May/June 1991
Many processors have unnecessarily avoided this area of the scrap industry because they don’t think they know enough about it to make it a viable part of their businesses. Here are the basics.
By Allison Sloan
Allison Sloan is executive vice president of Sloan Precious Metal Co. (Chicago), an affiliate of Sloan Metal Co. Inc. (Chicago).
Every scrap commodity has particular details that dictate how it should be bought, processed, and sold. Nevertheless, when you examine the general markets, scrap is scrap--whether it’s silver, copper, steel, or paper. While many scrap recyclers realize this and deal in a variety of scrap, most still shy away from precious-metal scrap because they are unfamiliar with it.
This needn’t be the case. The fact is that the precious-metal scrap business basics are much like those for other commodities: There are a variety of scrap sources and a well-established network of consumers. In addition, material identification, value determination, and hedging capabilities (price protection) are readily available to precious-metal scrap processors.
Locating Materials
Where is precious-metal scrap generated? The answer is simple: everywhere. Gold, silver, and platinum-group metals are used by a number of industries in an assortment of applications. Precious metals are excellent conductors of electricity, so electrical and electronic uses are manifold. On top of that, silver can be light-sensitive and, therefore, is used throughout the photographic industry. In fact, one of the best types of scrap with which to start your entry in the precious-metal field is silver-based photographic film. There are hospitals that use it for X-rays and printers that use it for printing in literally every city in every state of the union.
Platinum-group metals are, at the very least, the finest catalysts available today and, thus, are employed not only in automobile catalytic converters, but also in petroleum-refining operations. Other industries that rely on precious metals include the chemical, pharmaceutical, dental, specialty alloy, and pollution-control sectors.
While some of these industries May seem foreign to many scrap processors, your regular suppliers of other types of nonferrous scrap may also be precious-metal scrap generators. For instance, the source that provides you with aluminum lithographic printing plates may have silver-bearing films sitting right next to the aluminum plates on the loading dock. Or there might be silver-plated copper available along with your red-metal purchases. Another source might be one of your best accounts that's ready to throw out its computer system.
These are all items almost every nonferrous processor encounters in everyday business. Imagine if your buyers were actually on the lookout for precious metal scrap!
Determining Value
During the skyrocketing precious-metal markets of the late 1970s and early 1980s, many precious-metal scrap generators instituted recycling programs. Thus, once you've made contact with a generator, determining whether scrap is available for recycling is not even an issue. Instead, just like other scrap materials, once you have established that a generator has an item available for sale, the key to purchasing is figuring its value.
It is important to keep in mind that just because a-particular piece of scrap contains precious metals does not necessarily make it economically feasible to recycle for precious metals. Many industries that have traditionally used precious metals in the manufacture of their products have decreased (and in some cases eliminated) the precious-metal content of their goods, in part because of high precious-metal costs and technological advances that allow material substitution.
Thus, it is essential to determine the exact precious-metal content and compare its value to refining costs before buying materials destined for recycling. This is particularly important when buying silver, which, in recent months, fell to a 17-year price low.
In a $4-per-troy-ounce silver market, for example, if a scrap item assays at 0.2 percent silver, it would have a gross silver value of less than 12 cents per pound. This is calculated by multiplying the silver content (0.2 percent) by the number of troy ounces in a pound (14.583) to arrive at the number of troy ounces of silver per pound in the scrap (0.029). That figure is then multiplied by the price ($4) to arrive at a value of 11.67 cents per pound. Therefore, in this instance, in order for the scrap to be recycled economically, you must find a consumer whose costs to you to refine the silver are less than 11.67 cents per pound. Of course, even that figure doesn't include any transportation or handling charges you might incur. Unfortunately, while it’s certainly possible to find scrap that assays at 0.2 percent silver, the likelihood of finding a consumer that will charge less than 11.67 cents per pound is, for the major segments of precious metal scrap, highly unlikely, but there are exceptions.
The Assay Factor
In order to figure the assay of a particular item, get a sample of the scrap. Eventually, as you become more experienced with precious metals, you will realize that many scrap items fall into the same general category of materials with a basic assay range you can anticipate. (But be careful: Printed circuit boards are not necessarily one of those items.) This knowledge should enable you to buy precious-metal scrap, especially in small quantities, without assaying, as long as you buy at the low end of the anticipated assay range to cover any risk you might be taking on the final sale.
Until you reach that point, however, obtaining a sample is advisable. In order to make the sample as representative of the lot as possible, it should be as large as possible-even 20 percent of the lot. The size and value of the scrap sample may require that you purchase the sample.
When lots appear to be uniform, representative sampling should be easier and should require a smaller sample. Keep in mind, however, that a visual inspection can be misleading when it comes to anticipated uniformity. And just a 1 -percent variance on a silver assay can represent a difference of 58 cents per pound of scrap, even at a $4-per-troy-ounce silver-market level.
If the scrap is highly mixed (nonuniform), its very nature makes sampling more difficult and less accurate. If this is the case, the sample merely allows you and your consumer to determine the qualitative precious-metal content, leaving your consumer's knowledge and experience with similar materials to decide the recycling feasibility. In this scenario, it is in the best interests of the generator, processor, and consumer to sell and buy the scrap based on actual recovery rather than on original sample assay results.
Once a sample has been obtained, the next step is to figure its precious-metal content. A qualitative analysis, particularly of straight metallics, can be accomplished easily and inexpensively in your own facility, using essentially the same chemicals that you might use to identify other nonferrous metals. Such a simple laboratory setup enables you to buy materials outright through your front door at a minimum risk.
Things get more complicated and technical when it comes to assaying to determine the exact precious-metal content of a scrap sample. The industry standard for making such a determination is the fire assay. There are several highly qualified independent fire assayers throughout the world that can accomplish this step. In many cases, however, your consumer can assay your material for a much lower cost than an independent, or even for no charge.
In either case, if you intend to buy and sell a particular lot of scrap "as is," be certain that what you send out for assay is "as is." For example, if you receive a sample that contains moisture, it should not be allowed to dry prior to assaying. The same holds true for other types of contamination.
Of course, just as there are certain types of scrap for which you will eventually be able to estimate an assay range, there are many items whose precious-metal assays will fall within a fairly tight ranges for allowing your consumers to quote price these materials without spending the time and money on assaying.
Finding a Buyer
How do you choose a consumer? Like other scrap consumers, many precious-metal consumers are best equipped to handle specific scrap: While some recover high-grade material, others buy only low grades; some work with gold and silver, others with platinum-group metals; copper-based is the specialty of some, while others need clean scrap; some use chemical recovery methods, others employ pyrometallurgy; while some require large lots, others can handle only small lots. The list goes on and only each consumer can tell you its parameters.
Other considerations in choosing a consumer include operation efficiency (which generally translates into processing and refining charges) and willingness to offer price protection.
Although the list of precious-metal scrap brokers is nowhere near as large or well-defined as the brokerage network for other scrap commodities, working through a broker can be a good route to take in selling your precious-metal scrap. This can be particularly true (and often more cost effective) when dealing in small quantities of material, since most consumers have a minimum refining lot charge that can wipe out any profit on a small lot. Brokers can spread that cost throughout several similar small lots, thereby controlling your total refining charges. Larger lots allow you much more flexibility in your sales.
After selling your precious-metal scrap, you may wish to retain "professional representation"--an aspect of the precious-metal scrap business that has no real counterpart in the marketing of other scrap materials. Simply put, this means hiring an independent industry expert (there are a number of firms that specialize in professional representation) to carefully track your scrap materials throughout the entire refining process. Although it doesn't make sense in most cases to incur the additional costs and possible delays in final settlement tied to professional representation, there are some instances-such as when refining materials that contain a small percentage of a highly valuable precious metal or lots with a wide range of assays-in which use of a professional rep should be seriously considered.
Hedging on Price
Because precious-metal markets are quite volatile, even the wisest purchase can be wiped out by unfavorable price movements. Thus, it makes sense to choose a consumer that will allow you to hedge, or guarantee a specific market price. The only possible drawback to this arrangement is that once you have hedged, you will generally be required to make delivery of the material within a certain time frame at that set price; if market prices move up during that time period, you're still locked in at a lower price level. Nevertheless, in this situation, since you probably bought and sold at the same market level (with your profit predetermined and locked in), you shouldn't find this too disagreeable.
Although it may be more difficult to hedge smaller lots, brokers are generally in a position to incur a substantial percentage of the market risk for you.
Another price protection opportunity many consumers will afford you is "consigning” or "pooling" your metal units. This option, which some offer free of charge, works something like this: After you have paid the consumer the processing and refining costs, the recovered or payable metal is made available to you for pricing at any given future market.
In some ways this is like holding unprocessed scrap in inventory, but with a few advantages: no storage headaches, fixed processing and refining costs (no one is predicting a drop in these charges), and the opportunity to protect selling prices--in a big upward market swing, many consumers will cut off such prehedging programs and extend settlement time. The end result: The positive market has come and gone by the time your material is in a position to be priced. Thus, even if you can’t hedge or prehedge your precious-metal scrap, there's no reason to let even the smallest lot sit in inventory unless you foresee buying more material of a similar nature in the near future.
Taking the Opportunity
In addition to marketing fundamentals, scrap processors considering adding precious metals to their operations should be aware of the environmental regulations governing precious-metal scrap. Although some precious-metal materials are regulated (some because of hazardous constituents) in some fashion, many items, such as photographic films (which can be 100-percent recycled), are no more regulated than an aluminum beverage can.
Thus, while this is a consideration--as it is with the decision to buy any type of scrap--it shouldn't prevent scrap processors from expanding their businesses to include precious metals. Many processors already handle scrap whose markets are not so different from those of precious-metal scrap and whose suppliers are often the same.
By sidestepping precious-metal scrap, a viable and readily available source of profit goes untapped.•
Many processors have unnecessarily avoided this area of the scrap industry because they don’t think they know enough about it to make it a viable part of their businesses. Here are the basics.