The Dawn of EV, page-1352

I would suggest that smelter credits just another set of terminology for the commercially common structure of split payments.

While the primary attribute of the ore is its grade, secondary attributes are also important and alter the value. Taking a car as an example, with age and model of a car you can make a guess of the value, but its a pretty wide range. It would be commercially stupid to define the value with only this information. Add in mileage, exterior condition, interior condition, upgrades and servicing history will narrow this price range. Given current petrol prices, knowing if the fuel tank is full or empty might also alter the value, particularly for older second had cars!!. Taking the car for a test drive will narrow the value range further. You need to know the secondary features to put an accurate estimate on the value.

Now back to Mn ore. For a complex product like unprocessed ore, it would be unusual if the value was identical, irrespective of these secondary attributes like the percentages of Iron, Silicon, Phosphorous and other trace metals.

One sensible option to this problem of secondary attributes impacting value is to introduce a two payment solution. An initial large payment is made that pays to the bottom of the potential price range. A secondary secondary payment then occurs if the price is indeed above the minimum estimation range. Lets assume the value of ore on a shipment is guessed to be US$5.5m to $6.5m depending on secondary attributes. Payment #1 is made at $5.5m with payment made as the shipment departs. As long the ore is within contact specifications for minimum possible good attributes and max possible bad attributes its worth this amount. Payment #2 is made later when it is determined where within the value range the secondary attributes push the value. This 2nd payment will exist if the ore has some good secondary features. When determined at say $0.6m, this amount is paid. Down-side risk for OMH is removed because as long as its within contract specifications its worth at least the $5.5m initial payment.

This second payment has been called smelter credits by E25. We know the ore E25 is shipping has some good secondary features like high silicon. If the discription above was how the contract evolved, smelter credits are real and will occur on all shipments because the ore is not at max negative on all bad attributes and it will have some good attributes above contract minimum's.