Store your gold underground – Moneyweb
6 min readA land management and sustainability company from the British Virgin Islands presented a new investment instrument to investors and gold mining companies at the annual conference of the Prospectors & Developers Association of Canada in Toronto last week.
Describing itself as a land and sustainability management company, nGRND launched a virtual token that aims to open up direct investment in gold – with the difference that the gold has not yet been mined.
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Not only is the gold still buried deep underground, the aim is actually not to mine it at all, while still realising its value.
It takes a bit of thinking to get used to the idea. However, the concept of investing in gold that the investor does not see – and perhaps never will – is not uncommon.
It is obvious that gold locked beneath tons of rock has value.
Most prospecting companies and operating mines will attest to this whenever they publish detailed figures of their estimated and proven ore reserves, at least once a year in their annual reports.
Investors agree that this in situ gold is valuable, and analysts use complex models to calculate the present value of these reserves (minus mining and capital costs) to determine a gold mining company’s share price.
Investors accept the principle of investing in mining shares to profit from the eventual mining of the gold. Alternatively, one can invest in a gold bar or a few gold coins and lock them in a safe.
Another option is to invest in gold through an exchange-traded fund (ETF), and get a few lines of computer code that attest to the existence of the gold (locked away in a block of concrete somewhere in a basement).
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Other instruments that track the gold price are also available and accepted by investors. These include derivatives such as futures and contracts for difference.
Bridging the gap
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It looks like the nGRND proposal sits between the two opposing investment poles that investors have created for themselves: gold or crypto.
The nGRND Gold Token is based on the value of in-ground verified gold resources, referred to as ‘proven reserves’ in SA.
nGRND bases the tokens on an independent agreement certifying the gold reserves and then issues virtual tokens to monetise the gold.
The tokens are issued and administrated by a licensed virtual asset service provider (Vasp), regulated by the Virtual Assets Regulatory Authority (Vara) in Dubai, to tokenise and fully back the nGRND Gold Token and other asset-backed commodity tokens.
In effect, the token is a crypto investment backed by physical gold.
It’s actually a dual-yield investment opportunity …
Professor Lisa Wilson, CEO of nGRND Inc, says the token will not only reflect the value of the gold itself if the gold price rises, but also the value of other income derived from leaving the gold unmined.
“Beyond any increase in gold itself, investors in the nGRND Gold Token, as well as site owners, are entitled to receive additional value and distributions from alternative-use carbon and ESG [environmental, social, and governance] programme revenues, creating a dual-yield opportunity for investors.
“nGRND purchases, through definitive agreements, a percentage of the verified gold resources from site owners and focuses its efforts on keeping the gold in situ, and to remain in-ground for those properties that may not be currently environmentally or economically viable to extract because of permitting, inaccessibility, quantity, geological characteristics, time or high capital needs,” she says.
“The nGRND Site Programmes empower further monetisation and additional long-term site attribution from avoided mining and alternative sustainable land-use opportunities, forming a second stream of value and distributions for both the site owner and investors, while keeping the title of the property with the site owner.”
The project is aimed at gold bearing deposits in countries like Canada, the US, Australia, the EU, South Africa, and across South America.
nGRND announced that it had already secured initial agreements representing over 400 000 ounces of gold across properties in Canada and the US within 60 days of the launch of the programme.
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Rather than offering investors traditional royalties or dividends, nGRND purchases a percentage of verified gold resources and keeps the gold in situ, providing non-dilutive capital for site owners.
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It also generates income from selling carbon credits and other ESG-linked revenue by not mining the gold.
The programme allows verified gold mineral resources to remain in-ground providing revenue for property owners who may face currently uneconomical or environmentally difficult extraction pathways.
This approach helps mitigate risks such as geological uncertainty, extraction costs, regulatory hurdles, and environmental exposure, while still supporting the mine’s other exploration and prospecting activities.
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nGRND also explores and implements alternative land uses that are environmentally friendly. For example, the gold token makes it possible to sell the gold to investors, after which solar panels can be installed to create another income stream, and yet more income by selling carbon credits.
Wilson says that nGRND is building an ecosystem of climate-positive, long-term value by changing habits and reducing the socio-economic and environmental impacts of gold mining.
“Every ounce of gold that remains in the ground saves almost 800kg of emitted carbon dioxide into the atmosphere,” she says.
“This means that, by 2030, nGRND can achieve the elimination of at least three times the total carbon emitted for the entire global gold supply chain from avoided mining.
“Our programmes and the nGRND Gold Token investment opportunity democratise the ability to access gold, and benefit from the natural wealth and its stackable value for a far broader base of investors and generations on a global basis, simply, easily and with digitised trust and auditability.”
Pricing
For investors, the value of this particular gold-backed instrument will depend on more than just the gold price.
While every nGRND Gold Token represents one ounce of gold, the gold is (obviously) not readily available.
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So the company priced the first lot of tokens at 10% of the spot price of gold, effectively assuming that costs, taxes, and risks would swallow 90% of the gross value of every ounce.
Over time, the price will be determined by supply and demand of tokens on a formal market, basically how well investors accept this new instrument.
Early investors are obviously hoping that the discount to the spot gold price will narrow, while this particular form of gold ownership also generates some income from alternative uses of the property, avoiding all the hassles associated with mining.
However, there are other considerations.
Dane Viljoen, one of the founders of Troygold and probably one of SA’s most eminent experts on instruments for monetising gold, says this particular token, which allows investors to acquire gold ounces still in “nature’s vault”, presents a few problems.
“There are specific idiosyncratic risks attributable to a gold mining asset, which the token’s discount to the spot gold price would have to price in.
“The biggest risk is the cost at which a mining company can profitably deliver the ounce of gold to the surface. This cost differs from mine to mine.
“This is due to geological and metallurgical factors, the abilities of the miners and other macro factors. The token price’s discount to spot would need to be at varying discounts, depending on the underlying asset, to compensate the investor for the idiosyncratic delivery risk.
“In short, reserve ounces in the ground aren’t all alike, and cannot be priced as such. It appears that this instrument is more like a mining finance solution rather than a standardised investor product,” says Viljoen.
“If the ounce of gold is still in nature’s vault in the ground, then it should be priced at a discount to spot, but it would have value only because there is the prospect that the ounce will be extracted to surface, refined and used in a desirable form to service a specific demand.”
If anybody intends to sell ounces of gold that are never going to be mined, maybe the laws of economics will dictate what the price of that token will be …
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#Store #gold #underground #Moneyweb