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Metal stories that never made the trade press – by Anthony Lipmann of Lipmann Walton & Co Ltd (Lipmann Walton & Co Ltd)

Anthony Lipmann


Metal stories that never made the trade press

Perhaps it was only me who missed them? (Or perhaps the trade press did too?) But, it was to the broadsheets we had to turn to discover the most interesting issues affecting mining and metals in the last few weeks.

Los forgotten 33

Metal stories

Take the Chilean miners rescued from the San Jose mine. Los 33. The brave and impecunious miners trapped half a mile underground on 5th August 2010 for no better reason than that the gold price at $1200 per troy ounce (or US$40,000 per kg) had briefly made a leaky 120 year old mine potentially profitable again. Profitable, but not safe.

Apparently a forgotten story in the trade, it took London’s Independent newspaper on 3rd August 2013, to highlight the fact that the Chilean justice system would not be pressing charges against the owners of the now bankrupt San Esteban Mining Co.

Why did I have to go to a broadsheet to read this when all of us who trade metal, mine it, consume it, profit by it, would surely have been interested?

When the original story broke in 2010, it was watched all over the world like a more than usually interesting episode of ‘Big Brother’ (the popular game show that traps minor celebrities in a house and watches them squirm until set free by the viewers.)

To any metal person, those miners were one of us. Trapped ‘half a mile underground’, was something we did not need to imagine, as most of us have been down a mine as deep, or deeper.  When told that the men endured the underground heat for 69 days, and that they lived off tinned tuna and stale milk, it did not need imagination to know what it must have been like. We could not claim ignorance.

But why, you might ask, read about this old news again?

Perhaps it is that, long after the BBC, the President of Chile, and the engineers had left, the issues that this disaster raised have not. Our commodity boom, despite its recent dip, means men are still going down mines every day around the globe to make profits only reluctantly shared by mining houses. From the Marikana platinum mine in South Africa to the artisanal cobalt and tantalite mines in the Democratic Republic of Congo, to numberless coal mines in China, decisions in wood-panelled offices, far from the heat and fear that stalks the shaft and stope, are still being taken.

Bringing the case to court in Chile might have shed light on how those decisions are formed, and what safety issues are incumbent upon the private and public companies who take them.

The Chilean justice system, however, claimed it was unable to conduct a fair trial because the area of the cave-in could no longer be reached. However, what could be reached rather easily, is a newspaper of August 5th 2010, reporting that with gold at $1200 a troy ounce (or $40,000 per kg) here was full reason enough why the private mine owners, Mr Alejandro Bohn and Mr Marcelo Kemeny, chose to risk the lives of others to prise ounces of metal from ancient rock.

These issues provide pause for thought for all; and particularly those of us who, in one way or another, profit from metals.

‘What could possibly be achieved by a trial?’, the state prosecutor appeared to be asking. Well, if not justice, perhaps, at least, analysis.  Was the mine collapse an accident or was the accident the certain outcome of re-opening an old mine in haste to take advantage of a temporary market price? What licences are required for private miners in Chile and how were standards enforced? What calculations allowed the miners themselves to accept salaries of 30-40% above local rates in return for substantially more risk, and should they have been prevented from doing so?

As for our trade press – it would appear they don’t do history.

Silver mining off the West Coast of Ireland

Another story that caught my eye but appears not to have made the trade press, was the rather exciting news that, following the initial discovery of the site of the wreck of the SS Gairsoppa , which sank off the West Coast of Ireland in February 1941, the Press Association reported that 2792 bars of fine silver, each of approximately 1100 ounces, have now been recovered from the sea.

What has not been satisfactorily explained is why the British were bringing silver bullion back to Britain from India across the U-boat infested waters of the Atlantic in 1941.

Following the sinking, the British Government had paid out insurance during the war to the private owners of a part of the cargo, so Her Majesty’s Treasury of 2011 struck a deal with the bounty hunters, Odyssey Marine Exploration, by which 20% of the present value would be returned to HMG.

I think what struck me about this story, was the durability of the cargo. Photos of the ingots show them cleaned up and shiny; the stamps similar to what you would expect to see on silver bullion today: ‘JZ0452’, Fineness, 999.2, 1094.8 (ounces). I tried hard to read the brand name but could not make it out. Perhaps there is a MetalPrices reader out there who knows?

Interestingly, from 1933, the U.S. had begun to use Silver to underpin the currency, meaning the greenback was a silver certificate, containing the promise to pay the bearer one troy ounce of silver in exchange for one dollar. At 35 cts per troy ounce in 1941, when the SS Gairsoppa was making its way across the sea from India, the silver was worth rather less than the dollar that it was backing. But by the 1960s silver on the grey market was beginning to be worth more than a dollar. Noticing this fact, a rather bright metal merchant by the name of Dr Henry Jarecki, believing that one troy ounce for one dollar was rather a good bet, bought up as many certificates as he could to deliver to the U.S. Treasury and exchange them for silver before the day on which the Congress revoked the silver standard on June 24th 1968. By 1979, silver, now free from its financial shackles, with the assistance of Nelson (‘I guess if you know how rich you are, you are not very rich’) Bunker Hunt and the Saudi Royal Family, rose to $50 per troy ounce; and Dr Jarecki made enough money to buy the famous Bank of Mocatta Goldsmid.

Gold

Meanwhile, back in the 1940s, not more than 6 months earlier, on 10th July 1940, Eric Lipmann (23 yrs old), was billeted in the hold of another British merchant vessel, The Dunera, together with 2542 Austrian and German (mainly Jewish) refugees, classed by the British as ‘enemy aliens’ and sailing across the same stretch of sea in the other direction on the start of a voyage to Australia. Un-appraised of their destination, the previous vessel carrying its own human cargo, the Arandora Star, had been struck by a torpedo and sunk off the West Coast of Ireland a few days earlier. 714 lives were lost but those who survived were put on the Dunera anyway, still wet. A day after leaving Liverpool, the Dunera was struck by a torpedo but, astonishingly, the heavy swell had lifted the vessel so that it only glanced off the hull and was not detonated.

My father spent most of the war in an internment camp on the borders of the desert in Hay, Australia. His brother learned Japanese to while away the time and was enlisted by General MacArthur’s intelligence unit translating Japanese messages, which included the surrender in August 1945. My father became a metal merchant and lived to the age of 87 years, was a friend of Jarecki, and never went to Ireland.

Warehouses – the story that appeared three years too late

Both my father and Jarecki would have been relatively shocked at the recent history of the London Metal Exchange, sold so ignominiously to the Chinese for £1.4 bln last year. So here’s a related story that did make the trade press last week but which, judging from previous comment on the subject, appears to have caused paroxysms for editors as to what angle to take.

OK, let’s agree that the subject of LME warehouses is, to many, nothing more than a cure for insomnia. And it was perhaps for that very reason that the great misdeeds surrounding the LME’s stewardship and sale have gone unreported and poorly analysed, with most editors apparently worried lest they offend their readers.

For the last two years it has been a case of reporting the growing stocks on the LME, the muted objections raised by the trade as to lead times for taking delivery of ‘cash metal’, and mutterings about the dominant ownership of LME-approved warehouses by those with an interest in the outcome of price – Glencore (Pacorini), JP Morgan (Henry Bath), Trafigura (NEMS), Goldman Sachs (Metro) and others.

What we all seem to have missed at the heart of the story is the share of the rent that the LME picked up, and continues to accumulate, on every metric ton of stored metal. The longer the metal was stored the more they would make. Was it hardly surprising then that those at the LME charged with running a market free and fair to all, did not have the heart to break up the ownership of warehouses by trade members which was earning them so much loot? Had they done so, of course, the sales price of the exchange, which the evidence of the last two years suggests was more on their mind than conducting a fair market, would have been much lower.

In February 2011, I was invited to appear before a UK Parliamentary Select Committee, to give evidence on so called ‘Strategically Important Metals’ which was a subject that was exercising the minds of our elected representatives. They had fed off the forbidden fruit of the National Academy of Sciences’ report from 2007 which had highlighted the fact the U.S. was vulnerable to China’s grip on 97% of the supply of the world’s rare earths. I suggested in my submission that their idea of government stockpiling might merely create a further barrier between end-user and supply, and possibly exacerbate an already bad situation. Instead, I suggested that if they wanted to give their attention to a much greater risk to industry posed by the much more ‘strategically important’ copper and aluminium, they need not look to China, but not more than a mile down-river to the City of London.

Mercifully, the UK government did not enter the business of stockpiling rare earths with taxpayers’ money, but nor did it, or any other government agency, look into the conflicts of interest at the heart of the LME. Now that the U.S. legislature is grinding into action on the issue, perhaps they will? And perhaps too, the lions of our trade press will do their best to report it without fear of biting the hand that feeds it.

Anthony Lipmann
Lipmann Walton & Co Ltd
August 6, 2013

Anthony Lipmann is an occasional contributor to MetalPrices.com. His comments and views do not necessarily represent the views of MetalPrices.com