Digging Value is a twice-a-week column where I deep dive into markets, mining, and whatever financial absurdity caught my attention.
If you like your investing insights (not advice!) grounded in cash flows, hard assets, and common sense—but also recognize that markets frequently ignore all three—you’ll probably enjoy this.
Let’s explore the wild world of value investing in natural resources together.
Today’s column: Investment bankers are people too, China plays copper arbitrage, and Bolivia buys gold from itself.
“Digging for Value, One Story At A Time.”
Investment Bankers Are People Too
Mining M&A looks a lot like any other investment banking M&A deal:
- Company A says, “I want more exposure to copper, so let’s buy a copper company.”
- An Investment Banker morphs out of the corner of the office like The Grudge and says, “Beautiful. Let me find you the perfect suitor.”
- Once they’ve found a potential match, they facilitate initial contact and gauge interest. It’s like that first awkward coffee date, but with more spreadsheets and fewer awkward silences.
- Bankers dive deep into financials, operations, and legal standing.
- Terms are negotiated, and deals are structured.
- The parties finalize the deal, transfer ownership of the assets, and the Investment Banker … gets no credit or money?
That last part happened to Ian Hannam (from the FT):
“Ian Hannam, known as the “king of mining M&A”, was due $2mn in a fee dispute.
The trial featured star bankers and cast rare light on the behind-the-scenes deliberations between corporate executives and advisers who work on major deals.
While Hannam came out on top, it wasn’t quite the payout he had hoped for. Hannam’s advisory firm Hannam & Partners demanded up to $18mn from the Canadian Mining group Barrick Gold.
The firm argued that it helped engineer a transformational 2018 merger with London-listed Randgold but was “pushed out” of the deal at the last minute.”
Hannam didn’t sign a contract stating, “Yes I am part of this deal and I expect to be paid when it’s over.” Instead, he used his word as his bond (I guess we’re still doing that today?).
Meanwhile, Barrick assumed it didn’t have to pay Hannam because, ““Randgold and Barrick had “already been discussing a potential merger for years.””
So the M&A deal could’ve looked like this:
- Barrick and Randgold exchange emails over a few years discussing a potential merger.
- Someone CC’d Hannam on an email asking, “Hey we’ve been thinking about this for years, does this make sense?”
- Hannam replies, “Yeah sure, I can do all the paperwork when you’re ready.”
- The deal closes.
- Hannam leans back against his mahogany desk and thinks to himself, “well hey now, that email did cost me my time and energy.”
- Hannam sends Barrick Gold an $18M invoice.
Again, that’s probably not how it happened. But maybe!
Either way, the judge felt bad for Hannam and awarded him $2M:
“Even though Gleeson found that H&P hadn’t signed such a legally binding agreement for fees, he still ruled in the firm’s favour on a legal principle known as unjust enrichment.
Speaking after the ruling, Hannam said: “‘My word is my bond’ is still at the heart of a client relationship.” He said the judge had “underlined the tenets of this relationship, which have existed in the City of London for centuries”.”
So can I use this excuse if I tell my wife “I’ll do the dishes” but I wait until 10:30PM?
“My word is my bond, and it is still at the heart of our relationship.”
Quirky Copper Arbitrage
Here’s a quirky thing about copper markets: you can have two pieces of copper that are chemically identical, meet the same quality specifications, and yet trade at different prices simply because one has a piece of paper that the other doesn’t.
“Shipments from Congo are typically equivalent grade (EQ) copper because producers have not paid to register it on an exchange such as the Shanghai Futures Exchange, meaning it can’t fulfil contracts in that market, said Reuters. That makes EQ copper comparatively cheaper than registered metal even though it meets the same quality specifications, it said.
Analysts and traders said they expect EQ copper’s import volume and market share to grow again this year. EQ copper accounted for 62% of China’s refined copper imports last year, up from just under half in 2022, said Reuters citing data from the Shanghai Metals Market.”
This is Regulatory Arbitrage 101.
The copper is the same stuff, atomically speaking. If you melted down both types and analyzed them, you wouldn’t be able to tell which was which. But one has paid its exchange listing fee and a fancy piece of paper saying “I paid a listing fee”, and the other hasn’t.
It’s like buying a designer handbag without the official authentication card. It’s the exact same bag, made in the exact same factory, but because it lacks that little piece of paper, you get it at a discount.
But there’s more to this story than “Of course China gets its copper at a discount.”
Chinese operators dominate Congo’s copper belt. CMOC Group’s copper output jumped by 55% year-on-year to 650,000 tons in 2024. And Chinese companies like Zijin Mining and CITIC Metal have already signed agreements to purchase 80% of the output from Ivanhoe Mines’ (IVN) upcoming smelter in the DRC over the next three years.
It’s as if China decided to create its own dedicated copper supply chain, and while everyone else was busy watching copper prices on the LME, China just built it’s own.
Maybe China imports so much copper from the Congo because it has nothing better to do with it? Or maybe they want to build Strategic Reserves before they slap export bans on the red metal?
At the same time, the Congo doesn’t want all its copper eggs in one Chinese basket. In February, Marcellin Paluku, Deputy Director of Cabinet at the Ministry of Mines said:
“Today, 80% of our mines are with a single partner [China]. So it’s a risk […]. You never know what might happen. That’s why we’re now trying to diversify our partnerships so as not to depend on a single partner,”
That’s probably why the DRC wants to strike a minerals deal with the US.
If I’m Trump, I’m taking that deal, but only if we can get that special “no paper certificate” discount they give China.
Bolivia Buys More Gold
There is a whole genre of central banking where the central bank buys government bonds, which means that the government owes money to itself, and then the government pays interest on those bonds to itself. We call this pumping the stock market “quantitative easing” in the United States.
Gold bugs hate that kind of stuff – they buy gold precisely because governments are allowed to do quantitative easing.
But what if a country did this with gold?
“Bolivia’s state-run gold trading firm, Epcoro, plans to quadruple its purchases of gold this year. The move is aimed at bolstering reserves of the precious metal for the nation’s central bank, which is currently grappling with financial difficulties.
Epcoro has already procured a ton of gold this year from small-scale Bolivian producers. This amount contrasts with the total of 2.4 tons procured last year, according to the firm’s Chief Executive Officer, Pablo Cesar Perez.
Perez shared in an interview in La Paz that Epcoro projects to sell approximately 10 tons of gold to the central bank this year.”
The Bolivian central bank wants to own gold. Gold is traditionally a good thing for a central bank to have because it acts as a reserve backing the currency, which they can also sell in emergencies.
There’s just one problem: Bolivia’s central bank is running out of gold.
“The central bank has nearly exhausted its cash and gold reserves as it struggles to finance fuel subsidies. Earlier this week, the government announced that it could no longer afford to provide fuel subsidies for all, resulting in a reduction of support for miners and farmers.”
You know I love real-world circular references, and this one’s a doozy.
The government has a left pocket and a right pocket. It takes gold from small miners, puts it in the left pocket (Epcoro), then transfers it to the right pocket (the central bank).
It begs the question, “why have Epcoro as a middleman in the first place?”
Answer: To protect against central banks buying gold from illegal mining operations.
*Insert Agness Harkness winking meme*
