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Perspective of  Indian Gold Refineries  on Sourcing Dore

James Jose, Director, CGR Metalloys Pvt. Ltd.

 

India , one of the largest gold consuming countries in the world, has been importing  an average of 600 – 900 tonnes of bullion  per annum for the past 2 decades, mostly from LBMA accredited Gold refineries. However this scenario is gradually changing, with India emerging as a manufacturer of bullion in the past few years. India has been increasingly sourcing gold dore from 2012 onwards and the share of domestically manufactured bullion as against the total requirement has been gradually growing from 4 tonnes in 2012 to around 150 tonnes in 2017. In 2016-17, the share of bullion manufactured from dore was 30% of the total domestic consumption , and in the current year 2017-18 also, the same trend is expected to continue .

 

Regarding the sourcing of dore , the Indian gold refineries are facing several challenges and the most important being locating reliable suppliers offering consistent quality. Except for some of the large scale refineries having  long term supply contracts with large scale mining companies, majority of the medium scale refineries in India are dependant on artisanal mining of dore from various countries . Out of the 14 countries supplying gold dore to India, 2/3rds of the volumes are coming from Ghana, USA , Peru  and Bolivia and the remaining 1/3rd from the rest of the 10 countries . Absence of direct airline connectivity from Latin American sources is a major challenge faced by the refineries; transhipments often take weeks time, and this  accounts for extra financial burden on the operating margins of a gold refinery.

 

In the recent past, India has undergone disruptions in business operations by way of demonetisation of currency and GST, and this has impacted   the dore supply linkages and production capacities of gold refineries. Also the changes in the Govt policies  on gold import has  lead to periodic shut downs  at refineries in 2014 -15 and 2016-17 , playing havoc with the long term supply contracts on dore and the resultant diversion of dore supplies  to neighbouring countries. With the introduction of GST  in India and the resultant removal of area based tariff exemptions, many of the smaller  dore importing refineries have become unviable , leading to their closure . Simultaneously at the dore exporting countries, regulators have become more vigilant in terms of their export revenue mobilisation and responsible sourcing of gold, leading to the winding up of many a small scale artisanal mines. When the gold dore ecosystem in these exporting countries are gradually getting transformed , the same reverberations are happening in the importing stations as well, with the number of players gradually coming down and the industry is becoming  more professional and transparent. In India, for import of gold dore, the Govt has imposed certain quality parameters and accreditations for the gold refineries, which also has resulted in the removal of non serious players from the refining scenario.

 

With the Govt of India promoting the Make in India campaign and  supporting the  gold industry’s  initiatives on India good delivery standards,  regulatory frame work  for operationalising it,  bullion spot exchanges , responsible sourcing etc , the Indian gold refineries are also upgrading their bullion production capabilities and dore sourcing arrangements . Locating reliable dore suppliers confirming to OECD guidelines of responsible gold is a major challenge for the Indian refineries. In many dore exporting countries, actual dore exports  are made by the  aggregators or Govt approved export agencies and the dore importing Indian refineries do not have access to the data on their actual ground level sourcing/mining  partners , which may create problem  under the  new emerging  regulatory framework.

 

Absence of accurate and transparent mechanism of assaying the gold content of dore at the shipping stations is another challenge faced by the gold refineries. Dore business being a high volume low margin activity,  variations in the assay certificate of the imported dore’s gold content , often play havoc with the viability of the entire operations of dore import . Another factor challenging the dore sourcing is the availability of secured logistic agencies in the shipping country, for transporting the dore from the mines to the smelter and then to the airstations . Until and unless internationally rated reliable agencies are taking care of these transhipments, with adequate insurance coverage, the dore importing refineries are not comfortable with long term sourcing and funding arrangements in procuring their gold dore.

 

The present import duty structure in India is skewed in favour of the finished product bullion imports, and the gold refineries are at a considerable disadvantage in terms of their import duty differentials, IGST rate on dore , the customs tariff rates applied on dore and the foreign exchange payments periodicity etc.  This industry can sustain to import more gold dore for higher domestic production of bullion in the coming years, only if a favourable ecosystem for viable operations are ensured by the policy makers. 

 

Disclaimer: Views are personal and not the views of the publisher.