Due Diligence – Commodites

I have mentioned this before, but my my perspective as a participant is that the most important first steps in any possible deal is due diligence … not only of the buyer (if possible at this stage) but ask for their source and the verification of all the information that a “contact” brings to you from their own communications.

These steps are essential in my view ..

  1.   What is their position in the chain of people who have brought the deal to you? If someone is more than one or perhaps two people away from a mandate or a buyer … it will be highly unlikely the deal will proceed … if you are a contact make sure you verify formally where you are in the chain with the buyer… also if you wish to be paid, make sure that the Buyer or their mandate authorises you to offer their requirement to your contacts.
  2.   What work have your contacts done to ensure the “buyer’s” veracity? and what have they accepted without question from their contact – this all reflects on the credibility of the contact and the possible deal itself.

Other Important points are :

What form has the enquiry come in? Verbal, a written via a general letter of Intent or letter of interest …. or via a Bank, a Hedge fund or trading platform – first step in to check when the enquiry was issued, if it is out of date ask for enquiry with a current date. Then contact the issuer to confirm it is valid.

Our first step after we have done the above is to ask for a profile of the buyer, then once received, do due diligence on the information therein – first thing is to check for dates, as so many times statements provided in these briefs can be verified or not by doing a simple google searches for location of offices, Corporate Officers and company registrations are fairly straight forward … also then search for corroborating articles in relevant news sources, concerning the alleged buyer. If no articles are found it is likely the whole enquiry is a fiction. If you have any doubts I would suggest contacting a due diligence service before you take it to a seller.

Statements made in concerning say tank storage can be verified, the easiest way is to do this is check with the relevant port facilities.

If you are a seller or direct to a seller, insist on talking to the buyer or the mandate … if you do not get the information from a gatekeeper, the least stressful option is to insist on the contact, if it is not provided, walk away.

If a contact insists on having a commission agreed to before connecting you, it is way to early for this, as the commission for the buyer side is specified by the buyer mandate … issuing a commission split before you have had an contact with a buyer, is basically a waste of time, the buyer or the mandate will specify who will be paid and how much, the seller mandate only controls the commission on the sell side, although in some circumstances I have agreed to allocate an amount to a buyer contact, the amount of which varies greatly but the basis of it comes down to what work they have put into the deal, if someone has taken an enquiry from their inbox and sent it out without any due diligence, which means we have to do all the work, then if a deal culminates the commission would be no more than a small spotters fee … nothing is for free … if a contact wants a commission he has to have actually contributed to the deal.

For me I will give a contact two chances …. for every deal that does not complete affects our own credibility with the supplier or refinery … hence if a deal does not complete due to a foreseeable error or oversight, you get one more chance and then we shall no longer engage.

Although this post actually applies more to Oil, minerals & other refined commodities as well as crude Oil, this general procedure also applies to such items as Gold, both bullion and unrefined such as Dore bars and nuggets … if you have any interest I shall post on this topic in the future … in the meantime, I wish you every success.

Commodities – Buyer Engagement

From a seller or a seller mandates point of view, the biggest time waster is the illusion that we are actually talking with a buyer, an authorised buyer mandate or agent.

Note all agents for publicly listed companies have to be lodged with the appropriate judiciary, the SCC for the USA or ASIC for Australia

However, normally we are taking to someone who says they are one of these, the end buyer, the authorised mandate or agent, but isn’t.

To combat this we have instituted a simple change, when asked we simply follow the process below.

1         Yes we can supply Crude and refined Oil products.

2         Yes we supply products CIF delivery at a discount (usually quantity dependant) below a local  benchmark (Except for Mazut which is generally sold at a fixed price)

3         But No, we won’t send an offer until the buyer has approved (in principle) our Conditions of contract

4         We then send out a file which includes our conditions of contract, upon which on agreement in principle to, we generate a fully authorised offer.

Silence usually follows, and Yes I would rather have silence than a full inbox and many deals, none of which are real.

Stercoll Energy Service – an Oil buyer

We were recently approached by a company acting for Stercoll Energy Services Ltd …  (Stercoll details below)  … we agreed to issue the FCO once we received a categorical confirmation of the acceptance of the offer including the procedures for such .. below is their confirmation of their acceptance, received ..on the 20th of July 2012

++++++++++++++++++++++++++

Attn: Mr. David Sanders
Subj: D2 Gas Oil CIF Philippines

Status: Buyer, ready to proceed

Buyer has accepted all condition and oil specification offered by the seller, he is now ready to proceed. Please issue FCO a.s.a.p as per advised company and name of buyer via buyer’s designated information as stated below:_

Company Name: STERCOLL ENERGY SERVICE LTD.  INDONESIA
ATTENTION:        Mr. Datuk MYR UGUNG SIDYU
                            Director Asian Regional Head Quarters

Email:                  info@stercoll.com

++++++++++++++++++++++++++

The Buyers Website is :   www.stercoll.com

The Full Corporate offer was issued to this address on the 24th  of July 2012, it was valid for 5 days.

We were approached shortly after issuing the Full Corporate Offer from the Skype address, of chief.emeka kalu a person who said that they were the buyer for the main company Stercoll .. corporate details available on the above website.

Just before the end of the validity period this same contact sought to vary the procedures, despite receiving confirmation of their agreement to them as above.

We gave the buyer all help necessary within the procedures to move forward … the FCO expired on July 30th, 2012

No further contact was received from the buyer by way of explanation as to why they failed to proceed. This behavior is unprofessional and was unexpected, especially after they agreed to the whole offer including procedures before we would even consider issuing the offer.

For us this whole exercise was a waste of time … and an expensive one, as it meant that the oil was not available to other buyers during the preparation and validity period of the FCO.

The “buyer” proved to be a time waster … at the very least.

Rothschilds – another flawed non-sustainable business model

This is an old post of mine on another site …. but I thought it was worth a reprise here

Inspired by an article by Jesse Riseborough and Simon Casey NATHANIEL Rothschild’s the future 5th Baron Rothschild says he now plans to build one of the world’s largest coal producers. A member of the Rothschild lineage that helped bankroll Britain’s war against Napoleon, he is leading a $USD 3 billion ($A3.12 billion) takeover that will create the biggest exporter of coal to China So what do you think the motivation of this is … perhaps greed and control …. by suggesting he could corner the control of the coal exports to China …. when China’s apparent strategy is to use all the worlds coal before they have to touch their own …. because its cheaper …. and makes excellent strategy … because then they will have the option to burn their own coal totally within their own borders … and so much for the worlds need to reduce burning of fossil fuels. Most Indonesian coal (there are exceptions… yes but few) is generally not preferred for China in any case due to its high water content – so what is the real strategy behind this …? perhaps it is to subtly ( though there is nothing subtle about this) apply pressure to China to just suggest that he can for another advantage or have China as a partner in this venture .. mind you I work in commodities … I think he has a snowballs chance in hell of ultimate success .. going up against a sovereign state in this fashion with their essentially unlimited balance sheet – but as I said … perhaps this is the opening gambit, and this is merely a vehicle for another strategy, yet to be revealed. If China even considers such a block possible, does he really think that China will let someone outside of China control – where importing coal is seen by China as part of an overall strategy … people have to stop thinking that China thinks as we do … they don’t …. their vision runs in decades not our baby steps, in other words the next 3–12 months where most of the western world seems to reside. If we continue down this road, China will have the last laugh …. they are using our greed and lust for money to win this particular battle … and the war … (as they see it) … please wake up and understand.

If this article is true, I would be surprised, as I really would have thought that the 39 year old Nathaniel Rothschild would have come up with a more innovative and technologically savvy strategy … such as control of essential earth minerals … necessary for us in today electronics or perhaps tomorrows energy sources or perhaps research into a sustainable way to make hydrogen .. which could provide a portable essentially non-polluting power source from fuel cells …. but no … with this dated coal strategy which would have been innovative 50–100 years ago .. I so don’t think so – as it has so little vision and is so passe’ ….. do get with it mate, remember what century you are in.

XRZ OOO Russia Time Wasters and Non-performers

Please note that XRZ OOO Russia is not affiliated in anyway with XRZ GmbH Austria

We sent this buyer FCO’s for two products, which was duly signed, sealed and returned, as being acceptable.

Then we sent them contracts which was again, signed, sealed and accepted without change. A ratified contract was then sent.The next step for the buyer was to provide verification of the their capacity to close, buyer’s had agreed to send a Non-Active RDLC
 
This deal was happening coming up to Christmas and the refinery close down.The General Director of XRZ OOO In Russia is a Dimitri Chernikov send us a signed and sealed undertaking on their letter head saying in part  ” …. We are ready to provide you with the supporting documents not later than 14/01/2011

The next step due on 14th of January 2011, was for the buyer to provide an non-active RDLC …. they did not do this ….
 
So I say in the deal with us they are time wasters. and non-performers.
 
So be aware and be careful.(please see the top of this post) ….
XXX
Please note that XRZ OOO Russia is not affiliated with XRZ GmbH Austria
XXX………………………………………

Oil Buyers – Time Wasters

MR. ABDULLAH KURSAD DARCIN
Director
DMS GRUPPE LLC AG

and

DMS GRUP YATIRIM VE DIS. TIC. LTD. STI.
EGITIM MAH MURATPASA SK 1/24
ZIVERBEY/ISTANBUL
TURKEY

Both companies are on the same letterhead.

We sent this buyer a FCO for two products, which was duly signed, sealed and returned, as being acceptable.

Then we sent them contracts which was again, signed, sealed with some changes which were not accepted by us as they were outside of our already accepted procedures, we sent them the ratified contract, then after this they wished to change the contract.

The next step for the buyer was to provide an inactive Non-Active DLC …. they did not do this …. they are time wasters. at the very least, more probably non-performers so be careful.

Financea Limited – Non-Performer & Time Waster

This company director a MR. VALENTIN MARCHUK of Financea Limited  of SUITE B29 HARLEY STREET, LONDON U. K. WIG9 QR

They received and agreed to our procedures 100%, signed, sealed and received our ratified contract – they received the corporate invoice, but did not provide Proof of Funding as per the contract.

They did NOT perform, they also wasted our time.

Beware and learn from my experience.