The offtake agreements have nothing to do with the price of zinc. They are all about the physical delivery and the costs to treat the zinc. Kind of like a farmer agreeing how many tonnes of sugar cane he will sell to a sugar mill over the next 3 years ... the price of the sugar will be unknown until the date that the sugar is actually received in the hands of the mill - the price being the price in the spot market. The farmer can lay off his price risk (if he thinks the price will fall) by locking in commodity swaps with a bank. It's important to note that the price risk is distinct from the physical delivery contracts.
Where the zinc price is scary for AIM is what price they will get for the commodity in June 2009 when the stuff actually arrives on the smelter's front door. That's why whilst the current zinc price is not doing AIM any favours it is not worrying the management a whole lot as a sustained price of 85c per pound will force a lot of operational mines (those who are exposed to price risk right here and now) to close down thus causing supply to fall and subsequently forcing the price up. In a really ironic way, the delays in production actually might be a blessing in disguise ...
It should be noted that Flory is a moron for not hedging production at USD 4,400 per tonne this time last year ... very very dumb.
The offtake agreements have nothing to do with the price of...
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