“And the champagne superb.” This came from David Mason.
Walter Hofer merely emptied his glass and then waved at the bartender for refills all around. The glasses were soon again brimming with Veuve Cliquot. Hofer glanced at his paper-thin watch.
“Gentlemen, why don’t we take these drinks with us. It’s well past noon, and I’ve arranged for lunch in a private room just here off of the bar.”
The three bankers walked through the large glass-paned doors to the left, into a small but magnificently furnished suite. A table, set for three, glistened with its setting of crystal and silver. The centrepiece of delicately arranged flowers reflected the bright sunlight that was pouring through the large picture windows.
“Pleasant view, isn’t it.” As usual, Dr. Walter Hofer was right. The Grand Dolder Hotel lay high on the Sonnenberg overlooking the Lake of Zurich, surrounded by a golf course, which was in turn bordered by tall fir trees. Though only twenty minutes from the heart of Zurich, one had the perfect illusion of Alpine serenity. Even the prices were quite in line with the Palace, St. Moritz, or Gstaad. All that lacked were ski lifts and idle royalty.
“I have given instructions to serve lunch at one. That will leave us sufficient time to cover the business at hand right now. Why don’t we all sit around that coffee table over there.”
Once they were settled, Hofer handed a set of neatly bound documents to his friends, retaining a third for himself.
“Well, there it is. All the necessary signatures of the South African government are attached. I and one of my deputies have executed it on our mutual behalf, thanks to your proxies. It was duly notarized here in Zurich on Thursday afternoon. Gentlemen, it represents an airtight document.
“Now let me summarize the details. Our joint corporation which is party to this contract was registered exactly five days ago, in the canton of Zug. We chose the name Intergold. The General Bank of Switzerland has subscribed to 40 percent of its capital, and both of your institutions have received 30 percent each. All the issued shares are in bearer form, and they can be assigned by you to whatever entity in your banking groups you desire. I’m sure taxation might play a role there. Both of your performance guarantees were received in good time. Thank you for your promptness, gentlemen. I know how difficult it sometimes is to expedite commitments involving such large amounts. As you know, David, your letter of credit in favour of Intergold has been deposited with us. And your sterling guarantee has been handled the same way, Sir Robert. My bank has given an unlimited, I repeat, unlimited performance guarantee to Intergold. I think we all agreed that this merited our receiving a slightly higher equity participation in the venture. By the way, since only bearer shares are involved, there is absolutely no way for the public to find out who stands behind Intergold. That may prove valuable. I’ll cover that point later.”
Both of Hofer’s partners nodded.
“Now to the agreement itself. It runs for five years, starting January 1. The contracting parties are the government of the Republic of South Africa, Intergold as guaranteed by the General Bank of Switzerland in Zurich, Winthrop’s of London, and the Republican Bank of New York. Under the terms of the agreement, dated just two days ago, Intergold has agreed to buy the total gold output of South Africa during the five year period following January 1st. The South African government has agreed to sell that country’s total mine output during that period to Intergold on an exclusive basis. The only conditions which relate to this facet of the contract are that both parties agree that the amount to be delivered and paid for will not be less than 30 million ounces annually and will not exceed 35 million ounces in any twelve month period. The agreed fixed price in the first year is $80 an ounce. Each successive year thereafter, the fixed price will increase 5 percent. Key to the entire agreement is that these prices are irrevocably fixed and must remain so irrespective of the prevailing prices on the free markets in Zurich and London. These prices also remain fixed for the duration of the contract regardless of what happens to the official price of gold set by the United States government. I think you can appreciate, gentlemen, how very important this last condition has today become.”
David Mason spoke up. “You are sure that after the president’s speech last night there is no way the South Africans can break this contract?”
“None whatsoever. If they even try, they will be blackballed in every financial market in the free world. That they cannot afford. As I said at the beginning, this agreement is airtight from all standpoints. It has been drafted and approved by the best legal men in both Switzerland and South Africa. If it should ever have to go to arbitration, the Chamber of Commerce in Paris has been given jurisdiction. I think none of us would have to worry about which side they would favour.”
“And if the government is brought down in Pretoria because of this?” asked Sir Robert.
“I hardly think that possible. You know as well as I do the nature of government in that country. It could only be overturned by revolution, and that would only arise out of domestic race problems. I don’t rule that out ultimately, but I think it is highly improbable during the five years of our agreement. But then there’s another factor to consider. The South African government entered into this agreement for very sound reasons. It allows their gold mines, the most important sector of that country’s economy, to work with fixed prices for their output. For years none of these mines could plan ahead, since the price of gold fluctuated much too much. A deposit of ore which can be mined quite profitably at $80 an ounce becomes a financial fiasco if the price dips back to $65 an ounce. By reaching agreement with us on a fixed price for their entire mine output, South Africa opened the way for an optimal exploitation of their gold resources.”
“Yes,” interjected Mason, “but as of last night they could be getting a fixed price once again from the American government: at $125 an ounce, not the $80 we have agreed to.”
“That was totally unknown to both parties during the negotiations. In fact, for years the Americans have repeatedly expressed their desire to totally demonetize gold. They could just have well gone that route as the one they chose not so many hours ago. Then we, gentlemen, would have rather long faces this morning. That could have cost us billions. I repeat, this agreement was negotiated and signed in good faith by both parties, each fully cognizant of the risks inherent in such contracts. There can be no question of its validity.
“And you must not forget article xvi of the agreement. Both parties have pledged to maintain absolute secrecy concerning the existence and terms of this contract for at least ten years. If the South African government chooses, and I now suspect it might, it can easily conceal everything by merely making up the difference between what it will be getting from us and what the mines expect to get for their gold output after the American decision. They can take it from treasury funds. I’m sure they could bury the amounts involved in the defence budget. Such things have been done before, you know, especially in your country, David. No, gentlemen, all contingencies have been foreseen and covered.”
Sir Robert Winthrop and David Mason were convinced. Then Winthrop asked the question, and he asked it softly.
“Walter, how much will our profit be?”
“Substantial, in fact quite substantial. I made a rough calculation last night after watching the president’s speech on television. The Swiss TV carried it, you know. I must say, he made a very convincing presentation.”
“I agree,” said David Mason, “but what did your calculations show?”
“Let’s take the first year,” said Hofer. “Mine output next year is projected at 33 million ounces. Our gross cost, at $80 an ounce, will be $2.640 billion. Our receipts, upon resale to any central bank at $125 an ounce, will be $4.125 billion. That leaves a gross margin of $1.485 billion. Let’s call it one and a half billion. Intergold expenses will be minimal, really nothing much more than the cost of compensating our banks for their performance guarantees. And transport and insurance, of course. In any case, I foresee a profit before taxes the first year of about $1.4 billion. The canton of Zug, where we have incorporated, has entered into a tax agreement with Intergold. The maximum tax rate will be 12 percent. That leaves an after-tax net profit of just a shade over $1.2 billion.