02 February 2010

Perth Mint to acquire full ownership of AGR Matthey

Last week the three partners in AGR Matthey decided to dissolve their partnership. The Perth Mint will acquire full ownership of the gold and silver refining business in Perth and Johnson Matthey will acquire full ownership of the platinum and silver brazing alloys business in Melbourne. Newmont will exit from these businesses entirely but will continue to have its Australian-mined gold refined at the Perth refinery. There are still some conditions precedent that need to be met before the deal is concluded, but the partners see no reason why these will not occur.

It is a move I am very excited about as it gives the Mint direct control over the refinery’s output, which is typically between 300 to 400 tonnes of gold a year. I’m reminded of the old adage, "He who owns the gold, makes the rules", but of course the Mint doesn’t own the gold, its clients do.

The substantial physical inventories needed to support this throughput, and the Mint’s own stock, have been backing Depository client metal for many years. All this acquisition will do is change the refinery’s inventory from being listed as a metal receivable in the Mint’s financials to being a directly owned asset. This should increase the comfort factor for many Depository clients even though it doesn’t really change the fact that their holdings have been, and always will be, backed by physical.

I will be interested to see how the Mint’s critics and competitors try to spin this news against us. It does make it hard to argue that a business that refines 300 tonnes of gold a year “doesn’t have any gold”.

Maybe they’ll argue that we had to get the refinery to plug the imagined short position that they think we have. Apart from exposing their woeful ignorance of how our operations and a refinery’s work, the logical conclusion of such a position would be that the supposed short position is now plugged, making the Depository a totally safe facility!

For those not aware, the AGR refinery operations were originally established by the Perth Mint in 1899 when it was founded as the Perth branch of the British Royal Mint. In 1998 the refinery was combined with the refinery operations of Golden West to form the AGR Joint Venture and then subsequently merged with Johnson Matthey’s Melbourne refinery in 2002. So in a way the refinery business is just coming back to its home.