Concluding the fictional metals trading tale by Geoffrey Sambrook.

Concluding the fictional metals trading tale by Geoffrey Sambrook.

As he went off air, Peston still had Steyn on the line. “OK, so off the record, what do you really think of Metal-Exx right now? Can they get through this or are we seeing something a bit like Enron?”

“Off the record, and I mean that, they’re screwed. They’ve taken on so much debt – a lot of it to finance stocks of metal – but also to fund some of their investments in production, that they’ve got nowhere to go if they are squeezed for cash flow. And that’s where they are, right now. And it concerns us – they are our major offtaker, so of course we follow closely what’s going on. But,” he added hurriedly, to make it clear Congo Copper was not directly involved, “if they go down, there’s plenty of others out there – Glencore, Trafigura and so on.”

“But will others buy, with current weak demand?”

“Like I said, we have a valuable asset in the ground. The game for us is to bring it out at the right time. We can be flexible.” It wasn’t really a true picture of his position, but how was a journalist going to be able to know his production cost? The analysts had been trying to estimate it ever since he’d taken over the properties, and they didn’t get close. It was a lot higher than he would have liked, but that information was kept tightly under wraps. “Anyway, it was a pleasure talking to you. If you need comment on the metals sector, I’m always available.” And he hung up. He knew he’d stuck the knife into Metal-Exx, just a little, but it was the start.

Peston settled down to write his daily blog for the BBC website. Clearly, he wouldn’t use the off-the-record comments from Steyn, but he didn’t have to. He wrote about the pressure low prices could be causing in the resource sector. It was another opportunity to make the point about the weakness in the Chinese economy and the potentially serious knock-on effects it could have on the west, still fragile after the Lehmann debacle. Inevitably, he drew attention to the position of Metal-Exx, as a major player in resources and at risk from the decline in China’s appetite for them. He hadn’t intended to focus the piece on Metal-Exx, but in the end that’s what he did. It was a good story, and, without mentioning it by name, clearly had echoes of the Enron collapse.

The BBC website has a wide reach and Peston is an influential blogger on it, and resource sector analysts, first in London and then around the world, picked the story up and pinged it out to their clients, often with an added comment detailing the extent of Metal-Exx’s borrowings. By the time Serck woke up the following morning in New York, the story had become accepted fact: Metal-Exx was having difficulty sustaining its financial position, dragged down by the twin weights of its debt and the weakening of its principal market. That was bad, but what made it worse was that the market’s perception of the company was that as a trader, without ownership production facilities, it could be more flexible and react more swiftly to changing circumstances. A demonstration that it appeared to have been caught out brought a wave of selling. Shareholders were not amused.

Neither was Serck, initially. He was furious with Steyn; the South African – in Serck’s eyes – had precipitated exactly the fall that he had suggested, but he’d done it before Serck had had a chance to position Leopard-Star to take advantage. It looked like a major lost opportunity. Slowly, though, as he watched the carnage meted out by the stock market, a different thought began to stir in his mind.

Jason Serck made two phone calls that morning. The first was to Urs Gerber at BBV. He told the Swiss that, reluctantly, in view of the continued attacks on Metal-Exx, he wouldn’t be interested in participating in any new round of financing for the company. Gerber sounded noticeably panicky as he tried to persuade Serck to change his mind, but the latter was adamant. There was no way he was going to lend any money to Metal-Exx while its position was so fragile. The fact that that left Gerber in an awkward hole was a matter of complete indifference to Serck. The second call he made was to his favourite investment bank brokerage unit. There he gave some very specific instructions about a trade he wanted to set in motion. He didn’t bother to call De Wet Steyn to give him a comment on his proposal – as far as he was concerned, the man had made a stupid mistake with that interview; Serck wasn’t about to get further involved with a man who made stupid mistakes when it came to money and investment.

The reason for Gerber’s nervousness became apparent over the succeeding days; no further financing for Metal-Exx was announced and the trashing of the share price continued. At the same time, metal markets were hit with a wave of selling, as Philippe Millault, now back in Geneva and alert to the black clouds, instructed his colleagues to liquidate all possible holdings, in a desperate last attempt to prevent his company from unravelling. But the selling continued, and Millault and Steiner feared they had lost control. They were completely at the mercy of events.

All the while, Serck kept in close contact with his brokerage; they were executing the strategy exactly as he had planned.

Steiner and Millault both made the trip up to Basel to see Gerber again; he was their last hope of raising cash. But the banker was apologetic – and also very firm. Despite his original positive feeling when he had met Steiner earlier, he could not find any investor willing to take the risk with him on Metal-Exx. At the same time, he was adamant that BBV would not finance the deal alone. “So, Urs,” said Millault bitterly, “you’re the last of the rats deserting the ship, after all good years you’ve had.”

“That’s not fair. My first responsibility is to stop my company getting into the same kind of problems which you now have. I didn’t create those problems – you did. Sure, your business is probably sound, in most ways; but you’ve committed the cardinal sin of over-extending yourselves. If you still owned the company, then you might well have been able to weather this storm, but instead you’ve got outside shareholders diving for cover and baying for your blood. Your stock price is in freefall and it’s not fair to try and shift that blame onto me and my bank. We have tried to place this deal, but we can’t find any takers.”

The meeting finished frostily and Millault and Steiner were soon sitting in the back of the car heading back to Geneva. They didn’t say much. In truth, there was little to say. All the years they had spent building their business into the most powerful in the sector were over. Their careers were probably over; reputations destroyed, they could at least take refuge in the fact that they were both still going to be relatively wealthy – enough had been shovelled into various entities over the years to keep the wolf from the door. But their days as billionaires were finished. Now they would be known as the men who had presided over the implosion of the once-mighty Metal-Exx. They sat in silence, each alone with his thoughts.

Three days later, Peston was on the BBC again. “This morning, I can reveal a stunning new turn in the Metal-Exx story. You will recall the company called in outside financial advisers two days ago to try and find a way out of its debt crisis. That was widely perceived as a prelude to calling in the receivers, and the share price continued to be slammed in the market until yesterday, when it was suspended temporarily on the stock exchanges in London and Hong Kong at the company’s request. My sources in London and New York are telling me that we should expect an imminent announcement from a New York investment fund called Leopard-Star Associates that they are in the process of buying a controlling stake in the company and that they will be making a bid for the stock they do not already control. I put in a call to the head of that fund, Jason Serck, and – frankly much to my surprise – he agreed to talk to me. So here he is. Jason Serck, first of all, is it correct that you are very soon to be the owner of Metal-Exx?”

“Well, obviously I can’t comment too much on things which are still under wraps with the Exchange. But what I would say is that we are a resource-based fund and although – frankly, and I’m sure you are aware of this – things have been tough for us and others in that sector for a while now, we still believe in the business we understand. We have been watching the sad events surrounding Metal-Exx for a while, and I would observe there seem to be three problems.

“First, the company seemed to be weighed down with excessive levels of debt. Secondly, as a publicly-quoted company, they were entirely at the mercy of the equity market and investors – because of their understanding of my first point – were anxious to bail out. Thirdly, it seemed to us that the management had to an extent lost control; what I mean there is that they had allowed the situation to develop because they had – maybe temporarily – moved away from the business model that had been so successful for the company for so many years.”

He paused for a moment, then began again. “Robert, if you look at the clock behind you there, you will see it is now seven a.m. in London. So I can now confirm that we have just released a statement, with the approval of the stock exchanges in London and Hong Kong to the effect that we have taken a holding in Metal-Exx and that we have launched a bid for the remaining equity which we are one hundred percent confident will be successful. If you’ll forgive me now, I must go; there are many things I have to tie up.”

“Jason Serck, thank you for taking the time to speak to us this morning…Well, it looks like my sources were correct and that another chapter in the unfolding Metal-Exx story has just been written. I understand that Leopard-Star has been buying large volumes of call options on Metal-Exx stock, which I guess is the reason they are confident in the immediate success of their bid. We will keep you abreast of events as they play out during the day. And now back to the news headlines.”

It was two a.m. in New York; Serck sat back in his chair, a satisfied look on his face. Idly, he tapped the code for Congo Copper into his Bloomberg terminal. May as well see how that price was holding, before he began slipping into the market some ideas of that company’s true level of production cost.

Four days later, the deal was done. Serck summoned the Metal-Exx – now the Leopard-Star – private Gulfstream to fly him from New York to Geneva for his introductory board meeting. In the top-floor boardroom in the Metal-Exx headquarters, it was a diminished group which awaited him. Millault and Steiner were both gone, as were two of the three outside non-executives: the third, a representative of bank shareholders originally, was present only to tender his resignation in person. Likewise the chairman, a former French paratroop colonel and previously head of an oil major. The only survivor, in fact, from the old regime was Max Eisenstadt, and he was uncertain of his future. Serck was accompanied by two of his colleagues from Leopard-Star, appointed – temporarily – to help him get things in order. After the short initial meeting, he asked Eisenstadt to wait a moment. The two men sat alone at the highly polished African ebony table.

“So, Max, there’s one thing you’ve got to do. I assume you intend to stay with us, unlike some of the others?”

“Well, my intention would be to stay here. I guess retirement would be an option, but I can’t really see myself taking it. And I’m not going anywhere else at my age. But what do I have to do?”

“You have to fire Matthias Horner.”

Eisenstadt looked baffled. “Why? He’s a good trader. He makes good money in his copper book. He’s the kind of guy you will need to keep things stable.”

“All that may be so, but I can’t employ people who are not discreet.”

Again, Eisenstadt was puzzled. “You’ve lost me. What’s he done?”

Serck sat back in his chair and stared at the other man for a moment. Then he spoke. “This whole deal,” he waved his arms around, encompassing the room, the whole company, “happened because he was dumb enough to tell DeWet Steyn that Metal-Exx ‘needed the money’ he owed. Steyn told me and that’s what brought the whole possibility of this takeover to me. That kind of comment is unforgivable. He has to go. You know him – I don’t. So you’re doing it.”

Eisenstadt shrugged his shoulders. Metal-Exx had always been an uncompromising place to work; you performed, or you were out. It looked like that wasn’t going to change.

Geoffrey Sambrook

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