TREASURY VIEW
Bix Weir’s recent article SILVER: What Happens When… gets it wrong when he says that The Perth Mint’s Depository “customers cannot convert” to physical and “cash settlement may be the only option”.
Bix’s misunderstanding stems from taking the comments of the Mint’s Treasurer out of context and assuming that the statement “cannot meet all the enquiries” was about all enquiries across the diverse business units of the Mint. I can confirm that the Treasurer’s comments were only in respect of the wholesale market and not in reference to retail or Depository demand.
Usually the context or target of these sorts of newswire articles is the wholesale market. This is alluded to in the quote “the biggest demand is coming from banks and traders looking for kilo bars” but to be fair to Bix this is probably not clear, especially after journalists edit a full interview down into catchy quotes.
In actuality, the fact that the Mint cannot meet all wholesale enquiries is proof that Depository clients are protected and safe, contrary to Bix’s conclusion. The Perth Mint understands its obligations to its Depository clients and its policy is to prioritise unallocated conversions to allocated or delivery. It is only after fulfilling Depository conversion/delivery requests from its stockpiles and approximately 300 tonnes per year of new mine production that the Mint’s Treasurer will offer what is left to the wholesale market (that is, the bullion banks).
If you think about it, prioritising Depository and retail bullion sales demand is not some ethical decision but perfect commercial sense – why supply to wholesalers at lower fabrication premiums when your retail premiums are higher?
The Treasurer’s statement that “demand for our coins and medallions is strong” is alluding to our Depository and retail bullion trading demand. Since this is strong, supplies to the wholesale market are restricted and hence we are unable to “meet all the enquiries” of the bullion banks.
There are also a few other incorrect statements in the article that need clarifying.
BIX: “runs quite a large paper gold and silver operation with their unallocated pooled accounts and metal leasing operations”
Bix’s reference to “metal leasing operations” is totally without basis. If he had read a few more paragraphs down from his own quote from our website he would have found the following:
“The Perth Mint is not a bullion bank and does not provide project financing or bullion lending/derivative services to mining companies or other entities. It does not lend client's unallocated metal to support short selling transactions or other derivative activities. The unallocated metal is utilised solely to fund the Mint's operations.”
Can’t get any clearer than that. Furthermore, if he looked at our latest annual report, we disclose ZERO outward precious metal leases (loans).
BIX: “The business model is massively flawed because the offering entity doesn't even charge enough to cover obvious expenses like insuring metal, storing physical metal, tracking, collecting, administration”
I’m assuming Bix is referring to Unallocated here, because Allocated storage has a 1.5% pa charge that I think anyone would be hard pressed to claim is too low. However, Bix says “charge enough”, which is a little confusing because we don’t charge ANYTHING for Unallocated storage. This is not a massively flawed business model as he claims. In fact if we did charge a fee on Unallocated for insurance and storage it would be double dipping!
This is because the costs Bix refers to are costs associated with production of our coins and bars and as a result are covered by our fabrication premiums. Before the Depository business existed we incurred these costs and customers buying our coins and bars “paid” for these costs via our fabrication premiums. Nothing has changed just because our physical operational metal is now owned by our Depository clients rather than bullion banks as it was in the past. To then claim that we need to charge Unallocated clients a fee because we have storage and insurance costs, when those costs have always been and still are covered by fabrication premiums could possibly be considered deceptive.
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