Finalised sales revenue

When AVB ships concentrate they are paid in the week following shipment based on the LME cash price for copper, averaged over the 10 days prior to shipment. This is the provisional price. The finalised price is based on the month of shipment plus a set time frame designed to allow for shipment and assaying. These time frames can get pushed out a further few weeks if there is disagreement about weight, grades etc and they need to send off for an umpire.

The set time frame has varied over the duration of the contract with the commodities traders who buy the concentrate. At one time it was month of shipment plus 1 month. Recently, and up until December 2017 it was month of shipment plus 3 months. It is about to revert to month of shipment plus one month.  

So now, anything shipped in January will receive the finalised price of February LME cash average price, ie shipment month plus a month.  However, this price may not be reflected in AVB's accounting for many months to come. It has to be shipped and arrive, get weighed, assayed etc.

Anything reported as income for Q4 (M+3 terms at the time) likely was shipped in early Q3, maybe even late Q2. So, it's complex and the level of reporting AVB (right or wrong this is typical of most companies on the ASX I believe)  produce is always giving an incomplete picture and is a mix of past sales finalisation and forward sold contracts they chose to exercise. ( I do understand that to explain the intricacies of the accounts each quarter would be arduous in these circumstances).

Provisional sales numbers contribute to our understanding of what to expect in the way of finalised sales in the following quarter. As it will be a transition time between M+3 and M+1 next quarter is even harder to predict but the following quarter will be relatively transparent.

What was also reiterated to me was that good corporate policy required a modest forward sales book to even out pricing fluctuations and give a level of certainty about cash flow for the purposes of forward planning. So it may sometimes appear that forward book does not serve share holders but the company is confident they are taking the correct course of action.

Back to Q4. The LME cash average for Q3 (which would have the largest impact on finalised prices for Q4) was US$2.88 approx. AVB received US$2.77. The LME cash average for Q2 which may have had a modest impact on Q$ finalised prices was even lower. IMO, the finalised price of US$2.77 relates to a mix of all the above factors and includes some closure of forward sales contracts. While at fist glance/reaction it appears the price is simply due to forward sales closures and hence their impact was seen as a large negative, I do't believe that is the case.

Also, my thanks to the senior member of the AVB team who took the trouble to call and clarify these issues for all of us.