# Small Refinery



## lapo (Aug 22, 2011)

Hi,

I'm think of setting up a small refinery and wanted to know if I have understood the "commercial" process, or if I am barking up the wrong tree. 

1) Small Refinery, buys scrap gold from pawnbrokers, gold parties, individuals etc. There buyers cannot, normally, sell to a "big" refinery because they lack the volume ie 2,000g.

2) Small Refinery, melts the gold before buying it to make sure they a) are not being ripped off b) customer knows they are not being ripped off.

3) Small Refinery, will then go to a big refinery get an assay mark, and sell gold.

I have a number of questions;

a) Does this mean the small refinery is just consolidating the buying of the gold? 
c)What kind of margin can the small refinery expect. I have seen 2% mentioned. Is this correct, or......
d) Can a small refinery sell the gold directly to a customer, and what type of customers buy this?

Thank you in advance for your help


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## nickvc (Aug 22, 2011)

The first point is that your are not setting up a refinery if you do no refining, what your looking to do is become the middle man between the refiner proper and those who buy small amounts of scrap.
Nothing wrong with that if you can get the volume but you will have to buy a decent furnace and either have an in house assay facility an xrf or rely on outside assays, depending on your location assays can be expensive.
Profitability is very much related to the volumes you can produce with a return of 99% -99.5% possible but the big refineries will want big volumes guaranteed to pay those sort of returns and deals can be done where the silver and other values will be paid on. To get to these sort of deals your looking for at least 5 kilos a day and possibly more.
A 2% margin just on the gold will limit your client base as if customers are buying in decent volumes they may well be getting 98%+ on melted bars but the real bonus if you get volumes are the other values. The best idea I can give you is to offer true assays and returns work on a tight margin and look for big volume, a 1% margin on 30kilos is better than 2% of 2 kilos, also its important to have access to been able to sell your gold as you buy which will require a good relationship with your refiner.
Refiners don't mark bars they will refine them for their values and it's a continuos process which is why they look for large volumes to keep them running 24/7, their costs are fixed so the busier they are the more they make.
This is possible for you to do but it takes time and for you to be straight with your customers....the word spreads very quickly if your ripping off your customers!


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## 4metals (Aug 22, 2011)

In the US there probably are more people doing as you describe and calling themselves "refiners" than there are actual refiners. If you can do volume you can make money as Nick pointed out, most buy with an XRF and rely on fire assay to sell to their refiners. The big refiners call these little guys collectors and it allows them to concentrate on volume while you deal with a lot of little customers. 

Most collectors start out just melting and assaying and transition into the specialized types of refining like stone removal and producing alloys where the margins are greater. But you have to start somewhere and melting and assaying is where most refiners today got their start.


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