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Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Wednesday, October 19, 2011

Rio Tinto alumina spin-off a dog listing to retail investors

The financial 'vultures' are circling. What type of asset is well-suited for a listing on the NZ stock market? A dog like Rio Tinto's alumina assets? You watch as a number of large investment bankers swarm to engage in a capital raising for this 'spin-off''. Small investors will be offered stock and brokers I guess will be looking for a very lucrative 7% commission to cove their asses. Why would they jeopardise the reputation of their company? Perhaps because they work on commission? Perhaps because they have performance-base options which encourage them to think short-range.
I have already commented on the quality of these assets being sold off by Rio Tinto. One has to wonder whether these financial companies actually insure their exposure to these 'clients' in terms of their handling of these capital raisings. Of course these investment bankers have not done anything wrong yet by showing interest in the sale of their assets....but what exactly will they be getting paid millions for? To paint an objective picture of the assets for sale? I don't think so. To create the illusion of quality. Remember, like like POLITICS 101, perceptions are more important than facts.
You could well argue that any asset is a buy at some price....but this asset will be offered to long term investors, not day traders looking for stag profits.
I've seen this all before. I am reminded of a company called Queensland Magnesium which was raising capital in Australia about a decade ago. As an analyst at the time working for a broker, I noted that the major financial institutions were earning a 7% commission in order to sell this dog. Why was it a dog? Well, it was the nature of the magnesite market - the raw material for producing refined magnesium. I was negative about the project as a mining analyst. In fact - very negative. My boss said that they would not recommend it, but if the investors wanted it, then of course they give it to them. Rest assured that no stockbroker selling such a 'dog' to clients was going to knock back the opportunity to make 7% commission. In most cases they would typically get only 5%.
PS: Queensland Magnesium Corporation went broke within the year if I recall correctly. I'm a bit hazy on the dates, as this was a decade ago. Shareholders lost a great deal on that deal. The way markets are regulated, there is just utterly no sense of reality. The risks are not being borne by the people who should be bearing them; whilst some law suit is destined to hit a corporation's current shareholders long after the parasites have taken off with their stock options. Just consider the current example in Australia. There is a legal firm taking a class action against the banks over their misappropriation of bank fees. Who will pay? The executives who got stock option bonuses at the time - or current executives. We teach our children that their are consequences for their actions. Where are the consequences for the executives who cause systematic pain across a nation? Where are the consequences for the politicians who sanction or facilitate law changes which help these executives to be corrupt legally. We have ombudsman to ensure that government depts and corporations act in compliance with the law. But what is the law is skewed to allow people to profit 'legally' but immorality?
That is why I have a concern about sanctioning the election of Don Brash, the leader of the ACT Party, the former leader of the National Party and former Governor of the Reserve Bank of NZ, for this 2011 NZ election. His ignorance is woeful...though he does respond to my questions; at least until they become uncomfortable. Here is my dialogue with Don Brash about the fiduciary duties of Reserve Bank governors and governments.
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Andrew Sheldon www.sheldonthinks.com
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