Government Guarantee
The Perth Mint operates under a Government Guarantee, which is enshrined
in
Section 22 of the Gold
Corporation Act 1987. Clause 22(1) of the Gold Corporation Act
1987 explicitly states that "The payment of the cash equivalent of gold
due, payable and deliverable by Gold Corporation, the Mint or GoldCorp under
this Act and all moneys due and payable by Gold Corporation ... is guaranteed
by the Treasurer, in the name and on behalf of the Crown in right of the State."
Who is Gold Corporation and what is its relationship to The Perth Mint?
The Perth Mint's history began more than a century ago with the opening of
the Mint on 20 June 1899. The Mint was established as a branch of Britain's
Royal Mint to refine the increasing quantities of gold being discovered in
Western Australia's eastern goldfields and to coin it into sovereigns and
half-sovereigns for the Crown.
In 1988 the Government of Western Australia decided to merge The Perth Mint
(also known as Western Australian Mint) and GoldCorp Australia (its bullion
marketing organisation) under a new entity called Gold Corporation to form
Australia's leading precious metals refining, minting and value-adding group.
Gold Corporation was formally created by the Gold Corporation Act 1987
on 30 June 1988 and it and all of its subsidiaries are wholly-owned by the
Government of Western Australia.
To reassure those dealing with The Perth Mint, especially those with precious
metal or money on deposit with the Mint, a Government Guarantee was included
in the Gold Corporation Act 1987.
The Government Guarantee only mentions gold, does that mean my silver and
platinum deposits are not covered?
No. Under Clause
3(2) it states that "A reference in this Act to gold shall be construed
as including a reference to silver, other precious metals, precious stones
and other minerals", so clients can be reassured that the Government Guarantee
covers all of their precious metal holdings in The Perth Mint's Depository
facility.
Does the phrase "cash equivalent" mean that I am not guaranteed
to receive physical metal?
No. A government's power to tax can only be in terms of money, therefore
its obligations have to be expressed in monetary terms. Should the Government
Guarantee need to be activated, The Perth Mint will immediately purchase on
the open market the required amount of precious metal needed to meet its obligations
and then request funds from the Government to pay for the purchase (in other
word, request the "cash equivalent" of the precious metal due).
In this way cash is converted into physical metal so that The Perth Mint can
meet its legal delivery obligations under the PMCP or PMDS agreements.
It is important to note that The Perth Mint buys precious metal when you
buy from it and sells when you sell to it on a 1:1 basis - all holdings, whether
they be allocated or unallocated, are therefore 100% backed. This issue is
discussed in further detail in the Allocated
vs Unallocated section of this website.
Note also that Clause 22(2) does not restrict the Guarantee, nor does it
exclude repayment in gold. This clause refers to a gold coin-backed security
that was under consideration when the Gold Corporation Act was drafted
in 1987. However, no such security was issued by the group. It does not apply
to the Perth Mint Depository facility, which was developed later during the
1990s. The Corporation is in the process of removing this Clause to prevent
possible misinterpretation.
How strong is the Government, and its Guarantee?
Western Australia is one of Australia's wealthiest States, with an abundance
of natural resources, and economically it is a net exporter. Economic summaries
and financial statements for Western Australia can be obtained from the Treasury
Department of Western Australia.
Standard and Poor's currently rates Western Australian long-term and short-term
local currency at AAA and A-1+, respectively. The local currency
outlook is stable. Its ratings for long-term and short-term foreign currency
are AA+ and A-1+ respectively. Moody's Investor Services currently
rates the State's domestic currency as Aaa, with a stable outlook.
Its rating for the State's foreign currency debt is Aa2.
In addition, like any prudent individual, The Perth Mint insures its physical
metals to minimise the risk to the Government. All Perth Mint Depository precious
metal deposits are insured by Lloyds of London at The Perth Mint's cost. Few
other depositories in the world offer equivalent levels of investor protection.
What sort of liability does the Depository represent to the Government?
At the 30th of June 2004, the Perth Mint Depository held just under AUD $0.5
billion worth of precious metals on behalf of investors. By comparison, the
total public sector of Western Australia for 2003-2004 reported:
- Revenue of $18 billion
- Net Operating Profit of $1.1 billion
- Assets of $67.7 billion
- Net Assets of $43.7 billion
The latest financial statements for Western Australia are available at State
Finances.
Even if the Government's finances are strong, isn't the Guarantee worthless
if the Mint cannot obtain the gold?
The Perth Mint does not have any problems obtaining physical gold, or other
precious metals. Australia has been one of the world's top three gold producing
countries for some time. Australia's only refinery, AGR
Matthey, of which the Mint has a substantial interest, refined over 400
tonnes of gold in 2003/2004 worth over USD $5 billion at a spot price of USD
$400 per ounce.
The Perth Mint maintains a close working relationship with AGR Matthey and
has a number of directors on its Board. In addition, The Perth Mint has long-established
relationships with all the major global bullion banks in London, Zurich and
Asia to ensure it has access to, and is in touch with, the physical market.
Have Australian Governments ever confiscated gold?
No. As a result, a significant number of Perth Mint Depository clients are
American, who look for a politically and economically stable offshore location
for their precious metals given that the United States did confiscate gold
in the 1930s.
It is important to note that The Perth Mint is a State Government
body and therefore is not controlled by Australia's Federal Government or
the Reserve Bank of Australia. Confiscation is the preserve of the Federal
Government, and with Western Australia producing around 75% of Australia's
gold, confiscation could have political ramifications for any Federal Government
that may consider it.
How does the Government keep control of The Perth Mint?
While The Perth Mint is a commercial enterprise tasked with generating a
sufficient return for the taxpayers of Western Australia, the Government imposes
strict guidelines on management with a focus on prudent risk management. It
monitors The Perth Mint by:
- appointing leading gold industry executives and other professionals to
the Board of Directors of Gold Corporation;
- the Under Treasurer of the State of Western Australia has a permanent
position on the Board of Directors;
- annual audits by the State Auditor General to ensure compliance with the
Financial Administration & Audit Act 1985 and the Gold Corporation
Act 1987.
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