Is the Perth Mint telling me the whole truth?

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09-11-2007, 10:28 PM
I am a USA customer of Perth Mint holding some unallocated silver in the certificates.

Before buying the certificates I had read warnings by Ted Butler regarding Perth Mint pools and risks involved. In principle I agreed with the general Ted’s assertions but at the same time I somehow bought Perth Mint’s particular claim to being an exception from the general rule.

"Unlike other depositories, which are merely warehouses, The Perth Mint is a manufacturer of precious metal products and through its interest in AGR Matthey, one of the world's largest refiners. Accordingly, the Mint has a substantial requirement for physical metal to support these operations."

"It does not lend client's unallocated metal to support short selling transactions or other derivative activities. The unallocated metal is utilized solely to fund the Mint's operations."

“With unallocated storage, also known as a metal account, clients purchase an interest in a pool of precious metal held by The Perth Mint. The Mint purchases an ounce of precious metal from the spot market for every unallocated ounce it sells to clients. Accordingly every unallocated ounce is 100% backed.  The precious metal purchased by the Mint is recorded on its balance sheet as an asset and the unallocated amounts sold to clients are recorded as a liability.”

To me they were implying here that Perth Mint has had a constant need to BORROW metals from refinery or clients. Which sounded logical and justifiable. 
As I have found much later in practice they BORROW from the clients and LEASE it to the refinery. In huge quantities.

Recently I have come across these warnings by James Turk, founder of the GoldMoney and editor of the Freemarket Gold & Money Report, regarding Perth Mint( alias Cold Corporation) unallocated PM and the rebuttal from Richard Hayes of Perth Mint:

Time to grab your gold and make sure it's not just paper promises
Gold certificates aren't gold, but allocated gold is a lot closer
Perth Mint replies: We're safe and government-guaranteed
Turk replies to Perth Mint: Exactly how was I 'misleading'?

The main gist of the James Turk’s assertion was that numbers in the Perth Mint’s 2002 Annual Financial Report seemed suspicious to him as a financial analyst and former banker : "2002 financial statement shows that it has approximately 4.5 times more debt than equity, fairly high leverage" and "Are you prepared to be a general creditor of Gold Corp., given that kind of leverage?"

The Richard Hayes’ reply : “Given Gold Corp.'s unique status as a government-guaranteed entity, it is clearly not directly comparable to a limited liability company. Hence, it is incorrect to imply that GC's balance sheet, as described in its statutory public accounts, is a relevant issue for PMD investors.” 

Turk was unhappy about 4.5(4.6?) in 1002. I got curios what had changed since then in respect to those numbers. After looking into Perth’s financial reports 2000 through 2006 I found that dynamic of ratio Total Liability / Total Equity was as follow: 

2000 – 3.65
2001 – 4.83
2002 – 4.61
2003 – 8.85
2004 – 10.36
2005 – 11.38
2006 – 18.18

Now I asked myself if Turk was concerned with 4.6 how I should feel about 18.18 ???

From those Reports I dug out that Perth Mint has leased more than 50% of its PM to AGR Matthey every year. The Perth Mint has a 40% interest in the AGR Matthey partnership. The other two partners are subsidiaries of Newmont Mining Corporation (40%), a USA based international gold producer, and Johnson Matthey plc (20%), a major UK company in the business of precious metals, catalysts and chemicals.

At AGR Matthey's site I found out that they are in part in the business of PM leasing along with
PM refining.

My problem with this is Perth Mint provides me with its Annual Financial Reports where I can see that my PM is leased to AGR Matthey but the AGR Matthey does not provide public with its Annual Financial Reports for everybody to see where those PM go from there.

I contacted through its distributor in the USA Perth Mint about my concerns. The distributor’s reply was, in part :

”This is all very old information. The Perth Mint has since dealt with
James Turk (offline). This Internet banter was unnecessary and invalid
and has since stopped.

The Perth Mint has assured unallocated and allocated bullion holders
that their metal is 100% bought and backed by the Perth Mint and the
State of Australia.”

I just wonder how exactly was James Turk dealt offline??? I guess it was easy to do because he is a competitor. I doubt it was done by just an explaining. My wild guess it could take some threatening…

Well maybe James Turk was convinced. Unfortunately I was not.

Later Nigel Moffett, the manager of Perth Mint, called me on the phone and we talked for about an hour.

In particular I expressed my wonder what is the purpose of the leasing of PM to a refinery (AGR Matthey) when it is supposed to produce PM. 

“To fund this work-in-progress inventory, the Mint traditionally borrowed metal from bullion banks, at cost. At the same time, there were investors storing metal with bullion banks and others, at cost.  The Mint realized that if it took deposits directly from investors, it could cut out the intermediary and create a win-win situation: the Mint wins by obtaining free funding for its inventory and investors win by getting free 100% backed storage.”

The Nigel Moffett’s answer was: for AGR Matthey to compete with other refineries it exchanges arriving for purification customer’s PM for pure PM at once and do the lengthy PM refining process later. For that it borrows PM from Perth Mint. This swap allows to save customer's time.

It sounded reasonable to me.

The snag is Perth Mint explicitly stated:

“To fund this work-in-progress inventory, the Mint traditionally borrowed metal from bullion banks, at cost. At the same time, there were investors storing metal with bullion banks and others, at cost. The Mint realized that if it took deposits directly from investors, it could cut out the intermediary and create a win-win situation: the Mint wins by obtaining free funding for its inventory and investors win by getting free 100% backed storage.”

There is mentioning of a need to BOROW but no mentioning of any need to LEASE in here. Now I am told they do need to do BOTH and in a very complicated manner.
And according to Nigel Moffett: NO, I cannot see those AGR Matthey’s Financial Reports. And YES, it is true that AGR Matthey leases PM to somebody but it does it on a very limited scale.

Very detailed explanations “How can unallocated be 100% backed, yet there is no storage fee” and definitive Perth Mint’s assurances about all the government guaranties here convinced me to invest with Perth Mint. Everything was simple than. No leasing and “investors win by getting free 100% backed storage.” and “Unallocated investors will need to rely on the Mint's audited Annual Reports, which are signed off by the State Auditor General to ensure compliance with the Financial Administration & Audit Act 1985 and the Gold Corporation Act 1987.”

Now I have very different dilemma: they do leasing a lot and I cannot see any of AGR Matthey’s reports, let alone Newmont Mining Corporation and Johnson Matthey plc. So what is the auditing value of being able to see only at most half of the relevant Financial Reports?

Now I have discovered that I have absolutely no transparency and no clarity to rely on.
I can only rely on the “The Government Guarantee section of this website provides further information on the relationship between the Mint and the Government and the strength of the Government's balance sheet. Given that Governments have the power to tax, most investors view the possibility of a Government becoming insolvent as highly unlikely.”

If I am correct, my beef with Perth Mint at this point is I was mislead by the sleek assurances into making my choice, among all the ways to invest in PM, unduly in Perth Mint’s favor. Making my choice then I much more relied on part “investors win by getting free 100% backed storage” than on this “the Government's balance sheet“. In fact as I has discovered I can rely only on “the Government's balance sheet.“

In my particular case, if I feel unhappy about what I’ve found out (and I DO feel unhappy) I have a choice to sell my silver, loosing on commissions and having to pay a capital gain tax, or to order allocation fabrication, for a fee, and delivery from Australia to USA, for a couple of thousand USD, or just to allocate, for a fee, and to pay 2.5% annually for storage. All three sucks!

If I knew then what I‘ve come to know now I would rather buy silver in the USA. 

I will appreciate if the PM bugs comment, add to and correct me here.
09-11-2007, 10:29 PM
I think it could be OK for some people if they know clearly what they are getting into to use services of Perth Mint. The key word here for me is CLEARLY.
To know what you are getting into here you cannot rely solely on what the Mint claims clearly on its web site. Those claims are incomplete and deceptive. At least it is for me. You are to judge for yourself. 
The only excuse I can find for Pert Mint is it does not want their prospective customer to get drowned by all the complicated details. I can understand and appreciate this. Unfortunately, in the process of the simplification they imparted new and unjustifiable, by the available public data, certainty. I do not appreciate this at all! 

I gave Perth Mint an ample opportunity to communicate with me before writing this post here. All I asked from them was to clarify on their web site what had turned out to be unclear and misleading for me. I did not get the promise from them. Thought I warned them plainly I would inform the public if the fail give me satisfaction on this issue. 
At the end of my conversation with Nigel Moffett he agreed with me that if I am not assured with the Government guarantees I should take my business elsewhere.

I can explain their unwillingness to adjust only by their desire to take definite advantage of getting more than their fair share of unaware customers.

My guess is the similar kind of advantage was taken by the banks advertising until recently sub prime mortgages to the people who shouldn’t had been in the market buying homes in a first place. Though I doubt those mortgages agreements did not have some small print explanations and warnings.
09-11-2007, 10:41 PM
I explicitly did not want any of the hoohaa about the unallocated so I opted for the allocated bullion.

I have the serial numbers for the gold and silver bars.

02-19-2008, 03:42 PM
I have to admit that I am somewhat surprised and even disappointed with the fact that I have not received from any of the 325 viewers of my original post any constructive ideas and suggestion regarding my doubts on security of my unallocated silver held with Perth Mint silver certificates stemming from my looking into their Annual Financial Reports. (:confused emoticon:
Is it really possible that no one of them have anything useful to say?  To be able to do this all was needed is only some experience with reading and correct interpreting a company's annual financial report.

I mean except the obvious suggestion that it is much more secure to have the precious metal in ones possession or at lest to have it allocated in numbered bullion bars in a reputable institutional storage, for which I am grateful.

Therefore I decided to post the follow up to give a hand to a future reader who happens to need help of the kind I needed and to provide some closure to my original post.

I recently again started to have bouts of doubts regarding security of my Perth Mint silver certificates.

To alleviate them I emailed my question to Perth Mint (Gold Corporation):

“I recently researched your 2007 Annual Report.
I will be grateful if you elucidate for me meaning of some numbers.

Total current liabilities........1,126,987
TOTAL EQUITY......................69,358

This 2007 financial statement shows that it has 16.25 times more debt than equity
It seems that the Gold Corporation's 1 to 16.25 leverage would be considered as excessively or even unacceptably risky even by notorious Bear Stearns' hedge funds managers.
Please explain to me why I, as a general creditor of Perth Mint, should not be concerned with my investment with it. I mean except the air-tight government guarantee which is subject to "force majeure" clause and insurance by Lloyds of London.”

The Perth Mint’s reply was:

“Thank you for your email and your ongoing support for our certificate program.
I understand the point that you make about our financial statements, but a closer understanding of various items on our balance sheet should serve to reassure you.
Firstly, it is important to note that all our unallocated metal deposits held on behalf of Perth Mint Depository clients, appear on our balance sheet as “Other Liabilities”. As you are aware, these liabilities do not bear interest. In addition to these deposits, we have some external metal borrowings, where we have leased in metal from commercial sources. These leases are listed as “Interest-bearing Borrowings”. All such liabilities are used to support our inventories and precious metal leases, all of which are leased to a related entity, AGR Matthey, and are interest-bearing.
Gold Corporation has cash borrowings of $3,500,000 which are included in “Interest-bearing Borrowings”.
These amounts are listed in the balance sheet available on our website and presented as an extract in the following table:

Current Assets......................Note........$000

Precious metal leases..............8a.........715,705
Inventories............................8b......... 388,712

Current Liabilities
Interest-bearing borrowings......15........219,727
Other liabilities........................17........879,6 02

Gold Corporation’s current assets and current liabilities virtually balance each other out. 
Whilst your point that Gold Corporation’s liabilities appear high when compared to its equity may be valid when taken at face value, the liabilities need to be compared in size and nature to the underlying assets they support.”

At this point I am completely satisfied with the answer on this issue of the interpreting the Perth Mint annual financial reports.
02-19-2008, 05:00 PM
Seems you have answered the question yourself. Go with allocated if you are concerned.
02-19-2008, 05:43 PM
"A bird in the hand, is worth two in the bush!!" Jim Sinclair says limit all institutions that hold your wealth. Don't trust anybody, put your wealth in your own pocket. There are too many people/institutions that only hold your wealth for "fees"....and you can do the same.

Bullion banks have been working against the common good of their own investors. They have been using our wealth against you.

Why don't all precious metal investors who have their shares in "street name" put their shares up for sale "Good Till Cancelled" with a limit price that far exceeds market value? For example, if I hold FCX, current price in the high 90's, place it up for sale at "Limit price = $200.00/share"? That way the scum bag brokers cannot "lend my shares out for shorting". If FCX does sell for $200, so what!!

If the deck is stacked against you, learn how to even the playing field.

All my holdings in PM stocks are up for sale, at a price that is least 5 (five) times current market price. In 2-3 months I will have to raise the asking price.




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