$9.7B loss in 2013…Gold Board faces pressure to review trading practices

Apr 28, 2016 News

The report of a special investigation into the financial operations and functioning of the Guyana Gold Board (GGB) has been released, and it is urging major changes in the manner which country is conducting its trade in the yellow metal.

A report of the operations of the Guyana Gold Board has recommended changes in the manner in which Guyana trades its gold on the world market.

Ram & McRae was appointed by the Ministry of Finance to carry out a special investigation into the financial operations and functioning of the Guyana Gold Board.
According to the report prepared by auditing firm, Ram and McRae, between the years 2012-2014, which were reviewed, GGB racked up losses $10.1B from its trading.
Of this, GGB recorded a gross loss of $9.7B (96.4%) in 2013 compared with a gross loss of $281.4M in 2012 and $79.6M in 2014.
The main reasons for the losses, officials say, is because GGB held onto gold it bought hoping that world prices would go up back. It would have brought much of the gold in 2013 when the prices fell from US$1,900. It is just around US$1,240 per ounce now.
Under the terms of reference, Ram & McRae was required to carry out procedures in areas such as governance, compliance with laws and regulations, contracts with related parties and internal control and financial systems. Ram & McRae was also required to recommend statutory, legal or organisational changes and a revised business model.
The Guyana Gold Board was established in 1991 under the Guyana Gold Board Act Cap. 66:01 primarily to carry on the business of trading in gold and regulate the purchase and sale of gold in Guyana.
Under the Act, all gold produced in Guyana must be sold to GGB or an authorised dealer.
The board issues annual licences to a number of dealers to allow them to purchase, possess, sell and export gold. The purchase price for gold is fixed twice per day based on the price by the London Bullion Market Association.
Because of the significance of the loss in 2013, the auditor carried out an extensive month by month analysis for the year to determine the source of the year’s loss.
According to the report, matters taken into account were the opening and closing inventory; purchases and sales of gold and price movements.
That exercise shows that losses as a result of the fall in gold prices amounted to $9.994B for the three years while other stock losses and exchange gains totaled $345M and $624.1M respectively.
From inquiries, the auditor concluded that GGB seemed uncertain how to respond to changing market conditions.
The report noted that the losses could be blamed because GGB maintained an unusually high level of gold inventories even as prices continued to decline.
“We believe that the Gold Board, in consultation with the Ministry of Finance and the Bank of Guyana, should consider the appropriate level of gold stock which the Gold Board should maintain with the balance held by the Bank of Guyana or sold.”
At May 2015, the Gold Board owed the Ministry of Finance $8.731B for advances received in September 2012.
“At the same date, the balance on the Gold Board’s current account with the Bank of Guyana was an overdraft of $8.820B, making a total of $17.552B. At the same date, the Gold Board had gold valued at weighted average cost of $7.775B which exceeded market value by approximately $72M.”
GGB said that it does not seem that the Gold Board would be able in the foreseeable future to discharge its obligations to the Ministry of Finance or to liquidate its overdraft with the Bank of Guyana. “Moreover, the Gold Board Act is silent on how permanent losses are to be dealt with and consideration needs to be given for a re capitalisation of the Gold Board.”