Financial Considerations for Negotiating the Gold Sales Contract

INTRODUCTION The net smelter return (NSR) calculations made on various smelter-refiner alternatives, is usually done by taking the gross metal value less metal deductions, smelter-refiner charges and transportation-insurance costs. An important further step in the calculations is the financial charges imputed by refining time, transportation delays, to the time gold is returned (if tolled) or paid for if bought by the refiner. Metal that is priced in advance of payment also requires a forward premium that the mine may or may not be getting. This is a hidden cost that is often omitted from the calculations. Segmentation of each of the above costs are vital to see where improvements can be made through negotiations, better choice of metal pricing or transportation alternatives. BASIC NSR CALCULATIONS SMELTER-REFINER CHARGES Payable Metals - Treatment Refining Charges: Since these can vary from one smelter to another, the effect of a $25 per ounce price increase/decrease should be calculated and kept in mind. This effect is compared to differences in refining/treatment charge and a total smelter/refiner cost on a cost per ounce of dore, gold, or a dry ton of concentrate. Transportation - Insurance: Research has to be done on transportation alternatives perhaps with some assistance from the smelters, railroads or trucking companies. For dore, the U.S. postal service is viable and inexpensive. For railroads, deal with the regional office ie., B&N El Paso, if production warrants regular bulk shipments. Spot rates tend to be higher. A small mine producing concentrates usually goes to the nearest smelter due to extremely high transportation costs. Here is where a refiner can help. Insurance-Quotes for rates on dore/ concentrates are easily obtainable, but the mine has to shop for the best rates. Your insurance broker is the best source of this information. Differences between Mine and Smelter/Refiners Metal losses can be caused by the following: - Concentrate dry weight differences caused by moisture determination or faulty scales (often at the mine). - Sample bias by poor preparation practices on either side ie., grinding of the sample removing gold; or a poorly mixed concentrate. Dore bullion has no such difficulties.