The global financial crisis has had positive and negative consequences for South African gold refining and precious metals company Rand Refinery, comments MD Geoff Millet.

He says the positive aspects include a continued demand for gold in investment product form, notwithstanding a volatile gold price.

“The demand for gold has been, on the whole, good for Rand Refinery,” says Millet.

He says that when the gold price is high, the demand for value- added products drops to some extent. When the gold price is low, this demand increases, but, overall, the financial crisis has been good for the refinery, as there has been demand for value-added products such as coins and small bars, off- setting lower semimanufactured product demand.

The increase in the cost of gold loans for the production process are some of the nega- tive effects the global financial crisis is having on Rand Refinery, as the refinery uses gold as work in progress in its production process. Millet says that by balancing these two aspects, Rand Refinery is better off than it was before.

Rand Refinery head of global markets John Reid adds that he expects that the demand for fabricated products used by the jewellery manufacturing industry will drop strongly, as jewellery manufacturers will be selling less. On the other hand, the demand for direct gold investment products, such as small bars, minted bars and Krugerrands has increased, as people are wary of the investment and financial markets.

“People who have never owned physical gold are now hoping to invest in physical gold instead of shares. There is even a movement of people moving into physical gold rather than gold exchange-traded funds,” says Reid.

He says that, fortunately, for the South African mining sector and the refinery, the gold price and the rand gold price have remained high. He says it is too early to predict what effects the financial crisis will have, but he says the refinery’s mix of products allows it to make up on the investment side what it loses on the fabricated demand side.

Reid says that, despite changes in investment patterns, overall, there is still a strong demand for gold as an institutional investment medium, which is often represented in the form of London Good Delivery bars.

Gold as a Safe Haven
Millet comments that gold is a safe haven from the uncertainty prevalent in the financial markets at present.

“I am very positive. I believe that gold will always have a good return. It is really the hard asset that people want, because they have been burnt by the banking system and by the equity markets, so gold is really a long-term safe haven in that respect,” says Millet.

“There is still a very strong market for gold. It has not collapsed and it is very vibrant and liquid. The gold price is high, so there’s no question that gold as a commodity is benefiting from that,” adds Reid.

Challenges
Millet says that skills short- ages are always a challenge for Rand Refinery, particularly as it is the only large-capacity refinery in South Africa. He says that the company must ensure that it builds its skills from within.

“I always see the positive aspects coming out of tough economic times and I think this will give Rand Refinery the opportunity to improve its efficiencies, but, at the same time, continue focusing on the customers,” says Millet.

Reid adds that one of Rand Refinery’s greatest concerns is that the tightness of the credit markets may result in mines, especially new mines, not receiving all the access to new funding that they need for new shafts and developments. He adds that this could mean that the amount of new gold that requires refining may possibly decrease.

“It is really a mixture of balancing factors that Rand Refinery is attempting to manage as best it can and, so far, has carried out successfully,” concludes Reid.

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