RE:Re-measurementApolgies KHA, just now only read this message from you....highlighted some points...
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Referring to Note 8 of the 2018 Annual Financial Statements, I understand that Largo’s revenue depends totally on the prices dictated by Glencore.
Here are the steps:
Step 1: Revenue / Trade receivable is temporary recognised / booked using MB market spot prices at the time the control of the products passes to Glencore when they pick up the V flakes (3 times / week as per NM). Largo’s obligation is then satisfied.
LV: So V-flake picked up 3 times : P1, P2 & P3 @ $P1, $P2 & $P3 (receivable recognized using MB pricing) Step 2: Glencore sets the final prices that Largo can receive (determining the “real” Revenue amounts that Largo can finally recognised) based on the final selling prices that Glencore can get from their customers. Like in any sales contract the final selling prices between Glencore and their customers are secret so MB spot prices on the date of the final sales as determined by Glencore.
LV: Real FINAL prices of P1, P2, P3 are determined by MB spot at ‘the time’ that Glencore decides or satisfies a sale of the same P1, P2, P3 amount or $GP1, $GP2, $GP3 (using a fair MB spot… really? Can we unequivocally guarantee that MB spot is not ‘toyed with’? What if the Glencore sell price (customarily secretive) is less than the current MB spot at the time of sale? Might Glencore then use the ‘actual sell price’ instead of MB spot? Needless to say, what Glencore decides to sell P1 or P1+P2+P3 is up to them and will seek to favor themselves…
Issue I see here is that Glencore will have stock piled a chit load of P1 to Pz pickups and sell only when MB spot price-convenient (having a descent regard for the end customer – needless to say). Another potential issue is that Glencore may be tempted or be able to render official a sale to Largo at a most convenient MB spot price even when the product is not or is only partially at the end client.
Another version of the above is that Glencore delivers product P1+P2+P3 here and there during a say couple of week time frame and identifies the grand total client sale to Largo using a, then-convenient, sole MB spot price… Step 3: Trade re-measurement adjustments are required when variations occur between the MB spot prices in Step 1 and those in Step 2.
Referring to Note 8 of the 2018 Annual Financial Statements, I understand that Largo’s revenue depends totally on the prices dictated by Glencore.
LV: Should that not be… Largo’s revenues depends on amounts and spot prices set by MB at the time that Glencore chooses to specify these to Largo? Conclusion: Glencore is in total control of the prices of the sales, in total control of the calculation of the re-measurement and therefore in total control of Largo’s sales revenue.
Largo has nothing to do with the actual prices paid by the end customers and the company’s sales revenue is totally dependent what is dictated by Glencore.
LV: Would be good to see the accounting of all of this for a year as it really happened, specifically; - When it was picked up by Glencore and amounts and associated MB spot prices
- Amounts, in time,that Glencore specified as sold to clients and associated MB spot prices
- Remeasurement scenarios bad, worse and worse’r’ (for Largo, based on Glencore playing around to maximize their profits while thinly meeting the contractual obligations
OTHER
To what degree is Glencore’s wait time to sell a given amount of V (picked up from Largo) ?
To what degree does Glencore have to stick to picking up 3 times / weekDoes Glencore always pick up 3 times a week? What is the minimum/ maximum amount? Can they come only 2 times /week or once a week for a year but still pick up a given total amount? Is there a specified minimum V quantity that Glencore must pick up / per month…per quarter…per year…