‘Gold refining can save $25 million forex a year’

MMTC PAMP, a joint venture between PAMP SA Switzerland and MMTC Ltd, a Government undertaking, aims to increase gold refining to 10 tonnes a month from January next year. With this, it will be refining 100 tonnes every year, which can lower the country’s import bill by $25 million annually. BusinessLine caught up with Rajesh Khosla, Managing Director, MMTC PAMP Private Ltd. Edited excerpts:

How do you see the beginning of the joint venture?

MMTC is the second largest bullion dealer in India and PAMP is one of the top three refiners in the world. So, a joint venture (JV) was set up for a refinery in India. We signed the JV way back in 2008 and next year, on April 1, 2009, we started construction of the plant. It took us three years, and on April 1, 2012, we got into commercial production. The refinery has an installed capacity of 150 tonnes of gold. Nothing great, when you consider that India imports around 1,000 tonnes of gold, 150 tonnes is a fraction. But, it is a beginning. Hopefully, this will encourage others to follow.

What is the potential of your gold refinery?

Currently, the total gold mining in the world is 3,000 tonnes a year, of which countries such as Russia, South Africa and China together have a share of 1,000 tonnes. But these countries do not permit export of raw material and want refineries in their country to draw the benefits of value addition. All the three countries have big refineries, including Rand Refinery in South Africa, which is biggest in the world.

Out of the balance 2,000 tonnes, around 1,700 tonnes comes from mining companies that have sound standards. Now, how many refineries are there in the world? Forget the smaller ones. Look at the ones that are internationally accredited. The accreditation comes from London Bullion Market Association (LBMA). There are 70 such accredited refiners in the world, which means 70 refiners are scrambling for 1,700 tonnes of raw gold. So, if we distribute uniformly, each one will get 25 tonnes. The obvious question is, why have you set up a capacity of 150 tonnes?

The answer is that lot of accredited refineries are shutting down, especially in the Western World. So, the refineries and the refining industry are moving into developing countries. Africa is ruled out because of security issues, and India is being looked upon as more secure.

When mining companies look at a refiner like us, the first thing they want to know is if we have international accreditation. It took us two years and in May 2014 we got international accreditation, which is a record for any refinery in the world. Now, mining companies are talking to us, as refineries are shutting down in the US and tapering in Switzerland.

What kind of impact do you see in the current account deficit due to gold refining in India?

Every 100 tonnes of raw materials give approximately 80 tonnes of processed gold. Our calculation shows that 100 tonnes of import of raw materials can save, on an average, $25 million a year. This saving will come due to value addition here. Earlier, we were buying processed gold, so the benefit of value addition was pocketed by others. But, now we buy the raw material from miners and sell processed gold here. Value addition here gives us the saving.

How much raw gold is India importing?

Till we came into scene, it was zero. Because there was no refinery in India. In the first two years, we struggled to get raw material. In the first year, we could refine only 40 tonnes of gold, which was same in the second year. This is because mining companies were saying that unless we get international accreditation, they will not give us the ore. After getting accreditation, we have stepped up refining. We are now processing 8 tonnes of ore a month and within the next two months, we will increase this to 10 tonnes. So, on an average we will be refining 100-110 tonnes of gold import annually.

How do you see the future of gold refinery business in India?

The international basket of raw material is 1,700 tonnes. This is the limit. The issue is, how much will people depend on India? Remember, mining companies prefer not to keep all their eggs in one basket. These companies manage their risk by spreading their products among various countries and, accordingly, manage their counter party risk and country risk. But, if we have more refineries in India, they can manage counter party risk even if there is country risk.

We do not think, we will go beyond 150 tonnes. If we have got international accreditation in two years, the world will notice and this will also encourage more joint venture. Our market is of 900 tonnes and our capacity is just 150 tonnes, so others may get encouraged to set up refineries here. I am quite optimistic. If we have six-seven refineries in the years to come, the entire 900 tonnes can be refined here.

COMMENT NOW