Its not a one man band though Hoof.Lets not forget that.It'll...

Its not a one man band though Hoof.Lets not forget that.

It'll need the brothers Earp to come to the party and get all the financial stuff sorted which is probably why they were brought on board in the first place.

I still keep asking myself again and again and again why they have pushed forward with Perkoa.

I suppose when you have raised a large proportion of capex/opex already it gives good incentive to barrel ahead and get to the ore.

The big negatives atm for Perkoa have to be the oil price and how it will reflect in higher logistics/opex costs and of course the current depressed zinc price.

Lets have a think about that for a moment,or more to the point,lets have a think about the offtakes.They are targeting the Sth American/Euro smelters as these have considerable logistics advantages in terms of shipping costs.We know Votorantim have put in place some substantial smelter expansion plans and obviously have had to lock down concentrate supply which is why they were so keen to sign on the dotted line.But the other Euro based offtakes seem to be taking forever.Question has to be asked is this a bad thing?

Well as DK has mentioned the delay in production till late 2009/early 2010 may be a godsend in terms of what they will get for their fully ramped production given the 2010 price may be a damned site better than what the 09 price is shaping up to be like.

I dont know they will be aiming for a shipment in 09 anyway,unless they can get favourable spot terms on late 09 concentrate.They have said previously that they intend to make as full a shipment as possible to maximise the economies of scale with this aspect of costs to production and it makes very good sense.

The other factor that many investors forget is that we will see the structure of zinc offtakes change considerably in the next couple of years because of the possible volatility in the zinc metal price.The last couple of years have seen spiking prices which have resulted in offtakes with high price participation and lower % smelting fees relative to the overall zinc price.The miners hold a whip hand when prices get this high($3,000/t+) as its usually a reflection of tight concentrate supplies so they have better leverage to ask for what would effectively be a lower % of the overall zinc price cost.

But now we have a concentrate market that has swung the other direction with a low zinc price and an excess of concentrate.This will neccesitate dramatically altered offtake terms which is probably why we are seeing Aim delay on this aspect.Price participation will be virtually non-existant and smelting fees will be correspondingly lower(although a higher % of the zinc metal price) due to the much lower zinc metal price.To give an example,the usual smelter fee at current zinc prices is somewhere around $170-180/t plus penalties for iron extraction etc.It has been around$300/t during these much higher zinc prices.With Aim having highish logistics costs it behoves them to get these offtakes spot on to maximise any margin they might get.They may try to tie in some form of guarantee that allows them not to loose on any shipment or if you like a form of hedging the concentrate price against the oil price.This could be another reason for the offtake delay in that they may be waiting for the oil price to come off its highs,which one would think it will inevitably do as it must at some stage start to result in a drop in oil demand as such price increases can only be absorbed for so long.The airlines are a case in point atm with them simply cutting longer routes with lower passenger numbers a very simple way of cutting their fuel usage.The market WILL respond by dropping its fuel demand.I know I dont drive unneccessarily anyway atm.

The other big factor in offtake timing is the window of opportunity to comply with the contract.Given there is an excess atm smelters may not want the terms of the offtake to be too open ended in this regard and may require the miner to commit to a particular month to start supply of concentrate.If this is the case it follows Aim will have to know if they will have the processing capability to get the initial shipment to the smelter at the required time and this relies exclusively on the processing plant being paid for and in operation.As we all know this is fully dependant on the balance of the funding being available.

So imo until Aim knows the balance of funding will be available they may not be able to commit to the other offtakes because of compliance to timing of supply issues.

The Votorantim offtake is probably open ended in regards to timing of supply as they may well have excess smelter capacity over the 5 year supply period given their smelter expansion plans.

So this is just a little comment as to why we may see things develop a little diffrently to what would traditionally be the case which would be offtake first then funding after.

This may result in the funding terms being even more onerous than DK mentioned.

Whatever the case it will be interesting times for the brothers Earp eh Hoof.

d