latest publication from @EY_MiningMetals on the Business risks facing #mining & #metals in 2015–2016-Moving from the back seat to the driver’s seat

The latest publication from @EY_MiningMetals on the Business risks facing #mining & #metals in 2015–2016-Moving from the back seat to the driver’s seat @EY_MiningMetals

 http://www.ey.com/Publication/vwLUAssets/EY-business-risks-in-mining-and-metals-2015-2016/$FILE/EY-business-risks-in-mining-and-metals-2015-2016.pdf

#Glencore just the tip of the iceberg? @Zerohedge takes a look at #Trafigura, #Mercuria coming next....

Financial Crisis Alert: Black Swans Are Circling The Commodity Pits

Back in July, long before anyone was looking at Glencore (or Asia’s largest commodity trader, Noble Group which we also warned last month was due for a major crash, precisely as happened overnight) which everyone is looking at now that its CDS is trading points upfront and anyone who followed our suggestion last March to go long its then super-cheap CDS can take a few years off, we had a rhetorical question:

Which will be first: Trafigura, Mercuria or Glencore

— zerohedge (@zerohedge) July 22, 2015

Judging by what happened less than two months later, it appears that we have our answer: for now at least, Glencore, which is now flailing and which Bloomberg reported moments ago is set to meet with its bond investors tomorrow (supposedly to allay their fears of an imminent insolvency), is firmly the “answer” to our rhetorical question.

And yet, something stinks.

First, a quick look at Trafigura bonds reveals that the contagion from the Glencore commodity-trader collapse, which “nobody could possibly predict” two months ago and which has rapidly become the market’s biggest black swan, has spread and we now have a new contender. And while Trafigura’s equity is privately held, it does have publicly-traded bonds. They just cratered:

… sending the yield soaring to junk-bond levels.

As discussed below, this may just be the beginning for the company which, because it does not have publicly traded equity – but has publicly traded debt – has so far managed to slip under the radar.

But who is Trafigura? Only the world’s third largest private commodity trader after Vitol and Glencore. 

From the company’s own description:

Trafigura is one of the world’s leading independent commodity trading and logistics houses. We’re at the heart of the global economy. Every day and around the world, we are advancing trade – reliably, efficiently and responsibly. We see global trade as a positive force and we go further to make trade work better.

More important than some pitchbook boilerplate, is the company’s history: Trafigura was formed in 1993 by Claude Dauphin and Eric de Turckheim when It split off from a group of companies managed by Marc Rich, aka “the king of oil” in 1993.

Who is March Rich? Why the founder of Glencore of course who as a reminder, was indicted in 1983 on 65 criminal counts including income tax evasion, wire fraud, racketeering, and trading with Iran during the oil embargo. Upon learning his prison sentence may be as long as 300 years, Rich promptly fled to Switzerland; he was so afraid of US authorities, he even skipped his daughter’s funeral in 1996.

Marc Rich got a presidential pardon from Bill Clinton in a decision which was blessed by the kingpin of corruption, former DOJ head Eric Holder.  Clinton himself later expressed regret for issuing the pardon, saying that “it wasn’t worth the damage to my reputation.”

But back to Trafigura, whose summary financials reveal that the company – with $127.6 billion in revenues in 2014 and $39 billion in assets – is absolutely massive. In fact, in terms of turnover, it is virtually the same size as Glencore.

But the most important and relevant numbers are on neither of the pretty annual report grabs above. They are highlighted in red in the excerpt from the company’s interim report: the $6.2 billion in non-current debt and $15.6 billion in current debt for a grand total of 21.9 billion in debt!

Now, this is less than Glencore’s $31 billion (the implication being that Trafigura has a solid $6 billion equity cushion although judging by the bond plunge the market is starting to seriously doubt this) but the problem is that Trafigura’s EBITDA is lower. Much lower. 

According to CapIq, Trafigura had $1.8 billion in LTM EBITDA, suggesting a debt/EBITDA leverage ratio of a whopping 12x. If one wants to be generous and annualizes the company’s disclosed 6-month EBITDA (for the period ended 3/31/2015) of $1.1 billion, the EBITDA grows to $2.2 billion. This lowers the debt/EBITDA for Trafigura to “only” 10x.

Indicatively, Glencore’s own debt/EBITDA, and the reason for so much conerns about the company’s solvency, is about half of Trafigura’s.

At least on the surface, it appears that Trafigura, which is as reliant on the ups and down of commodity trading as Glencore, is far more levered, and exposed, to any commodity crush than the Swiss giant.

But what really set off our alarm bells, is that a quick skim through the company’s annual report reveals something disturbing: a commissioned report titled “Too Big To Fail: Commodity Trading Firms and Systemic Risk” whose purpose was to explain why, as the title implies, commodity trading firms are not systemically important. The timing, just months before a historic rout for commodity traders, is odd to say the least.

As a general take, any time someone first brings up, and then tries to talk down the impact of something as being “Too Big To Fail”, run.

More seriously, there are two problems with this analysis: as events in the past week have shown, commodity trading firms clearly carry a systemic risk: after all, one after another news outlet rushed to explain why yesterday’s market plunge was the result of Glencore fears. It would have been the same with Trafigura’s equity plunge… if the company had publicly-traded equity instead of just debt.

The second problem is the subheader to the paper:

Trafigura commissioned a white paper this year on commodity trading firms and systemic risk. Its author, Craig Pirrong, explains why he believes these firms are unlikely to have a destabilising effect on the global economy.

The paper’s conclusion: “Commodity trading firms are not a source of systemic risk.”

Oops.

Who is Craig Pirrong? As the NYT explained in a 2013 article titled “Academics Who Defend Wall St. Reap Reward“, Pirrong, a University of Houston professor, is just a member of that all too pervasive “paid expert for hire” group, academics without actual credibility inside their own circles, and who as a result will “opine” on anything and everything – usually involving Wall Street regulatory and “risk” matters, just to get paid.

This is precisely what Trafigura did when it commissioned him to “explain” why Trafigura is not systemic. Ironically it did so in August, just as all hell was about to break loose for the commodity traders, especially the most systemic ones.

And while the market has shown how the paid opinions of such “experts for hire” should be completely ignored, the question remains: just what was Trafigura so concerned about when it commissioned a well-compensated study meant to goal-seek the company’s explicit conclusion: that it is not systemic, when it obviously is.

Opinions aside, at the end of the the market will decide just who is systemic and who isn’t. One look at the price of Trafigura’s bonds above has given us the answer: it is a move comparable to what happened to Lehman bonds – if not equity – the day after the bankruptcy filing.

Clearly the Lehman bonds could not believe what just happened until it was too late. For Glencore, and increasingly Trafigura, the bond price is finally signalling the realization that “this is indeed happening.”

* * *

We’ll save our discussion of Mercuria for another day.

Source: Forget Glencore: This Is The Real “Systemic Risk” Among The Commodity Traders | Zero Hedge

#Swiss watchdog #WEKO says opens #preciousmetals collusion probe @Reuters

Better late than never?

Swiss watchdog says opens precious metal collusion probe

ZURICH (Reuters) - The Swiss competition regulator said on Monday it had opened an investigation into possible collusion in the precious metals market by several major banks.

Switzerland's WEKO watchdog said its investigation, the result of a preliminary probe, was looking at possible collusion in setting bid/ask spreads in the market by UBS (UBSG.VX), Julius Baer (BAER.VX), Deutsche Bank (DBKGn.DE), HSBC (HSBA.L), Barclays (BARC.L), Morgan Stanley (MS.N) and Mitsui (8031.T).

"It (WEKO) has indications that possible prohibited competitive agreements in the trading of precious metals were agreed among the banks mentioned," WEKO said in a statement.

A WEKO spokesman said the investigation would likely conclude in either 2016 or 2017, adding that the banks were suspected of violating Swiss corporate rules.

The WEKO investigation is the latest in a string of probes into manipulation of the precious metals and foreign exchange markets.

ADVERTISEMENT

Last year, Switzerland's financial regulator FINMA said it had found a "clear attempt" to manipulate precious metals price benchmarks during a cross-market investigation into trading at UBS.

In May, four major banks pleaded guilty to trying to manipulate foreign exchange rates and, with two others, were fined nearly $6 billion in another settlement in a global investigation into the $5 trillion-a-day market.

A spokesman for Zurich-based UBS declined to comment. The other banks were not immediately available for comment.

(Reporting by Joshua Franklin; Editing by Miral Fahmy and Louise Heavens)

http://mobile.reuters.com/article/idUSKCN0RS0DX20150928

Swiss watchdog says opens precious metal collusion probe | Reuters

The #Mining Industry will need a lot of #ActivistInvestors to get their houses in order.

"It's like a bear that stumbles into a honey factory"

A note from Mineweb on the build up of a position in Freeport-McMoran by Carl Icahn. 

What does Carl Icahn want with Freeport-McMoran?

Mining finance and investment 

The activist investor has taken a big slug of the company’s shares. 

Kip Keen | 28 August 2015 09:44 

HALIFAX – It must have been an interesting exercise for a billionaire that has made a name as an activist shareholder to tackle the mining industry now. To make a list of mining targets in a decimated market with resources meaningful enough to raise the spectre of a serious shake-up at one of the world’s largest mining companies.

It’s fair to simply step back and chuckle for a moment. For a whole lot of miners are so creamed, so loss-making for so many, that an activist raider surveying the field of options must be like the bear that stumbles into a honey factory after a hurricane.

Where to start? Who can I lean on? Which shareholders will treat me sweetest? Would Barrick have been on that list? Teck? Anglo American?

Yee Gads. You wonder if some mining heads might have muttered under their breath Thursday afternoon, Thanks be to Freeport. Icahn leaves us alone.

For ultimately Icahn chose Freeport to assemble an eight-percent-plus shareholding, promising in an SEC-filing-sort-of-way to rattle Freeport management and directors.

It happened on an interesting day for Freeport. Its shares popped 30%. It announced a significant cost reduction strategy and the spot price of copper flicked back over $2.30/lb. Connected? Maybe.

Of course, there’s little official to know about what Icahn wants, or how Freeport will respond to Icahn as a shareholder, assuming, given his history, he tries to force change.

I left a message at Icahn Enterprises to seek his view of Freeport. I also asked a Freeport spokesperson how it would respond to Icahn. I haven’t heard back this evening.

But one possibility is a break-up. John Tumazos, over at John Tumazos Very Independent Research, sees it that way.

For it’s no secret there was grumbling by some shareholders over the marriage of mining and oil & gas assets back in 2012, with FCX’s takeover of Plains Exploration & Production Company and McMoRan Exploration Co. (Subsequently the company was renamed Freeport- McMoRan.) This has made Freeport one of the most indebted miners in the world – with $20 billion in long-term debt, or twice its recent market capitalization.

With this discontent, Tumazos wonders if Icahn might angle for a Freeport break-up, putting the mining and oil and gas units into separate companies. Then the oil and gas assets – considered high cost – might become a compelling target for an oil and gas company, he thinks.

Tumazos thinks it might also make sense from a taxes point of view. Talking with me Thursday night, Tumazos notes that Freeport stands to write-down assets by as much as $3 billion in September in large part owing to the decline in oil and gas prices, by his calculation. “There’s a lot of value in the losses in the oil and gas,” Tumazos says.

And there’s unhappy shareholders to sway. Tumazos hit Freeport hard saying Icahn speaks for a silent majority of shareholders who want change in the company. Freeport’s office of the Chairman has been “slow moving and wrong-minded,” he said, adding, “investors will cheer decisions that create value and cause Freeport to react quicker.” (Disclosure: Tumazos owns Freeport shares.)

Who knows what will transpire? Icahn and Freeport haven’t disclosed or discussed publicly (as far as I know) what he may want to see happen at Freeport. But he must want to make money. And he isn’t close to that point yet. He and his partners, according to SEC filings, bought shares at prices between $9.50 and $16 averaging about $13/share in the past couple months.

Freeport, surging 30% Thursday, only just clawed back over $10/share, making Icahn – like many other shareholders in most major mining companies – still very much underwater. But hold on tight.

 

Read the article online at Mineweb here: What does Carl Icahn want with Freeport-McMoran? - Mineweb

There's a wholesale clean up going on in Wealth management. 

This time it's RBC that's in the mix. This from the Wall Street Journal 

Inside Royal Bank of Canada’s Latin Misadventure

 ENLARGE

Brazilian authorities in 2012 charged then-Royal Bank of Canada client Gilberto Miranda Batista with offering bribes to government officials to occupy public land on Goat Island, above. Photo: Juca Varella/Folhapress

By

Alistair MacDonald and 

Rita Trichur

Updated Aug. 5, 2015 10:38 p.m. ET

MIAMI—As Royal Bank of Canada mounted an aggressive campaign to reel in business from Latin America’s growing class of superrich, a Miami-based banker made a big catch: Gilberto Miranda Batista, a former Brazilian senator with a $500 million fortune, three houses, four farms and a Rolls Royce.

While some bankers celebrated, RBC’s compliance department soon raised a warning flag. Worried that Mr. Miranda’s accounts might attract scrutiny from global regulators over potential money laundering, some compliance officers began recommending that the accounts be shut down around 2007, according to people familiar with the episode.

But the Miami banker, Dirceu Magalhaes, successfully argued against axing the prize client, even after Brazilian prosecutors charged Mr. Miranda with corruption in 2012, these people say.

In 2013, Mr. Miranda’s accounts attracted the attention of a U.S. banking regulator, the Office of the Comptroller of the Currency, which that year deemed RBC’s anti-money-laundering controls unsatisfactory, according to people familiar with the matter.

The tensions between compliance and business officials at Canada’s largest bank, revealed in internal company documents seen by The Wall Street Journal, underscore the dilemma faced by many of the world’s financial giants as they balance the promise of lucrative accounts in emerging markets against the increased risk of regulatory action.

Banks from Standard Chartered PLC to HSBC PLC have been pulling out of serving the wealthy in some developing markets, in one of the unintended consequences of a crackdown by global regulators on money laundering and terrorist financing.

For RBC, which weathered the financial crisis to become one of the world’s largest banks, the OCC’s negative review was one in a long line of brushes with regulators and prosecutors over anti-money-laundering controls in its Latin America and Caribbean wealth-management businesses.

RBC moved to close down this business late last year after facing government investigations in several countries, including the U.S., Uruguay, and France. Just as it was unwinding its operations, RBC was contacted by the Department of Justice and by the Department of Homeland Security about separate Venezuelan accounts, according to people familiar with the matter. Those people said the Venezuelan accounts had, like Mr. Miranda’s, been previously flagged by internal compliance officers.

“There is always a war between compliance and bankers,” said Kim Manchester, whose Manchester CF advises banks on anti-money-laundering but who wasn’t commenting specifically on RBC. “Where banks get into trouble is when the banker wins again and again.”

A spokeswoman for RBC said that, due to client confidentiality, it wouldn’t comment on any individual or account, even to confirm or deny that they were customers. The spokeswoman said the bank has a strong record of global regulatory compliance. “RBC works within the legal and regulatory framework of every country in which we operate,” she said in an email.

The Justice Department declined to comment.

Mr. Miranda declined to comment for this article. A lawyer for Mr. Miranda said that his client hasn’t received any formal request from Brazilian courts to present his defense on the pending corruption case and declined further comment.

In a phone call, Mr. Magalhaes said that he had “no concerns” about allegations contained in this article, but declined further comment.

Star client

Much of the RBC drama has played out in an office on Brickell Ave. in Miami’s financial district. That office, where Mr. Magalhaes was based, acted as a U.S. hub to service rich clients across Latin America and the Caribbean as RBC opened offices in Brazil, Chile, Panama, Mexico and Uruguay in 2008 and 2009.

Among Miami’s star clients was Mr. Miranda, who had made a fortune of over $500 million helping companies obtain licenses to set up in the Amazon city of Manaus, according to an internal RBC note seen by The Wall Street Journal. The former senator came from humble origins; some four decades ago he drove a Volkswagen Passat and had a net worth of $10,000, according to the document.

By 2008, Mr. Miranda owned real estate worth $5 million on Ilha das Cabras, or Goat Island, off the coast of São Paulo; three houses worth $10.5 million; a Learjet; four farms; and eight cars, including a Rolls Royce, the note said.

But RBC’s compliance department didn’t share the bankers’ enthusiasm for Mr. Miranda.

Some compliance officers were agitating for the account to be closed around 2007, soon after it was opened, because as a former politician he was viewed as a higher risk, a person familiar with the matter said. In August 2009, an article in Brazilian newspaper Folha de S. Paulo said a company held by Mr. Miranda’s family, KKW do Brasil, made a donation to the foundation of former Brazilian President José Sarney. The article didn’t accuse Mr. Miranda, his family or Mr. Sarney of wrongdoing. Still, press coverage in Brazil reminded compliance officials at RBC of how Mr. Miranda’s political past and connections would be scrutinized by regulators, according to two people familiar with the matter.

                             ENLARGE