RE:RE:NORANDA AND TREVALI SHAREHOLDERS BEING SCREWED BY GLENCORE Would really enjoy a general discussion regarding Glencore and its influence on Noranda. I'm thinking that discussion would have to start with the supply and processing agreement (SPA) that Noranda has with Glencore in which Glencore, as principal, supplies the fund with all of its zinc conentrate requirements and purchasing all of the Fund's zinc metal. The SPA was set to expire April 30, 2022 but was recently extended so that it will not expire until April 30, 2025. The terms were also amended so that any notice of non-renewal of the SPA must be delivered 540 days before April 30, 2025, or any subsequent renewal date thereafter, an increase from the 180 days required by the original agreement. Terms of this agreement are negotiated annually. For the 12-month period ending April 30th 2019 Noranda purchased zinc concentrate and sold zinc metal based on fixed market terms for both. On March 11, 2020 Noranda reported that for the period between May 1, 2020 and April 30, 2021, the purchases of zinc concetrates will be made at variable treatment charges that fluctuate in line with market movements, as well as other provisions in the SPA. Noranda and Glencore agreed upon a fixed premium price on zinc metal sales for the same contractual period. The market terms have not been disclosed, as the terms are commercially sensitive and are subject to the contractual requirement and market practice that the pricing information be kept confidential.
---------most of the above is taken from documents obtained on Sedar.com - primarily from the Material Change Report posted Nov. 12th 2020 outlining the changes to the SPA, as well as the most recent MDA.
--> I'm curious what issues folks have with the SPA. I've mentioned this in previous posts, but having guranteed supply and purchasing agreements are incredibly important for refiners to operate as going concerns. Access to their ABL depends on this agreement. I have bolded the text which seem to be the most controversial terms and source of shareholder derision. The claim is that this is standard "market practice" - but sentiment shared on this board suggests the lack of disclosure regarding pricing is designed to hide how incredibly one-sided this arrangement is in favour of Glencore. I'm also hoping someone might be able to provide me with some clarity regarding the "fixed premium price on zinc metal sales" that is part of the SPA. Why does Glencore agree to pay Noranda a premium on zinc price? Refiners benefits from SPAs are obvious, but I'm assuming this guaranteed supply of zinc metal is also valuable to the purchaser who therefore will pay a premium for this guarantee?
----> Is there anyone that can comment more generally on SPAs for refiners? Is it normal for pricing information to be kept confidential like is suggested? If this is standard market practice for SPAs can you also explain the logic behind it. Ideally I would like to be able to say "it totally makes sense" why the SPA does not disclose pricing information.
Finally I noticed the following regarding the SPA, but I dont know how meaningful it is or what (if any) implications there are.
--> In the 2020 Q3 financial statements under the Supply and Processing Agreement heading (page 6) it states the following:
On May 2, 2002, the predecessor of Glencore Canada Corporation ("Glencore Canada") and the Partnership signed a 15-year Supply and Processing Agreement ("SPA")
Under the renewal term of the Supply and Processing Agreement that commenced on May 3, 2017, Glencore Canada arranges, as agent on behalf of the Fund, the purchase of the zinc concentrate requiremed by the Fund, where there are no contractual arrangements in place as noted below. Under the Supply and Processing Agreement, Glencore Canada acts as exclusive agent for the sales of zinc metal (when there are no contractual arrangements in place as noted below) and by-products and related hedging arrangements. Glencore Canada does not receive any fee for acting as agent, but is entitled to be reimbursed for all direct and indirect costs and expenses incurred in connecting with its duties as agent. Indirect costs are determined on reasonable cost account allocation principles.
In January 2017 and March 2018, the Fund entered into agreements pursuant to which Glencore Canada, as principal, will supply the fund with all of its zinc requirements and purchase all of the Fund's metal for the twelve-month period ended April 20 2018 and the four year period ending April 30, 2022...
---> My question/observation relates to Glencore switching from acting as agent to acting as principal. Is this a meaningful or material change? Ultimately whether Glencore acts as agent or principal Noranda still gets its concentrate and sells its zinc. But is it just me or does the above paragraphs completely contradict themselves? The renewal terms that commenced on May 3, 2017 suggests Glencore acts as an agent for the Fund, but the next paragraph says in January 2017 the Fund entered into agreements where Glencore acts as principal. Which one is it? Acting as an agent for the fund in arranging purchase of concetrate and sale of zinc or as the prinicpal in supplying the concetrate and buying the zinc themselves are completely different obligations. As an agent Glencore is legally obligated to make arrangements in the best interest of the Fund. When they act as a pricipal they become the counterparty where their interests are not exactly aligned with Noranda. They are actually in conflict with one another.
This post is already much longer than I meant it to be, but hopefully it will be a good starting point for a wider discussion regarding the Noranda-Glencore affiliation. Most of the above concerns only the SPA, and does not touch on other potential areas of shareholder suspicison, like Glencore's management of the hedging program, the higher working capital requirements for Noranda (higher receivables than payables with GC), GC's significant influence and 20% interest in Noranda's operations as well as potential conflicts on interest, and Glencore's overall reputation and whether its past or current business dealings can shed some light on its dealings with Noranda.