Gold from a little copper hammer

Anatoliy Shvachka, Ph.D (Technology) was a rather well- known expert in the national defense industry. When it practically stopped functioning and the national market demand for precious metals plummeted, he was offered the post of heading the State Precious Metals and Stones Depository. On July 21 the Ministry of Finance invited The Day on a sightseeing trip to the depository, which has been in existence for seven years. Whereas in the past the depository’s stock expanded rather sluggishly, at the rate of approximately 500,000 hryvnias a year, beginning in 2005, when the Ukrainian government embarked on the Stop Contraband project, its annual receipts have exceeded tens of millions.

I asked where all this wealth comes from in Ukraine, since we do not have large goldfields. Shvachka says that the main sources are law enforcement agencies: first and foremost, the Security Service of Ukraine (SBU), followed by customs, prosecutor’s offices, and the interior ministry. In addition, so-called scrap from gold and other precious metals comes from industry. The directory of the depositary is happy to note that industry is showing growing interest in this precious nomenclature; this means that Ukraine’s high technology industry is getting back on its feet.

“Palladium, rhodium, and platinum are very attractive to chemical companies; they are generating more revenue than gold. The earning capacity rate is even higher than 30-40 percent, and we have managed to organize the output of such products at the Prydniprovia Non-Ferrous Metal Works. Profitability is nearly 100 percent. The consumers here are the space industry, ferrous metallurgy, and enterprises like Turboatom and Motor-Sich, which specialize in powerful engines and turbines. Of course, four large Ukrainian jewelry companies are the most important customers (their demand is satisfied only partially, so they have to purchase the rest abroad), along with numerous business entities that have the right permits.”

In the last seven years-or six and a half, as Shvachka corrects himself, the State Precious Metals and Stones Depository didn’t even have adequare premises. Today the Ukrainian Gokhran or Almaznyi Fond (he doesn’t even lay claim to such names because in Russia precious metals and stones were amassed over the centuries throughout the Russian empire, but Ukraine had to start from scratch) has become so strong that it can now use some items to launch Ukraine’s first auction of valuables, organized on the initiative of Finance Minister Viktor Pynzenyk.

It may be a far cry from Sotheby’s, but it is anyone’s guess what consequences the remarkable event scheduled for Sept. 15 will bring Ukraine. (The National Bank, which also amasses valuables, may organize a similar auction.) As a result of this auction, the depository, which receives budgetary support to purchase all this wealth, may be transformed into an independent profit-generating organization. Shvachka does not rule out this possibility, but says that he and his staff are taking their time considering it because they want to analyze the results of the first auctions.

The rules of the game are simple. Both domestic and foreign corporate and individual business entities are eligible bidders (for the former, the mandatory qualification is a license to work with precious metals — over 2,000 have been issued to date — while the latter must purchase through brokers already listed at www.gold-auction.com). Everything will be supervised by a bid evaluation committee that has already determined the lot prices.

Shvachka explains: “The starting price was determined according to domestic market prices, but this is the low limit. We are doing this to attract bidders. Later, everything will be determined by demand. We are preparing our figures on the basis of the National Bank of Ukraine’s precious metal exchange rate, and we’re also carefully analyzing the London Exchange. Our forecasts show that during the auction international market prices will be within limits that will allow us to carry out our sale effectively.”

I spent almost an hour talking to the director in his office, and for the entire time I was preoccupied by the desire to see the treasures that will soon fill private collections or embellish beautiful women in Ukraine and abroad.

The director and I are now standing in front of brightly lit showcases. Frankly, what we saw there defies description. I think even patrons of jewelry stores have to brace themselves for fainting when they see something really special. We saw one lot of 43 pieces, including four one-carat diamonds. The starting price was 54,000 hryvnias. Next to them (still packaged) were smaller diamonds that are popular with jewelers. Then we saw huge multicolored topazes the size of a five- kopiyka coin of whimsical crystal shapes. The depository’s consultant, Kateryna Yatsenko, explained that one of them, which I would describe as golden while she called it orange, weighed 200 carats. The next lot contained green emeralds, Chinese and Malaysian pearls, and rather large synthetic diamonds, which differ little from natural ones but are considerably less expensive.

Shvachka advises people buying diamonds to ask for a certificate from a gemological laboratory. Further down the row I was shown exclusive items made of Ukrainian amber from Rivne. The next shelf displayed gold pieces set with precious stones, like diamonds and emeralds. The commission placed certain items in exclusive lots. Truly, you won’t find such pieces in any jewelry store.

“Their starting price is 10,000 hryvnias,” says Shvachka, “because they contain a lot of diamonds and sapphires.” I saw a set including a necklace, earrings, and ring from Italy, impounded during an illegal crossing of the Ukrainian border. Next to it was a platinum ring with more than 100 diamonds. Its starting price is 5,000 hryvnias. The prices include the value of the jeweler’s work. Shvachka says that jewelry stores will profit from buying these production at the auction.

He then led me to a stand displaying gold watches, recently impounded by the customs authorities at Boryspil Airport. One watch is worth at least UAH 25,000, while a platinum watch with a mechanism made by a renowned firm is worth at least 35,000 hryvnias. The rest have a starting price of UAH 20,000. “These are exclusive commodities that will quickly find buyers at the auction,” says Shvachka.

In parting, the director of the State Precious Metals and Stones Depository assured me that none of the items slated for the auction have any connection with criminal undertakings. He would never allow such items to be sold because he has seen what happens to them during thermal processing. Those that will be offered for sale will have a good aura, which is germane to some precious metals or stones.