CHAPTER 13 Operationally Intensive Real Assets

This chapter focuses on investments that have a substantial proportion of their performance driven by operations related to real assets rather than the value of the underlying real assets.

13.1 Commodity Producers

Chapter 10 discussed natural resources as real assets that have experienced little or no alteration by humans. Investments in natural resources attract investor interest based on their perceived ability to serve as diversifiers against general economic fluctuations and the risk of unexpected inflation. However, direct and liquid institutional investment opportunities in natural resources are somewhat limited by the large extent to which global natural resources are owned by the public. Investments in firms with operations involved in developing natural resources are much more accessible. This section discusses investment opportunities of firms that transform natural resources into commodities and other goods and services available for consumption.

Each investment opportunity related to a natural resource may be viewed as lying on a spectrum, ranging from the purest plays on the value of a natural resource to those that are driven more by their operational focus than by the value of the natural resource related to their operations. For example, the rights to the mineral reserves of land containing copper ore are highly driven by the price of copper. The market price of an operating firm that mines and smelts the copper ...

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