Traders or Commodity Finance Banks? Part III – Gerald Metals

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By Simon  Jacques  – note the author of this article has a short position in the company

Each trading company has a business model of its own, different strategies come with varying degrees of success depending on market conditions but it’s the same equation: carrying-costs are the predicament for the commodity traders.

Their survival is related to their ability to withstand frequent small gains and few big losses. Whoever has the most money at the “end” is the winner in this gambit.

The bankers, central to this universe, have no pieces on the chessboard- it’s traders who are in charge of the bank’s money.

As reported by Le Temps, Quite a few banks have reduced their funding to the group, including the revolving credit facility (RCF) and what Gerald Metals sees is a vast conspiracy.

Gerald Metals

2016: -150M losses

2017: in the red

“When asked about these figures (by Le Temps), Craig Dean said that “you can not look at the Swiss company without taking into account the accounting adjustments” that allowed the entire group to achieve “a significant net profit in 2016”. Craig Dean, Chief Executive Officer of Gerald Metals

Banks have reduced their funding to the group, including the revolving credit facility (RCF). Gerald Metals sees a vast conspiracy :

“A source close to Gerald adds that former employees were paid and manipulated to spread false information about the company as part of a “clandestine operation”. The goal is to make banks doubt that they withdraw their funding and cause, potentially, the collapse of the group”.

What is also important to understand is that post-2011, the banks lend no more for transactions, but to the traders, who do the discretionary trade finance loan to producers. It ensures that when there is a ‘glitch’ and fallouts, it is not the bank who will get fined.

Image here

Gerald Metals Trafalgar Square, London UK

The lease alone on Trafalgar Square, London I put them at $2,700,000 a month.

It’s a fairly big and unnecessary non-focused-business expense, ahead of any staff overheads.

The source at the chinese buffet is really on the target:

-“It’s really a world of Brutes,” sums up an insider who describes Gerald Metals’ difficulties as a “case study.”

In this case study, it appears both plausible that

  • Ex-employees want to see the firm wiped off the map
  • But also that Gerald is in a crisis, in large parts, because of a management naturally predisposed to defend their book.
  • Finally it’s a war by proxy taking shape between the majors who didn’t appreciate their incursions in some trades and the traders daring to shake the protected markets of the club.

“In December 2015, Gerald celebrates a big contract: some 40,000 tonnes of cobalt concentrate (used in special alloys and lithium-ion batteries) are to be delivered to Chinese industrialist Huayou, for about $30 million”.

“But six months later, the deal collapses. Gerald can not deliver anything, his trucks are stranded in the Democratic Republic of Congo (DRC), his stocks seized by authorities in South Africa and Zambia”.

Gerald Metals epitomizes the ruthlessness of commodity trading; whoever has the most money at the “end” of the gambit is the winner.

There is five ways to get killed before sunday, one narrow path to escape: Gerald Metals SA has to cut the headcount or they better start producing a lot of headwinds if want to remain open.

The demise of Gerald Metals is totally avoidable.

If Gerald Metals sinks, it will be only because of its management failure to acknowledge its own reality, not because of others.

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