How the World Works 101

This image has an empty alt attribute; its file name is bd235f09ab647a195ab50725b7d7df5e-uk-beaches-newcastle.jpg
Nobbys Beach, the City ocean baths, the breakwaters, Stockton to the north, Fort Scratchley is there somewhere … but that is a (rather fuzzy) pictorial version of the mouth of the Hunter River in Newcastle, NSW.

We’re in Newcastle at the open mouth of the Hunter. A land of amiable bogans, locked door nightclubs and unabashed brothels, long beaches and fast food, plus remnants of history undissolved by the earthquake. Along with regular hints of the red and blue of the Knights. The second last time we were there we went to a Knights game, explained we were neophytes and the lady in the box gave us seats on the centre line six rows back, the best in the house, for the cheapest price. That can happen in Newcastle.

And, if p then q, if the Knights … then the Johns brothers.

This image has an empty alt attribute; its file name is screen-shot-2022-10-06-at-3.09.10-pm.png
The Johns brothers: Joey on the left, Matty on the right

Matty (who styled himself as Reg ‘Bring back the Biff’ Reagan, so seamlessly) had a nice step but once having stepped seemed to leave a lurid trail of scandal wherever his feet took him. Younger brother Andrew, ‘Joey’, went a long way further in the game. Four times Halfback of the Year (Australian rugby league we’re talking about here), won the Dally M three times for the NRL’s best player, five times fans’ player of the year, twice in 1999 and 2001 awarded the Golden Boot for world’s best player (a boot for rugby league? Weird), and in 2012 anointed as only the eighth, and some would claim the best, ‘Immortal’ of rugby league.

Except he was and he wasn’t.

Yes he was nominated. But in the light of all that other business, the nomination’s status appeared to remain fluid. He was found in London by the constabulary with a tab of ecstasy in his pocket. Where someone had slipped it. Unbeknownst to him for a start: later, beknownst. On his own subsequent admission he had used drugs all his playing career although not necessarily while playing. As explained, their use was designed to ameliorate his bipolar tendencies. Possibly. There were the unfortunate and apparently uncontrolled rants at Aboriginal players, notably including Greg Inglis who might have been as good as he was. Then the awkward business of passing inside information about a horse before a race, embedded as Joey was in the high society of the racing world. After all this and more seeped out through the media, his immortality became moot.

To overcome widespread public criticism of his drug use, the rules for designation as an ‘Immortal’ were changed. Candidates are now to be judged on their playing ability alone. Nothing else. If you’ve been the best in the world, the rules can be changed to suit with only slight compunction.

And then of course there’s Daniel Johns of Newcastle, no relation, confined to his Silver Chair.

This could be just an interesting digression, but it’s actually a suitable entry to a story largely about appearances.

• • • • • • •

The Hunter might be the divide on the east coast which distinguishes the communalism of the south of the country from the rugged individualism of the north. From tidy, well-defined (boring?) towns to clumps of bush wrenched out and planted with 17 houses, a servo and a Bunnings with a view through the trees, somewhere, across a valley, to a Coles, a primary school, a The Coffee Club, a car park and an earth moving depot.

But this valley and its environs are also very beautiful. And fertile. In some ways its discovery by the European trespassers less than 100 kms north of Sydney saved the infant colonial project. In 1811 Governor Macquarie deemed the quality of its soil to be ‘excellent’ and granted land to a group of free settlers before opening access more widely. (I note in passing it wasn’t his or the Crown’s to grant, but that would be understood.) The foundations of the wine industry had been laid in the Hunter when the population back in Sydney was still wrestling to find a route across the Blue Mountains. The first coal was found there in 1791 by a group of escaped convicts and a settlement for the purpose of mining was set up in 1799.

None of that provides the reason why I like Newcastle. But I do, a lot. Never had a bad time there. It has a subterranean buzz that suggests vitality and a reasonably harmless sort of wickedness. Bob Hudson’s Newcastle Song might help explain.

On this day we are walking along the beach. We thought we would walk from the Merewether Ocean Baths to the City Ocean Baths — I haven’t said; Newcastle has ocean baths, wonderful if ice-cold when I have tested them — along the shore path which has a name, two names actually, the Yuelarbah Track and the Memorial Walk. Gorgeous day.

This image has an empty alt attribute; its file name is screen-shot-2022-10-03-at-2.08.00-pm.png

Not my photo, an old one from the Newcastle Herald before the Memorial Walk had the tape taken off its railings. But Merewether Baths are there in the far distance. And, a memory, when we walked past the park to the right of the coastal road a group of people were playing, with a much larger group watching, quidditch. Quidditch. In Newcastle. Almost perverse.

This image has an empty alt attribute; its file name is screen-shot-2022-10-03-at-2.06.37-pm.png

Not my pic either. It’s more theft from the Herald, but besides being a whizzo pic it introduces us to the flyover section of the Memorial Walk which from the ground looks like this.

This image has an empty alt attribute; its file name is screen-shot-2022-10-03-at-2.07.15-pm.png

The Walk celebrates the centenary of the ANZAC landing at Gallipoli, and you can see some of the soldiers being memorialised in silhouette at left above. They’re in steel because, in a splendid one-two punch, The Walk also celebrates the 100th anniversary of the founding of the iron and steel industry in Newcastle. Rio Tinto and BHP both made significant contributions to the structure in money and kind. That arty wave is stainless steel.

The steps of the first photo lead to the King Edward Park lookout that provides 360 degree views described in the literature as ‘breath taking’. We were lazing there, me thinking about steps and knees and Myrna looking out to sea. ‘Look,’ she said. ‘There’s two big boats out there. What are they doing?’ I looked as instructed and counted not two but seven. Huge tankers. Just parked. A day later we were with some friends at Mannering Park and Nick scoffed at seven. He’d seen 34 lined up.

In 2020 169 million tonnes of thermal and soft coking coal mined in the Hunter were exported via the port of Newcastle. It is the world’s largest coal export port. The port authority has recently announced the port’s operations will be powered entirely by renewable energy by 2040. (I like to inject humour into these blogs where I can.)

• • • • • • •

A day or so later we are driving the scenic route to Bathurst up the Hunter via the Golden Highway reveling in the rich pasture, the horse studs, the frequency of the stands of original forest that are still there, remembering that Kerry Packer established one of the world’s slickest polo fields near here. And suddenly, most abruptly — or had I just not been noticing — there are the naked colours and sharp benches of an open cut mine. At Warkworth. And then, after ‘suddenly’, came kilometre after kilometre of the exposed surfaces of the same mine. It went on and on. And came as a shock. But why would it? 169 million tonnes of coal have got to come from somewhere. And it’s here.

This image has an empty alt attribute; its file name is screen-shot-2022-10-08-at-12.25.37-pm.png

This screen shot covers approximately 3600 square kilometres. You can decide what proportion the mines, coal mines, thermal and soft coking coal mines, take up. In the left hand corner is the north-eastern verge of the Wollemi National Park. People like Eddie Obeid and Ian Macfarlane would wonder why. The seam from that mine at Warkworth probably takes you south-west? Let’s do it!

The mine we were passing was ‘United Wambo’. I know that because I saw the sign.

In August 2019 the United Wambo coal project was approved by the Independent Planning Commission, New South Wales to extract an additional 150 million tonnes of coal at a rate of up to 10 million tonnes per annum over a period of 23 years, which is to say until 2042. So that would be the IPC rather than the IPCC which may have made a different determination.

I also noticed it was owned as a 50:50 joint venture of Wambo Coal and United Collieries, suitably indecipherable generics. I thought it might be interesting to find out who or what ‘Wambo Coal’ and ‘United Collieries’ were.

Wambo Coal is an entity fully owned by Peabody Energy Australia Pty Limited which in turn is a wholly-owned subsidiary of US-based coal company, Peabody Energy Corporation, the largest ‘pure play’ coal mining company in the world. ‘Pure play’ means ‘does nothing else’; just coal, wherever it can be found, and primarily for burning to power turbines which generate electricity. A dead set fossil fuel, pretty close to pure carbon. When burnt, carbon combines with oxygen in the air to produce carbon dioxide. Etc.

Here’s Peabody Australia’s Financial Statement as published publicly.

New glasses? Sure. Give that a go. Might work.

United Collieries on the other hand is a partnership between Glencore (95%) and the Construction, Forestry, Maritime, Mining, and Energy Union (5%). That’s smart isn’t it? Making the Union a partner. That’d be likely to cut down on strikes and associated bolshie behaviour.

And Glencore … Glencore might be a major contributor to the well-being of NSW (and Australia). Oddly, the page I first opened at the cafe in Denman to prove this has been taken down just a week or two later. I have been present at a change in company branding! I admired the original because it was so fulsome, a work of marketing artistry, suggesting that the company’s extraction of coal has always been little more than a byproduct of its operations if not an afterthought. But that particular page is not there anymore. Instead of environmental good works, scholarships for Indigenous kids and pumping huge amounts into community playgrounds — it’s the economy stupid.

And for Australia as a whole:

I have no reason to doubt those figures nor their positive implications and consequences. Nor do I expect all coal mining to cease immediately. I’m just interested in trying to untangle the stories underneath all this.

Glencore (sometimes Glencore Xstrata), of which I had heard but knew little, is the largest company in Switzerland and somewhere round the 480th largest company in the world. But it is not the largest miner. Its core business is commodity trading and it is the largest commodity trader in the world — Global Energy Commodity Resources. In 2021 it held assets valued at US$127.510 billion. Its operating income for that year was US$8.515 billion and its net income was US$4.349 billion.

What’s a commodity trader? A person or more commonly now a business which buys and sells ‘commodities’. Like all traders, commodity traders make their money from exploiting the gap between purchase and sale price. Oil and gold are two of the most commonly traded commodities, but markets also exist for cotton, wheat, corn, sugar, coffee, cattle, lumber, silver, other metals — at present cadmium and lithium are hot trades — and yes the proverbial pork bellies indicating the significance of pork, and bacon especially, to the world’s diet. And coal.

It’s not that simple of course. No one is holding up a bag of coal (except Scomo) and saying ‘What’ll you give me for this?’ Most commodity trading involves the purchase and sale of ‘futures contracts’. A futures contract is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other, … and you buy and sell those contracts. The commodity is to some extent notional and the process is, usually and straightforwardly, a form of gambling.

(Just as a matter of interest in 1970 more than 90 percent of the contracts traded related to farm produce. More recently more than three-quarters are related ‘financial instruments’, sometimes like the bundles of worthless (‘subprime’) mortgages which generated the Global Financial Crisis of 2008 and brought the Lehmann Brothers financial institution tumbling down.)

The original use of futures was to mitigate the risk of price or exchange rate movements by allowing parties to fix prices or rates in advance for future transactions. It is not a new idea. It is thought that the first version of this occurred in Japan in the late 17th century when samurai wanted a fixed price for rice (in which they were paid) after a series of bad harvests. Another source provides evidence of the Sumerians trading in this way in 4500BC.

There is endlessly more, but suffice it to say that while Glencore dabbles in food production and processing, crude oil production and is a huge international miner with interests in a very wide range of products, its primary business has been commodity trading.

• • • • • • •

Marc Rich was initially its beating heart. Here’s Marc looking the slick, stylish and charming person his customers and others who knew him consistently described him as.

He was born Marcell Reich in Amsterdam in 1934. His family left there in a hurry in 1941 fleeing the Nazis. In the US, that land of succour, his father found fertile ground for his entrepreneurialism: in serial form jeweller, bag manufacturer, trader in agricultural products and, eventually, financier. Marcell Reich changed his name to Marc Rich and then proceeded to turn his new name into an ideophone. He left college after a semester and got a job in the mail room of Philipp Brothers, a brokerage firm. (The mail room. What even is a ‘mail room’, and why do mail rooms so often figure in the biographies of tycoons?) In the mail room Rich met Pincus Green and they forged a partnership that accelerated them upward through the ranks. After a decade Rich was running the company’s operations in Cuba, Bolivia, and Spain learning about both metals trading and working in third world countries. Then in 1974 he and Green decided to go out on their own setting up Marc Rich and Co. in Switzerland. Via a few hiccups from trying to corner the world zinc market, this eventually became Glencore Xstrata Plc.

Quite soon after branching out on his own Rich became known as the ‘King of Oil’. His particular genius was spot trading. This is where you do hold up a bag of oil and say ‘How much?’ Two days later you’ve got money in your bank account (what is known as a ‘T+2 deal’, the most common type) and your customer has got their oil (or coal, zinc, cadmium, etc. but in this case right here mostly oil). He was so successful because of the agility of his trading. The standard practice of the big oil firms was to plod through a process of establishing long term fixed price (and both public and stable) contracts with their customers. However, if you were suitably prepared, Rich could give you a deal right then, on the spot. This became one important template for the practice of modern commodity dealers.

That was one aspect of his commercial genius. The other was that he didn’t mind where he got his oil, or other commodities, from … and he didn’t mind to whom he sold them.

His time at Philipp Brothers had provided an opportunity to develop relationships with various problematic régimes and embargoed nations. He provided oil and other commodities to, for example, Fidel Castro’s Cuba, Marxist Angola, the Nicaraguan Sandinistas, Muammar Gaddafi’s Libya, Nicolae Ceaușescu’s Romania, and Augusto Pinochet’s Chile among others. He made his first really big money out of trading with the South African government when it an international trade pariah because of its apartheid policies.

In 1979, in the throes of the Iranian Revolution (Shah out; Ayatollah in), Rich used his special relationship with Ayatollah Khomeini to buy oil from Iran ignoring the American embargo. For more than 15 years Iran became Rich’s most important supplier of crude oil. In a ridiculously perverse way, during that time Rich kept Israel supplied with oil delivered through a secret pipeline from Iran. At the same time he managed to help Mossad build a network of contacts in Iran and other Middle Eastern countries. He also had extensive association with Russian mafiosi, some of whom have now become members of that country’s energy and commodity oligarchy. One of these, Marat Balagula, has his profession described as ‘mobster’.

Rich (who died in 2013 aged 78) told biographer Daniel Ammann that he had made his ‘most important and most profitable’ business deals by violating international trade embargoes. ‘He had no regrets whatsoever…. He used to say “I deliver a service. People want to sell oil to me and other people wanted to buy oil from me. I am a businessman, not a politician.'” He would not be alone in holding that perspective.

In 1981 Rich and Marvin Davis bought the media company 20th Century Fox, but due to an indictment filed against Rich for violating US trade sanctions against Iran, his assets including his holding in 20th Century Fox were frozen. He sold his holding to Davis who sold the lot on to Rupert Murdoch.

In 1983, Rich and Pincus Green were indicted on 65 criminal counts, including income tax evasion, wire fraud, racketeering, and trading with Iran during the oil embargo. The charges would have led to a sentence of more than 300 years in prison had Rich been convicted on all counts. At the time, it was the biggest tax evasion case in U.S. history.

Rich fled to Switzerland and, always insisting that he was not guilty, never returned to the US. Rich’s companies eventually pleaded guilty to 35 counts of tax evasion and paid USD90 million in fines. Rich himself remained on the FBI’s Most Wanted List. At that time it is believed that his personal fortune was in the arena of USD2.8 billion. He lived out his life in a heavily protected villa on the shores of Lake Lucerne ‘surrounded by Renoirs, Monets and Picassos’.

‘How the world works’ this blog is titled.

On January 20, 2001, hours before leaving office, U.S. President Bill Clinton defied any sort of conventional expectation by granting Rich a presidential pardon. Two factors are believed to be involved.

One line of explanation is that Rich’s pardon had been bought. Denise Rich, Marc’s first wife, had donated more than $1 million to the Democrats, as well as around $150,000 to Hillary’s Senate campaign and $450,000 to the Clinton Library Foundation during Clinton’s time in office. (Sounds cheap in the middle of the figures floating round doesn’t it.)

Clinton himself cited clemency pleas he had received from Israeli government officials, including then Prime Minister Ehud Barak. We note here that one person’s criminal can quite possibly be someone else’s hero. Was Rich perhaps Robin Hood in disguise? He had poured money into Israeli charitable institutions over the years, including around USD150 million (That’s more like it!) into the Israeli Museum that so caught our eye when we were in Jerusalem. (‘Jerusalem’s Israel Museum’, I wrote, ‘is a world class institution with stunning exhibits. How could a country of 8.5 million (2 million in 1960) which is 70 years old have such a thing? Read the tags. … You can see, and feel, how the money has poured in, the vast nation-sized sums of money.’) Shimon Peres, Ehud Olmert, Shlomo Ben-Ami, Michael Steinhardt, Rabbi Irving Greenberg, … they all lined up to speak for him. In an interview with The New York Times Clinton agreed that, ‘Israeli officials of both major political parties and leaders of Jewish communities in America and Europe urged the pardon of Mr. Rich. Israel did influence me profoundly’. This sounds more likely to me.

• • • • • • •

Rich, what a story, is dead. Glencore lives on. Profitably.

The company’s history, however, is peppered with ugly stories: corruption and pay-offs in the Democratic Republic of the Congo, tax evasion, fraud and being the source of acid rain in Zambia, dodgy deals in the Emirates. In 2011, a Colombian court was told by former paramilitaries that they stole land and killed hundreds of its inhabitants so they could sell it to Glencore’s subsidiary Prodeco, to start an open-cut coal mine. The court accepted their evidence and concluded that coal was the motive for the massacre. This particular mine remained an issue for having no environmental management plan and distributing its waste in toxic ways.

In the Congo the acid waste from one of the company’s copper processing plants was directed into the nearest river creating a famous ‘acid waterfall’ and making the water impossible to use for domestic or other purposes. CEO Ivan Glasenberg said this problem was historical occurring before the company took over the mine. There were also issues at the same mine with children as young as 10 working underground. Glasenberg described this as a cultural practice which the company was trying to eradicate. In 2013 and 2014, in direct violation of international law a subsidiary of Glencore Xstrata was awarded two offshore drilling licences off the coast of occupied Western Sahara.

In May this year, Glencore pleaded guilty to charges from the US Futures Trading Commission of corrupt dealings with foreign governments and corrupt practices related to commodities, and agreed to pay a USD1.8 billion fine. On June 21, a British subsidiary of Glencore again pleaded guilty to seven counts of bribery laid by the UK’s Serious Fraud Office. These charges related to oil operations in Nigeria, Cameroon, Equatorial Guinea, Ivory Coast and South Sudan between 2012 and 2016. The SFO found that over USD28 million in bribes had been paid to officials for ‘performing their functions improperly’.

Can you make an omelette without breaking eggs? That might be what they’d argue. Massive operations all over the world, only a small proportion of which were problematic. A lot of what was going on was just how you do business in that locality. The West would suffer and complain if it didn’t have these commodities readily available. If Glencore wasn’t doing it someone else would have been … and so on. What was it Mr Rich said again? ‘I deliver a service. People want to sell [coal] to me and other people wanted to buy [coal] from me. I am a businessman, not a politician.’ Shrug.

From 2017 to 2019 the company ran (instigated and paid for really in order to deflect possible blame) a large-scale, globally coordinated lobbying campaign to promote coal use ‘by undermining environmental activists, influencing politicians and spreading sophisticated pro-coal messaging on social media’. In October 2020, Glasenberg (now retired) argued that there was no environmental benefit in divesting from coal assets since the spun-off coal mines would likely be taken over by other players without any regard for the Paris climate goals. He instead argued for capping coal mine production, thereby running them down, and using the cash generated this way to increase the production of other raw materials in high demand due to the global energy transformation. Glencore has said it plans to reach net-zero carbon emissions by 2050 aiming at a 40 percent reduction in its carbon footprint by 2035 compared to its 2019 levels, making them on track with the Paris agreement on climate change.

• • • • • • •

‘In August 2022, the market predicted that Glencore would deliver a record profit due to its ability to thrive in volatile markets, and particularly because of its coal business that is growing rapidly during the 2022 global energy crisis. The use of coal, even in Europe, is increasing by double digit percentages as it replaces expensive natural gas from Russia. While traditional mining companies such as BHP Group and Rio Tinto Group have experienced a slowdown due to a lower demand for iron and copper ores by China, Glencore was able to increase its business mostly with coal, despite the dirty image this form of energy has. Business analysts forecast that Glencore’s dividends could exceed $10 billion in total in 2022.’

So everything’s okay then. The port of Newcastle with its renewable supplies of energy can power up and power on, and Joey Johns can forever remain Immortal.