LBMA Assaying and Refining Seminar 2007

The LBMA Assaying Seminar, 20-21 March 2007

Opening Remarks by the Seminar Chairman

Read by Douglas Beadle, LBMA Consultant on behalf of Stewart Murray, Chief Executive, LBMA

Peter Smith:

Good Morning ladies and Gentleman, it’s a pleasure to see so many of you here today in this wonderful hall, where we had our previous refining seminar. Unfortunately, Stewart Murray won’t be joining us today or tomorrow. The reason for that is that he had to undergo some emergency eye surgery over the weekend because he had a detached retina in his left eye. It sounds very painful and very nasty to me. He’s had a successful operation and he went for a check up yesterday and the surgery is taking well, and he’s just got to have a few days rest. So unfortunately he can’t join us, but he certainly joins us in spirit, because, as you probably realise, Stewart and the entire Bullion Market Association Executive have put a vast amount of effort into continuing to improve the standards of London Good Delivery and I hope that all of you today are going to use this opportunity as two main things: The first is to share your knowledge with colleagues and competitors and also to network and see other people, and to get different perspectives on the things that you are doing. So with out any further delay, I’d like to introduce you to Dougie Beadle who is going to carry on with Stewarts opening remarks for the seminar. Thank you.

Douglas Beadle:

Thanks Peter. Firstly, welcome to you all. Stewart fortunately managed to prepare this speech before he was taken ill so that’s one less problem for us!!

So, on behalf of the LBMA, we’d like to welcome you all to the LBMA’s Assaying and Refining Seminar. Looking at the delegate list, there are representatives here from 38 companies and 18 countries, including 31 people on the Good Delivery list, and that’s a really good turn out and we welcome you all. For the majority of you, English may not be your first language so we have circulated the most of the papers in advance, either in text or PowerPoint presentation and we hope this will enable you to get a better understanding of what’s going on, and I’d like to thank the speakers for their additional efforts in preparing the papers so that they could be circulated in advance.

When many of us met here some 18 months ago, at the LBMA’s first Assaying Seminar, I suggested that the question of whether we would organise similar meetings in the future would depend on the feedback from participants. In fact the feedback turned out to be very positive. A very high proportion of the delegates filled in these forms – approximately 60%, which is three times greater than the percentage of responses we generally receive for the annual conference. Almost everyone felt there was a need to have at least one more, with London the preferred venue. Various topics were suggested and we have been able to incorporate some of these into the programme today and tomorrow. Others may have to await for another occasion. But it was very clear that most participants wanted more.

So in short, we decided to hold a further meeting, with similar goals relating to assaying, namely allowing an exchange of information and experience about the various assaying techniques used in the precious metals business and just as importantly allowing the representative of many good delivery refiners to meet and discuss matters of mutual interest.

We also wanted to inform you about the good delivery system and progress with proactive monitoring. We have now almost reached the end of our first three year cycle of monitoring the refiners on the Good Delivery List and you will hear from my colleague Douglas Beadle about our experience over the past three years, including the problems encountered by a small number of refiners and how these were overcome. This will allow you an opportunity to discuss with us any issues concerning the procedures we follow during the monitoring operations.

One subject which I expect will be a focus of much interest and discussion today is the proposal that the LBMA should facilitate a cooperative effort by the refining industry to produce solid sample reference materials which would greatly assist laboratories which use instrumental techniques for analysing high purity gold and silver alloys to produce more accurate determinations. I would like to thank Mike Hinds of the Royal Canadian Mint for having suggested this and for assisting us in preparing the Questionnaire which we circulated to all refiners on the Good Delivery List in mid-January. We have received completed questionnaires from 20 Good Delivery refiners, with an astonishingly wide range of suggestions about the number of impurity elements to be included and the levels of impurity element needed. This now doubt reflects differences in laboratory practices and equipment used across the world and perhaps also geological differences in the ore bodies which in effect supply the refiners with their raw materials.

Before our first seminar, one refiner suggested that it should also cover other operational issues of mutual interest. I believe they were thinking of things like security and fraud detection. Unfortunately, we did not feel that it was possible to include such questions in a seminar whose main participants were from refiners’ laboratories. But it did make us think about widening the base of discussions at this seminar, in particular by talking about other aspects of quality control, other than assaying accuracy. I am referring to the subject of bar quality in its widest sense. This has always been important in the London Bullion Market because clearing system used in London relies on the assumption that for the purpose of settling balances all London Good Delivery bars can be regarded as having the same acceptable quality. In other words, all these bars should meet the specifications and recommendations in the LBMA’s Good Delivery Rules as published on the LBMA website. But over the past few years, the sudden re-appearance of investment interest in precious metals (and particular because much of this has focussed on Exchange Traded Funds (or ETFs) has meant that bar quality has become ever more important to the whole market. The sponsors of these ETFs generally want to keep their metal in the form of allocated, ie physically segregated, accounts, consisting of Good Delivery bars stored in the London vaults. The switch in emphasis from fabrication to investment has had important ramifications for the London Market. Refiners which normally produce small bars or products for the jewellery industry have instead being making large bars destined for the London vaults. At times, there has even been such a rush to get bars to London that quality control in some refiners’ casting houses has suffered, with the end result being that bars or whole shipments have been refused by the vault managers – causing great inconvenience for the traders involved in the supply chain and in the end resulting in expensive consequences for the refiners which produced these defective bars.

So our discussion tomorrow morning about some of the Good Delivery Rules relating to physical bar specifications and quality will be important for all of us. This is why we have given the industry notice – such as the article in the January Alchemist – about our plans to consider changes in these Rules and we want your help and feedback when considering these changes.

There are two questions on the agenda – to be discussed this afternoon – which might imply the commitment of some resources by the LBMA. I am talking about the preparation of solid sample reference materials and a possible facilitation of a round robin comparison of assays for doré type alloys. But I need to stress that the LBMA’s resources are in fact quite limited. In spite of the global reach of the London Market, and the general recognition of its central role in the world bullion market, the LBMA is run with a very small team. So although the LBMA would be pleased to facilitate such projects, there are severe limits on how much manpower or funding the LBMA can itself devote to them.

But quite apart from the business outlined in our programme, we hope that you will be able to take advantage of the opportunity to meet each other. I know that there were some useful developments from the previous meeting and we hope this may happen again.

I am sure that during the coffee breaks, the lunch and the reception this evening, you will take advantage of the chance to meet your colleagues from other countries. In order to help this networking, we have a notice board at our registration desk which you can use in order to contact other delegates who are here today. If you want to meet anyone, please put a note addressed to them on the notice board and at the end of each session I will read out the names of those to whom such notes are addressed. My colleagues on the desk will be pleased to help you get in touch with other delegates.

But as with any conference, the success of this event will depend to a large extent on the audience as much as the speakers. We have left plenty of time in the programme for discussion and particularly for the people who do not speak English as their mother tongue, I hope you will not feel inhibited when it comes to the question and answer sessions.

Finally, I hope all of you will enjoy your stay in London and derive real benefit from our seminar.

Thank you for your attention.

Good morning ladies and gentlemen, it is a pleasure to see so many precious metal refiners here today at this second LBMA Refining Seminar.

As all of you are well aware, the London Good Delivery List provides the bedrock to the London Bullion Market. To be accredited as a London Good Delivery Refiner has always been a highly sought prize. Over recent years the LBMA, through its Physical Committee, has consistently monitored the quality standards of each refiner and their bar production output.

As my colleague Dougie Beadle will shortly be telling you, we have made significant progress with our Pro-Active Monitoring Programme which is coning towards the end of our first three year cycle.

I think it is important to put the Pro-Active Monitoring Programme into perspective and for me I view it as a health check up with your doctor. Or to put simply, we are making sure that all of the London Good Delivery Refiners are financially strong, have sufficient business to keep going, and produce first class bars for the Market and investors.

There are a few issues that the Physical Committee is focusing their attention on at the moment and these are as follows:

Bar photographs, line drawings, bar marks and in some instances changing ownership or profile of a particular refinery. There are two elements to this topic, the first is that in our Pro-Active Monitoring work, we have come across too many instances where refiners have changed bar marking, shapes, or perhaps the ownership structure has changed significantly. Please take the initiative and advise the LBMA executive of such changes – some may need Physical Committee approval before they can be implemented.

The second topic on the subject of bar marks, line drawing and static data, is the LBMA hope to embark on and electronic data-base of this information for each refiner. This topic will be subject to debate in tomorrow mornings session.

Based on the exceptionally high levels of physical gold and silver that has been constantly flowing into London over the last couple of years, the London vaulting houses are seeing an ever increasing diversity of bars coming into London. This of itself has given rise to two key issues.

The first issue is that some refiners are not spending sufficient time and effort to ensure that the quality of their gold and silver bars are up to the standards expected in the London market. To be blunt, some bars in both gold and silver that JPMC has had delivered into its London vaults recently are just plainly unacceptable and have been rejected. Bars rejected in this way cost far more to correct than if they had been properly prepared in the first place, as well as perhaps upsetting a valued counterparty.

I want to be clear on this – the London market is receiving so many gold and silver bars in first class condition, that those rejected bars that do not meet the standards do the reputation of the refiner no good at all, and may well lead to that refiner being de-listed. The standards of care rest on your shoulders, and ultimately the well-being of your company.

The second issue concerns the packaging of bars for travel/export. Again we are seeing increasing evidence of inappropriate standards being applied to pallets. Unless it is exceptionally well made, a brittle plastic pallet is unlikely to remain in good condition if it is transported from one end of this earth to the other. These pallets self destruct, resulting in their being impossible to unload from a truck or container, because it is impossible to pick them up with a fork lift truck.

Again, we will address these subjects in more detail tomorrow, and hopefully you will all be able to contribute to developing standards of manufacture and packing that demonstrate the true capabilities of a “London Good Delivery Refiner”.

I would now like to hand over to Dougie, who will share with you the progress made by the LBMA on the
Pro-Active monitoring programme.

The Proactive Monitoring (“PAM”) regime was announced in January, 2004, with the first round of the three year rolling monitoring programme getting underway in June of that year. We are now half way through round nine being the final round in the first three year cycle. The main objectives of PAM are to ensure that refiners on the Good Delivery List continue to maintain the highest standards of technical competence and also to encourage technical improvement throughout the bullion refining industry.

To the extent that a refining operation comprises both gold and silver refineries that counts as two entirely separate operations for PAM purposes. To date fifty one gold and sixty three silver refiners have been monitored (being all refiners who have been on the Good Delivery List for three years or more).

PAM covers not only a refiner’s ability to assay but provides the LBMA with an opportunity to check on the refiner’s level of production over the immediately preceding three years, the refiner’s Net Tangible Worth (“NTW”) and also verify that the photographs and line drawing on the LBMA’s files, which have previously been circulated to the London vaults, are still current.

Of the one hundred and fourteen refiners issued with notification of PAM letters one gold refiner and four silver refiners decided that the cost and work associated with undergoing PAM was not justified by their then current refining operations and they were duly transferred to the Former List of Acceptable Melters and Assayers. One silver refiner underwent a group re-organisation resulting in its NTW falling significantly below the LBMA’s normal minimum £10 million requirement and as no group company with sufficient NTW could be found to provide the LBMA with a letter of support in respect of the refining operation that refiner was also transferred to the Former List.

The LBMA Executive and Physical Committee consider the PAM regime to have been a great success. That does not mean that every refiner has passed the assaying tests without incurring a problem, indeed had that been the case it could justifiably be argued that PAM was unnecessary and a waste of time, effort and money. Equally significantly reducing the number of refiners on the Good Delivery List was not an objective of PAM. It is interesting to note that at this juncture not a single refiner, including those that incurred problems, has complained about the costs and work associated with PAM, indeed several have placed on record their satisfaction at having successfully passed the assaying tests which they feel adds to the prestige of being included on the LBMA Good Delivery List.

Let us firstly look at the technical results of PAM.

At this time eight gold refiners are still in the process of being tested and the results are expected very shortly.

Of the fifty gold refiners that underwent PAM assaying tests thirty one elected to be monitored as “four nines” producers and assay reference samples supplied by the LBMA rather than producing there own dip samples which may have possibly led to contamination of their 9999’s production lines. So far four refiners who elected to be treated as “four nines” refiners and one refiner who provided a dip sample failed the initial assaying test. With regard to the “four nines” refiners this was due to the fact that as they only ever produce 9999 gold their fire assaying techniques had, over the years, been allowed to fall and this was in some cases exacerbated by experienced staff having retired and not being replaced by staff with sufficient experience of fire assaying techniques. Also in some cases their equipment or processes were inadequate for the job. Where a refiner fails the initial “four nines” assaying test on six reference samples they are allowed to retake the assaying test on a further six set sample. If they fail the second assaying test they then have to take and pass a full twenty four reference sample test in order to remain on the Good Delivery List. During this process the refiner is encouraged to seek additional professional training on fire assaying techniques either from an LBMA Referee or other source of the refiner’s choice. Whilst this process is going on such refiners are permitted to remain on the Good Delivery List because their ability to produce 9999 gold is not in doubt, it is with the lower assay material where the problem lies.

Two of these four refiners passed the second six sample test without a problem one obtaining a 100% pass rate and the other failing on just one sample. The other two refiners had to go on and take the full twenty four sample assaying test where they both subsequently obtained a 100% pass rate and one produced the best set of results seen in the whole of the three year programme. This was most gratifying for the refiners concerned and clearly demonstrates how the PAM regime is succeeding in its objective of lifting assaying standards.

Of the fifty eight silver assaying tests carried out fourteen are still in process and the results will be available within the next few weeks. So far only one refiner has failed the initial assaying tests but subsequently went on to successfully complete a full ten reference sample assaying test having invested in some new equipment and made changes to its procedures.

With eight gold and fourteen silver results still awaited it has not been necessary to transfer any refiner to the Former List t on technical grounds.

Looking now at the non-technical aspects of PAM a number of instances have come to light where refiners have changed their name and / or bar marks without prior advice to the LBMA as a result of which the Good Delivery List has been updated and new photographs and line drawings have been obtained and circulated to the vaults in London.

During the first three year cycle it has become evident that official agencies in some countries still exercise excessive control over refiners in their jurisdiction or there is excessive internal administrative bureaucracy within the refining operation both of which greatly impede the efficiency of those refiners. I will not name countries, but there are several, where one really does have to question the need for contracts to be exchanged between the LBMA and the refiner for either the supply of 60 grams of gold in
the form of reference samples or 70 grams of silver in the form of dip samples. Also there can be no justification for local customs either preventing the export of references samples from the United Kingdom for weeks whilst minute issues are raised on export documentation or once the samples are in their own country holding the samples in customs for weeks again preventing the refiner completing the assaying test.

Finally I would like to thank all those refiners who have been monitored for their co-operation in supplying all the required information and undertaking the assaying tests. Also a special thanks goes to the five LBMA Referee’s who have done a tremendous amount of work in producing and proving-up the reference samples, cross-checking dip assay results and providing training on fire assay techniques when the need has arisen.