NCNDA and Protecting Your Position as a Seller

Almost every commodity conversation that gets past the first exchange arrives at a non circumvention and non disclosure agreement. Producers sign them constantly, usually without reading them closely, and occasionally sign away a great deal more than they intended. It is worth understanding what the document is actually for.

What it is meant to do

An intermediary's entire value sits in a relationship. If a broker introduces a producer to a smelter and the two then deal directly, the broker has worked for nothing. The NCNDA exists to prevent that. In exchange, the producer gets something they could not otherwise obtain, which is the identity of a real buyer.

That is a fair trade and there is nothing objectionable about it. The document becomes a problem when it is stretched well past that purpose.

What a fair agreement looks like

It should bind the specific transaction and the specific counterparty introduced. If a broker brings you a named smelter, you should not deal around them with that smelter on that material. That is the whole of the legitimate interest.

It should have a defined term. Two years from introduction is common and reasonable. Perpetual restraints are not.

It should be mutual. The obligations should run both ways, so that the intermediary is equally bound not to take your production relationship and place it with somebody else.

And it should leave you free. You must remain able to work your own existing relationships, approach other buyers, and place material elsewhere if the intermediary cannot supply. A broker who cannot perform should not be able to prevent you from trading.

What to refuse

A general restraint. If the wording prevents you from dealing with any buyer in a territory, or in a commodity, rather than with the specific party introduced, it is not a non circumvention clause, it is an exclusivity grab dressed as one. Strike it.

Exclusivity before performance. An intermediary who wants to be your sole route to market before they have produced a single buyer is asking you to stop selling in exchange for nothing. Exclusivity, if it is ever appropriate, is something earned after volume has actually moved.

Signature before disclosure. You should know in general terms what the intermediary can do for you, the buyer type, the destination and the volume band, before you sign anything. You do not need the counterparty's name at that stage, and you should not expect it, but you are entitled to know whether there is a real proposition.

Documentation before proposition. Be careful with anybody who wants your mine details, your licences, your full assay history and your production records before they have told you what they can place. That sequence is backwards, and the information they are collecting has value to them whether or not they ever find you a buyer.

The order that works

A short enquiry from you describing what you hold. A quick answer from the intermediary saying whether they have a buyer for it, and describing that buyer in general terms. If yes, a mutual NCNDA limited to that chain. Then the counterparty name, and then the detailed documentation.

Any sequence that front loads your disclosure and back loads theirs is worth questioning, whatever the paperwork looks like.

On being circumvented

It is worth saying that producers get circumvented too, and by buyers as often as by brokers. If a buyer meets your plant through an intermediary and then approaches you directly with a slightly better price, the short term gain is real and the long term cost is that you have shown a counterparty exactly how you behave under pressure. That reputation travels in a market this small.