Gold and precious metals refining service fee

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ervgeol

New member
Joined
May 2, 2017
Messages
4
I am excited to join this community of experts and enthusiasts in the gold refining industry.

My interest in this subject stems from the coming installation of the first high capacity gold refinery in a South American country with significant gold production, which is currently refined sending the dore bars overseas. Our refinery will have a maximum refining capacity of 1,425 kg/month. Our business model contemplates a profit based on charging producers a refining fee. From what I have researched in the forum, would a flat rate of 8% of the final product, that is pure gold, be a fair fee to charge customers? Our model indicates that at that flat rate, the business is very profitable for the scenarios we modelled. Thank you for welcoming me into your community.
 
Having a little trouble understanding your terms. You state the refinery is sending dore' bars over seas. So what I am hearing is that you are simply melting Gold into dore' bars for 8%, including shipping over seas, or shipping not included? Based on what you are saying, I hear you are melting into bars, not refining, then shipping for your 8 %. I will do that for 7%, and make a very handsome profit. I would be excited also, good luck.
 
goldshark said:
Having a little trouble understanding your terms. You state the refinery is sending dore' bars over seas. So what I am hearing is that you are simply melting Gold into dore' bars for 8%, including shipping over seas, or shipping not included? Based on what you are saying, I hear you are melting into bars, not refining, then shipping for your 8 %. I will do that for 7%, and make a very handsome profit. I would be excited also, good luck.
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I believe he said that it’s currently being melted into dore bars (by the producers) and they send it overseas themselves for refining. He’s involved in setting up a plant now to do that refining in-country, and he’s asking a fair fee to charge for that service? It would seem that you would want to establish that before building any sort of facility though?
 
ervgeol said:
I am excited to join this community of experts and enthusiasts in the gold refining industry.

My interest in this subject stems from the coming installation of the first high capacity gold refinery in a South American country with significant gold production, which is currently refined sending the dore bars overseas. Our refinery will have a maximum refining capacity of 1,425 kg/month. Our business model contemplates a profit based on charging producers a refining fee. From what I have researched in the forum, would a flat rate of 8% of the final product, that is pure gold, be a fair fee to charge customers? Our model indicates that at that flat rate, the business is very profitable for the scenarios we modelled. Thank you for welcoming me into your community.
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Welcome.
I can't answer the fee question, but as you see there is a bit confusion on what you meant.
So please can you clarify that?
 
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In honesty for volume high grade material refining you can get it done for a 99%+ return but that is for large single lots not 100-500 gram lots which would attract an assay fee, can be done by melting and a decent xrf gun, plus maybe a reduction down to a 95%+ return .
The problem you may find is finance as I doubt your customers will wait for payment until you get paid , settlement is normally on assays been agreed.
Big refiners are basically banks who just move money around with very small returns but on huge volumes.
For better advice you may need to be more explicit about your business plan from what you are buying in including lot sizes to processes been used and where you intend to sell your finished product to .
I fear your initial thoughts on costs to your customers is way off unless you are buying lots of very small lots which will slow down your whole process and reduce the volume of material you can refine.
 
I would like to express my gratitude to everyone who took the time to respond to my previous inquiry, including supporting members and moderators. I now understand that the initial inquiry may have been unclear, causing some confusion among those who offered their help and advice.

To clarify, my original question was regarding the fair fee to charge customers who wish to refine their dore gold bars using our new refinery, which is located in the same country where the gold is produced. Our aim is to offer a refining service only model, as opposed to a bank model that moves around the pure gold produced.

As an example, in our country, between 1 to 1.7 million ounces of gold dore are exported annually to overseas refineries. Our in-country refinery has a capacity of processing 550,000 ounces per year at full capacity. Suppose we begin with a target of refining 96,000 ounces per year or 8,000 ounces per month, and we receive an average dore bar consisting of 80% gold and 20% silver. Our refinery has the capacity to refine the bar, produce pure gold and silver 999.9, and return the final product to the customer for them to seek the best market price.

My inquiry pertains to the valuation of our refining service and what constitutes a fair fee. Our proposed fee is 8% of the LBMA price per ounce of pure gold or silver we return to the customer. I would appreciate any advice or insights you may have based on your experience.
 
Why would customers utilize your service for 8%, without the banking model, when they will still have to utilize the banking model, which offers the same service, included in a 1% fee?
 
You need to determine total processing costs before quoting a price. If price drops and you'll be running a deficit. A storage facility would be a worthwhile investment.
 
You are not offering anything to your customers they can not already get and at a far better price while leaving them to search for a buyer who will charge them again, I do not think you will get many customers with your present offer.
If your potential customers have reasonably large volumes the big overseas refineries will take 1% and pay spot on the balance, what can you offer them based on that, just giving back their own gold, ok refined, but they still have to sell that gold and will take another hit on that so with your 8% plus the buyers cut they are losing money in a major way, your business plan makes no commercial sense and 8% in just totally unrealistic when existing refineries will charge 1% at most and if the volumes are large enough even less.
Sorry to be so negative but I’m just trying to be realistic.
 
8 % is way too much. In volume 1kg and more, buying price is typically better than 98% spot, no matter if it is 14k (58+%) or 75% or 99,9%. If you will be recieving big lots of dore bars from mining companies, I doubt they would be your customers. Even for 2 % below spot. If you are aware of the business, you will never sell such quantity for 92% spot...
 
I agree with the other posts on this thread that 8% is unrealistic. Add to that, that after you refine these metals, you're planning to return the refined metals to your customers and have them pay you your 8% in cash, rather than keep your percentage as 8% of the recovered gold. That represents an additional cost to the customers.

You've also now mentioned that the typical doré bar contains 20% silver. What becomes of that? Is that a bonus for your company, or are you paying out on that as well?

We could all be wrong, but I just don't see this working as you envision.

Dave
 
nickvc said:
You are not offering anything to your customers they can not already get and at a far better price while leaving them to search for a buyer who will charge them again, I do not think you will get many customers with your present offer.
If your potential customers have reasonably large volumes the big overseas refineries will take 1% and pay spot on the balance, what can you offer them based on that, just giving back their own gold, ok refined, but they still have to sell that gold and will take another hit on that so with your 8% plus the buyers cut they are losing money in a major way, your business plan makes no commercial sense and 8% in just totally unrealistic when existing refineries will charge 1% at most and if the volumes are large enough even less.
Sorry to be so negative but I’m just trying to be realistic.
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I believe they mentioned that the customers would not have to ship to another country eliminating that cost. No idea what the cost of that totals but id bet its not small
 
I would like to express my gratitude to each one of you who took the time to evaluate our proposition and submit your valuable findings and advice. Your input is of great significance to us and will be taken into account as we brainstorm the way forward.

We appreciate all the opinions we have received so far, we will carefully consider all of them as we go back to the drawing board.

With that said, we would like to invite those who are willing to give further input to consider the following scenario:

You have a top-tier gold and precious metals refinery at your disposal in a country where there is no other high-capacity gold refinery. The refinery can process nearly 550,000 ounces of pure gold per year, and the country has several gold-producing mines that export between 1 to 1.7 million ounces of raw gold in dore bars annually.

Your operational cost analysis is sound, and due to the depreciation of the local currency, your costs are orders of magnitude lower in USD than in a developed country economy. Additionally, you do not have any loans or debts to repay for the refinery.

You have already received a firm expression of interest from one of the local producing mines to refine their gold and silver dore bars in your refinery. Moreover, an important gold refinery in Europe has expressed interest in sending their surplus raw gold to your refinery for refining because they have reached their maximum refining capacity.

Given this scenario, we would like to know your strategy (commercial and financial) to make the business not just viable but profitable. What kind of accords between producers and refiners can make a win-win situation in terms of fees or financial agreements to maximize the full potential of the refinery?
 
I think you should assess the demand for your service. Necessity is the mother of invention, and needs. If your clients understand that there is a start up cost, they may be willing to help you with the start up, by allowing you to charge the 8% refining cost. However, this will not last very long, if the numbers you are anticipating are accurate. 8% is not a competitive rate worldwide. Others have given more realistic numbers. The profit with the other houses, is not in the refining end, but brokering the sales, and making profit on metal price fluctuations. This can become quite complicated, as market fluctuations can dictate some situations requiring a group of financial planners, if you become the bank. You may start getting influenced by some heavy political actions, bordering on corruption, on the scale you are anticipating. This is a much bigger question then I feel, can be answered by us. This is a proposal which should be corroborated with attorneys and accountants.
 
Goldshark and all who contributed, I would like to express our gratitude for the profound and thought-provoking insights you have shared with us. Your contribution to this forum has been truly invaluable, shedding light on important aspects of the industry that we might have overlooked.

We have taken note of all your advice and recommendations, and we are committed to applying them to our work. We appreciate your willingness to share your expertise with us.
 
I still cannot see what would interest these mines and as to a large refiner in Europe expressing interest in your services I can be almost certain their interest will be very short lived for an 8% fee.
When I ran my own small refinery I could charge 1-2% on simple bar refining whether I purchased the metals or returned them the market would not stand any higher rates, as I pointed out earlier this is about large amounts of what is basically money been processed at a small charge and the profit comes from there.
To put it more simply would you use a bank that charged you 8% to take money out of your account or one that charged 1/2%?
 
goldshark said:
Having a little trouble understanding your terms. You state the refinery is sending dore' bars over seas. So what I am hearing is that you are simply melting Gold into dore' bars for 8%, including shipping over seas, or shipping not included? Based on what you are saying, I hear you are melting into bars, not refining, then shipping for your 8 %. I will do that for 7%, and make a very handsome profit. I would be excited also, good luck.
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Evening, I am interested in your services?
 

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