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Trading

Philosophy

The underlying philosophy of Blackhawk Partners physical commodities trading approach is to realize the commercial potential of assets in markets where we have a comprehensive understanding of what influences value.

Our business is first and foremost a people’s business. We do not do business over the Internet and like to meet face to face with our counter parties before moving forward in a transaction unless referred to us and vouched for by a client of ours.

The 3 products we most extensively trade are: Oil derivatives and crude, Gold bullion and Iron Ore.

The 5 countries we particularly don’t do business with – directly or indirectly – are: Iran, Syria, Nigeria, Ghana and Sudan.

Regarding our Oil derivatives trading business

We are actively engaged in trading oil derivative contracts – production and otherwise – both for ourselves and our clients and with respect to both crude and refined products.

Just as general guidelines:

1. We are only interested in D2, JP 54, LNG, LPG and Crude Oil contracts, no spot deals.
2. Product has to be immediately liftable.
3. We do reciprocate with Proof of Funds (POF), but only between principals and will only deal with sellers who are ready to provide documentation.
4. SBLC and BG payment mechanism not acceptable…. Only one month Revolving Documentary Letter of Credit (RDLC). In some cases we would consider a transferable L/C, but will never give a divisible.
5. No broker chains; only end users and title holders please….Resellers only on a select basis.
6. FOB Only.
7. Competitive discount.

Our Procedures are very simple and are summarized as per below:

1. Seller issues a Full Corporate Offer (FCO) on his letterhead for review and due diligence by buyer along with a satisfactory refinery supply letter including his perivalko agreements or a letter that he has perivalko in place.
2. After satisfactory due diligence by buyer, Seller issues a contract for signing .
3. Buyer signs and returns contract to Seller following contract’s conditions .
4. Buyer issues a DLC for one month shipment as contract requires that will revolve for the duration of the contract and upon satisfactory delivery of seller.
5. All necessary Full Proof of Product (POP) is issued by seller for transaction as required by buyer’s bank and agreed on the contract . The DLC paying against documents as stipulated on the contract (SGS, Bill of lading, cargo manifest etc..)
6. Buyer’s bank pays with the (DLC) to Seller’s bank.
7. Transfer of title of product is made by seller’s bank to buyer’s bank and transaction is finalized.

Allocation holders – as anyone involved in the physical trading of oil derivatives knows – are not title holders no matter how loudly they protest. Most sellers do not have title and need buyers to bankroll them.

As to Proof of Product (POP), upfront POP is never what it seems to be . Intermediaries cannot give POP if they have never even seen the goods; and even if one goes to the supplier’s country and looks at the goods he is going to purchase, there is no guarantee that the goods he has seen, will not be sold to someone else tomorrow.

A Proof of Product (POP) is often requested by inexperienced buyers or joker brokers who believe it will give them some guarantee of the existence of the product and ability of the supplier to deliver – Not Us – Many POPs produced are FAKE. The POP offers no proof at all, because once a POP has been drafted, it is automatically out of date. The product could have been sold to another buyer and no longer exists.

A refinery supply letter along with a Full Corporate Offer on the seller’s letterhead is the only way we initiate discussion with sellers. Short of that, no need to engage.

Regarding our physical Gold trading business:

We generally follow Swiss procedures and our procedures are equally simple and are summarized as per below

1. Seller issues signed Full Corporate Offer (FCO).
2. Buyer returns signed Letter of Intent (LOI) indicating acceptance.
3. Seller issues/delivers to Buyer a signed Purchase and Sale Agreement;
4. Seller supplies to Buyer evidence of legal ownership, current Assay Report, bank statement.
5. Seller provides a letter from their bank indicating that the Seller is ready to commence the contract and that the Bank is ready to transact with full bank responsibility.
6. On successful verification of the documentation the Buyer will arrange an acceptable institutional Payment Guarantee for the full contract value as instructed by the Seller.
7. Buyer and Seller lodge contracts with their respective banks.
8. Seller’s bank will SWIFT to Buyer’s bank confirming the existence and transferability of merchandise;
9. Buyer’s bank will respond by SWIFT with confirmation of payment;
10. Transaction is completed electronically with exchange of AU and Funds on a bank-to-bank basis.

NOTE: Bank-to-bank could be substituted with ledger-to-ledger as the terms of the contract may require.

If not following Swiss procedures and dealing with suppliers in need to export AU, the only procedure we follow is the one below:

1. Seller sends FCO and full information on seller, banking and shipping contractor for Buyer to verify.

2. Buyer and Seller complete term contract, Sign and Seal – Contract includes and is contingent upon successful delivery and payment of a test tranche shipment

3. Seller sends Test Shipment as follows:
a. Seller prepares 25kg test shipment for export to buyer’s designated refinery in New York or London. Seller arranges transport to JFK airport and gold is delivered to the refinery via Malca Amit or Brinks.
b. Seller provides assay report, certificate of origin, export /import licenses, airway bill and invoice for the 25kg gold made out to Buyer. Documents are presented at time the gold is delivered at the refinery
c. The Seller and Buyer will always accompany the gold together in all stages to and during the time at the refinery.
d. Gold is smelted, tested and paid for immediately via wire transfer into Seller’s account within 24 hours

4. The signed and sealed contract is placed with the Banks of both the Buyer and Seller.

5. The Buyer’s bank issues an Irrevocable NON-Transferrable Documentary or Standby Letter of Credit for the first monthly delivery to the seller’s bank in favor of the seller via SWIFT and a copy sent to the seller by email.

6. The Sellers Bank will verify the IRDLC

7. Within ten (10) days Seller ships the initial month’s shipment delivered to Customs at the Buyers International Airport along with the related shipping, title and origin documents. A document will be sent to the Buyer and the Buyer’s Intermediary via e-mail as notification of the time of arrival of the Gold.

8. The Buyer clears customs and transfers with appropriate security, along with the Seller’s delegate, the Gold to the Buyers refinery at his own expense.

9. Gold is smelted, tested and result sent to Seller and seller’s bank.

10. IRDLC is drawn down according to final tested quantity delivered on the assay report.

11. Monthly shipping commence

12. All documents must be in English

NOTE: Performance Bonds in this business are not worth the paper they are printed on since actually accessing the funds can take a year; hence almost impossible to collect. So if your client like most others is asking for that, I am afraid it is non starter for us.

To close and for this type of transactions, we are not usually interested in dealing with traders because they need a seller who will finance their export. If your client has money, all what he needs to do is put the funds together or come up with a group of investors in a “gold fund”, offering them a monthly return on their investment and we are good to go.

Regarding our Iron Ore trading business:

We only deal with experienced operators who can prove at the outset they have all their banking in place and have exported Iron Ore before. Anything short of that, is a non-starter.

If you are a miner or an operator with track record in need of significant capital in moving iron ore quickly and efficiently please let us know

Basic information we will require before engaging are all of the below issues including but not limited to:

1. Information about the company:

a) Name of the mine and/or name of project:
b) Name and details of the shareholder(s):
c) Size of the company on NAV basis – Net Asset Value (does the company owns assets in the region? if yes pleases advise value/location):
d) Where the company is registered. Which company will be the contractual counter party:
e) Commercial references:

2. Information about the mine:

a) Location of the mine:
b) Estimated reserves/resources:
c) JORC studies: measured, indicated, inferred resources:
d) Quality of the material (need copy of the SGS analysis report):
e) Which process was used to ascertain the quality:
f) Please advise details of the geologic studies:
g) Licenses – please advise if all environmental/legal/operational licenses are in order:
h) Estimated monthly production and when they expect to start the production:
i) Estimated period of the 1st shipment:
j) How much of the production will be allocated in long term agreement?

3. Information about the inland logistics:

a) Complete information about the logistics of the project including distance/transport time to the port, breakdown of each modal (trucks, rails, pipelines, barges etc):
b) If trucks being used, please advise number of trucks and name of the company providing the trucks (has the contract being signed).
c) If rails please advise number of wagons and also if any agreement with the rail company:
d) Same for barges:
e) USD/ton for each modal: USD Cost per MT, for Mine to Port transport;
f) Which are the companies involved in each modal?

4. Port (or ports):

a) If the terminal that will be used is private or public:
b) Any contract/agreement has been made with the port:
c) Stock capacity at the port and where the cargo will be stored at the port:
d) Draft:
e) Size of the shipment:
f) Loading method (shore cranes/grabs):
g) Loading speed per day:
h) Any contract has been done with the stevedores/terminal?

5. Finance:

a) Breakdown of FOB costs:
b) Capital needed and breakdown of how the capital will be used:
c) Repayment prospects:
d) Pricing strategy, ie fixed or formula based:
e) Talking to any competitors/steel players:

Bottom Line:

Trading is at the heart of Blackhawk’s operations. Our company was built upon the successful trading of oil and crude products, which enabled us to invest in talent and expertise in new areas to steadily diversify into a fully integrated company.

Blackhawk’s partners and customers rely on us because of our track record for properly mitigating risk and for being able to formulate creative and effective solutions that deliver.

Blackhawk supports its trading activities through investments, both direct and indirect, in strategically located assets that produce further trading efficiencies.

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