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 or via a Bank, a Hedge fund or trading platform – first step in to check when the enquiry was issued, if it is out of date ask for enquiry with a current date.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.

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) ….
Please note that XRZ OOO Russia is not affiliated with XRZ GmbH Austria

Oil Buyers – Time Wasters




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.

How not to do a Oil deal ..

This is an interesting breakdown of how not to do an oil deal, ladies and gentlemen, if you are more than two away from a buyer or a seller mandate the likely hood of a close is very, very low.

A couple of other points to remember (1) Verify everything you are told, because even ethical operators are told lies – I say this because if you take someone to a buyer or a seller and they are not real, you will only hurt your credibility and your future – this is a serious business and brokers who do not invest in verifying their leads are bad for the business (2) once you have been in the game a while you will know who is real and who isn’t .. if someone is open, transparent, ethical and honest stick with them even if they currently are not direct, they will be, if your contact, no matter who he or she is lies to you …. then save yourself a lot of grief and walk away.

Please see the Video as attached from a good friend of mine

Mate, thanks very much for the time you put into this.

Commodities and Buyers

When I work in commodities, I deal mainly in Oil and Gold .. two very different markets and with two very different expectations so far as the buyer’s are concerned.

For Oil, there are probably less than 50 or 60 real and capable buyers world wide.

On the other side of the coin, there are the Buyers whom without providing any substantive information for you to due diligence are most probably fakes. Those buyers that use this strategy,  routinely come from a generic Email address.

Recently I was approached by an exceptional contact within a large multi-national oil company with a suggestion that I offer someone he knew product.

We as a result sent them our procedures and requested further information from the buyers so we would have confidence to go to the next step, as I have the capacity either directly or indirectly to provide product for most buyers who are real.

I was astounded by the response, the suggestion was that without knowing anything about the buyer I was to take them to a tier one refinery, on someone’s word only, whilst I had no problem doing this as I highly regarded the reference highly, the Tier One refinery and a major reseller are not so agreeable or flexible, and will not engage unless they know more about the buyer. The buyer’s representative was not communicative, off hand, dismissive of my request and did not provide any information. Even their website was under construction with no content.

Unfortunately that left me with no option but to regard this buyer as questionable, as our due diligence had suggested that as a seller this company had failed on two previous occassions.

My contact with the major seemed to take this as a personal a front, and has broken off contact… so be it.

Stick to your procedures, nothing you can do will make an impossible deal that is outside your procedures possible, if you take a non-performing buyer to a seller mandate and they discover that you have brought them a time waster … this will reflect on you or worse still someone who is asking for POP up front with NO capacity to close and lift product, the most likely outcome being that the seller will not respond to you in the future.

I mean if I could get full POP upfront, without showing my financial credentials, why exactly would I need a buyer ?  I could take it to buyers myself.

Be careful …. so be sure.