Noranda Income Fund Unit NNDIF

RE:RE:RE:RE:RE:RE:RE:RE:Smart management.....

[Bigbird999]

Plug the Dec 31 2014 numbers into your post and see how it looks...
Spare parts 7303
Cons         59942
WIP              15555
Finished goods 36148

Total inventory   118948

Total Debt        80146

It doesn't matter if the inventory is finished goods or feed material it is still working capital that has to be financed. They have told us that the finished goods inventory will be drawn down in Q4.  They sell about 22000 tonnes of metal (about $44 MM) per month.  The Sep 30 finished goods inventory went up by 6300 tonnes ($13 MM) over Q3 due  to season fluctuations (many customers shut down or reduce in the summer months),  The Sept 30 finished goods inventory was about 36 000 tonnes or about 6 weeks (6000 tones per week). They have said that they expect it to be reduced in Q4.  To me it does not seem unreasonable that they need to carry 4 - 8 weeks of finished goods inventory to service their customers.  Each week of finished goods inventory is worth about $12 MM.   

Falling Zn price exacerbates inventory build up because customers are waiting to the last minute to order because they think there may be a further price drop. 

The guidance for 2015 is production of 270000 tones with sales of 260000 - 270000 tonnes which indicates an inventory build up of 0 - 10000 tonnes (i.e. 0 - $20 million) over Dec 2014.  Therefore, finished good at the end of 2015 should be down to the $35 - $55 MM range.



BB