By Ian MacLeod
The Ottawa (Ontario) Citizen
Friday, June 12, 2009

http://www.ottawacitizen.com/Busines...

OTTAWA -- To halt a possible "run" on the gold it safeguards for private businesses, the Royal Canadian Mint is reassuring customers their deposits are fully accounted for and in secure vaults as the investigation continues into as much as $20 million in lost precious metals.

Since the scandal broke last week, some precious metals market advisers have been trying to instigate "some kind of a run" on the custodial accounts of the Ottawa mint and other mints around the world, said Jon Nadler, senior metals market analyst with with Montreal-based Kitco, one of the world's leading precious metals bullion dealers.

"I cannot name names, but I've seen a number of forums and blogs and newsletter alerts from people who claim to be market analysts and saying, 'You should take delivery of everything that's in storage, no matter who you keep it with because of things like this,'" Nadler said in an interview Friday, calling the tactic "pathetic."

The federal government this week ordered the mint to call for a Royal Canadian Mounted Police criminal probe, after a four-month external audit was unable to reconcile the unaccounted-for gold and other precious metals at the mint's Sussex Drive headquarters. Mint insiders tell the Citizen the missing metals could be worth as much as $20 million. The RCMP continues to review the request for an investigation. The audit findings are expected to be made public next week.

In the cut-throat world of international bullion refining and minting, any loss of confidence in the mint's reputation as a world-class operation could threaten future business.

For Kitco, which stores some of its gold and precious metals at the mint as well as some of its clients' metals, the unaccounted-for gold mystery is "clearly not an issue," said Nadler.

Letters, he said, were sent to the company and other custodial customers June 4, a day after the Citizen broke the story, in which mint chief operating officer Beverley Lepine assured them, "All individual customer holdings and metal deposits entrusted with the Royal Canadian Mint are secure and have been fully accounted for."

Whatever the outcome of the audit and anticipated police probe, people knowledgeable with mint operations say it's unlikely the gold was stolen, and certainly not all at once.

Referring to the blockbuster 2003 gold-heist movie "The Italian Job," Nadler said, "People tunnelling under vaults and making off with mass quantities of gold and walking out the front door -- this just doesn't happen."

In a Friday blog posting on the website of the International Business Times, Nadler wrote: "Some over-zealous alarmists need to get a grip and learn how vaults, insurance policies, and such operate in the real world. Until then, we can only call them saboteurs. Anyone who listens to them is sadly misinformed."

In the later interview, he said, "I can appreciate this atmosphere of post-Madoff mania, but at the same time, when you have a government entity that you're dealing with and they have a hundred years of track record under their belt, your worry level is certainly misplaced. We're quite comfortable sleeping at night and so are our clients."

The mint Friday declined to comment on its precious metals storage service and the June 4 letters.

Meanwhile, mint chairman James Love says one possible but unconfirmed explanation for the mystery is a programming problem with a new computer system used to track the mint's precious metal reserves.

In a media interview this week that attracted scant coverage, Love said, "It's still possible that it is some sort of a programming error in that system. Obviously frauds and security breaches happen, so we haven't ruled anything out. But we simply don't believe that that's the sort of thing that happened."

Further, the issue may be traced to a decision not to re-refine an estimated 90 tonnes of slag for residual gold not captured during the initial refining process. Because of the huge demand for gold last year, there was no time, explained Love.

"An estimate was made at the year end as to what the value of the gold in this slag would be, and it was thought that this could explain a significant portion of this reconciliation difference. The amount of gold that was determined to be in that slag was significantly higher than the estimate that was originally used," he said in the report.

"That went a significant distance in reconciling the rolling inventory to the physical count, but certainly not far enough from our point of view."

It's not clear what happened to the slag.

The initial discrepancy at issue was less than 0.5 per cent of the gold that had flowed through the facility last year, Love said.

Nadler said that though he is not privy to the external audit findings, "I'm reasonably sure that it's an accounting issue and literally a reconciliation issue, where a shipment was either short or diverted or what have you. Even if it's proven to be actual malfeasance, I'm sure that the coverages that they have in place are ample to make (up) any particular shortfall."