Minesite:
>>Quite a powerful little group and they had armed themselves with an independent report from the management consultants McKinseys suggesting that a contribution of US$4/oz from each gold producer would produce an annual marketing budget of US$160 to US$200 million which should be sufficient to add 340 to 500 additional tonnes of gold jewellery demand by 2006.
McKinseys went on to suggest that such a boost to demand could result in a rise in the gold price of around US$40/oz and that this would benefit producers to the tune of US$ 9 to US$12 million in net present value spread across every ounce of production.<<
August 15, 2002
The New Team At The World Gold Council Is Already Achieving Unity Among Producers.
The first job Chris Thompson, non executive chairman of Gold Fields, had to do when taking on the job of chairman of the World Gold Council was to unify the industry. For some time now the steering committee of a dissident group called the Gold Marketing Initiative have been pushing the idea that it, rather than the WGC, should be backed in putting new financial weight behind a marketing and promotional campaign for gold jewellery. This steering committee was made up of representatives from AngloGold, Barrick Gold, , Sons of Gwalia, Gympie Gold, Kinross Gold and Randgold Resources. Quite a powerful little group and they had armed themselves with an independent report from the management consultants McKinseys suggesting that a contribution of US$4/oz from each gold producer would produce an annual marketing budget of US$160 to US$200 million which should be sufficient to add 340 to 500 additional tonnes of gold jewellery demand by 2006.
McKinseys went on to suggest that such a boost to demand could result in a rise in the gold price of around US$40/oz and that this would benefit producers to the tune of US$ 9 to US$12 million in net present value spread across every ounce of production. It was a seductive message and was being promulgated at a time in early 2001 when the gold price showed little or no sign of advancing.. At this same time the World Gold Council had come out with its “Glow With Gold” promotion and had managed to persuade its members to double their contributions in 2001 to US$2 per ounce of gold produced to pay for a gold-re-branding exercise and a push on advertising.
Clearly Chris Thompson has wasted no time in sorting out this conflict as he said on the telephone to Minews from his office in Denver that some pilot studies being carried out in the US on the proposals put forward by the Gold Marketing Initiative were being studied and would continue. “Glow With Gold” however, would be allowed to die the death. This is excellent news as the WGC plan was long on jargon and short on action and only a man like Thompson, who is well respected by his peers, could have brought the two sides together so quickly. This move by the new chairman should not be interpreted in any way as a sign that he is ducking away from spending on gold jewellery promotion as he points out that real money has to be spent on this, but in a structured and focused way.
Just as important will be the development of new gold instruments to attract institutional investors. Pierre Lassonde, an old friend of Chris Thompson, jumped the gun at the Diggers ‘n’ Dealers conference in Australia last week by saying that such an instrument was being developed in the States . Thompson admits that this is true , but cannot say much about it as its development is at a sensitive stage with the SEC. He did make the point, however, that it would have to reach certain criteria for funds unable at the moment to contemplate investment in gold.
This, of course, is a major reason for his choice of James Burton as the new chief executive of the World Gold Council. His is not a name well known in the expensive offices maintained by the WGC in Pall Mall, but it will be. “He is a very effective manager” comments Chris Thompson, “and a man who gets things done.” His cv is certainly impressive as he is the former CEO of the California Public Employees Retirement System (Calpers) which is the largest public pension system in the US with US$140 billion in assets and 1.2 million participants. Under his guidance Calpers pioneered a more activist approach to institutional investing and was transformed into an innovative, value added organisation seen as a global leader in pension investment.
James Burton will clearly have a lot to offer on the investment side and he will be joined by Simon Village , former managing director of HSBC (South Africa) , who will be mandated to help develop one of the many new gold-linked products the WGC hopes to introduce. Burton, however, will be equally involved in physical gold and gold jewellery and will present a detailed and cost-effective promotion strategy before the end of the year. Let us hope this is long on action and short on jargon this time round. It is quite a team that Thompson has assembled and it clearly has the backing of other big players in the gold industry such as Pierre Lassonde who played a pivotal role in the acquisition of Normandy Mining and is now President of Newmont Mining Corporation.
The new team will not shy away from the hard decisions that have to be made if the WGC is to achieve world-wide respect and credibility. Its statistical service will have to be reviewed in the light of criticism that it is not comprehensive; the focus of promotion will have to be narrowed to those markets with most potential; its offices may be moved to cut costs and enable the public to see the range of gold, jewellery and investments on offer. More important, it has to grasp the thorny problem of value in gold jewellery. In the east, and indeed in Asian jewellery shops in this country, buyer and seller agree the gold value of an artefact before doing a deal In the west it is the brand and design that appear more important, though Chris Thompson reckons that 70 per cent of all jewellery is bought as a quasi-investment.
The weak link, in the UK particularly, is the prevalence of 9 carat gold which is not gold at all, but a base metal alloy. If gold jewellery is to be promoted for its beauty and value consumers have to be alerted to the fact that this type of gold has no value. The sums are very simple. The gold in a wedding ring weighing 6 grammes would be worth US$60 if made of pure gold, but most are made of 18 carat gold so the underlying value is only US$45 or £30. Thus it only adds £15 to the manufacturers’ costs to use 18 carat gold as opposed to 9 carat gold, while at the retail end the price can double. It is a con and if the new team at the WGC is to promote gold jewellery for its link to value consumers will have to be educated. The last administration said it did not care how the gold was sold as long as it was sold. This time around it is to be hoped that the old WGC mantra “this is the way it has always be been done” will never be heard again.
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