Australian corporate advisory firm PCF Capital Group Pty Ltd. is launching one of the first gold and royalty-backed security tokens globally, FutureGold Pty. Ltd., which is seeking to raise up to US$250 million to fund gold explorers, developers and producers ahead of its first offering in the first quarter of 2019.
FutureGold will be looking to fund projects with about 1 million ounces in mineral resources, and will seek a royalty or stream of about 50,000 ounces in return for an upfront payment at US$50 per ounce to US$200 per ounce. Gold production received will either be sold or held in inventory to fund further deals, and will soon settle on a dividend policy and even consider token buybacks.
PCF's Founding Principal Liam Twigger, who established Macquarie Bank's Bullion and Commodities division in Perth, Western Australia, in 1995 before being promoted to head up the group in the state, told the Digital Markets & Gold Symposium in Perth on Oct. 5 that the potential valuation uplift is "huge ... The more good bets we make and people get into production, the more cash flow comes through, the bigger dividends will come through to these tokens, and the more upside."
While government royalties sit at about 2.5%, Twigger said the market dislikes private royalties above 5%.
He told S&P Global Market Intelligence after his presentation launching the security token at the symposium that he wants to lock in a crypto exchange by the end of this year which the market recognizes as superior in regards to security, liquidity and compliance, especially to entice institutional funds.
PCF Capital already has an institutional license and just needs a retail financial services license to get up FutureGold, whose security token holders will receive regular periodic reports as they would in any other regulated market. Twigger said there are at least 300 junior companies that would fit the criteria of FutureGold.
The security token will be registered as a Managed Investment Scheme with the Australian Securities and Investment Commission and designed to trade on a global digital crypto exchange, and transactions will be completed via blockchain and will be instantaneous.
Yet Twigger also noted that Australia has been among the slowest countries to get involved in crypto offerings, with just 91 initial coin offerings, or ICOs, in 2017 worth US$167 million, compared to world leader the U.S. (581 ICOs worth US$7.07 billion) and Russia (286 ICOs worth US$2.3 billion) among the US$20 billion that was thrown at crypto offerings that year.
While Twigger cited S&P Global Market Intelligence data showing there had been 24 mining IPOs on the ASX thus far this year, he said it could have been much more, with the ASX imposing what he deems as some unreasonable regulations on juniors, following the trend in the New York Stock Exchange where the number of listed companies has halved in the past decade as miners have been "smashed" by compliance requirements.
North American miners have also been hit hard by capital flowing into rival sectors crypto and medicinal marijuana, while exchange traded funds, or ETFs, affect miners' stocks as they pick them up when the companies meet a certain criteria including market capitalization, but drop them when the miners drop out of that criteria, which is an issue that he said also affects Australian stocks.
"You can't raise money through an ETF or promote your project to it because it's an algorithm, and the only strategy to deal with an ETF is to have more friends. So we're seeing more Australians [mining companies] doing more marketing overseas to get more institutions on board to provide cover for ETFs to come in and potentially drop stock, to soak up some of the selling," he said.
Thus he believes raising money via tokens is increasingly attractive for a new generation of investors in what he calls "the democratization of capital" driven not by Wall Street, Silicon Valley or institutional money but by retail investment and a passion to move away from traditional investment vehicles, following the retail backlash from a "suffocation of capital".
Yet he believes Australia is the best place to start, as the ASX is, for the first time, by far the best performing exchange where the average market capitalization for a junior with 1 million ounces of gold resource is above those on both the TSX and AIM boards.