IN THE NEWS

Readers of Bron’s Response To Miles Franklin will definitely be interested in this illuminating new interview.

From FinancialSurvivalNetwork.com

“Bron Suchecki, director of strategy at the Perth Mint joined us today to clarify a number of rumors and misunderstandings about the Mint’s policies and accounting. Perth sells certificates that are backed up by the metal they have in inventory, awaiting fabrication. Buyers of the certificates are not charged for storage. This practice has led a number of reputable writers to question whether Perth really does have the metal and perhaps more importantly, what would happen if a shortage of metal prevented them from restocking their inventory. Bron explains that they never actually ran out of metal in 2008. They tapped other sources to keep the metal flowing, and if they were ever in a position where suddenly gold and silver became unobtainable, they would be forced to stop producing and keep the inventory in place. Additionally, Perth’s auditors have certified their financial statements, never qualifying them due to an inventory shortage. While there are no sure things in this world, especially where counterparty risk exists, Perth is probably as close as one can get to minimization of this risk.”

Click here to download the audio

IN THE NEWS

Precious metal storage at The Perth Mint is designed for investors who want to buy our bullion coins and bars but don’t want the hassle of taking delivery and storing it themselves.

In this interview with the Financial Survival Network in the US, Manager Analysis and Strategy Bron Suchecki explains how the storage program developed in the 1980s and 1990s and clearly defines key concepts such as ‘allocated’, ‘pool allocated’ and ‘unallocated’.

Bron is upfront in answering one of the most common questions we hear from prospective unallocated storage clients: “What happens if everyone turns up to the Mint and wants to take their gold?”

Listen to his candid conversation with Kerry Lutz now.

EDUCATION

The Perth Mint has long advocated a staged approach to storing precious metals:

1. While the world environment is benign, hold unallocated, saving on ongoing storage costs and fabrication charges.
2. When the world environment becomes uncertain and risky, convert to allocated if you personally are concerned.
3. When the world is at a crisis point, take delivery.

This approach can save significant amounts of money as it may be some time between stage 1 and 2. Clients who do not feel they can judge the shift from stage 1 to 2, or feel it may be sudden and unpredictable, opt for allocated as they are using precious metals as "insurance" and see the storage fees as the cost of that insurance.

Changes in the percentage of metal held in allocated form can therefore indicate a change in clients’ perception of uncertainty and risk – a “fear index”. The chart below graphs that percentage since mid-1999, when the gold price bottomed. The percentage includes gold, silver and platinum together to give an aggregate view.



The declining percentage up to 2008 reflects clients opting to put more dollars into unallocated storage over allocated. It should come as no surprise to see the percentage start to increase in 2008 as the global financial crisis took hold. Recently, the percentage has stabilised around 15%, but we would not be surprised to see it rise.

In respect of stage three – taking delivery – this has always been insignificant and we haven’t seen any change in collection rates, indicating that while we are seeing a shift to allocated, our clients are “alert, but not alarmed” (to borrow the catchphrase from the Australian Government advertising campaign).

It is worth noting that in mid-1999 Depository only held $100 million worth of metal (valued at today’s dollars) compared to $3.5 billion today, which is a fear index in itself.

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TREASURY VIEW

The Perth Mint is introducing a new product called Pool Allocated Silver for Depository and Certificate clients and making changes to Allocated storage fees.

The new product, which will be available from 1 May 2011, operates in a similar way to the current Unallocated silver storage option, which will be withdrawn on the same date. Pricing and other details for this and for Allocated storage fees  can be found at the end of this article.

With Unallocated silver storage, clients purchased an interest in a pool of silver used to support our refining and manufacturing businesses. We backed every investment by purchasing an equivalent amount of silver from the spot market.

The new Pool Allocated product will also be 100% backed, but by specific physical bars stored in The Perth Mint’s vaults. Clients will own a share of this pool of bars, although an individual’s holding will not relate to any specific bar.

Lists detailing the weights and numbers of these silver bars will be published daily, along with the total number of pooled bars held on behalf of clients on The Perth Mint corporate website.

We’re making the change from Unallocated to Pool Allocated because the amount of Unallocated silver we hold on behalf of clients now exceeds that required to support our business activities. We had targeted a certain amount of excess Unallocated “buffer stock” but rising insurance and other costs plus growing demand have accelerated our decision to close Unallocated.

One of the chief benefits of pooling silver bars is that it allows us to offer a low storage fee of 0.95% per annum. Pool Allocated clients will be able to convert their holdings into coins or bars for collection or to store with the Mint as Allocated.

From 1 May 2011, no new Unallocated silver accounts will be opened.  Existing Unallocated accounts will remain open and free of storage. However, clients will not be permitted to add to their unallocated balances and will only be able to sell or collect.

The Perth Mint cannot foresee reopening Unallocated silver for some time. This would only occur if we encountered significant and continued selling by existing Unallocated silver holders. We have primarily attracted buy-and-hold investors and we do not currently see, nor expect to see, any change in this regard.

At this stage Unallocated gold is not affected but it too will close at some point as gold demand also continues to be strong.

Revised Product Information Statements and Agreements will be available at http://www.perthmint.com.au/investment.aspx

Summary of pricing and other changes:

The fees below will apply to all clients, existing and new.

Trading Fees

Perth Mint Certificates are only sold through Approved Dealers, who each charge different trading fees. Clients should contact their Approved Dealer for their fees.

For direct Perth Mint Depository Program clients a 2% buy (entry) fee and 1% sell (exit) fee will apply to Australian & New Zealand clients with account balances under $50,000 AUD and International clients with accounts under $250,000 USD. No entry or exit fee applies to direct clients with account balances greater than those amounts.

Storage Fees – Allocated and Pool Allocated Holdings

Storage fees for both Allocated and Pool Allocated holdings will  be charged quarterly in advance, payable on 30 June and 31 December. There will be no refunds if selling during a quarter.

The percentage per annum rates below will apply based on the beginning of quarter market value of the metal. Existing Allocated clients have had fees based on their historical purchase value. As our insurance cost is based on current market value, this was no longer sustainable. However, in acknowledgement of the increase in metal prices our clients have enjoyed, we will reduce the percentage rates to reduce the impact.

• Allocated Gold - 1.00% (reduced from 1.5%)
• Allocated Silver - 1.90% (reduced from 2.5%)
• Allocated Platinum - 1.00% (reduced from 1.5%)
• Pool Allocated Silver - 0.95%
• Unallocated Gold – will remain free for new and existing clients
• Unallocated Silver – will remain free for existing clients only

For comparison, we note that the GLD ETFs charges 0.40% and Sprott’s Silver ETF 0.45%. We feel our Allocated gold at 1.00% and Pool Allocated Silver at 0.95% compare favourably with the ETFs when the Perth Mint’s Government Guarantee as well as the ability to take delivery in any of the Perth Mint’s coin and bar products are taken into consideration.

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