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Getting LBMA Good Delivery Status is our Target

Pradeep Nagori, Senior VP, Precious Metals, Edelweiss Metals Limited, discussed about kind of infrastructure Edelweiss has put in place in its new refinery, their future plan of expansion and getting accreditation of LBMA Good Delivery Status, on the possible impact of GST in gold industry and so on with Bullion Bulletin at IIGC’15, Goa

I would like to congratulate you for getting emerging refinery award. How are you feeling being recognised?

We definitely feel very good about being recognized as an ‘emerging refinery’ despite being only operational for last couple of months. As we said, our real award would be when we get the LBMA good delivery status. Industry experts that have visited our refinery have acknowledged that our refinery is at par with any European refinery with best of the processes and top-end of technology, equipments, completely integrated security solutions and laboratory processes.All of them now have been evaluated by technical experts. I think that’s the reason why IIGC also decided to honor us. We are really privileged with heartfelt gratitude. I would like to thank the organizers of IIGC for giving this award to us.

What is the current capacity? How much you can upgrade from the current capacity for both gold and silver?

The infrastructure, utilities and the building that we have setup is to take care of about 200-250tonnes of gold and about 1000 tonnes of silver per annum. But to start with, we have capacity a 70 tonnes of gold and 200 tonnes of silverper year. As soon as we fill in that capacity, in the next couple of months, we would expand as per plan. Thus, it is seamlessly scalable.

How are you sourcing the raw material for refining?

Before setting up the refinery, we worked almost for 2 years on the entire planning.One of the critical questions obviously was ‘sourcingthe raw material’. Scrap market inIndia is not organized as of now.So, we decided to go for the ‘dore’ in the initial stages, but the long term strategy for refinery is to get the local scrap. That is in line with what the government is thinking in terms of the gold monetization scheme. Eventually for the refinery to succeed in a very long term, we will have to develop the scrap market and we are taking steps towards it, evaluating many models and opportunities where we can mobilize the local scrap that can come to the refinery.We are very hopeful that GMS would also help us do that. From a long term perspective, it is the local scrap and from short term perspective we are in process of entering into long-term contracts with international miners to supply ‘dore’ to us. We are eying to get the ‘good delivery status’.

On the GMS are you satisfied with the draft?Do you have any suggestions?

The way this scheme has been drafted is definitely a winner as against the gold deposit scheme which was there earlier which could not garner any sizeable deposit despite being there for about 10-15 years,mobilizing only about 40-50 tonnes. I think GMS may be very successful scheme, obviously there are couple of points still need to be clarified upon in terms of return the customer will get. infrastructure, logistics that will fall in place once it is commercially viable scheme. The point of discussion would be how much return one will be able to give to the customer. Given the current state of things, the banks may not be able to share more than 2 to 2.5% because they are already getting gold from international markets at the lease rate of 1.25 to 1.5%. So for them to give more than 2 or 2.5% would be very difficult. Apart from that they will also have to invest in the logistic and infrastructure which would add on to that cost. From a customer perspective if he doesn’t find the rate suitable for him he would not like to take part. Scheme and participants will have to make the customers aware that why even a 2% rate in gold terms would be a very good rate for them.  Effectively investors would be not getting 2%, but more, because it is an investment in gold and that way you are hedged against inflation. So, if one takes into consideration an inflation of about 5 to 5.5% pa and add that to the 2% return in gold terms, then the cumulative return in rupee terms would effectively be about 7 to 7.5%. Please note, that the interest is free from income tax. So, it is a product that would reward a tax-free interest of 7 – 7.5% pa. If government is able to give some tax exemptions on that, then, it will be a clear winner.

Apart from that the customer is able to keep his gold safe with the banks and there is no cost of insurance, too. I see that scheme has full potential to be a successful scheme. If regulators come back and allow the gold which has been collected by the banks to be deposited against CRR requirements, then itwould help banks a lot.For banks also it would be a clear winner because then they are able to mobilize or utilize their cash which is free from the CRR into the other lending that would reduce their cost of borrowing gold. Apart from that if there is interest subvention by government, it would help a lot in making the scheme successful.

About GST, what is your observation?

As far as GST goes,  it is definitely a good thing that can happen to industry because that would allow refiners to mobilize scrap from all parts of the country rather than from that particular state, entire link will be available and that would help the refining industry. I look forward to GST.

Having said thus, right now, there is only a white paper on GST. We are still not clear on specifics of GST for the gold /bullion/jewellery industry. We are still not clear on whether there will be a concessional ratefor gold; whether that will make GST work for us or not. For example, when one imports dore, one don’t have to pay basic custom duty, there is CVD and cess both of which are vatable. However, on the bullion imports, there is basic custom duty of 10% but no CVD. So, under GST, whether the custom duty on bullion will be vatable? If it is not vatable, then it will create an issue.It will be an additional cost for bullion importers. I am sure that industry bodies would have highlighted the issue to the government.Government might make custom duty vatable or may consider gold as an exception.

About conference

We,Edelweiss have been associated with IIGC from almost 8-9 years as the title sponsor of the event. We have always found this event very relevant and beneficial for the industry.Over the years, the participants are increasing. More market players, market participants attending this conference and debating on issues about the industry. It is always good that once in a year we are able meet all these people at one place. Now it is actually become a part of international calendar. Lot of people from international community wants to come and attend this event. My best wishes to the convention. We always look forward to this event.

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