The Chilean copper bet, and the impairment that followed (2016)

The light and shadow of resource investment

Brunei LNG and the Chilean copper mine were the light and the shadow of one and the same business investment. The idea — commit capital to a resource and hold the rights — was identical; what differed was the turn of the market and the price at the moment of investing. Where Brunei bore a stable dividend on the tailwind of the oil crisis, the Chilean copper was bought at the peak of a resource boom, and its weight was learned in a falling market. The strength of holding rights for the long term turns, when the price reverses, into the weakness of an impairment. This one episode showed plainly the cyclical peril that resource business investment carries within it.

Mitsubishi, however, did not withdraw from Chile. Rather than exiting after the write-down, it held on through cost cuts and moved to raise output as the copper market recovered. The company as a whole, meanwhile, took this loss as a turning point to strengthen non-resource fields and press ahead with rotating its portfolio. How to hold the rights one has grasped, and when to recompose them — the question of business investment that began in Brunei has passed, by way of the wound in Chile, into today’s trading-house management, which competes over holding and rotation alike.