Advantages of Offtake AgreementsOfftake Agreements are generally...

Advantages of Offtake Agreements

Offtake Agreements are generally a win-win document, with the project company and the offtaker both deriving an equitable deal. While beneficial to both parties, an Offtake Agreement provides its most substantial benefit before the project is even built, in that it is a key – if not the key – project document that provides the project lender with assurances sufficient to secure loan approval for the project.

Before any product is delivered or any money changes hands under the agreement, the Offtake Agreement delivers the biggest benefit in that the deal got done, and likely would not have absent the agreement. We cannot stress its importance in strong enough terms. Although it is more likely than not that our deal team will prepare the project documents, if we do not prepare the rest of the project documents, we should be engaged to prepare the Offtake Agreement.

Benefits to the Project Company

» Project financing was approved due in very large part to the agreement;
» A substantial part of future production is sold for many years into the future;
» Guaranteed income under the agreement for a long period of time;
» Project company earns a predictable profit for many years into the future.

Benefits to the Off-taker

» Offtake Agreement allows offtaker to lock-in a long-term supply;
» In addition to guaranteed supply, the offtaker gets a guaranteed price;
» Contract provides a hedge against future price increases;
» Protected against market shortages because delivery is guaranteed.

AT THIS POINT OF TIME I AM INTERESTED TO LEARN WHAT TYPE OF OFFTAKE AGREEMENT HAS BEEN SIGNED. THERE ARE DIFFETERMT TYPES OF OFFTAKE AGREEMENTS EG,
SOME OF THE MORE APPLICABLE OFFTAKE AGREEMENTS OF INTEREST MAY BE:
Types of Offtake AgreementsWhile all Offtake Agreements generally establish a long-term contractual framework defining a business arrangement between the project and an offtaker and establishing the terms under which the project will sell and the offtaker will buy, Offtake Agreements take many different forms.Take or Pay ContractsOfftake Agreements are typically Take or Pay Contracts that require the off-taker to pay for the products on a regular basis whether or not the offtaker actually takes delivery of the products.Take-and-Pay ContractsWith Take-and-Pay Contracts, the offtaker only pays for the product taken on an agreed price basis.Throughput ContractThroughput Contracts apply when the user of a pipeline agrees to use the pipeline to carry not less than a specified volume of product at a contractually specified minimum price. Hedging ContractsHedging Contracts are used in commodity markets such as in an oilfield project.Long-Term Sales ContractsWith long-term sales contracts, the offtaker agrees to take the contractually agreed-upon quantities of the resource or product from the project. Under this structure, prices are not established in advance.Instead, prices are based on the market prices of those resources or products at the time of actual delivery or an agreed upon formula or market index, subject to certain contractual floor prices.
I THINK A LOT OF PEOPLE ARE "ANALYSING" THE FINANCING OF SCONI PROJECT BASED ON THE CURRENT CAPITALISATION OF SCONI. THIS IS NOT NECESSARILY CORRECT (MY OPINION ONLY). AT THIS STAGE SCONI IS A POTENTIAL NEW BUSINESS TRYING TO MAKIE A BREAKTHROUGH. THE SUBSTANCE OR THE STRENGTH OF THE PROJECT LIES IN THE LONG TERM VALUE OF THE ORE IN THE GROUND, THE QUALITY OF SENIOR MANAGEMENT AND, RIGHT NOW, MOREIMPORTANTLY, THE STRENGTH OF THE EXECUTED CONTRACT IN THE OFFTAKE AGREEMENT. WITHOUT AN OFFTAKE AGREEMENT, LENDERS VIEW SCONI LIKE A "SHELF-COMPANY" ITS PRESENT BALANCE SHEET OR THE VALUE OF ITS BALANCE SHEET IS "COMPACTED IN THE GROUND" BUT THE OFFTAKE AGREEMENT PROVIDES THE CASHFLOW STRENGTH THAT THE LENDER SEEKS TO ENSURE THAT THE LENDER WILL GET PAID WITHOUT A DEFAULT DURING THE LOAN TERM. IW OULD SAY THAT (IN MY OPINION ONLY) THE LENDER WILL TAKE A FIXED SCHARGE ON THE CASFHLOW OVER THE TERM OF THE LOAN (AT LEAST FOR THE REPAYMENTS STREAMS), SECURITY GUARANTEES ON AUZ AND WHO KNOWS WHAT COVENETS WILL ALSO BE ADDED TO PROTECT THE POSITION OF THE LENDER(S).
IN MY OPINION, IF THE CASHFLOW STRANGHT, IS SUFFICIENT FROM A LENDERS' PERSPECTIVE AND THEY ARE HAPPY WITH THE TYPE OF AN OFFTAKE AGREEMENT ALREADY SIGNED, THERE IS A HIGH PROBABILITY THAT FINANCE WILL BE APPROVED; MOST PROBABLY, UNDER A CONSORTIUM OF LENDERS.
THE QUESTION WE THE SHs NEED TO ASK OURSELVES IS: DO WE HAVE SUFFICIENT CONFIDENCE IN THE AUZ BOARD TO FINALISE THIS PROJECT. i, FOR ONE, HAVE THE CONFIDENCE. ALL THE MATERIAL CONTAINED HERE BY NO MEANS IS AN ADVISE. I AM SIMPLY SHARING MY OWN PERSONAL OPINIONS. DYOR PLEASE, THANKS.