Goldman Sachs makes another mining deal « Mining Blog

Goldman Sachs makes another mining deal

8. June 2012,

In May 2012, Goldman Sachs brokered what Frik Els of characterises as an “interesting” and “unconventional” deal for the bank [ 27 May 2012]. It relates to the planned re-opening of the Rio Tinto copper mine in Andalcuia, Spain.

This was the notorious operation which launched Rio Tinto in 1871 when the UK company purchased the mine from the Spanish government, turning it into the world’s biggest source of extracted copper at the time.

Rio Tinto disposed of the mine in the 1980s and it was mothballed in 2001. Now a company, listed in London and Toronto, called EMED “hopes to restart operations at the mine end of next year”

“But” says Els, “it’s not the re-emergence of mining on the Iberian peninsula nor the comeback of an iconic mining complex that makes EMED’s Rio Tinto copper project so significant”.

“What really points to a momentous shift in the copper industry is an unconventional deal the London and Toronto-listed firm inked with investment bankers Goldman Sachs… EMED gets $175 million up front with no equity dilution.

“In exchange for the cash the investment bank gets the equivalent in copper delivered every month for the next seven years. Without producing a single tonne EMED signs up a solid customer without even having to hedge the price”.

“Why would Goldman shake hands on such an arrangement?”, asks Frik Els. “Goldman, along with just about all its competitors and traders like Glencore, are getting ready to launch exchange traded funds [ETFs] backed by physical copper in the US. Deutsche Bank (DB already has a copper ETF running in Europe”.

“Not only could ETFs provide a new source of funding for developers like EMED, it could change the global copper trade – and its price – in a massive way….As one investment banker put it to the Financial Times: “Fundamentally copper is tight anyway. Add an ETF to that and it becomes explosive.”

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