Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Deutsche Bank announced in January it is withdrawing from the price-setting process for gold and silver, known as the London fix, amid a probe into the benchmark used for much of the physical trade around the globe.
A new report suggest South Africa’s Standard Bank, in conjunction with Industrial and Commercial Bank of China, is in “prime position” to buy the Deutsche seat:
“Standard Bank is a shoo-in for the fixing seat – they want it, and it would be acceptable to the other members,” a senior gold market source told Reuters. “It’s just whether they can agree a fee.”
The UK’s Financial Conduct Authority launched a probe late last year over the way gold prices are set every day in London by five banks – Deutsche, Scotia-Mocatta, Barclays, HSBC and Société Générale – acting as market makers in an obscure process that dates back to 1919.
According to the London Bullion Market Association, total trading volume in gold per day is some $240 billion, with only a tiny fraction of the total ever physically settled.
Reuters reports the last time a seat was vacated was in 2004, when NM Rothschild and Sons sold theirs to Barclays for a purported $1 million.
ICBC,the globe’s largest bank in terms of market value and assets under management, has been “steadily building its presence in the gold market since setting up its precious metals department in 2009,” and is particularly keen to expand overseas.
A fortnight ago, ICBC announced the purchase of the London commodities-focused arm of Standard Bank, Africa’s largest bank, in which it already owns a 20% stake.
ICBC is paying $765 million for 60% of the London unit of Johannesburg-based Standard Bank, gaining access to a well-established commodities, credit and forex trader with affiliates and operations in all the major trading hubs including New York, Hong Kong, Tokyo and Shanghai.
The Chinese giant, which boasts more than four million business clients and services 410 million retail customers, also received a five-year option to purchase another 20% of Standard Bank’s global markets unit for up to $500 million in cash.
Jianqing Jiang, the chairman of ICBC said at the time of the Standard Bank purchase that “the large amount of commodities trading and the consequential needs for hedging resulting from the development of the Chinese economy, as well as financial reforms, posed new demands for the transformation of the service capabilities and business model of Chinese banks.”
In October, the UK made it easier for Chinese banks and investors to trade inside the country and London is already responsible for the bulk of trading in renminbi outside China.
The investigation into the London gold price fix came after Libor (London Interbank Offered Rate) referenced in trillions of dollars of derivative and other financial transactions was being manipulated.
Image by xiaming.
