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Perth Mint accused of selling doped gold bars

Perth Mint accused of selling doped gold bars

On a 6th of March 2023, The Perth Mint has been accused by Australian Broadcasting Corporation (ABC) of selling doped gold bars to its largest customer, Shanghai Gold Exchange (SGE). Accusation of such magnitude has to be considered in the world of precious metals as dropping a bomb, as it may affect good name and business relations of one of the most prominent mints in the world.

P erth Mint denies accusations coming from ABC News. Australia’s finest also has been backed up by Shanghai Gold Exchange – alleged doping victim. In addition, London Bulllion Market Association (LBMA) announced audit of Australia’s made gold bars – which sounds scary, but it is just a precaution and standard procedure.

Smearing campaign? Legit issue? Or just making mountain out of a molehill?

ABC accuses Perth Mint for alleged doping

We have to start with source material. On 6th of March, reporters in national public broadcaster of Australia presented accusations in ‘Four Corners’. It is tv show, described as dedicated to ‘exposing scandals, triggering inquiries, firing debate and confronting taboos’. At a time of publication, ABC released article titled ‘Perth Mint sold diluted gold to China, got caught, and tried to cover it up’. It doesn’t leave much space to speculate, as title seems to be very strong, accusing, not even taking stipulating other possibility under consideration. Hence, one can assume, ABC must have strong evidences and data to back it up.

After all, it is Australia national broadcaster accusing Australia’s world-famous mint, owned by the Western Australian Government. More of that - mint itself has its liabilities guaranteed by Government of Western Australia legally, in form of Gold Corporation Act 1987.

We link for mentioned material below. Keen readers may use the opportunity to acquaint with it.

Paper by Angus Grigg, Ali Russell, Stephanie Zillman and Meghna Bali starts with strong figures. As based on leaked internal report:

“The historic Perth Mint is facing a potential $9 billion recall of gold bars after selling diluted or "doped" bullion to China and then covering it up, according to a leaked internal report.”

“Report estimated up to 100 tonnes of gold sent to Shanghai Gold Exchange (SGE) potentially did not comply with Shanghai's strict purity standards for silver content.”

Mentioned 9 bln dollars are in this case Australian dollar (AUD). Doesn’t seem to be obvious for non-Australian reader, and “$” sign creates even more confusion. Just to prove it, 9 bln divided by 3.215 mln troy ounces - that is we have in 100 tonnes - gives value closer to price of gold in AUD that USD. Even including i.e. bulk discounts and lower prices resulting from long term commitment.

Second item in order, is to discuss is Shanghai’s high purity expectations. ABC keeps using word ‘bars’ in the text. However, later states that:

“Perth Mint confirmed it did receive a customer complaint about a small number of 1kg gold bars but that, "due to Chinese government restrictions on exporting gold from China, the customer did not return the bars … and therefore the customer's concerns could not be verified."

We’re not language purists, but in this case, technical wording matters as SGE operates within frameworks of its own standard. Each main gold market creates its own standards and guidelines about delivery. It defines weight, shape, marks, casting methods, chemical composition and even possible error margins. Not many retail customers have need to dive into technical specs of i.e. LBMA market, but those who do, may easily discover that its 400 ounces (nearly 12.5 kg) gold bar of minimum fineness of 995.0 may actually weight between 10.9-13.4 kg (350-430 ounces).


Knowing above, let’s focus on SGE requirement. These are SGEB1-2019 Gold Ingot and SGEB2-2019 Gold Bar standards, updated last time in 2019, hence considered as current. What’s the difference? SGE recognises gold bars as 50 and 100 g and gold ingots as 1 kg, 3 kg and 12.5 kg. Requirements for bars are more restrictive, and for ingots loosens with size. Ingots fall into 4 categories, according to fineness, with exception of 1 kg, who need to keep the highest standard.

Another aspect as stated by ABC are Chinese restrictions on exporting gold. Generally speaking, such restrictions exist. Chinese gold market is very liquid and always in hunger for precious metals. Normally imports exceeds exports vastly, however in 2020, during pandemic, China’s central bank and customs authority said they would simplify procedures for companies exporting gold abroad, following a slump in domestic demand for the metal when Chinese market.

Today, most of exports are being conducted via Hong Kong, although some volumes come from Mainland as well. Even in Jan 2023 there were some flows of Chinese gold to Switzerland. Needs to be noted however that volumes imported vastly exceed exports. Have SGE decided to send ingots in question to Australia for testing, which would come against temporary export, as per General Administration of Customs of People’s Republic of China. That would probably require some additional paperwork, but nothing out of the scope of good Finance and Logistics departments.

Our understanding is, that eventually Aussies had a chance to test these bars, however we’re unaware of the location it has been conducted.

Industry practices and dive into financial statements

ABC continuous:

“Gold doping is a somewhat accepted practice in the industry and is not illegal, but is high risk for refiners, as it lowers the quality of bullion by adding impurities like silver or copper. Trace amounts of these metals are permitted, but Perth Mint's plan – to keep just within industry standard of 99.99 per cent purity – only left a miniscule margin of error.”

Indeed, gold doping is common and legal practice. Gold purity is determined post-refining and due to varying technologies and standards around the world, not everyone does it same way. Acceptable purity of investment gold around the world is 99.50. It is being achieved by implementing Miller chlorination process. Then, to achieve 99.99+ gold is subject to Wohlwill electrolytic process. And that is how Perth Mint does.

Turning doping onto example - 0.15 of ounce taken from 1 kg bar, with price per ounce at 1900 USD is worthy 285 USD. Most European and North American clients expect 99.99 purity. Achieving that is related to declining variable cost of refining when produced volumes are growing. So, difference between refining to 99.50 and 99.99 for most primary refiners is negligible compared to market preferences for a purer product. Of course, market is filled with 98.6 Austrian Ducats and 91.7 British Sovereigns, Kruggerands, and US Eagles. However, they still contain one troy ounce of pure gold, just mixed with proper proportion of silver and copper.

“The mint began doping its gold as a cost-saving measure in 2018, expecting to save up to $620,000 a year — a tiny fraction of its annual sales.”

Authors compare possible savings achieved this way to value of sales. It has to be considered as serious error in paper, or deliberate action aimed against Perth Mint, as it doesn’t take under consideration costs of running the business. 602k AUD saved compared to 18.85 bln of revenue in financial year 2018, seem to be a fraction. However, cost of running operation was at a time 18.76 bn AUD. In 2018 that gave 10.05 mln AUD of profit before taxation. After application of all taxes, total comprehensive income for the period, attributable to the owners of Gold Corporation / Perth Mint was 6.4 mln AUD. Against that figure, potential to save 602k AUD seems to be now justified. Especially when compared to 2017, which Perth Mint ended with income of 16.84 mln AUD after taxes.


Such a drop in profits could be explained with high manufacturing costs. Overall manufacturing costs had grown in relation to higher output. Price of materials (gold dore) remained on similar levels in 2017 and 2018. So it seems that only serious differences on financial statement year to year are in cost of goods and tax expenses. Perth Mint had a chance to work only on one of these.

“Within two years this desire to save money would put the mint at the centre of what may be one of the biggest gold scandals in Australian history. From the outset there were signs of trouble. Just months after the doping began, the report says refinery staff identified concerns that silver and copper levels may have exceeded those allowed by the SGE. Despite this, refinery staff continued doping the gold.”

Trying to save on material and production cost by keeping literally just above required standard, is always risky matter. However, totally understandable. In this case SGE paid for 99.9996. If SGE receives 99.9998, then 0,0002 remains producer’s loss. And when applied cumulation, based from small numbers law, after some time it creates higher value. There is a risk involved, that any issue in manufacturing process leaves producer without possible margin of error. That may end up with providing product non-compliant to customer expectations and necessity to fix issue. Having long-term contract, Perth Mint manufacture products. As a measure to maximize profit, it decided to change process to use less material. This has been achieved by narrowing internal error margins. This approach indicates, that this particular search for saving might’ve come from management structures, not process engineers.

And as cost to manufacture any product is composed of 3 key elements, which are labour, material and overheads, in this way, Perth saved directly on material and some overheads.

It is not unusual, that in case of manufacturing company production issues have to be reported, as a standard procedure. And it seems that after doping program has started, some concerns have been raised and reported about silver and copper levels exceeding those allowed by SGE. We cannot deny existence of such, but without reading Perth’s internal report – which ABC News keeps referring to - we cannot verify alleged accusations regards identification of issues and concerns.

Recall of 100 tonnes? We don’t think so

Ignoring internal quality repots in search for savings could be considered an internal issue. However, ABC News states, that Perth Mint also tried to cover up non-compliance, when this had been discovered. To quote alleged mint’s insider:

"It happened in the first place because of poor systems management and incompetence on the refining side. But once they found it, they knew what they were doing. They took deliberate actions to ensure this didn't get out."

Non-occurrence occurred in September 2021 when SGE, upon making random quality checks discovered two kilobars containing too much silver in assay.

"If SGE – Gold Corporation's pre-eminent exchange client – had made public that they had issues with Gold Corporation bars … the impact of negative public statements on the business could be very significant."

Perth’s representatives conducted purity test, known as an "assay". In result, one bar had failed to meet SGE's strict standards for silver content. So as a part of review of refining practices, new procedures were put in place to ensure 1 kg bars to contain in 100% required gold content.

According to ABC source of information, staff already did flag concerns about troubles to meet standards but refinery continued doping practice. Due to that and failure in assay test, advice was sought from then-CEO Richard Hayes regarding what to do with two tested bars - failed and compliant test, also known as an assay. ABC alleges Hayes confirmed that only the compliant assay would be provided and that it was this moment, when Perth Mint immediately ceased its gold doping program.

Need to remember, that 2021 was a tense year between Beijing and Canberra as sided were engaged in trade war. In March China imposed anti-dumping tariffs on Australian wine. In April Australia cancelled two Belt and Road deals between sides. In May Australia was reviewing controversial 99-year lease for the port of Darwin awarded to Chinese company. In May, Beijing suspended China-Australia Strategic Economic Dialogue and imposed unofficial ban on coal from Australia. Then in June Beijing enforced steel production controls to reduce pollution and overproduction, which hit hard Australia made steel. Then in September, Aussies had joined AUKUS…

Having just these listed, we have to admit that SGE restrained itself from escalation, prioritising business with its supplier over political quarrels. Although – if to believe ABC – had all the reasons to not. It decided to withhold making its complaint public and accepted mint’s promises regarding quality. At the same time, it informed customers in China, about potential non-compliance and supplier’s will to resolve the issue. Considering importance of SGE in Chinese international trade and its aspirations to become world recognisable brand, which seemed to be very calm and moderate decision.

However, investigating reporters from ABC News carry on:

"Based on average understandings of volumes … it was possible for up to 100 tonnes of stock to be recalled from the Shanghai Gold Exchange for replacement," the report said.”

“But it wasn't just one bad batch, it meant most of the gold bars during the three-year doping program were potentially non-compliant with Shanghai standards.”

In first chapter of our analysis, we made some calculations regards to value of mentioned 100 tonnes. For commodity markets, most important is to keep liquidity. That means - to keep sufficient stock. London Metal Exchange had insufficient stock of aluminium in 2021, hence ceased trading for couple days. LBMA in March 2022 refused to accept new gold bars from Russia, but decided to keep those already accepted to warehouses as being already subject of transactions. Similarly, at SGE, bars might’ve been already subject of certain actions undertaken. Hence, 1-off recall would cause some issues for both customers and SGE, and of course heavy costs for Perth Mint.

So, what could’ve happened to non-compliant 1 kg bars? It’s all in the specs. Standard SGEB1-2019, paragraph 4.3.4 clearly states:

Had we not considered kilobars, but 3 kg or heavier ingots then we could just simply have them degraded, as these are classified into four classes according to gold content. Hence, non-compliant bars that supposed to meet grade 2 would simply fall to Grade 3. However, this does not apply to 1 kg’s.

Let’s speculate about options: SGE and Perth Mint most probably did find acceptable to both parties’ solution to avoid market disruptions. Whether it was based on full, partial or random stock check, whether problem was minor or escalated, and whether Chinese side reacted harshly or softly to quality issue. Basically, SGE presented an issue, Perth did tests and reacted accordingly, by implementing changes to its process and both parties remained bounded by contract. Story like millions in manufacturing, processing industry. We’ll probably never know how parties decided to sort quality issue, as it is part of business confidentiality, determined by contract between sides, and also by legislation - i.e. Perth Mint is prevented to discuss existing or potential customers based on Section 74 of the Gold Corporation Act 1987. Besides it is over 1.5year since discovery of non-compliant bar. Surelly had something had to be done, it was done long time ago.

Hence, assumptions presented by ABC about recall of 100 tonnes, seem to not take under consideration manufacturing and market factors. Let’s assume just for a second, ABC is right, parties hadn’t figure out solution, or that SGE found many more ‘problematic’ ingots. SGE would probably choose to put a warrant on stock, and Perth would’ve had to consider graduate recasts at China or at home. Assumption that due to non-compliance whole batch would be rejected is rather impossible, as that would mean 100 tonnes, which equals 4 months of kilobars production capacity for Perth. Necessity to re-cast such volume would severely impact mint profitability. Many market members could be also easily deterred by SGE’s unforgiving stance.

Alternatively, Perth Mint could search for another buyer for recalled stock, who would accept these kilobars as compliant. Comex, Sao Paulo, Dubai, Istanbul, Mumbai and Tokyo do accept kilobars. There is of course matter of fineness, however we know that SGE has higher requirements than those on market. Only problem is, that ingots bear SGE markings already. And of course all that assuming that 100 tonnes in kilobars, delivered in between 2018-2021 still remains in SGE warehouses and is in private or institutional hands. Otherwise, SGE would have to start China-wide recall action for stock sold.

Conclusion 1: For private gold investors, the story is more a "non-event". There is no reason not to buy investment products from the Perth Mint or to distrust the information provided by the manufacturer. There was never any doubt that gold mentioned in ABC News failed on declared fineness of 999.9/1,000.

Conclusion 2: SGE’s statement from march 2023, in response to ABC News, seems to be heavy artillery:

“The relevant media failed to fulfil their responsibility to review the content, resulting in dissemination of inaccurate content on the Internet, causing serious damage to the reputation of the Shanghai Gold Exchange,”

SGE added that it reserved the right to take further action to protect its reputation and safeguard its legitimate rights and interests.

Genuine problem or Australia’s internal poli-tricks?

Currently, in March 2023, in light of press releases, LBMA decided to invoke incident review process, explaining, that any incident or issues that may impact credibility of the Good Delivery List and the wholesale precious metals market are treated very seriously. Perth Mint remains on London’s prestigious Good Delivery List, however would investigation find that Perth failed to meet standards, LBMA may undertake disciplinary actions, which may include membership suspension or its revocation. That would be serious problem to Perth, as SGE accepts ingots and bars manufactured by refiners accredited to London. Although it seems to very unlikely to happen, as Perth made bars would definitely fit requirements by LBMA, as lower than these in China.

Let’s summarise what we know from internal reports then: In pursue for cost savings, mint decided to cut on excessive material usage. That made them with nearly no quality error margin. Internal flags had been raised but had been dismissed. Upon quality check at customer, some finished goods had been identified as non-compliant, hence supplier reversed changes. Both parties decided on not-escalating issue publicly.

Perth Mint addressed accusations. It couldn’t however comment with regards to ABC’s sources - ‘internal report’ and ‘insider’, as no evidences been publicly presented.

It is hard not to notice, that what seemed to be initially a quality non-compliance and incorrect business decisions now seem to be just one element of wider attack. Within few days ABC News accused Perth Mint on doping gold, sale of gold to former member of a biker gang, reminded about investigation and possible penalty with regards to inadequate anti-money laundering and counter-terrorism funding safeguards in place. They even pulled out fact, when Perth Mint made a gold purchase from illegitimate source in 2020. Which Perth had to explain to LBMA at a time.

Hence possibility that it is part of political plays within Labor in West Australia district. First of all, ABC News is national broadcaster who politically leans towards what locals consider left side. In the past it had been multiple times accused on political bias. In 2022 Australia faced federal election, which resulted in change of government. Liberal-National PM Scott Morrison has been replaced by Anthony Albanese from Labor Party.

West Australia remains in Labor camp, however, with clear political division between its capital – Perth and province. It is Mark McGowan who is district’s PM. And it is Mark McGowan, who appointed Jason Waters as CEO of Perth Mint, after Richard Hayes left in 2021.

However, local correspondents - again from ABC News - noted that country's current Prime Minister and the Prime Minister of Western Australia have a number of unresolved domestic policy issues between them, and even avoided appearing publically together during the election campaigns.

Does the Perth Mint remains in this situation a hostage to a political game to remove current Premier of Western Australia, who is by the way the legal head of the district-owned mint? This is idea worthy consideration.

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