What led Corvus Capital to develop an interest in the base metals market?
In 2005 Corvus Capital conducted its own study into the global market trends in the commodities sector aiming to look at all aspects of the market, across all segments of that market. It became increasingly evident that a number of trends were emerging from all the data that we had accumulated as part of the study – one of the more prominent was that the market for base metals was attracting more and more attention, as growing industrial demand was set to place even greater pressure upon the supply of raw materials. It was also evident that as an asset class in its own right, base metals were attracting increased attention from financial institutions around the world wanting to utilise the highly active open interest market in base metals provided by the LME (London Metal Exchange) as part of an increasingly diverse portfolio management requirement.
Would you say that the London Metal Exchange has a strong influence on the world base metals market?
We recognised the critical role that the LME has in the resounding success of the base metals market. It’s arguably too easy to forget the extent to which the LME continues to provide the cornerstone of the success in this market. Yes, it’s still an ‘out-cry’ market, albeit supported by a good level of technological sophistication, but most of the world’s leading producers, industrial consumers and financial institutions choose to trade through the LME. In 2006, the LME saw total trading on a daily basisi to the value of between US$35 billion and US$45 billion, some 87 million lots were traded over the year with a total value of US$8,100 billion. This makes the LME the leading market for non-ferrous metals trading in the world – offering futures and options contracts for aluminium, copper, nickel, tin, zinc and lead, plus two regional alumimium alloy contracts. Most importantly, the LME provides the platform for a liquid and transparent market which is highly respected by all participants, whether they are mine owners, industrial consumers, national governments, or international banks and investment institutions.
How did Corvus Capital benefit from this positive market?
In 2005, we took the decision to establish a new listed investment vehicle, Commoditrade Inc, that could look for appropriate investments in the base metals arena, and which could benefit from what we believed would be an upward growth pattern over the next 5 to 10 years. Corvus Capital provided the original investment, becoming a founding 76 per cent shareholder in Commoditrade. We were joined on the shareholder list by a small group of key institutional investors, also as founder shareholders. It wasn’t long before we had identified the first possible acquisition, one which sat at the very heart of the international base metals market, one of the largest trading teams on the LME and a Category One LME ring member.
So would you say Commoditrade is a success story?
On admission to the London Stock Exchange’s AIM, Commoditrade was valued at £5 million. By the time of its first acquisition, it was capitalised at just over £46 million, then paying £24 million for a business which was number one in base metals in the world. At the time of the acquisition, Commoditrade raised a further £18 million from institutional investors and Corvus Capital’s holding diluted to just over 20 per cent. Just a year later, in May 2007, Commoditrade’s market capitalisation reached £200 million.
Where next for Commoditrade?
Commoditrade has continued to go from strength to strength, benefitting from volatility in the global base metals market, driven by world-wide economic growth, particularly the developing economies and notably Greater China where industrial demand continues to outstrip supply.
Andrew Regan, Chief Executive
Corvus Capital Inc
