Noranda Income Fund Unit T.NIF.UN

RE:RE:Best earnings ever...no one buys hedging profits? lol

[ljp0101]

This is spot on. I'm taken back by the brazenness at the moment, though I'm sure there's an independt consultant's recommendation to support everything.

What kills me the most is the physical premium, which was 0.13/lb and flat QoQ. It really should have been >0.10/lb higher given roll off of the old so called hedge at the end of April. Spot started the Q at something like 0.20-0.25/lb and was 0.40-0.50/lb at Q end, and there should be a positive quality adjustment on top of that. Each 0.01/lb is worth 1.3/m per Q so annualized at 0.10/lb is the market cap. It'll be interested to see in Q3 when we'll actually know how terribly the new so called hedge is. (The underlying problem with NIF's hedging is you need to hedge all the economics or none of them, half hedging with a sophisticated counterparty is a terrible idea as positive economics pop up in your hedge.)

A huge issue for the independent directors is NIF is reliant on Glencore for financing because the ABL isn't large enough. In addition to the extended payment terms Glencore is charging us for, I would guess there's a converstion going on that says something like you need to hedge your physical premium to lower the risk of our loan to you else we can't grant these terms that you need. And poof goes the profit.

Of course, the operational problems made this all worse. The Q would have been within the usual underwhelming adjusted EBITDA range with the extra operating leverage and lower financial expense from the inventory blowout.