Noranda Income Fund Unit NNDIF

RE:RE:RE:New Stream Agreement

[Bigbird9999]

Just another form of debt to finance CAPEX which they claim has an IRR of 30%.  It is designed to be neutral cash flow, so should not drain the cash available for distribution, if indeed, there is any available.

In simple terms, Base is loaning NIF $40 million to expand/improve the plant to produce an additional 20000 tpa.  To pay back this "loan" NIF has sold 3000 t/year over the next 10 years at 20% of LME.  At $2300 LME, this means, that for the next 10 years, NIF will be selling 3000 t of metal worth $6.9 million to Base for $1.4 million.  The difference of $5.5 million over 10 years will return $55 million to Base to pay off their $40 million investment.

On the plus side, NIF does not have to come up with $40 million cash from earnings to finance the project.  Not sure how this will be handled on the financial statements.  Balance sheet PPE will increase $40 million offset by some form of debt.  Also, the unit production cost of the incremental increase in production of 20000 will be <$300 per t vs. the average of $600 which increases net revenues

On the minus side sales revenues will be depressed by $5.5 million per year for the next 10 years which will negatively affect earnings and cash flow. 

Lastly, BaseCore is 50% teachers and 50% Glencore and we all know how well it works out for companies that partner with Glencore.

BB