Australian gold attracts Indian interest

Melbourne played host recently to Rajesh Mehta, the owner of India’s largest jewellery producer Rajesh Exports. The purpose of the visit was to explore gold mining acquisitions with the intention of securing a consistent and ongoing gold supply for the company. 

The concept of an end user securing the natural resources it requires is not new and can be seen within the coal and copper markets for example. The Rajesh Exports proposition however would make it a pioneering engagement for an end user of gold.

The scale of the potential acquisition is a sizable US$700 million which is not entirely surprising given that Rajesh Exports currently consumes 140t of gold per year. To provide some context, this amount is approximately equivalent to half of Australia’s estimated annual gold production and 15% of annual Indian consumption. 

As a secondary interest, Rajesh Exports is exploring options for establishing a commercial presence in Australia which would be based on the business model of processing Australian gold in India and shipping it back to Australia for retail sale. The company currently utilises in excess of 80 stores in India alone. A reliable supply will additionally assist the company’s management of peak demand periods such India’s wedding season which is when 50% of total consumption occurs.

This interest in gold mines by a major commercial producer and our report last week on gold repatriation represent two small brush strokes in a larger picture. These are examples of observable events that provide a better indicator of real gold demand than a simple assessment of the spot price and the big picture is often more valuable than current valuations to an investor.