Krugerrand Scandal At The South African Mint

By Mark Rogers

On 8 December 2011, the Board of the South African Mint Company suspended the Managing Director of the Company and its General Manager Numismatic Coins, having become “aware of certain technical issues within the operations of the SA Mint Company.” The media statement went on to say that:  “Investigations into the matter have been instituted and are on-going.”

Nothing at this time was said publicly about what these “technical issues” were. However, dealers were alerted in confidential meetings to the need to assay their stocks of proof Krugerrands. A further statement, going into much more detail, was publicly issued on 13 April 2012.

This stated that “investigations into the matter have revealed that some of the proof Krugerrand coins cast between April 2011 and May 2011may not meet all the required quality specifications. Based on information that there had been fluctuations in assay results in the production process starting from April 2010, a conservative approach was adopted to analyse results from 01 April 2010 until 31 October 2011, the latter date being one on which  new quality control measures were introduced.  The extended period was adopted merely as a precaution.”

Proof and Bullion Kruggerands and Investment

The SA Mint only strikes the proof Krugers, bullion Krugers being the preserve of the Rand Refinery. Proof coins are issued in smaller quantities for the collectors’ market and are struck in a way that provides a mirror-like finish with a contrast of matt. They are important to collectors who are interested in “a perfect uncirculated” coin, a distinction that mattered when the Krugerrand was first struck given that the bullion coins were intended to circulate as currency.

This means that Krugers are minted from a copper-gold alloy, as the copper gives the coin greater durability. Apart from the mirror finish, the other difference between the proof and the bullion coins is the number of serrations (or reeds) around the edges, being 180 on the bullion and 220 on the proofs.

While the minting process is different between the SA Mint and Rand Refinery in order to achieve the required finish, the gold content and ultimately the investment are the same: bullion coins are still as valuable for their gold content and premium and are the most prevalent, but there is no difference to an investor if the Kruger is proof or just bullion.

The proof can be found to be more expensive but usually in collectors’ circles as they insist on this type of coin. However, in effect all of the Krugers are bullion coins and they can be found at the same purchase price. The importance of all this comes into play when demand is high: investors buy them all for the same reason. Even “proof” Krugers are important as they are part of the available investment quality bullion coins and there is no real need to differentiate their importance as an investment. Most Krugers are held for their investment potential and not by collectors – they are very “liquid assets” that contain a sure value (1 oz of gold).

Scandal Story Breaks – Misleadingly

Within a couple of days of the latest Media Statement issued by the SA Mint, TimesLive published a story that some of the proof coins were underweight. This was a very careless reading of the Mint’s statement which is quite clear on this point: the coins were under-specification, containing less gold than required by law. The South African gold collector who first alerted the Mint to the problem makes the crucial point on PM Bug (Precious Metals Forum):

“The coins are NOT underweight in any way, shape or form, they are under-spec. They weigh exactly the same as any of the Krugers available. This is just bad reportage from TimesLive. Now people will just weigh their coins, see the weight is right, and forget about it.” (Readers should view the short excerpt from CNBC Africa report that is posted on this forum after the statement just quoted – and look out for the moment when a gold coin being assayed registers at 97% silver! GoldCoin.org is attempting to discover more…)

Apparently TimesLive was aware that CNBC Africa and Forbes Africa were onto this story and wanted to scoop them – hence the sloppy reporting. Forbes Africa is due to publish the fruit of its investigations in its May issue.

So what was happening at the Mint?

“Concurrent with the investigation into proof Krugerrand coins, the SA Mint investigated the evidential theft of R5 circulation coins. This crime was ostensibly committed by a number of employees who appeared to have acted in collusion with what appears to be a syndicate-style operation that included external parties. Appropriate steps have been taken and all evidence gathered has been handed over to the Police’s Directorate for Priority Crime Investigation.”

How did a criminal gang come to be operating at the South African Mint, a wholly-owned subsidiary of the South African Reserve Bank? How far up the scale of management did it penetrate? Were the two officials suspended because this happened on their watch or is there evidence that they were somehow complicit and/or bought off? Is this yet another instance of the corruption and malfeasance that have embroiled South Africa after the early promise of the post-apartheid years? The ANC is after all no more than a tribal ascendancy and there is widespread disillusion with the ruling elite in South Africa.

True Value

This is an astonishing story and one that may have considerable implications for the Krugerrand, a popular investment because widely regarded as a strong one. Perhaps investors should start taking a very serious look at the Vera Valor, recently highlighted in the luxury magazine Meze.

The Vera Valor is a serious contender for replacing the Krugerrand as the gold coin of investor choice.

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KRUGERRAND SCANDAL AT THE SOUTH AFRICAN MINT was first posted on April 23, 2012 at 4:28 pm.
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