My new novel, Red Metal, is now available, and you can buy it here. It’s the story of the battle between the CEO of a copper-mining company and the hedge-fund manager who decides to shake him down or take him down.
The first chapter is below. Please share the news with anyone who might be interested, and click here to receive email updates about Red Metal.
Twice a year–once in the spring after the chill vanishes, and again just before it rematerializes in late fall–the CEOs of the world’s major mining companies gird for battle, board their Gulfstreams and head toward Teterboro, their metropolitan New York airport of choice, across the Hudson and just 12 miles northwest of midtown Manhattan. Invariably, they travel with a small entourage–a pilot, a co-pilot, a CFO, an investor relations VP, a PR executive (normally the sole woman in the group), and a junior staff member who keeps track of everything from restaurant reservations to thumb drives. They’re met by a limo or two, depending on the size of the group, and whisked to the St. Regis, the Waldorf Astoria, the Four Seasons or the Peninsula.
The CEOs drop anywhere from $1,000 to $4,300 or more a night for their suites. In return, they enjoy a bed the size of Montana, a room-service menu featuring $8 Cokes and $65 filet mignons, and at some hotels, a personal butler on call 24 hours a day. Mostly, they want a night of peace and luxurious isolation before their next day’s ordeal.
They come for one reason: to run through their PowerPoints at mining-related investor conferences. They get 20 minutes plus a Q&A session to wrestle whiz-kid analysts–often the same age as or younger than their children–into believing the stock of their company is worth buying, and worth buying now. Analyst recommendations have a strong influence on stock price, so winning their favor is an important part of a CEO’s job.
Beginning about two weeks in advance, the CEOs’ lawyers, advisors and handlers help them work through their spiels and practice answers to any and all questions that might surface. Their real job, though, is to try to coat the CEOs with a temporary veneer of civility. In the cocoon of power surrounding them, CEOs don’t often get challenged, and most of them have to be coached to forego the withering looks and tongue lashings they dispense so easily to those summoned to their corner offices.
Some wear their masks better than others. They’re the ones who enjoy the game of matching wits with the best, newly minted MBAs from Harvard, Wharton and Columbia.
Others have all they can handle to keep the veneer from cracking. Not far beneath the surface, they resent having to court little pissants who’ve never had to fight a union, wrangle a price concession from a supplier, or negotiate a decent interest rate from a lender. About a decade ago, one of the pissant haters caught my eye.
I’m David Brown, and I started Galileo Capital Management in the late 1990s. I was 33 at the time. You’d call me a hedge fund manager–and I was–but I’d ask you to believe we’re not all cut from the same cloth. Or at least entertain the idea. I wanted the money, of course, and when I started out, I played games like “short and distort.” I’d sell a stock short; spread a few, well-placed rumors to create a panic; and make several million when the stock price fell and I bought shares back to cover my position.
That kind of thing works–you see it every day–but eventually I stopped. I might have had a pang of conscience or two. Mainly, though, I figured instead of playing games, I could rake in a lot more money by making sport of CEOs who can’t feel the intensifying tremors preparing to shake their world to its foundations. Which is why, in the spring of 2005, I went to the Albright Swanson Mining Investor Conference at the St. Regis to watch Jeff Fowler in action.
Fowler’s company, Red Metal Corporation, mined copper, and a lot of it. Three billion pounds a year, to be exact, whenever copper prices turned for the better and its mines revved up to full production. Do the math. Every penny increase in copper price meant $30 million more in sales for Red Metal, and prices had jumped from 70 cents a pound at the end of 2002 to $1.50 in the spring of 2005. That multiplied out to about $2.4 billion a year more in revenue–or a billion and a half in pre-tax earnings–with more to come if copper prices continued to climb (and they did). Red Metal’s stock price had more than doubled in two years. Naturally, the company scrambled to turn out every pound of copper it could scrounge from the ground in Arizona, New Mexico, Chile, Peru and Australia.
Fowler’s session took place in the Versailles Room, which, true to its name, is all gilt-and-glass chandeliers, plush carpet and drapes, ceiling rings and medallions, velvet flocked wallpaper, and paneled mirrors. It could have been airlifted from France and dropped whole cloth into the second floor at the St. Regis. When I entered, I had my first real look at the man from Arizona.
You’d spot him immediately as a CEO–tall, balding and brawny, more than big enough to dominate the lectern he’d be using, and dressed according to the code of the time, nearly–white shirt, red tie, but in a gray suit a few shades lighter than the usual charcoal gray. New Yorkers would mock it, but it probably withstood the heat better than standard-issue gray in the convection oven that is Phoenix five months a year. Someone had thought to add a nicely patterned, dark-red pocket square for a touch of style.
Fowler made the trip to New York when he had to, but I’d read, besides mining and his family, his only other pursuit was hunting big game in the West. “If I had my way, I’d be happy if I never had to travel anywhere east of Denver,” he said in the Forbes profile published when he became CEO in 2000.
Other CEOs used the time before presentations to allow the Albright Swanson session moderators to schmooze them. Fowler couldn’t be bothered. He stayed nose down and head down in whatever words or numbers held his attention, warding off any attempts by attendees or moderators to make small talk with him.
He looked up shortly before his time began, perched three feet above us on the podium erected for the event, scanning the room. One moment, he resembled a bald eagle scoping out his prey. The next, he seemed more like a buck making sure he knew whether any predators lurked nearby.
About 80 of us, nearly all men, sat in the rows of padded chairs facing Fowler. I looked fairly fresh because I had popped in just for his session. The others wore dark suits that had wilted and wrinkled during a morning of nonstop sessions. Some held white Styrofoam cups of stale coffee, others rifled through packets of information accumulated from the day’s presentations. Opaque shades covered the windows, but the ceiling-mounted projector threw off enough light to make us visible from the dais.
Fowler must have known some attendees, but he acknowledged no one. His eyes caught mine, and he took a few seconds to size me up. I felt I had been tagged and filed away in his brain for future reference.
I don’t intimidate easily. I’m a Wharton grad, after all. By comparison, Fowler’s alma mater, the University of Arizona, paled in prestige. But I had to admit, he stacked up as a potentially formidable opponent. The Forbes profile said he held degrees in law, accounting, and mineral economics, whatever that was. He’d beaten out mining executives with seven to 10 years’ more tenure to become the CEO of Red Metal. And, I knew, he had spit out three investor relations executives in five years. Good ones, too, I thought, but apparently none with enough game to please Fowler.
As I said, these presentations had the sole purpose of convincing analysts why they should buy a stock, and why they should buy it now. Like any other CEO, Fowler blew through the obligatory safe harbor pitch (which boils down to “any forward-looking statements may or may not be bullshit; we don’t think we’re lying, and we’re acting in good faith, but are we deluded? Overly optimistic? Judge for yourself.”) Then he cut to the rest of his slides.
He had his material down cold–every number, every phrase, every fact. He had rehearsed so well that, instead of checking his notes, he watched the audience to monitor their reactions. He didn’t rush, and he didn’t dawdle. He never lapsed into “ums” and “uhs.” He stumbled only once, over the word “molybdenum,” a metal sometimes found with copper. He even sparked a little laugh when he said, “You know what? Let’s just call it ‘molly’ from here on out.”
I’d heard him described as introverted, but that didn’t keep him from projecting an authority that conveyed command of his time and space. He might not have enjoyed speaking, but I could tell he demanded perfection of himself. Chances were he demanded it of those around him, which isn’t necessarily a good thing for someone who’s supposed to be focused on creating a vision and a future for his company.
Fowler made a simple pitch. The worldwide increase in demand for copper, especially from China, meant good things for Red Metal. His company knew the business well. It had been mining copper for all of its 130-year history. Its hard-nosed management kept Red Metal from bankruptcy during the last downturn in copper prices, and the company’s conservative management would avoid doing anything reckless with its newfound fortune. The money would be used for four purposes–to invest in existing businesses, improve the quality of its asset base, strengthen the balance sheet, and finally, reward shareholders.
When he finished, one of the whiz kids stepped into the ring with him.
“Jeff, it appears we have a question from our own Mark Hall of Albright Swanson,” the moderator said.
Mark couldn’t have been more than a year removed from his MBA program. He looked the part. Navy blue suit, highly starched white shirt, red tie, horn-rimmed glasses, neither tall nor short, trim, ramrod erect, a full head of curly hair, and a tilt of the head that made him seem just a bit cocky.
“Mr. Fowler, from time to time, Red Metal is rumored to be in the hunt when another copper-mining company is up for sale, but you never pull the trigger. Companies who make the acquisitions have seen them do well, and these days, with copper prices where they are, it seems you’d have little reason not to be aggressive in buying another company. Will you continue to be as conservative as you have been when it comes to pursuing these opportunities?”
After a smirk he made no attempt to hide, Fowler shook his head and replied: “It’s Investor Relations 101 not to comment on any specific opportunities we may or may not be pursuing, as I’m sure you learned in school. I also don’t comment on opportunities we may or may not have pursued. Are we conservative? Sure, and thank God we are, or we would never have made it through the last tanking of copper prices. Being conservative, in fact, has gotten us through 130 years.
“You’re seeing an extraordinary spike in copper prices, and I’m sure you can think of all kinds of ways for us to spend our new money. But I’ve been in this business long enough to know the bottom can drop out overnight, and it’s damned tough to make it through the hard times. For once, I want to go through the next downturn–and there will be one–with a cushion.
“We’ll look at any decent investment, but I’m not going to go on a buying spree just because happy days are here again. Besides, wouldn’t it be smarter to hold onto our money and buy later, when company valuations are down again? We understand the business, and we’ll manage it for the long haul. We’ll share the wealth with our shareholders–we plan to, when it’s appropriate. Maybe you’ll understand if you stick around a while.”
Mark’s shoulders sagged, and his eyes fell to the floor. Fowler might have had the short-term satisfaction of chastening him, but if Mark proved to have a long career as a copper analyst, he could strike back in numerous ways in coming years. Not a smart move on Fowler’s part, I thought.
The Red Metal CEO took a few more questions, answered them with all the grace of a pro wrestler, and said a quick, perfunctory thanks when the session ended. He left the room with his CFO and Todd Williamson, his investor relations VP, doing his blocking and tackling. People tried to stop him, but the VP intervened and told anybody with a question to email him, not Fowler. If he could, he’d respond later.
I followed, watching Fowler stride through the hallway and disappear into the elevator. I took a few minutes in the hallway to listen to people react to Fowler’s remarks.
“Pretty damned sure of himself.”
“Smart guy, for sure. Tactful, no. Smart, yes.”
“He doesn’t tolerate fools lightly. He seems to think we’re mainly fools.”
I’d heard enough, so I took the stairs, left the hotel and walked to my office to come to a decision about whether it would be worth investing time and money to take down Jeff Fowler and his old-line, out-of-step company.
(Click here to buy Red Metal.)