THE Perth Mint is reaping the benefits of a silver, or rather golden, lining from the ongoing worldwide economic malaise.
Periods of uncertainty in the global economy seldom have positive spin-offs for business, but that’s certainly not the case for The Perth Mint, which is raking in profits from offshore investors and cementing its position as one of Western Australia’s top exporters.
The mint is state-owned Gold Corporation’s main trading entity and has reported a 42 per cent rise in profits for the 2011-12 financial year – growth chief executive Edward Harbuz is expecting to continue.
The mint has increased takings from $28 million in 2010-11 to $40 million, largely thanks to the continued trend of investors choosing to put their money into gold assets instead of other traditional investments. As uncertainty in other investments continues, gold becomes more attractive.
It’s a trend Mr Harbuz said began shortly after the GFC, and resulted in sales of the mint’s value-added products (minted bars, bullion and collector coins) remaining at a high level during the 2011-12 financial year; such sales accounted for 86 per cent of all material exported.
A total of 290 tonnes of gold was exported from The Perth Mint in the last financial year; that which was not sold as a value-added product was sent directly to the London Metal Exchange.
Last year’s percentage sold as specialty product is actually a reduction on the previous year, when such sales accounted for 98 per cent of exports; but coupling the sales with a high gold price around $US1,600 an ounce has well and truly lined The Perth Mint’s pockets.
It has contributed to the value of WA’s gold export market increasing by 16 per cent to $16 billion in the year to June 30.
What’s interesting is the shift in how investors are choosing to buy their gold. The Perth Mint’s commemorative and bullion coins are typically seen as a more trusted option for investors, but Mr Harbuz said there had been an increase in small gold bars being sold to the Asian market during the past year.
“The market seems to level off and almost die and then some crisis happens or the IMF makes a statement; something goes wrong and you get a rush of orders,” he said.
The increased interest in small gold bars could be attributed to the Chinese government changing laws to allow people to buy products of that nature.
The Asian market was also boosted by investor demand for the commemorative ‘year of the dragon’ coins – among the most popular in the mint’s history.
Sales of the current ‘year of the snake’ coins were not as popular, but Mr Harbuz said orders were still strong He also expected there to be an increase in general coin sales to the Indian market around the upcoming diwali festival.
The mint’s coin and bar sales account for about one third of the company’s total revenue stream; investors taking advantage of the mint’s depository service account for another third.
During the past year, investors wanting to keep their gold assets in the Perth-based vault remained relatively on a par with the previous year. There’s currently about $3.5 billion worth of gold held in the vaults, up from $3.3 billion a year ago.
But the uncertainty affecting investors internationally has also begun to be reflected in The Perth Mint’s depository service.
Investors can either buy unallocated gold, which the mint uses as part of its working capital, or allocated gold, which investors can be confident is sitting in the company’s vaults and has higher charges attached to it.
Mr Harbuz said customers had started to switch from the unallocated service to the allocated gold, which had subsequently boosted profits.
The final arm of The Perth Mint business is the refinery, which collects, assays, and refines 99.9 per cent of all gold produced in Australia.
In the 2011-12 year that amounted to 180t, a 2 per cent reduction compared to 2010-11.
Given that the refinery business operates under very tight margins, and hence makes a profit on a volume basis, the reduced supply could have cut into the company’s profits, albeit on a minimal level.
However Mr Harbuz told WA Business News the company’s position had been improved due to offshore investors looking to cash in on the high gold price by sending whatever gold they had to be made into a value-added gold product.
“When the prices are this high people are just saying ‘look I want my money’ for whatever reason,” Mr Harbuz said.
“There was one bag that came in (which had) two solid gold teapots, we get all sorts of stuff.”
That increase in ‘scrap metal’ being imported mostly from Asian countries made up for the reduction in WA supply; meaning the amount of metal pushed through the refinery stayed at around 290t for the year.
Gold from WA makes up just over half the total gold refined, with metal from other parts of Australia accounting for a further 30 per cent. Imported and scrap gold accounts for 20 per cent of metal refined and subsequently exported.
The future success of The Perth Mint ultimately relies on strong gold prices. While demand for the metal remains high, so does the price, and it’s a trend Mr Harbuz expects to continue.
“I don’t foresee an easing of the economic uncertainty in the near future ... and we’re certainly not in a gold-buying bubble,” he said.
“Until your secretary starts telling you to buy gold, then we’re not in a bubble.”
