Noranda Income Fund Unit T.NIF.UN

RE:RE:Div Suspension-New agreement...Glencore-NIF

[Bigbird9999]

daffin, you said

This is a known relationship - high zinc prices cause low smelting rates. I thought we were low enough, but hadn't paid attention to the steep drop.

Zn concentrate can only be sold to Zn smelters.  It has no other market or customers.  TCs are an incentive (kick back) that the miner pays the smelter to treat his concentrate in preference to another miner''s cons.

What you said is only true when the supply of concentrate is lower than smelter demand.

Today, the LME Zn price is high because the demand for refined Zn is higher than the mine capacity.  In this case, there is a shortage of concentrate and the smelters have to lower their TCs to attract scarce concentrate.  Under these circumstances the TC negotiating power shifts to the miner.

But this is not always the case, sometimes the LME price of zinc can be high when there is a glut of Zn concentrate.  This can happen when there is insufficient smelter capacity to meet the demand for refined Zn metal and the miners have increased capacity because of the high LME price.  Under these circumstances the TC negotiating power moves to the smelters and can demand a higher incentive (kick back) from the miner to take his cons. 

There is no doubt that today the miner has the negotiating power.  The concentrate supply. smelter capacity and metal demand are constantly changing.  They are never in balance. 

Having siad that, there is no smelter on the planet that can operate at a realized TC of $40. 

BB