is to galvanize steel for the construction and automotive industries. Zinc is also used in the production of die-castings and brass. Zinc powders, oxide and dust are used in the manufacture of batteries, rubber tires, pigments and various creams. The Fund has prepared its audited Consolidated Financial Statements for the years ended December 31, 2016 and 2015 in accordance with International Financial Reporting Standards (“IFRS”). The MD&A should be read in conjunction with these statements. All amounts are expressed in Canadian dollars, the Fund’s reporting and functional currency, except where indicated. Additional information relating to the Fund, including the Fund’s Annual Information Form dated March 28, 2016 is available on SEDAR at www.sedar.com.

This MD&A contains forward-looking information and forward-looking statements within the meaning of applicable securities laws. See “Forward-Looking Information” below. 2016 Highlights

Glencore Canada renewed the Supply and Processing Agreement to May 2022, with the current fixed processing fee ending May 3, 2017 and continuing on market terms thereafter.

The Fund repaid the remaining $22.5 million of Senior Secured Notes in 2016. The Fund’s asset-based revolving credit facility (the “ABL Facility”) was extended to November 15, 2017. Zinc metal sales increased 4% to 273,052 tonnes in 2016, in line with the Fund’s target for the year. Adjusted Net Revenues1 for 2016 was $285.8 million, down 5% from $301.0 million for 2015. Production costs per tonne of zinc produced for 2016 were down 2% from 2015. Loss before income taxes of $38.5 million in 2016, compared to earnings before income taxes of $49.8

million in 2015, due largely to non-cash asset impairment charges of $73 million recorded in 2016. The year-over-year decline in earnings was also due to lower zinc metal premiums and lower sulphuric acid

1 Adjusted Net Revenues means revenues less raw material purchase costs (“Net Revenues”) excluding unrealized concentrate settlement adjustments and after foreign exchange gain/loss and derivative financial instruments gain/loss. Net Revenues is reconciled to Adjusted Net Revenues below.

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revenues partially offset by a weaker average Canadian dollar in 2016 compared to the US dollar, lower depreciation and reclamation, higher zinc metal sales and lower unit production costs.

Zinc metal production increased 2% to 277,022 tonnes in 2016, exceeding the Fund’s target for the year.

Highlights Subsequent to Year ended December 31, 2016

Glencore Canada and the Fund reached an agreement whereby Glencore will supply all of the Processing Facility’s zinc concentrate requirements and purchase all the zinc metal production for the 12 month period ending April 30, 2018.

In light of the prevailing market conditions now facing the Fund, the Board of Trustees announced the suspension of future monthly distributions to unitholders on January 31, 2017.

On February 12, 2017, unionized workers initiated a strike at the Processing Facility. In response to the strike, management secured the operations in the days following and has resumed partial production with staff operating the facility. Management is in the process of evaluating its production capacity under this scenario. The Fund has attempted to minimize the impact on customers by shipping inventory and new production.

OVERVIEW

Business and Agreement Overview The Fund is an unincorporated open-ended trust, established under the laws of Ontario, whose priority units (the “Priority Units”) trade on the Toronto Stock Exchange (“TSX”) under the symbol “NIF.UN”. The Manager, a wholly-owned subsidiary of Glencore Canada, operates and manages the Operating Trust and the Partnership, and administers the Fund. The board of trustees of the Operating Trust (the “Board” or the “Trustees”), the majority of whom are independent from Glencore Canada (the “Independent Committee”), oversees the Fund. The Fund is, in turn, the sole unitholder of the Operating Trust. The Fund was created to acquire the Processing Facility, located in Salaberry-de-Valleyfield, Québec, from Noranda Inc.2 in 2002. Concurrently with the creation of the Fund and the acquisition of the Processing Facility, the Manager entered into various 15-year agreements with the Fund and/or the Operating Trust relating to the management, administration and operation of the Fund, the Operating Trust, the Partnership and the Processing Facility. The initial term of the agreements will expire on May 2, 2017. The agreements have been renewed for a five-year term ending May 2, 2022 at market terms and will automatically renew for five-year terms thereafter, unless Glencore Canada provides written notice to the contrary at least 180 days prior to the expiry of the applicable term. Upon the termination of the operating and management agreement, the Partnership is required to acquire the Manager from Glencore Canada. The agreements include:

a) An administration agreement dated April 18, 2002 between the Fund and the Administrator (the “Administration Agreement”) pursuant to which Computershare Trust Company of Canada, the sole trustee of the Fund (the “Sole Trustee”), has delegated all of its power and authority to the Administrator, and the Administrator provides administrative and support services to the Fund.

b) A management services agreement dated April 18, 2002 between the Operating Trust and the Manager (the

“Management Services Agreement”) pursuant to which the Manager provides management services to the Operating Trust.

2 On June 30, 2005, Noranda Inc. changed its name to Falconbridge Limited (“Falconbridge”) following a corporate amalgamation. Falconbridge subsequently changed its name to Xstrata Canada Corporation (“Xstrata Canada”) after being acquired by Xstrata plc. In May 2013, Glencore International plc completed its merger with Xstrata plc with the combined company now called Glencore plc (“Glencore”). Xstrata Canada changed its name to Glencore Canada following the merger. The Manager is a wholly-owned subsidiary of Glencore Canada.

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c) An operating and management agreement dated May 3, 2002 between the Manager and the Partnership (the “O&M Agreement”) pursuant to which the Manager operates and maintains on an ongoing basis the Processing Facility owned by the Partnership and provides management services to the Partnership.

d) The supply and processing agreement dated May 3, 2002 between Glencore Canada and the Partnership

(the “Supply and Processing Agreement”) under which Glencore Canada is obligated, except in certain circumstances, to sell to the Partnership until May 2, 2017 all of its zinc concentrate requirements up to 550,000 tonnes of zinc concentrate per year at a concentrate price based on the price of zinc metal on the London Metal Exchange (“LME”) for the “payable zinc metal” contained in the concentrate, less a fixed, escalating processing fee (calculated in Canadian dollars). Pursuant to the Supply and Processing Agreement, Glencore Canada acts as exclusive agent for the Partnership to arrange for purchases of any additional zinc concentrate in excess of the 550,000 tonne amount described above, and for sales of zinc metal and by-products and related hedging and derivative arrangements.

Supply of Zinc Concentrate beyond May 2, 2017

On May 3, 2017, the Supply and Processing Agreement will be automatically renewed for a period of five years through May 2, 2022. Under the renewal term, commencing on May 3, 2017, Glencore Canada will arrange, as agent on behalf of the Fund, for the purchase of the zinc concentrate required by the Fund at market terms. Glencore Canada will continue to act as agent for the sales of zinc metal and by-products and related hedging and derivative arrangements. The transition to market terms will represent a significant change from the fixed processing fee the Fund has benefited from since its inception. As a result of the change to market terms, the Fund’s financial results will differ materially in the future, beginning in the second quarter of 2017. Glencore Canada will continue to act as Manager of Noranda Operating Trust and of the Partnership and as Administrator of the Fund, in accordance with the Operating and Management Agreement, the Management and Services Agreement and the Administration Agreement, respectively, which have all been extended for a period of five years ending on May 2, 2022.

On January 31, 2017, the Fund announced that it had reached an agreement pursuant to which Glencore Canada will supply the Fund with all of its zinc concentrate requirements and purchase all of the Fund’s metal for the twelve month period ending April 30, 2018 on a principal basis. See “Outlook for the Fund” below. Further details concerning these arrangements relating to the management, administration and operation of the Fund and its subsidiaries, and the supply and processing of concentrate at the Processing Facility are described under “Related Party Transactions” below. Net Revenues under Market Terms As noted above, the Fund will pay market prices for the zinc concentrate that it purchases after the expiry of the initial term of the Supply and Processing Agreement on May 2, 2017. As a result, the Fund expects the make-up of Net Revenues to be different going forward. Treatment Charges vs. Processing Fees The principal factor affecting the Fund’s performance will continue to be the processing of zinc concentrate into zinc metal. The change to market prices will result in the Fund earning treatment charges that are similar in nature to the processing fees currently being earned in that they are generated from the processing of zinc concentrate into zinc metal. However, unlike the current processing fees, these treatment charges will fluctuate with market conditions and will be priced in US dollars per dry metric tonne of feed, instead of Canadian dollars per pound of zinc payable. Treatment charges are also expected to make up a smaller portion of Net Revenues compared to the current processing fee because of the zinc metal recovery gain described below.

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Zinc Metal Recovery Gain The second key factor affected by the move to market terms will be zinc metal recovery gains. Under market terms, the Fund expects to pay for approximately 85% of the contained zinc in the concentrate instead of 96% under the initial 15-year term of the Supply and Processing Agreement. As a result, the zinc metal recovery gain, which is the revenue earned on the sale of metal produced from the contained zinc above the 85% threshold, is expected to be a higher portion of Net Revenues for the Fund under market terms. The Fund’s zinc metal recovery in 2016 was 97.5% resulting in 1.5% of zinc metal recovery gain under the Supply and Processing Agreement. Under the market terms the zinc metal recovery gain would have been approximately 12.5%. This will result in a significantly higher sensitivity to the LME zinc price under market terms. In addition, as the zinc metal recovery gain is expected to be sold to customers in US dollars, this will also result in an increased sensitivity to the Canadian/US exchange rate. Zinc Premiums and By-product Revenues The premiums realized on the sale of zinc metal products to customers and by-product revenues will be subject to the same drivers under market terms as they are today under the Supply and Processing Agreement with Net Revenues being impacted by volumes sold and prices. Sensitivity to the Canadian/US Exchange Rate Under market terms, the Canada/US exchange rate is expected to impact all of the Fund’s expected sources of Net Revenues including treatment charges, zinc metal recovery gains, premiums and by-product revenues. As a result, the Fund is expected to have much greater sensitivity to the Canadian/US exchange rate, with a weaker Canadian dollar having a positive material impact on Net Revenues and vice versa. The following chart provides estimated annual sensitivities for Net Revenues under market conditions compared to the initial term of the Supply and Processing Agreement for realized treatment charges, Canadian/US exchange rate and zinc price based on 2016 results:

Increase/(Decrease) in Net RevenuesIncrease/(Decrease) in Net Revenues Under the Initial Term of the Supply

Under Market Terms and Processing Agreement($ millions) ($ millions)

US 5 cent increase in zinc price 5.1 0.6US 5 cent decrease in zinc price (5.1) (0.6)

US$10 increase in realized treatment charges 6.9 -US$10 decrease in realized treatment charges (6.9) -

Cdn. 5 cent weakening of the Canadian dollar 8.4 3.7Cdn. 5 cent strengthening of the Canadian dollar (8.4) (3.7)

Outlook for the Fund

The main challenge facing the Fund is the ability for the Processing Facility to continue to operate profitably once the fixed processing fee available during the initial term of the Supply and Processing Agreement ends on May 2, 2017 and the Fund is required to purchase concentrate on market terms, including market treatment charges. See “Net Revenues under Market Terms” above.

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According to industry analysts such as Wood Mackenzie and CRU, there has been a significant tightening of the zinc concentrate market throughout 2016 and continuing into 2017 as a result of several large mine closures over recent years, and the global demand for zinc concentrate leading to a shortage of supply. Spot treatment charges have declined from US$175 per dry metric tonne in December 2015 to US$40 per dry metric tonne in December 2016, with reports of transactions below this level in January 2017. As a result of the tight market conditions, the Fund entered into an agreement with Glencore Canada for 12 months supply of zinc concentrate at a fixed treatment charge. Reflecting the tightness in the concentrate market, the market pricing terms for the 12 month period May 2017 to April 2018 are not as favourable to the Fund as the fixed pricing enjoyed by the Fund from its inception to May 2, 2017.

For illustrative purposes only, the following table provides a comparison of the Fund’s 2016 full year Adjusted EBITDA (as defined below) using the fixed pricing under the Supply and Processing Agreement for the twelve month period ending December 31, 2016 and the estimated Adjusted EBITDA that would have been realized had the twelve month concentrate purchase contract that was signed with Glencore Canada for the period May 3, 2017 to April 30, 2018 been in place during such period:

Adjusted EBITDA ($ million) 2016All concentrate processed based on:

Supply and Processing Agreement $7012 month Agreement with Glencore Canada to April 30, 2018 at average zinc price for 2016 ($20)12 month Agreement with Glencore Canada to April 30, 2018 at January 31, 2017 zinc price $14

Market terms and assumptions used:Average zinc price for 2016 (US$ per pound) $0.95Zinc price Janaury 31, 2017 (US$ per pound) $1.29Cdn/US exchange rate $1.33Market payable metal in concentrate 85%Zinc metal sales (tonnes) 273,052Zinc metal recovery 97.5%

See “Key Performance Drivers - Adjusted Earnings before Distributions to Unitholders, Finance Costs, Income Taxes, Depreciation and Amortization” on how the Fund calculates Adjusted EBITDA. RESULTS OF OPERATIONS Asset Impairment Impairment exists when the carrying value of a non-financial asset or cash-generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The Fund has only one CGU. As at December 31, 2016 and 2015, management concluded that indicators of impairment existed relating to its CGU. Management performed impairment analysis based on market assumptions and forecasts available at that time. As a result of the estimated recoverable amount of $316.4 million (December 31, 2015 - $406.8 million), impairments of non-financial assets of $73.0 million was recorded in 2016 (2015- $10.3 million) as a reduction in the Fund’s property plant and equipment.

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The non-cash asset impairment charges recorded in 2016 were primarily a result of:

i) The significant tightening of the zinc concentrate market throughout 2016 and continuing in 2017 as a result of several large mine closures over recent years, and the global demand for zinc concentrate leading to a shortage of supply;

ii) the increase in the Fund’s carrying value relating to the increase in the price of zinc; iii) the upcoming end of the initial term of the Supply and Processing Agreement in May 2017 and the

purchase of zinc concentrate at market terms, which is estimated to result in lower cash flows being generated by the Fund; and

iv) the market pricing terms for the agreement reached with Glencore Canada for the 12-month period ending April 30, 2018 not being favourable due to the tightness in the zinc concentrate market.

The non-cash charges did not have an impact on the Fund’s borrowing facilities. See below “Critical Accounting Estimates – Property, Plant and Equipment” for more information. Selected Financial Highlights($ millions, except per-unit amounts) 2016 2015 2014Sales $ 787.4 $ 782.4 $ 712.8 Revenues less raw material purchase costs 270.1 340.6 306.3 (Loss) earnings before income taxes (38.5) 49.8 (6.0)(Decrease) increase in net assets atttributable to Unitholders (44.3) 19.0 (21.2)Total assets 516.0 480.3 458.0 Bank and other loans 64.0 92.8 79.0 Cash distributions declared per Priority Unit 0.37 0.50 0.50 Distributions declared per Ordinary Unit $ - $ - $ - In 2016, sales were $787.4 million compared to $782.4 million in 2015. The main factors explaining this increase include:

Zinc metal revenues in 2016 were net 4% higher because of an 8% increase in zinc price converted into Canadian dollars and a 4% increase in the volume of zinc metal sold;

Zinc premiums were $11.7 million lower than in 2015 due to lower annual contract and spot premiums in North America;

Sulphuric acid revenues were lower due to the lower netbacks offset by a 4% increase in sales volumes. Realized a $44.7 million loss from the inventory management program (2015 – gain of $30.0 million). The

loss in 2016 resulted from the increasing zinc price throughout 2016 while the gain in 2015 resulted from the declining zinc price throughout 2015.

Transportation and distribution costs in 2016 of $21.1 million were higher than the $18.9 million recorded in 2015. The increase in costs was in part due to higher volume of zinc metal being sold and increased zinc metal warehousing costs from higher volumes of zinc metal in inventory. Raw material purchase costs in 2016 were $496.1 million compared to $423.0 million in 2015. The increase was due to the 8% increase in the zinc price converted into Canadian dollars, while the remaining variance was due to higher volume of zinc metal sold. Revenues less raw material purchase costs (“Net Revenues”) in 2016 were $270.1 million compared to $340.6 million in 2015.

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The annual impact of the concentrate payable settlement adjustment, the foreign exchange movements and derivative financial instruments on Net Revenues for the year ended December 31, 2016 compared to the same period in 2015 can be found in the table below: Net Revenues Reconciled to Adjusted Net RevenuesFor the years ended December 31($ million) 2016 2015

Net Revenues $ 270.1 $ 340.6 Concentrate payable settlement adjustments 9.1 (2.8) Foreign exchange gain (loss) 3.3 (32.3) Derivative financial instruments gain (loss) 3.3 (4.5)

Adjusted Net Revenues 285.8$ 301.0$ The $15.2 million decrease in Adjusted Net Revenues, as indicated in the table above, was mainly due to lower zinc premium and sulphuric acid revenue partially offset by higher volume of sales of zinc metal. Production costs before change in inventory in 2016 were $186.9 million compared to $187.6 million recorded in 2015. The $0.7 million decrease was due to lower energy and contractor costs, offset by higher labour costs. Production Cost BreakdownFor the years ended December 31 Increase($ millions) 2016 2015 (Decrease)Labour $ 61.0 $ 59.9 $ 1.1 Energy 63.6 64.5 (0.9)Operating supplies 43.6 43.5 0.1 Other 18.7 19.7 (1.0)Production cost before change in inventory 186.9 187.6 (0.7)Change in inventory 0.9 (5.9) 6.8

$ 187.8 $ 181.7 $ 6.1 Selling and administration costs in 2016 were $24.7 million compared to $23.3 million in 2015. The foreign exchange gain in 2016 was $3.3 million compared to a loss of $32.3 million in 2015. The foreign exchange gain in 2016 was primarily a result of the impact of the strengthening Canadian dollar ($1.343 on December 31, 2016 compared to $1.384 on December 31, 2015) on the Fund’s net US dollar monetary liabilities. Foreign exchange gain impact on earnings was offset as the metal was sold to customers (thereby decreasing the Net Revenue recorded by the Fund and offsetting the foreign exchange gain recognized). The Fund’s main US dollar denominated balances are comprised of cash and cash equivalents, accounts receivable, accounts payable and a portion of its debt. In 2016, the gain on the derivative financial instruments was $3.3 million compared to a loss on the derivative financial instruments of $4.5 million in 2015. During these periods, the change in the market value of the Fund’s financial instruments resulted in these amounts being recorded. In 2016, depreciation was $27.7 million, compared to $31.5 million recorded in 2015. Lower depreciation in 2016 resulted from the reduction in property, plant and equipment being amortized after the asset impairment charge recognized at the end of 2015 and in the third quarter of 2016. In 2016, the rehabilitation recovery was $2.2 million compared to the $1.7 million expense recorded in 2015. The 2016 recovery was due to the increase in the risk-free rate used to discount liabilities partly offset by an increase in the closure estimate for the residue ponds, resulting in a decrease in the liabilities. The 2015 expense was due to the decrease in the risk-free rate used to discount liabilities and an increase in the closure estimate for the residue ponds, resulting in an increase in the liabilities. In 2016, net finance costs were $4.2 million compared to $5.5 million in 2015 due to a reduction in debt.

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Loss before income taxes was $38.5 million in 2016, compared to earnings before income taxes of $49.8 million in 2015, which in large part was due to an asset impairment charges recorded in 2016 of $73.0 million compared to 2015 of $10.3 million. The year-over-year decline in earnings was also due to lower zinc metal premiums and lower sulphuric acid revenues partially offset by a weaker average Canadian dollar in 2016 compared to the US dollar, lower depreciation and reclamation, higher zinc metal sales and lower unit production costs.

Income Tax ExpenseFor the years ended December 31($ millions) 2016 2015Current income tax expense $ 5.5 $ 12.5 Deferred income tax recovery (14.0) (1.3)Income tax (recovery) expense before distributions (8.5) 11.2 Current income tax recovery on distribution of non-portfolio earnings (0.6) (0.2)

$ (9.1) $ 11.0 The income tax recovery was $9.1 million in 2016 compared to an expense of $11.0 million in 2015. The Fund, as a specified investment flow-through (“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. The current income tax of $5.5 million in 2016 was lower than the $12.5 million recorded in 2015 due to the overall lower earnings before income taxes for the Fund. The current tax recovery on distribution of NPE amounted to $0.6 million in 2016 compared to $0.2 million in 2015 because the NPE in the Fund in 2016 were higher than in 2015. Summary of Quarterly Results

The following table provides a summary of quarterly results for the two years ended December 31, 2016 and 2015: ($ millions, except production amounts)

2016 2016 2016 2016 2015 2015 2015 2015Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Revenues $237.1 $200.2 $156.3 $172.6 $205.5 $183.2 $214.3 $160.5(Decrease) increase in net assets attributable to Unitholders ($26.5) ($10.7) ($6.1) ($1.0) ($4.8) $5.4 $11.2 $7.2Production (tonnes) 72,291 67,815 69,289 67,627 71,971 65,800 67,286 67,804 * 1 tonne = 2,204.62 pounds Consolidated Earnings Attributable to Unitholders (Comparing the three months ended December 31, 2016 to the three months ended December 31, 2015)

The Fund reported loss before income taxes of $29.8 million in the three months ended December 31, 2016 compared to earnings before income taxes of $0.9 million in the same period a year ago. The $30.7 million decrease is mostly due to the decrease in Net Revenues and an impairment of $52.0 million record in Q4 2016 compared to $10.3 million in Q4 2015.

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The quarterly impact of the concentrate payable settlement adjustment, the foreign exchange movements and derivative financial instruments on Net Revenues for the three months ended December 31, 2016 compared to the same period in 2015 can be found in the table below:

Net Revenues Reconciled to Adjusted Net RevenuesFor the three months ended December 31($ million) 2016 2015

Net Revenues $ 85.1 $ 96.6 Concentrate payable settlement adjustments - 8.9 Foreign exchange loss (6.8) (7.9) Derivative financial instruments gain (loss) 4.7 (6.4)

Adjusted Net Revenues 83.0$ 91.2$ The $8.2 million decrease in Net Revenues shown in the table above was mainly due to lower volume of zinc metal sales and lower premiums. For the three months ended December 31, 2016, the provisional pricing feature in the Supply and Processing Agreement did not have an impact on Net Revenues. For the same period in 2015, the provisional pricing feature in the Supply and Processing Agreement negatively impacted Net Revenues by $8.9 million. The foreign exchange loss in the three months ended December 31, 2016 was $6.8 million compared to a loss of $7.9 million in 2015. The foreign exchange loss in 2016 was primarily a result of the impact of the weakening Canadian dollar on the Fund’s net US dollar monetary liabilities. The foreign exchange loss was largely offset by an increase in the value of in-process and finished inventory. The decrease in the value of inventory is realized in Net Revenues as the metal is sold to customers (thereby increasing the Net Revenue recorded by the Fund). For the three months ended December 31, 2016, gain on derivative financial instruments was $4.7 million compared to a loss of $6.4 million for the same period in 2015. During the period, the change in market value of the Fund's financial instruments resulted in these amounts being recorded. Production cost before changes in inventory for the three months ended December 31, 2016 was $47.5 million, $0.9 million lower than the $48.4 million recorded for the same period in 2015. The reduction in the three months ended December 31, 2016 was mostly due to lower energy, operating supplies and contractor costs, offset by higher labour costs. Production Cost BreakdownFor the three months ended December 31 Increase($ millions) 2016 2015 (Decrease)Labour $ 15.2 $ 14.4 $ 0.8 Energy 16.0 16.6 (0.6)Operating supplies 10.8 11.4 (0.6)Other 5.5 6.0 (0.5)Production cost before change in inventory 47.5 48.4 (0.9)Change in inventory 0.7 5.9 (5.2)

$ 48.2 $ 54.3 $ (6.1) Selling and administration costs for the three months ended December 31, 2016 were $6.3 million, $0.7 million higher than the $5.6 million in the same period of 2015. For the three months ended December 31, 2016, depreciation was $6.8 million, compared to $9.1 million during the same period in 2015. Lower depreciation in 2016 resulted, in part, from the reduction in property, plant and equipment being amortized after the asset impairment charge recognized in 2015 and the third quarter of 2016. Rehabilitation recovery was $1.9 million for the three months ended December 31, 2016 compared to $0.6 million

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expense for the same period of 2015. The 2016 recovery was due to the increase in the risk-free rate used to discount liabilities partly offset by an increase in the closure estimate for the residue ponds, resulting in a decrease in the liabilities. The 2015 expense was due to the decrease in the risk-free rate used to discount liabilities and an increase in the closure estimate for the residue ponds, resulting in an increase in the liabilities. For the three months ended December 31, 2016 and 2015, net finance cost were $1.4 million. Income Tax ExpenseFor the three months ended December 31($ millions) 2016 2015Current income tax expense $ 4.4 $ 2.0 Deferred income tax recovery (10.3) (1.4)Income tax (recovery) expense before distributions (5.9) 0.6 Current income tax recovery on distribution of non-portfolio earnings (0.6) (0.2)

$ (6.5) $ 0.4 Current and deferred tax recovery was $6.5 million for the three months ended December 31, 2016 compared to an expense of $0.4 million for the same period of 2015. The current income tax of $4.4 million in 2016 was higher than the $2.0 million recorded in 2015 due to the overall higher earnings before income taxes and impairment for the Fund. The deferred income tax recovery was $10.3 million in 2016 compared to $1.4 million in 2015, largely due to the higher impairment charge in 2016. The current tax recovery on distribution of NPE amounted to $0.6 million in 2016 compared to $0.2 million in 2015 because the NPE in the Fund in 2016 were higher than in 2015. The following table provides a summary of the performance of the key drivers for the three months ended December 31, 2016 and 2015.

Three months ended December 31 2016 2015Zinc concentrate processed (tonnes) 121,877 133,075Zinc secondary feed processed (tonnes) 3,708 3,450Zinc grade (%) 51.9 52.3Zinc recovery (%) 97.0 97.0Zinc metal production (tonnes) 72,291 71,971Zinc metal sales (tonnes) 69,196 79,552Processing fee (cents/pound) 41.0 40.5Realized zinc price (US$/pound) 1.21 0.82Average LME zinc price (US$/pound) 1.14 0.73By-product revenues ($ millions) 9.2 9.7

Copper in cake production (tonnes) 803 794Copper in cake sales (tonnes) 1,025 1,229Sulphuric acid production (tonnes) 95,344 108,431Sulphuric acid sales (tonnes) 84,710 104,786

Average LME copper price (US$/pound) 2.40 2.22Sulphuric acid netback (US$/tonne) 49 45Average US/Cdn. exchange rate 1.33 1.34* 1 tonne = 2,204.62 pounds In the three months ended December 31, 2016, zinc metal production was 72,291 tonnes compared to 71,971 tonnes in the same period of 2015. Zinc recoveries in the three months ended December 31, 2016 and 2015 were 97.0%. In the three months ended December 31, 2016 sales were 69,196 tonnes compared to 79,552 tonnes in the same period of 2015.

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In the three months ended December 31, 2016, the Fund generated $9.2 million in revenue from the sale of its copper in cake and sulphuric acid compared to $9.7 million achieved for the same period of 2015. Revenues from the sale of sulphuric acid were $5.5 million in the three months ended December 31, 2016, a decrease of $0.8 from $6.3 million in the same period of 2015. Sulphuric acid sales totalled 84,710 tonnes in the three months ended December 31 of 2016, compared to 104,786 tonnes for the same period of 2015. In the three months ended December 31 2016, sulphuric acid netbacks were US$49 per tonne compared to US$45 per tonne for the same period of 2015. Copper in cake revenues were $3.7 million in the three months ended December 31, 2016 compared to $3.4 million for the same period of 2015. The volume of copper produced and sold is dependent on the copper content in the zinc concentrates that are consumed during the year. Copper in cake sales volumes in the three months ended December 31, 2016 totalled 1,025 tonnes compared to 1,229 tonnes in the corresponding period of 2015. Cash provided by operating activities in the three months ended December 31, 2016 was $35.2 million, including a positive $19.6 million decrease in non-cash working capital due to a decrease in accounts receivables and an increase in accounts payable partially offset by an increase in the inventory. In the same period of 2015, cash provided by operating activities was $43.9 million, which was positively impacted by a $15.3 million decrease in non-cash working capital due to a reduction in accounts receivable and inventory and an increase in accounts payable. Capital expenditures in the three months ended December 31, 2016 were $13.6 million, compared to $9.8 million for the same period of 2015. During the three months ended December 31, 2016, $7.0 million was spent on acid plant and roaster equipment, $2.7 million purchases of anodes, while sustaining capital accounted for most of the remaining expenditures. Cash distributions paid to Priority Unitholders during the three months ended December 31, 2016 totalled $2.8 million, compared to $4.7 million for the same period of 2015. KEY PERFORMANCE DRIVERS

The principal factor affecting the Fund’s performance is the processing of zinc concentrates into zinc metal. This activity results in the Fund earning a processing fee. In 2016, the processing fee accounted for 73% of the Fund’s Net Revenues (2015 – 69%). A second key factor affecting the performance of the Fund is the premiums that are realized on the sale of zinc products to customers. Zinc metal is sold to customers on the basis of an LME zinc price plus a premium that is negotiated between the buyer and seller. Premiums can vary according to various factors including product form, quantity, quality and payment terms. In 2016, product premiums accounted for 14% of the Fund’s Net Revenues (2015 – 17%). By-product revenues (copper in cake and sulphuric acid) and zinc metal recovery gains generated 9% and 4%, respectively, of the Fund’s Net Revenues in 2016 (2015 – 11% and 3%). The Canada/US exchange rate also impacts the Fund’s performance through premiums, by-product revenues and zinc recovery gains which, collectively, represented 27% of the 2016 Net Revenues (2015 – 31%). As the processing fee is earned in Canadian dollars, 73% of the Fund’s Net Revenues are not exposed to currency risk. Please see “Net Revenues under Market Terms” above for a discussion on the impact of moving to market terms on May 3, 2017 (following the completion of the initial term of the Supply and Processing Agreement). Two other performance drivers that impact the Fund are cost containment and a disciplined use of capital. The Fund provides annual guidance for a number of its key performance drivers, including production, sales, and processing fee. In light of the unionized workers’ strike at the Processing Facility and uncertainty about its duration, the Fund has deferred providing guidance for zinc metal production and sales targets for 2017 until an appropriate time.

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The following table provides a summary of the Fund’s key performance drivers for the years ended December 31, 2016 and 2015. For the years ended December 31 2016 2015Zinc concentrate processed (tonnes) 516,686 519,507Zinc secondary feed processed (tonnes) 13,059 20,290Zinc grade (%) 52.2 52.8Zinc recovery (%) 97.5 97.2Zinc metal production (tonnes) 277,022 272,861Zinc metal sales (tonnes) 273,052 262,719Processing fee (cents/pound) 41.0 40.5Realized zinc price (US$/pound) 1.02 0.98Average LME zinc price (US$/pound) 0.95 0.88By-product revenues ($ millions) 26.9 35.5

Copper in cake production (tonnes) 2,841 2,806Copper in cake sales (tonnes) 3,114 2,998Sulphuric acid production (tonnes) 423,433 415,477Sulphuric acid sales (tonnes) 426,704 410,948

Average LME copper price (US$/pound) 2.21 2.50Sulphuric acid netback (US$/tonne) 30 51Average US/Cdn. exchange rate 1.33 1.28* 1 tonne = 2,204.62 pounds Zinc Metal Production

Zinc metal production for the year ended December 31, 2016 was 277,022 tonnes compared to 272,861 tonnes in 2015. Production was 2% higher than the same period in 2015 due to higher zinc recovery and a reduction in work-in-process inventory during 2016. The amount of zinc metal produced is a function of four main factors: (a) volume of zinc concentrate and secondary feed processed; (b) grade of zinc concentrate and secondary feed processed; (c) zinc recoveries; and (d) changes to work-in-process inventory levels. For the year ended December 31, 2016, 516,686 tonnes of zinc concentrate were processed compared to 519,507 tonnes during the same period in 2015. For the year ended December 31, 2016, 13,059 tonnes of secondary zinc concentrate were processed compared to 20,290 tonnes for the same period in 2015. The secondary feed provides an additional source of zinc and increases the Processing Facility’s operating flexibility. The Fund continues to introduce new sources of zinc concentrate into the production process. In 2016, approximately 75% (2015 – 55%) of the feed consumed by the Processing Facility was sourced from mines located in Québec and Ontario (Bracemac-McLeod, Langlois, Caribou and Kidd Creek) and 25% (2015 – 45%) was seaborne concentrate. The average concentrate and secondary feed grade consumed was 52.2% in 2016, compared to 52.8% in 2015. Under the Supply and Processing Agreement, the Fund pays for 96% of the zinc in the concentrate it purchases; therefore, any recovery over 96% results in additional revenue for the Fund. In 2016, zinc recovery was 97.5% compared to 97.2% in 2015. Work-in-process inventory volumes decreased during the year ended 2016, while in 2015 the work-in-process inventory increased.

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The Processing Facility may experience an increase in its costs, working capital requirements and/or capital expenditures as a result of being required to treat a more varied feed quality stream. Higher levels of impurities may also negatively impact the volume of zinc concentrate that can be processed, resulting in a lower overall production. Concentrate inventory levels are expected to continue to be variable, due to large and irregular seaborne deliveries of concentrate and the requirement to mix feed qualities to maximize the Processing Facility’s production. Sales Zinc metal is used in a wide range of industries. Its major use is in the production of galvanized steel. Sales in 2016 were 273,052 tonnes compared to 262,719 tonnes in 2015. During the year ended December 31, 2016, zinc metal inventories increased by approximately 4,000 tonnes. Processing Fee For 2016, the processing fee was $0.410 per pound ($904 per tonne), compared to $0.405 per pound ($893 per tonne) in 2015. The processing fee under the Supply and Processing Agreement is adjusted annually: (i) upward by 1% and (ii) upward or downward by 10% of the year-over-year percentage change in the average cost of electricity per megawatt hour for the Processing Facility. Based on the annual 1% increase and the average increase in electricity costs, the processing fee for the period ending May 2, 2017 is expected to be $0.414 per pound ($914 per tonne). After May 2, 2017, the processing fee is replaced with market treatment charges (see “Net Revenues under Market Terms” above). Realized Zinc Price, Average LME Zinc Price and Premiums The following table provides a summary of the realized zinc price and the average LME zinc price for the years ended December 31, 2016 and 2015.

%Increase

(Decr 2016 2015 (Decrease)Realized zinc price (US$/pound) 1.02 0.98 4%Average LME zinc price (US$/pound) 0.95 0.88 8%

Years endedDecember 31,

The realized zinc prices reflected US$0.07 per pound premium to the average LME zinc price for the years ended December 31, 2016 compared to US$0.10 in the same period of 2015. By-products The Fund produces copper in cake and sulphuric acid as by-products from refining zinc concentrate. In 2016, the Fund generated $26.9 million in revenue from the sale of its copper in cake and sulphuric acid compared to $35.5 million in 2015. Copper in Cake Copper in cake revenues in 2016 were slightly higher at $9.8 million compared to $8.9 million in 2015. Lower copper prices were partially offset by higher sales volumes. In 2016, copper prices were $2.21 per pound, compared to $2.50 per pound in 2015. The copper in cake sales volumes increased to 3,114 tonnes in 2016 from 2,998 tonnes in the prior year.

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Sulphuric Acid Revenues from the sale of sulphuric acid decreased to $17.1 million in 2016 from $26.6 million in 2015. Sulphuric acid netbacks in 2016 were US$30 per tonne, compared to US$51 in 2015. The lower netbacks in 2016 reflected the impact of lower annual contract and purchase order contract pricing. Sales volumes were higher in 2016 at 426,704 tonnes compared to 410,948 tonnes in the previous year. Exchange Rate A weaker Canadian dollar has a positive impact on the US dollar components of the Fund’s Net Revenues (premiums, by-products and zinc recovery gains). In 2016, a one-cent Canadian dollar weakening would have positively impacted the Fund’s annual cash flow from operations before working capital changes by approximately $0.8 million. In 2016, the average Canadian dollar weakened to $1.33 per US dollar compared to an average of $1.28 per US dollar in 2015. Production Costs Production costs include labour, energy, supplies and other costs directly associated with the production process, plus or minus changes in inventory levels. Production costs before change in inventory in 2016 were $186.9 million compared to $187.6 million recorded in 2015. The $0.7 million decrease was due to lower energy and contractor costs, offset by higher labour costs. In November 2016, the Fund submitted an application to the Quebec Ministry of Finance for its program for electricity rate reduction for large industrial electricity consumers. In February 2017, the Fund received notice that its application had been accepted conditional to meeting additional milestones. There can be no assurance that the Fund will be able to meet those milestones. Capital Expenditures Capital spending was $27.2 million in 2016 compared to $29.9 million in 2015. Most of the annual 2016 capital investment was spent on sustaining the Fund’s operations, including $11.1 million on acid plant and roaster equipment, $8.0 million on replacement anodes in the cell house and the balance on other sustaining capital. Comparatively, in 2015, capital investment spent on sustaining the Fund’s operations included $9.6 million spent on replacement anodes for the cell house, $11.1 million spent on major roasting and acid plant equipment and the balance on other sustaining capital. In light of the unionized workers’ strike at the Processing Facility and uncertainty about its duration, the Fund has deferred providing guidance for capital expenditures for 2017 until an appropriate time.

Adjusted Earnings before Distributions to Unitholders, Finance Costs, Income Taxes, Depreciation and Amortization (“Adjusted EBITDA”) Adjusted EBITDA is used by the Fund as an indication of cash generated from operations. Adjusted EBITDA is not a recognized measure under IFRS and therefore the Fund’s method of calculating Adjusted EBITDA is unlikely to be comparable to methods used by other entities. The Fund’s Adjusted EBITDA is calculated by starting from earnings before finance costs and income taxes and adjusting for all of the non-cash items such as depreciation, gain or loss on the sale of assets, changes in fair value of embedded derivatives and non-cash gain or loss on derivative financial instruments. In addition, an adjustment is made to reflect the net change in the rehabilitation liabilities (reclamation (recovery) expense less site restoration expenditures) and the net change in employee benefits (non-cash employee benefit expenses less employer contributions).

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A reconciliation of Adjusted EBITDA for the years ended December 31, 2016 and 2015 is provided below: Adjusted EBITDA 2016 2015(Loss) earnings before finance costs and income taxes (34,241) 55,278 Depreciation of property, plant and equipment 27,651 31,454 Impairment of non-financial assets 73,000 10,300 Net change in residue ponds rehabilitation liabilities (2,954) 1,372 Derivative financial instruments (gain) loss (2,978) 3,944 Change in fair value of embedded derivatives 9,130 (2,843) Loss on sale of assets 1,500 1,158 Net change in employee benefits (1,328) (1,153)

69,780$ 99,510$ The Fund’s Adjusted EBITDA is currently supported by the stability of pricing under the Supply and Processing Agreement. The Fund’s Adjusted EBITDA will be subject to market prices after May 3, 2017. See “Overview – Outlook for the Fund” and “Overview – Net Revenues under Market Terms” for more information on the impact of the expiry of the initial term of the Supply and Processing Agreement. OPERATING CASH FLOWS Cash provided by operating activities in 2016 was $56.2 million, including a positive $8.5 million decrease in non-cash working capital due mainly to an increase in accounts payable and accrued liabilities offset by an increase in accounts receivables and the inventory. In 2015, cash provided by operating activities was $16.2 million, including a negative $48.1 million increase in non-cash working capital due mainly to an increase in inventories and a reduction in accounts payable and accrued liabilities. For the year ended December 31, 2016, non-cash working capital increased by $8.5 million primarily due to:

Inventories were up by $71.8 million mostly due to an increase of approximately 5,900 tonne of zinc in raw materials inventory due to arrival of concentrate vessels and secondary feed in the fourth quarter and an increase of approximately 4,000 tonne in zinc metal inventory and an increase in the price of zinc.

Accounts receivables were up by $16.0 million due to the increase in the price of zinc. Accounts payable and accrued liabilities increased by $103.5 million, due to a vessel arriving in the last

week of December 2016 and the scheduled provisional payment was made in the first week of January 2017 and the impact of the rising price of zinc on the outstanding concentrate payables.

The non-cash working capital changes disclosed above include the impact of changes in income tax receivables/payables and finance costs payable during the respective periods, in addition to working capital adjustments disclosed in the consolidated statement of cash flows. DISTRIBUTION POLICY Distribution Policy When not restricted (see “Liquidity and Capital Resources” below) , and as may be considered appropriate by the Board, 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 Trustees. 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.

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In determining whether there shall be a distribution and the level thereof, the Board periodically reviews the Fund’s financial performance, business environment and prospects, and determines the appropriate levels of reserves. The Board also continues to evaluate on a monthly basis the expected future cash flows of the Fund as well as the reserves that may be required in the future. Given the uncertainty of future pricing and market conditions for zinc concentrate, and the reduced profitability and prospects for the Fund, the Board declared distributions for the months August 2016 to January 2017 of $0.025 per Priority Unit, as compared to $0.04167 per Priority Unit for the months of January to July 2016. On January 31, 2017, in light of the prevailing market conditions now facing the Fund, the Board announced the suspension of future monthly distributions to unitholders. There is no assurance that monthly distributions will resume in the future. See “Overview – Outlook for the Fund” above. Cash distributions on the Ordinary Units of the Partnership held indirectly by Glencore Canada are subordinated to distributions on Priority Units of the Fund until May 2017, except upon the occurrence of certain events. As a result of Glencore Canada’s subordination, no distributions have been declared to the Ordinary Units since January 2009. The accumulated distribution deficiency amount was $34.2 million as at December 31, 2016 and $34.5 million as at February 28, 2017. For further details on the terms of the subordination, reference should be made to the Fund’s Partnership Agreement dated May 1, 2002, which is available on SEDAR at www.sedar.com. In the event of an exchange of Ordinary Units on a one-for-one basis for Priority Units on or after May 2, 2017, or earlier upon the occurrence of an early exchange event, the holder of Ordinary Units has the right to receive a promissory note in the amount of the outstanding accumulated deficiency amount. Subsequent to an exchange, the promissory note reflecting the remaining outstanding accumulated deficiency amount continues, however, there is no further accumulation of the accumulated deficiency amount. Any deficiency amount related to the promissory note is not payable by the Fund until such time that excess cash is available for distribution above the monthly cash distribution of $0.08333 per Priority Unit, and a cash distribution above $0.08333 is approved by the Board. The Fund, as a SIFT, is subject to tax on its NPE at the same rate as a Canadian corporation provided it distributes a sufficient portion of such earnings to Unitholders. 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 (2016 and 2015 - 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. The Fund’s distribution policy and practices are impacted by various risks, uncertainties and other factors, which are discussed in greater detail in this section and in the sections entitled “Liquidity and Capital Resources” and “Forward-Looking Information” below.

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Tax Pools The Fund has certain tax pools available to shelter taxable income. The largest of these tax pools are capital cost allowance (“CCA”) deductions. These pools are available to the Unitholders in proportion to their respective interest in the Partnership. As at December 31, 2016, the CCA tax pools available were as follows:

($ thousands)Class Federal Québec Rate1 7 229$ 7 228$ 4%1 14 683 14 683 6%3 542 502 5%6 2 2 10%8 1 1 20%10 6 2 30%17 5 4 8%26 254 246 5%41 102 014 104 389 25%Total 124 736$ 127 057$ LIQUIDITY AND CAPITAL RESOURCES As at December 31, 2016, the Fund’s debt was $64.0 million (net of deferred financing fees), down from $92.8 million at the end of December 2015. The Fund’s debt decreased as a result of operating cash flow and the decrease in non-cash working capital during the period. The Fund’s cash as at December 31, 2016 totalled $2.6 million. Senior Secured Notes On December 28, 2016, the Operating Trust paid its remaining $15 million balance of Senior Secured Notes (the “Notes”), from an aggregate principal amount of $90 million issued on December 28, 2011. ABL Facility On October 31, 2016, the Operating Trust extended the maturity of the ABL Facility to November 15, 2017 providing availability of up to $175 million. The terms of the ABL Facility remain substantially the same. 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) $175 million 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 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, 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 million and on a weekly basis if excess availability over the most recent 45-day period is less than $15 million. The borrowing base on the ABL Facility was $175 million based on the Fund’s working capital position as at December 31, 2016. As at December 31, 2016, there was $81.6 million drawn down on the ABL Facility (including letters of credit of $17.6 million), leaving an excess availability of $93.4 million. In January 2017, the Fund posted an additional $5.9 million of letters of credit for the financial security requirements related to its residue ponds rehabilitation. 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 million which was the case as of December 31, 2016. In the event that the Fund’s average excess availability is less than $15 million 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.

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The Fund believes that an asset-based credit facility is an appropriate credit instrument for its working capital requirements. Management plans to extend the current facility or obtain a new asset-based credit facility in advance of the maturity of the ABL Facility on November 15, 2017. There is no assurance that the Fund will be able to extend the current facility or obtain a new asset-based credit facility by the maturity of the ABL Facility. 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 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 ABL Facility is fully and unconditionally guaranteed, on a senior secured basis, by the Fund, the Manager, Ontario Inc., the Partnership and NILP General Partner Ltd., the Partnership’s general partner. Financial Security In 2013, the Québec government amended the Mining Act regulation, which affects the amount of financial security to be posted by the Fund. In January 2015, the Partnership received approval of the updated residue pond cost estimate by the government of Québec. As of December 31, 2016, the Fund has posted $17.6 million of financial security in the form of letters of credit under the Mining Act regulation. The financial security requirements increased by $5.9 million made in January 2017 (through an increase in the letters of credit) for a total of $23.5 million. The Fund has now met its financial security obligations based on the updated residue pond cost estimate. The Fund currently meets its financial security obligations by posting letters of credit, thereby reducing the excess availability on the ABL Facility. Some of the risks, uncertainties and assumptions underlying this information can be found in the sections entitled “Risks and Uncertainties” and “Forward-Looking Information” below. OUTSTANDING UNITS

Outstanding Unit Data As at February 28, 2017

Priority Units 37,489,975

Ordinary Units and Special Fund Units 12,500,000

As noted above, a wholly-owned subsidiary of Glencore Canada holds 12,500,000 Ordinary Units of the Partnership, which represent all of the outstanding Ordinary Units of the Partnership, and which are exchangeable for Priority Units on a one-for-one basis only after May 2, 2017, or earlier upon the occurrence of certain events. 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. Further details concerning the rights, privileges and restrictions attached to the Fund’s outstanding Priority Units and Special Fund Units and the outstanding Ordinary Units of the Partnership, are contained in the Fund’s Annual Information Form under the section entitled “General Description of the Capital Structure”. A copy is available on SEDAR at www.sedar.com.

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CONTRACTUAL OBLIGATIONS The following table shows the Fund’s contractual obligations schedule and the payment by years from 2017 to 2021 and beyond: ($ millions) 2021Contractual Obligations Total 2017 2018 2019 2020 and beyondBank and other loans 64.0 64.0 - - - - Purchase commitments 15.1 15.1 - - - - Residue ponds rehabilitation liabilities 36.0 0.9 2.0 0.6 3.0 29.5 Total 115.1$ 80.0$ 2.0$ 0.6$ 3.0$ 29.5$ RELATED PARTY TRANSACTIONS In addition to those arrangements described elsewhere in the MD&A, the Fund entered into the following transactions with related parties at the inception of the Fund. Pursuant to the O&M Agreement, the Manager is responsible for the ongoing operation and management of the

Processing Facility and provides management services to the Partnership in exchange for a management fee and reimbursement of certain specified costs incurred by the Manager in the course of performing its duties. These services include, among other things, preparing annual operating and maintenance plans and capital improvement plans for approval by the directors of the general partner of the Partnership, reporting to the general partner of the Partnership on the operation of the Processing Facility and the business of the Partnership, providing accounting and record keeping services including coordination and management of accounting, cash management, treasury and other systems and preparing financial statements and other reports on operations.

Pursuant to the initial term of the Supply and Processing Agreement which expires on May 2, 2017, Glencore

Canada is obligated, except in certain circumstances, to sell to the Partnership a maximum of up to 550,000 tonnes of zinc concentrate per year at a concentrate price based on the zinc metal price on the LME for the “payable zinc metal” contained in the concentrate, less a fixed, escalating processing fee. Glencore Canada has renewed the Supply and Processing Agreement for an additional five years to May 2, 2022. Under the renewal term, commencing May 3, 2017 Glencore Canada will act as agent on behalf of the Fund for the purchase of the zinc concentrate required by the Fund at market terms. Glencore Canada will continue to act as agent for the sales of zinc metal and by-products and related hedging and derivative arrangements.

The termination of the Supply and Processing Agreement in 2022 will result in a concurrent termination of the O&M Agreement. If the Supply and Processing Agreement terminates and is not replaced with a similar agreement providing for a contracted supply source of zinc concentrate, the Partnership will need to seek out alternative zinc concentrate supply relationships. See also “Overview” above and “Risks and Uncertainties – Supply of Zinc Concentrate” below. Under the terms of an Administration Agreement, the Administrator provides administrative services to the Fund and management services to the Operating Trust. Pursuant to the Administration Agreement, Computershare Trust Company of Canada, the sole trustee of the Fund, has delegated all of its power and authority to the Administrator and the Administrator provides certain administrative and support services to the Fund, including to: (i) ensure compliance by the Fund with continuous disclosure obligations under applicable securities legislation; (ii) provide investor relations services; (iii) provide or cause to be provided to Unitholders all information to which Unitholders are entitled under the Fund’s Trust Indenture including relevant information with respect to income taxes; (iv) call, hold and distribute materials, including notices of meetings and information circulars, in respect of all meeting of Unitholders; (v) compute, determine and make distributions to Unitholders; (vi) determine the amount of cash flow of the Fund, distributable cash flow, income, net realized capital gains, redemption income and redemption gains pursuant to the Fund’s Trust Indenture; (vii) attend to all administrative and other matters arising in connection with any redemption of units; (viii) ensure compliance with the Fund’s limitations on non-resident ownership; and (ix) undertake all matters required by the Fund’s Trust Indenture to be performed by the sole trustee. All costs relating thereto are for the account of the Fund.

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Pursuant to the Management Services Agreement, the Manager provides management services to the Operating Trust. These services include assisting the Operating Trust in: (i) developing, implementing and monitoring a strategic plan; (ii) developing an annual business plan which may include operational and capital expenditures budgets when appropriate; (iii) developing acquisition strategies, investigating potential acquisitions and analyzing the feasibility of potential acquisitions; (iv) carrying out acquisitions or dispositions and related financings required for such transactions; (v) assisting in connection with any financing of the Operating Trust or the Fund; (vi) computing, determining and making distributions to unitholders of distributions properly payable by the Operating Trust; (vii) providing technical and evaluation services on equipment, processes and techniques relating to the operations of the business; (viii) supervising the operation of the Operating Trust’s business; and (ix) preparing, planning and co-ordinating management and Trustees’ meetings. In consideration for providing the services under the Management Services Agreement, the Manager is entitled to reimbursement of its direct and indirect costs and expenses incurred in connection with its duties under the Management Services Agreement. For further details concerning the above agreements, reference is made to the Management Information Circular of the Fund dated April 4, 2016 the Fund’s Annual Information Form dated March 28, 2016 (under the headings “Glencore Canada Corporation – Major Agreements” and “The Administrator and Manager”), and the notes to the Audited Consolidated Financial Statements of the Fund for the year ended December 31, 2016. Copies are available on SEDAR at www.sedar.com. Any agreements entered into by Glencore Canada as exclusive agent on behalf of the Partnership with any party related to Glencore Canada, and which are material to the Partnership, must be on terms that are, collectively, no less favourable to the Partnership than those available at the time from a reputable, non-related party. These agreements must be reviewed and approved by the majority of the independent Trustees of the Operating Trust. In addition, Glencore Canada and the Manager have entered into various agreements and provided certain consents in connection with providing credit support in respect of the Operating Trust’s existing ABL Facility. During the year ended December 31, 2016, Glencore Canada sold to the Partnership $542 million of zinc concentrate (2015 – $412.7 million) and provided $2.2 million in sales agency services (2015 - $ 1.7 million). The sales agency services are provided on a cost recovery basis. The administration, management and operating services provided by the Manager are provided on a cost recovery basis and for a management fee of $0.3 million per annum, adjusted upward annually by 2%. As a result of the Administration Agreement between the Fund and the Administrator, the Management Services Agreement between the Operating Trust and the Manager and the O&M Agreement between the Partnership and the Manager, the Manager has been paid the following amounts for administration, management and operating services with respect to the Fund, its subsidiaries and its assets for the years ended December 31, 2016 and 2015: Services provided by Glencore Canada($ millions) 2016 2015Salary and benefits* $70.7 $69.6Support services 2.2 2.1O&M Agreement management fee 0.3 0.3Total $73.2 $72.0

* This represents all amounts paid in respect of salaries and benefits for all of the employees of the Manager in connection with the operation of the Processing Facility and the services provided to the Fund, the Operating Trust and the Partnership.

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In addition, the Fund undertakes other transactions with Glencore Canada and affiliated companies, at terms that reflect market rates. The table below summarizes sales and purchases that were transacted with Glencore Canada and affiliated companies for the years ended December 31, 2016 and 2015:

Sales and Purchases ($ millions) 2016 2015SalesSales of zinc metal $ 105.6 $ 128.4 Sales of by-products 26.9 35.5PurchasesPurchases of plant equipment, raw materials and operating supplies $ 25.1 $ 48.1 FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS Due to the structure of the Processing Facility’s purchase and sale contracts, the Fund has the ability to manage some of its exposure to fluctuations in zinc market prices while zinc concentrate is being converted to zinc metal. Zinc metal products are generally sold approximately two months after the concentrate from which they are made is delivered. As a result, by pricing the “payable” zinc metal contained in zinc concentrate at the LME zinc reference price in the second month following its delivery, and by pricing the processing fee in Canadian dollars, the Supply and Processing Agreement seeks to limit the exposure to zinc metal price fluctuations during the period in which the concentrate is transformed into zinc metal. This results in matching the timing of pricing of the purchase of zinc concentrate with the expected timing of sales of the refined zinc metal produced from that concentrate. The Fund, through Glencore Canada, enters into hedges (“inventory management program”) to the extent that the natural hedge does not fully minimize exposure to fluctuations in zinc prices. As at December 31, 2016, the Fund had sold forward approximately 59 million pounds of zinc, related to the inventory management program hedges. The fair value of these positions as at December 31, 2016 was a gain of $1.0 million and they were recognized as a current derivative financial assets on the Fund’s consolidated statements of financial position. During the year ended December 31, 2016, the Fund recorded in sales a loss of $44.7 million representing the realized portion of the inventory management program (2015 – gain of $30.0 million) in earnings attributable to Unitholders and non-controlling interest in the consolidated financial statements. In addition, some customers request a fixed sales price (instead of the LME average price in the month of shipment) in order to lock in the price of their zinc purchases for a future period of time, generally not exceeding one year. These arrangements, referred to as fixed forward sales contracts, are made available on a select basis to certain customers who request them and who meet the Fund’s credit criteria for such contracts. When entering into a fixed forward sales contract, the Fund, through its exclusive sales agent, Glencore Canada, offsets this price risk by hedging with appropriate futures contracts with maturities and quantities which will match those which the customer has contracted to purchase the metal. These futures contracts typically allow the Fund to receive the LME price plus a premium in the month of shipment, while customers pay the agreed-upon price plus a premium. In the event that the futures contracts have to be terminated early, due to the customer cancelling a fixed price order, Glencore Canada, on behalf of the Fund has the right to charge the customer with the cost of settling the LME contract. The Fund has not applied hedge accounting to its fixed forward sales contracts in 2016. The change in the fair value of the commodity hedge is recorded in the consolidated statement of comprehensive (loss) income as a derivate financial instrument gain or loss. The Fund does not enter into any hedging contracts for the purposes of speculation.

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The Fund has separated and recorded at fair value, embedded derivatives resulting from the provisional pricing feature in the Supply and Processing Agreement. Under the terms of this agreement, final prices for purchases of concentrate (“quotational pricing”) are based on the LME price prevailing on a specified future date after shipment (“quotational period”). The Fund accounts for changes in the fair value of unsettled concentrate payable amounts resulting from quotational pricing with reference to forward LME rates for the remaining quotational period through gains or losses recorded in raw material purchases costs and corresponding adjustments in accounts payable and accrued liabilities. During the year ended December 31, 2016, the Fund recorded an increase of raw material purchase costs of $9.1 million related to the change in fair value of the embedded derivatives resulting from the quotational pricing feature of its zinc concentrate payables (2015 – a decrease of $2.8 million). The Fund has exposure to the US dollar for its cash, accounts receivable, inventory, accounts payable and accrued liabilities and bank debt. 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, 2016, the Fund had sold forward US dollars with a notional amount of US$104 million and bought forward dollars with a notional amount of $140 million. An unrealized gain of $0.2 million related to these open positions was recorded as at December 31, 2016. CRITICAL ACCOUNTING ESTIMATES Reference should be made to the Fund’s Audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2016. A copy is available on SEDAR at www.sedar.com. Property, Plant and Equipment Included in the $516.0 million of assets as at December 31, 2016 ($480.3 million as at December 31, 2015) were property, plant and equipment with a carrying value of $138.3 million (2015 – $211.5 million). This amount represented 27% (2015 – 44%) of the book value of the asset base. As such, the estimates used in accounting for property, plant and equipment and the related amortization charges are critical and have a material impact on the Fund’s financial condition and earnings. Property, plant and equipment are recorded at cost and the amortization is based on estimated service lives of the assets, calculated on a straight line basis. Assets under construction are not amortized until put into use. Impairment exists when the carrying value of a non-financial asset or cash-generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The Fund has only one CGU. As at December 31, 2016 and 2015, management concluded that an indicator of impairment existed relating to its CGU. As a result of the estimated recoverable amount, an impairment loss of $73.0 million was recorded in 2016 ($10.3 million in 2015), all as a reduction in the Fund’s property plant and equipment. Management uses the higher of its fair value less costs to sell and its value in use 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 and a terminal value. Cash flows include future investments that may enhance the performance through increased production volumes or reduction in production costs and eventual disposal of the CGU being tested. The recoverable amount is based on detailed budgets and forecasts and requires estimates and assumptions that a market participant may take into account. The indicators for impairment were primarily i) the significant tightening of the zinc concentrate market throughout 2016 and continuing in 2017 as a result of several large mine closures over recent years, and the global demand for zinc concentrate leading to a shortage of supply; ii) the increase in the Fund’s carrying value relating to the increase in the price of zinc; iii) the upcoming end of the initial term of the Supply and Processing Agreement in May 2017 and the purchase of zinc concentrate at market terms, which is estimated to result in lower cash flows being generated by the Fund; and iv) the market pricing terms for the agreement reached with Glencore Canada for the 12-month period ending April 30, 2018 not being favourable due to the tightness in the zinc concentrate market.

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The determination of fair value less costs to sell or value in use is most sensitive to the following key assumptions:

Continued supply of concentrate after the initial term of the Supply and Processing Agreement at market terms

Estimated market treatment charges after the end of the initial term of the Supply and Processing Agreement based on industry forecasts and treatment charge rates as a proportion of the associated purchase price

Price of zinc, copper and sulphuric acid and zinc premium based on industry forecasts Remaining useful life of the assets and terminal value Capital expenditures Production volumes (including recoverable quantities) Estimated production costs Discount rates Foreign exchange rates Rehabilitation expenditures

In calculating the fair value less costs to sell, a real post-tax discount rate of 8.7% for December 31, 2016 and 10% for December 31, 2015 were applied to the post-tax cash flows expressed in real terms. This discount rate is derived from the Fund’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Fund’s investors. The cost of debt is based on the interest-bearing borrowings the Fund is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. See above “Results of Operations – Asset Impairment” for more information. Income 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 (loss), in which case the current and/or deferred tax is also recognized directly in other comprehensive income (loss). 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 will be 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 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 the determination of the future returns on each different type of asset, discount rate, future salary increases, employee attrition rates, 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.

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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, the government rate on 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 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. 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. Residue Ponds Rehabilitation Liabilities The Fund has recognized rehabilitation liabilities related to the residue ponds on the Processing Facility site as the Fund is legally required to rehabilitate these ponds under the 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. These uncertainties may result in future actual expenditures 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 (loss). 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. The Fund has determined that the fair value of this rehabilitation liabilities was $26.0 million as at December 31, 2016, by using a discount rate of 1.99% (December 31, 2015 – 1.81%). The liabilities accrete 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 liabilities for rehabilitation on an undiscounted, nominal dollar basis is estimated to be $36.0 million. The cash flows required to settle the liabilities are expected to be incurred from now until 2046. The estimate for the rehabilitation of the residue ponds impacts upon the amount of reclamation expense that is incurred on the statement of comprehensive income (loss), and the balance of the residue ponds rehabilitation found in the long-term liabilities section of the balance sheet. Actual residue ponds rehabilitation expenditures reduce the Fund’s cash provided by operations. Inventories Zinc and by-product related inventories as at December 31, 2016 and 2015 included the following balances: ($ millions) 2016 2015Raw materials $ 115.8 $ 95.2 Work-in-process 21.3 13.3 Finished products 96.1 53.7

$ 233.2 162.2$ Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated future selling price the Fund expects to realize when the product is produced and sold, less estimated costs to complete production and bring the product to sale. As at December 31, 2016 and 2015, all of the above inventories were recorded at cost.

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Stockpiles are measured by estimating the number of tonnes added 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. CRITICAL ACCOUNTING JUDGMENTS 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 O&M 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 Manager is considered to be controlled by the Fund even though the Fund has no 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 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 consolidated the Manager within its consolidated financial statements. Going Concern Assumption When preparing the consolidated financial statements, management is required to make an assessment of the Fund’s ability to continue as a going concern. When management is aware, in making this assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the Fund’s ability to continue as a going concern, the Fund shall disclose those uncertainties. In assessing whether the going concern assumption is appropriate, management has taken into account all available information about the future, which is at least, but not limited to, twelve months from the statement of financial position date. The main challenge facing the Fund is the ability to operate profitably after the expiry of the initial term of the SPA between the Partnership and Glencore Canada on May 2, 2017 and the Fund is required to purchase concentrate on market terms, including market treatment charges. Market terms will represent a significant change from the fixed processing fee the Fund has benefited from since its inception. As a result of the change to market term pricing, the Fund’s financial results will differ materially, beginning after May 2, 2017. Management fully repaid its Senior Secured Notes on December 28, 2016. However, in order to finance its inventory and accounts receivable, the Fund will require a credit facility once the ABL Facility matures on November 15, 2017. As a result of Glencore Canada’s renewal of the Supply and Processing Agreement and Glencore Canada acting as agent for the purchase of zinc concentrate, management believes that it will be able to either extend the ABL Facility or enter into a new credit facility when the ABL Facility matures. As a result, the Fund has concluded that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Fund’s ability to continue as a going concern for the next twelve months. However, significant judgment was involved in this assessment. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED The nature and the impact of each new standard/amendment are described below: 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. IAS 7 DISCLOSURE INITIATIVE – AMENDMENTS TO IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These

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amendments are effective for annual periods beginning on or after January 1, 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Fund. IFRS 9 FINANCIAL INSTRUMENTS In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except hedge accounting, retrospective application is required, but comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. During 2016, the Fund performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable information being made available to the Fund in the future. Overall, the Fund expects no significant impact on its statement of financial position or net assets from the adoption of IFRS 9. However, there will be some changes to the classification and measurement of trade and other receivables relating to provisionally priced sales. (a) Classification and measurement Some of the Fund’s sales contracts contain provisional pricing features. Currently, this provisional pricing arrangement has the characteristics of an embedded derivative that is separated from the host contract, i.e., the concentrate receivable, for accounting purposes under IAS 39. Accordingly, the embedded derivative, which does not qualify for hedge accounting, is recorded at fair value, with subsequent changes in fair value recognised in the consolidated statements of comprehensive (loss) income in each period until final settlement and presented in sales revenues. The initial estimate of fair value and subsequent changes in fair value over the quotational period (“QP”), and up until final settlement, are estimated by reference to forward market prices. On adoption of IFRS 9, the embedded derivative will no longer be separated from the trade and other receivables as the receivables are not expected to give rise to cash flows that represent solely payments of principal and interest. Instead, the trade receivables will be accounted for as one instrument and measured at fair value with subsequent changes in fair value recognised in the consolidated statements of comprehensive (loss) income in each period until final settlement and presented as sales revenues. This will mean that the quantum of the fair value movements could be different because the current approach only calculates fair value movements based on changes in the relevant commodity price, whereas under IFRS 9, the fair value of the trade receivable will not only include commodity price changes, but it will also factor in the impact of credit and interest rates. Other non-provisionally priced trade and other receivables are considered to be held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Thus, the Fund expects that these will continue to be measured at amortised cost under IFRS 9. However, the Fund will analyse the contractual cash flow characteristics of these instruments in more detail before concluding whether all these instruments meet the criteria for amortised cost measurement under IFRS 9. For other financial assets currently measured at fair value such as derivative financial assets, the Fund expects to continue to classify and measure these at fair value. There will be no impact on financial liabilities.

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(b) Impairment IFRS 9 requires the Fund to now use an expected credit loss model for its trade receivables measured at amortised cost, either on a 12-month or lifetime basis. Given the short term nature of these receivables, the Fund does not expect these changes will have a significant impact. (c) Hedge accounting The changes in IFRS 9 relating to hedge accounting will have no impact as the Fund does not currently apply hedge accounting. IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017 with early adoption permitted. During 2016, the Fund commenced its preliminary assessment of IFRS 15 and some of the key issues it has identified, and its initial views and perspectives, are set out below. These are based on the work completed to date and the Fund current interpretation of IFRS 15 and may be subject to changes as more detailed analysis is completed and as interpretations evolve more generally. Furthermore, the Fund will continue to monitor any further development. To date, the Fund has identified the following issues that require consideration: (a) Provisionally priced sales As discussed above, some of the Fund’s sales of metal contain provisional pricing features which are considered to be embedded derivatives. Under IAS 18, revenue is recognised at the estimated fair value of the total consideration received or receivable upon shipment. This fair value is based on the most recently determined estimate of metal and the estimated forward price that the entity expects to receive at the end of the QP. The initial estimate of the fair value of the embedded derivative and subsequent changes in fair value over, and to the end of, the QP, are also estimated by reference to forward market prices. The subsequent changes in fair value are recognised in the consolidated statements of comprehensive (loss) income each period until final settlement and presented as part of sales revenues. IFRS 15 will not change the assessment of the existence of embedded derivatives. IFRS 15 states that if a contract is partially within scope of the standard and partially in the scope of another standard, an entity will first apply the separation and measurement requirements of the other standard(s). Therefore, to the extent that provisional pricing features are considered to be in the scope of another standard, they will be outside the scope of IFRS 15 and the Fund will be required to account for these in accordance with IFRS 9. Any subsequent changes that arise due to differences between initial and final estimates will still be considered within the scope of IFRS 15. Revenue in respect of the host contract will be recognised when control passes to the customer (which has been determined to be upon shipment) and will be measured at the amount the entity expects to be entitled – being the estimate of the price expected to be received at the end of the QP, i.e., using the most recently determined estimate of metal and the estimated forward price (which is consistent with current practice). When considering the initial estimate, the Fund has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final quality is subsequently resolved, i.e., at the end of the QP. Consequently, at the time of shipment, the Fund will recognise a trade receivable because from that time it considers it has an unconditional right to consideration. This receivable will then be accounted for in accordance with IFRS 9. As explained above in the discussion on the potential impact of IFRS 9, the embedded derivative will no longer be separated from the host contract, i.e., the trade receivable.

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With respect to the presentation of amounts arising from such provisionally priced contracts, IFRS 15 requires “revenue from contracts with customers” to be disclosed separately from other types of revenue. This means that revenue recognised from the initial sale must be separately disclosed in the consolidated financial statements from any revenue recognised from subsequent movements in the fair value of the related trade receivable (i.e. embedded derivative). However, the quantum of the fair value movement may be different as a result of the adoption of IFRS 9. (b) Impact of shipping terms The Fund is responsible for shipping services after the date at which control passes to the customer upon shipment. Under IAS 18, these shipping services are currently not considered to represent a separate service, hence, no revenue is allocated to them. Instead, sales revenue is recognised in full at the date of shipment, and the costs associated with shipping are considered to be part of transportation and distribution costs. Under IFRS 15, the provision of shipping services in these types of arrangements will be a distinct service (and therefore a separate performance obligation) to which a portion of the transaction price should be allocated and recognised over time as the shipping services are provided. The Fund is currently assessing the materiality of these types of arrangements to determine the impact. Where material, the impact of this change would be:

• Deferral of revenue: Some of the revenue currently recognised upon shipment will be deferred and recognised as the shipping services are subsequently provided; and • Disaggregated disclosures: The revenue allocated to shipping services may need to be disclosed separately from sales revenue.

(c) Other presentation and disclosure requirements In addition to the presentation and disclosure requirements for provisionally priced sales discussed above, IFRS 15 contains other presentation and disclosure requirements which are more detailed than the current Standards. The presentation requirements represent a significant change from current practice and will increase the volume of disclosures required in the Fund’s consolidated financial statements. IFRS 16 LEASES In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease contract. The standard requires lessees to recognize asset and liabilities for most leases. The standard supersedes IAS 17, Leases and other lease related interpretations. The standard will be effective on January 1, 2019 for the Fund with earlier application permitted only if IFRS 15 Revenue from Contracts with Customers is also applied. The Fund is currently assessing the impact of IFRS 16 on its consolidated financial statements.

COMMITMENTS AND CONTINGENCIES Manager’s Employee Benefit Plans The Manager participates in two defined benefit pension plans managed and administered by Glencore Canada. The defined benefit obligations recorded by the Fund represents 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.

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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 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 49% in equity and 51% in debt 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. As at December 31, 2016, the estimated liabilities and assets of the Manager’s share of the pension plan was $92.0 million (2015 – $87.3 million) and 96.7 million (2015 – $90.3 million). The estimated liabilities of the pension plans covering the pension obligation of the Manager’s employees prior to May 2, 2002 was approximately $95.7 million as at December 31, 2016 (December 31, 2015 - $93.4 million). There was approximately $103.0 million of assets within the pension plan as at December 31, 2016 (December 31, 2015 - $100.4 million). The benefit obligation and plan assets for pre-May 2002 would only revert to the Fund upon the 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. 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 made a motion to add the Fund as an interested party and add Xstrata Limited and Glencore Canada as co-defendants with the Manager. The motion to add Xstrata Limited and Glencore Canada was dismissed by the Court on March 28, 2014. On April 25, 2014, the plaintiff appealed the decision. On December 8, 2014, the appeal was dismissed. On February 6, 2015, the plaintiff filed an application for leave to appeal to the Supreme Court of Canada. On June 4, 2015, the Supreme Court of Canada dismissed the application for leave to appeal. As of this date, the merits of the class action suit have not been considered by the courts. The Manager continues to maintain that the claims are not justified and that the class action suit is unfounded. The Manager intends to vigorously defend itself against the claim. Guarantees The Fund’s debt agreements include indemnification provisions in which the Fund may be required to make payments to lenders for breach of fundamental representations and warranty terms in the agreements.. As at December 31, 2016, the Fund does not believe these indemnification provisions would require any material cash payment by the Fund.

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The Fund indemnifies its Trustees and officers against claims reasonably incurred and resulting from the performance of their services to the Fund and the Operating Trust, and maintains liability insurance for its Trustees and officers. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As at December 31, 2016, an evaluation of the effectiveness of the issuer’s disclosure controls and procedures (as such term is defined under the rules adopted by the Canadian securities regulatory authorities) was carried out by management, under the supervision of, and with the participation of, the Manager’s chief executive officer (“CEO”) and chief financial officer (“CFO”). Based upon that evaluation, the CEO and CFO concluded that as at such date, the Fund’s disclosure controls and procedures were appropriately designed and were operating effectively such that information relating to the Fund required to be disclosed by the Fund in the reports which the Fund files or submits to such regulatory authorities, (a) is recorded, processed, summarized and reported within the time periods specified under applicable securities laws, and (b) is accumulated and communicated to the Fund’s management, including the CEO and CFO, to allow timely decisions regarding disclosure. Although the Fund’s disclosure controls and procedures were operating effectively as at December 31, 2016, there can be no assurance that the Fund’s disclosure controls and procedures will detect or uncover all failures of persons within the Fund and its subsidiaries to disclosure material information otherwise required to be set forth in the annual regulatory filings. INTERNAL CONTROLS OVER FINANCIAL REPORTING During 2016, the Fund assessed the design and effectiveness of its internal controls over financial reporting. The design of internal controls over financial reporting was evaluated as defined in Multilateral Instrument 52-109 – Certification of Disclosure on Issuers’ Annual and Interim Filings. Based on the results of this evaluation, the CEO and CFO concluded that as at December 31, 2016, the internal controls over financial reporting were appropriately designed and were operating effectively to provide reasonable assurance that the Fund’s financial reporting is reliable and that its consolidated financial statements were prepared in accordance with IFRS and no material weaknesses were identified through their evaluation. Management also concluded that during the year ended December 31, 2016, no changes were made to internal controls over financial reporting that would have materially affected, or would be reasonably likely to materially affect those controls. RISKS AND UNCERTAINTIES Where appropriate, the Fund has included comments on risks and uncertainties throughout this MD&A. The following are additional risks and uncertainties that have not been included elsewhere in the document. The Fund is also subject to certain risks and uncertainties that are common in the zinc processing industry and the market environment generally and that may affect future performance, events, results and operations. The risks and uncertainties included here are not exhaustive. The Fund operates in a very competitive and rapidly changing environment. New risk factors may emerge from time to time and it is not possible for the Fund to predict all such risk factors, nor can it assess the impact of all such risks factors on the Fund’s business. In addition, historical trends discussed elsewhere in this MD&A should not be used to anticipate events, performance, results or trends in future periods.

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Supply of Zinc Concentrate The Processing Facility is dependent upon the continuing supply of zinc concentrate. Until May 3, 2017, Glencore Canada is obligated, except in certain circumstances, to supply zinc concentrate based on the terms set out in the initial term of the Supply and Processing Agreement. On May 3, 2017, the Supply and Processing Agreement will be automatically renewed for a period of five years through May 2, 2022. Under the renewal term commencing on May 3, 2017, Glencore Canada will arrange, as agent on behalf of the Fund, for the purchase of the zinc concentrate required by the Fund at market terms. If the market terms are less favourable, the Fund’s results could be adversely affected. In addition, if Glencore Canada fails to fulfill all of its obligations under the Supply and Processing Agreement, the Fund’s cash realized from operations would decline, which could in turn have a material adverse effect on the Fund’s results. The global zinc market has fundamentally changed in recent years. Factors that have the potential to

positively and/or negatively impact the Fund’s business in the future include: the increasing influence of demand from China and India as industrialization and urbanization continues in their economies; the growth in low-cost smelting capacity in China; the decline in zinc mine production from traditional North American sources that may see North American smelters increasingly dependent on seaborne zinc concentrate for their supply, and the need for the zinc industry to raise and invest significant capital to finance the development of new mine projects in a timely fashion to meet market demand for concentrate resulting from several large mines closing. The Fund must be prepared to adjust to these changes and, in particular, their impact on the availability of feed sources and market treatment charges upon the termination of the Supply and Processing Agreement. The Fund’s failure or inability to adjust to such changes, or to do so in a manner that is satisfactory or successful, may have a material adverse effect on the Fund’s business, results of operations and financial condition.

Upon the expiry of the initial term of the Supply and Processing Agreement, the Fund will be subject to market prices (market treatment charges, zinc metal price and Canada/US exchange rate) for converting zinc concentrate into metal. These market prices have historically been very volatile and there is reason to believe this will continue in the future. The Fund’s failure or inability to create a more stable stream of revenue as existed in the Supply and Processing Agreement when the market treatment charges are low may have a material adverse effect on the Fund’s results of operations, financial condition and ability to pay cash distributions. See above “Overview – Outlook for the Fund” and “Key Performance Drivers – Net Revenues under Market Terms” for more information on the impact of the market treatment charges versus the Supply and Processing Agreement.

Employee Relations The Processing Facility has 583 employees, 373 of whom are represented by the United Steel Workers of America, Local 6486. The collective agreement expired on November 30, 2016. On February 12, 2017, unionized workers initiated a strike at the Processing Facility. In response to the strike, management secured the operations in the days following and has resumed partial production with staff operating the facility. Management is in the process of evaluating its production capacity under this scenario. The Fund has attempted to minimize the impact on customers by shipping inventory and new production. A labour disruption, such as a strike or lockout, could have a negative material effect on the Fund’s financial position, cash realized from operations and its business. In addition, the Fund is reliant upon the efforts and abilities of its current senior management team, namely the CEO and CFO, and its Trustees. If the Fund were to lose the benefit of these senior managers’ or Trustees’ experience and skills, the Fund could be adversely affected. Electricity Costs At normal operating levels, the Processing Facility purchases approximately 1,200 million kilowatt hours per year from Hydro-Québec at the market price charged to industrial users. During 2016, the Fund’s electricity costs were approximately $58.6 million (2015 – $58.0 million). Increases in energy costs could adversely affect cash realized from operations. In addition, an interruption or a period where electricity is unavailable could have a material adverse impact upon the operations of the Processing Facility, which could in turn have a material adverse effect on the business, cash flows and results of operations of the Fund. Business Risks Demand for the Processing Facility’s products is a function of world industrial production growth, the development of new uses and markets, and substitution. Demand for our products is also impacted by general business and economic conditions and the condition of financial and credit markets.

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Sulphuric acid is a by-product of zinc processing. The Fund has a fixed storage capacity for sulphuric acid at the Processing Facility of approximately 37,000 tonnes compared to an average annual production of approximately 400,000 to 430,000 tonnes. The availability of storage facilities outside of the Processing Facility is limited due to the special material requirements for sulphuric acid storage. In a market where sulphuric acid sales have significantly slowed and the Fund is not able to secure additional storage capacity, the Fund may have to reduce its sulphuric acid production and, therefore, reduce its zinc metal production. Since 2013, the Fund’s feed mix has become more varied with an increasing amount of impurities being found in the feed. The Processing Facility may experience an increase in its operating costs, working capital requirements and/or capital expenditures in order to treat a more varied feed quality stream. Higher amounts of impurities may also negatively impact the volume of zinc concentrate that can be processed, resulting in a lower overall production. Any increase in costs or reduction in production could adversely affect future cash realized from operations. It is also expected that more future feeds may be from mines located offshore. The additional cost associated with procuring the concentrate and moving the concentrate from the port of unloading to the Processing Facility is borne by the Fund. The Processing Facility is dependent upon key customers that are relatively close to the Processing Facility. In 2016, the Processing Facility’s 10 largest customers accounted for approximately 73% (2015 – 73%) of its sales (on a volume basis), with its largest customer accounting for 23% (2015 – 21%). The loss of a significant customer may have a materially adverse effect on the Fund’s financial position and cash realized from operations.

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. As at December 31, 2016, two customers (including Glencore Canada and affiliates) represented 32% of the accounts receivable balance (December 31, 2015 – two customers (including Glencore Canada and affiliates) represented 37% of the accounts receivable balance). A portion of the Processing Facility’s Net Revenues results from the premiums paid for value-added products, such as zinc shapes, shot and granulated zinc. Changes in the supply and demand for these products can cause premiums to fluctuate, impacting upon the Fund’s cash realized from operations. In 2016, each US$0.01 change in the zinc premium impacted the Fund’s annualized sales and cash realized from operations by US$6.0 million (2015 – US$5.8 million). See also “Forward-Looking Information” below. In 2016, the Processing Facility sold more than 99% (2015 – 100%) of its zinc to customers in the United States and Canada. If the Processing Facility lost certain customers in the United States and Canada or if the demand for zinc was reduced in the United States and Canada, there is a risk that it would be forced to find alternative markets. This could increase distribution costs, thereby adversely affecting future cash realized from operations. The Processing Facility is dependent upon local transportation companies to supply concentrate to the Processing Facility and to deliver its product to its customers. Changes in the rates charged to make these deliveries or a major disruption in service, could increase transportation and distribution costs or adversely impact the Processing Facility’s ability to satisfy its obligations to its customers, thereby adversely impacting cash realized from operations and potentially exposing the Fund and its business to additional liabilities. A portion of the Processing Facility’s Net Revenues results from the sale of by-products, such as sulphuric acid and copper in cake, as well as from the sale of zinc metal. Changes in the demand and supply of these products can cause them to fluctuate, impacting upon the Fund’s cash, results of operations and business. Borrowing and Credit Risks As at December 31, 2016, the Fund had approximately $64.0 million of indebtedness in the form of an ABL Facility. The ABL Facility had $81.6 million drawn as of December 31, 2016 (including letters of credit of $17.6 million), leaving an excess availability of $93.4 million. In January 2017, the Fund posted an additional $5.9 million of letters of for the financial security requirements related to its residue ponds rehabilitation. The ABL Facility matures on November 15, 2017.

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Although the Fund currently believes that its existing cash combined with its future anticipated cash flow and credit facility will be adequate to satisfy its working capital needs for the foreseeable future, there is no guarantee that the Fund’s anticipated cash flow will be adequate or that its existing credit facility will continue to be available or sufficient in the event of unforeseen contingencies. Material factors that could result in the Fund being unable to fund its working capital needs and long-term strategies include: (i) a material default or breach of a covenant under its outstanding indebtedness; (ii) decreases in sales; (iii) deterioration of economic, market or industry conditions; (iv) any material disruption to the Processing Facility’s production or operations; and (v) a material change in the Fund’s working capital requirements and anticipated capital expenditures or in its business strategy or activities. The Fund is also subject to the risks associated with its indebtedness, including the risks that cash flow from operations will be insufficient to meet required interest payments under the ABL Facility, and the risk that the existing ABL Facility will not, if necessary, be able to be refinanced or that the terms of any such refinancing will not be as favourable to the Fund. In addition, the Fund is subject to the risk that its interest expense may increase on its current ABL Facility that bears interest at floating rates if interest rates increase, which could have a material adverse effect on the results of operations of the Fund. The Fund’s ABL Facility contain certain covenants and representations and warranties, the breach of which could result in a default and the acceleration of their maturity. The Fund and several of its subsidiaries and affiliates, as well as the Manager, have granted security interests over all of their assets to secure indebtedness owing under the ABL Facility. If the Fund is not able to meet its debt service obligations, it risks the loss of some or all of its assets. For further details concerning the Fund’s ABL Facility and the risks and uncertainties relating thereto, see “Liquidity and Capital Resources” above. Reliance on the Fund Administrator and Manager The Fund is dependent upon Glencore Canada for the operation and maintenance of the Processing Facility. The Fund is also dependent upon the Manager, a subsidiary of Glencore Canada, for administration and management of the Fund, the Operating Trust and the Partnership. The failure of Glencore Canada, the Manager or their affiliates to perform their obligations pursuant to and in accordance with the Administration Agreement, Management Services Agreement, O&M Agreement, or the Supply and Processing Agreement, or the termination or expiration of any of such agreements, is likely to have a material adverse impact on the Fund and its business, operations and financial condition. Cash Distributions Are Not Guaranteed and May Fluctuate with the Fund’s Performance Even in the absence of contractual restrictions, cash distributions are not guaranteed and will fluctuate with the Fund’s performance. The Fund depends on income generated from the processing fee for processing zinc concentrate into zinc metal and additional revenue it earns from premiums, by-product revenues and metal gains to make such distributions. There can be no assurance regarding the amount of revenue that may be generated by the Fund. The amount of distributable cash will depend upon numerous other factors, including the profitability of the business, fluctuations in working capital, debt levels and debt repayments, interest rates, capital expenditures, actual and contingent liabilities, including environmental remediation and closure obligations, and other factors which may be beyond the control of the Fund. After the expiry of the initial term of the Supply and Processing Agreement in May 2017 the Fund will face the risk of sourcing zinc concentrate and the volatility of market terms (see “Supply of Zinc” above). The Trustees have recently suspended distributions. There is no assurance that monthly distributions will resume in the future. Impact of the US/Canadian Dollar Exchange Rate The average annual Canada/US exchange rate impacts the Fund’s performance through premiums, by-product revenues and zinc recovery gains. In 2016, they collectively represented 27% of the Net Revenues. As the processing fee is earned in Canadian dollars, 73% of the Fund’s Net Revenues were not exposed to currency risk. A weakening Canadian dollar against the US dollar has a positive impact on the Fund’s earnings before finance costs and income taxes (assuming all of factors are constant). In 2016, the Canadian dollar weakened as the average Canadian/US exchange rate was $1.33 compared to an average of $1.28 in 2015, positively impacting the Fund’s operating results.

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In 2016, a one-cent Canadian dollar weakening positively impacted the Fund’s earnings before finance costs and income taxes by approximately $0.8 million (2015 – $0.8 million). Further weakening of the Canadian dollar relative to the US dollar is expected to have a positive effect on the Fund’s earnings before finance costs and income taxes, while a strengthening of the Canadian dollar relative to the US dollar would have a negative effect. After the Fund moves to market terms starting on May 3, 2017, the sensitivity to the change in the US/Canadian dollar exchange rate will increase significantly (see “Net Revenue under Market Terms” above). Employee Benefits 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. Environment, Health and Safety The Processing Facility’s operations are subject to stringent laws governing air emissions, discharges into water, waste, hazardous materials and workers’ health and safety, among other things. As such, there is a significant risk of environmental, health and safety liabilities. The Processing Facility has obtained the necessary permits and other approvals relating to the protection of the environment and workers’ health and safety. Compliance with applicable laws and future changes to them is material to the Processing Facility’s operation. Future legislation and regulations could necessitate additional expenditures and commitments, capital expenditures, financial assurance and restrictions on the operation of the Processing Facility, the extent of which cannot be predicted. The Fund has a comprehensive environmental management system, which consists of an environmental policy, as well as implementation codes and procedures including codes of practice, job descriptions, operating procedures, rules and responsibilities, employee training, public and employee communications, emergency preparedness, hazard analysis and audits. Interest Rates As at December 31, 2016, $64.0 million of the Fund’s indebtedness bears interest at floating rates (December 31, 2015 - $70.8 million), which exposes the Fund to financial risks as a result of interest rate fluctuations and the potential volatility of these rates. The Manager’s pension liabilities are sensitive to changes in interest rates, with a 1% decrease in interest rates resulting in a $15.2 million increase in pension and post-retirement benefit liabilities Hedging Activities The Fund attempts to manage its exposure to fluctuations in zinc market prices through hedging (as discussed above under “Financial Instruments and Other Instruments”). Although hedging activities may protect the Fund against fluctuations in commodity prices, they can also limit the price that can be realized on zinc or zinc by-products. In such forward sales and call options, where the market price of zinc exceeds the price in a forward sale or call option contract, this reduces the potential revenue stream for the Fund. In addition, the Fund’s ability to hedge against such fluctuations may also be limited by factors outside of its control, such as pursuant to any covenants that may be required in connection with its indebtedness. There can be no assurance that the Fund’s hedging activities will be successful or will protect the Fund against possible adverse effects resulting from fluctuations in the price of zinc concentrate and by-products. Legal Proceedings The nature of the Fund’s business subjects it to regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of business.

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The nature or results of these legal proceedings cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the business or results of operations in any future period, and a substantial adverse judgment could have a material adverse impact on the Fund’s business, financial condition, liquidity and results of operations. For further information concerning legal proceedings, see the section entitled “Commitments and Contingencies – Litigation” above. Price and Volatility of Priority Units The market price and liquidity of Priority Units of the Fund has experienced fluctuations which may not necessarily be related to the operating performance, underlying asset values or prospects of the Fund. It may be anticipated that any market for Priority Units will be subject to market trends generally and changes or disruptions in securities markets or credit markets generally, and the value or liquidity of the Priority Units on the TSX may be adversely affected by such volatility. Restrictions on Certain Unitholders and Liquidity of Units The Trust Indentures of the Fund and the Operating Trust impose restrictions on non-resident Unitholders who are prohibited from beneficially owning more than 49% of the Units. This restriction may limit the rights of certain Unitholders, including non-residents of Canada, to acquire Units, to exercise their rights as Unitholders and to initiate and complete take-over bids in respect of the Units. As a result, these restrictions may limit the demand for Units from certain Unitholders and thereby adversely affect the liquidity and market value of the Units held by the public. Redemption Right It is anticipated that the redemption right attached to Units will not be the primary mechanism for holders of Units to liquidate their investments. Notes which may be distributed in specie to Unitholders in connection with redemption will not be listed on any stock exchange. No established market is expected to develop in such notes and they may be subject to resale restrictions under applicable securities laws. Insurance Coverage and Compliance While the Fund maintains insurance against certain risks, the nature of these risks is such that liability could exceed policy limits or could be excluded from coverage. There are also risks against which the Fund cannot insure or that it may elect not to insure for various reasons. The potential costs associated with any liabilities not covered by insurance, or in excess of insurance coverage, or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting the future business, assets, prospects, financial condition and results of operations of the Fund.

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Disclosure Controls and Internal Controls Disclosure controls and procedures and internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation. Any failure in the Fund’s disclosure controls and procedures and/or internal controls over financial reporting may have a material adverse impact on the Fund, its financial condition or its results of operations PRODUCTION AND SALES OUTLOOK The broader economic indicators point to expanding activity for US industrial activity. The Institute for Supply Management’s US Purchasing Manager’s Index (“PMI”) reading for January 2017 increased to 56.0 up from the seasonally adjusted December 2016 reading of 54.5. The PMI has indicated growth in manufacturing for the fifth consecutive month. A reading above 50.0 indicates that the manufacturing economy is generally expanding; below 50.0 indicates that it is generally contracting.

In light of the unionized workers’ strike at the Processing Facility and uncertainty about its duration, the Fund has deferred providing guidance for zinc metal production and sales targets for 2017 until an appropriate time.

FORWARD-LOOKING INFORMATION This MD&A, including sections entitled “Overview”, “Results of Operations”, “Key Performance Drivers”, “Distribution Policy”, “Liquidity and Capital Resources”, “Related Party Transactions”, “Critical Accounting Estimates”, “Critical Accounting Judgments”, “Commitments and Contingencies”, “Risks and Uncertainties” and “Production and Sales Outlook”, contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. Forward-looking statements can generally be identified by the use of words such as “anticipates”, “believes”, “plans”, “intends”, “estimates”, “expects”, “is forecast”, “approximately” or variations of such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or words and expressions of similar nature. Amongst others, the Fund has made forward-looking statements for 2017 expected targets and performance, production, sales, the processing fee and capital expenditures, the Fund and the Operating Trust’s future business plans and operation of the Processing Facility, future liabilities and obligations of the Fund (including capital expenditures), the ability of the Fund to operate profitably after the expiry of the initial term of the Supply and Processing Agreement in May 2017, the dependence upon the continuing supply of zinc concentrates and competition relating thereto, the ability of the Processing Facility to treat a more varied feed quality stream, anticipated trends in zinc concentrate supply and demand, smelting capacity, sulphuric acid market demand and supply, zinc concentrate treatment charges, the anticipated financial and operating results of the Fund and distributions to Unitholders. The Fund provides this information because they are the key drivers of the business. Readers are cautioned that this information may not be appropriate for other reasons.

These statements and information are based, among others, on the Fund’s current assumptions, expectations, estimates, objectives, plans and intentions regarding projected revenues and expenses, the economic and industry environments in which the Fund operates or which could affect the Fund’s activities, the Fund’s ability to attract and retain clients and consumers as well as the Fund’s operating costs, raw materials and energy supplies which are subject to a number of risks and uncertainties.

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Forward-looking information involves known and unknown risks, uncertainties and other factors, which may cause the actual events, results or performance to be materially different from any future events, results or performance expressed or implied by the forward-looking information. As a result, the Fund cannot guarantee that any forward-looking statements will materialize. Assumptions, expectations and estimates made in the preparation of forward-looking statements and risks that could cause the Fund’s actual events, results or performance to differ materially from the Fund’s current expectations are discussed throughout this document and in our other continuous disclosure materials available on SEDAR at www.sedar.com. Examples of such risks, uncertainties and other factors include, but are not limited to: (1) the Fund’s ability to operate at normal production levels; (2) the dependence upon the continuing supply of zinc concentrates and the terms of the Supply and Processing Agreement; (3) the demand for zinc metal, sulphuric acid and copper in cake; (4) the ability to manage sulphuric acid inventories; (5) changes in future zinc concentrate, zinc grade and impurity levels and their potential impact on capital expenditure and working capital requirements, operating costs, production and recoveries; (6) changes to the supply and demand for specific zinc metal products and the impact on the Fund’s realized premiums; (7) reliance on Glencore Canada and certain of its affiliates for the management, operation and maintenance of the Processing Facility, the Fund and the Operating Trust and credit support in connection with the ABL Facility and Notes; (8) the ability of the Fund to continue to service customers in the same geographic region; (9) general business and economic conditions and the condition of financial and credit markets; (10) legislation governing the operation of the Fund including, without limitation, air emissions, discharges into water, waste including residue ponds, hazardous materials, workers’ health and safety, and many other aspects of the Fund’s operations, as well as the impact of current legislation and regulations on expenses, capital expenditures, taxation and restrictions on the operation of the Processing Facility; (11) loan default and refinancing risk associated with the ABL Facility and Notes; (12) the impact of costs and liabilities related to the closure, decommissioning, reclamation and rehabilitation of the Processing Facility and surrounding lands, including employee severance, pensions, and environmental and reclamation and rehabilitation liabilities if an acceptable replacement arrangement is not put in place for the Supply and Processing Agreement; (13) the sensitivity of the Fund’s Net Revenues to reductions in realized zinc metal prices including premiums, copper prices, sulphuric acid prices; and the strengthening of the Canadian dollar vis-à-vis the US dollar; (14) the impact of month prior pricing; (15) the sensitivity of the Fund’s production costs to increases in electricity rates, other energy costs, labour costs and operating supplies used in its operations, and the sensitivity of the Fund’s interest expense to increases in interest rates; (16) potential negative financial impact from a labour disruption, regulatory investigations, claims, lawsuits and other proceedings; and (17) the other general risks and uncertainties set out in the Fund’s continuous disclosure documents on file with the Canadian Securities Regulatory Authorities. Forward-looking information contained in this MD&A is based on management’s current estimates, expectations and assumptions, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Except as required by law, the Fund does not undertake to update these forward-looking statements, whether written or oral, that may be made from time to time by the Fund or on the Fund’s behalf.

Noranda Income Fund is an income trust whose units trade on the Toronto Stock Exchange under the symbol “NIF.UN”. Noranda Income Fund owns the electrolytic zinc processing facility and ancillary assets (the “Processing Facility”) located in Salaberry-de-Valleyfield, Québec. 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. It produces refined zinc metal and various by-products from sourced zinc concentrates. The Processing Facility is operated and managed by Canadian Electrolytic Zinc Limited, a wholly-owned subsidiary of Glencore Canada Corporation.

Further information about the Noranda Income Fund can be found at www.norandaincomefund.com

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Noranda Income Fund Consolidated Financial Statements

December 31, 2016 and 2015

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MANAGEMENT’S STATEMENT OF RESPONSIBILITY The accompanying consolidated financial statements of Noranda Income Fund (“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

February 28, 2017

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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, 2016 and 2015, and the consolidated statements of comprehensive (loss) 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, 2016 and 2015, 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 28, 2017 1 CPA auditor, CA, public accounting permit no. A122227

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NORANDA INCOME FUNDCONSOLIDATED STATEMENTS OF FINANCIAL POSITIONAs at December 31(in thousands of dollars)

Notes 2016 2015AssetsCurrent assets

Cash 2,567 1,878 Accounts receivable Trade and other receivables 5 90,919 66,201 Glencore Canada and affiliates 15 12,361 21,708 Inventories 6 242,585 171,086 Income taxes receivable 5,000 - Derivative financial assets 7 1,246 499 Prepaids and other assets 2,386 1,719

357,064 263,091 Non-current assets

Property, plant and equipment 8 138,309 211,542 Deferred tax assets 9 15,955 2,653 Employee benefits 12 4,686 3,045

158,950 217,240 516,014 480,331

LiabilitiesCurrent liabilities

Accounts payable and accrued liabilities Trade and other payables 37,788 35,239 Glencore Canada and affiliates 15 137,733 24,430 Income taxes payable - 2,443 Derivative financial liabilities 7 - 2,231 Distributions payable 17 937 1,562 Bank and other loans 10 63,987 92,836

240,445 158,741 Non-current liabilities

Residue ponds rehabilitation liabilities 11 25,970 28,494 Employee benefits 12 13,126 12,905 Deferred tax liabilities 9 - 657

39,096 42,056 Total liabilities excluding net assets attributable to Unitholders and Non-controlling interest 279,541 200,797 Net assets attributable to Unitholders and Non-controlling interest 236,473 279,534

Net assets attributable to:Priority Unitholders 13 179,844 213,068 Ordinary Unitholders 13 59,976 71,051

239,820 284,119 Non-controlling interest (3,347) (4,585)

236,473 279,534 (See accompanying notes)

Commitments and contingencies (Note 18) On behalf of the Board of Trustees of the Noranda Operating Trust:

Jean Pierre Ouellet Barry Tissenbaum

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NORANDA INCOME FUNDCONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMEFor the years ended December 31(in thousands of dollars)

Notes 2016 2015Revenues

Sales 14/15 787,385 782,390 Transportation and distribution costs (21,143) (18,874)

766,242 763,516 Raw material purchase costs 15 496,139 422,960 Revenues less raw material purchase costs 270,103 340,556 Other expenses

Production 187,765 181,657 Selling and administration 24,667 23,327 Foreign currency (gain) loss (3,331) 32,328 Derivative financial instruments (gain) loss 7 (3,250) 4,501 Depreciation of property, plant and equipment 27,651 31,454 Rehabilitation (recovery) expense 11 (2,158) 1,711 Impairment of non-financial assets 8 73,000 10,300

(Loss) earnings before finance costs and income taxes (34,241) 55,278 Finance costs, net 16 4,221 5,493 (Loss) earnings before income taxes (38,462) 49,785 Current income tax expense 9 5,450 12,477 Deferred income tax recovery 9 (13,983) (1,303) (Loss) earnings attributable to Unitholders and Non-controlling interest (29,929) 38,611 Distributions to Unitholders 17 13,747 18,746 Current income tax recovery on distributions (548) (231) (Decrease) increase in net assets attributable to Unitholders and Non-controlling interest (43,128) 20,096 Other comprehensive gain

Item not to be reclassified to earnings attributableto Unitholders and Non-controlling interest:Remeasurement gain on employee benefits 12 92 6,891 Deferred income tax expense 25 1,854

67 5,037 Comprehensive (loss) income (43,061) 25,133 (Decrease) increase in net assets attributable to:

Priority Unitholders (33,224) 14,251 Ordinary Unitholders (11,075) 4,751

(44,299) 19,002 Non-controlling interest 1,171 1,094

(43,128) 20,096 Comprehensive (loss) income attributable to:

Priority Unitholders (33,224) 14,251 Ordinary Unitholders (11,075) 4,751

(44,299) 19,002 Non-controlling interest 1,238 6,131

(43,061) 25,133 (See accompanying notes)

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NORANDA INCOME FUNDCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AND NON-CONTROLLING INTERESTFor the years ended December 31(in thousands of dollars)

EarningsAttributable Remeasurement

Priority to Unitholders Gain (Loss) Units and and Non- Distributions on Employee Ordinary controlling to Benefits,

Units interest Unitholders Net of Tax Total

Balance at January 1, 2015 254,957 422,034 (413,201) (9,389) 254,401 Comprehensive income (loss) - 38,842 (18,746) 5,037 25,133 Balance at December 31, 2015 254,957 460,876 (431,947) (4,352) 279,534

Comprehensive income (loss) - (29,381) (13,747) 67 (43,061) Balance at December 31, 2016 254,957 431,495 (445,694) (4,285) 236,473

Non-Priority Ordinary controlling

Attributable to: Units Units interest Total

Balance at January 1, 2015 198,817 66,300 (10,716) 254,401 Comprehensive income 14,251 4,751 6,131 25,133 Balance at December 31, 2015 213,068 71,051 (4,585) 279,534

Comprehensive (loss) income (33,224) (11,075) 1,238 (43,061) Balance at December 31, 2016 179,844 59,976 (3,347) 236,473

(See accompanying notes)

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NORANDA INCOME FUNDCONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31(in thousands of dollars)

Notes 2016 2015

Operating activities(Loss) earnings before income taxes (38,462) 49,785 Adjustments to reconcile earnings before income taxesto cash provided:

Depreciation of property, plant and equipment 27,651 31,454 Impairment of non-financial assets 8 73,000 10,300 Net change in residue ponds rehabilitation liabilities 11 (2,954) 1,372 Derivative financial instruments (gain) loss 7 (2,978) 3,944 Change in fair value of embedded derivatives 7 9,130 (2,843) Finance costs, net 16 4,221 5,493 Loss on sale of assets 1,500 1,158 Net change in employee benefits (1,328) (1,153)

Working capital adjustments:(Increase) decrease in accounts receivable and other assets (16,038) 7,769 Increase in inventories (71,794) (51,467) Increase (decrease) in accounts payable and accrued liabilities 103,523 (11,030)

Interest paid (3,160) (4,161) Income taxes paid (12,344) (5,695) Distributions to Unitholders 17 (13,747) (18,746) Cash provided by operating activities 56,220 16,180

Investing activitiesPurchase of property, plant and equipment (27,237) (29,912) Proceeds from sale of property, plant and equipment 978 871 Cash used in investing activities (26,259) (29,041)

Financing activitiesProceeds from bank loans 711,632 691,228 Repayment of bank and other loans (740,904) (678,115) Cash (used in) provided by financing activities (29,272) 13,113

Net increase in cash 689 252 Cash at beginning of year 1,878 1,626 Cash at end of year 2,567 1,878

(See accompanying notes)

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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. Supply and processing agreement Pursuant to a 15-year Supply and Processing Agreement (“SPA”) signed on May 3, 2002 between Glencore Canada Corporation (“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 2016 was $0.410 (2015 - $0.405) 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. On November 1, 2016, Glencore Canada renewed the SPA for a five-year term that will end on May 2, 2022 and will automatically renew for five-year terms thereafter, unless Glencore Canada provides the Partnership with written notice to the contrary at least 180 days prior to the expiry of the applicable term. Upon renewal, Glencore Canada will act as agent for the Partnership for the purchase of zinc concentrate and the Partnership will pay market terms, rather than the price currently being paid under the initial SPA. Glencore Canada will continue to act as exclusive agent for the sale of zinc metal and by-products and related hedging and derivative arrangements. On January 31, 2017, the Fund reached an agreement pursuant to which Glencore Canada will supply the Fund with all its zinc concentrate requirements and purchase the Fund’s zinc metal for the twelve month period ending April 30, 2018. 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 (collectively the “Agreements”). The initial term of these Agreements will end on May 2, 2017. The Agreements have been renewed for a five-year term that will end on May 2, 2022 and will automatically renew for five-year terms thereafter, unless Glencore Canada provides the Partnership with written notice to the contrary at least 180 days prior. Upon the termination of the operating and management agreement, the Partnership is required to acquire the Manager from Glencore Canada.

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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. The Board of Trustees approved these consolidated financial statements on February 28, 2017. 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, 2016. Control is achieved when the Fund 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. 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 (loss) 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 (loss) 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.

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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. 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. Judgments 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 as the Fund reimburses the Manager for all of its direct and indirect costs and expenses incurred relating to the Fund. The Fund also has the ability to direct the Manager through the 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. Going concern assumption When preparing the consolidated financial statements, management is required to make an assessment of the Fund’s ability to continue as a going concern. When management is aware, in making this assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the Fund’s ability to continue as a going concern, the Fund shall disclose those uncertainties. In assessing whether the going concern assumption is appropriate, management has taken into account all available information about the future, which is at least, but not limited to, twelve months from the statement of financial position date. The main challenge facing the Fund is the ability to operate profitably after the expiry of the initial term of the SPA between the Partnership and Glencore Canada on May 2, 2017 and the Fund is required to purchase concentrate on market terms, including market treatment charges. Market terms will represent a significant change from the fixed processing fee the Fund has benefited from since its inception. As a result of the change to market term pricing, the Fund’s financial results will differ materially, beginning after May 2, 2017. Management fully repaid its Senior Secured Notes (the “Notes”) (Note 10) on December 28, 2016. However, in order to finance its inventory and accounts receivable, the Fund will require a credit facility once the ABL Facility matures on November 15, 2017 (Note 10). As a result of Glencore Canada’s renewal of the SPA and Glencore Canada acting as agent for the purchase of zinc concentrate, management believes that it will be able to either extend the ABL Facility or enter into a new credit facility when the ABL Facility matures. As a result, the Fund has concluded that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Fund’s ability to continue as a going concern for the next twelve months. However, significant judgment was involved in this assessment.

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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 changes or circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur. Impairment of non-financial assets (Notes 3 and 8) Impairment exists when the carrying value of a non-financial asset or cash-generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The Fund has only one CGU. As at December 31, 2016, management has used the fair value less costs to sell 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 and a terminal value. Cash flows include future investments that may enhance the non-financial assets’ performance through increased production volumes or reduction in production costs and eventual disposal of the CGU being tested. As at December 31, 2015, management has used 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 and a terminal value. Cash flows do not include future investments that may enhance the non-financial assets’ performance of the CGU being tested. The recoverable amount is based on detailed budgets and forecasts and requires estimates and assumptions that a market participant may take into account. Summary of impairments As at December 31, 2016 and 2015, management concluded that indicators of impairment existed relating to its CGU. As at December 31, 2016, management performed an impairment analysis based on market assumptions and forecast available as of that date. As a result of the estimated recoverable amount of $316,400 (December 31, 2015 - $406,800), an impairment of non-financial assets of $73,000 (December 31, 2015 - $10,300) was recorded as a reduction of the Fund’s property plant and equipment. The indicators for impairment were primarily i) the significant tightening of the zinc concentrate market throughout 2016 and continuing in 2017 as a result of several large mine closures over recent years, and the global demand for zinc concentrate leading to a shortage of supply; ii) the increase in the Fund’s carrying value relating to the increase in the price of zinc; iii) the upcoming end of the initial term of the SPA in May 2017 and the anticipated purchase of zinc concentrate at market terms, which is estimated to result in lower cash flows being generated by the Fund and iv) the market pricing terms for the agreement reached with Glencore Canada for the 12-month period ending April 30, 2018 not being favourable due to the tightness in the concentrate market. Key assumptions The determination of fair value less costs to sell or value in use is most sensitive to the following key assumptions:

Continued supply of concentrate after the initial term of the SPA at market terms Estimate market treatment charges after the expiry of the initial term of the SPA based on industry forecasts

and treatment charge rates as a proportion of the associated purchase price Price of zinc, copper and sulphuric acid and zinc premium based on industry forecasts Remaining useful life of the assets and terminal value Capital expenditures Production volumes (including recoverable quantities) Estimated production costs Discount rates

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Foreign exchange rates Rehabilitation expenditures

Discount rates In calculating the fair value less costs to sell, a real post-tax discount rate of 8.7% for December 31, 2016 (December 31, 2015 value in use and 10%) was applied to the post-tax cash flows expressed in real terms. This discount rate is derived from the Fund’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Fund’s investors. The cost of debt is based on the interest-bearing borrowings the Fund is obliged to service. Taxes (Note 9) 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 can be applied. 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 12) 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 a 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 are 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 liabilities (Note 11) The Fund has recognized rehabilitation liabilities solely related to the residue ponds on the Processing Facility site as their rehabilitation is required under the Québec Mining Act. The rehabilitation liabilities do not include other site rehabilitation costs that would be required if the Processing Facility was decommissioned. 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 (2016 – 1.99%, 2015 – 1.81%). 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 (loss) 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 (Note 6) 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. NOTE 3. PRINCIPAL ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements. Revenue The Fund recognizes revenue from the sale of refined metals and by-products when all significant risks and rewards of ownership of the metals 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 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.

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Price changes for shipments awaiting final pricing at year-end could have a material effect on future revenues. As at December 31, 2016, there was $11,930 (December 31, 2015 - $8,655) in revenues that were awaiting final pricing. The following table provides an analysis of the revenues awaiting final pricing, as at December 31:

2016 2015

Zinc metalAccountable metal content (pounds) 4,917,804 3,456,949Provisional price (US$/pound) 1.23 0.73

Copper in cakeAccountable metal content (pounds) 1,969,788 3,026,110Provisional price (US$/pound) 2.51 2.18

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 (loss) 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. 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 yearsAnodes (included in buildings and plant equipment) 3 yearsMobile equipment 5 - 10 yearsComputers 4 yearsAutomobiles 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 (loss) 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.

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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 (loss) income. 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. Costs under operating leases are recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive (loss) 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 CGU level. 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 (loss) income to reflect the asset at the lower amount. 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, after deducting the costs to sell. If there is no binding sales agreement or active market for the asset, the fair value is assessed by using appropriate valuation models such as a discounted cash flow model. The determination of fair value less costs to sell is considered to be a Level 3 fair value measurement as it is derived from valuation techniques that include inputs that are not based on observable market data. 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. An impairment loss is reversed in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive (loss) income if there is an increase 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.

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

Classification MeasurementCash Held for trading Fair valueAccounts receivable Loans and receivable Amortized costDerivative financial assets Held for trading Fair valueDerivative financial liabilities Held for trading Fair valueBank and other loans Other liabilities Amortized costAccounts payable and accrued liabilities Other liabilities Amortized costDistribution 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 (loss) 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 (loss) 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.

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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 (loss) 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 (loss) 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 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 categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

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An analysis of fair values of financial instruments and further details as to how they are measured are provided in Notes 7 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 (loss) 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 (loss) 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. The Fund also periodically uses commodity forward contracts to hedge the effect of price changes relating to its firm fixed commitments on the commodities it sells. 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 has determined that its derivatives which were contracted in connection with its inventory management hedging program do not meet the hedging requirements. The Fund has also elected not to use hedge accounting for its commodity forward contracts and the firm fixed commitments. 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 (loss) income. The realized portion of the derivatives are recorded in sales on the consolidated statements of comprehensive (loss) 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.

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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. Residue ponds rehabilitation liabilities 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. The rehabilitation liabilities do not include other site rehabilitation costs that would be required if the Processing Facility was decommissioned. 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 liabilities 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 (loss) 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 (loss) income. The unwinding of the discount rate is recorded in earnings attributable to Unitholders and non-controlling interest in the consolidated statements of comprehensive (loss) 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 (loss) income, in which case the current and/or deferred tax is also recognized directly in other comprehensive (loss) 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 (loss) income or equity is recognized in other comprehensive (loss) income. Management periodically evaluates positions taken in the tax

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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. 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 defined 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 amounts included in net interest on the net defined liability and the return on plan assets, 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 (loss) income in the year in which they occur. Re-measurements are not reclassified to profit or loss in subsequent years. 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 (loss) 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 (loss) 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 with extrapolated maturities. 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

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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.

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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 (loss) 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 17). The Partnership’s Class B Ordinary Units (the “Ordinary Units”) with the attached Special Fund Units (as defined below) are exchangeable into Priority Units and are also 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 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 17. 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 (loss) income presentation As a result of the classification of all units as financial liabilities, the consolidated statements of comprehensive (loss) 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 (loss) 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.

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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 (loss) 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 (loss) income The components of comprehensive (loss) 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: 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. IAS 7 Disclosure Initiative – Amendments to IAS 7 The amendments to IAS 7 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after January 1, 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Fund. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except hedge accounting, retrospective application is required, but comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. During 2016, the Fund performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable information being made available to the Fund in the future. Overall, the Fund expects no significant impact on its statement of financial position or net assets from the adoption of IFRS 9. However, there will be some changes to the classification and measurement of trade and other receivables relating to provisionally priced sales. (a) Classification and measurement Some of the Fund’s sales contracts contain provisional pricing features. Currently, this provisional pricing arrangement has the characteristics of an embedded derivative that is separated from the host contract, i.e., the concentrate receivable, for accounting purposes under IAS 39. Accordingly, the embedded derivative, which does not qualify for hedge accounting, is recorded at fair value, with subsequent changes in fair value recognised in the consolidated statements of comprehensive (loss) income in each period until final settlement and presented in sales revenues. The initial estimate of fair value and subsequent changes in fair value over the quotational period (“QP”), and up until final settlement, are estimated by reference to forward market prices.

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On adoption of IFRS 9, the embedded derivative will no longer be separated from the trade and other receivables as the receivables are not expected to give rise to cash flows that represent solely payments of principal and interest. Instead, the trade receivables will be accounted for as one instrument and measured at fair value with subsequent changes in fair value recognised in the consolidated statements of comprehensive (loss) income in each period until final settlement and presented as sales revenues. This will mean that the quantum of the fair value movements could be different because the current approach only calculates fair value movements based on changes in the relevant commodity price, whereas under IFRS 9, the fair value of the trade receivable will not only include commodity price changes, but it will also factor in the impact of credit and interest rates. Other non-provisionally priced trade and other receivables are considered to be held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Thus, the Fund expects that these will continue to be measured at amortised cost under IFRS 9. However, the Fund will analyse the contractual cash flow characteristics of these instruments in more detail before concluding whether all these instruments meet the criteria for amortised cost measurement under IFRS 9. For other financial assets currently measured at fair value such as derivative financial assets, the Fund expects to continue to classify and measure these at fair value. There will be no impact on financial liabilities. (b) Impairment IFRS 9 requires the Fund to now use an expected credit loss model for its trade receivables measured at amortised cost, either on a 12-month or lifetime basis. Given the short term nature of these receivables, the Fund does not expect these changes will have a significant impact. (c) Hedge accounting The changes in IFRS 9 relating to hedge accounting will have no impact as the Fund does not currently apply hedge accounting. IFRS 15 Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017 with early adoption permitted. During 2016, the Fund commenced its preliminary assessment of IFRS 15 and some of the key issues it has identified, and its initial views and perspectives, are set out below. These are based on the work completed to date and the Fund current interpretation of IFRS 15 and may be subject to changes as more detailed analysis is completed and as interpretations evolve more generally. Furthermore, the Fund will continue to monitor any further development. To date, the Fund has identified the following issues that require consideration: (a) Provisionally priced sales As discussed above, some of the Fund’s sales of metal contain provisional pricing features which are considered to be embedded derivatives. Under IAS 18, revenue is recognised at the estimated fair value of the total consideration received or receivable upon shipment. This fair value is based on the most recently determined estimate of metal and the estimated forward price that the entity expects to receive at the end of the QP. The initial estimate of the fair value of the embedded derivative and subsequent changes in fair value over, and to the end of, the QP, are also estimated by reference to forward market prices. The subsequent changes in fair value are recognised in the consolidated statements of comprehensive (loss) income each period until final settlement and presented as part of sales revenues.

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IFRS 15 will not change the assessment of the existence of embedded derivatives. IFRS 15 states that if a contract is partially within scope of the standard and partially in the scope of another standard, an entity will first apply the separation and measurement requirements of the other standard(s). Therefore, to the extent that provisional pricing features are considered to be in the scope of another standard, they will be outside the scope of IFRS 15 and the Fund will be required to account for these in accordance with IFRS 9. Any subsequent changes that arise due to differences between initial and final estimates will still be considered within the scope of IFRS 15. Revenue in respect of the host contract will be recognised when control passes to the customer (which has been determined to be upon shipment) and will be measured at the amount the entity expects to be entitled – being the estimate of the price expected to be received at the end of the QP, i.e., using the most recently determined estimate of metal and the estimated forward price (which is consistent with current practice). When considering the initial estimate, the Fund has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final quality is subsequently resolved, i.e., at the end of the QP. Consequently, at the time of shipment, the Fund will recognise a trade receivable because from that time it considers it has an unconditional right to consideration. This receivable will then be accounted for in accordance with IFRS 9. As explained above in the discussion on the potential impact of IFRS 9, the embedded derivative will no longer be separated from the host contract, i.e., the trade receivable. With respect to the presentation of amounts arising from such provisionally priced contracts, IFRS 15 requires “revenue from contracts with customers” to be disclosed separately from other types of revenue. This means that revenue recognised from the initial sale must be separately disclosed in the consolidated financial statements from any revenue recognised from subsequent movements in the fair value of the related trade receivable (i.e. embedded derivatives). However, the quantum of the fair value movement may be different as a result of the adoption of IFRS 9. (b) Impact of shipping terms The Fund is responsible for shipping services after the date at which control passes to the customer upon shipment. Under IAS 18, these shipping services are currently not considered to represent a separate service, hence, no revenue is allocated to them. Instead, sales revenue is recognised in full at the date of shipment, and the costs associated with shipping are considered to be part of transportation and distribution costs. Under IFRS 15, the provision of shipping services in these types of arrangements will be a distinct service (and therefore a separate performance obligation) to which a portion of the transaction price should be allocated and recognised over time as the shipping services are provided. The Fund is currently assessing the materiality of these types of arrangements to determine the impact. Where material, the impact of this change would be: • Deferral of revenue: Some of the revenue currently recognised upon shipment will be deferred and recognised as the shipping services are subsequently provided; and • Disaggregated disclosures: The revenue allocated to shipping services may need to be disclosed separately from sales revenue. (c) Other presentation and disclosure requirements In addition to the presentation and disclosure requirements for provisionally priced sales discussed above, IFRS 15 contains other presentation and disclosure requirements which are more detailed than the current Standards. The presentation requirements represent a significant change from current practice and will increase the volume of disclosures required in the Fund’s consolidated financial statements.

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IFRS 16 Leases In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease contract. The standard requires lessees to recognize asset and liabilities for most leases. The standard supersedes IAS 17, Leases and other lease related interpretations. The standard will be effective on January 1, 2019 for the Fund with earlier application permitted only if IFRS 15 Revenue from Contracts with Customers is also applied. The Fund is currently assessing the impact of IFRS 16 on its consolidated financial statements.

NOTE 5. TRADE AND OTHER RECEIVABLES

Trade and other receivables were as follows, as at December 31:

2016 2015

Trade and other receivables 90,919 66,20190,919 66,201

The factors that the Fund considers to classify trade receivables as impaired are as follow: the customer is in bankruptcy or under administration, payments are in dispute, or payments are in arrears. Further information on credit risk is provided in Note 19. NOTE 6. INVENTORIES Inventories were as follows, as at December 31:

2016 2015

Spare parts 9,381 8,837Raw materials 115,843 95,170Work-in-process 21,290 13,332Finished products 96,071 53,747

242,585 171,086

During the year ended December 31, 2016, $711,555 (December 31, 2015 - $636,071) of inventory was expensed including depreciation related to property, plant and equipment of $27,651 (December 31, 2015 - $31,454). As at December 31, 2016, raw material, work-in-process and finished goods were all carried at cost. NOTE 7. DERIVATIVES AND HEDGES The derivative financial instruments (gain) loss were as follows, for the years ended December 31:

2015 2014 2016 2015

Derivative financial instruments (gain) loss:Inventory management program 1,813 2,462 (3,250) 4,501

1,813 2,462 (3,250) 4,501

#REF!

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The Fund’s derivatives were as follows, as at December 31: 2016 2015

AssetsDerivative financial assets:Inventory management program 1,026 -US dollar overnight transactions 220 499

1,246 499LiabilitiesDerivative financial liabilities:Inventory management program - 2,231

- 2,231 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 December 31, 2016, the Fund had sold forward approximately 59 million pounds of zinc (December 31, 2015 – sold forward 83 million pounds of zinc). During the year ended December 31, 2016, the Fund recorded in sales a loss of $44,678 representing the realized portion of the inventory management program (2015 – gain of $29,960) in earnings attributable to Unitholders and non-controlling interest in the consolidated financial statements. During the year ended December 31, 2016, the change in fair value of these derivatives was a gain of $3,250 which was recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive (loss) income in derivative financial instruments loss (gain) (December 31, 2015 - loss on derivative financial instruments of $4,501). As at December 31, 2016, the fair value of these positions was a current derivative financial asset of $1,026 (December 31, 2015 - current derivative financial liability of $2,231). Embedded derivatives For the year ended December 31, 2016, the Fund recorded $9,130 as an increase of raw material purchase costs recorded in the consolidated statements of comprehensive (loss) income related to the change in fair value of the embedded derivatives resulting from the quotational pricing feature of its zinc concentrate payables (December 31, 2015 - decrease of $2,843).

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NOTE 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment were as follows:

Land and buildings

Plant equipment

Mobile equipment Computers

Auto and trucks Total

Cost 147,616 795,459 2,799 3,308 1,328 950,510Accumulated depreciation (114,028) (602,030) (2,318) (2,638) (617) (721,631)January 1, 2015 33,588 193,429 481 670 711 228,879

Additions 910 25,924 49 217 17 27,117Depreciation (2,489) (29,000) (145) (326) (165) (32,125)Impairment loss (1,500) (8,800) - - - (10,300)Disposals - (2,000) (29) - - (2,029)Net changes (3,079) (13,876) (125) (109) (148) (17,337)

Cost 148,446 807,319 2,647 3,367 1,345 963,124Accumulated depreciation (117,937) (627,766) (2,291) (2,806) (782) (751,582)December 31, 2015 30,509 179,553 356 561 563 211,542

Additions 5,436 23,399 381 370 14 29,600Depreciation (2,336) (24,349) (189) (318) (163) (27,355)Impairment loss (11,450) (61,550) - - - (73,000)Disposals (218) (2,260) - - (2,478)

Net changes (8,568) (64,760) 192 52 (149) (73,233)

Cost 152,423 815,973 2,835 3,079 1,320 975,630Accumulated depreciation (130,482) (701,180) (2,287) (2,466) (906) (837,321)December 31, 2016 21,941 114,793 548 613 414 138,309 During the year ended December 31, 2016, an impairment loss of $73,000 was recognized as reduction of buildings for $11,450 and plant equipment for $61,550 (December 31, 2015 – $10,300 in reduction of buildings for $1,500 and plant equipment for $8,800 (Notes 2 and 3)). Land and buildings as at December 31, 2016 included non-depreciating land amounting to $3,241 (December 31, 2015 - $3,241). Assets under construction included in plant equipment as at December 31, 2016 were $9,935 (December 31, 2015 - $8,423), and are not amortized until put in use.

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NOTE 9. INCOME TAXES A reconciliation of income tax (recovery) expense to income tax charge at the Fund effective income tax rate were as follows, for the years ended December 31:

2016 2015

(Loss) earnings before income taxes (38,462) 49,785 Partnership loss (income) allocated to Ordinary Units 5,464 (11,382)

(32,998) 38,403

Expected tax (recovery) charge at the average statutory income tax rate (2016 - 53.31%; 2015 - 49.97%) (17,591) 19,189 Effect of subsidiary tax rate differential 9,264 (8,628) Other (206) 613 Tax (recovery) expense at an effective income tax rate before distributions (8,533) 11,174 Tax recovery on distribution of non-portfolio earnings (Note 17) (548) (231) Tax (recovery) expense at an effective income tax rate (9,081) 10,943 Income tax (recovery) expense is composed of the following on the consolidated statements of comprehensive (loss) income, for the years ended December 31:

2016 2015

Current income tax expense 5,450 12,477 Deferred income tax recovery (13,983) (1,303) Income tax (recovery) expense before distributions (8,533) 11,174

Current income tax recovery on distribution of non-portfolio earnings (Note 17) (548) (231) Income tax (recovery) expense after distributions (9,081) 10,943 The deferred tax assets and liabilities were as follow, as at December 31:

2016 2015

Deferred taxPension and post-retirement benefit plan 2,271 2,653Eligible capital property 7,093 7,626Rehabilitation liability 5,692 6,214Property, plant and equipment 899 (14,377)Debt issuance costs - (120)

15,955 1,996

Deferred tax assets 15,955 2,653Deferred tax liabilities - (657)

15,955 1,996 As at December 31, 2016, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognized is nil (2015 - $9,600). 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.

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NOTE 10. BANK AND OTHER LOANS Bank and other loans were as follows, as at December 31:

2016 2015

ABL revolving facility 63,987 70,759Senior secured notes - 22,500Total bank and other loans 63,987 93,259Less: unamortized deferred financing fees - (423)Less: current portion (63,987) (92,836)Long-term portion - - Senior secured notes On December 28, 2016, the Operating Trust paid its remaining $15,000 balance of Senior Secured Notes (the “Notes”), from an aggregate principal amount of $90,000 issued on December 28, 2011. The Notes were bearing interest at 6.875%. ABL revolving facility On October 31, 2016, the Operating Trust extended the maturity of the ABL Facility providing availability of up to $175,000 to November 15, 2017. The terms of the ABL Facility remain substantially the same. 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) $175,000 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 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, 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 $175,000 based on the Fund’s working capital position as at December 31, 2016. As at December 31, 2016, there was $81,626 drawn down on the ABL Facility (including letters of credit of $17,639), leaving an excess availability of $93,374. In January 2017, the Fund posted an additional $5,864 of letters of credit for the financial security requirements related to its residue ponds rehabilitation. 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 weighted average interest rate as at December 31, 2016, including the accretion of deferred financing costs, is 4.1% (December 31, 2015 – 2.7%). As at December 31, 2016, the US dollar portion payable on the ABL Facility was US$47,455 (CAD$63,718). 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. The ABL Facility also contains customary representations, warranties and covenants and conditions to funding.

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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 which was the case as at December 31, 2016. 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 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 ABL Facility is fully and unconditionally guaranteed, on a senior secured basis, by the Fund, the Manager, Ontario Inc., the Partnership and NILP General Partner Ltd., the Partnership’s general partner. Under 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.

NOTE 11. RESIDUE PONDS REHABILITATION LIABILITIES Residue ponds rehabilitation liabilities were as follows, as at December 31:

2016 2015

Balance at beginning of year 28,494 26,618Accretion of rehabilitation liabilities 430 504Site rehabilitation expenditures (796) (339)Change in estimates (2,158) 1,711Balance at the end of year 25,970 28,494 The Fund had recognized rehabilitation liabilities solely related to the residue ponds within the Processing Facility. The Fund has determined the fair value of this rehabilitation liabilities as at December 31, 2016 by using a discount rate of 1.99% (December 31, 2015 – 1.81%). The liabilities accrete to their future value until the obligations are 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 $36,000. The cash flows required to settle the liability are expected to be incurred from now until 2046. NOTE 12. 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 have been 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

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are made by the employer with no contributions from employees. Contributions are based upon funding 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 49% in equity and 51% 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, for the years ended December 31:

Post- Post-retirement retirement

Pension benefit Pension benefitplans plans plans plans

Rate of salary increases 3.00% 3.00% 3.00% 3.00%Discount rate 3.80% 3.80% 3.95% 3.90%Inflation rate 2.00% - 2.00% -Rate of medical cost increases - 6.00% (1) - 6.00% (1)

Mortality tables

(1) Drugs benefits Grading down to 4% in and after 2021,hospital, major medical and dental 4% in 2016 and 2015

CPM Private sector Tableprojection scale CPM-B

CPM Private sector Tableprojection scale CPM-B

2016 2015

The Manager’s share of (asset) 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, as at December 31:

Post- Post-retirement retirement

Pension benefit Pension benefitplans plans plans plans

Defined benefit obligations 92,012 13,126 87,277 12,905Fair value of plan assets (96,698) - (90,322) -

(4,686) 13,126 (3,045) 12,905

2016 2015

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

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2016 2015Post- Post-

retirement retirementPension benefit Pension benefit

plans plans plans plansBalance at beginning of year (3,045) 12,905 4,499 13,405Net employee benefit expense 3,364 919 3,925 478Remeasurement (gain) loss (505) 413 (6,952) 61Employer contributions (4,500) (1,111) (4,517) (1,039)Balance at end of year (4,686) 13,126 (3,045) 12,905 Included in the Manager’s share of (asset) liabilities of the pension plans is reimbursement rights of $5,454 (December 31, 2015 - $1,600). The components of the Manager’s share of benefit expense recognized in earnings attributable to Unitholders and non-controlling interest on the consolidated statements of comprehensive (loss) income were as follows, for the years ended December 31:

Post- Post-retirement retirement

Pension benefit Pension benefit plans plans plans plans

Current service cost 3,437 432 3,715 511Interest cost 3,413 487 3,254 518Plan amendments - - - (551)Interest income (3,486) - (3,044) -

3,364 919 3,925 478

2016 2015

The components of the Manager’s share of remeasurement gain (loss) recognized in other comprehensive (loss) income on the consolidated statements of comprehensive (loss) income were as follows, for the years ended December 31:

Post- Post-retirement retirement

Pension benefit Pension benefitplans plans plans plans

Actuarial gain (loss): Changes in financial assumptions (2,056) (413) 1,445 (61) Changes in demographic assumptions (222) - - - Effect of experience adjustments 1,929 - 1,882 -Return on plan assets (excluding interest income) 854 - 3,625 -

505 (413) 6,952 (61)

2016 2015

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The reconciliation of the present value of fair value of plan asset and benefit obligations movements were as follows, for the years ended December 31:

2016 2015Post- Post-

retirement retirementPension benefit Pension benefit

plans plans plans plansPlan assets fair value at beginning of the year 90,322 - 80,901 -Interest income 3,486 - 3,044 -Return on plan assets (excluding interest income) 854 - 3,625 -Employer contributions 4,500 1,111 4,517 1,039Benefits paid (2,464) (1,111) (1,765) (1,039)Plan assets fair value at end of year 96,698 - 90,322 -

Post- Post-retirement retirement

Pension benefit Pension benefitplans plans plans plans

Benefit obligation present value at beginning of year 87,277 12,905 85,400 13,405Current service cost 3,437 432 3,715 511Interest cost 3,413 487 3,254 518Plan Amendments - - - (551)Actuarial loss (gain) 349 413 (3,327) 61Benefit payments (2,464) (1,111) (1,765) (1,039)Benefit obligation present value at end of year 92,012 13,126 87,277 12,905

2016 2015

A breakdown of the plan assets by major asset category of the pension benefit plans were as follows, as at December 31:

2016 2015

Cash 3% 1%Fixed income - Government of Canada 18% 14%Fixed income - Provincial and municipal 13% 18%Fixed income - corporate, preferred shares and foreign government 15% 19%Equities - Canadian 8% 7%Equities - US and international 41% 41%Infrastructure and Real Estate 2% 0%

100% 100% The expected contribution to be made in 2017 to the pension plans is $2.9 million. The average duration of the defined benefit plan obligation as at December 31, 2016 is 14.2 years (December 31, 2015 – 15.1 years).

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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 $95,700 as at December 31, 2016 (December 31, 2015 - $93,400). There were approximately $103,000 of assets within the pension plan as at December 31, 2016 (December 31, 2015 - $100,400). The benefit obligation and plan assets for pre-May 2002 would only revert to the Fund upon the 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 assumptions as at December 31, 2016 has the following impact on the benefit obligation:

Assumptions 1% increase 1% decrease

Impact on benefit obligationEstimates healthcare cost increase rate 678 (604)Discount rate (13,224) 15,219Future salary increases 697 (673)

Sensitivity Level

The impact of a one-year improvement in life expectancy rate would increase benefit obligations by $2,211. 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. Employee benefits expense included in production and selling and administration expense were as follows, for the years ended December 31:

2016 2015

Wages and salaries 54,426 53,282Benefit costs 9,438 9,089Defined contribution pension costs 865 809Pension costs 3,364 3,925Post-retirement benefit plan costs 919 478

69,012 67,583 NOTE 13. PRIORITY AND ORDINARY UNITHOLDERS Priority and Ordinary Unitholders were as follows, as at December 31:

2016 2015 2016 2015(units) (units) ($) ($)

Priority UnitsBeginning of the year 37,489,975 37,489,975 213,068 198,817Comprehensive (loss) income - - (33,224) 14,251Ending of the year 37,489,975 37,489,975 179,844 213,068

Ordinary Units and Special Fund UnitsBeginning of the year 12,500,000 12,500,000 71,051 66,300Comprehensive (loss) income - - (11,075) 4,751Ending of the year 12,500,000 12,500,000 59,976 71,051

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As at December 31, 2016 and 2015, the Fund had 37,489,975 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 is transferable and represents an equal, undivided beneficial interest in the Fund and entitles the holder thereof to participate equally in distributions of the Fund and to one vote. As at December 31, 2016 and 2015, the Partnership had 12,500,000 Ordinary Units (the “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 17 for further details. The 12,500,000 outstanding special voting units of the Fund (the “Special Fund Units”) provide voting rights in respect of the Fund to the holder of Ordinary Units and vote with the Priority Unitholders as one class. All Ordinary Units and Special Fund Units are held by a wholly-owned subsidiary of Glencore Canada. NOTE 14. 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. Revenues from customers based on their geographic location and product type were as follows, for the years ended December 31:

2016 2015Canada 207,281 230,428United states 580,055 551,962Other 49 -

787,385 782,390

Zinc 760,470 746,908Sulphuric acid 17,111 26,604Copper and other 9,804 8,878

787,385 782,390 Management determines revenue concentration based on customers who account for more than 10% of revenues. Revenue from two customers (including Glencore Canada and affiliates) amounted to $314,316 or 40% during the year ended December 31, 2016 (December 31, 2015 – two customers (including Glencore Canada and affiliates) amounted to $319,607 or 41%).

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NOTE 15. RELATED PARTIES The consolidated financial statements include the financial statements of the Fund, the subsidiaries and the structured entity listed in the following table, as at December 31:

2016 2015Subsidiaries: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.

NameCountry of

Incorporation

% Equity Interest

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

As at December 31: 2016 2015Current assets 5,123 5,250Non-current assets 6,956 5,698Total assets 12,079 10,948

Current liabilities 2,300 2,628Non-current liabilities 13,126 12,905Total liabilities 15,426 15,533

Net assets attributable to Non-controlling interest (3,347) (4,585)

For the years ended December 31: 2016 2015

Revenue 323 317Increase in net assets attributable to Non-controlling interest 1,171 1,094Other comprehensive income , net of tax 67 5,037Increase in comprehensive income attributable to Non-controlling interest 1,238 6,131

For the years ended December 31: 2016 2015Cash provided by operating activities 201 250 The Company entered into transactions in the ordinary course of business with Glencore Canada, its subsidiaries and its affiliates as follows, for the years ended December 31:

0 0 2016 2015Sales of zinc metal 55,522 72,049 105,592 128,421Sales of by-products 10,658 21,894 26,915 35,482Purchases of zinc concentrate 305,150 219,673 542,000 412,677Purchases of plant equipment, raw materials and operating supplies 8,763 26,888 25,098 48,091Support services 1,078 1,074 2,162 2,131Sales agency services 1,501 845 2,189 1,740

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Except for the purchase of zinc concentrate 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. Compensation of key management personnel of the Fund Expenses related to executive management personnel recorded by the Fund were as follows, for the years ended December 31:

2016 2015

Salaries and other short-term benefits 1,354 1,331Employee benefits 41 28

1,395 1,359

NOTE 16. FINANCE COSTS, NET

Finance costs were as follows, for the years ended December 31:

2016 2015

Interest on bank and other loans 3,375 4,242Amortization of deferred financing fees 423 753Interest income and other (7) (6)Accretion of rehabilitation liabilities 430 504

- - 4,221 5,493

#REF!

NOTE 17. DISTRIBUTIONS When not restricted (see Note 10), 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 specified investment flow-through (“SIFT”) entity, 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. 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 (2016 – 73.1%; 2015 – 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.

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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. If, notwithstanding the subordination of the Ordinary Units, the cash available for 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 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 (the “Deficiency Amount”). 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. As at December 31, 2016 and February 28, 2017, the accumulated Deficiency Amount was $34,169 and $34,482 (December 31, 2015 - $29,586). The accumulated Deficiency Amount to the Ordinary Units is accrued and payable by the Fund only when excess cash flow is available for distribution above the Base Distribution and a cash distribution above the Base Distribution is approved by the Board of Trustees. 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, 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 reflecting the remaining outstanding accumulated Deficiency Amount continues, however, there is no further accumulation of the accumulated Deficiency Amount. Any Deficiency Amount related to the promissory note is not accrued by the Fund until such time as excess cash flow is available for distribution above the Base Distribution and a cash distribution above the Base Distribution is approved by the Board of Trustees. NOTE 18. COMMITMENTS AND CONTINGENCIES Leases and purchase commitments

The Fund had commitments under leases requiring annual rental payments as follows, as at December 31 2016:

2017 395 2018 7 2019 and after -

402 As at December 31, 2016, the Fund’s purchase commitments requiring payments were $15,087 for the next 12 months. Included in the above is $7,721 of purchase commitments to related parties as described in Note 15. Certain agreements for operating costs require the Fund to make minimum purchases, or be subject to penalties. Included in the above is $13,709 of capital commitments relating to the purchase of replacement anodes for the cell house, new power transformer, crusher installed to roaster, cold heat exchanger for the acid plant and other plant equipment.

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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 made a motion to add the Fund as a “mis en cause” (interested party) and add Xstrata Limited and Glencore Canada as co-defendants with the Manager. The motion to add Xstrata Limited and Glencore Canada was dismissed by the Court on March 28, 2014. On April 25, 2014, the plaintiff appealed the decision. On December 8, 2014, the appeal was dismissed. On February 6, 2015, the plaintiff filed an application for leave to appeal to the Supreme Court of Canada the judgment rendered on December 8, 2014. On June 4, 2015, the Supreme Court of Canada dismissed the application for leave to appeal. As of February 28, 2017, the merits of the class action suit have not been considered by the courts. The Manager continues to maintain that the claims are not justified and that the class action suit is unfounded. The Manager intends to vigorously defend itself against the claim. Guarantees The Fund’s debt agreements include indemnification provisions in which the Fund may be required to make payments to lenders for breach of fundamental representations and warranty terms in the agreements. 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. As at December 31, 2016, the Fund does not believe these indemnification provisions would require any material cash payments by the Fund. NOTE 19. FINANCIAL INSTRUMENTS Fair value The Fund’s significant financial instruments, other than derivatives, comprise bank and other loans, and cash. 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, 2016 and 2015). The Fund enters into derivative financial instruments (Note 7) 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. Principles of risk management The Fund’s primary risk management objective is to protect the Fund’s financial position, comprehensive (loss) 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 established practices and parameters, which are subject to the oversight of the Board of Trustees of the Operating Trust.

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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, 2016 two customers (including Glencore Canada and affiliates) represented 32% of the accounts receivable balance (December 31, 2015 – two customers (including Glencore Canada and affiliates) represented 37% of the accounts receivable balance). As at December 31, 2016, $375 of the accounts receivable was fifteen days past due and had since been collected (December 31, 2015 - $312 was fifteen days past due and fully provisioned). 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, 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 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, 2016, the Fund had $1,075 of cash (excluding cash held by the Manager) and $93,374 of unutilized ABL Facility. See Note 10 for additional information on the Fund’s bank and other loans. The following table summarizes the amount of contractual undiscounted future cash flow requirements for financial instruments as at December 31, 2016 (excluding finance costs (Note 16 and Note 10) and commitments (Note 18)):

Carrying amount

Maturing under one

yearone to three

yearsover three

yearsTrade and other payables 175,521 175,521 - -Distributions payable 937 937 - -ABL revolving facility 63,987 63,987 - -Total 240,445 240,445 - - 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

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consolidated statements of comprehensive (loss) income and net assets attributable to Unitholders and non-controlling interest where applicable. 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, 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, 2016 and 2015 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, 2016 earnings before income taxes would have been $640 lower (higher) (December 31, 2015 - $708 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, 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, 2016, the Fund had sold forward US dollars with a notional amount of US$104,000 (December 31, 2015 – US$109,700) and bought forward dollars with a notional amount of $139,861 (December 31, 2015 – $152,324). An unrealized gain of $220 related to these open positions was recorded as at December 31, 2016 (December 31, 2015 – an unrealized gain of $499) (Note 7). The impact of foreign currencies has been determined based on the balances of financial assets and liabilities at December 31, 2016. This sensitivity does not represent the statement of comprehensive (loss) 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) in earnings before finance costs and income taxes would have been $14,313/($14,313) as at and for the year ended December 31, 2016. 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.

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The impact of commodity prices has been determined based on the balances of financial assets and liabilities at December 31, 2016. This sensitivity does not represent the statement of comprehensive (loss) income 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, 2016 from a 10% change to metal prices based on December 31, 2016 LME forward prices:

Zinc: 10% increase/decrease (27,662)/27,662Copper: 10% increase/decrease 664/(664) 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 has reduced 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. NOTE 20. RECLASSIFICATION OF COMPARATIVE FIGURES

Certain comparative amounts in the consolidated statements of cash flows have been reclassified to conform to the presentation adopted in the current period. Gains or losses during the year ended December 31, 2016 and 2015 were reclassified from “Increase (decrease) in accounts payable, accrued liabilities and distributions payables” to “Change in fair value of embedded derivatives”, resulting in no change in “Cash (used in) provided by operating activities”. This change better presents the impact of the quotational pricing feature in the Fund’s zinc concentrate payables.