Australia Sees Solid-Gold Opportunity in New Platinum Coin

The new platinum koala--which has the platinum coin market virtually to itself--is stirring up new interest and visibility for Australia’s ambitious gold program.

As chief executive of the newly formed Gold Corp., Don MacKay-Coghill is the architect of a strategy designed to provide Australia with maximum returns on its booming gold production. The Perth company, wholly owned and guaranteed by the state of Western Australia, was created through a merger of the Western Australian Mint and its marketing arm GoldCorp Australia.

The koalas are expected to help create new outlets for the 1-year-old Australian nugget gold coins. “We felt in order to support the nugget it was necessary to have an overall precious metals plan,” he said in explaining how the koalas fit into Australia’s gold picture. “Whatever we do is ancillary and to support gold . . . what the koala has done is created excitement.”

Dealers must take the gold nugget if they want the platinum koala. “The koala is a catalyst to support the nugget. It is creating distribution for us,” MacKay-Coghill said.

Bruce Kaplan, senior vice president of A-Mark Precious Metals Inc., a Santa Monica wholesaler, said: “It’s the first platinum bullion coin to be issued by a major nation ever. There has only been the Noble by the tiny Isle of Man, a tiny country between England and Ireland. It is presently the leading and only platinum bullion coin in the world and it was issued in 1983.”

He said there have been some special issue, numismatic platinum coins but “they are not for the average investor.” Kaplan said the koala “looks like it’s going to be a blockbuster. It’s not just because it’s the first platinum bullion from a major, popular country, but also because (people) love the koalas. It’s like the (Chinese) panda. It’s a wonderful design concept.”

Gold Corp. selected platinum over silver because it was a new market and platinum is rare. Only 90 tons of platinum are produced worldwide annually, compared to 1,500 tons of gold.

The koala image was used partly to position the coin toward the Japanese market, which accounts for 50% of world demand for platinum, according to MacKay-Coghill. Gold Corp. buys its platinum from Japan where the blanks are manufactured and shipped to Perth for minting.

A day after the platinum coins were introduced in Tokyo and even before any advertising broke, 4,093 ounces of the platinum koalas were sold at prices between $510 to $520 an ounce, according to MacKay-Coghill. Platinum prices have been drifting downward from more than $600 an ounce four months ago.

“It’s not only an industrial metal,” he explained about platinum, “but a burgeoning investment metal, so there is a lot of interest in it. I knew we were coming up with the right product at the right time. But the reaction has exceeded my expectation.”

Slow to Catch On

The nugget was Australia’s first attempt to crack the bullion coin market. Australian officials consulted with MacKay-Coghill, who had shepherded the debut and marketing of the krugerrand when he was chief executive of International Gold Corp., the marketing arm for South African gold mining industry. “They saw that the krugerrand was in trouble politically so they thought ‘why not produce a coin?’ ” explained MacKay-Coghill, who joined GoldCorp Australia in October, 1986.

Gold Corp. test-marketed the Australian nuggets by issuing 15,000 proof sets in November, 1986. They sold out in three months, yielding Gold Corp. a profit of $6 million. “That provided the money for the bullion launch in April 27,” MacKay-Coghill said. “We had set a target of 10% of the new coin bullion market within three years but achieved that goal by April, 1988.”

The biggest market for these coins was Southeast Asia--primarily Hong Kong and Taiwan--followed by Europe and Japan. The United States ranked fourth but “it was the hardest nut to crack” because of competition from the American eagle, Canadian maple leaf and krugerrand gold coins.

“The United States, compared to the Far East and Europe, which have really warmly received the nugget and sent sales way past expectation, has been slow in coming along. It’s been only in last six months that the nugget has picked up any significant market share--8% to 8.5% of the U.S. bullion coin market. A year ago, it was not more than 3%,” Kaplan explained.

Gold Corp.’s three main businesses are the Western Australian Mint, which manufactures and refines gold; GoldCorp Australia, which markets the mint’s products, and a newly formed banking arm to provide financial services to small and medium gold companies.

Gold Corp. evolved out of a 1983 economic study of Western Australia that identified state assets to be developed. One of these assets was the Perth Mint, which operated a money-losing, 90-year-old refinery that processed 70% of Australia’s gold. The task was to update and expand refinery facilities, make them profitable and develop marketable gold products.

Meanwhile, gold production in Australia has boomed. Production of the metal rose to 117 tons in 1987 from 17 tons in 1980. It is expected to rise 150 tons this year and peak at 190 tons in 1992, according to MacKay-Coghill. Elsewhere in the Pacific region, gold mining is beginning, particularly in Papua New Guinea and Indonesia. “The region will probably peak in 1995 to the year 2000,” he explained.

Gold Corp. has built two new refineries at Perth and Kalgoorlie, which together can process 100 tons of gold annually with one shift. At a maximum three shifts, the refineries can process 300 tons a year. “As gold mining develops in this region, we have the capacity to pick it up,” MacKay-Coghill explained. Already, the Western Australian mint has been refining gold for Zimbabwe and New Guinea. It recently won a contract to refine Saudi Arabian gold.

Most recently, Gold Corp. has been expanding into banking and financial services. Although the mint does 70% of the refining in Australia, it faces competition from independents who are offering financing and other services.