The state government has few palatable options regarding the future of The Perth Mint.
If the Western Australian government is expecting a high price for its gold refining business Gold Corporation, which trades as The Perth Mint, it could be in for an unwelcome surprise.
It might even have to consider giving it away.
Problems with the mint range from remarkably low profitability (or loss-making as per 2021) to environmental clean-up obligations at 20 state batteries (gold ore-crushing facilities) scattered across WA, and lingering uncertainty over its corporate reputation.
A new owner, if the business can be sold, will want ironclad guarantees that all issues raised by Austrac, the national anti-money laundering and counter-terrorism agency, have been resolved following an investigation by the financial crimes watchdog.
A report by Austrac is expected to be delivered to Gold Corporation in the second half of the year, overlapping with an external consultant’s options analysis, which will advise the government on how to reduce the risks posed by ownership of the historic institution.
Though not yet appointed, the external consultants are likely to discover the same issues as the last inquiry into the mint by a former Treasury head Les McCarrey, who found in 1996 that the mint should be sold because gold refining and jewellery retailing was not an appropriate business for government.
It was a very different situation 120 years ago when the mint was created by the government as a way of providing gold refining services for what had become the state’s most important industry thanks to the gold rush of the 1890s.
Gold refining today is not a specialised business, with private sector services available such as those offered by ABC Bullion and Johnson Matthey (or any of the other 30 refining members of the London Bullion Market Association).
The Perth Mint’s rivals are logical bidders for the state-owned business, should the external consultant recommend a sale after completing their $1 million inquiry.
But whether any company already in the gold business is interested in an organisation carrying century-old baggage is yet to be discovered. Here, the state batteries are one of several potential glitches, just as BHP discovered when it tried to sell its nickel business a few years ago only to discover the business had an environmental clean-up obligation costing up to $1 billion.
Ironically, the failure to sell the nickel business because potential buyers balked at the clean-up cost meant BHP remains in nickel as it becomes a star in the battery metals industry.
The issue with the state batteries is a sleeper in the mint but received a mention in last year’s annual report when then-chief executive, Jason Waters, said a process had started into how best “to rehabilitate the more than 20 state batteries that have been vested in us by the state government since the 1980s”.
But it’s profitability that will be the major factor in valuing the mint; and that’s far from impressive.
Last financial year, the mint reported a pre-tax profit of $40.28 million, a number that boils down to $15.9 million after tax. On a notional ratio of 12 times earnings, that means the mint might fetch $483 million using the pre-tax profit as a guide, or just $191 million using net profit as a guide.
Those numbers highlight the ultra-fine margin of the mint’s business because its turnover last year was a whopping $21.77 billion, a number that reflects the fact that the mint processes gold belonging to other people.
The tiny profit and huge turnover add to a view that the mint is more of a government-owned service provider for the gold industry, with the appearance of a government department, rather than a business focused on conventional aims such as profitability.
A wildcard in the mint’s favour could be the value of its large landholding in East Perth, the site it has occupied since 1899.
If clear title to the land can be part of any sale, then the mint might appeal to a property developer who could keep the retail shop on the Hay Street site and erect a big block of apartments on the rest.
