Dear all,

Anjam and myself  had a highly productive and informative set of meetings 
with Andreas Barkchis of MG Metals NY on Thursday 20th July in the NY 
office.  Firstly we should say "thanks" to Andreas for being so helpful in 
addressing out numerous requests for information - we look forward to 
establishing a solid working relationship with him going forward.

Find below a summary of Version_1a for initial rough calculation of MG 
Metal's VAR.

Also Anjam, Kirstee (from London side) and Cantekin, Grant, Vince and myself 
(Houston side) have been working for last 2 days on the spreadsheet VAR 
model. 
The current status of this effort and a plan for future progress is 
summarized in the enclosed document:   
  
______________________________________________________________________________
_______________________________________________________
V@R methodology for MG Metals positions
Version_1a

Introduction
This document describes the initial rough model for calculations 
Value-At-Risk for MG Metals. This model will be implemented in a spreadsheet, 
which will serve as a prototype for the RiskTrac implementation. 

Risk factors
The following positions represent most of MG Metal,s risk and will be covered 
by Version_1a:
- Base metals, positions including:
- aluminium;
- copper;
- gold;
- lead;
- nickel;
- silver;
- tin;
- zinc;
Risk related to these positions will be quantified by simulating forward 
prices for each metal.
- Copper concentrate;
Risk related to these positions will be quantified by simulating TC charges.
- Cocoa beans;
Risk related to these positions will be quantified by simulating forward 
prices for cocoa beans.

Therefore these 10 curves will drive the risk: price curves for aluminium, 
copper, gold, lead, nickel, silver, tin, zinc and cocoa beans plus tc curve 
for copper concentrate.

Assumptions and simplifications:
- For each metal we are going to use a single price curve or all types of 
products (physical, financial, LME traded, Comex traded, scrap, alloy, stock, 
etc.);
- Delta, gamma approach for risk on options, positions;
 
Components required to implement V@R model: 
- current forward prices available from Mercur;
- current implied volatilities available through Reuters;
- current positions from Mercur;
- history of prices required to calculate factor loadings and correlations 
across commodities;   

Methodology
Version_1a will be based on Risk Matrix approach. We will calculate principal 
components for each metal and cocoa beans to take in account the correlations 
along the term structure. We will also calculate the correlations across 
commodities based on prompt month prices history for last 3 months. 
 
Portfolio hierarchy
Each position will be assigned to one of the following portfolios under the 
whole portfolio AGG-METALS:
- MG Metal & Commodity Corp.
- MG Ltd.;
- MG Metal & Commodity Company Ltd.;
- MG Metall Recycling GmbH, Ffm;

Under each of these sub-portfolio there will be the following sub-portfolios:
- Comex;
- Frame contract;
- LME;
- LME Alloy;
- LME Metal Index;
- Option Call;
- Option Put;
- Physical;
- Physical Alloy;
- Physical Real;
- Physical Scrap;
- Price Part.;
- Prov. Billing;
- Stock;
- Stock Alloy;
- Stock Comex;
- Stock Physical;
- Stock Scrap;