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Robert Lambourne: Gold is a huge part of Bank for International Settlements' profit

Section: Daily Dispatches

By Robert Lambourne
Tuesday, June 25, 2012

The Bank for International Settlements yesterday published its 2011-12 annual report:

The bank reported a profit of Special Drawing Rights 758.9 million. A gain of SDR 78.7 million arose on the sale of 3 tonnes of gold (3 tonnes from 119 tonnes, including gold loans) and there was a gain of SDR 34.7 million from the release of a provision set up in prior years on a gold loan that was repaid.

Hence the profit arising from the sale of physical gold and the repayment of gold loans was SDR 113.5 million. Fifteen percent of the bank's reported profit came from this source.

In addition there was a net revaluation gain on the remaining gold investment assets of SDR 551.8 million. This together with the SDR 113.5 million gold-related profit noted above represented 41 percent of the reported comprehensive income of SDR 1,607.2 million for the year. (Comprehensive income essentially means profit plus unrealised net valuation gains.)

... Dispatch continues below ...


Prophecy Platinum Announces Wellgreen Preliminary Economic Assessment:
38% Pre-Tax IRR, $3.0 Billion NPV, and a 37-Year Mine Life

Company Press Release

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) reports the results of an independent NI 43-101-compliant preliminary economic assessment for its fully owned Wellgreen nickel-copper-platinum group metals project in the Yukon Territory.

The independent assessment, prepared by Tetra Tech, evaluated a base case of an open-pit mine (with a mining rate of 111,500 tonnes per day), an on-site concentrator (with a milling rate of 32,000 tonnes per day), and an initial capital cost of $863 million. The project is expected to produce (in concentrate) 1.959 billion pounds of nickel, 2.058 billion pounds of copper, and 7.119 million ounces of platinum, palladium, and gold during a mine life of 37 years with an average strip ratio of 2.57.

The financial highlights of the preliminary economic assessment, shown in U.S. dollars, are as follows:

Payback period: 3.55 years
Initial capital investment: $863 million
IRR pre-tax (100% equity): 38 percent
NPV pre-tax (8% discount): $3 billion
Mine life: 37 years
Total mill feed: 405.3 million tonnes
Mill throughput: 32,000 tonnes per day

Prophecy Chairman John Lee says: "We are pleased with the preliminary economic assessment results. The numbers indicate that Wellgreen is one of most exciting mineral projects in the Yukon. The company is drilling to upgrade and expand the resource base. The infrastructure is excellent as the project is only 1,400 meters in altitude and 14 kilometers from the paved Alaska Highway, which leads to the Haines deep seaport. Discussions are under way with support from local stakeholders regarding permitting and logistics."

For the complete press release, please visit:

This year's BIS annual report is 210 pages long and includes extensive commentaries on aspects of the financial crisis. The financial statements themselves cover 68 pages and as far as I can see nowhere is the importance of its gains on gold and gold-related transactions highlighted in the report. Imagine the furor if Coca-Cola published their annual report and chose not to highlight the contribution to its profits from Coke itself.

Yet again the BIS has not followed a balanced approach to reporting clearly the importance of gold to the bank's gains in the year.

But it is heartwarming to see, as in previous years, the following statement in Note 14 to the accounts: "Gold is considered by the bank to be a financial instrument."

I recollect that Federal Reserve Chairman Ben Bernanke does not agree with that statement. But who would argue with the BIS on such a definition, given the bank's role in the world financial system?

The accounts throw little new light on the gold banking business of the BIS. Gold held by the BIS with other central banks in gold sight accounts (unallocated gold) has fallen in volume to 922 tonnes at March 31, 2012, from 1,136 tonnes. Gold deposited with the BIS in sight accounts by central banks has fallen too. Gold swaps are still a feature, but the tonnage has fallen to 355 tonnes from 409 tonnes a year ago. BIS first reported gold swaps in the 2009-10 financial year and at the time there was conjecture that these indicated a tightness of gold supply.

Gold bars held in earmarked gold accounts (allocated gold) amounted to 323 tonnes at March 31, 2012. (In 2011 the figure was 297 tonnes).

Based on these accounts it's clear that gold deposited by central banks with the BIS in gold sight accounts and not subject to a swap has fallen to 567 tonnes from 727 tonnes. This, like the increase in the tonnage of gold deposited with the BIS in earmarked accounts, supports the view that central banks are taking more care of the security of their gold holdings.


Robert Lambourne is a business executive in London.

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Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit: