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Honey, I Shrunk the Gold

BY ROB KIRBY | november 30, 2009

Back in June, the Ottawa Citizen Newspaper reported,

“that external auditors were investigating a discrepancy between the mint's 2008 financial accounting of its precious metals holdings and the physical stockpile at the plant on Sussex Drive in Ottawa.”

Interestingly, initial reports indicated that discrepancies involved silver and other precious metals. Those references have now been dropped.

This story is and always has been about GOLD.

Last Tuesday, November 24, 2009, CTV News reported that a “colossal error” involving the disappearance of 15.3 million worth of gold bullion was attributable to double-counting and shrinkage – described as having occurred during processing:

RCMP have solved a bizarre mystery: How did $15.3 million in gold vanish from the Royal Canadian Mint? And while their report is still two weeks away, CTV News has learned the answer.

"Senior government officials say there was a colossal error at the mint itself," said CTV Ottawa Bureau Chief Robert Fife on Tuesday night.

Mint officials double-counted some gold bullion they sold, and also underestimated the shrinkage of the gold during processing.

The federal government had withheld bonuses for mint executives until the mystery was solved. It's unclear whether those bonuses will still be paid out.

Junior Transport Minister Rob Merrifield, who's responsible for the mint, called in the RCMP on June 9 after he learned that an audit would not "rectify the problem" of the missing gold. That's about 10 weeks after the government first learned of the missing gold.

The Deloitte and Touche audit cost taxpayers $360,000.

Ottawa now requires the mint to report on inventory levels of metals every three months.

Last month, Liberal critic for Crown corporations Joe Volpe said the security, reputation and the quality of the Canadian Mint's product has been compromised.

In early June, it was discovered that there was an unreconciled difference between the value of gold on the mint's books and the physical count of gold for the 2008 fiscal year.

Then on Friday, November 27, Canada’s Globe and Mail Newspaper published at story “playing-up” the shrinkage story – claiming that the Royal Canadian Mounted Police [RCMP] had ‘solved’ the mystery.

It was the mystery of the missing gold - some $15-million worth - and the Mounties were on the case. They descended on the Royal Canadian Mint, seeking a culprit in the touchy tale of 17,500 ounces somehow vanishing from the Crown corporation that refines the stuff.

This week, the RCMP rendered its verdict: No heist. In fact, say third-party experts who also snooped around within the Mint's fortified walls, the explanation is more banal, if no less bewildering: accounting errors and processing losses - gold disappearing on the books and in the chlorination baths.

Some of it may even be recoverable.

That would be good news for the Mint, which faced the humiliation this spring of searching for the equivalent of 41 bars of gold, before calling in police to see if brazen criminals had been at play…

The Harper government is expected in coming weeks to announce the results of recent accounting and technical reports by the third-party experts, after the Office of the Auditor-General approves the Mint's long-delayed 2008 financial statements.

But the broad lines of the reports are already circulating within government circles, with more precise details to be made public in mid-December.

"The Mint has put forth an explanation for where [the largest portion of] the metal is," a government official said yesterday. "It will come from a few different places, some accounting and some processing."

Accounting problems refer to mistakes in the formulas used to measure how much gold enters the Mint, in varying levels of purity, and how much goes out after being refined.

Government officials and experts added that some of the gold was also lost in the refining process, and there were hopes it could be recovered.

At least one company quietly approached the Mint this summer, stating that the chlorination process used at the Ottawa plant is outdated and offering its expertise to get back some of the precious metal…

The Royal Canadian Mint’s International Reputation

From the Royal Canadian Mint web site:

A new refinery facility, designed to meet any possible demand for many years to come, was built in 1936 to refine gold for mines and central banks throughout the world. Still in operation today, the refinery has produced 9999 fine gold bars since 1969. In 1982, it became the world's first refinery to produce 9999 fine gold bullion coins. Then in 1999, the Mint excelled again by being the first to achieve 99999 fine gold purity.

And here’s how they do it:

Metal refining - 5 steps from ore to pure
The gold used by the Mint is refined in five major stages:

1. Pre-melt
Doré bars in purities ranging from 5% to 95% are melted in a furnace. Dip samples are taken from the molten gold to determine its purity.

2. Chlorination
Chlorine gas is injected into the molten metal mix. All metals but gold float to the surface to form a slag of molten chloride. The resulting 995 fine gold is poured into an anode mould.

3. Degolding
Soda ash is added to the molten chloride slag recovered from chlorination. The reaction causes gold particles to collect in a silver-gold alloy 'button' that settles at the bottom of the crucible.

4. Electrolysis
This process brings gold to 9999 purity. The gold anode is placed in a bath containing a solution of hydrochloric acid and gold chloride. The anode is then subjected to an electric current. The anode dissolves, and the dissolved gold plates onto a titanium cathode. Impurities (mostly silver) fall to the bottom of the cell or form soluble chlorides.

5. Final pour
9999 fine gold is cast into bars of various sizes or turned into granulation gold.

Questions Begging Answers?

1 - If the story being circulated by the Royal Canadian Mint is credible, why didn’t the auditors, Deloitte and Touche, find the cause of the problem? Does anyone really believe that the RCMP is more adept at ‘auditing’ than Deloitte and Touche?

2 - Regarding statements that “gold disappeared in chlorination baths”: Are we to believe that the Royal Canadian Mint has suddenly ‘lost its Mojo’ [and a half a tonne of gold] as the world’s foremost refiner of gold? At this rate, since 1969 – one might expect the Royal Canadian Mint would have lost over 20 metric tonnes of gold assuming they audit operations every year.  

Whatever the real story is surrounding the disappearance of gold bullion at the Royal Canadian Mint, one cannot be sure. What we can be certain of is that the “official story” currently being fed in the mainstream media lacks credibility and smacks of a “cover-up”.

Today’s Market

Overseas equity markets began the week on a positive note with Japan’s Nikkei Index gaining 264 points to 9,345. North American markets also did better with the DOW ahead by 34.90 to 10,344.80, the NASDAQ ahead by 6.16 to 2,144.60 and the S & P gaining 4.15 to 1,095.65. NYMEX crude oil futures added 1.09 to finish the day at 77.14 per barrel.

On foreign exchange markets the US Dollar Index dropped .10 to 74.77.

Benchmark interest rates saw the 5 yr. U.S. Government bond end the day at 2.00% while the 10 yr. bond ended the day at 3.20%.

Precious metals ended the day in positive territory with COMEX gold futures adding .90 to 1,178.60 per ounce while COMEX silver futures added .18 to 18.48 per ounce. The XAU Index added .12 to 183.64 while the HUI Index gained 3.31 to 474.62.

On tap for tomorrow, at 10:00 a.m. Oct. Construction Spending data is due – expected -.7% vs. prior +.8%. Also at 10:00 a.m., Nov. ISM Index data is due – expected 54.0 vs. prior 55.7. Also at 10:00 a.m., Oct. Pending Home Sales data is due, expected -3.0% vs. prior +6.1%. At 2:00 p.m., Nov. Auto and Truck Sales data is due – no estimates given at this time.

Wishing you all a pleasant evening!

Rob Kirby
Registered Representative

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Rob Kirby
Kirby Analytics Newsletter | Toronto, Ontario, Canada
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