RE:RE:RE:RE:RE:RE:Last September greenday, show me where it says FCU is not obligated. When the deal was announced I recall management addressing the issue by saying the spot will be much higher. If a moot point, why the comment? And while your at, go tell your bank that you are not going to be making a mortgage payment for the foreseeable future because interest rates have gotten to the point where you can no longer afford to. Good luck with that, lol. JMO
Greenday wrote: @Karen308 - The point you made - in case you forgot - is that FCU is obligated to supply CGN even if the spot price is below the cost of production. That's wrong. There is nothing in the agreement stating that. That's just something that's in you head.
FCU is only obligated to supply CGN with 25% of its production at a 5% discount to spot and it has a right to purchase an additional 10% of FCU's production when FCU is producing.
If the spot price dropped below FCU's cost of production then FCU could stop producing and CGN's right to FCU's production would be the same as it is now. Only binding when FCU is producing.
You can debate whether supplying CGN with 25% of FCU's production at a 5% discount to spot is desirable to you or not but I have no problem with it. I'm sure that other start up producers would jump at that deal too because it desrisks the commissioning of the project.
If you don't believe that, go to your banker and tell him that you're starting a new company and you have a deal in place with one of the world's largest customers for your product. Then tell a different banker that you have an idea of who your customers for your product will be. Then see which banker will be more receptive and give you better financing for your project. Heck, banker #2 might question your projections and not even be interested at all.
Besides that, there are costs associated with selling anything. FCU could run around during the commissioning phase of production and spend money trying to find customers or it could just decide that a 5% discount to spot is close enough to the overhead cost of selling anyways.
Look at what NXE is doing. NXE is spending money to put their logo on the helments of the Vancouver Canucks to help publicize their name and presumably to help find and establish customers. That advertising cost isn't free and they still don't have a customer for their uranium.
So in my view, the preferential financing position and reduced overhead spending is worth the 5% discount to spot.