Analyst writes favorably of hypothetical merger of Newmont and Barrick


By Brian Love and Iain Rogers
Wednesday, March 10, 2003

Germany's Bundesbank said on Wednesday it may drop
its idea of funding scientific research by selling gold
after politicians said the central bank had come up with
an overly complicated plan.

Meanwhile, the French government said it too was
interested in the idea of selling gold stocks as thousands
of researchers went on go-slow in protest over lack of
funds from a government which faces regional elections
in less than two weeks.

The Bank of France, which would theoretically not be
able to sell French gold before October in any case,
declined to comment on an issue that was coming to
a head in neighbouring Germany.

The Bundesbank said it was reconsidering its position
after politicians failed to show any support for a proposal
that would involve selling gold, reinvesting the sale
proceeds in a fund, and using the fund's interest earnings
to finance research.

Germany, like France, is worried that Europe could suffer
if a lack of money aggravates a "brain drain" exodus of
big thinkers and researchers to countries like the United

Despite support from German Chancellor Gerhard
Schroeder for an idea concocted by Bundesbank chief
Ernst Welteke, politicians objected to what they see as
an overly bureaucratic mechanism.

"I did not hear a single member of the committee express
support for the idea of setting up a foundation," Junior
Finance Minister Karl Diller told reporters after a meeting
of the lower house of parliament's budget committee
attended by Welteke.

Many parliamentarians believe the plan to set up a
special fund, or foundation, to manage gold sale proceeds
would create needless bureaucracy given that Bundesbank
profits already flow to the government and could be spent
on R&D directly.

"If there is ultimately no support, then the board would
have to review its decision to sell gold," a Bundesbank
spokesman said.

"The key issue is to maintain the value of the proceeds."

Experts say the Bundesbank proposal for financing
research from interest on revinvested gold sales proceeds
-- rather than the proceeds themselves -- offers a more
more lasting financing solution but much smaller amounts
of cash in the short term.

The Bundesbank is among 15 European central banks that
on Monday renewed an accord to limit gold sales and it had
planned to sell 120 tonnes gold a year over the five years
of the new deal, which takes effect at the end of September.

The Bundesbank's rethink came on the same day that
France's conservative government said gold sales by the
Bank of France might be considered as a way of tackling
the problem in the research sector.

The government in Paris, dismayed that 2,000 scientists
have stopped carrying out all administrative work, has
earmarked three billion euros for research in 2005-2007
but it is strapped for cash because of promises to cap
spending and cut France's public deficit back under
European Union limits.

"We have to find the means to finance the future research.
That could be the Bank of France's gold, it could be the
funds we get from privatisations," French Research Minister
Claude Haignere told Europe 1 radio in an interview.

Technically, the Bank of France could not sell until October
even if it wanted to because all gold-selling options have
been taken up by other European central banks under a deal
agreed in September 1999 and which runs until the end of
next September.

The Bank of France says it has not sold gold for 30 or 40
years and has a stock of 3,025 tonnes.

Like the Bundesbank, it is the guardian of national gold
reserves and legally the only body that can decide whether
to sell or not, a sensitive issue for independent central
banks when politicians come looking for money in hard times.

Separately, a German finance ministry briefing document
obtained by Reuters said the Bundesbank's plan to sell
gold shows that the yellow metal is no longer so important
for central bank policy.

"The decision of the Bundesbank board shows gold reserves
today no longer have the same importance as an instrument
of currency policy that they had in the past," the document,
prepared for the German parliament's budget committee,

The moves by Germany and France, holders of the world's
second and fourth largest gold reserves, respectively, come
after a deal on Monday that raises the limits on European
central bank gold sales to 500 metric tonnes a year from
400 once the current deal runs out at the end of September.

Central bankers say the five-year plans, the first of which
was hatched on the sidelines of a meeting of the
International Monetary Fund in Washington in 1999, ensure
a greater level of long-term predictability and stability
in gold markets.


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