EDITOR: | May 1st, 2014 | 4 Comments

Traders – The Carnivores of Mining’s Jurassic Park

| May 01, 2014 | 4 Comments

Something has been clearly broken in the mining finance world since 2008. Excess has, as usual resulted in indigestion, but it had an added factor that there were just too many companies in the mix. While the hot money swilling around in the marketplace could happily fund each junior with a few million dollars per year for exploration the part of the equation that was missing was the $100mm plus that most of these juniors would require to get their projects to production.

This mismatch with reality meant that the false dawn of 2010 and 2011 also petered out without leaving many producing assets in its wake. It was easy to over-focus on gold and silver and miss a more startling trend that underlay the sloppy markets. Base metals, despite a much stronger price for copper than the preceding decade, and spikes in zinc, lead and nickel mid-decade became metals that were increasingly difficult to finance via conventional means. From this began the rise of the traders.

The traders largely avoided the precious metals (except the PGMs) and preferred to intermediate between miners and industrial users. Unlike investment banks that had dabbled in metals pre-2008 (and made a hash of it e.g. the nickel spike and the uranium bust) the traders tend to like to keep their books pretty flat, move around in futures when it fits within the parameters of their business and do not accumulate vast inventories. The realization that came to traders though, with the rise of China, was that they needed to secure their own sources of supply or else the Chinese might corner key markets and marginalize the traders to dealing in mere scarps that fell from the Chinese table. Beyond that the under-investment in base and specialty metals mines in the West meant that supply crises were likely to become the norm rather than the exception.

In this piece we shall look at the major players in the trading house community. Trading is a notoriously opaque world and most players have preferred to play in the twilight zone of private ownership instead of the public markets.



Born from the turmoils and travails of Marc Rich’s trading empire, Glencore has become the 8 million lb gorilla in the trading space and via the absorption of Xstrata also punches above its weight in the mining space also. The company has carved out a unique position over the last few decades with strong positioning in the trading of some of the world’s most important bulk commodities. In its prospectus, it revealed that it controlled something like 68% of global Zinc trading. This was beyond impressive, it was frightening and indeed tempting for anti-trust regulators to move in on. As dominance had been accumulated gradually and not necessarily by acquisition it was difficult for regulators to demand divestment. However the move on Xstrata provided a trigger that resulted in various “concerned parties” requiring the company surrender market share to obtain the requisite approvals for the merger. Despite this Glencore still has a very strong position in the major base metals, coal and those mineral products moved around in DSO form. It does not however much position in specialty metals. Glencore is the Walmart of the trading space, pile ‘em high and sell ‘em fast. It remains the model though for the trader with mining as a captive satellite. Most other traders are now following in these footsteps however whether they can pull it off so profitably remains unclear.


This company is a Dutch-based trader and mimics the senior player in many ways. It has been the most forward in following in the footsteps “of the Master” in acquiring control of mining properties. It also has its roots in the Marc Rich empire. Initially focused on three regional markets – South America (oil and minerals), Eastern Europe (metals) and Africa (oil) – Trafigura has since diversified and expanded globally and operates from 81 offices in 56 countries. Positioning itself in oil makes it distinct from Glencore where coal has been the main energy exposure. It has, for instance, a vast service station empire in Africa.

The company has also been notable for making mine purchases in Peru, acquiring the Azulcocha mine from Vena Resources and then acquiring all of Iberian Minerals to get itself positioned in base metals in Peru. This brought Trafigura the Condestable copper mine and the Aguas Tenidas mine, which produces copper, as well as zinc. Trafigura is obviously as comfortable in being 100% owner of mines as Glencore and we should see more of these types of deals in the future. A combination between Trafigura and Nyrstar would make lots of sense.


This is a Singapore-based trading house and is listed on the Exchange there (NOBG.SI). It likes to style itself as a logistics and supply-chain company but in reality it is a trading house. Unlike the two mentioned so far it also covers agricultural commodities and like Trafigura it also has an energy focus. It also plays some role in specialty metals. It has been noticeable for focussing on strategic investments in ASX-listed miners and buying offftakes from Australian mines. Recently though we have heard it has started looking farther afield for its mining investments. The most interesting development is that Noble and private equity group TPG have each invested $500 million in a private mining venture (X2 Resources) led by Mick Davis, the former head of Xstrata, hoping to cash in on low valuations and a dearth of buyers for mining assets. This makes me wonder whether an eventual combination between Noble and the new Davis vehicle might evolve.


It is a toss-up whether one could describe Traxys as being at the bottom of the first tier of trading houses or the top of the second tier. I guess it depends on your angle of approach. It definitely has some importance in some specialty metals and alloys, however in the major base metals like nickel and copper it is not a player of note and it is not known for playing in the precious metals. It is important though in lead/zinc trading and probably ranks up there with Glencore and Trafigura in those metals. Interestingly this division is run by the Hochschild brothers, scions of the family that own the big Peruvian mining group. Turnover at Traxys was reputedly around US$6bn in 2013.

In mid-March 2014 it was revealed that the long and torturous process of the sale of the controlling stake in the Traxys trading group had finally been settled. Traxys likes to style itself as a physical metals and minerals commodity merchant, logistics and trading firm.

For a long while the stakes in Traxys owned by Resource Capital Funds, Pegasus Capital Advisors and Kelso & Company had been up for grabs. The buyers were the large alternative asset manager The Carlyle Group (NASDAQ: CG), together with affiliates of Louis M. Bacon ( the founder of the mega-hedge fund Moore Capital Management, LP). Carlyle, Mr. Bacon and Traxys management are acquiring their stake from Resource Capital Funds. As part of the transaction, Traxys management are increasing their stake in the company. The transaction is expected to close in the third quarter of 2014.

As Carlyle is the unofficial “By Appointment to the US Government” private equity player it is no surprise that it has ended up in a prime position in Traxys, thus ensuring that the main non-agricultural trading house owned and based in the US stays that way.


This London-based trading group battles it out with Traxys for dominance of the specialty metals and alloy metals space. It was established in 1972 as a metal trading company with a strong China focus.  Wogen is a prominent player in Cobalt, Chrome, Titanium, Tantalum, Molybdenum and Niobium trading with the aerospace and super alloy industry as prominent end-users. Its ferro-alloys team is a supplier of Ferro Chrome, Ferro Molybdenum, Ferro Titanium, Ferro Tungsten, and Ferro Vanadium to many of the world’s largest steel companies. It also handles a significant volume of PGMs and is particularly strong in the OPMs: Rhodium, Ruthenium and Iridium.  It is also a prominent player in the Antimony space.

The company also has a long history in mineral sands (rutile, zircon, ilmenite or Ti slag). Interestingly it is also the only one of the traders to speak openly of its role in trading REEs. It has been involved in importing Monazite into China, to upgrade and then market the resultant Rare Earths. In addition Wogen supplies Chinese-source Rare Earths to consumers in the western world.

In recent years Wogen has also been seen as a hunter-gatherer for Chinese interests sourcing Chrome Ores and Concentrates, Manganese Ores and other bulk materials for the metallurgical industry of China.


Vitol is primarily an energy trading house that is regarded by many as being (very) close to the current Russian leadership. It gets a mention here because jungle drums have told us that it has been looking to expand its trading reach into metals and minerals as well.


This is another oil and gas trading group with a slight sideline in metals. The fact that it recalibrates its $113bn per annum turnover in terms of BOE (barrels of oil equivalent) tells us where its heart really lies. However, it has a ferocious competitive stance towards Vitol so what one gets into you can expect the other to follow and both have way deeper pockets than most of the plain vanilla metals-traders (excepting Glencore).


MFC Industrial is a NYSE-listed group that controls a Vienna-based trading house. MFC itself is not exactly a group that it is enormously forthcoming on what it does so it is no surprise that it has found itself comfortable in the trading space and it is no surprise as it has often appeared to be a private investing club operating in the public space. Thus for trading to rise to become its main activity, did not involve a major culture change.


This trader’s main areas of focus are iron ore and ferro-alloys and plastics. In the former it is a well-known player, though in plastics we suspect it is far from being a household name in what is a lot more diffuse sector than the metals space.

It was mooted by us some years back as the likely buyer of the other Vienna-based trader, Decometals (DCM) and such a deal would have significantly changed the firm’s balance towards metals if it had been consummated with a further strengthening of status in the iron-steel complex-related metals, with a quantum leap in its chromite activities. The low-ball bid from MFC backfired and the prize escaped.


As mentioned Decometals is the other Vienna-based trading house and much more long-established with roots in the first half of the 19th century.Back in 2011 intelligence had come our way regarding negotiations that MFC was engaged in with Raffeisen Bank in Austria to acquire control of DCM. The company never confirmed these talks but in the second half of that year word reached us that MFC had tried to foist a major haircut on the bank creditors with regard to the purported €300mn that DCM owed. This had not gone down well and talks had collapsed.

Decometals has its roots in the mid-1800s when Austrian companies were leaders in the mining and technological applications of the new metals that were being discovered. DCM survived through the various vicissitudes of the two World Wars had become, by the turn of the current century, a leading player in Chromite, Manganese and Titanium trading, and a minor player in refining and mining (at least in Chromite).

DCM´s marketing network spans over fifty countries with representative offices in Austria, Canada, China, Russia, South Africa, Ukraine, UAE and USA. It has marketed, through this network, high-grade manganese and chromium ore in Australia and iron ore in Ukraine, which it ships to Europe and the Middle East. It trades principally in iron ores, bulk ferro-alloys and noble alloys directly from producers, which it then sells to customers worldwide. These include silico manganese, ferro-managanese, ferro silicon, ferro chrome, ferro molybdenum, ferro vanadium and ferro-titatinum for the steel industry in Europe, the Americas and the Middle East. At least in the iron ore category it resembles the activities of MFC.

DCM also operates financing, logistics and warehousing division to meet customer needs: all aspects of transportation and the supply of bulk commodities, as well as just-in-time deliveries through its international warehousing network.

The jewel in DCM’s crown was its Chromite operations of which the most important part was ACR Albanian Chrome, the holding company for DCM’s activities in Albania. This may have had to be jettisoned in the debt reduction campaign. DCM was definitely a wounded beast… and whether its problems have been resolved remains unclear.


Mining companies are now mere creatures in the undergrowth of the industrial-trading complex that has evolved around the mining companies. The big beasts that stamp around this jungle are the traders, and miners must scurry to keep out from underfoot. In some ways this is a recreation of the situation that existed for around a century until the 1980s where powerful mining houses (groupings of mining companies under shared managements with interlocking shareholdings) were the alpha-males of the mining scene, corralling, developing and financing the biggest and best mining projects with centralized vision and marketing of the output.

Frankly the traders arrived just in time or things would have been a lot tougher. This is particularly the case in base and specialty metals where the traditional mode of financing projects has fallen into decrepitude. The rising tide is strategic stakes from a trader followed by an offtake agreement to get the project built. Anyone who thinks that stocks in either of these two key sub-groups of the mining world can rely upon wandering into a brokers’ office and drumming up enough money to put a mine in action is living in a time warp. There is a brave new world… The traders may look like dinosaurs but they can still squash a multitude of mammalian miners with each footprint they set down. The trader can be your friend (well, maybe not Glencore after the Donner debacle) and miners should get themselves into the mindset early that this is where they are ultimately going to need to rattle their begging bowl.


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  • Jack Lifton

    Tank you for all of this information on the trading companies. They like their actions to be invisible to the public, so the light you shed on them is very helpful.
    One inference that comes to mind from your article is that the Bay Street, Howe Street, Wall Street, and City of London crowd have been “street mining” all along. I personally and firmly have now come to believe that the majority of the rare earth juniors were never intended to be anything other than pump and dump schemes. And I find that the current description of Molycorp as “too big to fail” to be ludicrous.
    Keep up the good work


    May 2, 2014 - 12:15 AM

  • John Clarke

    really enjoyed the “tour” of Jurassic park and agree with your current analysis. The carnivores, however, appear to be increasingly ascendant and, as in the case of Glencore’s take out of Caracal operating in Chad, are prepared to pay cash to take 100% control of their early investments into proven oil reserves (commodities) as they see higher returns than the “take off agreement” with minimal additional risk!
    Nor are they willing to prolong their support of ventures beyond rigid timelines and/or capital cost over-runs, and will pursue their contractual terms with rigorous legal action if it offers the opportunity of controlling the assets – much as a bank will foreclose on a mortgage if the sunk equity has value. In a “risk off” market environment, small exploration companies with no cash flow and no proven reserves should not expect the carnivores to bridge the evaporation of traditional equity financing, when the dominant “metric de jour” is Enterprise Value/EBITDA.
    It would be very interesting to be able to examine the IRRs of the carnivores’ take off deals on a deal by deal basis, and how many of them eventually lead to 100% CONTROL!
    Looking forward to more from you …. keep it up.

    May 2, 2014 - 10:03 AM

    • Christopher Ecclestone

      Have to agree… one of these traders has now made itself a bad name for rapaciousness and hopefully miners will remember to count their fingers after shaking hands with them.. or even better find another trader to shake hands with!

      I would add that I should have included Sojitz in the review which is really a go-getter in the offtake and investment space these days.. tin.. tungsten..

      May 3, 2014 - 3:45 PM

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