Subscribers to my newsletter and website know that I’ve been talking a lot about the current issues with these pooled and unallocated metals storage companies. Over the past couple of months, John Adams among others have reported on anecdotal evidence that the Perth Mint was experiencing some problems with delivering metals. This was based on a few customers reporting issues related to their capacity to access silver from the Perth Mint. While looking into this myself I was contacted by a chartered financial accountant named Daniel Vigario. After careful analysis of the audited financial statements, Mr. Vigario concluded that the Perth Mint was running a fractional reserve metal system. I spent a lot of time reviewing Daniel’s analysis, and I agree with him!
As you know, I have an auditing background. Daniel Vigario is the CFO of LiveMore Capital and has worked in various other financial roles throughout his career. After reviewing the assessment of the trial balance that Daniel built, we both agree on the conclusion. The Perth Mint is highly illiquid right now and is on the verge of eventually becoming insolvent. The first thing we did was look at the financials to see what was going on. Although Daniel doesn’t believe that the financial statements he assessed are failing IFRS, the International Financial Reporting Standards, they are not meeting their basic requirements.
The Perth Mint’s trial balance has been rebuilt over the past several years; from 2013 to 2020. Daniel pointed out several inconsistencies throughout that time. Trade receivables and contract assets fall within the category of being written off as if there was no reasonable expectation of recovery. Year-to-date the Perth Mint is essentially $842 million past due! On September 11th, 2020 they reported that they have $5.4 billion in inventory and 514 million of that sitting in the ETF. It looks like the Perth Mint may be using the previously mentioned investment to take care of the other metals accounts.
They have borrowed immense amounts of silver, to the tune of 6.3 billion dollars! This liability has left them in a precarious position financially where they are headed to an insolvent state at this rate. This has happened in the last two and a half years. It isn’t clear how much of that is gold and how much of that is silver. They have a leverage multiple of 1.17, meaning their net long and short of $929 million.
Thus, if we stampeded the Perth Mint tomorrow they would be short almost one billion dollars in gold and silver. Daniel did look at what they have in short-term assets and determined that their ETF holdings could cover them for a short period of time. Without the ETF, they are short over $140 million Australian, leaving them having to liquidate the ETF holdings to meet current metals obligations to their customers. They currently only have $169 million in the ETF, so they are very quickly running out of room. Thus, they are not completely insolvent yet, however, they are headed down a very treacherous path towards bankruptcy. We will see what happens in September when we get their 2020-2021 financial results.
In conclusion, how long will it take for the Perth Mint to go under? The answer is not completely clear, however, for all of those people that provided John Adams and others with “anecdotal evidence” thanks for the tip! It looks like they are certainly running a fractional reserve metal system. With a net short of almost a billion dollars, they can’t cover what they owe with physical metal. Where did it go, and who did they lend it to? We do not know. Technically they are currently liquid, but we believe that they will need someone to bail them out eventually because they are certainly on their way to becoming insolvent.
Our recommendation is if you have metal with the Perth Mint you want to get it or your money out!