Cashflow prediction quarter, page-43

Hi NAF.

1. Freight Cost

47,000 wet metric tonnes (wmt) shipped @ $32/t = $1,504,000 total freight cost
47,000wmt shipped @ 6% moisture content = 44,180 dry metric tonnes (dmt) shipped
44,180dmt shipped @ 33% Mn grade = 44,180*33 = 1,457,940 dry metric tonne units (dmtu's)
Total Freight Cost / dmtu's = $1,504,000 / 1,457,940 = $1.03/dmtu

2. Premia / Smelter Credits

This is a really interesting question! Where to start....

Firstly, let's take this snippet from the annual report:



So that is quite normal. IMO, there are two parts to the 'pricing adjustment'.

The first part is agreeing the the price per dmtu. So you work off a benchmark product and price, for example the benchmark MB 44% CIF product. The 44% benchmark product has benchmark specifications eg Mn grade (min 44%), Fe grade (say max 8%), with similar benchmark specs for impurities eg Al, P.

So typically you would look at the product specifications you have and the price you achieve would be discounted against the benchmark for lower Mn, if you had low Fe you would get a premia, if you had low levels of Al & P that might also attract some premia etc.

However, the main drivers of price are Mn & Fe grades. For e25 product, which is I assume is 33% Mn and about 10% Fe, it is low in MN grade and higher in Fe than the standard benchmark product. However, the Fe is not too bad compared to other low Mn grade products around.

So what happens is that a price is agreed based on the agreed product specifications.

If the specifications of the product are materially different from what was agreed (when assayed) then there will be price adjustments based on the formulae agreed.

However, these adjustments are typically quite small, nowhere near $0.65/dmtu.

Now, the big unknown for me is the silica content. I think that the e25 product has comparatively high levels of Si. This would be attractive to some SiMn producers (but not all). There is broad range of SiMn specifications. The lower carbon SiMn has higher Si content, for example.

So a producer of low carbon SiMn may pay a premium for higher Si content Mn ore. Not likely IMO, but not impossible either.

The big question for me though is this idea of smelter credits. Can anyone point me to where e25 have said they expected to get smelter credits?

I have never heard of smelter credits in the context of Mn.

How would this work, and why is it a 'credit' as opposed to a price adjustment based on an agreed spec?

A smelter credit to me implies that a producer thinks, for example, that he could use the e25 ore in his blend to achieve a silica rich slag which may have some value. But perhaps there is a lot of uncertainty around the quality, quantity, and value of that silica rich slag so there may be some agreement that if the producer can achieve that then there is a 'smelter credit' that goes back to e25.

But $0.65/dmtu? No way, I reckon.

So too much uncertainty for me, so I have assumed nil smelter credits in my cashflow forecast, and am assuming that the CIF price achieved taked into account the agreed product specs, and there may be price adjustments coming back based on minor (you would hope) variations in actual product specifications vs contracted specs.