The factory where they make golden chocolate bars

Alice Gråhns and Chris Carter talk to Lorena Baird, executive director of Baird & Co, about the highly competitive gold market – and take a tour of the only gold refinery left in Britain.

Lorena Baird: the Willy Wonka of the operation

Alice Grhns and Chris Carter talk to Lorena Baird, executive director of Baird & Co, about the highly competitive gold market and take a tour of the only gold refinery left in Britain.

On an industrial estate in east London, squeezed somewhere between the remains of the world's largest gasworks and Europe's largest sewage treatment plant, you'll find the only gold refinery in Britain. Baird & Co's site in Beckton keeps a low profile there is no name on the building, which looks almost exactly like all the others on the estate.

However, the barbed wire, CCTV cameras, and 12-foot-high metal security barriers (capable of stopping a truck, apparently) give some indication that there's something special in here. Once inside, we're told that the staff can under no circumstances be identified, and our phones are taken by security guards. And little wonder. This is where hundreds of millions of pounds worth of precious metals are processed every year (for more on this process, see below).

Baird & Co likens its premises to something out of Roald Dahl's Charlie and the Chocolate Factory. But instead of chocolatier Willy Wonka and his team of Oompa-Loompas, the 65 white-coated scientists and industrial workers in blue overalls answer to former investment banker Lorena Baird, whose late husband Tony Baird founded the family business in 1967.

Lorena first met Tony in Peru, her home country. The UK was the biggest customer for Peru's gold, and her family always had links with the industry. However, Lorena herself left for the US at the age of 17, and joined investment bank Merrill Lynch after completing an MBA. She travelled back to Peru to deal with some visa paperwork, and it was at a dinner there that she met the man who would become her husband.

A lot has changed for the company since then. Baird & Co has gone from being simply a buyer and seller of coins to with the addition of the refinery operating across the entire precious-metal supply chain. As Baird points out: "The more vertical you are, the better control you have of your price and the more competitive you can be."

Board games and chocolate bars

Competition is fierce in the gold-refinery market. In the 1980s there were more than 20 refineries in the UK. Legislative changes, tough competition and an overcrowded market have left Baird & Co the last company standing (there are 125 refineries in total globally). The business has its best days when people are fearful. Every time North Korea launches another missile, there's a spike in the gold price.

The same happened straight after Britain voted to leave the European Union "because no one knew what was going to happen", says Baird. Indeed, gold responds to international politics and "political instability always brings some kind of trepidation in the market".

This explains Baird & Co's diverse customer base; it ranges from a grandparent purchasing a single gold coin for a grandchild's 18th birthday, to a family office with £400m in assets looking to put 10% of its portfolio into physical gold. The firm also benefits from immigration to the UK from India, Pakistan and China in particular: "all cultures that are used to owning physical gold", says Baird.

Over the years, customers' demands have become increasingly creative too. Baird & Co has made sets of dice out of platinum for a casino in Macau, as well as Monopoly and backgammon sets in silver and gold. In 2013, Cadbury commissioned the firm to make eight 18-carat gold replicas of its most popular chocolate bars for a competition (the Caramel bar remains unclaimed to this day). Other unusual requests include stair rods of 22-carat gold, or the executive with an office view of Canary Wharf who wanted a model of the Canary Wharf Tower made of platinum for his desk a bespoke order that set him back £300,000.

The importance of diversification

Baird & Co is constantly diversifying. Each year it produces a coin for the Chinese New Year and one for Diwali. Baird & Co is also the world's biggest distributor of Royal Mint and Britannia coins. In total, 99% of its turnover (an annual £600m-£700m) comes from bars and coins, while the industrial-supply side of the business accounts for 0.4%, and wedding-ring manufacturing 0.6%.

The site in Beckton has a client vault, where customers can visit and view their gold, and the firm recently opened a new shop in London's jewellery district of Hatton Garden, which is equipped with vibration sensors in case of a repeat of the tunnel heist of 2015, in which treasures worth £200m were stolen from the Hatton Garden Safe Deposit company. Meanwhile, wealthy Asian customers are courted from an outlet in Singapore. Why all the elements? Competition is the short answer. "It's a business with big numbers, but small margins," says Baird.

The valuable art of recycling

Inside the refinery, there is a lot of metal flying around. "Gold is in the air," says Baird. Given the aforementioned small profit margins, nothing can go to waste. This is why all of the refinery's ventilation systems and water pumps have special filters, while the blue staff overalls are washed in house. At the end of the year, Baird & Co then burns them all, from which the company retrieves a couple of thousand pounds' worth of gold. And from the doormat alone which is also burned every year the company can recover between £3,000 and £4,000. The importance of maintaining trust in the product also means that there is no room for error.

Baird & Co's bars are always ever so slightly heavier than stated, simply to avoid reputational risk. The same goes for quality: the bars state that they are 999.9 (in other words, 24 carat or as pure as it gets), and "you should be able to test this anywhere around the world, and all the labs will show the same thing", Baird says.

It might be a competitive business, but the market for gold is a durable one. So what does the future hold? If its owner has any say, Baird & Co will remain in the family. Today, 50 years after Tony Baird founded the business, Lorena Baird is planning to hand over the reins to Carlos, one of her two sons but only once the 23-year-old turns 30. "It took my husband 50 years to build this, so when I hand it over, I need to be sure that the person who takes the reins after me first likes itand that he's capable of running it."

The allure of Scottish gold


Wales is the best-known location for striking gold in Britain, writes Chris Carter. The connections with royalty go way back, with the most recent example coming in 2011 when Prince William placed a wedding ring of pure Welsh gold on Catherine's finger.There are a few other spots dotted around the British Isles where you might pan for the shiny stuff in the Pennines and Lake District, for example. But after Wales, the next best place to find gold is Scotland.

Plenty of panning goes on here, particularly in Sutherland, right up in the north. But extensive mining took place during the reigns of James IV and V of Scotland in the 16th century in parts of the Leadhills in Lanarkshire, says Neil DL Clark in Scottish Gold: Fruit of the Nation. Nuggets weighing almost a kilogram were said to have been found.

Later, flush with the hype of the Californian and Australian gold rushes, prospectors flocked to the hills of Fife in 1852, and Sutherland in 1869, in the hope of striking it rich. One Canadian man did in 2015, when, panning for gold near Wanlockhead in the Lowther Hills, he came across a nugget weighing 18.1g, worth around £10,000.

Scottish gold commands a premium, because there is so little of it while it is no different chemically speaking, people are willing to "pay up" for local gold. In November 2016, mining company Scotsgold Resources sold ten "rounds" at a sealed auction from gold found at the Cononish mine near Tyndrum, in Stirling. The gold sold for an average £4,557.90 an ounce, a premium of 378% to the "spot" gold price of the time. Baird & Co minted the rounds. In fact, all the gold mined in Scotland just a few kilos a year passes through Baird's refinery, where it is processed away from the "ordinary" stuff.

The process of refining gold

Nearly all the gold that Baird & Co receives at its refinery arrives in the form of "scrap gold" jewellery "mostly nine carats that have 37% of gold [in them]", says Baird. The gold is mainly sourced from pawnbrokers the seller is paid 90% of what they are owed, with the remaining 10% depending on the assay, or quality testing.

If you're wondering how "gold" jewellery can contain just 37% gold, the rest is made up of other metals often copper. Baird's job is to turn that 37% into 99.99% "fine" 24-carat gold bullion (100% is impossible) the kind that you, as a MoneyWeek reader, hopefully have squirrelled away in your portfolio as insurance against the slings and arrows of uncertain financial markets.

All that glitters is not gold, as the old adage goes. So, the first stage of the refining process, known as the Miller process, is to get rid of all of those unwanted extra metals. The scrap is melted down and chlorine is added to extract the base metals. After that, you are left with jagged 95% pure gold "cornflakes".

Aqua regia, a mixture of nitric and hydrochloric acid, is then added, which dissolves the gold, and allows for the remaining silver content to be extracted. After that, all that glitters is gold. Or very nearly, at any rate the purity of the gold, which now looks like sand, is around 99.99%. It's a process that has changed little in centuries.The gold "sand" is melted down once more in special crucibles at up to 1,200C, before being poured into demineralised water. An assay, or quality test, is then taken, whereby the gold is sucked into a glass tube, which is then cut into three pieces.

One third of the glass tube goes on file, another third goes to the customer, and the remaining third is tested at Baird. All being well, it is at this point that the outstanding 10% of the balance is paid. The pure gold can then be formed into ingots, coins or even gold chocolate bars, as mentioned in thestory above.


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