Liquid assets
The metals business and creation of new asset classes
Imagine the Earth without metals.
Actually, we don’t have to imagine. We know what it looked like. The great fire of London was great because much of the city was built with timber.
From every person in every city on Earth, to tribes in remote locations, we all use metals, in one form or another. This may be it in the vehicles we drive, bikes we ride, pots we cook in or stoves we cook on, the knives we use to cut our salad or hunt for our food, our wedding bands, our pacemakers.
The metals business is global, vast, yet very few people are able to invest in. At the London Metal Exchange, nine (yes, nine) companies have the exclusive right to trade inside the Ring — its inner circle, and the entire exchange involves only about one hundred companies in total — gatekeepers for anyone wishing to trade in metals at that venerable institution.
How large is the metals business? Well, think about it. Someone had to dig up the metal ore, somebody else had to smelt it into useful form so someone else again could use it to make the shovel, the car, the high speed train. The value of the global metal market is counted in trillions of Euros, including the ores, the smelted concentrates and metal semi-products which are to industry as food is to our bodies, but in contrast to the stock market, or forex — which are accessible to anyone with a few bucks to invest — the metals club is the exclusive domain of large commodity trading firms and investment houses. The value of financial instruments created on the back of the trade in the actual metal is at least an order of magnitude greater.
There is a “but”, however. Even if you have some money to invest, to start speculating or trading, in the hope of a large win, where do you start? Yes, you can buy shares of the large mining companies but there someone has already taken out most of the profit. Yes, you can buy gold bullion but in this post-COVID world, there is a massive shortage of physical gold on the market, and physical is what most people understand as “gold.” So where do you start?
It turns out, it is pretty much impossible for individuals to enter the club trading and investing in metals. And all while our civilisation requires more of them. So let’s take a look at the general context.
One : industry continues to need more and more metals. Batteries for electric vehicles, building materials for our expanding infrastructure, consumer durables for the World’s growing middle class.
Two : many if not most of the World’s mines never get into production due to the difficulty level involved in getting funding for private mining operations. In order to start production they need to fund exploration and development. Banks don’t lend on metal that is still in the ground, and private equity is hard to find and expensive.
Three : the marketplace for metals is gigantic — many thousands of companies sell millions of individual semi-products (rods, nuggets, sheets, wire, pipes.) The market is so fractionated that buying those products is often a nightmare — where there should be transparency there is opacity, where there should be efficiency there is friction.
Four : there is a large cohort of people worldwide who are active traders in forex and other financial markets that are accessible to them, and they would love to be able to trade metals, but can’t. Plus there is a vast amount of money stashed in the World’s collective mattresses and some of that would gladly find its way to being invested in high-risk projects with a substantial upside potential, but it can’t be — it has no access to those markets. That metals club again.
Now let’s ask, what if you could join an exchange that served the needs of all of those disparate people and companies together? What if you could trade in metal derivatives, fund new mining projects, speculate on the semi-products markets and also source your supply of zinc if you’re a galvanised steel producer, all on one platform? You would be creating a new class of tradable assets and opening up entirely new avenues of value creation. Hold that thought, because that is the central point of what our company is doing, and we will be letting you know as time progresses.
Whenever new asset classes have emerged in the history of commerce, trillions in new value was created, be it the incorporation of the Dutch East India Company, or the creation of the bonds market. What we are seeing emerge around our ears will change the way the World’s economy functions. And it will do so in under a decade, instead of many decades or hundreds of years. Of course some people will never be convinced, but they are not the ones who will profit from this emergence of a new asset class.
