This weekend we gain insight into the world of Lara Smith from Core Consultants in South Africa who grants us access to the world of commodities.
Enjoy and don’t forget to leave a comment after the article (best if you create a Finance Magnates account and upload a picture, so we can see who is leaving a comment).
Who you are and what you do?
In 2009 I founded Core Consultants, in South Africa. I started out as an equity analyst for Foord Asset Management in Cape Town. Coming from a chemistry background and graduating from UCT I naturally made it my mission to avoid commodities and everything related to it like the plague.That is, until my boss sat me down and asked me if I wanted to be a South African portfolio manager- at the time I definitely did. So then he proceeded to ask me what I would put in the portfolio if shied away from commodities. I got his point and from that moment on set my sights on becoming a commodity analyst.
Soon after, I joined Beny Steinmetz Resources as the head of commodity analysis in Johannesburg. He had a diverse portfolio of mining resources in Africa and it was my job to forecast the market, make recommendations, source offtakes and potential acquisitions and business opportunities.
When that gig ended in 2009, I opened on my own. I authored three books on specific commodity markets which were published by Metal Bulletin and that set me on my way as a commodity consultant in my own firm.
Describe a typical work day.
Our service offerings to the commodity industry are extremely diverse and really there is no such thing as a typical day. So maybe let me just give you today as an example
This morning I attended a meeting with a director of a corporate finance company to discuss his client’s need to acquire a bauxite deposit in Africa. In addition to this, we agreed that Core Consultants would assist his firm with valuing his portfolio of mining assets and determining whether they are saleable.
The industry is filled with such great people, that it is really hard not to love it
Getting back to the office, I first contacted my bauxite contacts to determine whether their assets were still for sale and proceeded to evaluate whether they were suitable for the client. Then I contacted my valuations team to determine whether we should accept the business of valuing the mining assets.
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This was followed by an interview for two reporters as we often provide journalists with market trend analyses and then some general (mundane) business admin.
At this time we are also working on sourcing zinc for our trading clients so I had to make some follow up calls there, providing specialized shipping data and trade data to the industry, so I had to prepare for a meeting for that. I am also presenting at two upcoming conferences this month, one on mining technology and whether South Africa should mechanise, and the second on the outlook for UG2 Chrome ore- so I had to get my slide presentation in order.
Yesterday looked totally different and I think tomorrow will be different as well.
How is what you do important for the trading industry?
We support the trading industry in a number of ways:
- Our shipping trade data is used to assist both physical traders and hedge fund managers to understand the market in real time and adjust their trading strategy accordingly.
- Most commodity traders rely on customs data to understand market trends, which is inaccurate and normally three months out of date. We are able to provide our clients with real time data of the exact volumes in just about every port as well as which company is responsible for shipping the product. In this way traders can determine whether the market is over or under-supplied, their exact market share and often the costs of the landed cargo.
- “It has been said that a commodity without a market is merely a geological curiosity.”
- Trading and firm offtake agreements are one the most fundamental requirements of commodity firms. In our capacity as commodity consultants we source and review offtake agreements and determine whether there is a market for a specific commodity before a producer or investor commits to making an investment.
What do you love about your work?
It’s just so dynamic, and the industry is filled with such great people, that it is really hard not to love it. Since starting this company, it has taken me around the world and presented me with such incredible opportunities.
I have delivered presentations in Dubai, China, the USA, Europe, Hong Kong and Cape Town. I undertook work for the EU and presented the findings in Luxembourg. I have worked for Apple and gone over to Silicon Valley to deliver the report. Each commodity is different and I enjoy learning the various dynamics that drive these specific commodity prices.
Commodities is the foundation of so many industries and technology companies too, as well as producers, banks and construction firms. Having an understanding of the dynamics of these markets allows us to offer various consultancy services to a diverse client base.
What is the quintessential experience of working in the trading industry?
Commodities are volatile so you have to be flexible. In 2010 we launched a rare earth report and about 4 feasibilities that year pertaining to rare earth mines. Now the price of rare earths has declined by around 80% and only a few of these junior mining projects will actually go into production.
Therefore, while rare earth is still a critical component of our business, we really had to understand other markets and commodities. Bauxite is of interest to our mining investors and shipping data is becoming an integral part of our trading client’s research process as soft commodities are now regarded as a less risky play. We have therefore deployed a lot of resources into understanding and developing these markets and providing consultancy services.
How old were you when you had your first paying job?
14- I worked in a pharmacy as a cashier and as the person who mixed the creams, tonics and cough mixtures.
Paying job in industry? 23.
Who do you admire?
David Foord. This is a man who is regarded as one of the world’s best portfolio managers and has built a multi-billion company from the ground up. Yet he is accessible, humble and always there to give advice and impart knowledge. He took a chance on me when I was 23 and in that way gave me a livelihood as an analyst and taught me the industry.
What advice would you like to share here that has been important to you?
Reversion to the mean is a thing. Make it your own personal mantra. Buy when the commodity is below the mean and sell when it is above. Using this strategy you may end up selling too soon and looking like a mug as you watch the price shoot up and conversely you may end up buying too late and looking like a mug as you watch the price spiral downwards. But have patience. Using this strategy you will make money! Everyone is complaining that iron ore for instance is sitting at $54 for 62% grade. Yes, this is a long way off from the $92 we saw last year and the three digit figures we’ve seen in the last few years. But if we consider the iron ore price in real terms from the 1900’s until now the mean is $60! So we are pretty much on course.