Alchemist

The London Bullion Market Association ISSUE 71 August 2013

In this issue
The Royal Mint Refinery,
a Window onto the London
Gold Market
By Dr Michele Blagg
Page 3

The Degussa Collection

By Wolfgang
Wrzesniok-Roßbach
and Robert Eberlein
Page 8

Recycle, Refine,
Remanufacture
By Robert Surash
Page 12

The Outlook for Silver

Industrial Demand
By Philip Newman
Page 16

Managing Post-Trade
Risk in Precious
Metals Portfolios
By Susan Hinko and
Mattias Palm
Page 20

Regulation Update
By Ruth Crowell
Page 25

LBMA News
By Stewart Murray
Page 28

Editorial
By Dr Edel Tully
Page 30

Facing Facts The 2013 LBMA/LPPM conference takes place in Rome on 29 September to 1 October. Rome, with
By William Tankard its rich precious metals history, is an appropriate venue to hold the LBMA’s 14th annual conference.
Page 31 Pictured is the ceiling in the Santa Maria in Trastevere, one of the oldest churches in Rome.
 It’s a precious world,
we’ve got it covered.

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All the metals – all the angles – all the time

 ALCHEMIST ISSUE SEVENTY ONE

The Royal Mint Refinery, a Window

onto the London Gold Market
By Dr Michele Blagg, visiting Research Associate at the Institute of Contemporary British History, King’s College London

Tim Green, in his recent publication ‘The London Good Delivery List: Building a Global Brand’ (2010), provided
a detailed account of the expansion of the London refining industry following the ‘gold rushes’ that took place
from the mid-19th century and resulted in many new refining houses and brokerages being established in
London. Inspired by Tim’s research, Dr Michele Blagg built on these accounts for her own research. Here she
presents a précis of her doctorial study into a bullion refining facility, the Royal Mint Refinery, operated by N
M Rothschild & Sons between 1852-1967. The study, which focused on the interaction between Rothschild
and the London gold market, reveals much about the significant players in the industry and contributes to the
wider understanding of the current renaissance for gold.

Gold is a commodity like no other. In the behind closed doors, for reasons of security In 1868 Ernest Seyd noted that ‘when large
twentieth century it held a unique position at and the protection of secrets in the treatment refineries are carried on in connection with
the heart of international relations and financial process, these the Refiner “jealously and banking, bullion operations have an influence on
flows in monetary systems around the world. It carefully” kept to himself.4 Another hurdle was the supply and demand of the precious metals
was the favoured commodity of the merchant appreciating what attracted gold to the London in the market and thereby yield indirect profits.’8
bank N M Rothschild & Sons and complemented market. Market intelligence played a key role Certainly Rothschild took full advantage of the
its business activities. Niall Ferguson, in The in Rothschild’s success. In 1848 Alphonse gold rushes of California, 1848, Australia, 1851,
House of Rothschild, suggested that Rothschild and South Africa, 1884. The bank also benefited

“
was never ‘jacks of-all-trades’.1 He described from its connection to the Royal Mint Refinery as
the preference of the merchant bank as it gained access to and control over much of the
specialist in a number of select markets, the These fields have an gold production within the British Empire, which
aim being to establish a ‘dominant role’ in enormous future before them in 1914 amounted to a massive 70 per cent of
each.2 Throughout the 19th century the bank’s the total world gold production.9 Gold refining
relationship to gold was secured through
and the country together will facilities in London were regularly improved and
its ability to supply consignments of bullion
to governments at short notice and in large
quantities. Rothschild reinforced its position
to gold with a succession of investments and
for the next 10 or 20 years offer
greater scope for European
capital than South America
“ expanded in response to the arrival of African
gold, and the silver refinery received constant
supplies of demonetised coin from across
Europe.
expansion in relations with overseas mining and similar countries.
enterprises that maximised its command over In earlier years large shipments of bullion
precious metals. One such enterprise was that arrived in London in the shape of blocks; bars;
of the Royal Mint Refinery, a gold and silver ingots; pieces and coins; or in any other form
refining facility. The prospect of taking on the de Rothschild (1827-1905) on a trip to New in which it could be offered up to the market to
refining business appealed to Rothschild who York wrote back to the Paris house that ‘there be sold for the intrinsic metal value.10 London
saw great opportunity in operating a refinery is much sensation as to the gold mines in refining firms competed against each other to
treating much of the bullion sent to the London California. It seems one only has to go down and secure the weekly consignments of raw gold
market from around the world. The responsibility pick it up.’5 From the Cape in 1888 he wrote to that were boxed up and transported by coach,
for the negotiations fell to Anthony de Rothschild his cousins in London of: later by rail, to Cape Town and Durban and
(1810-1876), one of the sons and business “the amazing stories of the riches in dispatched by ship to London. Directors of the
heirs of N M Rothschild, who secured the abundance of mining in the Cape... to companies donned ‘their frock coats and top
lease from the Government in January 1852. listen to some of them this country has hats and headed into the City each morning to
The decision to add the word ‘Refinery’ to the got treasures within reach as real and call on the banks, brokers and shipping agents
previous title of the Royal Mint was a fortuitous comparable with those of Aladdin’s grotto. to compete for the incoming shipments’.11 Upon
one, affording Rothschild an element of The gold arriving in Europe should greatly arrival the wooden boxes containing the raw
anonymity.3 The ‘RMR’ brand was internationally please the Bank of England.”6 gold were dispatched to the various refining
recognisable and accepted by central banks and An associate of the bank, Carl Meyer had no houses for treatment. Once refined the bars
private investors as ‘good delivery’. hesitation in promoting the Cape to the London were converted into the finished product ready
house. In his opinion ‘these fields have an for sale as pure gold and offered for sale on a
One challenge in gaining a better understanding enormous future before them’ and ‘the country Monday morning in the London market by one
of the London refining industry was to raise the together will for the next 10 or 20 years offer of the approved bullion brokers.12 In addition
veil of secrecy and mystery that surrounded it. greater scope for European capital than South to refining costs gold producers were also
Many of the daily operations were performed America and similar countries.’7 responsible for freight charges, insurance,

1 Niall Ferguson, The House of Rothschild, Money’s Prophets, 5 The Rothschild Archive, London (RAL), T49/49, 10 Timothy Green, The History of the London Good Delivery
1797-1848, Vol. 1 (New York: Penguin Group, 1998), p. 276 ‘Alphonse, New York, to Paris House’, 5 Dec 1848. Gold List, 1750-2010 (London: LBMA, 2010), p.21.
2 Ibid. 6 RAL, T43/8, ‘Alphonse to NMR’, 29 Dec 1888. 11 Donald McDonald, The History of Johnson Matthey and
3 C. E. Challis, A new history of the Royal Mint 7 RAL, T43/3, ‘Carl Meyer to NMR’, 26 Mar 1892. Company: Vol 2, The Years of Building (London: Private
(Cambridge: Cambridge University Press, 1992), p. 502. 8 Seyd, Bullion and Foreign Exchanges, p. 199. Publication, 1974), p. 104.
4 Ernest Seyd, Bullion and Foreign Exchanges 9 C. R. Whittlesey, ‘The Gold Dilemma’ Quarterly Journal 12 From 1850 the four bullion brokers that acted in the London
(London: Effingham Wilson, 1868), p.198. of Economics, 51 (1937), 581-603 (p. 598). Market were Mocatta & Goldsmid, Pixley & Abell, Samuel
Montagu & Co., and Sharps & Wilkins.

3
ALCHEMIST ISSUE SEVENTY ONE

“
and any brokerage fee charged for the sale held their annual general meetings, credit and
of the consignment. Jean Jacques Van-Helton overdraft facilities were arranged with banking
calculated that additional costs incurred could capital against anticipated revenue from weekly The firm’s refining
be in the region of 15 per cent, which meant gold sales. Finally, and more importantly for
that the standard price of an ounce of gold the London refining houses, the Transvaal
capabilities increased from 3.3
(£3 17s 9d) could be whittled down to around possessed no Mint or refinery, and as such million ounces gross weight of
£3 10s.13 British banks and other South African states gold to 6.8 million by 1913.
Gold received in London, mainly originating
from southern Africa, was channeled through
a variety of formal and informal links. Between
and colonies would not recognize a Transvaal
hallmark or coins minted in Pretoria.17 With
no established refinery shipments of raw gold
continued to flow to London for treatment.
Charles noted that the gold
bars produced in London were
“ 24

1904 and 1910 imports increased from £16.3

‘works of art’ 25

Refinery, implemented a series of improvements

from 1905 and after adopting the new chlorine
method of refining, advanced in Australia since
1870, much improved the operation. Machinery
and facilities were upgraded and he boasted
that ‘my refinery is forging along nicely’.23 The
upgrade offered a shorter processing time and
thus reduced overheads and lowered refining
costs. The firm’s refining capabilities increased
from 3.3 million ounces gross weight of gold to
6.8 million by 1913.24 Charles noted that the
gold bars produced in London were ‘works of
art’.25

Benjamin White provided a rare insight into

the physical layout, management and daily
operation of the Rothschild refinery. Following
Reproduced with the permission a visit to the refinery in 1912 he wrote that:
of The Rothschild Archive. “The exterior of the Refinery is lofty and
massive, and the visitor, as he passes
Picture 1: Unpacking of raw gold from abroad at the RMR, circa 1933. through a wicket-gate in the huge doors,
receives a first impression of security and
space. As [he] crosses the ample yard
million to £34 million.14 Clarke suggested the By the turn of the 20th century the flow of and becomes conscious of a somewhat
attraction to London was ‘simply a reflection’ gold to London had increased so much as sickly pungent smell, regarding which he
of the City as a wholesale market with built- to fill capacity the refineries and competition is informed, casually, ‘Oh! That is only
in expertise and experience.15 Van-Helton became meaningless.18 The three principal [sulphur dioxide].’ The first room, about forty
identified four key links that attracted gold to London refining houses, Johnson Matthey & feet square, is used for weighing; six large
the London market.16 Firstly, the London gold Co., the Rothschild Royal Mint Refinery and H balances within glass cases range the walls,
market was the only genuinely unrestricted L Raphael & Sons19 were kept busy despite a counter occupies the centre, and stacks
market; it was free from ‘gold premiums, growing competition from German refineries of silver bars, fine and otherwise, are on the
central bank interventions and so on, nothing that offered tempting rate reductions in a bid floor. The actual refining takes place in a
impeded the import and export of precious to steal business away from London.20 On 31 fine central hall, with annexes where minor
metals.’ Secondly, as a consequence of the December 1906 Johnson Matthey, Rothschild details are dealt with. Five sets of apparatus
Bank Charter Act of 1844, London provided and Raphael entered into a formal agreement stand side by side, each composed of a
a guaranteed market and minimum purchase that fixed the treatment price of gold in London series of three tanks, two covered and on a
price for gold (£3 17s 9d an ounce). Thirdly, at 3d an ounce. It was agreed that all gold high platform and one uncovered on a lower
the City was the hub of global patterns of trade entering London would be divided between the level. The liquid, with precious metals held
and payment flows, with its myriad of financial three firms in more or less equal portions.21 The in solutions, flows down to the lower tank,
institutions and other services it provided the agreement remained in force until the outbreak which measures about 12 feet by 6 feet and
Witwatersrand mines; insurance; brokerage; of war in 1914. During this period Johnson is about 3 feet deep. From the open tanks
Stock Exchange; banking; refining facilities; Matthey increased its own treatment capability steam rises in clouds, for the contents are
recruitment of technical personnel; and the bill and entered a period of modernisation by heated to 1000 degrees Celsius and the
on London was an internationally acceptable acquiring the British rights to the new electrolytic tanks are continually stirred with long poles
means of payment. Moreover, in the City the process, developed in Hamburg, which was to assist the action of the acid. The sulphate
majority of mining companies were incorporated later replaced in 1913 by a gas-fired melting of copper in the solution gives a beautiful
as limited companies, raised working capital on house.22 Not to be outdone Charles Rothschild, blue tint to the contents.”26
the Stock Exchange, had head offices there and who had taken a keen interest in the Royal Mint

13 Jean Jacques Van-Helton, ‘Empire and High Finance: South 19 By 1919, a consequence of wartime restrictions, the 22 RAL, 000/1242, Spencer Richard, ‘The Royal Mint Refinery
Africa and the International Gold Standard, 1890-1914’ Raphael refinery had been turned over to the production of in the Twentieth Century’, 1990.
African History, 23 (1982), p. 538. motor vehicles. However, the venture did not prove lucrative 23 RAL, 000/1323, Letter book ‘N Charles Rothschild to Hugh
14 John Clapham, The Bank of England: A History, Vol. 11, and production ceased in 1926; see Stanley Chapman, Birrel’, 21 Jul 1905.
1797-1914 (Cambridge: Cambridge University Press, 1944) Raphael Bicentenary, 1787-1987 (London: Raphael Zorn, 24 RAL, 148/24/3, ‘Treatment of Silver & Gold 1905-1948.’
p. 378. 1987). 25 RAL, 000/1323, Letter book ‘N Charles Rothschild to Hugh
15 William M .Clarke, The golden thread: World Financial 20 In 1899 by the Deutsche Bank and German refinery, the Birrel’, 15 Oct 1905.
Centres and the Gold Connections (London: Sweet & Deutsche Gold and Silberscheide Anstalt, in an attempt 26 Benjamin White, Silver, Its History and Romance (London:
Maxwell ltd., 2001), p. 64. to steal business away; mining companies were offering a Hodder & Stoughton, 1917), pp. 97-8.
16 Van-Helton, ‘Empire and High Finance’, p. 539. considerable reduction on shipping and refining costs; see
17 Ibid. Van-Helton, ‘Empire and High Finance’, p. 537.
18 McDonald, History of Johnson Matthey, p. 104. 21 McDonald, History of Johnson Matthey, p. 104.

4
 ALCHEMIST ISSUE SEVENTY ONE

His guide was George Buess, refinery manager

1912-1937. White noted the ‘courtesy of the
manager, his anxiety to explain the process and
his perfect mastery of the details showed that
his interest charge was by no means regarded
in the light of a mere duty.’27 While he suggested
that ‘the upkeep of such an establishment
as a refinery, quite apart from its commercial
character, [was] a source of legitimate pride to
its owners.’28 Security arrangements did not
escape his notice as he recalled that ‘around
the central apparatus lies precious material
in various stages of purity. The exposed heap
of fine gold, in appearance like wet clay sand,
demonstrates the need for perfect confidence
between employer and employed.’29 The matter
of security was inherent to such an operation as
an earlier account by Ernest Seyd demonstrates:
The uninitiated might be led to think that
Reproduced with the permission
the workmen in a Refinery, where such large of The Rothschild Archive.
masses of Bullion are under their hands, could
pilfer without detection. The exact quantities Picture 2: Royal Mint Refinery staff circa 1897
of gold and silver present are, however, known
with almost mathematical accuracy, and the
precious metals pass from hand to hand, or operating a refinery at such a distance from the first casualties was the St Luke’s Refinery as
in the charge of foreman, in such a way that London, took the stance that ‘there is no it became increasingly difficult to attract gold to
robbery becomes almost impossible, or is, at advantage in helping the South Africans to cut the new facility.35 Johnson Matthey, faced with
least, at once detected.30 our own throats.’31 Instead it was decided that the possibility of no gold to treat, suspended its
both refiners would reduce treatment costs, gold refining operation and concentrated on the
It was not merely confidence between an however at the Bank of England a different treatment of platinum that became a permanent
employer and his staff that was required but an strategy was conjured up. and growing service.36 Rothschild continued to
effective deterrent and anyone caught stealing treat parcels of gold, although greatly reduced
was immediately dismissed and the matter Dr Rachel Harvey, in a recent article in the in size, which arrived in London. The operation
pursued through the courts. Alchemist (65: 2012), looked at the early increased its treatment of silver and also
development of the London Gold Fixing and diversified into the treatment of copper foil and
The turning point in the fortunes of the discussed the strategy formulated at the Bank other metals. During the 1930s the London
London refining industry came in 1919. It was of England as it attempted to control and refiners received a short reprieve. Following
announced that a native refinery, located in manipulate international supplies of gold, to Britain’s departure from the gold standard in
southern Africa, was to be established, thus ensure that once gold was refined in South 1931 the price of gold rose by 40 per cent above
at some point the hegemony enjoyed by the Africa it would continue to be marketed in the gold currency price in the London market. The
London refiners would be called into question. London. The result was the introduction of the inflated price stimulated a wave of new production
Almost certainly the outbreak of war in 1914 daily London Gold Fixing. It was the role of N M and caused an avalanche of pre-owned gold to
delayed the transfer. Evidence records growing Rothschild & Sons as banker, refiner and main be returned to the refiner’s pot to be recast into
discontent amongst many gold producers at the agent for the South African mining companies bullion bars and sold.37 Rothschild benefited from
refining costs charged in London. This, coupled that led to the firm being invited to act as the the rise in price as gold requiring treatment was
with the general discord as peace returned, market’s chairman. Another strategy introduced sent to London from areas of new gold production
provided the catalyst for the post-war change; at the Bank of England proved more risky and that emerged in west and east Africa.
the inert price for gold during the conflict, unsuccessful. In order to build greater links with
together with rising production and wage costs, gold producers, hoping that gold might continue The closure of the gold market and introduction
reduced profit margins, fuelled greater support to be sent to London for treatment even after of government restriction on gold at the
for autonomy amongst the producers and the new African refinery was operational. It outbreak of the Second World War halted
revived calls for a native refinery. was decided that the Bank should established business; the industry was forced to mark time
its own refinery.32 From January 1919 plans until the market reopened in 1954.38 At the
Reactions in London to the news of the new were rushed through and an employee of the Royal Mint Refinery the renaissance was brief,
African refinery were mixed. Sir Lionel Phillips, Ottawa Mint Refinery, Pearson, was seconded the operation became a victim of decolonisation
London representative of the Central Mining to set up a new facility in London St. Luke’s to and the independence of African states that
& Investment Corporation Ltd., urged both attract untreated gold, which began operating took place during the 1950s and 60s.
Johnson Matthey and Rothschild to become from November 1920.33 Astonishingly the Bank
involved in the running of the new overseas announced it was prepared to ‘refine at cost’.34 The greatest threat followed the independence
operation. Johnson Matthey was keen to take of Ghana in 1957. High on the new
up the offer and encouraged Rothschild to Once the Rand Refinery, located near Pretoria, Government’s agenda was the country’s
join them. Rothschild had already reviewed its began to operate at full capacity the excellent departure from the sterling area, regarded in
options and for reasons of security, in addition position enjoyed by the London refiners since the London as ‘a simple closure to break colonial
to the challenge involved in establishing and mid-19th century evaporated overnight. One of apron strings.’39 Before independence the best

27 Ibid., p. 99. 33 Green, The History of the London Good Delivery, p. 30. the price rise sparked a flurry of media advertisements
28 Ibid., p. 97. 34 Ibid, offering ‘cash for gold’. In 1932 collection points were set up
29 Ibid. 35 BEA, C40/305, Telegram ‘Chief Cashier, Bank of England to in the high street by jewellers and pawnbrokers, who in turn
30 Seyd, Bullion and Foreign Exchanges, p. 198. Pearson, Pretoria, 29 Mar 1923. sent parcels of gold for treatment to one of the refineries
31 RAL,111/152, ‘Refinery in South Africa – Proposed 36 McDonald, History of Johnson Matthey, p. 60. who were inundated with work.
establishment’, 23 Jun 1919. 37 Comparisons can be made between the experiences of the 38 The London Gold Market reopened on 22 March 1954 with a
32 Bank of England Archive (BEA), C40/305, ‘Gold St Luke’s 1930s and those of the first decade of the 21st century first fix of £12.42.
Refinery’. when, following a steep rise in the price of gold from 2008, 39 BEA, OV69/6, Ghana Report, 15 May 1961.

5
ALCHEMIST ISSUE SEVENTY ONE

As a postscript to Michele’s article Turning to the assaying test, this was much
Stewart Murray, Chief Executive more onerous for the referees than it is today.
At that time, the applicant was invited to
of the LBMA, has also been manufacture three sets of 24 button samples
delving into the archives, and adds with finenesses covering the whole range
from 995 to 999.9. These samples had to be
some further observations on the
assayed (using fire assay) by the applicant and
involvement of the Royal Mint and by each of the referees. Another difference
the referees in the accreditation was that the assays were only carried out
to four significant figures whereas today the
process, prior to the formation of comparisons are done on a five figure basis.
Picture 3: Rand Refinery office and assay office - circa
Dec 1921 the LBMA. In a sense, the referees were being tested just
as much as the applicant. When all three sets
customer of the Royal Mint Refinery had been Refereeing the Good Delivery System of assays were completed a comparison of
the Ashanti Goldfields Corporation. Gold was Delving into the history of the London Good them would determine whether the applicant
consigned for treatment on behalf the Bank of Delivery List in the period before the LBMA was acceptable. This method had a number
West Africa under a 3 year renewable contract was established in 1987 is always challenging. of difficulties including the possibility that the
at the Rothschild facility.40 Once treated this Although Rothschilds (in its capacity as three sets of samples might not be completely
was sold at the London Gold Fixing. News of the chairman of the London Gold Market) passed homogeneity.
establishment of a state refinery in Ghana meant over to the LBMA a number of files on listed

“
Rothschild had two options. The first was to refiners, there are many gaps in our detailed
establish and operate the new overseas facility knowledge of how many of the accreditations
on behalf of the Ghanaian Government. This was were processed. However, there is no doubt that There is no doubt that the
rejected, for reasons not dissimilar to the firm’s the Royal Mint Refinery played a key role in the
earlier rejection of operating a South African
refinery; regarding security and the challenges of
running the facility such a distance from London,
the second was to do nothing.41 The Ghanaian
gold market’s accreditation process for much of
the 20th century.

When the London bullion market reopened after

Royal Mint Refinery played a
key role in the gold market’s
accreditation process for much
“
state refinery opened in 1966 and in 1967 the the Second World War, it was recognised that of the 20th century.
partners at Rothschild made the decision to sell some new refiners would be applying for Good
the Royal Mint Refinery to Engelhard. Whilst it no Delivery accreditation and a formal system of
longer handled the raw commodity, Rothschild technical assessment was required. Earlier,
protected its position to gold as chair of the some refiners had been added to the list simply When the Royal Mint Refinery was sold to
daily Gold Fixing that took place at its London on the basis of being well-known to the members Engelhard Industries in 1968, and following the
headquarters, New Court, until 2004. of the London market or at the recommendation relocation of the refinery to Chessington
of their local central banks. This was the case (south-west of London) the relocated refinery
for instance for a number of French refiners and was technically assessed by Johnson Matthey
assayers which were added to the list in 1953. and by the Sheffield Smelting Co (THESSCO)
Michele Blagg (BA(hons), But in most cases, refiners which wished to be
MA, PhD) is a visiting added to the list had to undergo technical testing
Research Associate at the of their assaying ability as well as their ability to
Institute Of Contemporary produce acceptable Good Delivery bars. At that
British History (ICBH). time, the London Gold Market used two referees
As part of a collaborative to support this work: Johnson Matthey (based
doctoral award granted by the Art’s and on its Royston refinery and laboratory) and the
Humanities Research Council, she was based Royal Mint Refinery which was located in the City
at the Rothschild Archive, London. Her doctoral of London just outside the walls of the Tower of
research focused on the Royal Mint Refinery, London. At that time the technical assessment
operated by N M Rothschild & Sons between procedure involved in the Good Delivery system
1852 and 1968, and how it adapted to the was significantly different from the one which is
changed London gold market. Her areas of followed nowadays.
interest are in financial and business history
with special regard for the actors and networks The two main differences were
located in the London market. Her publications (a) the way in which the assaying test was
include ‘Gold Refining in London: The End of the carried out and
Rainbow, 1919-20’ in The Global Gold Market (b) that the two phases of technical assessment Picture 4: Beam balance scale, gifted to the LBMA by
and the International Monetary system from the were reversed relative to current practice. Engelhard CLAL
late 19th century to the present (forthcoming,
2013); ‘The Royal Mint Refinery, a business In other words, a refiner first had to submit its and after its Good Delivery accreditation
adapting to change’ in Business Archives bars and only if they proved to be satisfactory was confirmed, Engelhard was subsequently
Council, Sources and History. She teaches on (physically and in terms of chemical analysis) recognised as one of the market’s two referees.
the ICBH MA in Contemporary British History and the applicant moved to the assaying test. The Some time after that date, a decision was made
assists with the Witness Seminar Programme. referees also had to check that the gold when to produce reference samples in the form of
She sits on the Business Archives Council melted poured well and made good bars. It was rods which could be carefully cross checked
Executive and is involved in the annual ‘Meet the notable that the referees played a much more between the two referees and from which
Archivists’ workshop held in the City that aims important role in assessing physical quality of “buttons” could be cut to send to applicants.
to explore ways in which research students can the bars at that time, whereas today this aspect These reference samples were used for
identify and use business records in a variety of is primarily the responsibility of a panel of assessing the assaying ability of applicants for
different research fields. inspectors from the London vaults. the next 20 years.

40 RAL, 148/37/1, Ghana Gold, 28 Jan 1963.

41 RAL, 148/37,Edmund de Rothschild to Sir Edward Spears, Ashanti Goldfields’, 26 Nov 1964.

6
 ALCHEMIST ISSUE SEVENTY ONE

When gold refining ceased at Chessington in as one of the LBMA referees once alternative As a fitting reminder of the contribution to the
1998, Engelhard CLAL (as it had then become) arrangements were made. Good Delivery List made by the Royal Mint
was removed from the active Good Delivery List Refinery and its successor, it may be noted that
but because of the excellence of its laboratory At the end of 2003, following two years of the gold beam balance in the LBMA boardroom
it continued to serve as one of the LBMA’s two intensive work in the preparation of gold and was gifted to the LBMA by Engelhard-CLAL when
referees until 2002 when the company decided silver reference samples, the LBMA announced it closed the Chessington operation (see photo).
to close the plant, including the laboratory. At the appointment of five new referees who thus
the same time, Johnson Matthey announced took over the baton from JM and RMR. But that
that it would no longer be refining gold and is another story.
silver at Royston and that it would step down

The LBMA/LPPM Precious Metals Conference 2013

29 September - 1 October 2013
Rome Cavalieri Hotel, Rome

An excellent programme of high For the first time there will also be a The London Bullion Market
quality speakers will be providing Responsible Gold Forum on day two Association
their unique insight into the major organised by the Responsible Jewellery 1-2 Royal Exchange Buildings
Royal Exchange
issues affecting the Precious Metals Council and the LBMA which will London EC3V 3LF
Markets. Speaker highlights at this run as Parallel Sessions to the main +44(0) 207 796 3067
year’s conference include Keynote conference programme. conference@lbma.org.uk
speeches from Mr Salvatore Rossi, www.lbma.org.uk
Director General of the Banca D’Italia Central Bankers…Dealers…
and Francesco Papadia, Chairman of Producers…Fabricators…Refiners...
Primary Collateralised Securities. For Brokers…Analysts…Marketers. There’s
the first time we also have a dedicated a place for all market players at the
Official Sector Session, with senior LBMA/LPPM Conference. Make sure
representatives from four central banks, to reserve yours. Registration for
The Bank of England, Banque de the conference is now open, visit
France, Bundesbank and Central Bank www.lbma.org.uk for further details.
of Argentina, with the session chaired
by Terence Keeley, Head of Official
Institutions, Blackrock. There are
many other highlights in an excellent
programme including sessions on both
Long-term and Short-term Investment,
Regulation and PGMs.

7
ALCHEMIST ISSUE SEVENTY ONE

The Degussa Collection

by Wolfgang Wrzesniok-Roßbach, Chief Executive Officer and Robert Eberlein, Department of Numismatics, Degussa Group

Degussa will present selected

pieces from its collection of
precious metals artefacts at the
LBMA/LPPM Precious Metals
Conference in Rome. It will offer
delegates a time journey through
4,000 years of history.

In the last 10 years, precious metals have

experienced an astonishing comeback as a
means of security and wealth preservation.
One should keep in mind however that of all
the eight precious metals, gold and silver in
particular have been used for that purpose, not
only in the last decade, but more or less for the
past 4,000 years.

With a turnover of around €350 million in the

last quarter, Degussa Goldhandel GmbH has
become the largest German investment metal
trader. We are not only involved in the buying
and selling of modern precious metals products
on a daily basis, but we are also committed to Picture 1: Display units showcasing part of the Degussa collection.
the preservation of the longstanding history of
gold and silver. Most of the coins and bars that jewellery or tools. Treasure finds often consist grams and 8.5 grams respectively. These are
were produced during the last 4,000 years have of several variations of these bars. One of these virtually pure gold and probably originate from
been repeatedly melted down and reminted bars in the Degussa Collection has a weight of the middle Bronze Age, around 1500 BC. In
during the course of time. But a few of these 6.1 kg and a diameter slightly over 30 cm, and specialist literature, these spirals are often
precious historical examples have survived in is still intact. Whether it was a sacrificial offering described as finger or curly rings. These two
their original form to the present day. to the gods and/or simply deposited there by a gold spirals belong to the oldest gold bars in the
trader, is difficult to say. world, and it is virtually inconceivable that they
Expanding our business activities into have managed to survive the past 3,500 years.

“
numismatics was one possible way of delving How many of today’s present gold bars actually
into the history of gold and that is exactly contain gold from the Bronze Age unfortunately
what we did earlier this year. Additionally, In our view, collecting cannot be estimated.
Degussa has been involved in the collection of
outstanding artifacts, which is a fascinating way these items and getting The Iron Age, whose ruling people were
a deeper insight into the
of learning more about gold’s past, as these
relics indeed witness to different eras in the
history of mankind.
history of precious metals
only makes sense if it is
“ the Celts, followed the Bronze Age. A purse
belonging to the Celts dating from around the
3rd century BC is also in the Degussa Collection.

In our view, collecting these items and getting shared with others. It is assumed that the nine differently moulded
a deeper insight into the history of precious and decorated gold rings with a total weight of
metals only makes sense if it is shared with 141.53 grams were openly worn around the
others. For that reason and for the first time waist. These were not only used as a payment
in this format, Degussa will present selected In the Bronze Age, people used metal objects method or means but were also a status symbol
pieces from its collection representing four not only as a method of payment but also as a for rich merchants and noblemen. Eventually,
historical epochs at the LBMA Precious Metals kind of reinvestment, by storing and preserving the small rings were used as small change or
Conference 2013 in Rome – offering delegates valuable objects or metals, and thereby for the one could split the larger rings and join them
a time journey through 4,000 years of the first time the function of money was attained. back together again.
history of coins and bars. That one could quite easily separate the bars is
evidenced by another piece in the collection. A The first coins used in Middle Europe had Celtic
This time journey begins with the oldest bars cast bronze mould was split and a part thereof, origins. According to legend, the so-called
discovered in Europe, which were produced in this case a quarter weighing 776.5 grams, ‘Staters’ were supposed to represent raindrops
during the Bronze Age in 2000 BC. During was used as a payment method. falling from a rainbow and turning to gold as
the whole of this period, people produced they hit the ground. In reality, however, the
round bronze bars, similar in shape to lentils, Bars were not only produced in bronze but Celts got their gold from alpine rivers. Their role
with a diameter of up to 40 cms and a weight also in gold. The Degussa Collection consists models were Roman and Greek coins that came
of between 5 and 10 kgs. The bars were of two gold spirals (Picture 2: Gold spirals), to Europe via merchants around the 2nd century
transported in this “raw” state and either used one with a diameter of 34 mm and the other BC. Although the Celtic coins appear somewhat
as a form of payment or later transformed into with a diameter of 43 mm, which weigh 6.9 primitive, the Celts were a highly cultured

8
 ALCHEMIST ISSUE SEVENTY ONE

people, who in 387 BC conquered the Roman a silver clump or lump, which was later forged The flotilla left Spain on 23 March 1622 and
Empire with the exception of the capital city. onto the bar. The original weight of the bar did reached Portobelo the following day. Pack
not conform to Roman standard measurements, animals brought gold and silver from Potosi and
The first Roman coins in the form of coin bars but instead of melting it down and recasting it, Lima to Panama. It took nearly two months to
have been identified as dating from same the they simply forged a new piece of silver over the load up the Atocha and for the cargo to be fully
period in which the Celtic coins were minted. top of the bar. By using the latest techniques documented. On the 22 July, the Atocha sailed
The AES GRAVE weighs 109.33 grams and was in scientific research and proof of authenticity to Havanna via Cartagena, where even more
produced around 250 BC, and the value of this of antique objects, Degussa Goldhandel was gold was loaded onto the ship, along with the
coin is confirmed by 4 points on each side. able to confirm that the piece of silver added first produce from the new silver mine in Santa
later came from another mould and contained Fe De Bogota. At the end of August, the Atocha
considerably more lead than the main bar. reached the harbour in Havanna. Eighty-two

“
soldiers were supposed to protect the cargo and
Mainly coins were produced from these Roman passengers from possible pirate attack.
When Christopher bars. The gold coins, or so-called Aurei, were
worth 25 silver Denarii. The Aurei weighed 7.5 On 4 September, it was decided due to the good
Columbus discovered America in
“
1492, he had no idea of the huge
amount of precious metals to be
grams and the Denarii 3.5 grams. From this,
we can draw conclusions about the price of
gold and silver in Roman times. The Aureus on
exhibition shows the image of Emperor Nero,
weather to lift anchor and the flotilla of 28 ships
headed out to sea. The Atocha, due to its heavy
load, lay deep in the water and took its place at
the end of the flotilla. In the evening, the wind
found there. who ruled the Roman Empire from 54 to 68 AD. grew stronger, and by morning, the waves were
The Denarius was produced during the reign of a metre high and all passengers were below
Emperor Tiberius (14 -37 AD). This type of coin decks, seasick and praying. While the first ships
is today termed ‘tribute penny’, because 30 in the flotilla managed to escape the worst of the
While Roman bronze coins and coin bars of these silver coins were given to Judas as a weather by reaching the shelter of the Gulf of
have survived the test of time in greater reward for the betrayal of Jesus. Mexico, but those at the end of the convoy were
numbers, Roman gold bars are extremely less fortunate and suffered severe damage.
rare. An original from the 1st century AD is With a move forward in time of over 1,000
not known to exist; however, a marble mould years, we now go to another continent and to The Atocha, Santa Margarita and Rosario, plus
was discovered in the early 1990s in an the treasure of the Atocha. five small ships, met the full force of the storm.
archeological find on the Magdalensberg near With broken masts, they drifted helplessly
Klagenfurt in Austria. (Picture 3: Roman bar) It When Christopher Columbus discovered towards the reef off the Florida Keys. The Atocha
is inscribed with the lettering C.CAESARIS.AVG. America in 1492, he had no idea of the huge was hit by a huge wave, hitting the reef with
GERMANICI:IMP:EX:NORIC, which confirms that amount of precious metals to be found there. full force due to its heavy load and immediately
the gold in the bar would have belonged to the Subsequently, the Spanish crown sent a flotilla sinking. The next day, a passing trading ship
Roman Emperor Caligula. It further says that of around 20 ships each year from Cadiz in saved five of the 265 passengers, who had
he was ruler over the Teutons and that the gold Spain to Central America. Upon arrival in the managed to cling to the mizzen mast for safety.
came out of the Noricum Province, which today Caribbean, the flotilla was split in two: one part
is part of Austria. Caligula ruled over the Roman sailed to Veracruz in Mexico and the other to The Spanish sent numerous teams to recover
Empire from 37 to 41 AD, a date which would Portobelo in Panama. After they were loaded up the lost treasure. The Atocha was found in 16
conform to the age and mould of the bar. with gold and silver, they met up once again in metres of water. Divers who were able to hold
Havanna, Cuba for the return journey. their breath for long enough managed to see
Degussa is also active scientifically in the area the wreck, but they could not stay long enough
of experimental archeology and, together with They wanted to take advantage of the Gulf under water to rescue the treasure. The scene
specialists from the gold-producing industry and Stream to the north along the Florida coast of the accident was marked and other wrecks
accompanied by a film team, produced a similar and then sail eastwards to Spain. The main were investigated. The rescue team returned
solid gold bar weighing 3.5kg. This was actually problem for these flotillas was pirates and the to Havanna along with the 20 flotilla ships that
achieved in a two-day experiment. Naturally, the unpredictable weather. The hurricane season had withstood the storm. As they revisited the
original Roman mould was not used; instead, a begins at the end of July. In order to protect site of the wreck with better rescue equipment,
replica was manufactured for this purpose. against pirates, the flotilla employed two heavily a second hurricane erased all traces of the
armed ships: the Capitana was the generic Atocha and the wreck could no longer be found.
The Romans not only produced bars out of name referring to the ship at the front of the
bronze and gold but also silver. A silver bar in fleet, and the Almirata to the one at the rear. The It was only in the 1980s that the Atocha was
the form of an axe dating from the 4th century ship Atocha, was built in 1620 in Havanna and rediscovered. She was found to have a cargo of
AD probably came from the coin-producing was the Almirata of this particular fleet. Heavily 35 tons of silver (901 bars and 255,000 silver
town of Trier in Germany. It was produced in the armed and secure, it was therefore used by many coins) and 161 gold objects. At the time, the
‘OFFICINA (of) SECVNDVS’. That these producers private individuals as a means of transport. treasure was estimated to be worth 1 million
did not do their work carefully is evidenced by pesos, which in 1985 equated to $400 million.

The Degussa collection managed to purchase

certain bars from the Atocha wreck. The
heaviest exhibit is a silver bar weighing
33.1 kg and resembling our modern standard
bars. It bears different custom stamps and
seals of approval, plus a number under which
it was listed in the manifest or cargo list of the
Atocha. The bar also shows that it contains
23.8 carats.

Degussa is particularly proud to own the

heaviest gold bar from the Atocha. Weighing
2,552 grams, it was originally the reward
Picture 2: Gold spirals. Picture 3: Roman bar. given to a cartographer who located the

9
ALCHEMIST ISSUE SEVENTY ONE

Wolfgang Wrzesniok-
Roßbach,
Chief Executive Officer,
Degussa Group
Wolfgang was hired as CEO
for the newly founded Degussa Goldhandel
GmbH in November 2011. Before setting up the
new company under that well-known historic
brand name, he worked for nearly seven years
at Heraeus as Head of Sales and Marketing, and
over 20 years at Dresdner Bank in Frankfurt,
at the end as Head of Precious Metals and
Commodities Trading.
Within 18 months, Degussa, which is owned
Picture 4: Wreck. by one of the wealthiest German families,
has become one of the leading European
Atocha wreck. It has a fineness of 22 carats 150,000 pieces of china porcelain and 107 precious metal trading companies for physical
and, according to the stamp, was produced in gold bars on board. In the spring of 1986, the investment in metal. The company buys and sells
‘SARGOSA’, which is known today as Zaragoza treasure was auctioned by Christies in London. investment products through a rapidly growing
in Colombia. The Degussa collection was successful in branch network in Germany and Switzerland,
purchasing a gold bar from the wreck weighing and through a very active online shop. During
A third bar from the Santa Margarita weighing 368.95 grams and corresponding to 10 Tael. the course of this year, the company has also
578.49 grams (Picture 4: Wreck) has neither a expanded into the purchase of gold scrap and
customs stamp nor details of its precious metal One of the latest bars in the Degussa collection the numismatics business.
content. It contains only about 50% gold, with comes from the early 20th century. It was The company has now more than 70
the rest being silver and copper. produced in China and weighs 205.47 grams. employees and, at the beginning of July 2013,
This piece is particularly interesting because took over the smaller German gold trading
The simple manufacture of the bar in an ‘earth one can read much information from the bar. company SilviOr, a company that specialises in
hollow’ also indicates that it was illegally the storage of precious metals for customers.
produced and taken on the journey to the old It was produced between 1920 and 1930 in the
world. It was not allowed for private individuals Yunnan province. The manufacturing firm was
to transport bars over the ocean without a Fu Xing Qing Ji and the manufacturer himself
customs stamp, for which they paid 20% was named Fu Xing. More recently, the name
customs tax. Guan Gong She Kan was stamped over the
original official stamp. Robert Eberlein,
No part of the earth has produced more bars Department of
than Asia, and the Degussa collection houses This is only a small sample of the Asian bars Numismatics,
many bars from this continent. and shows clearly the variety that was available Degussa Group
and also illustrates how exciting this research Robert started working for Degussa in July 2012
area really is. as an expert in Numismatics. Prior to joining

“
Degussa, he spent one year as a specialist in
It is also in the area of numismatics that Asia coins of the modern era at Gorny and Mosch in
Degussa is particularly is an important source of relics. The Degussa Munich. In 2011, Robert finished university with
proud to own the heaviest collection houses different coins from many a double master’s degree from the University of
gold bar from the Atocha. rulers. In this exhibition setting, we will show you Augsburg, with emphasis on ancient, recent and
pieces from the Ch´ing dynasty (1644 – 1911). most recent history, classical archaeology and
Weighing 2,552 grams, it was
“
originally the reward given to
a cartographer who located the
(Picture 5: China coins). These were produced
upon the orders of Emperor Kao Tsung Shun
Huang Ti, who ruled between 1736 and 1795,
the governing period known as Ch´ien-lung.
philology.

Atocha wreck. The bronze coins were produced in different

cities; for example, Kueilin in Kuangsi carried on
the reverse side the name of the town and an
inscription, whereby the head depicted that it
In the Kingdom of Laos during the 17th century, was a valid method of payment of the governing
silver bars with a weight of 220 grams were period (Ch´ien-lung t´ung-pao).
manufactured, representing 4 Tamlung. The
correct name for these bars is not mentioned,
but they subsequently became known as
‘Tongue of the Tiger’ bars in modern literature.
It is clear that these bars were processed in a
special mould and were subjected to a ‘uniform
size system’. What the surface area signifies
however is not known.

In the year 1985, on the sea bed of the

China Sea, the wreck of a ship named the
Geldermalsen, which belonged to the East
India Company, was found. The Geldermalsen
sank on 3 January 1752 with 112 passengers, Picture 5: China coins.

10
 ALCHEMIST ISSUE SEVENTY ONE

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11
ALCHEMIST ISSUE SEVENTY ONE

Recycle, Refine, Remanufacture

By Robert G. Surash, Process Chemist, Rochester Silver Works, LLC (RSW)

Three simple words: ‘Recycle, Refine, Remanufacture’ was the The capacities of RSW’s assets are amongst
the largest in the world. Historically, annual
major theme that process chemist Robert G. Surash of Rochester
capacities of the recycling, refining and
Silver Works, LLC (RSW) presented at the 37th IPMI June 2013 remanufacturing operations: approximately
Conference in Phoenix, Arizona. Robert’s presentation focused on 30 million pounds of high-grade polyethylene
terephthalate plastic recycled, approximately 30
these three processes and the connectivity to RSW’s operations that million tz silver as 4-nine or 99.99% silver refined
culminates in the production of high-grade (ACS-certified) invariant- and approximately 3.5 million kg silver nitrate
remanufactured.
quality silver nitrate.
RSW is located in the heart of Eastman Business
RSW is the former film-based recycling, silver- silver salt derivatives. RSW is “88 years plus one” Park (EBP), a 1,200-acre technology centre and
based refining and silver nitrate remanufacturing old. RSW celebrated one year in age as a new industrial complex located near Lake Ontario in
departmental operations of Eastman Kodak company on 1 October 2012, but if one takes Rochester, New York. EBP used to be referred
Company (EKC). These EKC’s assets were into account the age of some of the buildings to as Kodak Park and still is one of the world’s
purchased by private owners on 1 October and operations that RSW acquired, it dates back largest manufacturing complexes, and is
2011, and the private owners also own Technic to the 1920s (specifically 1923). The 1920s was currently home to more than 35 companies with
Inc. Since its inception in 1944, Technic Inc. the time frame during which EKC initiated large- more than 1.5 million square feet of available
has established a global reputation for technical scale recycling, refining and remanufacturing. space for manufacturing, laboratory, office and
excellence in the electro-deposition of precious RSW is “pushing” 100 years old when it comes to warehouse operations. In addition, it offers over
metals and has grown to be a global leader in recycling, refining and remanufacturing of silver 300 acres of prime industrial (M1) developable
specialty chemicals, surface finishing equipment, and that EKC s significantly ahead of many other land. EBP is a self-sufficient manufacturing
engineered powders and flakes, and analytical companies from a recycling or environmentally facility with a highly efficient infrastructure,
control tools. green initiative perspective. including major utilities such as various grades
of water quality or steam, electricity and on-site
RSW specialises in the wholesale recycling and Numerous photographs were displayed during waste water treatment, to name a few. RSW
refining of silver and photographic film products, the presentation. Below is a picture of the occupies approximately 10 acres of land and
and the remanufacturing of high-grade invariant- Building 143 (silver nitrate), described by Robert 150,000 square feet of buildings within EBP.
quality silver nitrate and some other small-scale as the “Jewel of RSW”.
RSW have retained all 55 highly skilled former
EKC employees and all of EKC’s film recycling,
silver refining and silver nitrate remanufacturing
business unit operations, and has expanded
its workforce since 1 October 2011 with the
addition of a chemical engineer, a sales/
marketing director, four additional full-time
production personnel and a 10 to 15 person
flexible contractor force. RSW’s vision is to be a
“formidable force for the foreseeable future” with
regard to recycling, refining and remanufacturing
as a function of Ag and Au. It is hoped that
this can be achieved by exploitation of current
capabilities, acquisition of new equipment and
the development of new products, i.e. alternative
plastics, but especially silver derivatives in
wholesale quantities beyond silver nitrate.

“ For the recycling

operation, the input material is
primarily post-manufacturing
or post-consumer film and is
film base independent, and “
could be silver or non-silver
bearing in nature.

Picture 1: Building 143 (Silver Nitrate)

12
 ALCHEMIST ISSUE SEVENTY ONE

“
gallons per year. RSW can calcinate 5-6 million
pounds a year of solids with approximately
EBP is currently home 50% moisture and produce via smelting and
to more than 35 companies electrolysis approximately 30 million tz a year
to 4-nine or 99.99% silver purity. This is a
and offers more than 1.5 particular area in which RSW will need to exploit
million square feet of available
space for manufacturing,
laboratory, office and
“ current capabilities and fill existing capacity via
expansion (equipment acquisition).

warehouse operations

RSW’s operations revolve around three major Picture 4: RSW pelletised silver nitrate product.
processes; recycling, refining and remanufacturing.
In conclusion for all its history, process
For the recycling operation, the input material is capabilities and powerful automation, the most
primarily post-manufacturing or post-consumer invaluable assets of RSW’s recycling, refining and
Picture 3: RSW’s calcinator.
film (medical, dental or industrial x-rays, remanufacturing processes are its people.
graphics, printed circuit board, motion movie,

“
microfilm, microfiche, etc.) and is film base
independent (analog or laser printed), and For the remanufacturing
could be silver or non-silver bearing in nature.
The process capability of the recycling operation
is that it is an aqueous-based multifunctional
batch highly automated chemical wash process.
In the presence of numerous chemicals, high-
operation, the input material
is primarily a combination of
recovered and purchased silver
“
shear conditions within the washing vessel and and nitric acid.
as a function of time, temperature and critical
film to water ratios, a high-grade polyethylene
terephthalate and near silver free plastic is
produced. A 3-4 ton batch of film is added to one For the remanufacturing operation, the input Picture 5: Photograph taken on 1 October 2012 of RSW
of the specially designed washers, production material is primarily a combination of recovered personnel at RSW’s first-year celebration as a company.
personnel input the weight, select a wash and purchased silver and nitric acid. There
programme from the computer control system are multiple photographic/non-photographic Three simple words ‘recycle, refine and
and “walk away” for five to 10 hours. RSW’s uses of RSW nitrate: traditional and digital remanufacture’ are connected to one another at
current capacity is in the vicinity of 25-30 million photo products to anti-microbial, catalyst, RSW and that they culminate in the production of
pounds a year and, based on market research, electronic, mirror, metal powders, batteries, high-quality invariant grade (ACS-certified) silver
this makes RSW one of the three top volume film etc. RSW’s silver nitrate process is classified nitrate. Mr Surash’s presentation rationalised
washers in North America. as a “continuous and consistent high quality” how these three words are not only connected
nitration facility, with the three-stage nitration- to each other at RSW, but how they link RSW to
purification sub-unit operation identified as a the silver industry or as mentioned early on, how
5-6 Sigma Quality process. Process control and RSW takes “precious metal scrap to premium
verification are used versus product testing to industrial materials.”
“release” product for sale. EKC have developed
a proprietary process-product verification tool
defined as the split-ratio model for photographic
grade silver nitrate in the 1990s. This model Robert G. Surash, Process
was the result of numerous process control R&D Chemist, Rochester Silver
programmes that were imbedded as part of the Works acquired a Bachelor’s
lean manufacturing initiatives assigned to the degree in Chemistry from
overall design of the new silver nitrate process. Harpur College of Arts and
The model takes into account various process Sciences at Binghamton University. He has
parameters prior to the crystallisation process spent the majority of his career with industrial-
Picture 2: Incoming size-reduced photographic film base
and couples these with many other set points as scale silver-based manufacturing processes.
being inventoried prior to processing.
a function of the equilibrium chemistries of key He started at Eastman Kodak Company in a
impurities. The result is that the model predicts manufacturing developmental laboratory with
For the refining operation, the input material is product impurity levels or the impurity split of special emphasis on fire assay testing and
primarily crude silver-based recycle streams from key impurities associated with the mother liquor developed into Kodak’s on-site technical expert
various photographic and non-photographic- of the crystallisation process. The quality of for the operations of silver refining, film recycling
based processes (slurry, muds-solids, filter- RSW product nitrate meets or exceeds ACS/USP and silver nitrate manufacturing. He is a certified
press cakes, ash, sweeps, flake, dore, etc.). specifications and it is his firm belief, based on Six Sigma Black Belt and is the holder of three
The sub-unit operations process capabilities of more than 33 years’ experience, that RSW not US patents involving photographic film recycling
RSW’s refining operations are the uniqueness only produces the highest consistent quality and methods for treating and recovery metals
of RSW as compared to other refiners. These invariant grade silver nitrate, but is also the associated with both domestic and industrial
sub-unit operations include water treatment, largest single-source silver nitrate manufacturer waste waters.
calcination, smelting, metal hydroxide formation, in the world.
electrolysis and finishing furnace melting. RSW
operates a water treatment process that can
treat via coagulation, flocculation, settling in
large basins and filtration over 365 million

13
ALCHEMIST ISSUE SEVENTY ONE

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14
 ALCHEMIST ISSUE SEVENTY ONE

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www.royalmint.com/bullion 15
ALCHEMIST ISSUE SEVENTY ONE

The Outlook for Silver

Industrial Demand
by Philip Newman, Director, Metals Focus

Figure 1: Silver Thrifting in Photovoltaics

Silver per GW Installations

Index, 2011=100 GW

2011 100.0 30.4

2012 78.3 31.1

2013 68.7 28.0

2014 65.1 30.0

2015 60.2 36.5

2016 56.6 41.0

Silver industrial demand has gone through a difficult period in
recent years. The 2008 global recession and subsequent sluggish Source: Metals Focus,
economic recovery have impacted end-use demand in a number of European Photovoltaic Industry Association

key industrial sectors. In addition, high and volatile silver prices have
incentivised manufacturers to thrift on the use of silver in a range much of the finished cell inventory overhang that
of applications. While the economic impact on industrial offtake was in place has been depleted and that more
‘normal’ levels are now emerging across the
is cyclical in nature, thrifting in practice is rarely reversed and supply chain. Coupled with installations keeping
effectively results in demand destruction. to healthy rates and slower thrifting, this is now
starting to feed through to higher demand for
In this article, however, we make the case for why further downward pressure on silver offtake. silver pastes (and by implication, silver powder).
silver industrial offtake appears to have turned
the corner in 2013. As we explain, two factors Although at first sight it may appear To shed some light on the potential longer-term
underpin much of this view. First, a number of counterintuitive, the speed with which silver has outlook of silver PV demand, we look at forecasts
sectors are now following the global economy on been thrifted in recent years could well have for global installations, provided by the European
the road to recovery. Second, the weaker silver preserved the long-term use of the metal in PVs. Photovoltaic Industry Association. Overall,
price (at the time of writing) means that thrifting Put another way, the rate of thrifting has been this information highlights that, over the next
should be far less of a threat to industrial so great that the potential economic benefits of few years, global installations will comfortably
demand than was the case even at the start of continuing to reduce silver content at the same exceed those realised in 2011. Even so, we
this year. rate, taking into account also the weaker price, believe that the use of silver will fall short of
no longer appears to justify the RnD costs of volumes achieved back then. In other words,
Photovoltaics
Declining inventories across the supply
chain now feeding through into higher silver Figure 2: Global Photovoltaics Installations
powder and paste demand.
2010 2011 2012 2013F 2014F 2015F
One of the most significant end-use industrial
markets for silver is photovoltaics (PVs), the Installations (GW) 18.0 30.4 31.1 28.0 30.0 36.5
key starting point for which is silver powder.
Source: European Photovoltaic Industry Association
The strength this sector enjoyed through to late
2011 accounted for the significant ramp-up in
powder trade at that time. In sharp contrast, late doing so. Ultimately, it is our understanding that it is misleading to benchmark future PV silver
2011 through to 2012 saw a marked downturn, while the industry continues to reduce silver demand against 2011, with silver demand
following what turned out to be the build-up in loadings, it now does so at a far slower rate. unlikely to recapture those levels. Instead, it is
2011 of both excess production capacity and more appropriate to use 2013, with silver offtake
inventories of finished cells, principally in China.1 Looking ahead, our field research also paints likely to reach 35-40 Moz, as a more realistic
Aggressive thrifting by the industry, following the a sanguine picture for silver PV offtake in the benchmark in assessing future silver demand in
spike in silver prices to $50/oz in 2011, led to near to medium term. Our understanding is that this application.

1 In terms of the global PV supply chain, China dominates the production of PV cells, Europe accounts for the bulk of installations,
while the US accounts for the bulk of global silver powder and paste offtake.

16
 ALCHEMIST ISSUE SEVENTY ONE

every year, equivalent to around 12-18% of

Figure 3: Silver Thrifting & Global Installations the installed base. To put this into context, this
compares with new demand, as noted earlier, of
120.0 45.0
around 4-6 Moz per annum.
40.0
100.0
35.0 Other Applications
Global demand for silver contacts is expected
Index (2011=100)

80.0 30.0
to improve, but the outlook for brazing alloys
25.0
is more uncertain.

GW
60.0
20.0

40.0 15.0 A key area of industrial demand is the use of

10.0 silver in the electrical contacts industry, which
20.0 includes the use of multi-layer ceramic capacitors
5.0
(MLCCs). Although the outlook for silver demand
0.0 0.0 in MLCCs remains uncertain, given the potential
2011 2012 2013 2014 2015 2016
for silver:palladium to lose further market share
Installations Silver per GW to base metal capacitors, the overall outlook for
silver contacts in electronics is more bullish. This
Source: Metals Focus, European Photovoltaic Industry Association
view is premised on the outlook for several key
end-markets and, in particular, for automotive
demand.
Ethylene Oxide Catalysts

“
Near uninterrupted growth over the past 30 Last year, the production of light duty vehicles
to 40 years, further gains expected over the
short to medium term.
In today’s market, new (LDVs) achieved a new record high, rising by
6% to around 82 million units. In the next few
silver EO demand is estimated years, the market is slated to grow in the region
The ethylene oxide (EO) sector can often be
overlooked in terms of its importance to the
global silver market. Even though annual
demand is relatively modest and the industry has
in the region of 5-6 Moz per
annum, compared with a lower
level of around 3-4 Moz per
“ of 4-5% per annum. In our view, the use of silver
contacts across the automotive industry should
achieve higher year-on-year gains, compared with
the growth in vehicle production. In essence, we
not seen a tremendous upturn similar to that in
photovoltaics, over the past 30 to 40 years, it has
annum over the past decade. should see a growing use of electrical devices
in mid-range LDVs, as applications that were
enjoyed near uninterrupted growth. In today’s once the preserve of high-end models filter down
market, new silver EO demand is estimated in to the mass market. In our view, this trend will
the region of 5-6 Moz per annum, compared with offset both thrifting and substitution efforts (the
a lower level of around 3-4 Moz per annum over latter being in favour of base metals).
the past decade. China, where EO installations first ramped up in
2004, and Saudi Arabia, which saw a jump in EO Separately, we are more wary about the
The rise can be explained for two reasons. demand at the turn of the millennium. prospects for silver brazing alloy demand. A key
First, to meet growing demand for a range external determinant is the global outlook for
of consumer and industrial products, newly The relatively modest annual growth in new silver housing and construction. On the one hand,
installed EO plants are, on average, increasing in demand, of around 5-6% per annum, has given the global economy is gradually improving,
size. Second, the silver content per installation, rise to a substantial installed capacity of silver notably in the US, with China expected to
or capacity expansion, is also rising. In other in EO plants on a global basis. Using historic avoid a hard landing. While this may argue for
words, in spite of the uptrend in silver prices data on installations provided by PCI Global and stronger brazing demand, a growing risk for
over the past decade, there has been little factoring in our estimates for the silver content silver demand, on the other hand, is substitution
sign of thrifting on silver usage in EO catalysts. per plant, we believe that the global installed in the air conditioner market, with copper
As such, the average silver content per plant capacity of silver is currently in the region of 170 being replaced with aluminium. We have to
has risen dramatically, from around 0.25 Moz Moz. This compares with around 100 Moz at the remember that the use of silver in new units is
during the 1970s to around 2-3 Moz per plant turn of the millennium. Looking ahead, given the trivial. However, in the aftermarket, copper is
in 2013. This stands in stark contrast to many expected growth in new EO capacity, it appears typically replaced with silver:copper, whereas the
other areas of silver industrial demand, where as though, within the next four to five years, we precious metal is not used as a replacement for
thrifting has often had a marked impact on silver are likely to see global installed capacity surpass aluminium.
consumption. 200 Moz.

“
One of the interesting points about the EO This gives rise to another important feature of
market is the almost clear geographical the EO market, namely the change-out of spent A key area of industrial
separation between the various links in the catalysts, to the benefit of both recyclers and
supply chain. The first stage involves the also the leasing market. On average, EO plants
demand is the use of silver in
the electrical contacts industry,
production of silver oxide, which is dominated
by the United States. In contrast, the profile
of where the plants are installed is far more
dispersed. During the 1980s and 1990s, global
are changed, or recycled, every two to three
years. That said, during an economic downturn,
change-outs may be brought forward, so as to
take advantage of periods of relatively quiet
“
which includes the use of
multi-layer ceramic capacitors
EO installations were dominated by the Americas end-use demand. In contrast, during a time of (MLCCs).
and Europe. However, over the last 10 to 15 heightened demand, a plant may be run for an
years, the landscape has changed noticeably, extended period, even though this will see the
with new installations now concentrated in South efficiency of the installed catalyst (and therefore
and East Asia, and the Middle East. Drilling down its productivity) deteriorate. That aside, on
further, just two countries now stand out, namely average, around 20-30 Moz of silver is reclaimed

17
ALCHEMIST ISSUE SEVENTY ONE

Understanding Trade Flows New Industrial Applications

Backing up field research – looking for signs Little sign of a ‘new PV’ emerging over the
of an upturn in the trade flows. next two to three years; over the short to
medium term, the current raft of new uses are Philip Newman, Director,
As discussed above, our field research indicates unlikely to consume a significant quantity of Metals Focus
that global industrial demand has turned the silver. Prior to forming Metals
corner in 2013. In contrast, the picture emerging Focus with Nikos Kavalis
from trade statistics, often used to corroborate The last area to touch on concerns new uses, and Charles de Meester, Philip was Research
(or otherwise) field analysis, has been less clear for which there has always been a great deal Director at Thomson Reuters GFMS, formerly
cut. To understand industrial demand, the trade of debate, in particular, about their impact on GFMS, where he spent 19 years. During his
in silver powders, a key intermediate product, industrial demand. The only ‘new’ use, in our time there, Philip was responsible for precious
often proves a useful starting point. Taken at view, to have any material impact in this way metals research in the United States, parts
face value, though, the table below offers a has been PV. Although this application has of the Middle East and the United Kingdom.
mixed picture. existed since the 1970s, it was only the more Philip received a BSc (Hons) Economics from
the University of Surrey.
Figure 4: Silver Powder Imports (Moz)
About Metals Focus
Imports (Moz) Jan - May 2011 Jan - May 2012 Jan - May 2013 YoY % Metals Focus specialises in research into the
global gold, silver, platinum and palladium
South Korea 5.8 5.5 7.3 33% markets, producing regular forecasts and
Taiwan 4.4 7.9 5.5 -29% bespoke consultancy. The company is owned by
Philip Newman, Nikos Kavalis and Charles de
China/Hong Kong 9.5 7.1 4.7 -34% Meester. The consultancy’s work is underpinned
by an extensive programme of travel to generate
Source: GTIS
‘bottom-up’ research, covering the supply chain
from mine to the market.
The import data highlights some of the world’s recent change in environmental legislation
largest consumers of silver powders, an that fundamentally altered the landscape for
important share of which is used to produce, PV, combined with the fact that average silver
as we have discussed, silver pastes. Given that loadings (per cell) remained high, until quite
Korea is now a major paste manufacturer, this recently that is.
explains the jump in Korean powder imports,
which has benefited from both healthy market This brings us to the key point about so many
share gains and also improved demand from the new uses over the past decade. Several of these
flat screen industry (for touch screens across a have achieved commercial success, in terms of
range of devices). In contrast, the sharp fall in their ability to exploit silver’s properties, with the
Taiwanese imports must be seen in the context medical sector a notably beneficiary. However, a
of a record import total the year before, due to common challenge (in terms of the silver market)
the relocation of some PV cell manufacturing has been the trivial level of silver offtake that
from mainland China. More important, in our has often been achieved on a per unit basis. As
view, is the hefty drop in combined Chinese/ such, the impact on silver demand of many new
Hong Kong silver powder imports. However, we applications, ranging from wood preservatives to
do not believe this reflects the state of Chinese biocides, has so far been extremely modest.
demand. Instead, we understand that domestic
silver powder production has risen this year, However, this does not necessarily point to a
partially displacing inbound shipments. bleak demand profile in the coming years and,
in fact, in our view, this misses a key point.

Figure 5: Silver Powder Exports (Moz)

Imports (Moz) Jan - May 2011 Jan - May 2012 Jan - May 2013 YoY %

Japan 9.5 10.8 12.7 18%

United States 13.0 8.6 8.1 -6%

Source: GTIS

Turning to powder exports, the headline data Much of the expected growth will come from
shown in the table initially appears inconclusive. new developments in existing markets. We have
The upturn in Japanese exports reflects the already touched upon new electrical uses in the
ongoing recovery from its recent natural auto sector, especially for silver contacts. To this,
disasters, together with technology-driven export we should add the surge in demand for flat panel
gains, especially in the US. With regards to US devices, notably touch screen devices, which are
exports, the decline appears surprising, given our currently enjoying tremendous growth. Neither
feedback of an overall upturn in powder demand. might be termed ‘new uses’ in the traditional
However, two points are worth noting. First, an sense, but each is clearly having a positive
increasing portion of US silver powder offtake impact on the industrial silver market.
is being consumed locally, rather than being
exported. Second, the US may have lost market
share to Korea this year, hence the dramatic rise
in Korea’s powder imports.

18
 ALCHEMIST ISSUE SEVENTY ONE

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ALCHEMIST ISSUE SEVENTY ONE

Managing Post-Trade Risk in

Precious Metals Portfolios
By Susan Hinko, Head of Industry Relations and Mattias Palm, Business Manager Commodities, TriOptima

number of transactions and the notional

outstandings in the OTC derivatives markets. In
2008 alone, compression in the CDS market
eliminated 50% of the notional outstandings
globally after regulators focused on inefficiencies
in the CDS market. Since then, the expansion
of portfolio compression to cleared IRS trades
in LCH.Clearnet’s SwapClear service has
dramatically reduced the IRS swaps outstanding.

Through June 2013, $353 trillion has been

eliminated from swap portfolios globally since
compression was first introduced 10 years ago.
The ISDA (International Swaps and Derivatives
Association) recently analysed the contribution
that portfolio compression has made to
controlling the growth of notional outstandings,
one of the goals of global regulators. In its OTC
Derivatives Market Analysis Year End 2012, ISDA
noted that, over the last five years, “…portfolio
Portfolio compression, also known as multilateral early compression has significantly reduced notional
termination, of OTC derivative portfolios has arrived in the amounts outstanding by 25% or more”. The ISDA
concluded that “the industry has worked very
precious metals derivatives market and is gaining traction. In
hard using tools such as netting, collateralization,
March 2013, TriOptima completed the first portfolio compression portfolio compression, and central clearing to
cycle for precious metals forwards and swaps, terminating $7.2 reduce risks in the system in accordance with
G-20 goals.”
billion in notional principal outstandings. Six institutions were
able to reduce their gross positions in gold and silver, unlocking The graph below indicates the growth of portfolio
compression from 2003 through 2012. The ISDA
regulatory capital and reducing collateral requirements. Additional
Year End Market Analysis reports that the total
precious metals cycles are scheduled for later this year. notional compressed across all transaction types
in 2012 was $48.7 trillion and that $214.3 trillion
Managing capital and collateral resources notional has been compressed in the five-year
efficiently is especially important in the new period through 2012.
regulatory environment, and the commodities
market has responded with interest to the
expansion of portfolio compression to precious
metals trades. The incentive to achieve greater
reductions in precious metals forwards and
swaps is strong, especially as new capital rules Figure 1: triReduce Compression Since Inception1
90 1,800,000
and margin requirements are implemented.
80 1,600,000
In a portfolio compression exercise, participants
Gross Notional [US$ Trillions]

70 1,400,000
are able to tear up their existing trades at their
own mid mark-to-market valuations and avoid 60 1,200,000
the difficult negotiation process of bilateral 50 1,000,000
Trades

termination. Multilateral terminations leverage

40 800,000
the expanded number of participants and result
in increased numbers of terminated trades. 30 600,000
While individual institutions benefit from a more
20 400,000
efficient use of capital and collateral, reducing
outstanding notional also contributes to the 10 200,000
overall stability of the financial markets. 0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Since its introduction in 2003, first for interest Gross Notional Compressed [USD] Terminated Trades
rate swaps (IRS), then for credit default swaps 1
IRS and CDS Compression statistics
(CDS), and finally for commodity trades in energy Source: TriOptima
and precious metals, portfolio compression has
contributed significantly to reducing the

20
Figure 2: Consider a Portfolio with Five Counterparties
 ALCHEMIST ISSUE SEVENTY ONE

“
How Portfolio Compression/ Source: TriOptima
Each participant in a compression cycle
Multilateral Termination Works identifies and submits the trades they are willing
Portfolio compression is a powerful tool for Market participants that to terminate at their own mark-to-market values.
eliminating risk that amplifies results beyond have a significant two-way Once these trades have been matched against
the bilateral relationship. It is much more the other side of the original transaction, a
Figure 1: triReduce Compression Since Inception1
effective than bilateral attempts at termination flow of OTC derivative trades proposal of transactions that can be terminated
90 1,800,000
because it has access to a greater pool of trades
that can
80 be eliminated while still respecting
the constraints preferred by participants.
build up an inventory of
“
1,600,000
trades that are not necessary
whileFigure
maintaining a firm’s Compression
3: Multilateral predefined tolerances
Potential
for changes in counterparty credit exposure,
market risk and cash payments is generated. Ne
Gross Notional [US$ Trillions]

70 1,400,000
More trades and more participants yield to maintain the firm’s net A Each institution reviews the proposal and
B C D E Posi
60
proportionately better results. 1,200,000 submits its acceptance. When all cycle
1 riskSince
Figure 1: triReduce Compression position.
Inception
participants have accepted the proposal, the
50
90 1,000,000
1,800,000

Trades
Market participants that have a significant proposal is legally binding for all parties, and
40
80flow of OTC derivative trades build up 800,000
1,600,000
two-way transactions are terminated and eliminated from
an inventory
30 of trades that are not necessary to While there is some potential to reduce the
600,000 the books. As a result, the terminated trades will
Gross Notional [US$ Trillions]

70 1,400,000
maintain20 the firm’s net risk position. By joining a number of trades outstanding while 400,000
maintaining no longer incur costs, risks and capital charges.
60 1,200,000
portfolio compression cycle, firms can eliminate the net position through bilateral early This process typically includes both a ‘dress
10 200,000
trades50they don’t need for accounting, regulatory termination, this is very time-consuming and
1,000,000 rehearsal’ and then a ‘live run’ a few days later.

Trades
Source: TriOptima
or risk 40
purposes,
0 and achieve significant benefits. very difficult to achieve in scale. By participating
0
800,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Without compression, a firm will have a portfolio in a multilateral compression cycle, significant One of the key tolerances that a firm sets is the
30 Gross Notional Compressed [USD] Terminated Trades
of transactions against a series of counterparties numbers of trades can be eliminated600,000 while the delta tolerance. It can be defined on up to four
as shown
1 20 in Figure 2 below.
IRS and CDS Compression statistics net risk position does not change. 400,000 different levels as illustrated below, where each
Source: TriOptima level protects against different kinds of yield
10 200,000
curve movements in the time buckets defined
0 0 by each participant as designated by X. The
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
tolerance is symmetrical, it will allow for the delta
Gross Notional Compressed [USD] Terminated Trades
to either increase or decrease within the defined
1
IRS and CDS Compression statistics
Source: TriOptima
Figure 2: Consider a Portfolio with Five Counterparties Figure 4: Setting Delta Tolerances

Net
Level 4 Level 3 Level 2 Level 1
A B C D E Position
X
Figure 2: Consider a Portfolio with Five Counterparties X X
X
Net X
X
A B C D E Position
X X
X
X
Source: TriOptima X
X X
X
X
X
Source: TriOptima X X
Figure 3: Multilateral Compression Potential
X
Net
Source: TriOptima
A B C D E Position

Figure 3: Multilateral Compression Potential

tolerance value by the same amount.
Net Another important tolerance is the counterparty
A B C D E Position exposure tolerance, which can be set
asymmetrically to constrain or allow positive or
Source: TriOptima
negative movements in mark-to-market exposure
versus each counterparty participating in the
cycle. So, for example, you might be willing to
allow counterparty credit exposure to increase
by $5 million or decrease by $5 million versus
counterparty A, but only be willing to see a
Source: TriOptima decrease by $5 million and no increase versus
counterparty B.

Figure 4: Setting Delta Tolerances

Level 4 Level 3 Level 2 Level 1

X 21
X X
Figure 4: Setting Delta Tolerances
 ALCHEMIST ISSUE SEVENTY ONE

Figure 5: Counterparty risk before triReduce cycle Figure 6: Counterparty risk after triReduce cycle
Billions

Billions
Net Notional (EUR) Net Notional (EUR)

Source: TriOptima

With the renewed focus on credit risk • Reduced Operational Risk and Costs
management, firms and regulators have The operational costs and risk associated
underscored the importance of improving with maintaining an OTC derivatives portfolio
exposure management. Regular participation are directly proportional to the number of Mattias Palm, Business
in compression cycles reduces counterparty trades in the portfolio. If there are fewer Manager, TriOptima
exposures overall; but by utilising the trades, there are fewer payment and fixing Mattias Palm is responsible
counterparty tolerances, participants can events, fewer nostro breaks, fewer processing for managing TriOptima’s
also smooth out the peaks and troughs in errors and less time spent on resolving errors business in the commodities markets, which
remaining exposures, resulting in a more or erroneous payments. With fewer trades, includes the portfolio compression service
efficient distribution among counterparties, there is also more control over the portfolio. triReduce Commodities, as well as the portfolio
as illustrated below. This capability is another Participating in a portfolio compression cycle reconciliation service triResolve.
contributing factor to reducing systemic risk will involve a data scrub for all submitted Prior to joining TriOptima in 2011, Mattias
as well. trades so that existing errors can be was EVP, Head of Markets & Sales, at Navita
identified before they grow into major losses. Systems (now part of Brady plc.). This role
The Benefits of Portfolio Compression included executive responsibility for sales,
Getting rid of unnecessary transaction inventory • More Efficient IT Processing marketing, and product strategy, as well as
that does not contribute to the desired market In a business environment where cost hands-on responsibility for product management.
risk position can yield many benefits, especially containment is a key consideration, During his 17 years in the commodity trading
for trades where the underlying prices are high, smaller trade portfolios require less system and risk management sector, he has also worked
credit lines are constrained, collateral demands resources and postpone the need to at NASDAQ OMX as product manager, and in
have escalated or capital is in demand as is the increase or upgrade capacity. Moreover, IT principal consultant roles at PA Consulting Group
case in precious metals trading. processes can run quicker batch processes; and Capgemini.
and system response times are reduced. Mattias holds a MSc in Electrical Engineering
• Capital Benefits & Computer Science from the Royal Institute of
Terminating trades reduces regulatory Portfolio Compression for Technology in Stockholm, Sweden.
and economic capital charges. For firms Precious Metals
under IFRS accounting rules, which require While some benefits are particularly relevant to
gross positive and negative mark-to-market a financial institution, most of the advantages
values on the balance sheet, reducing trade of reducing portfolios in precious metals can be
inventory will reduce the balance sheet enjoyed by any firm. In the current economic and Susan Hinko, Head of
consumption. regulatory environment, managing counterparty Industry Relations,
risk, reducing operational risk and costs, TriOptima.
• Credit Exposure Management deploying capital efficiently and maximising IT Susan is responsible for
With reduced credit exposures, credit lines processes are important goals for everyone. TriOptima’s corporate
can be freed up to support new business communications and industry relations globally.
opportunities. In addition, collateral Although portfolio compression is just beginning Prior to joining TriOptima, she worked at the
volatility will be reduced by managing down to gain traction in the precious metals market, its International Swaps and Derivatives Association
counterparty exposures that cause collateral potential is appreciated by market participants. (ISDA) as head of policy for the Americas. Susan
calls to be triggered and incur capital TriOptima has scheduled the next precious also served as the administrative officer of
costs under Basel III. Internal charges for metals compression cycle for October this year, several investment banking departments at
capital will also be reduced to the benefit and TriOptima anticipates executing three to four Lodestar, Merrill Lynch M&A, and Goldman Sachs
of individual, well-managed businesses. precious metals cycles per year going forward. Real Estate. She started her career on Wall
Shrinking portfolios will show a reduction in As the new US and European regulations come Street in the cash management area at Chase
potential future exposure (PFE) over time, into effect, there is a greater need to capture the Bank and Merrill Lynch treasury.
and bilateral risk can be managed effectively benefits of compression, especially the reduction Susan holds a BA from Skidmore College, an
using asymmetric counterparty exposure in counterparty credit risk, the more efficient MA from the University of Michigan and an MBA
tolerances. deployment of capital and the reduced operational from Columbia University.
risk and costs that compression delivers.

22
ALCHEMIST ISSUE SEVENTY ONE

23
ALCHEMIST ISSUE SEVENTY ONE

???????????
??????????????
??????????????????????

24
 ALCHEMIST ISSUE SEVENTY ONE

Regulation Update
– Responsible Gold Programme
By Ruth Crowell, Deputy Chief Executive, LBMA

After three years of development and The refiners listed above have successfully Responsible Gold Guidance
implementation, the LBMA is delighted to passed an independent third-party audit for – Background
announce the first eight refiners to have 2012 production, confirming they comply with The LBMA has taken its role as accreditor of
successfully passed the LBMA’s Responsible the LBMA Responsible Gold Guidance. The the world’s gold refiners and expanded the
Gold Audit Programme. The Good Delivery gold audit reviewed the refiners’ production over scope of its requirements, to include OECD Due
refiners which have passed since June 2013 a 12 month period. This process will be on- Diligence, by the creation of the Responsible
are as follows: going, and the remaining GD refiners are now Gold Guidance. The Guidance operationalises
preparing for an independent third-party audit and extends the OECD Gold Supplement
throughout 2013 and into early 2014. for refiners and builds on existing Anti-
• AngloGold Ashanti Mineração Ltda, Nova Money Laundering and Know Your Customer
Lima, Brazil Through mutual recognition of other industry management systems and auditing practices.
• Argor-Heraeus SA, Mendrisio, initiatives, the LBMA also recognises that It also makes what is a voluntary system (the
Switzerland refiners have achieved compliance with the OECD Guidance) mandatory for all LBMA Good
• JX Nippon Mining & Metals Co., Ltd, Responsible Gold Guidance by achieving either Delivery gold refiners wishing to be accredited
Saganoseki, Japan the Responsible Jewellery Council’s Chain-of- for the London Bullion Market. This framework
• Mitsubishi Materials Corporation, Custody certification or Electronics Industry is intended to assure investors and consumers
Naoshima, Japan Citizenship Coalition (EICC) CFSI audit protocol. that all London gold stocks are conflict-free
• Mitsui Mining and Smelting Co.,Ltd, due to compliance with an audited, conflict-free
Takehara, Japan process. The Guidance however, goes beyond
• PAMP SA, Castel San Pietro, Switzerland conflict and also addresses other responsible
• Sumitomo Metal Mining Co.,Ltd, Toyo, sourcing issues such as money laundering and
Saijo, Japan terrorist financing.
• Umicore SA Business Unit Precious
Metals Refining, Hoboken, Belgium

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direct from LME data distributors
From $15 per user, per month you can now access 5pm gold and silver data
from the London Bullion Market Association’s forward market makers.
Data sets include:
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Visit www.lme.com/LBMAdataset or www.lbma.org.uk

Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell any security or other financial instrument or constitutes any investment advice or
recommendation of any security or other financial instrument. To the best of the LME’s knowledge and belief, statements made are correct at the time of going to press.
The LME accepts no liability for the accuracy of any statement or representation. The London Bullion Market Association (LBMA) licences the distribution rights for the
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The LBMA Products are available to the LME on an “as is” basis and as such, no representation, warranty or condition, express or implied, statutory or otherwise is
given or assumed by LME. © The London Metal Exchange. A member of HKEx Group. No portion of this publication may be reproduced without written consent.
The London Metal Exchange, 56 Leadenhall Street, London, EC3A 2DX. Telephone +44 (0)20 7264 5555, www.lme.com 25
ALCHEMIST ISSUE SEVENTY ONE

26
 ALCHEMIST ISSUE SEVENTY ONE

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London www.lbma.org.uk 21 IPMI 38th Conference
www.global-mining-finance.com/ 15th Russian Bullion Conference JW Marriott Grande Lakes,
gmf-autumn OCTOBER Hotel Baltschug Kempinski Orlando, Florida
7-10 www.ipmi.org/conf_detail.
18-20 LME Week 2013 26-27 cfm?id=35
Colorado Precious Metals Summit London, UK NewGenGold 2013
Park Hyatt, Colorado, USA www.lme.com/lmeweek.asp Pan Pacific, Perth, Australia SEPTEMBER
www.precioussummit.com/ www.newgengold.com 14-17
16-17 Denver Gold Forum 2014
19 The Gold Symposium 2013 Hyatt Agency, Denver, CO, USA
IPMI 1st Annual New York Luna Park, Sydney, Australia www.denvergold.org/gold-forums/
Platinum Dinner http://gold.symposium.net.au
New York Palace Hotel, New York, OCTOBER
USA 22-23 20-23
www.ipmi.org/index.cfm Silver Institute Industrial LME Week
Conference London
Washington DC, USA www.lme.com/lmeweek.asp
www.silverinstitute.org/site/

27
ALCHEMIST ISSUE SEVENTY ONE

LBMA News
By Stewart Murray, Chief Executive, LBMA

MEMBERSHIP A further LBMA Members’ Seminar electronic scale that can be used the previous chairman, Michael
Members was held on 24 April, which for weighing Good Delivery gold Ludwig. The first was that the
Rather unusually, there was only focused on two main regulatory bars. Committee agreed that the
one change to the membership issues (the impact of Dodd chairmanship should be taken
list during the past quarter. Frank on the bullion market and The Committee also received the over by Nick Frappell of Mitsui. The
On 16 April, RC Inspection of forthcoming EU regulation). This first batches of Responsible Gold vacancy itself attracted a record
Hong Kong was admitted as an was followed by presentations on audit reports (see Regulation number of candidates – no less
Associate. the cleared forwards platforms Update on page 25 for further than 14. At its meeting in late June,
set up by the CME Group and details). the Committee agreed to invite Lee
GOOD DELIVERY LIST the London Clearing House in Foster of HSBC to fill the vacancy.
On 24 May 2013, the silver refinery combination with the LME. Public Affairs Committee
of Anyang Yubei Gold and Lead At its three recent meetings, whilst In spite of only approving one
Co., Ltd from Henan Province in On the subject of gold supply chain the PAC have been progressing application for Associateship in
China was added to the Silver List. regulation, the LBMA organised, a range of issues the main focus the past quarter, the Membership
The refinery’s primary sources of for the second year in a row, of attention in recent months has Committee has been kept busy
silver feedstocks are anode slimes a Responsible Gold Forum in been on preparing the LBMA/ with a number of issues. The
recovered from its lead electrolysis Paris. This was held on 1 May in LPPM Conference in Rome, which Committee is also aware of a
production. conjunction with the OECD meeting will take place on 29 September substantial number of applications
on the related topic of conflict to 1 October. The Committee that are in progress. The time
COMMITTEES minerals. The LBMA is planning have concentrated in particular taken to process applications is
Management Committee to hold another Responsible Gold on the programme of topics and mainly a function of the time it
The Management Committee has Forum in Rome on 1 October. This speakers but it has also been takes to obtain sponsorship letters
held three meetings in the past is being organised in conjunction guiding the Executive on the from three companies within the
quarter. with the Responsible Jewellery various extramural aspects of membership and, in fact, it is
Council during the second day of the Conference. The PAC should a reflection of the seriousness
After much discussion, it was the LBMA Conference. be congratulated on creating with which this task is viewed
decided that the Executive a particularly strong speaker by sponsors that sometimes the
should carry out a new Gold The LBMA has noted with some programme this year, highlights of process can be rather protracted.
Trading Turnover Survey covering concern that the European which include keynote speeches
Members’ trading in the whole of Commission has announced plans from Salvatore Rossi, Director The Membership Committee is
2012. The survey was launched to introduce legislation on the topic General of the Banca D’Italia, and also discussing the best way of
at the end of May and returns of conflict minerals. The LBMA’s Francesco Papadia, Chairman of implementing the Management
have been coming in steadily. A view, which has been expressed Primary Collateralised Securities. Committee’s decision that
summary of the results should be to the Commission, is that such Associate reviews should be
available in time for the next issue legislation is not required given For the first time, there is also a carried out annually rather than
of the Alchemist. the very robust (and mandatory) dedicated Official Sector Session, every three years as in the past.
compliance requirements that the with senior representatives from
The Committee was pleased to see industry has introduced. four central banks, the Bank of Finance Committee
that following discussion within England, the Banque de France, Following the resignation of David
the Market Makers group, the new One of the results of the RAC’s the Bundesbank and the Central Holmes from the Committee,
GOFO page ‘NEWGOFO’ on Reuters work has been the decision to Bank of Argentina, with the session the Management Committee
finally went live on 13 August. The support the development of the chaired by Terence Keeley, Head of decided to increase the number
page shows both bids and offers Futures and Options Association’s Official Institutions at BlackRock. of members of the Finance
that are dealable by other Market EU Regulatory Implementation There are many other highlights Committee. As a result of the
Makers during the contribution Handbook. All LBMA members in an excellent programme that announcement of the vacancy in
window of 10:30 – 11:00 am. were informed by the Executive on includes sessions on both long- the last issue of the Alchemist, a
A question which is clearly going 31 May about this online service term and short-term investment, number of excellent candidates
to become an important one for and how they can gain access to it. regulation and PGMs. put their names forward and,
all markets, including the precious at a special meeting in July, the
metal markets in London, is how Finally, the Committee’s In addition to the main conference Committee decided to invite Jane
to respond to the publication by membership has been bolstered programme there will also be Lloyd from Scotia Mocatta and
IOSCO of its principles for the by the addition of Jeremy Wall of a Responsible Gold Forum on David Burns from Commerzbank
compilation and administration of Société Générale. 1 October, which has been to join it. It should perhaps be
benchmarks. organised by the LBMA and the mentioned that it is a coincidence
Physical Committee Responsible Jewellery Council. that both of the Davids mentioned
Regulatory Affairs Committee In late July, the Committee The forum will take place in the here worked for the same company!
At its meetings in May and June, approved a new edition of the form of parallel sessions to the
the RAC focused on a number of Good Delivery Rules. These include main conference programme. PlatforM Meeting
topics: the market impact of US a new definition for the undercut The LBMA hosted a meeting of
and forthcoming EU regulation, based on the angle of deviation Membership Committee the PlatforM group on 7 May.
gold supply chains, the gold from the vertical of the sides and There were two changes in The group includes a number
turnover survey (mentioned above) ends of the bar. The new edition the Membership Committee of international associations
and benchmark regulation. also gives a full specification for an resulting from the resignation of concerned with precious metals

28
 ALCHEMIST ISSUE SEVENTY ONE

and its agenda allows an exchange forward for the five places on the LBMA Staff Vacancies
of views to facilitate co-ordination Committee reserved for Market It is a pleasure to announce the
– LBMA Regulatory Affairs
and avoid duplication in a number Makers and were thus elected well-deserved promotions of Emma
& Compliance Officer and
of areas, particularly those related without the need for a ballot. Attridge and Collett Roberts to
GDL Officer
to regulation. This group will the positions of Good Delivery
The Management Committee
meet again in September in the Market Making Assistant and Events Co-ordinator
has approved the recruitment
environs of the Conference in Members respectively. However, we are very
of a new senior member of staff
Rome to discuss the EU conflict • Philip Aubertin (UBS) sorry to be losing the services of
to take responsibility for various
minerals legislation as well as other • Ronan Donohoe (Deutsche Bank) Rebecca Adamson as our Good
aspects of the LBMA’s work
important issues. • Peter Drabwell (HSBC Bank Delivery List Officer in mid-
in relation to regulation and
USA NA) September. Rebecca has been a
compliance. Anyone interested in
AGM • Steven Lowe (Bank of Nova Scotia vital member of the LBMA team
applying for the Regulatory Affairs
The 2013 LBMA Annual General – ScotiaMocatta) since she joined in 2008 and she
& Compliance Officer or the Good
Meeting was held at Merchant • Kevin Roberts (JP Morgan Chase will be greatly missed. We wish her
Delivery Officer vacancies should
Taylors Hall, Threadneedle Street, Bank) the best of luck as she returns to
contact the Operations Director
in the City of London at 5:30 pm on • Ronan Donohoe thus takes the University to do an MA in Applied
(Stuart.Playford@lbma.org.uk) for
19 June. In addition to the formal place of Raymond Key, who Theatre.
further details.
business of approving the accounts resigned from the Committee
and appointing the auditors, the earlier this year.
meeting received reports from the
Chairman and the chairs of the five The continuing Ordinary Members,
subcommittees. whose turn it will be to stand down LPPM/LBMA
next year are:
This year, the election for the • Grant Angwin (Johnson Matthey)
Cocktail Reception
Management Committee involved • Simon Churchill (Brink’s)
just the Market Makers. As per the • Jeremy East (Standard Chartered
New York - 19 September 2013
new version of the Articles agreed in Bank) The LPPM, together with the LBMA, are holding a
2011, the Market Making Member • David Gornall (Natixis London Cocktail Reception for their members and invited guests
representatives on the Committee Branch) on Thursday 19 September 2013 from 18.00 - 20.00 at
were required to stand down at
the New York Palace Hotel.
this year’s AGM (though they were The new Committee then met and
eligible to stand again for election elected David Gornall as Chairman
Any members wishing to receive an invitation please contact
for a two-year period, which all and Steven Lowe as Vice Chairman
of them did). The following five for the coming year.
admin@lppm.com
representatives put their names

Market Moves

Timothy Lyes joins Natixis

Timothy Lyes recently joined the metals team at Natixis – Global Markets
Commodities in London. In his new role he will focus on expanding the
Natixis precious metals franchise throughout EMEA. He previously spent
7 years working on the metals sales desk at Barclays Capital in London.

Thomson Reuters GFMS has strengthened its team with the

appointment of Rhona O’Connell as Head of Research. Rhona brings
30 years’ markets experience, including at Shearson Lehman Brothers,
Rudolf Wolff, Consolidated Gold Fields and latterly the World Gold Council
and GFMS Analytics. Dr Ryan Cochrane joins as a Mining Analyst, having
previously worked as a gold exploration geologist in South Africa and
China. Andrew Leyland has joined to manage demand-side research
across the Americas. Andrew has ten years’ experience in the metals
markets, most recently as Principal Consultant at CRU and Senior
Commodities Analyst at VTB Capital.

29
ALCHEMIST ISSUE SEVENTY ONE

Who Let The Bears Out

Editorial Comment by Dr Edel Tully, Executive Director, Global Precious Metals Strategist, UBS Ltd

The annual pilgrimage for the precious metals market

brings us to Italy for the 2013 LBMA/LPPM conference.
such as high frequency and systematic trading along
with the merits of taking a directional price view versus facing
facts
Rome is our venue, and while its demand for and volatility.
manufacturing of gold jewellery has waned in recent
years, there are few places with a comparable precious Perhaps it’s no coincidence that as gold prices rallied,
metals history. and official sector reserves started to swell, central
bankers shied away from the LBMA podium to talk
The conference structure is very similar to that of about gold’s monetary role. Filling the official sector William Tankard,
previous years, with topics ranging from the physical session was a constant challenge. This year, prices Research Director,
markets to investment to the auto industry and beyond have fallen by double digits, and we have the grand Precious Metals Mining,
being natural inclusions in the programme, yet one total of four central bankers from the UK, Germany, Thomson Reuters GFMS.
ingredient is glaringly missing this year – market France and Argentina speaking in the session, as well
optimism. Instead, we have a new guest at the party, as mentioned earlier one from Italy in the opening
the bears are back in town. session. Surely there’s a message in this trend....
Industrial action in South
This is not a cute Aussie koala bear, no way Sir. This is a Without the swift reaction function of the physical Africa’s platinum sector –
fully grown grizzly bear. And because it has been left out markets back in Q2, it’s likely that gold prices would what’s next?
in the cold for more than a decade, it’s determined to have fallen further, and faster. Premiums soared, supply
make its voice heard. bottlenecks followed. But can the physical markets act Few would dispute that last year
as gold’s life support? The speakers in the physical and one of the most significant issues
For many, including myself, who entered this market the jewellery session will share their perspectives. in the platinum market was the
post-2000, tumbling prices are a new phenomenon. widespread and unprotected
Gold bears have largely been in hibernation for most Precious metals regulation is tackled, with a focus mineworker strike action. This
of our annual conferences thus far. Although some on upcoming changes to the London precious metals shook the industry in February and
never quite went away, their whimperings were drowned market, conflict gold with a US focus and conflict again from July to November 2012.
out by a cacophony of roaring bulls. All was jolly in the minerals in the EU. A forum examining updates to A common feature of many of the
precious metals world – we were the invincibles. But all Responsible Gold follows. platinum strikes was heightened
good things have to come to an end. violence, including a number
The final panel session has in recent years become the of murders in townships near
Those of us who have served on the Public Affairs party piece of the event – this time, with an academic affected mines, as well as attacks
Committee over the years will testify to the difficulty in as referee, a host of outspoken, often controversial, yet on mineworkers and security
securing a speaker of a negative price persuasion. Sure vastly experienced folk battle out the future direction of staff. Arguably, the civil unrest
they existed, but few were brave enough to stand in the gold market. at Wonderkop township, which
front of a 99.99% bullish audience. And any chance of degenerated into the Marikana
a controversial and bearish speaker was fully lost when Regardless of metal price behaviour, the LBMA/ tragedy with 34 fatalities and a
Andy Smith become gold’s fan a few years back. LPPM conference offers the best platform for much further 78 injuries, was one of the
debate and networking as old and new friends gather darkest points of post-apartheid
That sentiment surrounding metals has been turned together. I must thank the hard-working members of history. The stoppages surrounding
on its head should make for great debate amongst the Public Affairs Committee for once again pulling these episodes were the key
the chosen speakers. Whether the bearish cloud will together a great programme. Their work however driver that pushed the platinum
transfer into another record conference attendance, would be redundant without the heavy lifting from the market in 2012 into what Thomson
topping last year’s sell-out 652 delegates in Hong Kong, LBMA executive, in particular Ruth Crowell and Aelred Reuters GFMS evaluated to be a
remains to be seen. Connelly. modest gross deficit* of 83,000
ounces, the first such market
The conference kicks off on Sunday, 29 September with shortfall since 2004. This outcome
an afternoon networking reception at the Rome Cavilieri is especially noteworthy given
Hotel, kindly sponsored by the Confindustria Federorafi. Dr Edel Tully, Executive that platinum’s largest demand
The main proceedings start on Monday with two Director, Global Precious Metals segment, autocatalyst, has in recent
vigorous keynote speeches from Salvatore Rossi, Banca Strategist, UBS Investment Bank years languished at levels of sub-3
d’Italia, and Francesco Papadia, Primary Collateralised Edel Tully is UBS Investment Bank’s million ounces, a level last seen in
Securities. head of precious metals strategy, the 1990s. Since the start of 2013,
with responsibility for forecasting production disruption has abated
For the third year running, this conference is hosted in and publishing research on the precious metals substantially, although tensions
association with the LPPM. With gold and silver having complex. remain high.
fallen out of favour with many, PGMs by comparison Edel holds a PhD from Trinity College Dublin
have suffered less. And so interest – particularly if we (2006), awarded for her thesis ‘A Tripartite The chart illustrates the episodes
all believe in a US-led recovery – should be heightened Investigation of the Gold Market: Pricing Influences, of strike disruption across the
for the more industrial metals in the pack. Intraday Patterns and Daily Seasonality’, and a platinum industry over the past year,
Bachelor’s degree in Business Studies from the expressed as a percentage of 2011
Two investment sessions – this year with a short and University of Limerick (2002). She is chairwoman of production capacity taken offline,
long-term focus – will prod and probe how investors the Public Affairs Committee of the London Bullion and clearly reflects the extent to
and speculators rank metals, and challenge consensus Market Association (LBMA). Prior to joining UBS in which disruption has subsided.
views. Is there still a case for gold as a longer-term January 2010, Edel was head of precious metals
diversifier or is gold the next big short? Some very research at Mitsui and Co. Precious Metals Inc., a role
experienced traders share their strategies on topics she held from 2006

30
 ALCHEMIST ISSUE SEVENTY ONE

markedly, with the stand-out losses through wage negotiations

Zondereinde Rustenburg Siphumelele Modikwa Eland strike action being a multi-week and further resistance to possible
40
Union
SDO
Rustenburg Khuseleka
Rustenburg Khomanani
LMI Marikana
Kroondal PSA
Bokoni
stoppage led by RDOs at Northam’s restructuring to ramp up again in
Amandelbult Tumela
Zondereinde operation in Limpopo. the second half, which in our view
% of Total South African Output (2011)

Rustenburg Thembelani Rustenburg Bathopele Impala Lease Amandelbult Dishaba

To put this into perspective, while carries a high probability.

30
Zondereinde reported losses of
around 10,000 ounces, the Impala *Gross surplus or deficit is a measure of
the underlying fundamentals of platinum
20 strike last February led to direct
and indicates the extent to which
losses of well in excess of 100,000 fabrication demand may have depended
ounces of platinum. This reflects a on the release of above-ground stocks,
10
situation so far this year that has or otherwise. At the same time, this also
indicates the change in global above-
been notably less inflamed than
ground stocks.
0 most, including ourselves, had
01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013 01.04.2013 01.07.2013 anticipated.
Source: Thomson Reuters GFMS
So, does this point to an end to the William
major strike episodes? We don’t Tankard,
A combination of factors Deep amongst the disruption think so. There are factors we can Research
contributed to these illegal strikes, was the growing prominence of highlight that would suggest an Director,
including rapid urbanisation, local the AMCU, which has succeeded easier road ahead, but a number of Precious
government’s inability to deliver in boosting its share of labour issues remain. Metals Mining
services in line with the growth in representation at the expense Thomson Reuters GFMS
the area, fragmented communities, of the NUM, which has links to Now that the AMCU is considered Having joined GFMS Limited as a
increased service delivery protests, South Africa’s governing African the dominant union in the platinum Metals Analyst in 2005, William
high levels of youth unemployment, National Congress. The rise of sector, the number of shafts liable has eight years’ experience
inter-union rivalry, as well as an AMCU was made possible by the to face the extreme unrest as researching the metals markets,
increase in micro-credit lending complex socio-economic situation, a result of recruiting members principally covering mine
to mineworkers, which negatively involving, among other factors, may be considered more limited. production and associated
impacted their take-home salary. the slow pace of improvements Nevertheless, negotiations and producer activities. He was brought
to housing conditions, an over legal wrangling lie ahead regarding across to Thomson Reuters in a
To provide an overview, the first of extension of credit to mineworkers a solution to formal recognition of 2011 acquisition and now holds
the major wildcat strikes hit Impala leading to a squeeze in take-home the AMCU, and both major unions the role of Research Director –
Platinum’s Lease Area for six weeks income and a perception that union have their reputations at stake with Precious Metals Mining, within
during the first quarter of 2012. representation was not uniformly respect of promises doubtless made Thomson Reuters’ Commodity
Early on, disgruntled rock drill managing the interests of its when lobbying workers to build Research & Forecasts division.
operators (RDOs), a mid-level labour labour categories. This fostered and retain union representation. William has accountability for the
category with a fundamentally discontent among certain segments A consequence of this has been mining team’s research output of
important role in the ore production of the mining workforce and led recent opening demands for global production, mining costs
process, went on an unprotected particularly to discontent among increases to basic pay cited to be and producer hedging issues
strike and appeared to abandon RDOs. as much as 150% for lower worker across the precious metals sector.
the established National Union of categories (in the case of AMCU’s In addition to undertaking research
Mineworkers (NUM). Initially, these AMCU’s progress recruiting new demand to Anglo Platinum). Labour for annual Surveys, forecast
workers were represented by ad-hoc members appeared to centre on costs typically account for 50-60% reports and bespoke consulting
workers’ committees, but then discrediting the NUM and, many of an underground mine site’s assignments, he played a lead role
the Association of Mineworkers have suggested, also encouraging operating cost, and most mines’ in the development and delivery
and Construction Union (AMCU) unprotected strike action in economics are already borderline of GFMS’ market-leading PGM
stepped up and emerged as the order to drive higher out-of-cycle at best: in 2012, South African total Mine Economics Service. He holds
representative body. Although wage demands. AMCU’s rise in cash costs averaged $1,330 per a BSc. (hons.) degree in Natural
conditions remained tense in the membership levels has occurred to platinum equivalent ounce, with Sciences from the University of
following months, more modest such an extent that it is now widely all-in costs (including capex and Durham, where he specialised in
levels of disruption persisted until regarded as the dominant union certain non-cash items) averaging Geology.
July, when the situation turned in the platinum industry. It seems close to $1,800/oz. Such large
volatile at Lonmin’s Marikana highly likely that this will be followed wage settlements, or anything close,
mines. It was at Marikana where by formal recognition of the union by would drive almost any Bushveld
a prolonged period of strike several major producers, although platinum asset into a deeply
action commenced, and indeed this process appears to be moving loss-making position immediately, The Alchemist is published
peaked with the tragic shootings slowly. This is a key detail, owing to with widespread unemployment quarterly by the LBMA.
at Wonderkop. During September, the structure of labour negotiation quickly following. Nevertheless, For further information please
the situation continued to remain in South African platinum mining in this demand represents ‘fighting contact Aelred Connelly,
challenging in the Rustenburg area, the past, a large part of which takes talk’ and it is hard to see wage London Bullion Market Association
1-2 Royal Exchange Buildings
leading to Amplats front-running place on the basis of recognition negotiations, which have been
Royal Exchange
strike unrest by voluntarily ceasing agreements that operate on a delayed so far, running smoothly this
London EC3V 3LF
operations at its conventionally ‘winner takes all’ basis – in these year. Only Aquarius Platinum has Telephone: 020 7796 3067
stopped Rustenburg shafts amid cases meaning that the mining reported having recently achieved Fax: 020 7283 0030
heightened local intimidation and company will only engage with a ‘realistic’ one-year settlement, as Email: alchemist@lbma.org.uk
concerns about safety. A call to representatives of the dominant yet undisclosed but guided as ‘just www.lbma.org.uk
return to work proved unsuccessful labour union representing the above inflation’, which represents a
and unrest quickly spread, causing largest proportion of its workforce remarkable outcome. Given the freedom of expression offered to
operations to cease at Union mines, within certain labour categories. contributors and whilst great care has been
Mortimer smelter and Amandelbult The past six months of comparative taken to ensure that the information contained
in the Alchemist is accurate, the LBMA can
mines. At Rustenburg, workers More recently, although not without stability could well represent the accept no responsibility for any mistakes,
stayed away for a period of two problems, the levels of disruption in ‘calm before the storm’, with errors or omissions or for any action taken
in reliance thereon.
months. the first half of 2013 have improved the potential for both production

31