Inside Dental Technology
September 2013, Volume 4, Issue 9
Published by AEGIS Communications
Precious Metals Management
Turning scrap into a valuable source of laboratory income
Two years ago, the price of an ounce of gold had just hit a historical high of $1920 an ounce, ending a decade that witnessed gold skyrocket from $256 an ounce in 2001. Seemingly invincible, the value of gold was predicted by some to surpass $2000 an ounce before the end of 2011 and keep moving skyward through 2012. But by early 2012 the bear took the bull market by the horns, and confidence in the gold market began to waver. By February 2012, gold dropped to $1790 an ounce. It flirted with recovery for a year before moving slowly downward in 2013, then taking a free-fall in June to end the month below $1200 an ounce.
Because gold has no inherent value beyond the fact that we humans have always valued it, and because it does not have the widespread utility of a commodity like oil or gas, the exact cause in the market correction according to experts is difficult to pinpoint. Nevertheless, for those who must purchase gold for production purposes, the correction in price elicited a brief sigh of relief. Now, gold has begun a slow climb out of its momentary slump, which is good news for dental laboratory owners who are banking on good returns on their scrap this fall, but less so for purchasing gold for manufacturing needs.
The volatile and meteoric gold prices have, over the past decade, had an impact on the product mix the dental technology industry manufactures. Many laboratories moved away from precious metal-based alloys to alloys containing less or no precious metal. It has also increased the prescription and use of all-ceramic restorative materials. Nevertheless, metal-based restorations still comprise 40% or more of all indirect restorations sold on the US market, and for those laboratories casting alloys with gold content in their daily workflow, the recovery of precious metal scrap is a serious business management issue. The
profit obtained from collecting and refining precious metal scrap directly impacts the bottom line versus the use of a majority of non-precious or all-ceramic materials, which contain no refinable metals.
“Many laboratories have turned to non-precious metals or all-ceramic with the upturn in gold prices,” says Keith Miolen, Director of Education for Gibson Dental Designs, a 75-person laboratory north of Atlanta, Georgia. “Yes they may be getting a good profit margin on those non-precious restorations upfront, but when you run the numbers, it’s clear that your profit margin would be higher if you could use higher grade alloys and refine.” Especially when the same labor steps are used to build up a non-precious as for a precious alloy crown and the non-precious is being billed out for a considerably lesser price. Also, buying higher gold alloys he argues is much like an investment where you get a return on that investment down the road. He also points to the drop in pricing for all-ceramic, especially zirconia-based products. “We have seen a dramatic change in the all-ceramic market over the past couple of years,” says Miolen. “With the evolution of millable materials and the ability of everyone to create a nice looking restoration, the margin between the high end and production laboratory has narrowed.” For this reason, he says, at Gibson Dental Laboratory collecting precious metal grindings, casting buttons, and other metal scrap has become an increasingly important bottom line income source.
From purchase and inventory control to strict oversight during the production process and the collection of scrap for refining, the precious metal life cycle runs full circle from the outlay of cash to purchase the metals for manufacturing to receiving financial rewards for metal recovery efforts. At today’s high prices, producing precious metal-based restorations requires a sharp business eye on usage patterns to know the exact amount of gold required for each restorative product manufactured. The ability to maximize a return on that investment through scrap recovery becomes ever more important.
For Kim Ravdin, owner of Champlain Dental Laboratory, a 23-employee business located in South Burlington, Vermont, that means collecting scrap in regular and frequent intervals to help manage market risk and fluctuations. “We send in our scrap on a regular monthly basis. That way the gains and losses aren’t huge either way.” Ravkin warns that employing the wait-and-hold strategy where scrap is sent in only once a year is a real gamble.
Miolen agrees that standard operating procedures and more frequent scrap recovery is key to evening out an often up-down market. At Gibson he has implemented a set of procedures for anyone working in the metal finishing department that will ensure as much alloy as possible is recovered. Besides separating the metal finishing department with a wall to keep all the scrap contained within a specified area and carpeting the space to catch small metal filings, his finishers have a set of steps they must complete when they enter and leave the area from wiping down their benches to carefully preserving their vacuum bags. Miolen suggests that collecting and sending in scrap during times of the month or year that business volume is slow will help bring in much needed capital that can be reinvested in the business.
By having scrap picked up on a regular basis, Ravkin believes it also helps alleviate worries that scrap could be misplaced or be swept up accidentally by the cleaning crew or carried out of the cordoned area on clothing or personal items. “If scrap is just sitting around, there is always the possibility that it could get misplaced,” says Ravdin.
Finding a Refiner
Regardless of the unpredictability of the precious metals market over the past 5 years, for seasoned business owners even the lowest per-ounce price is still high in comparison to a decade ago, and metals recovery can pay rich bottom line dividends if handled and monitored correctly. That is why Miolen says finding a trusted refining partner is such a critical business decision. The first criteria in that choice should be determination if the company vying for your business is actually a refiner or merely a collector of scrap, or middleman, which would significantly reduce the return received. Second would be the type of assay the company uses to analyze scrap. Miolen explains that with alloys containing reduced percentages of gold and increased amounts of other precious metals of less monetary value, it is more difficult for refiners to process the material and more important to know what assay process is being used. “I also inquire as to whether the refiner will hold my return to hedge the market should it be down,” he says. “That way I can wait until the price of precious metals goes up to collect on my scrap return.”
Miolen has also conducted controlled studies to test the refining returns of various companies. Benches used in the grinding and finishing areas are isolated to a particular alloy each with an individual vacuum system. “I have benches that are allocated to only high noble alloys,” says Miolen. “If you know what your return is on those vacuum bags only, then six months down the road, you can send the next set of bags to another company to see what their rate of return will be.” The bag weights he admits may be different but a formula can be established to gauge the difference between the weight and the return and which company yields a better return.
Dental laboratories and refiners have had a strong connection as long as precious metal alloy-based dental restorations have been used in dentistry. Despite the changes in the market, this relationship will continue to help laboratories increase their profits and their bottom line.