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?
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 2006, the Perth Mint Depository held just under AUD $1 billion worth of precious metals on behalf of precious metal investors. By comparison, the total public sector of Western Australia for 2004-2005 reported:
- Revenue of $20.39 billion
- Assets of $74.91 billion
- Net Assets of $50.104 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. The Perth Mint Refinery processes over 400 tonnes of gold a year.
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.