Qatar Holdings Commits to Gold

(October 3, 2011) — Qatar Holdings — a unit of the Qatar Investment Authority that controls the wealth of the Middle East state’s royal family — is set to invest about $1 billion in European Goldfields.

Additionally, the fund will provide European Goldfields — a London-listed miner currently developing the largest gold-mining project in Greece — with a $600 million financing facility.

While the fund is aiming to invest in an array of natural resources, gaining physical access to gold is at the top of their list of priorities, the Daily Telegraph reported.

Ahmad Mohamed Al-Sayed, Managing Director and Chief Executive Officer of Qatar Holding said in a statement: “This transaction reflects an outcome of the Memorandum of Understanding between the State of Qatar and the Hellenic Republic of Greece, signed in New York during 2010. Our latest investment helps to further diversify our investment portfolio in the commodities sector, with a specific position in gold resources and another long-term partner secured for the future. We see the transaction as one that will create a lot of value for all shareholders, and represents our positive view on Greece in general.”

Qatar Holding had purchased 10% of European Goldfields from existing shareholders, entering into a call option agreement that allows it to buy another 9.3-million shares, which could take its total ownership up to nearly 15%.

According to the Daily Telegraph, Qatar Holding was advised by Credit Suisse, with Lazard and Liberum Capital advising European Goldfields. “Qatar Holdings have done a systematic and detailed study of the gold sector,” Ken Costa, who put the deal together, told the newspaper. “They chose European Goldfields because [chairman] Martyn Konig is very experienced – a 30-year veteran in the gold market.”

“In these very uncertain times, these financings will provide all of the development capital required to bring the group’s entire project portfolio into production and allow us to accelerate the development of all our projects,” European Goldfields chairperson Martyn Konig said in a statement.

The heightened commitment to gold by Qatar Holdings follows research by Oxford Economics that showed that investors should allocate 5% to gold in their portfolios in order to overcome the effects of inflation and deflation. Jens Tholstrup, Managing Director, UK of Oxford Economics, asserted in the report: “Because of its lack of correlation with other financial assets, the report shows that gold has an important role to play in stabilizing the value of a portfolio, even where the conservative assumption of a modest negative real annual return is made.”

In contrast to the move by Qatar Holdings, a Netherlands-based $404 million (€300 million) pension fund for workers at several Dutch glassmaking plants owned by O-I International was ordered to rid itself of its gold holdings in February. The De Nederlandsche Bank (DNB), the Dutch pensions regulator, ruled the scheme’s exposure to the precious metal was too risky. The Stichting Pensioenfonds Vereenigde Glasfabrieken pension fund had wanted to maintain its gold allocation. Yet a Rotterdam court sided with the Dutch central bank — forcing the fund to sell its gold holdings, generally viewed as a safe harbor investment.