Dimitry, or Dima as he is called by his friends and family, is a phenomenal dealmaker. I was introduced to him one evening several years ago at London’s Arts Club and we have been friends ever since.
He runs a very successful mining-focused investment company, headquartered in London, and spends much of the year travelling the world in search of exciting investment opportunities.
While in Paris on business, I accidentally bumped into Dima near Place Vendôme. We greeted one another and agreed to meet for breakfast the following morning at the hotel he was staying in, right around the corner.
The next day I arrived at the Meurice Hotel, which is located near Musée du Louvre on rue de Rivoli. The hotel is part of the Dorchester Collection, which is owned by the Brunei Investment Agency (BIA). I know the BIA quite well and am in regular contact with a few of their investment teams.
Dima was wearing blue jeans and a dark green-coloured polo. His watch I couldn’t quite name but by the looks of it I would have said its price was north of $100,000. Easy. On the table in front of him rested a Vertu phone, a luxury mobile with concierge service. Next to it was a money clip with a stack of freshly minted €500 notes. A bit of loose change.
I noticed a tall man with dark glasses standing in a far corner of the room. I recognised him. It was the same intimidating giant who was always around when I met Dima. His bodyguard. I smiled at him and he just nodded blankly.
The conversation started…
Un cafe, un croissant et du jus d’ orange
Breakfast was served and we caught up on life. Dima was much older than me but we still related to one another and I suppose in me he saw a younger dealmaker. I didn’t bring up business. If he does it then fine but I won’t be the one to initiate it.
With stomachs satisfied and having caught up on personal matters, Dima changed topics.
“I’m flying to New York after tomorrow to look at an off-market retail real estate property,” Dima says to me. “It has brand new leases to a handful of top tenants. High pedestrian traffic. A trophy asset.”
“You buying?” I asked.
He nodded in the affirmative.
“How much?” I asked.
“$260 million. US Dollars. I will invest 50 million and a Singaporean family will come in with 100.”
“Can you bring your guys in?” He asks.
Hmmm. “One moment,” I said. I raised my hand to get a waiter’s attention. “Excusez moi.” The waiter quickly walked over. “Un autre café, s’il vous plaît.” This was going to be a long discussion and I needed some more coffee.
“I think I can,” I said.
What ensued is the subject of another post. Far more interesting is the story of how Dima made his initial fortune.
A somewhat ordinary start
Dima wasn’t born rich like the vast majority of those who have money these days. He made it entirely on his own.
What he had was years of solid work experience gained at established companies, a nose for business, a vision and the appetite to take risk.
He wasn’t a ‘born entrepreneur’ either. He never ran the cliche ‘lemonade stand’ as a five year-old or a small business out of a garage in college. He finished his studies and worked for others for quite some time. His employers included several large mining corporations and the jobs took him to different international cities around the world where he evolved as a businessman. It wasn’t until he was in his forties that he decided it was time to to do his own deals.
Never underestimate the power of an ‘option’
Through personal contacts he learned about a potentially huge iron ore mine deposit in Latin America that nobody was pursuing seriously (Note: iron ore is used to make steel). He researched it for months with great intensity and focus and even visited the grounds several times. He brought with him an experienced geologist to study the opportunity. Before long, he was convinced this was the opportunity of a lifetime. With rapidly growing iron ore appetite coming from Asia and a number of large, cash rich mining companies constantly in search of natural resources he realised he didn’t have long before someone else discovered the significance of the deposit. He had to get there first.
But it was far too expensive for him to buy. He didn’t have that kind of money. The local government wanted roughly a hundred million dollar commitment.
He carried out more research and consulted with more experts. It became an obsession. Finally he came to the conclusion that a hundred million dollars was in fact only a fraction of the potential value of the deposit. It was worth much, much more.
However, obsession led to concern as Dima knew that if he marketed his newfound discovery to others and people realised the potential value of the deposit then he’d be sidelined in a second. Big money – that is, global mining companies and mining investors – could easily marginalise Dima. They did it all the time with others.
Somehow he had to acquire the deposit. But how? Again, he had no money. An idea struck. He would go after the ‘right’ to acquire it. This was a practice he had encountered while working in the mining sector. It simply had to be done the right way.
He approached the government of the particular Latin American country. He brought along with him a few silver-haired men in suits. He had to look big and give off the impression that he was very serious and had a lot of money behind him. The government was so excited about the prospects of a windfall from a large mining project – governments tend to get a portion of revenues – that they believed everything Dima said.
When Dima and his paid-for entourage met with the government officials, business and drama / acting was fused into one. His vision, Dima told the audience, was to build a world-class mining operation which would benefit the country, generate significant revenues, create jobs and give back to the local community. His knowledge of the deposit, coupled with a controlled enthusiasm in the undertaking, gave the government officials a strong sense of confidence in the man.
“What are the next steps?” asked one of the officials.
“We need to carry out more research,” replied Dima. He had a plan. “There will be a lot of money at stake so we would like to be 100% confident before we commit fully and invest.”
That was a tactic to buy himself time.
Dima went on. “In order to put all our resources to work on this transaction we would like an official agreement that we will have the option to buy the land and mining concessions for 100 million dollars.”
That was a tactic to lock in the price. He had asked the government to agree officially and on paper to sell at that price and no more. Meanwhile, in his head, he knew the deposit was worth much more.
“We will pay $200,000 for the option and ask that it lasts 12-months. We also want exclusivity. During that time we will complete our research.”
So $200,000 was the size of the risk he took. And they accepted. Note, exclusivity meant the government would not sell to anyone else during the 12-month period.
In summary, Dima paid $200,000 for the right to buy a potentially humongous mine and had 12 months to pull the biggest stunt of his life.
Time is ticking
For the next three months Dima flew all over Asia to assess interest from the region’s biggest mining players. He had to find a company willing to buy the deposit. And not just at any price but at a massive markup.
Because the mine he held the ‘option’ to buy held such significant quantities of iron ore all of the organisations he met with were excited. The prospects of a deposit that large in Latin America was mouthwatering. Best of all, none of them could circumvent Dima now.
According to Dima’s valuation the mine was potentially worth billions of dollars. Therefore, in his discussions with potential buyers the price point was 1 billion dollars.
Several interested parties stated they would potentially invest 500 million dollars. However, one major mining powerhouse, which expressed very strong interest, said that, subject to due diligence, they would come in at 800 million dollars. Bingo. Dima took the conversation forward with that company. Following 6 months of feasibility studies, financial and legal due diligence and countless trips to the deposit by a team of in-house scientists, they acquired the asset in Latin America through Dima.
The Asian mining company paid $800 million dollars for an asset Dima had the option to buy for $100 million (a $700 million difference).
Dima didn’t pocket the whole difference because, as you may have expected, on any large deal many people are paid, especially in emerging markets, but suffice it to say he walked away with over $200 million.
You don’t always have to own in order to sell
The lesson is, if you find an undervalued asset then it’s possible for you to make a lucrative deal happen, even if you don’t have the money to buy it there and then.
You first need to determine the potential value of the asset. Is it worth $100,000, $1,000,000 or more? And why? You’ll have to do your research and get comfortable with all the different angles, elements and nuances at play which affect, upward or downward, the value of the asset.
Once you’re confident it is worth a lot more than it’s available for then you either buy it (if you have the money and are willing to risk it) or buy the ‘option’ (at a small price) to buy it at a fixed price in the future. Sometimes, depending on how well you negotiate, you can get the ‘option’ for free. I’ve seen it done plenty of times.
Scenario 1 – You buy directly: in this case the asset becomes yours and then you go after potential buyers and you sell and pocket the difference. It’s the simplest option
Scenario 2 – You get the ‘option’: in this scenario, after you’ve acquired the ‘option’, you go after potential buyers, sell the asset and you make the difference, minus the price of the option (‘Price you sell to a buyer’ minus ‘Price seller agreed to sell to you according to your option’ minus ‘Price you paid for the option’)
Example: the domain name ‘www.theibanker.com’ is for sale for $100. You think it’s worth $200. You ask me for an option to buy the domain for $100 which lasts 3 months and you pay me $10 for the option. Later you find a buyer who will pay $200 for the domain. So you sell the domain for $200 and pay me $100. Your initial cost was $10. So you come out $90 richer.
Usually, making sure you get paid requires careful strategising as well as legal expertise. Keep in mind, that the process is seldom smooth and easy. Nothing great comes easy.
Having said that, it’s important you remember that the market is huge: domain names, natural resources, real estate, cars, antiques, etc. Understand and appreciate the notion of an ‘option’ and the opportunities will appear before you in time. They’re all around us.
For Dima, exploiting an ‘option’ on a mining asset enabled him to pull off a once-in-a-lifetime deal. Now he can stay at Le Meurice as long as he likes.
What opportunities can you exploit and make a killing from by using an ‘option’?