Tag Archives: PAMP

The West lost at least another 1000 tonnes of large gold bars in 2015

Over the last number of years, one of the most interesting trends in the physical gold world is the ongoing conversion of large 400 ounce gold bars into smaller high purity 1 kilogram gold bars to meet the insatiable demand of Asian gold markets such as China and India.

This transformation of 400 ounce bars into 1 kilogram bars is an established fact and is irrefutable given the large amount of evidence which proves it is happening, as has been documented on the BullionStar website and elsewhere.

It is also something which causes plenty of excitement in the gold world as it underscores the huge movement of physical gold from West to East, and the continual depletion of gold inventories from locations such as the London Gold Market.

The general movement is one of 995 purity 400 ounce gold bars coming out of gold-backed ETFs, central bank gold holdings and other wholesale gold holdings, and these bars making their way to the Swiss refineries where they are transformed / smelted / recast into smaller 9999 high purity gold bars. The smaller gold bars are then exported from Switzerland to India, China, Hong Kong, and the Middle East.

At the same time as the wider gold market acknowledges and publicises this trend, the establishment gold world and bullion banks (as represented by the London Bullion Market Association) tend to downplay this conversion of 400 ounce gold bars into 1 kilogram bars, presumably because it directly highlights the continual drain of real physical gold out of the London vaults into China and India, gold which has little chance of ever coming back again.

For an example of significant downplaying of conversion of 400 ounce gold bars into kilogram gold bars, see BullionStar post from September 2015 titled “Moving the goalposts….The LBMA’s shifting stance on gold refinery production statistics” which documents how a mammoth 2000 tonnes of LBMA gold refinery output attributed to the year 2013, mysteriously disappeared from the LBMA’s publications in early August 2015, after the original figure of 6,601 tonnes had been highlighted on this website, with the original figure being replaced by a far lower 4600 tonnes.

While gold refineries in countries other than Switzerland may be involved in these 400 ounce to 1 kilogram gold bar transformations, the Swiss refineries are the big players in this area, as they say so themselves. The names in question are Valcambi, PAMP, Argor Heraeus and Metalor. For a full understanding of the extent to which these large Swiss gold refineries process 400 ounce gold bars into kilobars and the importance that they attribute to this specific category of refinery activity, please see BullionStar blog from November 2015 titled “From Good Delivery bars to Kilobars – The Swiss Refineries, the GFMS data, and the LBMA“.

But if you thought the massive conversion of large gold bars into kilogram bars that occurred in years such as 2013 and 2014 was an anomaly or a one-off, then think again. Because it also happened in 2015, and in a very big way.


LBMA Update – 2015 Gold Refinery Statistics

In early May 2017, the London Bullion Market Association published a revised version of its 4 page ‘LBMA Overview Brochure’, the most notable update of which was that it revealed refinery production statistics for 2015 for the gold and silver refineries around the globe that are on the LBMA’s Good Delivery List.

LBMA gold and silver refinery output 2015. Source:
LBMA gold and silver refinery output, updated for 2015. Source: LBMA Overview Brochure, May 2017

A table in the updated brochure states that in 2015, the “total refined gold production by the refiners on the List was estimated to be 5,034 tonnes”. The corresponding figure for gold in 2014 was 4921 tonnes.

At some point each year, the LBMA will invariable release such refinery statistics, however, the lag in publication is inexplicably long, for example, 2015 data only gets released in May 2017. Why 2016 data is not released in 2017 remains a mystery. This length of lag would not happen in any other industry. Leaving aside this mystery, the 2015 statistics are interesting and worth analysing for a whole lot of reasons, which are discussed below.

This year the LBMA update – of the 2015 data – was a very low-key affair indeed and did not even, in the LBMA’s eyes, merit a press release. This differs to May 2016, when the LBMA published 2014 gold and silver refinery statistics and at least accompanied the announcement with a press release which it titled “4,921 tonnes of gold production in 2014 – LBMA GD refiners”.

The LBMA’s May 2016 press release stated that 2014 refinery gold production by the refiners on the LBMA’s Gold Good Delivery List for gold totalled 4921 tonnes, and importantly, it attributed the excess over ‘world mine production of 4,394 tonnes‘  to be due to “recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars“.

Excerpt from LBMA May 2016 press release
Excerpt from LBMA May 2016 refinery production press release

This reference to ‘world mine production of 4,394 tonnes‘, which was itself attributed to Thomson Reuters GFMS, is incorrect, and the LBMA should have said that “world mine production + scrap recycling + net hedging supply” was 4394 tonnes, as is clear in the Thomson Reuters GFMS table from which the figure of 4394 tonnes was taken. This table is as follows:

GFMS global gold mining production + Scrap Recycling + Hedging, 2014 and 2015. Source: GFMS World Gold Survey 2015 (published in 2016)

The ‘net hedging supply’ category can be ignored as it is not relevant for gold-laden material arriving into gold refineries for processing. What the LBMA should have said in its 2016 press release is that in 2014, the gold refineries on its list (which generate 85% – 95% of world gold refinery output) produced 4921 tonnes of gold, which was in excess of combined gold mining production and scrap recycling i.e. in excess of  3131 + 1158  = 4289 tonnes. This excess was due to “recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars”.

The Swiss Argor-Heraeus refinery identifies Good Delivery gold bars as one of the 3 sources of gold coming into its refinery
Argor-Heraeus – Gold arrives at refinery from mines, scrap and ‘Good Delivery’ gold bars

Given that the LBMA gold refiners only represent 85% – 90% of world gold refinery output, and not 100%, the mine and scrap material that they process is only 85% – 90% of global mine production and scrap production. Therefore, the GFMS figures should be scaled back to represent this 85% to 90% range.

It is however not realistic to expect that bullion banks which supply large 400 ounce gold bars to gold refineries for conversion into smaller gold bars would use non-LBMA accredited gold refineries to do so, since a) bullion banks are all members of the LBMA, and b) the London bullion banks use Swiss gold refineries which are all on the LBMA good delivery list. They would therefore not use a more obscure non-LBMA gold refinery, such as one of the smaller Indian gold refineries, to convert large wholesale / central bank gold bars into smaller gold bars.

Therefore, what the LBMA press release in May 2016 should really have said is as follows:

“In 2014, the gold refineries on the LBMA Good Delivery List (which generate 85% – 95% of world gold refinery output) produced 4921 tonnes of gold. This  was in excess of the 85% – 90% of combined gold mining production and scrap gold recycling that these refineries are known to process. The LBMA refineries’ 4921 tonnes of refinery output in 2014 in excess of their mine and scrap processing of 3646 – 3860 tonnes (85% and 90% of combined mine and scrap supply) was due to recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars.”

Such a statement would then put conversion of large 400 ounce gold bars into kilogram gold bars by LBMA gold refineries in 2014 at between 1060 and 1275 tonnes of gold (4921 – 3860, and 4921 – 3646). It would also mean that large 400 ounce gold bars from existing above-ground stockpiles were topping up ‘normal’ physical gold supply (gold mining output and scrap recycling) by between 25% and 30% during 2014.

These 2014 refinery figures have previously been covered in a BullionStar posting in June 2016. See BullionStar blog “An update on LBMA Refinery Statistics and GFMS”. The important take-away point here is that in 2014 the gold refineries on the LBMA good delivery list generated refined gold output in a distinct category attributed to recycling of material by LBMA good delivery refiners converting large 400 oz bars into kilobars.


Fast forwarding now to the 2015 LBMA figures and the 2015 Thomson Reuters GFMS figures, and repeating the above calculations:

For 2015, the LBMA states that the gold refineries on its list had total refined gold output of 5034 tonnes. In 2015, according to Thomson Reuters GFMS, gold mining production was 3158 tonnes, while scrap gold supply was 1173 tonnes, i.e. a combined mine and scrap gold supply of 4331 tonnes.

Since the gold refineries on the LBMA Good Delivery List for gold represent 85% to 90% of ‘world production’, which by LBMA logic is GFMS gold mining production and GFMS scrap recycling, then, these refineries would have processed between 3681 tonnes and 3898 tonnes (85% – 95%) of mine production and scrap supply during 2015.

This then implies that during 2015, these LBMA gold refineries also processed between 1136 tonnes and 1353 tonnes of gold due to converting large 400 oz bars into kilobars.

If the LBMA had have written a press release in May 2017 to coincide with updating its table of the output of LBMA Good Delivery refineries, it should have read something like the following:

“In 2015, the gold refineries on the LBMA Good Delivery List (which generate 85% – 95% of world gold refinery output) produced 5034 tonnes of gold. This  was in excess of the 85% – 90% of combined gold mining production and scrap gold recycling that these refineries are known to process. The LBMA refineries’ 5034 tonnes of refinery output in 2015 in excess of their mine and scrap processing of 3681 – 3898 tonnes (85% and 90% of combined mine and scrap supply) was due to recycling of material by LBMA GD refiners converting large 400 oz bars into kilobars, which was in the range of 1136 to 1353 tonnes.”

Where would these huge quantities of 400 ounce gold bars have come from that were melted down during 2015, predominantly or even exclusively by the Swiss gold refineries? Because 1136 to 1353 tonnes of large wholesale market gold bars is a lot of gold. The most likely source of this gold is from the London Gold Market. Beyond that, gold which was already stored in Switzerland is also a possible pool from which to draw from.

 2015 UK to Switzerland Gold Exports

During 2015, Switzerland imported 1853 tonnes of non-monetary gold, and exported 1861 tonnes of non-monetary gold. By far the largest source of Swiss gold imports during 2015 was ‘the UK’, which in this case really means the London Gold Market. Non-monetary gold is just gold which is not  monetary (central bank) gold. Non-monetary gold shows up on trade statistics. Monetary gold does not show up on trade statistics since central banks get an exemption from revealing physical movements of monetary gold across national borders.

During 2015, Switzerland imported 644.5 tonnes of non-monetary gold from the UK (London). You can see from the below graph that no other source country came anywhere close to supplying non-monetary gold to Switzerland in 2015, with the next largest source countries each only sending less than 70 tonnes of gold to Switzerland. And London does not have any gold mines nor any major scrap gold collection facilities.

Some of the other exporters of gold to Switzerland during 2015 were France, Germany, Italy and UAE/Dubai (none of which are gold mining countries), and South Africa, Russia, Peru (which have gold mining). Some of the gold sent from France, Germany, Italy and UAE was obviously scrap. Some of the gold sent from South Africa, Russia and Peru was most likely gold mining ore or gold doré. But somewhere within these numbers, there was also most likely good delivery gold bars. For example, why would Russia or South Africa send gold mining ore or gold doré or scrap to Switzerland when they have their own perfectly good gold refineries with huge capacity.

The UK (London) was the biggest source of Swiss gold imports during 2015
The UK (London) was the biggest source of Swiss gold imports during 2015. Source: www.GoldChartsRUs.com

Surprising perhaps, the largest gold-backed ETF, the SPDR Gold Trust (GLD) did not lose that much gold during 2015, with only a net 65 tonne gold loss. This is more so because the damage to GLD’s gold holdings had really been done in mostly in 2013 and to a lesser extent in 2014 when holdings had fallen from the 1350 tonne range down to the 700 tonne range. See chart.

SPDR Gold Trust – gold holdings 2007-2017 (black line). 2015 indicated in gold line  Source: www.GoldChartsRUs.com

Based on recently released data from the Bank of England, it can be seen that during 2015 the Bank of England gold vaults lost 13.5 million ounces of gold, with Bank of England total gold holdings dropping from 167.2 million ounces at the end of 2014 to 153.6 million ounces at the end of 2015. This is equivalent to a 421 tonne loss of gold from the Bank of England vaults during 2015. All gold held in the Bank of England is in the form of Good Delivery gold bars (i.e. the large 400 ounce gold bars.

Custody gold at the Bank of England
Custody gold holdings at the Bank of England 2010 – 2017, 2015 indicated in gold line. Source: www.GoldChartsRUs.com

Whether gold lost from the Bank of England vaults during 2015 was central bank gold or bullion bank (commercial bank) gold is unclear since the Bank of England does not provide a breakdown of figures. It’s possible that some of this gold that left the Bank of England during 2015 was converted from monetary gold to non-monetary gold, and then sent to Switzerland to be transformed into kilogram gold bars. This would then show up in the Swiss trade statistics. If extracted from the Bank of England vaults and left as monetary gold and then exported to Switzerland, it would not show up in Swiss trade statistics.

If 644 tonnes of non-monetary gold, as per the Swiss trade statistics, were sent from London to Switzerland during 2015, and another 421 tonnes of monetary gold from the Bank of England were also sent to Switzerland during 2015, this in total would be 1065 tonnes of gold. This quantum would begin to account for the range of 1136 to 1353 tonnes being converted from 400 oz gold bars into 1 kilogram gold bars that the 2015 LBMA gold refinery statistics imply. Add in another 100 – 200 tonnes of Good Delivery bars from sources such as Russia, South Africa and Dubai and this huge scale of 400 ounce bar conversion begins to look achievable. There could also be Good Delivery bars flowing out of Swiss central bank vaults directly, i.e. the Swiss National Bank (SNB) gold vaults in Berne, which would not show up on any inbound gold trade customs statistics.

Within a 3 year period, we can see roughly that the following quantities of large gold bars were melted down into kilogram bars and sent to Asia:

  • 2013: about 2000 tonnes of gold
  • 2014:  between 1060 and 1275 tonnes of gold
  • 2015: between 1136 to 1353 tonnes of gold

Overall, within the 2013 – 2015 period that is about 4200 – 4600 tonnes of gold being converted into kilogram and other smaller denomination high purity gold bars and sent to markets in China, India, Hong Kong and elsewhere in Asia. This is gold above and beyond mine supply and scrap supply. Where has all of this gold come from? Some of it is proven to be from gold-backed ETFs. Some is most probably also from central bank vaults, in which case the central banks do not have the gold that they claim to have. Which everybody know anyway, as much central bank gold has been lent out and is merely a fiction on the central bank balance sheets. But there may also be other stockpiles of Good Delivery gold bars which are also feeding this huge trend. Until the LBMA begins to publish its vault statistics, any grey area unreported gold vault inventories in London are still being kept in the dark.

If the trend of raiding ETFs and borrowing central bank gold to send to Switzerland to convert into kilogram bars for the Asian markets continues, then this is not and cannot be sustainable. The question is how long it can remain sustainable, in other words when will it become unsustainable?

German and Swiss Precious Metals Refiners join forces as Heraeus acquires Argor-Heraeus

German precious metals group Heraeus Precious Metals (HPM), part of the Heraeus industrial group, has just announced the full acquisition of Swiss precious metals refining group Argor-Heraeus. Heraeus is headquartered in Hanau, just outside Frankfurt. Argor-Heraeus is headquartered in Mendrisio in the Swiss Canton of Ticino, beside the Italian border.

The Heraeus takeover announcement, on 3 April 2017, continues a noticeable acquisition trend in the Swiss precious metals refining sector and follows the July 2016 acquisition of Neuchâtel based Metalor Technologies by Japanese Tanaka Precious Metals, and the takeover of Ticino-based Swiss gold and silver refiner Valcambi by Indian group Rajesh Exports in July 2015. The Heraeus press release from Monday 3 April can be read here in English.


A Deal Telegraphed in November

In early November 2016, BullionStar was among the first to report that Swiss Argor-Heraeus was indeed an acquisition target. At the time, market sources had indicated that the most likely acquirer was a private equity company Capinvest, with other suitors said to be Japanese group Asahi and Swiss based MKS-PAMP.

In late 2016, S&P Global Platts reported that Swiss private equity company “Capvis” was in talks to acquire Argor-Heraeus, with one of Platts sources quoting a purchase price in the region of €200 million with completion in Q1 2017, while another source said €200 million was too high a figure. At the end of the day, a Capvis takeover did not materialise and earlier this year market sources said that Argor-Heraeus was no longer for sale (externally). In hindsight, it was probably at this stage that Heraeus decided to make its move. Alternatively, the discussions with external buyers may have just been conducted so as to gauge sentiment and establish a series of potential valuations for the Swiss refiner.

As a reminder, Argor-Hereaus had an unusual ownership structure in that it was jointly owned by 4 shareholders, namely German group Heraeus, German bank Commerzbank, the Austrian Mint, and Argor-Heraeus management. Prior to the takeover, Heraeus was the largest shareholder holding 33% of Argor-Heraeus shares, with Commerzbank holding a further 32.7% of the equity, the Austrian Mint holding another 30%, and Argor-Heraeus’s management holding the balance of shares.

As an existing shareholder and board member of Argor-Heraeus, the Heraeus group would have been privy to all of Argor-Heraeus’s financial and operational details, and so would have been in an advantageous position to negotiate purchase price details with Commerzbank and the Austrian Mint, which would have been a natural advantage relative to external potential acquirers.

Purchase Price

However, the exact purchase price Argor-Heraeus is not known, since, according to the Heraeus press release “the parties have agreed not to disclose financial details of the deal”. Notwithstanding this, German newspaper Handelsblatt is claiming that the Heraeus takeover values Argor-Heraeus at “half a billion Swiss Francs“, since according to Handelsblatt’s sources, Heraeus paid “few hundred million euros for the remaining Argor shares“. With CHF 500 million equal to approximately €468 million, the Handelsblatt claim would mean that Heraeus may have paid €313 million for the 67% of Argor-Heraeus that it did not own. This would be far higher than the €200 million figure that S&P Platts mentioned in December.


Motivations for Acquisition

According to Heraeus, one of its motivations in acquiring Argor-Heraeus is to strengthen its capabilities in gold and silver refining by tapping “Argor’s expertise and processing capacity for gold and silver”, since Heraeus considers itself strongest in platinum group metals. Heraeus states that another driver of the acquisition is geographical diversification given that Argor-Heraeus has facilities on the ground in Chile, as well as in Italy, Germany and of course Switzerland, while Heraeus has a strong presence in Asia, North America and India in addition to Germany.

BullionStar Bars by Heraeus and Argor-Heraeus

BullionStar is very familiar with both Heraeus and Argor-Heraeus and has a good working relationship with both refinery groups. In fact, the popular BullionStar 1 kg silver bars are produced by Heraeus on behalf of BullionStar, while BullionStar’s own branded 100 gram gold bars are minted by Argor-Heraeus on behalf of  BullionStar. See bar images above. Argor-Heraeus is one of the five refineries appointed to the LBMA’s Good Delivery List referee panel for Gold and Silver. In addition, BullionStar carries a wide range of other Heraeus silver bars, Heraeus gold bars, and Argor-Heraeus gold bars.


With 3 of the 4 giant Swiss precious metals refineries having now been acquired by new owners within less than 2 years of each other, this leaves the PAMP refinery, owned by MKS PAMP, as the only one of the “Big 4″ Swiss refineries to have bypassed this recent flurry of corporate control activity. As to whether MKS PAMP will itself become a takeover target is debatable, but it would be surprising if MKS isn’t thinking about this very question right now.

Further information

For more information on the Heraeus group and its precious metals activities, see BullionStar Gold University profile of Heraeus https://www.bullionstar.com/gold-university/heraeus-refinery

For a full overview of Swiss refiner Argor-Heraeus, please see BullionStar Gold University profile of Argor-Heraeus https://www.bullionstar.com/gold-university/argor-heraeus-refinery

For more information on the Tanaka acquisition of Metalor Technologies, see specific section of Metalor profile on BullionStar Gold University https://www.bullionstar.com/gold-university/metalor-refinery#heading-4

For more information on the acquisition of Swiss Valcambi by Rajesh Exports, see BullionStar blog https://www.bullionstar.com/blogs/ronan-manly/swiss-gold-refineries-and-the-sale-of-valcambi

For analysis of initial news (last November) about Argor-Heraeus being acquired, see BullionStar blog https://www.bullionstar.com/blogs/ronan-manly/swiss-gold-refinery-argor-heraeus-to-be-acquired-by-private-equity-investors

Swiss gold refinery Argor-Heraeus to be acquired by Private Equity investors

News has just emerged in the gold market that the giant Swiss precious metals refiner, Argor-Heraeus, has held discussions to be acquired, and that the likely outcome is an acquisition by a private equity group. This private equity group is believed to be London-based WRM CapInvest, part of Zurich headquartered WRM Capital. Other interested buyers are also believed to have examined a bid for Argor-Heraeus, including Japanese refining group Asahi and Swiss refining group MKS-PAMP, however, neither of these are thought to be in the running at this stage. Since this news is developing, details of the discussions and potential acquisition are still thin on the ground.

If Argor-Heraeus is acquired, it will mean that 3 of the 4 giant Swiss gold refineries will have been taken over within less than a year and a half of each other.

In July 2015, Indian headquartered Rajesh Exports, the world’s largest gold jewellery fabricator, announced the agreed acquisition of the giant Swiss gold refinery Valcambi. See BullionStar article “Swiss Gold Refineries and the sale of Valcambi” for full details. In July 2016, Japanese precious metals refiner Tanaka Kikinzoku Kogyo K.K , part of the Tanaka Precious Metals group, announced the agreed acquisition of Metalor Technologies, another of the large Swiss gold refineries. Retrospectively, the acquisition of Valcambi by Rajesh Exports now looks to have initiated a flurry of take-over activity in the normally low-key Swiss precious metals refining world.

While Metalor is based in Marin-Epagnier in the Canton of Neuchâtel in northwest Switzerland, the other 3 giant Swiss gold refineries, Argor-Heraeus, Valcambi and MKS-owned PAMP are all located literally within a few kilometres of each other in the Italian speaking Canton of Ticino, in southern Switzerland, near the Swiss-Italian border. Argor-Heraeus is in Mendrisio, Valcambi is in Balerna, and PAMP is in Castel San Pietro. Mendrisio is 4 kms from Balerna and 2kms from Castel San Pietro.


The Golden Triangle of Swiss gold refineries, Canton of Ticino

Argor-Heraeus is currently jointly-owned by German bank Commerzbank, German industrial and refining group Heraeus, the Austrian Mint, and Argor-Heraeus management. See BullionStar Gold University for a full profile of Argor-Heraeus.

Commerzbank owns 32.7% of Argor-Heraeus’ share capital. The Austrian Mint holds another 30% of Argor-Heraeus shares. In its annual report, Heraeus doesn’t reveal its holding in Argor-Heraeus, but with the Austrian Mint and Commerzbank owning a combined 62.7%, this means 40.2% of the shares are held by Heraeus and Argor-Heraeus management. On the Argor-Heraeus website, Heraeus is listed first on the shareholder list, which could signify that it’s the largest shareholder. This would put Heraeus’ shareholding above Commerzbank’s 32.7% stake, and mean that Argor-Heraeus management probably hold a shareholding somewhere below 7%.

A Precedent for Private Equity Ownership

Interestingly, there is a precedent of private equity ownership in the Swiss precious metals refining sector. Until Tanaka’s take-over of Metalor technologies last July, Metalor was majority owned by French private equity company Astorg Partners and Belgian private equity company Sofina, which between them held approximately 60% of Metalor’s shares. The remainer of Metalor’s shares were held by Metalor management, as well as by Martin Bisang and Daniel Schlatter. Bisang and Schlatter are connected with Swiss boutique investment bank Bellevue Group, which has in the past also acted as a strategic adviser to Metalor. Bisang had bought into Metalor in 1998 along with Swiss executives Ernst Thomke, Rolf Soiron and Giorgio Behr, and an additional group of Swiss executives bought into Metalor in 2004. These additional buyers were a secretive bunch, only known as the ‘Partners Only’, a group which was said by Swiss media at the time to have been connected to the Swiss Roche group.

Likewise, when Valcambi was sold to Rajesh Exports in July 2015, the then owners of Valcambi were a combination of US gold mining company Newmont (with an approximate 60% shareholding) and a group of shy Swiss private investors (who held the remaining shares) the largest of which were Emilio Camponovo and the Camponovo family. Technically, you could call these Swiss private investors direct private equity investors, or equivalent.

Even the PAMP refinery, which is owned by the Geneva based MKS-PAMP group, could be described as private equity, or at least concentrated privately-owned equity, since the group is controlled by the founding Shakarchi family. Note that MKS-PAMP has a parent company MKS PAMP Group BV based in Amsterdam, but this appears to be purely for corporate structure reasons.


The Sellers – Heraeus, Commerzbank and Austrian Mint

Since Argor-Heraeus has multiple owners, any sale would in theory be more complex than if the refinery only had a single owner. Looking quickly at the current owners, Commerzbank in its bullion banking marketing literature usually draws attention to the fact that its partial owner of a gold refinery, and uses this as a selling point by trumpeting the fact that it has direct connections to the physical gold world. Selling Argor would probably be a negative for Commerzbank, however, it may need the cash given that german banking is in a crisis at the moment. The Austrian Mint is owned by the Austrian central bank (OeNB), which in turn is owned by the Austrian State. Any sale of the Austrian Mint’s shares in Argor would be a one-off profit boost to the OeNB. In 2015, the Austrian Mint sold a stake it held in Casinos Austria (yes, a casino company), so maybe the Mint has a new-found strategy to jettison its non-core investments. Although presumably the Mint gets preferential precious metal supply from Argor, or one would think that it does.

Heraeus also has close relationships with Argor-Heraeus, for example, in the production of various precious metals products, so a sale by Heraeus of its stake in Argor could in theory affect these synergistic relationships. All of these shareholders also receive a substantial annual cash dividend from Argor-Heraeus which is a nice to have to say the least. Selling their stakes would obviously be a loss of their cash dividends. I personally was surprised that Argor-Heraeus would be up for sale, since it definitely has what looks like a very stable, secure and content set of shareholders. As per BullionDesk coverage of this potential deal, Commerzbank and Heraeus have yet to respond or comment on the potential sale of Argor-Heraeus.

Interested Parties in an Argor Bid

Presuming that the private equity company WRM CapInvest, as well as Asahi Refining, and MKS-PAMP all looked at potentially acquiring Argor-Heraeus (and that’s the word in the gold market right now), let’s have a quick look at these players.

The current Asahi Refining group, headed by Asahi Holdings, owns precious metals refinery operations in 5 locations worldwide, namely Tokyo, Salt lake City, Utah (US), Brampton, Ontario (Canada), Mexico City, and Santiago (Chile). Some readers will be familiar with Asahi’s takeover of the US and Canadian gold and silver refining operations of Johnson Matthey, which was completed in March 2015.  If Asahi had emerged as the favourite suitor to acquire Argor-Heraeus, it would mean that 2 Japanese headquartered precious metals refiners, Tanaka and Asahi, would both own a Swiss precious metals refinery, namely Metalor and Argor-Heraeus. Market sources indicate that Asahi’s bid value for Argor-Heraeus wasn’t as high as the bid tabled by the favoured private equity group bidder. Argor-Heraeus also operates a precious metals processing plant in Santiago in Chile, which could feasibly provide synergies to Asahi, since Asahi runs a refining operation in Santiago.

Its interesting that MKS-PAMP has been mentioned as a possible acquirer of Argor-Heraeus. As mentioned, the PAMP precious metals refinery is literally ‘down the road’ from the Argor-Heraeus refinery, i.e. 2 kms down the road. PAMP is a prestigious global brand in precious metals refining and bar production, and so is Argor-Heraeus. But would the resulting consolidation in the Swiss precious metals refining industry make sense, and how would this affect the PAMP and Argor-Heraeus brands. That’s a difficult question to answer, and only PAMP could accurately answer that at this time. Market sources say that MKS PAMP was shy in revealing its full financials, data that would presumably be necessary if it put in a bid for Argor-Heraeus.

Argor-Heraeus opened a new refining headquarters in Mendrisio in 2013 which doubled its former refining capacity. According to its 2014 corporate responsibility report, the new Argor-Heraeus refinery has an annual refining capacity for gold of between 350 and 400 tonnes. The PAMP refinery has an annual refining capacity of 450 tonnes of gold, and an annual silver refining capacity of over 600 tonnes.  A merged PAMP and Argor-Heraeus would have an annual refining capacity for gold of about 900 tonnes. Their neighbour Valcambi has an annual refining capacity for gold of 1600 tonnes. A combined PAMP and Argor-Heraeus would therefore start to approach the production capacity of Valcambi. Each of Valcambi and a combined PAMP ~ Argor would also have a refining presence in India also, since PAMP has an Indian refining joint-venture with MMTC, and Valcambi, owned by Rajesh Exports, has refining operations in India. Argor-Heraeus is also one of only five refinery members of the London Bullion Market Associations (LBMA) good delivery referee panel. PAMP is also on this panel, as is Metalor and Tanaka. This panel assists the LBMA is maintaining quality standards of refinery members worldwide. Argor-Heraeus is also a full member of the LBMA, one of the few refineries to be a full LBMA member.

Finally, turning to the private equity company WRM CapInvest, which is said by sources in the gold market to be the preferred bidder for Argor-Heraeus, what is known about this company? According to its website,  WRM CapInvest is a division of the WRM Capital group of companies. The WRM Group was founded by Raffaele Mincione, who is Italian, but who resides in Switzerland. WRM Group seems to have started as a private wealth management / family office type company but has expanded into private equity.

WRM CapInvest is based in Berkeley Square in Mayfair in London, Mayfair being a very popular location for hedge funds and private equity funds to locate in. WRM CapInvest was incorporated in the UK in March 2012 as Capital Investment Advisors Ltd, but changed name to WRM CapInvest on 11 May 2016. The original single director of WRM CapInvest was Massimo Cattizone, also an Italian. Massimo Cattizone and Raffaele Minicone were listed as shareholders, with Minicone holdings 80% of the WRM CapInvest shares and Cattizone holding 20% of the shares. In July 2013, Leonidas Klemos (Italian), and Michele Cerqua (Italian) were appointed as directors of WRM CapInvest, and Massimo Cattizone ceased to be a director. Between May 2014 and March 2015, Roberto Agostini (Italian) was also a director. In July 2015, Raffaele Minicone was appointed as a director. In February 2016, Leonidas Klemos ceased to be a director. By April 2016, Raffaele Minicone was listed as owning the entire share capital of WRM CapInvest. The current directors are therefore Raffaele Minicone and Michele Cerqua. The reason for listing the above is to highlight that all the directors of WRM CapInvest since it was incorporated have been Italian, and there is a Swiss connection since Raffaele Minicone is based in Switzerland, and the WRM Group is headquartered in Zurich, Switzerland.

Therefore, the fact that Argor-Heraeus is based in the Italian speaking Swiss Canton of Ticino, right beside the Italian border, and that CapInvest is operated by an Italian team, owned by an Italian, and part of a Swiss based group is probably of relevance to a potential acquisition of Argor by CapInvest. Additionally, Knight Frank, a large commercial real estate agent, mentioned on its website in a 2013 article that “CapInvest, which is also backed by private Italian investors, purchased 60 Sloane Avenue for US$206m.”

So the question is, assuming CapInvest acquires Argor-Heraeus, is it acquiring the company on behalf of CapInvest, or on behalf of some other Italian or Swiss investors, or Italian Swiss, or Swiss Italians? And if an acquisition is on behalf of other investors, who are these investors? Could the private investors who were involved in Metalor (such as Martin Bisang and his circle of business acquaintances), or the private investors that were involved in Valcambi (such as Emilio Camponovo and friends) be re-entering the Swiss refining industry with an acquisition of Argor-Heraeus. They would definitely be some of the best placed people around that understand how the precious metals refining industry works, given their experience. Or possibly the Argor-Heraeus management and other local business people in Ticino are moving to take ownership of Argor through a private equity route?

Another potential connection is UBS. Swiss investment bank UBS previously owned the Argor-Heraeus refinery, and only exited its shareholding in 1999, so it’s also possible that a UBS connection could pop up in a Argor-Heraeus acquisition deal. This has a precedent since when Valcambi was acquired by Rajesh Exports in 2015, Credit Suisse, which itself used to own Valcambi (and which Valcambi executives had close ties to), provided strategic corporate finance advice on the Valcambi acquisition and also actually partially funded the Rajesh acquisition.

Whatever the outcome of these developments with Argor-Heraeus, further details should emerge sooner rather than later. So, as they say, watch this space.

Swiss Gold Refineries and the sale of Valcambi

The normally low-key Swiss gold refining market has been thrown into the spotlight with the announcement that private company Valcambi, the world’s largest gold refinery, is being acquired by Indian group Rajesh Exports Ltd (REL), the world’s largest gold jewellery manufacturer.

This acquisition is worth analysing for a number of reasons, namely will the Valcambi-Rajesh transaction impact marginal gold supply out of Switzerland and elsewhere, and how will the transaction, if at all, increase the likelihood of other large gold refineries becoming future acquisition targets?

Mesaric Mehta

Telegraphed Transaction

The announcement of the Valcambi acquisition should not come as a surprise because it was telegraphed in early July by the Economic Times of India. In its article, the Economic Times revealed that Rajesh Exports was in discussions to acquire a large stake in a Swiss gold refinery, and although the identity of the acquiree was not confirmed at that time, the Times said that Rajesh had “sounded out Valcambi…on a possible transaction”.

Since both Rajesh and majority Valcambi shareholder Newmont Mining declined to comment at the time (with Rajesh citing stock exchange rules), the Times and its industry sources were left to speculate that two of the other three large Swiss refineries, Argor-Heraeus or Metalor, might instead be targets, as opposed to Valcambi. Notably, the 4th large Swiss gold refinery, PAMP, was not mentioned in the Economic Times report.

The Times report would suggest that Rajesh Exports took the initiative in searching for a leading precious metals refinery to purchase. However, now that the acquisition has been announced, Rajesh Exports states that it was the Valcambi shareholders who initiated the search for a buyer. In its press release Rajesh states that:

the owners of Valcambi conducted a global search for divesting Valcambi, after an extensive search selected Rajesh Exports to acquire Valcambi.

That the search was prolonged was confirmed by India’s Business Standard, which also highlighted that Rajesh Exports was simultaneously on the look-out for a suitor:

Valcambi shareholders were looking for a buyer for quite some time. We (Rajesh) were also looking to deploy our cash at a safe place, which could generate a fair amount of business interest and help us grow. So, both of us came together and the transaction was concluded.”

But the transaction looks predominantly to have been a strategically planned sale of Valcambi by its holding company European Gold Refineries (i.e. its owners Newmont Mining and a private Swiss investor group), with what looks like input and advice from investment bank Credit Suisse.

A Quick Recap on Valcambi

Before discussing the Valcambi acquisition, its important to understand the Valcambi shareholding structure and the various parties involved with the refinery over its 54 year history.

Balerna based Valcambi was originally incorporated in the southern Swiss Canton of Ticino as Valori & Cambi SA on 15 May 1961, and changed name to Valcambi SA on 30 June 1967. The founders of the original Valori & Cambi, like its successor, seem to have wanted to maintain low profiles, because other than the fact that it was founded by ‘5 Swiss businessmen/entrepreneurs from Mendrisio”, there is little in the public record to identify who these 5 individuals were, since the online company register records don’t so back that far.

In 1967, Credit Suisse bought 50% of the Valcambi refinery, followed by the purchase of another 30% stake in 1968. The final 20% shareholding was purchased in 1980, giving Credit Suisse 100% control of Valcambi from 1980 up to December 2003. In that era, it was not unusual for a large Swiss bank to own a gold refinery, and the other 2 large Swiss banks of the day, UBS and SBC, also owned their own gold refineries (UBS owned Argor and SBC owned Metalor).

In December 2003, some of the same founders of Valcambi (from 1961) joined up with Newmont Mining and established a company called European Gold Refineries SA (EGR), which was 50% owned by Newmont and 50% owned by a group of Swiss investors (whose identities are not easily discernible). EGR then simultaneously bought 100% of Valcambi SA from Credit Suisse, and at the same time acquired a 66.65% shareholding in a company called Finorafa SA, which was a large gold distribution and financier business into the Italian jewellery market.

In their 2003 funding of EGR, Newmont and the Swiss private investor group each put up CHF 15 million in equal combinations of equity and debt.

In early July 2007, Mitsubishi International Corporation (MIC) of Japan bought a 6.55% shareholdings in EGR, with an option to buy a further 26.78% stake by 15 August 2007 (i.e. over 33% in total). Mitsubishi failed to take up its option in August 2007 to buy a larger shareholding in ERG, so this left Newmont and the Swiss investor group each with a shareholding of 46.725%, since their 50% stakes were each reduced by half of the Mitsubishi International Corporation of 6.55%, i.e. reduced by 3.275% each.

Newmont then bought another 15,960 shares in EGR from some of the private investors in April 2008, which increased its stake from 46.725 to 56.67%. This left the Swiss investor group and Mitsubishi holding a combined 43.33%. By this time ERG owned 100% of Finorafa SA as well as 100% of Valcambi, but Finorafa SA was by that time inactive.

Then in mid-November 2008, Mitsubishi had a change of mind and sold its 6.55% stake back to Newmont and the Swiss private investor group. These resold shares seem to have been split fairly equally between Newmont and the private investor group, bringing Newmont’s stake up to 60% By 2009, Finorafa, although owned by EGR, was in liquidation.

For the Valcambi transaction, Rajesh Exports has actually bought European Gold Refineries SA (EGR), which has full ownership of Valcambi SA. To purchase EGR, Rajesh established a Swiss company called Global Gold Refineries AG, which happens to be registered in the Canton of Lucerne (See company register here).

In turn, Global Gold Refineries AG is 95% owned by REL Singapore Pte Ltd, and 5% owned by Rajesh Exports Ltd India (and REL Singapore is fully owned by Rajesh Exports India). See here for the corporate structure of Valcambi and the holding companies. According to Rajesh, REL Singapore was set up primarily to execute international acquisitions and to source gold from mines.

Valcambi plant

Who were the Swiss Investor Group?

Note that since the acquisition of Valcambi by Rajesh Exports, there are now only 2 directors listed under the Valcambi Board of Directors, namely Valcambi CEO Michael Mesaric, who is staying on as CEO, and new chairman Federico Domenghini. Domenghini is also listed as the only director of the holding company Global Gold Refineries (see above). Interestingly, Michael Mesaric worked in senior roles at Credit Suisse between 1990 and 2002 before joining Valcambi, and is the first of our Credit Suisse connections.

The penultimate board of directors of Valcambi before the acquisition consisted of 6 individuals, 5 of who have now left the board. This penultimate list of directors can be seen here.

Although the full details of the Swiss investors behind Valcambi appear to be hard to find, some potentially relevant facts can be gleaned from the commercial register of the Canton of Ticino and also from the most recent pre-acquisition list of Valcambi board of directors. In addition, Rajesh mentioned one of the main private investors in its stock exchange press release (see below).

European Gold Refineries SA (EGR) was incorporated in Ticino in December 2003. Since 2003, the members of the board of EGR have been a selection of Newmont appointee directors, a selection of Mitsubishi appointees (for a short period), and a handful of other appointees. It is this third group of directors which may provide clues as to who the ‘Swiss private investors’ are, or at least who represents them.

Looking at EGR’s extract from the commercial register, in reverse date order, the most recent directors of EGR representing Newmont Mining (up until late July 2015) were Thomas Mahoney (chairman), Andrew Strelein, and David Farley. In addition, Carlo Camponovo, Luciano Martelli, and Michael Mesaric were listed as directors. Given that Mesaric is the CEO, this leaves Carlo Camponovo and Luciano Martelli as potential representatives of the Swiss investors, because logically, the Swiss private investors would need representatives on the board.

Going back further, ex-directors of Valcambi include Frank Hanagarne, Darren Morcombe, and Pierre Lassonde, all of Newmont, and Haydar Odok and Toshiro Sakai of Mitsubishi. After that we are left with 3 other directors, namely, Davide Camponovo, Emilio Camponovo, and Marco Cavuoto.

From the recent Valcambi board of directors profiles, Luciano Martelli works at Aurofin SA, and is also a director of Aurofin SA. Martelli has in the past also worked at Credit Suisse. Aurofin is a precious metals trading and financing company that was established in 1969 by Emilio Camponovo. Emilio Camponovo is still chairman of Aurofin.

Carlo Camponovo’s Valcambi profile states that he also worked at Credit Suisse from 1993 to 1997, and then worked at Finorafa SA, which is the second company that EGR owned from 2003 until it was liquidated in 2009. Marco Cavuoto was also a director of Finorafa until 2008.

The main reason for illustrating the above is to show the connections between Valcambi, Aurofin, Finorafa, and tangentially Credit Suisse, and also the Camponovo connections. Furthermore, it illustrates the low-key approach that Valcambi seems to have had in specifically naming its private shareholders.

The Valcambi web site even states that “In Switzerland and beyond: our firm deliberately keeps a low profile but has over the years become a key player in the precious metals refining industry” and to prove the point, the quotation is attributed to an unnamed ‘board member’!

Ironically, in the acquisition press release, Rajesh Exports dropped the low-key approach and provided some additional information about the Valcambi shareholders when it mentioned “Mr. Emilio Camponovo” as “the founder and current major share holder of Valcambi“. This suggests that the Camponovos were in the driving seat for the Valcambi sale alongside Newmont (and possibly Credit Suisse as navigator).

The Deal

Since Valcambi SA and European Gold Refineries SA are both private companies, there is little financial information available about either company. This has even stumped some of Newmont’s sell side analysts on Wall Street, who in their coverage of the sale admit that since Valcambi is a private company, they don’t have much visibility into Newmont’s disposal of Valcambi beyond knowing the net proceeds of the deal.

The Economic Times article on 1 July appears to have had very knowledgeable sources in India since it accurately foresaw that the deal was an all-cash deal for $400 million, 70% of which would be financed from Rajesh’s resources, and the other 30% from “overseas borrowings”.

This was highly prescient, since the announced acquisition turned out to be an all cash deal for $400 million, and Rajesh Exports confirmed at its press conference on 27 July that 30% – 35% of the consideration will be financed by long-term debt (provided by Credit Suisse, no less).

The Rajesh Exports press release states that over the last 3 years, Valcambi booked revenues of US$ 38 billion per annum, and earnings before interest, tax, depreciation and amortization (EBITDA) of US$ 33 million. These revenues look astronomical but they represent the annual average precious metals flows through the refinery being booked at market values (i.e. 945 tonnes of gold and 325 tonnes of silver per annum at market values).

Newmont (the 60% shareholder) will receive net proceeds from the sale of US$119 million. That could mean $200 million net proceeds to the entire shareholder base. Although its unclear as to exactly how much (in net proceeds) the private investor group received. Given that Rajesh is paying $400 million for Valcambi, Rajesh is also taking over or paying down some of the debt of EGR or Valcambi, or else Valcmabi has a quantum of cash on its balance sheet, or both.

Now that the deal has been announced, Newmont has pitched the sale of its stake as a disposal of a non-core asset which it claims will help pay down its debt and focus on its core business. So, being the largest shareholder of Valcambi, and actively wanting to dispose of non-core assets, this reinforces the view that Newmont was the primary driver of the entire ‘global search’ for a buyer of Valcambi.

As mentioned above, Credit Suisse has a long history of involvement with the Valcambi refinery, having fully owned Valcambi from 1980 to 2003. Credit Suisse’s involvement in the new deal also points to ongoing or rekindled relationship with the Swiss private shareholders and Newmont, since it sold the refinery to them in late 2003.

Until 2008, Newmont managed the Valcambi asset through its Merchant Banking group. This group, among other things, took care of “merger and acquisition analysis and negotiations”. Although Newmont’s Merchant Banking group was phased out in 2008, skilled corporate finance individuals at Newmont undoubtedly lent a hand to in the Valcambi disposal project.

Theoretically, Rajesh Exports could have just bought Newmont’s stake in Valcambi and become the new majority shareholder alongside the existing private investors. The fact that they didn’t go down this route could either mean that Rajesh wanted full corporate control, or that the investor group wanted to redeem its investment, or both.

Valcambi SA campus

Ramifications of the Valcambi Sale

The sale of the Valcambi refinery now raises questions as to whether its customer base and the mix of destinations for its gold exports from Switzerland will change, and what impact, if any, will the acquisition have on the ability of other countries to acquire Valcambi refined gold.

Rajesh Exports was an existing customer of Valcambi before the acquisition, and probably quite a large Valcambi customer.

In a 2011 presentation, Rajesh Exports stated that:

Top Suppliers include Australian Gold Refinery, ANZ Bank and Valcambi Refinery who constitute 90% of total supply of Raw gold to REL

So Valcambi was already an important supplied to Rajesh. Although Rajesh Exports only consumed about 170 tonnes of gold over its financial year 2014-2015, Rajesh Mehta, chairman of the group stated in his press release that:

The acquisition is also of national importance for India, as India is the largest consumer of gold in the world, it would be a step in the right direction by an Indian company to own a world-class asset like Valcambi. On a theoretical basis Valcambi is capable of supplying the entire gold requirement of India.

Gross gold imports (excluding smuggling) into India totals about 750-800 tonnes per annum at the moment. In its 2013 Sustainability Report  Valcambi states that its refinery has an annual capacity for gold refining of 1600 tonnes, and a total annual ‘precious metals’ refining capacity of 2000 tonnes. This is what Rajesh Mehta is referring to ‘in theory’ above.

Will Valcambi start supplying all of its output to India? Most probably no. Could this mean that Valcambi will start supplying more of its output to India? Probably yes. Even if it does though, Valcambi still has a lot of spare refinery capacity.

Rajesh Exports seems to have done the Valcambi acquisition for multiple reasons and not just to secure a source of refined gold supply. Rajesh claims that it wants to become a fully integrated major global gold player. (See above link to presentation where Rajesh even had a ‘Mission 2016′ plan to be a ‘fully integrated jewellery company’ by 2016).

Rajesh also had spare cash which it needed to invest in what it referred to as a safe place (i.e. “We were looking to deploy our cash in a safe place” – See Business Standard quote above). And Switzerland remains a universally known ‘safe place’ to deploy cash.

Rajesh already owns some gold mines, and a refinery, as well as gold manufacturing plants, wholesalers and a retailer network of jewellery showrooms which it plans to expand. The Valcambi acquisition allows Rajesh to move back along the gold supply chain. It also presumably will lead to cost savings on acquiring refinery output.

One of the less tangible benefits will be increased information flow about the gold market, both to Rajesh and to Valcambi. Another benefit to Rajesh will be refinery knowledge and skills transfer. Although headquartered in Bangalore in the state of Karnataka in the southwest of India, Rajesh Exports currently has a gold refinery in Uttarakhand in the north of India. This refinery has a gold output of 200 tonnes per annum. Rajesh plans to upgrade this refinery and turn it a subsidiary of Valcambi and then apply for LBMA gold and silver accreditation for  the refinery.

One of the main reasons why Valcambi (and its competitors PAMP and Argor-Hereaus)  set up in southern Switzerland near the Italian border was that Italy used to be the world’s largest jewellery manufacturer, consuming vast amounts of refined gold as is occurring in present day India. So in some ways, the acquisition of Valcambi by Rajesh Exports Ltd, as the world’s largest gold jewellery manufacturer, is just taking the supply chain logic a step further and going back to the traditional source of the Italian jewellery manufacturers (i.e. Ticino).

All of the above suggest that the acquisition will not end up diverting huge volumes of Valcambi output to India to such an extent that it would impact other customers’ reliance on Valcambi.

Additionally, Valcambi’s CEO, Michael Mesaric said of the deal that “the coming together of REL and Valcambi would ensure that Valcambi improves on it’s global share of gold business, by opening up new markets in India, Middle East and China.” Although Valcambi never broke down its gold exports by destination, about 80% of total Swiss gold exports in 2014 already went to Asia, with India, Hong Kong and China being the top 3 destinations. So what Mesaric is referring to appears to be more of the same, albeit even higher reliance on the existing top export markets.

Furthermore, Valcambi shareholders would not have agreed to the sale to Rajesh if it jeopardised its existing global customer base. Newmont has reiterated its support and will continue to use Valcambi “under the new ownership structure” since it has “long-term contracts with Valcambi for refining the gold produced” from a number of it mines.

In its 2013 sustainability report, Valcambi states that its clients are:

“some of the largest mining companies in the world, premium luxury watch manufacturers,the largest international banks, governments, central banks and scrap dealers”

The report also revealed that on a geographic basis,  Valcambi’s ‘business turnover’ was 33% in Europe, 36% in Europe (non EU), 15% in  North/South America, 9% in Africa, 4% in Asia, and 3% in Oceania.

Given that the gold exports trade statistics out of Switzerland do not align with the regions of this business turnover data, these figures (which would also include mining company and bullion bank business) must represent where Valcambi books its sales to and/or where the actual clients are based, rather than the ultimately destinations of the refined gold and silver output that are exported from Switzerland,. For example, a London-based bullion bank client of Valcambi that wanted gold refined in Balerna and sent to China would probably be accounted for by Valcambi as a European client, and the China destination of the gold would not get captured in the revenue records.

Valcambi’s refining capacity

Even if Rajesh Exports requires a higher share of the Valcambi refinery output, there is still plenty of spare refinery capacity in the Balerna facility.

Valcambi’s 2013 sustainability report also said that the refinery had an actual ‘product throughput’ of ‘3.8 tons bars and coins per day’ of gold and ‘1.8 tons bars and grain per day’ of silver. Assuming a 5 day week (250 day work year), that would be 950 tonnes of gold throughput and 450 tonnes of silver per annum.

Rajesh Exports just revealed in its press release that over the last 3 years, Valcambi has refined an annual average of 945 tonnes of gold and 325 tonnes of silver (2835 tonnes of gold and 975 tonnes of silver over 3 years). Presumably the last 3 years that Rajesh mentions refers to the last 3 calendar years of 2012-2014.

The London Bullion Market Association (LBMA) doesn’t reveal annual production data of its refinery members on an individual level, however, the LBMA recently published high level totals of the refined gold production of its accredited refiners (LBMA Good Delivery List) over the years 2006 to 2013. What was striking about the data was that total refined gold production of its refinery members reached 6,601 tonnes in 2013, which was 42% higher than total refined gold production in 2012, and also more than double global mine production of 3,016 tonnes of gold in 2013. See table below from LBMA publication:

Total annual refined gold and silver production by LBMA refiners 2006-2013 (tonnes)

Refinery output 2006-2013

So with Valcambi being the largest gold refinery in the world, it would be realistic to suggest that its annual average of 945 tonnes of refined gold output over the last 3 years probably hides the higher refined gold production that it too experienced in 2013 versus 2012. Unfortunately, there is no LBMA 2014 data. Doing a quick hypothetical calculation of Valcambi’s annual gold output over 2012-2014 where 2013 production was 42% higher than 2012, and 2012 production equaled 2014 production, then Valcambi would have refined 828 tonnes of gold in both 2012 and 2014, and a massive 1179 tonnes in 2013. This however would still be below the refinery’s gold output capacity of 1400 tonnes per annum.

So, whichever way you look at it, on average, the Valcambi refinery is not yet running at full capacity for gold, it probably hasn’t ever reached full capacity (even in 2013), and it still has plenty of spare capacity. So even if Rajesh Exports ramps up gold flow from Valcambi to India, other export destinations such as China, South East Asia and the Middle East needn’t suffer as long as mining and bullion bank clients of the refinery can provide metal to make use of the reserve refining capacity.

The other Swiss Gold Refineries

Does the sale of Valcambi foreshadow the sale of any of the other large Swiss gold refineries or increase the likelihood of a similar transaction? I’d say no, but to answer these questions, you may find it helpful to look at the shareholder structure of Valcambi’s competitors in Switzerland, and then decide.

Apart from Valcambi, there are 3 other large gold refineries in Switzerland and 2 smaller refineries. Valcambi’s 3 big competitors are PAMP, Metalor and Argor-Heraeus.

The refineries owned by PAMP and Argor-Heraeus are also located in the south of the Canton of Ticino, literally within walking distance from Valcambi, in what’s known as the golden triangle of gold refineries in the southern tip of Switzerland. As mentioned above, these refineries were established in this area in order to be as near as possible to Milan and the Italian gold industry. Looking at the map below you will see the municipalities of Mendrisio (Argor-Heraeus), Balerna (Valcambi), and Castel San Pietro (PAMP). Balerna is only 4kms from Mendrisio, and 2kms from Castel San Pietro. Notice also the Swiss – Italian border at the bottom of the map south of Chiasso.

Along with Metalor, which is in Marin-Epagnier in the Canton of Neuchâtel in north-west Switzerland, these Big 4 refineries refine the bulk of Switzerland’s (and the world’s) gold. Valcambi, PAMP, Argor-Heraeus and Metalor are all Associates of the LBMA, and PAMP, Argor-Heraeus and Metalor are three of the five refiners on the LBMA’s refiner referee list which helps maintain the LBMA’s Good Delivery System for gold and silver.

Mendrisio 2

Two other smaller companies refine gold in Switzerland in addition to the Big 4. These two companies, also in the Canton of Neuchâtel and located quite close to Metalor, are PX Précinox in La Chaux-de-Fonds, and Cendres + Metaux in Biel. Together they arguably form another golden triangle of refineries, close to the Swiss gold watch industry and incidentally close to the headquarters of the Swiss National Bank in Bern (home of the SNB’s gold vaults and where the BIS’s also stores gold).


The good delivery bars of Valcambi, PAMP, Argor-Heraeus, Metalor and PX Précinox are on the LBMA’s current Good Delivery list for gold, while the bars of Cendres + Metaux are on the LBMA’s former Good Delivery list for gold (transferred to the former list in April 2015).

Because PX Précinox and Cendres + Metaux are smaller than the Big 4, the analysis below only focuses on Metalor, PAMP and Argor Hereaus, all three of which are privately held Swiss companies.


Metalor here refers to Metalor Technologies International SA. Currently the Metalor group is majority owned by French private equity company Astorg Partners SA (www.astorg-partners.com) headquartered in Paris. The remainder of the shares are owned by Swiss individuals and by Metalor management.

The Metalor group is not just a refinery group. It has two others divisions, Advanced Coatings (for electronics and jewellery) and Electrotechnics (silver conductivity electrical contacts used in electrical applications). The refinery division has 4 refineries worldwide, in Neuchatel Switzerland, in the US (North Attleboro, which is south of Boston and is the headquarters of the refining division), in Hong Kong, and in Singapore. The 2012 Metalor annual report states that the group’s refining capacity of fine gold was 650 tonnes per annum in the Swiss, US and Hong Kong refineries. The Singapore refinery was opened in 2013, and since this has a refinery capacity of 150 tonnes,  that boosts the total refinery capacity to about 800 tonnes per annum now.

Metalor is the oldest of the Swiss gold refineries and was under the ownership of Swiss Bank Corporation (SBC) from 1918 until 1998. In 1998 a group of Swiss private investors comprising Ernst Thomke, Martin Bisang, Rolf Soiron and Giorgio Behr acquired the majority of shares from UBS. UBS still retained a minority shareholding following this transaction. Thomke then became Metalor chairman until April 2004, after which Bisang was appointed chairman.

Metalor then raised additional capital from another group of Swiss private investors who operated through a British Virgin Islands company called ‘Partners Only’. Zurich business magazine Bilanz speculated as to the identities of these ‘Partners Only’ investors in an article published in 2005, and another published in 2009. These articles list a number of well-known Swiss investors connected to Roche.

In September 2009, Metalor announced that in July 2009, a majority of the private investor shareholders had sold their shareholdings to Astorg Partners SA in an equity funded transaction. The press releases stated that two of the largest investors would invest their proceeds back in with the Astorg transaction, and that Metalor’s management including Scott Morrison, the Metalor CEO, would also become long-term shareholders. One of these 2 ‘largest shareholders’ who stayed on was Martin Bisang (see above). (Metalor press release and Astorg Partners Press Release).

Swiss newspaper NZZ (Neue Zürcher Zeitung) confirmed in 2010 that Belgium headquartered private equity company Sofina had co-invested alongside Astorg Partners, and together they had acquired almost 60% of the shares, which left the remainder of the shares owned by Metalor management as well as Martin Bisang and Daniel Schlatter. Both Bisang and Schlatter are connected to Bellevue Group, a boutique bank in Zurich, owning 20% and 5% of Bellevue shares, respectively. Bellevue actually acted as co-lead financial advisor to Metalor in its sale to Astorg which lists the transaction as spanning 2008-2009. Astorg lists its Metalor investment as being part of its Astorg IV fund.

The board of Metalor now includes Joël Lacourte, Managing Partner of Astorg Partners, Sophie Pochard,  Jean-Hubert Vial,  and Benjamin Dierickx, all of Astorg Partners, Martin Bisang and Daniel Schlatter of Bellevue Holding AG, and Metalor CEO Scott Morrison. See Neuchâtel company register extract and Bloomberg.

Of the 2008-2009 sale, Martin Bisang has said previously that “it was extremely difficult to find a buyer” for Metalor. This in some ways was because the Lehman induced financial crisis of 2008/2009 impacted transactional values at that time. However, Astorg was looking for acquisition targets in Switzerland at  that time, which obviously helped the sale.

Metalor CEO in 2009 Philippe Royer, said that Astorg was a “long-term majority shareholder”. While this is true, private equity companies in most cases eventually want to crystalise their investments, and so its hard to put an exact time-frame on a PE company’s definition of ‘long term’. Maybe 10 years+. The same may be true of the remaining private investors including from Bellevue. A hostile acquirer looking to purchase just the Metalor refineries would have to take on board the other divisions and navigate the complexity of the company. In a similar way a friendly acquirer in the jewellery or investment gold sectors might be put off by the industrial divisions of the group.

Verdict: No change at Metalor in the medium-term.



The Argor-Hereaeus group, located a few minutes drive from Valcambi and PAMP in southern Ticino, has an “annual refining capacity of 450 tonnes for both gold and silver” according to a 2013 company report.

As well as refining, the group produces a range of bars and coins and high precision products for the watch and jewellery sectors.

The current shareholding structure of Argor-Heraeus is quite diverse and consists of parties from three contiguous central European countries, namely, German engineering conglomerate Heraeus, German bank Commerzbank, The Austrian Mint, as well as Argor-Heraeus management. The fragmented shareholder base evolved as follows:

The company, as Argor SA, was established in 1951. Swiss bank Union Bank of Switzerland (UBS) acquired an 80% stake in 1960, and full ownership in 1973. In 1986, Heraeus of Germany purchased a 25% stake from UBS and entered a joint venture with UBS. In 1999 UBS departed leaving Heraeus and the company management with 100% of the shares. Then in April 1999, Commerzbank took a 35% stake, which resulted in Heraeus having 35%, Commerzbank having 35% and Argor-Heraeus management having 30%.

In 2002, the Austrian Mint (owned by the Austrian central bank) acquired a 24.3% interest, which left then Heraeus with 26.5%, Commerzbank with 26.5% and management were said to have 22.7%.

According to the 2013 annual report of the Austrian Mint, it now claims to own 28.6% of the shares of Argor-Heraeus, with an equity value of CHF 122.4 million (and a profit share for 2013 of CHF 19.5 million). According to the 2014 Commerzbank annual report, Commerzbank now owns 31.2% of Argor Heraeus shares with an equity value of CHF 152.7 million (and a 2014 profit share of CHF 22.7 million). In its latest annual report, Heraeus does not reveal its holding in Argor-Heraeus, but if the Austrian Mint and Commerzbank won a combined 59.8%, then that leaves 40.2% for Heraeus and Argor-Heraeus management.

On the website, Heraeus is listed at the top of the shareholder list, so this may indicate that Heraeus has the largest shareholding, which would be above 31%. This would leave management with the remainder.

A complex and diverse shareholder base means a diverse board of directors, and from the Argor-Heraeus SA company registry filing, the board of directors includes, as expected, a cross-section of directors from Commerzbank, the Austrian Mint, and Heraeus, including Gerhard Starsich, CEO and board member of the Austrian Mint, Hans-Jürgen Deutsch of Heraeus Precious Metals, and David Burns, head of commodities at Commerzbank.

All three parties often refer to the strategic benefits of being a shareholder in the Argor-Heraeus refinery so, it seems that the existing formula, whatever it is, is working well.

For example, Commerzbank states that it has a “long-standing cooperation with the refinery Argor-Heraeus S.A. allows us to combine well-founded experience in physical metals with strong expertise in structuring“. Likewise, the Austrian Mint refers to using Argor-Heraeus as a source of refined metal supply, presumably on preferred terms. All parties also presumably get access to information flow about the Swiss gold refining industry and gold demand and supply trends in and out of Switzerland, which is helpful.

In its 2013 annual report, the Austrian Mint said that Argor-Heraeus achieved “large increases in sales and profits in comparison to the preceding year”, so the refinery appears to be a good investment for the various parties also.

It therefore doesn’t seem likely that any of the 3 external shareholders would need to, or want to, dispose of their shareholdings. An acquirer would have to navigate negotiations with a central bank (Austria), a large German bullion bank, and a large German conglomerate, in addition to the Argor-Heraeus management.

Verdict: No change in Argor-Heraeus ownership over the foreseeable future


PAMP (Produits Artistiques Métaux Précieux)

PAMP SA of Castel San Pietro in Ticino, a neighbour of Valcambi and Argor-Heraeus, operates two precious metals refineries, one in Ticino and the other as a joint venture with MMTC in Delhi in India. PAMP SA is fully owned by MKS (Switzerland) Finance SA of Geneva.

Together the two refineries have an annual capacity for  550+ tonnes of gold, and 1200+ tonnes of silver. According to its website, “PAMP handles over 400-metric-tonnes of gold per year”, therefore there is still spare capacity.

MKS, a private company founded in 1979, is actually headquartered in the Netherlands, and has 16 offices around the world. MKS could be described as a physical precious metals refining and distribution company, and also a precious metals trading and financing company. The main office is in Geneva. MKS also owns precious metals bar and coin wholesaler Manfra, Tordella & Brooke (MTB) in New York which will be familiar to some readers as an approved Comex depository for gold. MKS Finance SA is also an Associate of the LBMA.

According to its company registry filing in the Canton of Geneva, the board of MKS (Switzerland) SA includes chairman Marwan Shakarchi, vice-chairman Karma Shakarchi-Liess, Venkata Gopalakrishnan, Hans Isler, Jean-Pierre Roth, and Stanley Walter.

The PAMP SA company filing from Ticino can be seen here.

In India, the PAMP refinery, India’s largest gold and silver refinery, is a joint venture established in 2008 with MMTC, and is known as MMTC-PAMP. MMTC is a ‘Government of India Undertaking’ or Central Public Sector Enterprise (CPSE), and is a huge trading company and the biggest precious metals importer in India. A few of MMTC’s directors are Indian Government appointees and the company’s website even uses a government web site domain (http://mmtclimited.gov.in/).

According to its profile:

“MMTC is the largest importer of gold and silver in the Indian sub-continent, handling about 174 MT of gold and 1165 MT of silver during 2011-12. MMTC supplies gold on loan and outright basis to the exporter, bullion dealers and jewellery manufacturers on all India basis.”

MMTC also has its own nationwide retail jewellery showroom network. From an Indian prespective, it’s not surprising that Rajesh Exports would have steered clear of looking to acquire PAMP because of PAMP’s existing relationships with MMTC. Recall that PAMP was not mentioned by the sources quoted by the Economic Times of India as a potential Swiss refinery target, while Valcambi, Metalor and Argor-Heraeus were mentioned. MMTC-PAMP, is the only precious metals refiner in India currently on the LBMA’s good delivery list.

An acquisition of PAMP SA of Switzerland would probably have to  be a full acquisition of the entire MKS Finance group becasue PAMP and MKS are closely integrated across a lot of their respective functions. Since MKS seems to be thriving independently, its doubtful if they’d be interested in being taken over. Perhaps they’d be more open to collaboration. Negotiating with one owner as opposed to multiple owners  in an acquisition scenario would undoubtedly be easier though.

It’s still unclear though as to how the exact shareholdings of MKS and PAMP are structured. MKS states that it’s a family-owned business and that would mean either exclusive or majority ownership by the founding Shakarchi family. It probably has some management ownership also. But being a private company, its hard to determine if MKS has, or does not have, a set of external private investors.

Verdict: PAMP and MKS will probably remain independent but watch this space