Energy Risk Asia Precious Metals House of the Year: ANZ

ANZ is using its geographical reach and structuring ability to bring together precious metals market participants across Asia

Faced with new regulation and higher capital requirements, major investment banks are being forced to shift their focus away from commodities and back towards core banking business. While most of those banks continue to deal in precious metals, it’s hard to argue their offering hasn’t been dented by such pressure, according to John Levin, Sydney-based global head of precious metals sales at Australian bank ANZ.

In contrast, ANZ is attacking precious metals from a different starting point. While many of its competitors are based in Europe or the US, the bank is headquartered in Melbourne and boasts plenty of expertise in Asia and natural resources. And despite a wave of fines levelled against rival firms by regulators, ANZ has largely kept its nose clean and balance sheet intact.

“We’re very well capitalised and we’re a bank that understands natural resources and commodities,” says Levin.

The bank deals in both physical bullion and derivatives from desks in Shanghai, Singapore and Sydney. Its derivatives capabilities are excellent, boasts Levin, who points to the firm’s ability to structure exotic derivatives to suit the tastes of Asian wealth management clients. But physical hedging has been the highlight during the past 18 months, with ANZ using its geographical reach and structuring ability to bring together producers, refiners and consumers across the region.

“We are uniquely positioned to connect producers in Australia and Indonesia with consumers in Asia – mostly in China and India,” says Ashish Mittal, Singapore-based co-head of commodities and global head of commodity sales.

One example of this is the work it has carried out with Chinese silver smelters, many of which are eager to find buyers for their metal, while also securing cheap financing. During the past year, ANZ has executed a series of off-take deals with such firms using structured silver financing arrangements. That means ANZ extends financing to the smelters and the smelters must deliver silver to the bank in return, giving them an off-taker and allowing them to hedge some of their price risk.

Often, a deal like this would see the physical metal ending up in Europe or the US, says Levin. But ANZ has taken a different approach by selling the metal to Indian banks. In turn, those banks have used the silver to satisfy demand from dealers and jewellers in India. “This is a classic example of our ability to connect the world’s largest consumer – India – with one of the world’s largest producers of silver: China,” he says.

ANZ has been carrying out a similar role in gold, where it benefits from strong relationships with Australian miners. Spot gold prices dropped sharply during the first half of 2013, hitting a low of just $1,192 per troy ounce by June 28, according to the London Bullion Market Association. But the yellow metal subsequently rebounded, creeping back up to as much as $1,419.50/ounce at the market close on August 28, 2013.

With prices looking relatively high, Australian gold producer Evolution Mining saw an opening to hedge some of its future production. “We saw the opportunity to put some hedging in place, with the specific purpose of underwriting a period of capital investment in one of our gold mines,” explains Aaron Colleran, Sydney-based vice-president for investor relations and business development.

One of the banks it called was ANZ, which executed a series of gold forwards to hedge the mine’s future gold production. The bank was able to offer swift execution and good pricing, says Colleran. “We’d rank them as one of the best banks we work with,” he says.

Rather than heading further afield, the physical supply from these deals has been matched up with client demand from places such as China, where ANZ became one of the first foreign banks to receive an import licence in 2013. More generally, the bank is using its close relationships with miners such as Evolution, as well as Australia’s Perth Mint, to offer a steady stream of physical gold to Chinese market participants.

We’re very well capitalised and we’re a bank that understands natural resources and commodities