Taking Stock 16 October 2025

IF men had the ability to give birth to goats the former UK Chancellor of the Exchequer, Gordon Brown, would have a fair show of cloning himself.

Brown, who served for 10 years under Tony Blair, rose to become the leader of the UK Labour Party for three years. It was he who sold half of the UK’s 790 tonne gold reserves in 1999 (395 tonnes) for a sum of US$3.5 billion between 1999 and 2002.

Brown would today be pondering the desire for foresight.

A sale of 395 tonnes today would fetch a figure closer to $50 billion (NZD), a difference of $46.5 billion that would be immensely important, even in a large economy like Britain’s. He sold the gold for political purposes. Britain’s gold was supposed to be key reserves, not an asset to trade when politicians were fudging problems.

The value of gold today astonishes everyone, as the big buyers of gold have been central governments, China effectively buying an amount equal to every ounce produced in recent years. Other big buyers have been pension funds, using ETFs as their medium.

Production, plus sales of stored gold, have helped Asian and Russian central banks to build up a supply that is interpreted by many as being their preparation for a new credible global currency, with at least a part-base of gold.

This seems to be a response to the irresponsible spending by many governments, principally the USA, where tax rates are set well below the amount needed to match the annual spend of governments, even if one separates out spending on warfare and weaponry.

Here in NZ, the gold price was around NZ$1500 in 2016, crept up to $2000 plus in 2020, reached NZ$3000 in early 2023, and has since soared. At the time of writing, the NZD price exceeds $7200. In part this explains NZ’s newly-energised enthusiasm to develop new gold mines at a time when NZ is also spending on social services money that taxes do not match.

The world’s best bank JP Morgan and the “giant squid” (Goldman Sachs) believe gold by the end of next year will have increased by a further 25%. If that proved to be true, an ounce of gold by 2027 might be close to $9000.

Note: that sentence began with the word “if”.

Such a rise would not improve NZ’s balance sheet as NZ’s central bank does not buy gold, but it would vastly improve our revenue statements, if gold mining is accepted as a logical source of wealth.

Like Australia, South Africa, Canada and other producers of gold, NZ sees little need to store gold. The central banks that do store gold are headed by the USA, where Fort Knox stores thousands of tonnes of gold.

I am unsure if the available statistics are comprehensive as China seldom signals its strategies. I guess the Chinese storage is much greater than these figures show. But the best available information suggests the storage of gold, in tonnes, is in the following countries:

USA 8,133

Germany 3,350

Italy 2,452

France 2,437

Russia 2,330

China 2,299

Switzerland 1,040

India 880

A notable absence from the list of large holders is the United Kingdom. Thank Gordon Brown and Tony Blair, the then Prime Minister of Britain, for this absence. They sold their reserves to cover budget shortfalls.

Today a tonne of gold at US$4100 (NZ$7200) can be sold any day for US$128m, or NZ $225m.

The planned Santana mine at Bendigo expects to mine at least three tonnes of gold, every year, for more than a decade, quite possibly several decades, given the continuing exploration successes.

OceanaGold, through its mines operating near Palmerston (Macraes) and in Waihi, produces even more gold per year than Santana would, though Macraes’ cost of production would be much higher, as its gold is encased in carbon which must be burnt, using much energy, adding greatly to extraction costs.

New Zealand exports its gold almost entirely to the Perth Mint in Australia. Sales would quickly have a major influence on our current account.

Does this explain why the Government, and very likely the major party in Opposition, will be hoping the country embraces gold mining by Macraes and Santana?

Last week I recorded a range of mining projects that hope to be underway in the next year or two. (I mis-spelt the site of the New Talisman project at Karangahake Gorge, instead using the name of the colourful Karangahape area of Auckland.)

The response to my Taking Stock was unexpectedly vocal in favour of hastening the development of the mine at Bendigo, near Cromwell. This project has yet to apply for consent. During this lull, various newspaper reporters and some activists will be noisy, seeking to build opposition to the level where one might have to consider a democratic vote. Currently the opposition level is well below double figures.

My guess is that Santana will seek consent when its case for a mine is in an order that makes consent straightforward, after an adult consideration of any conditions that prevent undesired outcomes.

Further, I guess that the whole issue of whether New Zealand puts more faith in mining will be heavily influenced by the Bendigo project. When it is consented (or if it is) there is likely to be new respect for NZ’s claim to be serious about balancing its economy.

International investors, now buying into the company, note that if NZ rejects this project, any other planned mine would find it very difficult to present an easier case for a mine.

New Zealanders own around 42% of Santana Minerals.

The Government would earn tax of around $200m every year from the project, if gold prices hold.

I expect the filing of the Santana application to be imminent, as the company has promised.

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THE ANZ Bank in Australia was last month fined $A240m for “unconscionable” behaviour, wrongly charging customers and behaving in other inept and unethical ways.

The Australian insurer IAG, prominent in NZ, was fined nearly NZ$20m for equally sloppy and unprofessional behaviour in New Zealand.

ASB agreed to pay NZ$136m for blatant errors that breached the Credit Contracts and Consumer Finance Act, misdescribing interest rate charges and failing to meet legal obligations to its clients. (ASB settled but did not accept guilt.)

Who, in these institutions, I ask, will be footing the bill for such examples of executive management incompetence, for governance failure, and for staffing sloppiness?

Should the company just pay, effectively meaning the shareholders pay for the errors of others?

I think there is a much fairer outcome.

The second question I ask is why did the errors occur?

I conferred with long-time banking people and with a successful, now retired, chairman of an institution. Executive greed may be at the root of the behaviour.

So to answer the second question first, I suggest the errors stem from the short-term bonus rewards of short-term (faux) profits, the inane pressure to forecast and meet quarterly results, and the relatively recent practice of over-indulging staff with silly bonuses, as Macquarie Bank has done for decades. Cutting corners often has the short-term effect of saving costs, raising the pool from profits that go into bonuses.

To answer the first question, the cost of dreadful behaviour is predominantly met by shareholders, not by the management and staff who win bonuses, often calculated on profits that are inflated by short cuts and false cost-savings; hence the subsequent hefty fines.

To resort to brevity, short-termism encourages sloppy behaviour. There is no obvious accountability when such behaviour leads to huge fines.

My suggestion is that the whole of the fine should be deducted from the bonus pool and from previous bonuses paid to the offenders.

Bonus pools would need to be escrowed to make my suggestion effective.

The retired chairman to whom I spoke confirmed that many privately-owned financial market companies as a matter of course deduct costly errors from bonus pools. Such a response is written into management contracts.

If the errors were forgivable – fat thumbs, for example – then half the error might be deducted from the potential bonus pool for the staff member with clumsy keyboard skills.

If the error was not forgivable – blatant stupidity – the whole error would be deducted. If the error was to boost a personal bonus, then dismissal would be automatic.

To me, this all sounds logical.

To ensure these solutions become standard practice in public companies, the shareholders need to instruct the directors they select to implement such policy. They should instruct, not debate!

Escrow all bonuses for an appropriate number of years and make the cost of poor practice a cost borne by managers and staff, not by shareholders.

Finally, disclose the error and the outcome. Exposure discourages knaves.

If IAG’s errors, costing $19m, were a mix of accidents, stupidity, and greed, the company should confess that and confirm the costs will be borne by the culprits.

Is that too hard?

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THE acrid stink of the years leading up to the 2008 Global Financial Crisis is re-entering nostrils, as the build-up of corporate collapses in the US grows.

In recent months, a corporate borrower with an AA credit rating borrowed some billions from private credit and from retail investors. It made its first promised quarterly interest payments, defaulted on its second, and is now in liquidation. It did not survive for long. The credit rating agency endures no penalty.

Another huge company borrowed more than ten billion from private credit and banks, defaulted, and now leaves behind a list of assets that were effectively double-pledged, creating losses for the lenders expected to exceed US$10 billion. I will discuss this in Taking Stock next week.

It was this second disaster that raised the aroma from smell to stench, reminding me of the period between 2006 and 2008 when double-pledging of an asset reached almost an art form, creating havoc for investors.

Prior to the collapse of finance companies and property funds, many such companies had sought to pledge a single asset as security for a loan, when the asset was already securing an earlier loan.

Think South Canterbury Finance, when empty-headed parties pretended that they could transfer assets into the company’s ownership when those assets already were fully in hock to secure a loan to SCF. (Those parties disqualified themselves as credible financial market participants, in my opinion.)

Unbelievably, the auditors, Ernst Young, allowed the advisers and the contracted CEO to pretend that this injection improved the strength of SCF. In effect the transaction created a certain bad debt, exactly equal to the value of the asset injected into SCF as “new capital”.

This was a shameful era in NZ, with so many partners, including Key’s government, complicit.

In the US today, companies which have borrowed heavily from private credit firms are then offering to factor their debtors’ ledger to raise immediate cash. (That means, sell at a discount debts owed to the company, effectively undermining the company’s published balance sheet.)

The lenders are now discovering “multi-billion-dollar” holes in balance sheets, the alleged debtors ledger emptied, not available when receivers seek to recover money for bankers and investors.

Long-term market participants are talking of an imminent corporate bond crisis growing from this practice alone. Yet at the same time absurdly over-stated credit ratings are being acquired to justify new borrowings.

We will all recall the errors of the liar loan era in 2006-08 when the likes of Standard and Poors gave an AAA credit rating to pools of liar loans, blithely ignoring the inevitable failure of the liar borrower to service the loan.

When house loans collapsed in the US, the lenders got back the house and nothing more. AAA house mortgages often found a market at 10% of their “AAA valuation”, leading to devastating losses.

We will also recall that, in NZ, Fitchs calculated Hanover Finance was just a pip below investment grade, offering its rating eight weeks before Hanover went broke, the investors ultimately receiving barely a few cents in recoveries.

Sniff, and keep sniffing, now. The smoke is visible.

Stressed times always lead to inventive but idiotic lending and other business practices. Deception is often the first response to problems.

Many believe the US is about to re-learn what every long-term market participant should never have forgotten.

Deception never solves anything.

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Travel

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee

24 October – Nelson – Edward Lee (Full)

27 October (Labour Day) morning – Arrowtown – Chris Lee

28 October (morning) – Arrowtown – Chris Lee

29 October – Auckland (Ellerslie) – Edward Lee (Full)

30 October – Auckland (Albany) – Edward Lee

31 October – Auckland (CBD) – Edward Lee

Chris Lee

Chris Lee & Partners