Pitfalls in managing precious metals assets (ERTC)
Throughout Sabin’s 75 years in business, we have worked with a great number of petroleum and petrochemical companies, shipping, processing and recycling precious metals from their spent catalysts, of course. But, in a larger sense, we help them manage their precious metals assets.
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What follows are some glaring case studies of proper precious metals management gone very, very wrong. The names have been changed to protect the guilty, but hopefully it will help you and your team to avoid these pitfalls.
Blind Spot Oil Company
The procurement department at Blind Spot Oil sent out an RFQ and saw that one bidder had submitted a processing charge 25% less than everyone else. It began a five-year relationship with this precious metals refiner, all the while receiving less than 50% of the actual PGM return value. FYI, normal would be 90%+. Blind Spot had followed the conventional wisdom in purchasing and procurement that looks for the lowest price, but in the precious metals business that is almost meaningless.
The important thing in this equation is not the processing fee per pound, it is proper weighing and sampling and accurate analysis, for without it your company has nothing. It takes trained people, calibrated equipment, time and experience to accomplish this, and quality cannot and does not come cheap. Degrees of accuracy are therefore in direct correlation with the investment made in creating them.
Simply put, there must always be a balance between the performance and quality of what is being purchased and the fairness of the price. In the precious metals recycling industry, compromising quality creates monetary risks of metals loss, and liability risks in terms of improper disposal of wastes or other improper behaviour.
Short Cut Corporation
This company thought that it could sell catalyst by the kilo to a broker to ‘save money’ or ‘save the trouble’ of international shipping, and so on. This is a huge risk, as brokers are typically offering 50-60% of the PGM value at best. Refining, including international shipping and all costs, still returns a net average of over 90% on petroleum catalysts true precious metals value.
One metric ton of catalyst (2205 lb) is about US$80000 at current prices, so the Short Cut Corporation is losing $32000-$40000 on every metric ton it sells.
To illustrate an additional risk of selling to a broker, in many countries the pre-existing liability of an individual or corporation continues indefinitely into the future. The bottom line: if you sell your catalyst to a company that disposes of it improperly, your company may still be responsible for the pollution fines, the clean-up, the lawsuits, and more.
Disappearing Assets Incorporated
Unfortunately, another thing that must be addressed is ethical compliance. Disappearing Assets fell victim to one of the bad guys: a precious metals refinery that cheated.
In this example, the trick was essentially ‘legalised theft’: the precious metals refiner used something other than a verified weight and an accurate assay as the basis for its payment to Disappearing Assets. To be clear; there is no substitute for processing 100% of the catalyst, obtaining a proper sample, and conducting precious metals assay using proven and accepted industry methods.
It is also highly recommended that the customer witness, or hire someone to witness on their behalf, while all of the critical activities are going on. This is your eyes and ears on-site to ensure that everything proceeds as agreed, double-checking all of the weights and maintaining the chain of custody of the samples.
1. Terms and contract details:
a. Read and understand all terms.
b. Be sure that the final settlement is calculated using weights and assays.
c. Be sure you are being paid for ‘total’ metal returns and not just ‘acid-soluble’ metal.
d. Request to see regulatory compliance documents on environmental responsibility and Anti-Money Laundering policy.
a. Research the vendor’s criminal, environmental and safety records thoroughly.
b. Follow up on the compliance documentation in an on-site audit.
c. Examine the processing and sampling equipment.
d. Review their controls of maintenance and calibration, for both the weighing and sampling departments and lab.
e. None of the above protects you from someone whose morality changes with the circumstances. Hire a witness.
To summarise, you may have heard this before, but there is no place where this is more true and correct than in the precious metals industry: it doesn’t matter what you know until you know what matters. Know what the true monetary priorities are and educate your employees. Know the details on how your materials will be sampled and treated, and have them verified. And most of all, know exactly with whom you are dealing. ν
Did you know Degrees of accuracy are in direct correlation with the investment made in creating them?
This short article originally appeared in the 2018 ERTC Newspaper, produced by PTQ / DigitalRefining.
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