NR Investments Ltd

This is an investment vehicle of Nathaniel ("Nat) Rothschild, the youthful, UK-based, scion of the Rothschild banking empire who has recently raised an extraordinary amount of capital (compared with much larger commercial bannks) directed towards mining and other extractive industries

Along with Vnesheconombank (the Russian state-controlled financial institution), and Paulson & Co, Rothshild was one of the three main subscribers to the US$2.2 billion Hong Kong IPO by United Company Rusal Ltd in early 2010. He ended up with a 0.48% stake in the world's largest integrated aluminium producer (just 0.01% ahead of his rival, John Paulson - see Paulson & Co ) [MJ 29 January 2010].

A few months later, Nathaniel Rothschild announced that, along with his business partner, James Campbell (former head of metals at Anglo American plc), he would launch an IPO on the London Stock Exchange for his new investment vehicle, Vallar plc, planning to raise £600 million in order to acquire "a single major business or significant operationl asset in the global metals, mining and resources sector" [MJ 2 July 2010].

In fact the float proved to be the biggest of the year in London, raising gross proceeds, before charges, of £707.2m - with expected "enterprise value" (near-future market capitalisation) of between £2bn and £5bn.

While the new group said it would focus on assets in the Americas, Russia, Eastern Europe and Australia" and "denied it has any specific targets in mind", [The Independent, 10 July 2010], in September Rothschild was reported ready to "do battle with FTSE-100 giants BHP Billiton, Rio Tinto, Anglo American and Xstrata for the $7bn (£4.6bn) Colombian operations of coal miner Drummond" [The Independent 12 September 2010].

(Drummond is a notorious US company - it has been charged with several instances of human rights violations in Colombia - and it wants to withdraw from Colombia,being advised in how to do so by Bank of America Merrill Lynch. Other potential bidders have been reported as including Glencore and US strip-coal miner, Peabody Energy).

Vallar's bid for Drummond - the second biggest coal producer in Colombia - was hardly surprising, given that Rothschild's partner, James Campbell previously led Anglo American's expansion into the same country (where the UK-listed miner is partnered with Xstrata and BHP Billiton), and in Australia and Venezuela [The Independent 12 September 2010, ibid].

Just a month later, Vallar plc announced that it had signed another coal-related agreement, worth potentially more than US$3 billion, with two Indonesian coal companies.

Under the deal, Indonesia’s fourth-richest man, Aburizal Bakrie, would swap his 25% stake in PT Bumi Resources for new shares in Vallar, with Rothschild ending up with a 34% stake in Bumi, and the Bakrie Group securing 43% of Vallar. Rothschild would hold a 75% share in the smaller - but important - Indonesian coal mining company, Berau [Mining News 5 January 2011].

Vallar plc did indeed become Bumi plc on 28 June 2011 (and Vallar ceased trading on the London Stock Exchange from that point, while leaving Rothschild as one of the new company' biggest shareholders).

Nat - King of Coal...

Just over a week later, the Guardian newspaper reported a massive display of Mr Rothschild's wealth and influence, as the playboy celebrated his 40th birthday at a marina off the coast of Montenegro, one of the poorest countries in Europe.

The article is worth quoting at some length for the glimpse it gives of the political-financial nexus of which he and his cronies are an integral part; and the stark contrast between their "life styles" and those of the majority of us:

"They came on the sleekest of yachts bought with the proceeds from the grittiest of industries", commented The Guardian's Robert Nooth [Guardian 9 July 2011].

"Mining and commodity magnates descended...on an unlikely new billionaires' playground in Montenegro ...The £1m party started on Thursday and will run over three nights, with guests moving from five-star hotel to poolside disco to the deck of a superyacht. It is part of an attempt to establish an Adriatic St Tropez at Porto Montenegro, a new marina in a former Yugoslav naval base backed by money from Rothschild and other billionaire investors.

"The guests at this half-built luxury complex on the Bay of Kotor...are not short of glamour. Russian model Sasha Volkova and Jimmy Choo shoe boss Tamara Mellon were invited, along with the British socialite Plum Sykes. Rothschild's parents, Lord and Lady Rothschild, headed a large family group, and members of Italy's Agnelli clan were expected.

"Politicians include Peter Mandelson, the former business secretary, who counts Rothschild as 'a close friend'...But the richest figures sipping Taittinger champagne were not in banking, computing or the media, but in mining coal, copper, gold, nickel and other commodities whose values are soaring.

"Rothschild himself has just overseen a £3bn investment aimed at selling Indonesian coal to Chinese furnaces. He declared to the Financial Times: 'I don't want [the shareholders] to make 50% or 100%; I want them to make two or three times their money.'

"Many guests guard their privacy so closely that crew working at the event were given spotter cards with captioned photos of a dozen of the most powerful, to avoid embarrassment. They included Oleg Deripaska, owner of the biggest yacht in the bay, the £80m Queen K. He is reputedly the richest businessman in Russia as a result of his aluminium firm, Rusal, and Rothschild sits on its international advisory board." (see Oleg Deripaska in this database).

"Also on the card was Peter Munk, the Canadian octogenarian billionaire and goldmine owner [of Barrick Gold] who moored his smaller but no less opulent yacht, Golden Eagle, a couple of berths along. He is the main investor in the £500m Porto Montenegro project.

"Ivan Glasenberg, who became one of the world's richest men when his Glencore commodity company floated on the stock exchange, was expected on Friday night, as was Tony Hayward, the former BP chief executive vilified over the oil spill in the Gulf of Mexico. He is now Rothschild's partner in a £1.3bn oil and gas fund.

"Another mining billionaire, Robert Friedland of Canada's giant Ivanhoe Mines, was also on the guest list. His company's plan to exploit gold and copper deposits in Mongolia's Gobi desert sparked civil unrest when local groups complained there had been a lack of environmental assessment.

"The platinum-rich Royal Bafokeng Nation, a tribal kingdom inside South Africa, was even represented by its king.

"A fleet of articulated lorries travelled from the UK with provisions, equipment and furniture, and a crew of 100 toiled in 35C (95F) heat to place palm trees beside the pool with cranes, build "chillout" cabanas and lower glitter balls into the water.

"Hundreds of wines from the Rothschilds' top Bordeaux estates, many worth more than £100 a bottle, were poured at festivities due to continue until 4am on Saturday with a roster of DJs flown in to play through the night at the Ibiza-style beach party" [Guardian ibid].

...and Prince of Oil & Gas

Rothschild's Montenegro extravagaza wasn't just to celebrate his bringing Indonesian coal (almost literally) to London. On 9 July 2011, along with ex-BP boss, Tony Hayward, Rothschild launched a his new opil and gas investment vehicle,Vallares (sic), on the London Stock Exchange, raising no less than £1.35 billion in the process.

The Financial Times reported that Vallares was "mostly backed by UK and North America-based investors and unnamed Middle Eastern sovereign wealth funds" - though one of these was named: Mubadala Development, the Abu Dhabi state-owned investment vehicle.

Schroder Investment Management Ltd, Scottish Widows Investment Partnership Ltd , and BlackRock Inc were among Vllares' biggest institutional investors, and Paulson & Co among the hedge funds.

Goldman Sachs Group had also joined the band wagon from the outset [FT 10 July 2011].

Just prior to this remarkable - but barely publicly-scrutinised - admission of yet another Rothschild investment vehicle on the London Stock Exchange, Richard Lambert, a former director of the UK's Confederation of British Industry (CBI), had some important lessons to draw:

"[Vallares], as the prospectus coyly acknowledges, is a newly formed entity with no operating history, no revenues and no basis on which to evaluate its ability to achieve its objectives".

"So what do we learn from this?", asked Lambert.

"First, that the world is in the grip of a commodities boom. Vallares intends to make substantial investments in oil and gas. The directors think that the supply of commodities will not rise to meet demand in a globalising world, and that price inflation is a given.

"The next message is that if you want to find value in natural resources you have to be willing to fish in murky waters. There are no bargains to be found in transparent markets such as those of the North Sea".

Said Lambert: "Vallares 'aims to generate value for shareholders by focusing on opportunities where there is less visibility on transaction pricing due to a combination of context and geography'.

"Mr Rothschild showed what this meant last year when another of his vehicles made a large deal with one of the dominant business families in Indonesia, a country long seen as being on the wilder shores of capitalism.

"Vallares also provides a model for the art of prospectus writing. Speculative investment in sporty assets is as old as the Stock Exchange. But Vallares has a much more respectable concept to promote. It aims to release what it calls the “trapped value” that is to be found, especially in rougher parts of the developing world, in natural resources. These are held under complex ownership structures, a long way from the governance rules that are required before institutional investors can take an interest.

"You unlock this value by putting a respectable board of directors on top of the notepaper, by appointing managers with a strong following in financial markets, by pledging to follow all relevant corporate governance codes and by listing the shares on the London Stock Exchange, preferably on a scale that gets them into the FTSE 100 index."

And hey presto!: "Suddenly investors who might previously have run a mile are queueing up to buy.

"The [Vallares] prospectus certainly does not play down the risks of this exercise. These are spelt out in detail in more than 20 pages, along with other pages of disclaimers and the like. However, investors are not going to have to wait long to find out whether they are going to make money. If Vallares fails to make a big acquisition within two years, most of their funds will be returned to them.

"If all goes well, everyone will be happy. You can’t work out from the prospectus just how much the key protagonists might make from finding a successful acquisition, but it could be scores of millions and maybe a lot more".

However, concluded Lambert: "[T]here are still a few unanswered questions. It never occurred to those of us who helped launch the FTSE 100 index 27 years ago that one day it would be providing a cloak of respectability and lots of passive investors for companies that challenge the canons of corporate governance, such as Vedanta, ENRC, Kazakhmys, Fresnillo.

"Perhaps it is time for those responsible for the index to rethink its purpose.

"The more important challenge is for...John Kay, who was appointed last week by the government to conduct an investigation into investment in UK equity markets and its impact on the performance of UK-quoted companies.

"His exam question must be this: what is it about the way the fund management industry works that makes it so easy to raise money for a vehicle such as Vallares, and so hard to find equity capital for the long-term investment on which our economic well-being depends?".

See also: PT Renaissance Capital