RE:RE:A closer look at the new agreementsZINCInvestor1 wrote: Hi BB,
While you may be correct, I think as a result of new off take agreement they need to deal with existing finished inventory (as they need to do in case of raw materials and WIP in ca't expect they will be required to do so in Q2.
I think they draw a line in the sand as of May 1, to determine what amount of finished zinc is subject to new off take agreement and separate it from previous off take agreement. My read is all new finished zinc processed after May 1, 2017 and the existing inventory. I assume the economics of new off take agreement differ from previous off take agreement otherwise no need to consider May 1 finished zinc inventory.
I asume the new off take agreement economics differs from current agreement and the new off take agreement will either be more or less favourable to Glencore. if new off take agreement is favourable to Glencore, I expect Glencore to push CEZ to build finished inventory to manage more off take on better terms. Alternatively, if new off take terms are less favourable, I expect Glencore to push CEZ to reduce finished inventory to avoid dealing with inventor on less favourable terms.
Another possible question for tommorrow? Is new off take agreement more or less favouable to fund than current off take agreement? Who will be watching finished inventory position to make sure Glencore is not playing games?
ZINCInvestor1
Currently there is no offtake agreement for the metal. Under the existing agency agreement Glencore is the sole agent for the sale of 100% of NIF production. Under this agreement NIF ships the metal sold by their agent. NIF pays all of Glencore's sales and marketing expenses and the freight to the customer plus an annual fee of $100000 (from memory??). As an agent Glencore never owns the metal. They simply act as an intermedary between NIF and the end customer.
Under the new agreement effective May 1, Glencore's role changes to that of buyer (end customer) which in broad terms makes it an offtake agreement. Glencore has agreed to purchase 100% of NIF's monthly production at LME plus
REDACTED premium. NIF continues to pay the freight to the customer unless Glencore ships it outside of North America. Provisional payment is made within 10 days. There is language in the agreement that indicates that the terms are similar to the existing terms under the agency agreement.
Clause 3.2 clearly states "For inventory purposes, as of May 1, 2017 the Buyer agrees to purchase 100% of the Seller's closing inventory." To me this means that Glencore will purchase the entire April 30 finished goods inventory on May 1. There is no other interpretation. Depending on how long the strike drags on, this could mean anywhere between 0 and 40000 tonnes with a sales revenue of up to US$120 million.
Under the current SPA Glencore is obligated to provide (sell NIF) 100% of NIF's concentrate requirement (~45000 tonnes per month) at the well discussed terms and 41 cent per lb TC. Under th new agreement Glencore has the same obligations. They have agreed to sell NIF45000 t per month of con at a convrentional concentrate supply contract with a
REDACTED TC. In both cases NIF owns the concentrate and the WIP having putrchased it from Glencore.
BB