Last Updated : 01 April 2013 at 11:10 IST
India is the world's biggest consumer of gold with import and consumption figures matched only by China. In this context will it not be prudent for a bullion dealer in India to acquire a gold mine overseas in one of the hassle free regions in the world?
Pushpak Bullions is doing just that!
Pushpak Bullions is doing just that!
The company as per its Director, Amit Sampat is “at an advanced stage of negotiations with the sellers” in acquiring a gold mine in Arizona.
Based out of Mumbai's Zaveri Bazar, Pushpak Bullions is one of the leading traders in bullion in Mumbai. Promoted by Chandrakant Patel,the company is involved in the manufacturing and wholesale trading of plain gold jewellery, diamond studded jewellery, gold and silver coins, medallions, bullion bars, precious stones etc.
Rakesh Neelakandan of Commodity Online interviewed Amit Sampat regarding the acquisition and future plans of Pushpak Bullions. As Director, Amit is responsible for overseeing the day to day operations as well as finance and compliance functions of the company.
At what stage do you stand when it comes to acquisition of gold mine/s in Arizona?
We are at an advanced stage of negotiations with the sellers regarding the acquisition of the gold mine in Arizona. We intend to complete the negotiations and proceed towards the acquisition by mid-April/early May.
Could you please tell our readers where the said mine is located and who is the one you denote by the term ‘sellers’? Could you also please tell us why you opted for US and not Africa or Australia or even China? In other words, what is so special about US that attracted you?
As per Non-Disclosure Agreement that has been signed with the sellers, I am unable to provide the name of the sellers till we complete the transaction.
As mentioned, the mine is mentioned in the State of Arizona, USA. It is about 120 miles from Phoenix. We opted for USA as the ease of doing business in USA is far easier than the countries you mention. Besides we have prior experience of operating a mine in USA. We had a stake in Rawhide Mining Corp, Nevada which we exited in 2011.
There are plenty of gold mines available in African region as well. But those mines need to be evaluated on various parameters including the country risk where the mine is available. We do keep looking at a number of these mines and will consider investing in a project if we find the right fit.
What is the next step?
There are a number of steps involved in acquiring a gold mine. We have hired environmentalists to look at permitting issues, geologist to conduct a geological survey of the mine site and give an estimate of gold content, CPA’s and Lawyers to help us structure the deal. We anticipate that all the above steps should be completed in next few days.
What kind of support the Government of India provided as and when you moved on with the acquisition?
We never really approached Government of India for any kind of assistance on this, so I really wouldn’t know if they have any window or provisions for assisting Indian companies investing abroad.
How do you intend to go ahead with the acquisition? Will it be a Joint Venture?
As of now we intend to move ahead on our own. We have received communications from various companies who wish to partner us in this acquisition. However it would be premature to comment on any of those talks at this stage.
How much investment do you think the acquisition of gold mine would take?
We are looking at total investment of around 8-10 million Dollars over next couple of years. This would include payment to sellers, deal expenses as well as capital expenditure required to bring the mine to production stage.
Amit, how will you raise this money?
We are looking at funding the mine with our internal retained earnings.
What amount of gold will the mine yield in its life? When will you start production?
Once the deal is completed, we anticipate that the production will start in 90-105 days. The life of the mine is anticipated to be in excess of 15 years.
Where will you process the ore? And in what form will you bring the gold to India? Isn’t 15 years too small a time period as far as the life of a mine is concerned? What is your opinion?
The ore will be processed on mine site and the concentrate will be sent to nearby refineries for final stage recovery of gold. We do not intend to import the ore to India, but just sell it to LBMA approved refineries in the USA.
Life of the mine depends really on the daily expected production which is a variable that will be decided by us on a later date. Given that, the life of the mine will range from 15 years at an optimistic level and 25 years on realistic level. We feel that this is a fair time period for a mine this size.
How easy or difficult it is to acquire a gold mine lease in North America? What hurdles did you face?
Acquiring or running a gold mine in North America is a very intensive task. The permits and mining laws vary from State to State as well as County to County. So a thorough due diligence is required before going ahead with any acquisition.
Do you think this would be a defining trend in India as more bullion traders would opt for backward integration? Is this a compelling business idea?
For bullion traders, buying a mine would be a good diversification. At the same time, one should also realize that unlike trading, investment in a mine is a capital intensive investment with gestation period of few years. It also means that the companies are stepping away from their core-competency which is trading. So any investment has to be well planned and executed.
As far as being a business idea, it really depends on individual companies – their strengths, the type of mine, prevailing gold prices, cost of production, cost of funds etc. What would make good business sense for one bullion trader might not make sense for another.
But I do expect this trend to rise over coming years.
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