Noranda Income Fund Unit T.NIF.UN

Finished goods Inventory

[Bigbird9999]

Depends how much FG inventory they have on May 1.  On Dec 31, 2016 the finished goods inventory was $96 million (carried at cost).  Since Dec 31, they have reported that the FG inventory has increased by ~18000 tonnes.  By calculation and estimating the cost of the finished goods I estimated the Dec 31 FG inventory to be ~25000 t (4-5 weeks).  Production for the 6 weeks from Jan 1 to Feb 13, when they went on strike, would have been ~ 31000 tonnes and if sales/shipments were "normal" they would have been approximately equal to the production.  Thus the FG inventory on Feb 13 would have been unchanged at ~25000 tonnes.

They have now been on strike for 5 weeks.  They claim that they have been operating the plant at some unknown rate. For a whole bunch of reasons, I do not believe that they can process concentrate to slab with the 200 or so management and clerical employees.  The claim that management is "operating the plant" likely means that they are processing some WIP that was in a near finished goods state into FG. We have no knowledge of the rate at which they have been seliing/shipping FG since Feb 1 so we do not know the rate at which they are drawing down the FG inventory.  If the strike carries on until the AGM on April 28, another 6 weeks will have passed.  By that time, it is possible that the FG inventory could be depleted to zero. 

It is important to note that the 25000 tonnes of finished goods will be sold at LME plus $2850 + $150 premium = US$3000 = $4000CAD x 25000 t = $100 million CAD.  It will be pretty hard to turn that into a Q1 loss even with the strike, however, they may have continued to purchase cons under the old SPA which could eat a large portion of the $100 million. 

It is no coincidence that they are holding the AGM on April 28, 2 days before the new agreement takes place and 2 days before Glencore can convert their ordinary units to priority units.  I do not believe that they will shed much light on the new agreement  beyond what they gave us in the Q4 report.  Last yeaar the AGM was held on May 17 and they issued the Q1 results just before the AGM.  They could possibly do the same thing this year but the timing of the meeting suggests that the Q1 results will be released after the AGM. 


BB