Commodity trader Noble in base metals push with new team

Sun Aug 26, 2012 12:00am EDT

* Metals, mining dwarfed by energy, agriculture divisions

* Noble aims for offtake deals, mine financing

* Strategy comes after tumultuous nine months for Noble

By Josephine Mason

NEW YORK, Aug 26 (Reuters) - Commodity merchant Noble Group Ltd is gearing up for its biggest push in decades into the base metals markets, hiring two senior traders to build out beyond its home base in Asia.

The Hong Kong-based company, run by its third chief executive in two years after posting its first quarterly loss in a decade last year, is putting renewed focus on markets such as copper and zinc after breakneck growth in energy, which now delivers two-thirds of its revenues.

Noble has hired Mark Hansen from hedge fund Brevan Howard to run the global metals business from London, three sources familiar with the matter told Reuters. He has been tasked by new head Yusuf Alireza with building up the company's smallest division by revenue, sources said.

Paul Wilkes, a London Metal Exchange trader formerly at Macquarie Bank, will join next month to run the hedging and proprietary trading desk, the sources said. He replaces Chris Thompson who ran a speculative book and left in June, they said.

While historically a trader known in aluminum, iron ore and ferroalloys, Noble has failed to challenge rivals such as Glencore International Plc and Trafigura AG for a large piece of the base metals markets. Beyond aluminum, it has few physical metals assets or off-take deals.

Alireza confirmed during an Aug. 13 conference call that Noble aimed to grow its base metals franchise and confirmed hiring a new chief, but did not name Hansen or give further details.

A spokeswoman for the company and Macquarie declined to comment. Brevan Howard did not respond to a request for comment.

HARD SUPPLY

Noble is looking to broaden its metals off-take portfolio by product and location, the company said in its Aug. 13 results statement, suggesting it is embarking on a familiar strategy.

It has rapidly built up its energy and agricultural divisions through buying or leasing physical assets from U.S. oil storage facilities to palm oil plantations in Indonesia.

It would also be a return to the company's roots. Chairman Richard Elman founded the company a quarter of a century ago to supply raw materials to China's burgeoning but still fledging steel makers.

Fifteen years ago, minerals and metals made up 90 percent of turnover. Last year, metals, mining and ore accounted for just 13 percent of its $80.7 billion revenue.

Noble has focused in recent years on expanding its energy trading team, including a $318 million deal to buy the U.S. retail electricity marketing unit of RBS Sempra. Energy accounted for 64 percent of 2011 revenues, followed by agriculture with just under a quarter.

The strategy to pursue physical metal and mining assets or financing deals will require deep pockets just as the company emerges from a tumultuous nine months.

Alireza, the third CEO in two years, was installed in April following the shock departure of Richard Leiman last November after the merchant lost money in its third quarter, the first loss in a decade.

That double blow wiped a third off the share price. The stock has recovered ground, but the company has kept trading in check.

Its value at risk - the maximum amount of money it estimates it might lose on most trading days - fell to 0.54 percent of shareholders' equity in June and represented $27 million, finance chief Robert van der Zalm said in the Aug. 13 call. That is down from 0.75 percent in the loss-making quarter of 2011.

SOUTH AMERICA FOCUS

The search for base metals will likely focus on major producing regions such as South America, a source familiar with the matter said.

Noble already has an array of iron ore and coal offtake deals and strength in alumina and aluminum through tolling deals. Last December, it signed a pact to supply a smelter in Azerbijan with alumina in return for aluminum output.

It is also one of the few merchants still doing business in Venezuela, where the aluminum industry is in crisis.

In 2010, it bought a small U.S. warehousing firm, Delivery Network International LLC, which has expanded to 10 LME warehouses, including in Singapore and the Netherlands. But that is small compared with its rivals, which have vast global storage facilities.

JP Morgan Chase & Co's Henry Bath unit operates in 17 cities from Rotterdam to Johor, while Metro, owned by Goldman Sachs, has 14 locations, with its Detroit headquarters storing a quarter of LME-registered aluminum stock.

And it may be hard to wrest mine supplies away from the big traders. Glencore controls half the world's copper supplies and 60 percent that of zinc through lucrative off-take deals, marketing arrangements with Xstrata Plc, in which it owns a 34-percent stake, and stakes in smelters.

But Noble hopes to find opportunities by funding new projects similar to its niche in the Indian iron ore market.

With weak LME prices potentially preventing projects from getting off the ground, junior miners may seek help from traders. Aluminum, zinc and nickel prices are close to break even for many producers.

Merchants often provide funding for start-ups in return for a minority stake and output once the mine is operating.

"Trafigura (and Glencore) were early movers with a good franchise. But there's still plenty of room at the table. Juniors are hurting at these levels and (Noble) will be happy to help out," said the source familiar with the matter.

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