Jason Williams is out with a new teaser pitch for his Future Giants newsletter ($1,999 first year, 90-day refund period, renews at ?), and it ends up being a pitch both for gold and for a sort-of cryptocurrency that he calls the “Infinity Coin.”

And it’s both a little fascinating and very bizarre, so let’s dig through his clues, ID the investment for you, and try to explain the bizarre-ness…

Here’s how he starts to set the stage:

“We are on the cusp of another huge breakthrough in digital finance with the emergence of ‘Infinity Coin.’

“This new asset is expected to be much more profitable than Bitcoin, Ethereum or any other cryptocurrency you’ve heard of before.

“Unlike the myriad of cryptocurrencies merely emulating Bitcoin’s success…

“‘Infinity Coin’ ushers in a brand-new asset class poised to redefine how we invest and create wealth…

“The World Economic Forum projects this market to be worth a staggering $867 TRILLION by 2030.

“That’s nearly 324x the current value of Bitcoin…

“Larry Fink, CEO of Blackrock, the world’s largest asset management firm, calls it ‘the next generation for markets.’

“Deloitte says that this shift will ‘disrupt many industries, in particular the financial industry, and those who are not prepared risk being left behind.'”

Those comments and big-picture projections are about “tokenization” in general, the idea that tokens, built on blockchain, will replace the established representations of ownership, like property titles or stock certificates. You can tokenize a $30 million Rembrandt painting, for example, and then that Rembrandt’s ownership is cut into a million pieces, and each piece has an identifying entry on a blockchain which can be traded like a NFT or a cryptocurrency, and maybe investors will want a piece of that artwork and will be willing to pay $30 for each one of those million “shares” which were created, even if the actual painting is probably just sitting in a vault somewhere.

There are lots of companies that try to do this kind of thing, whether they use blockchain or some other more old-fashioned method of securitization — and the basic concept is not at all new, it was arguably pioneered by the Dutch East India Company, the first company to offer up shares of equity (stock) to the public back in 1602.  A share of stock is really just the ownership of a company chopped up into many (usually millions) of tiny fungible pieces, so they can be owned by tons of people and traded.  The technology for managing those pieces might be different, today those shares of corporations don’t happen to have their ownership recorded on a blockchain ledger, most of the pieces are held by brokers on behalf of their customers, so they’re really in a more conventional database… but the only real difference is a little more friction in trading.  Shares take a day to move from one owner to another as the transfer is confirmed and handled behind the scenes, and that adds some cost to the process, since the brokers and the exchanges shave off their (usually) tiny sliver of money for helping to facilitate those changes in ownership.  Moving to handle those changes of ownership and records of ownership on a blockchain ledger would probably make that process faster and less flexible and cheaper — but it’s already very fast and very cheap.

But I’ve digressed already… back to the ad…

Here’s how Williams follows up on that:

“Forbes says in the future ‘everything will be tokenized.’

“The World Economic Forum just declared the ‘Arrival of the Token Economy: From Art to Real Estate.’

“And even former SEC chairman John Clayton said, ‘In time, everything will be tokenized.’

“Tokenization is transforming the world of finance.”

That’s a widely-held belief. Don’t know how long it will take to move all asset ownership to some kind of blockchain, as opposed to being recorded by regulators or brokers or exchanges, but it makes a certain amount of sense — mostly because it would theoretically be public and transparent and cheaper and more difficult to manipulate through fraud or error. Of course, there are lots of established professions and businesses who would rather these systems not become cleaner and clearer and more public, and definitely wouldn’t want it to be cheaper, so who knows how or when things will evolve… but plenty of folks agree with that “everything will be tokenized someday” prediction.

And here’s how he defines it:

“In today’s world, most assets are tied to one owner.

“Your spouse might also be on the car or house title, but there’s usually one last name.

“But with tokenization, you can split any asset into infinite pieces….

“This concept applies to almost anything — collector cars, luxury watches, real estate, fine art, precious metals, and more.

“These valuable physical assets can all be converted into digital tokens and traded just like any stock or digital currency….

“As BNY Mellon, who manages $2.4 trillion in assets, says this shift:

‘Open[s] the market to a whole new set of investors, now able to diversify their investment portfolios into asset classes previously well out of reach.'”

Sure, I guess. Pretty much all assets can be broken up and securitized today, without blockchain or some kind of digital “token”… but maybe digital tokenization will be easier or faster or cheaper.

More from the ad:

“‘Infinity Coin’ is at the forefront of this massive influx of investor cash…

“Because it tokenizes the #1 asset class in the world…

“This asset has an estimated total value of $12 trillion (which is 5x Bigger than the entire crypto market).

“Many analysts believe that value could soar as the price of this asset continues to hit new highs, poised for a historic bull run.

“We’re talking about GOLD — the world’s most reliable and valuable asset.”

Oh, for God’s sake. Really, we’re talking about gold being the big winner of “tokenization?”

I guess maybe, one can rarely prove a negative… but gold was one of the first tokens, that’s all a government-stamped gold coin is, a distinct and tokenized amount of physical gold, with that government imprint guaranteeing it is what they say it is (one ounce of 99.99% pure gold, or whatever).

Gold is one of the easiest and most accessible investments right now. Plenty of folks are happy to sell you a gold coin, or store your gold for a reasonable fee, or provide an ETF that is backed up by physical gold. Heck, gold is even tax-deferred, in that it’s an asset (a collectible, according to the tax code) which won’t generate taxable income for you unless you sell it.

Sorry, I’ll keep an open mind from here on out, I promise.

Here’s how Williams pitches the idea:

“Each ‘Infinity Coin’ is tied to a real, verified amount of gold.

“Gold that has been certified as economically viable based on the National Instrument 43-101 standards.

“These independently audited geological reports ensure the economic viability of gold reserves.

“These reports serve as the global standard for all mine financing decisions.

“This guarantees that each ‘Infinity Coin’ is backed by a tangible, valuable, certified quantity of gold.”

Ah, so that’s a bit trickier — if we’re talking about N.I. 43-101 standards, which control how mineral deposits are described to investors in Canada (the world leader in investor regulation for mining companies, thanks to the response to the Bre-X scandal), this isn’t gold in a vault that you own through the “infinity coin,” it’s gold that’s still in the ground and hasn’t been mined yet.

And in reality, it may be gold whose existence is in part theoretical — a geologist has seen enough drilling results for a particular plot of land to assess that there are X tonnes of rock in that measured underground area which contain an average of, say, 2 grams of gold per tonne. If we’re calling them “reserves” (and not “resources”), then there has at least been some expert work done which judged that the estimated quantity of gold is pretty accurate, and that it’s an economically viable deposit to produce… but still, there is risk to all of these assessments. Until the ore is dug up and processed and turned into gold ingots, it’s not gold… it’s potential gold.

If those terms are new to you, then think of “resources” as the initial stage of turning a discovery (gold found in a drill core, or identified in surface outcroppings) into something that might someday become a mine. Your geologist becomes pretty sure you found a lot of gold, based on the evidence in a variety of drill holes and other surveys, and has a preliminary estimate on how much gold it might be if the initial samples are borne out through further testing (like, if the area between testing sites ends up being similar to the rock you pulled up in those drill cores — the drill samples might be collected 1,000 meters apart when claiming an “inferred resource” for a particular kind of deposit, for example, or 300 meters apart for a “measured resource”), so there’s almost certainly some “there” there, and it’s worth exploring more to really “prove up” the value.

Reserves come later, at the stage where you’re really calling this an asset, and thinking about borrowing or raising money against the value of that asset.  When you’re claiming to have proven reserves, that means you’ve done a lot more drilling to prove up that space between your initial drill samples, so you can estimate the size and grade of the ore body with some degree of precision… but also, importantly, you add a robust economic analysis to assess whether building a mine makes economic sense.  That means a capital cost for building the mine which is rational for the amount of production, using equipment and techniques which exist, and an analysis that the operation of a mine at this spot is likely to be be economically practical on an ongoing basis, using rational assumptions (cost of equipment and maintenance, infrastructure needed, operating costs, the price of the gold that you’ll be selling, etc.).

The natural process is that resources become reserves as you drill and analyze and acquire more data about the deposit, and both are subdivided into categories (inferred, indicated, measured for resources… probable or proven for reserves).  The very first claim a miner makes is that gold has been discovered, often citing a particular drill sample (12 feet of 25 grams/tonne), and then after a bunch of those results, the geologist will begin to estimate the inferred resource for a particular part of the deposit, based on the limited data… that’s usually when investors begin to get excited.  But if you want someone to lend you money to build a mine, they’re going to want to see a lot of proven and probable reserves, which will underly first a preliminary economic assessment (PEA) that justifies investing more in proving up the deposit and finding more reserves, and probably justifies the company selling more shares to raise the money to do that work, and then a feasibility study for the project, which is what is used to convince partners and/or bankers to get involved in financing the eventual construction of the mine (often called a bankable feasibility study). It usually takes years of drilling and analysis, all of which is expensive, to get to that point.

And, of course, the spanner which can be thrown into the works at any time is permitting, which is entirely a different track — you can identify great reserves, but that doesn’t guarantee that the powers that be will let you build a mine… every country and other political entity controls that process differently, but mining is inherently intrusive and dirty and dangerous, and governments have a lot of input into where and when it can be done — it’s certainly common for reserves in an “easy to permit” area near existing mines to be worth a lot more than reserves that are, say, near a key salmon fishery, or underneath an elementary school.

So apparently this is some way to tokenize underground reserves, or maybe even resources… which is bizarre and perhaps problematic.  But we’ll dig more into that in a moment — lets see what else Williams says in the ad:

“Gold already cracked the $2,400-an-ounce mark…

“And is poised to go much higher.

“Bank of America sees gold at $3,000 per ounce by 2025.

“UBS presents an even bolder forecast, predicting $4,000 per ounce.

“This swelling value of gold makes ‘Infinity Coin’ an even more compelling investment.”

OK, I agree that gold could easily keep climbing in value. I’ve seen Jason Williams tout a $15,000/ounce target for gold prices, so he’s probably more of a gold enthusiast than I am — but as long as currencies are generally depreciating assets, people will want to preserve some of their buying power with other hard assets, and one of the most traditional (and accessible, and fungible) hard assets is gold.

He sums it up:

“Unlike traditional gold investments which can be cumbersome and illiquid, ‘Infinity Coin’ offers unparalleled benefits.

“Investors not only gain exposure to the enduring value of gold but also benefit from the convenience of digital tokens.

“You can buy, sell, and trade gold easily without the hassle of physical handling or storing the physical metal.

“This innovative approach provides a more stable and liquid investment platform compared to traditional gold assets.”

OK. It’s not particularly hard or expensive to deal with physical gold or to trade gold, but yes, it does come at a cost (storage, shipping, insurance, etc.) — we’ve already made that much easier with the pioneering version of modern “tokenized gold,” which would just be a gold ETF, and those are pretty inexpensive (maybe 0.3%/year), but still, there’s a cost.

So what are we to do? Back to Williams:

“How to profit from ‘Infinity Coin’

“One way to profit from ‘Infinity Coin’ is to buy shares of gold miners that are tokenizing their gold reserves.

“I’m talking about the companies that convert their underground gold into these digital tokens.

“Making it easy for investors to buy, sell, or trade portions of these lucrative gold assets.

“This approach provides investors with a real stake in gold deposits that have been certified as economically viable.

“Additionally, it provides mining companies with an opportunity to generate revenue from their gold reserves WITHOUT the upfront costs and risks of physical mining.

“You see, building and operating mines is a tough business. It’s expensive and a lot can go wrong.

“But with tokenization, mining companies can avoid these challenges and unlock the value in their underground gold reserves.

“This saves them millions in mining costs.

“And frees up capital to support new exploration projects.”

He then brings up a comparison we’ve written about a few times, a company that has essentially been a gold “hoarder,” with no real intention of mining its large gold deposits.

“The foundation for this concept has been proven by a company called Seabridge Gold.

“Seabridge demonstrated that substantial value could be unlocked from gold deposits WITHOUT the need for physical mining.

“Instead, it focused on acquiring as much gold-rich land and mineral rights as possible.

“This strategy dramatically increased Seabridge’s market value from around $70 million in 2003 to over $1.3 BILLION today.”

And then, finally we get the pitch… which is for a little junior mining company, not for some new “token”… well, not directly, at least…

“The market cap of this new company I’m introducing is about $12 million.

“For it to reach Seabridge’s valuation of $1.3 billion, it would need to increase over 100 times in value.

“This is where ‘Infinity Coin’ comes in.

“‘Infinity Coin’ takes Seabridge’s business model to the next level…

“By using the power of tokenization.

“This innovation allows large gold assets to be converted into digital tokens, enabling investors from all walks of life to own a piece of these valuable resources.

“Now, the underground gold can now be traded and owned in small pieces across the globe without ever needing to be physically extracted.”

OK, so we’re tokenizing gold that doesn’t currently exist in real form… but also maybe tokenizing gold which will never exist, if a mine is never built? Interesting, and raises a LOT of questions from me… but one of the arguments is that we don’t have to worry about environmental impact or permitting…

“Additionally, this strategy is eco-friendly because it ELIMINATES the need for physical mining.

“This aligns with the growing demands of consumers and regulators for environmentally conscious mining practices.

“‘Infinity Coin’ does more than just solve the problems of modern gold mining; it unlocks a world of untapped investment potential.”

What else do we learn about this investment he’s teasing? We’re told it’s the pioneer. (Or maybe, guinea pig.)

“Introducing the first company ever to offer ‘Infinity Coins’

“After combing through regulatory filings and consulting with industry contacts worldwide…

“I have pinpointed a gold mining company leading the ‘Infinity Coin’ revolution.

“This small firm is poised to make history as the FIRST to mint ‘Infinity Coins’ based on its proven gold assets…

“Ushering in a new era in modern finance.”

So how does it work? Apparently some third-party company assesses and evaluates a gold deposit, “tokenizes” it, and manages the marketplace for those tokens. From Williams…

“In short, this firm acts as the ‘tokenizer.’

“Once a mining company’s assets are deemed suitable, the tokenizer converts the gold asset into numerous ‘Infinity Coins.’

“This allows investors to buy and trade these tokens, making gold investments accessible to a wide audience.”

And then a few specific clues about the stock Williams is teasing:

“The gold mining firm I’m highlighting has partnered with this ‘tokenizer.’

“And its gold deposit in California has been approved for tokenization…

“This means it is set to be the first miner to have its gold turned into ‘Infinity Coins.'”

And about the deposit:

“The firm’s California deposit contains a certified resource of 1.4 million ounces of gold.

“Additionally, the company owns an even larger gold deposit in Colombia….

“The firm’s Colombian property holds a certified reserve of 2.5 million ounces of gold.

“Collectively, these assets amount to $8.6 BILLION worth of gold, all set for tokenization.

“Not too shabby for a company with a market cap of just $12 million….

“And this is just the beginning as the company expands its portfolio of gold reserves.

“They plan to acquire additional gold deposits in the U.S. totaling at least 3 million ounces by year’s end.”

And then it gets a little odd… it seems like this company is turning its resources into these “Infinity Coins”, so effectively they’re selling off the resource instead of developing it. And to reward investors, since they’re selling off (sorry, “tokenizing”) the resource which those shareholders indirectly own, they’re also distributing some of those “Infinity Coins” to shareholders…

“The company is rolling out a token distribution program.

“Shareholders will receive 10% of the ‘Infinity Coins’ minted from its gold reserves.

“So imagine owning just 100 shares of this company’s stock…

“You would receive about 11 ‘Infinity Coins’ when its first gold deposit is tokenized.

“If each coin is worth $950, based on the value of the gold they represent…

“Your ‘Infinity Coins’ alone could be worth $10,450!”

That sounds like a HUGE “if,” no? Will turning these resources that a company owns into “tokens” somehow mean that what was worth less than ten cents a share somehow becomes worth more than $100 per share, just through the act of tokenization?  If so, that’s some cryptocurrency bullshit magic being poured on this whole operation, and I don’t know if applying rational thinking will do us any good, but let’s at least dig into the details and make sure we understand what we’re talking about.

Final bit of the tease:

“And right now you can invest while shares trade for less than $1.

“‘Infinity Coin’ is about to go mainstream, and this stock is likely to skyrocket when it does….

“… potentially bank a 50-fold return from the company at the heart of the “Infinity Coin” investment phenomenon.

“This is the single best investment opportunity of a generation.”

So what is being teased here? The investment would be shares of a little company called Great Eagle Gold (GEGCF in the OTC market). Great Eagle has “pre-approval” from OroEx, that “tokenizer” company, to tokenize a property in California and turn that ownership into what they’re calling “NatGold” coins.

More on what NatGold is in a minute… but this specific deal being teased is essentially a way to sell ownership of the Cahuilla gold project, which is in California, and has a NI 43-101-compliant resource statement that estimates it includes about 1.4 million ounces of gold (gold-equivalent, really, about 20% of that is the value of the silver).  Instead of being a project that gets developed further and maybe turned into a mine someday, this project, with 1.4 million ounces of resources (mostly indicated, a small portion just “inferred”), will be turned into 584,761 NatGold digital tokens by a partner company called OroEx, using their valuation formula (more on that in a moment).  OroEx takes a fee for doing this, roughly 20% of those tokens for this deal, Great Eagle Gold keeps the rest, and Great Eagle plans to distribute 10% of the total to its shareholders as a digital token dividend.

And yes, to match the clues, they do also have a small project in Colombia which they’ve either bought or are trying to buy — not clear exactly on the status, but they agreed to buy 70% of an exploration project in Colombia for about $200,000 last August, and as of January they were still talking about that deal being in progress. Not sure if there’s any kind of legal framework in that country to ever “tokenize” that project, but they’re not currently talking about it, all the focus is on this first deal in California.

This is essentially the maiden voyage for this “NatGold” idea, and apparently none of these tokens exist yet, but the press release from last month indicates that all involved expect these first NatGold tokens to be created in the fourth quarter, at least for half of the deal.

Great Eagle Gold doesn’t actually own the Cahuilla project yet, either, they have a letter of intent to buy it from Teras Resources, the company which has been exploring the property and identified those reserves, for a total of $18.4 million (this is actually supposed to happen in two different transactions, neither of which has closed, but we’ll just mush them together for the sake of our sanity). If this were some fairly direct pass-through of value, then that would mean they’re effectively buying a property for $18.4 million and turning it into 584,761 NatGold tokens, so that’s effectively an implied value per token of about $31.50.  They’d like those tokens to be worth a lot more, as would OroEx, because it looks like Great Eagle, which doesn’t really have any cash, is going to have to either sell a lot of shares or sell many of the NatGold tokens immediately to raise the cash to pay Teras Resources, which apparently does not want to be paid in NatGold tokens (maybe a smart decision). (FYI: Teras is technically publicly traded, too (TRA.V, TRARF), but is even more ridiculously tiny, and it looks like they’ve been in a trading halt for almost a year… don’t know why.)

That ~$30 per adjusted implied resource ounce makes some sense in the grand scheme of things — a company that wanted to develop Cahuilla might pay $30 per ounce of resources to do the acquisition, though Great Eagle’s actual cash payment to Teras is only $12.50 per indicated resource ounce and $7.50 per inferred ounce, so there’s some built in inflation of the value of those resources, or of a NatGold token, by the OroEx assessors.

Every deal is different, some unproduced ounces are worth much more than others, but anything in that range of $7.50 to $30 per ounce seems to be within the realm of rational.  As it should be, in a relatively open market — if it was way too low, Teras Resources wouldn’t want to sell… and if it was a really attractive project that lots of miners want to develop, there might be competition to drive the price much higher.

If this all goes through as planned, this is the first time a NatGold token will have been created, so nobody knows what the world will think they’re worth once they exist and can be traded on some kind of exchange, but it sounds like the idea is that a NatGold token will be a fungible token representing defined but unproduced (and never will be produced or upgraded) gold resources.  The idea is to create a gold backed currency, but to back it with the ownership of mineral deposits that include underground gold, not with actual gold that has been produced, and to keep those resources in a frozen state once they’ve been tokenized… so not only would this mine never be built, but the part of the deposit that includes those resources will also never be explored further or upgraded. So I guess this only works where there are patented mine claims or mineral property ownership legal structures that can exist in perpetuity and aren’t taxed as property.

There’s a fair amount of information online about this “NatGold” idea from OroEx and its PR efforts, but here’s the basic idea:

A mining company identifies a resource, classified as NI 43-101 compliant reserves or resources, and decides they want to sell that resource instead of putting more money into exploring the resource further or developing the mine.  They can either sell it to a miner, or try to “tokenize” it… if they opt to tokenize, then they might go to OroEx, which offers an estimate for how much the underground gold is worth, and has that verified by its own Natgold Integrity Trust (two more geologists, plus a lawyer), then the Trust takes custody of the mining title, and the agreed-upon number of NatGold tokens are created.  80-85% of those tokens are returned to the seller of the deposit, and 15-20% are kept by OroEx, 10% as a fee and the rest for contingencies.

It is indeed the tokenization of a mineral asset… which is essentially the same thing as a mining project going public, selling shares to investors.  But the key difference is that they’re tokenizing underground gold which will never be produced, so they’re hoping people will adopt the idea that gold is worth something even if it’s never dug up (maybe partly because it won’t be dug up)… and they’re also creating a fungible token that will theoretically represent lots of different underground deposits, trying to establish this concept of a market value for discovered-but-won’t-be-produced gold.

Which is a big break from tradition, to say the least.  There are many reasons why gold holds value, some cultural and traditional and some aesthetic, but one of the main reasons why gold has value is that it’s difficult and expensive to produce.  The reason that a gold-based currency was inherently non-inflationary was that the difficulty of mining gold meant that the worldwide above-ground total amount of gold in existence could only go up by maybe a couple percent per year, because of the cost and difficulty of finding gold and then turning underground deposits into gold bars.   Part of the value of that one-kilo gold bar is that a miner might have had to discover, dig up, pulverize and otherwise transform 50-100 tonnes of rock to create that kilo of gold.  It’s the ultimate “proof of work” currency.

How much would potential gold that we refuse to spend money to produce be worth?   I guess that’s what the NatGold folks are trying to figure out.   Here’s a bit of their website which makes the argument that all discovered gold should be worth the above-ground price of gold minus the current average all-in sustaining cost of producing gold (estimated and updated by the World Gold Council), which must be where Williams gets that fanciful “$950 per token” price:

So presumably they’d believe that the baseline value of a proven reserve ounce is $958.  But they’re also willing to pay a percentage of that value for resources… which is what’s happening with this first deal.  Here are the percentages they publish:

That’s about all they share in terms of numbers on the OroEx/NatGold website, which was pretty clearly built using the same template as the Great Eagle Gold Corp website.  Which I guess means that they believe a NatGold token should be worth $958, representing an ounce of gold without the work of digging it up, and that they will exchange an indicated gold resource for 40% of that, so an indicated gold resource is supposed to be worth $383 per ounce.

So in their universe, one ounce of “indicated resource” gold is worth 40% of a NatGold token, and that would presumably be standardized across all future deals.  That’s how they turn 1.4 million ounces of that Casuillas project into roughly 584,000 “tokens”.  Presumably if the resource was mostly in the “measured” category, instead of “indicated,” they would turn 1.4 million ounces of measured resources into 1.1 million NatGold tokens.  And OroEx/NatGold would VERY much like you to believe that a NatGold token, which essentially represents one ounce worth of a gold mineral resource which has been defined but put in trust, never to be developed, has an intrinsic value of $958 per ounce.

Great Eagle Gold is buying the Casuillas deposit for $12.50 per indicated resource ounce, and $7.50 per ounce for inferred (it’s almost all “indicated” in this case).  That gulf between the $12.50 Great Eagle is paying to Teras for each ounce of indicated resources in the Casuillas deposit, and the $383 they want you to believe an indicated resource ounce is worth once it’s been “tokenized”, I guess, is the theoretical business opportunity OroEx has identified.

Which if it weren’t totally made up and unproven in the marketplace, sounds like a great business, right?  Just find underground gold, with some degree of geological certainty that the gold exists, and sell it to someone as if it’s already being produced by an average producing gold mine.

If we can forget for a moment that AISC does not include either the cost of preparing a deposit to be mined (moving from resources to reserves, etc.) or the initial capital cost of building a mine, just the cost of operating it and, in the future, reclaiming or restoring the mine area… then there’s a kernel of logic to the idea, right?   We accept that selling your land based partly on the value of the minerals under that land is a sensible thing to do.

And we accept that a plot of land next to the beach is unusually valuable because you can build a condominium tower on that land.  But if you sell the land before it’s developed, you will get a LOT less money than if you take the risk and invest the capital to build the condo tower yourself, and then sell those condos.

So this NatGold idea is kind of like pre-selling those condos, based on the theoretical prediction that they could be built if someone wanted to pour money into building them, maybe discounted by whatever we think the average cost of building those condos might be (though AISC, remember, does not include the construction cost of the mine).

But also, we’re promising not to actually build the condos, so you have to be willing to perceive value in a potential that will never be realized.  You have to believe that the value of the gold in the earth’s crust exists once the gold has been found, not once it has been dug up and turned into a shiny coin or a pair of earrings.  Or that not building those condos creates some theoretical asset which is as financially valuable, to somebody, as the physical condos would have been.

We all do stupid and irrational things, and there are irrational agreements like that built into many human cultures, either out of a conscious decision to support something which most people think is good for society but which otherwise doesn’t make sense, or just a habit or tradition… or even an enduring mistake — it’s just that it’s hard to create a new irrational agreement that becomes widely accepted.   It happens, new religions are formed every day, and people bamboozle investors into buying stupid things every day, but it’s hard to make a new irrational value structure stick.

We’ve seen that with preservation-based carbon credits over the past decade or so  — a business that has almost completely fallen apart because you have to turn not doing something into a valuable act and a fungible asset, even if you probably weren’t going to do it anyway, and even if there’s not a great standardized basis for assessing the value.   That leads to “nature preserves” selling the fact that they won’t burn up their forests and release that carbon, even though most preserves already exist as a social contract to preserve those spaces, and many such preserves existed before we knew that we were overloading the atmosphere with carbon.  There’s a certain wisdom to creating a carbon credit based on preserving a tree or a swamp that exists today, there’s a social argument to be made for incentivizing the preservation of those carbon sinks, but when that idea runs up against humanity, it leads almost instantly to corruption and misaligned incentives.  I suspect the same would happen with NatGold if it ever really gets off the ground, and we try to begin trading the value of not building a mine after a deposit has been identified… but we’ll see.

For more on why Jason Williams and the other Angel Research folks love the idea of this NatGold project, you can check out some of their free articles — they’ve talked it up a few times this year, including Williams back in May here and a longer interview with Brian Hicks here.

Let’s just step back a little… How much do current investors and economic actors believe that an “ounce in the ground” is worth?

For comparison, Newmont Mining (NEM), which just acquired Newcrest last year and has among the largest gold reserves in the world, has an enterprise value of about $60 billion.  They own about 327 million ounces of combined gold resources and reserves across a lot of different projects, some of which are nowhere near being developed and others which are producing gold today.  Even if we give Newmont zero credit for the other stuff they own, like their 30 billion pounds of copper reserves, and say that the only value at Newmont is in their gold reserves, which they are producing and turning into cash flow and profit every year, then that would mean we’re valuing Newmont today at about $183 per ounce of reserves & resources.  Or about 7.5% of the value those ounces of gold would have if you were buying them in the form of gold bars, with a lot of that value based on our belief that Newmont will continue to produce that gold, and continue to generate a profit, with the possibility that the profit will grow if gold prices go up faster than operating costs.   Every company is different, but that strikes me as pretty typical for a big producer.

If we were to accept this NatGold conceit that an ounce of gold reserves in the earth is worth $958, discounted by anywhere from 20-80% if it is in a “resource” category, then Newmont would theoretically be able to “tokenize” its gold assets for what OroEx/NatGold believes would be an “intrinsic value” of at least $175 billion (that assumes their resources are all the lowest level “inferred” resources, I didn’t check).   If you offered Newmont $175 billion to sign over all their gold reserves and resources, and let them keep their 30 billion pounds of copper, I imagine they’d reach their hand out for a shake very quickly, before you could come to your senses.  If it were cash, that is… I don’t imagine they’d be thrilled to accept NatGold tokens.

As of today, in what is still (and might well remain) the pre-NatGold era, there are several ways to make a discovery of natural resources, like a gold deposit, more valuable:

First, you can actually mine it. That requires very detailed exploration to identify where the gold is, and (as precisely as geologists can estimate) how much there is, which eventually becomes a bankable feasibility study, so called because it’s reliable enough that banks will lend you money, based on that study and their own assessment of the risk that the project will fail, to build the mine. Then you finish getting all the permits, raise and borrow all the money for construction and startup operations, and build the mine… which might take 5-10 years or more from the point where you’ve discovered a meaningful gold deposit. Often much more.  Lots of risk, lots of work, mining is a really tough business.

Second, you can hoard it and hope that gold becomes more valuable, which will drive up the value of your company as the owner. There’s usually an implied catalyst you’re waiting for… like waiting for a bull market, during which a bigger gold miner will need more reserves to mine, and that bigger company will acquire your project at a nice premium.  That’s really the Seabridge Gold model that Williams noted above — it’s not that they want to preserve the gold of their KSM project in British Columbia in perpetuity, it’s that they believe gold will keep rising, and they want to keep making the deposit more valuable by adding more reserve ounces through minimal exploration work while gold rises, maintaining the project in a pre-commercial phase so it’s “ready to go” for the right buyer, and they hope to wait for the perfect moment to sell it to someone else, who will develop the mine and dig up all that gold in exchange for a fat payout or revenue share for Seabridge shareholders.

This is tough, because it’s hard to be patient, you have to be right about the future, and it is far from free to maintain that project and exist as a public company, so you’re burning at least some cash while you wait.  You can sell shares to do that, or sell a small royalty to the gold royalty companies who are willing to buy theoretical future ounces at a steep discount, and Seabridge has done both those things over the years.  I’d say much of the value in Seabridge is tied up not just in the ounces they’ve discovered, but in the idea that they tell us every year that their primary goal is to find a partner or buyer for their big mine, to create future value.

Seabridge may be the “proof of concept” that Williams relies pretty heavily on in asserting this idea that “ounces which won’t be produced” are valuable, but even if you accept that argument, I should note that Seabridge is dramatically cheaper than a producing miner like Newmont on a per-ounce basis, just because they’ve been mostly sitting on those ounces for years and we don’t know when that will change — if we ignore their copper and silver reserves, then Seabridge’s key KSM project has 47.3 million ounces of proven and probable reserves and an enterprise value of $1.8 billion.  So in this case, the market has determined that an ounce of gold in the ground, even a very well-defined reserve ounce, with a rational plan for building a mine if anyone wants to commit the capital to do that, is worth $38.

Third, you can just sell it to someone who wants to actually develop the project, and they’ll pay you some market-based price driven by the amount of gold you’ve discovered, the likelihood of getting permits, and the cost of building and operating the theoretical mine. They won’t pay you $2,400 for each ounce of gold in the project, of course, nor will they pay you anything like $2,400 minus the average all-in sustaining cost of a mine, so you’re not getting $958 per ounce, either, because you’re not doing the work of building the mine for them.  It takes years of work and a lot of money to develop a project and turn discoveries into resources into reserves, and then to actually build the mine to transform that dirt and rock into ore and then into gold… but if it’s a good deposit that’s strategically appealing, or big enough to be worth the effort, or is otherwise attractive, maybe a buyer will pay something in the neighborhood of 10-20 cents on the dollar for reserves, and a small fraction of that for resources.

There’s no rule for this, every project is different, but people do track these deals — the big focus is on reserves, which is not what we’re talking about here with the Casuillas project (that’s just resources, which are usually MUCH less valuable), but to add a little data beyond those Seabridge and Newmont numbers I mentioned above, this is a table from an M&A analysis from S&P back in 2022, looking at the deals done over the previous decade and the price that was paid, per ounce, for the reserves and resources that were acquired.

It’s a little tricky to assess what those kinds of per-ounce prices would mean today, in part because the price of gold wasn’t static for that decade — it hit $1,800 early in the decade, dipped to a low of about $1,000 an ounce in late 2015, and went over $2,000 for the first time in 2020. I’d say the average was probably between $1,500-1,600 an ounce, so if acquirers paid an average of $187 per ounce of reserves that would mean paying about 12% of the value of that defined underground gold reserve to acquire those projects. Using the total count of reserves plus resources gets an average price paid of $76/ounce, and remember that includes the reserves, still, just averaged down because we’re also including resources. That would mean that acquirers paid about 5% of the value of all the gold underground, on average, including both reserves and resources.

I’m fine with using that as a general average, once you’ve found and reasonably estimated the size of an underground ore body, and if you conclude that it’s in a place where a mine could probably get built, then that project is probably worth something in the neighborhood of 5% of the value of the gold you’ve identified… but the range, of course, is vast — some projects are much more appealing than others, either because of location or potential future expansion or the richness of the gold grade or the depth at which it is found, among many other considerations.  And when it comes to mining, scale alone can make a huge difference in the value of a given ounce of underground gold (mines are at heart industrial projects, so big deposits can more easily give some economies of scale to the massive investment in personnel and equipment required to build a mine… smaller deposits are often not worth developing at all, just because of the massive risk you take in the startup cost, and most gold discoveries never turn into mines).

The idea here, with what they’re calling NatGold, is to essentially create a marketplace where discovered-but-might-never-be-produced gold has value, and can be used as a currency of sorts. That’s already what happens in a very informal and case-by-case way, as big miners buy junior miners, or junior exploration companies raise capital from investors or sell royalties or whatever else… but this would theoretically be cleaner and more transparent, and would democratize the process and let anyone buy a token that is “backed” by gold resources which have been assigned a standard value by some third party, but will remain underground, unmined.  There’s also an environmental element, in that this is a way to have real asset backing, but also be “green” and avoid digging up gold just so it can sit in a vault… the value of not mining up this stuff could be monetized by people choosing to buy these tokens, which would allow more early-stage discoveries to be locked up and tokenized (“sold,” really) before they create a big, stinky hole in the earth.

There is a company behind this, of course, and part of their pitch is that this is a way to create an asset-backed cryptocurrency which can grow (since they can “tokenize” more deposits), but will always be backed by ownership of underground gold resources or reserves which were bought by the token issuer, and will be frozen in place, with no further exploration of that deposit.  This tokenization is fungible, so it’s not a Casuillas token or a Seabridge token, a “NatGold Ounce” will be standardized — which implies that all ounces of gold that exist as a “resource” in someone’s books are worth the same amount as all other gold resources which have been similarly characterized by a geologist.   In other words, an ounce of reserves at the giant Seabridge KSM project should be worth the same amount as an ounce of resources at this probably-won’t-ever-get-built Casuillas mine, all you have to do is adjust it so the “indicated resource” ounce is worth 40% of the “reserve” ounce.

That would be my second biggest concern about this “NatGold” idea, particularly in the case of this first deal with Great Eagle to “tokenize” the Casuillas gold deposit — that they’re trying to establish a standard value for something, an ounce of underground resources, which is and should be inherently non-standard.

There are other concerns, to be sure, including the fact that they’re trying to use these NI 43-101 statements, which were supposed to enhance clear disclosure for investors, as a standardized creator of value — that’s at least a stretch, because that really takes those instruments a big step beyond what they were intended for.

Part of the value of NI 43-101-compliant reporting of reserves and resources and stuff like feasibility studies is that they let investors have the data to choose which projects are more valuable, with fair and pretty consistent disclosure… not that the geologists who write them have the definitive word on what a project is worth. So having a second team of geologists (the NatGold Integrity Trust) assign a relative value to a potential future portfolio of never-to-be-developed projects doesn’t seem like it’s adding any kind of market-based discipline to valuing these projects… especially if, as seems to be the plan, each company’s own assessment of the number of ounces of inferred or indicated resources will be the driver of the value of that property, regardless of what it would cost to actually produce those resources, and regardless of whether or not that mine would ever be built by a rational economic actor.

All resources are not created equal, for many reasons, but chief among them the very different costs of turning those underground resources into a bar of gold. One ounce of “indicated gold” in the ground might cost $5,000 to produce, and another ounce might cost $500… one mine might be built next year, another could take 20 years of permitting and construction.  The only time we can really compare them, and it’s still very imperfect when we add dollar figures, is when they’re classified as proven reserves… and even then, all the evidence of the history of commercial mining tells us that some reserves are much more valuable than others.

But the biggest impediment to the most extreme part of the value teased here, of course, is the idea that somehow all ounces of gold underground should be assumed to be worth whatever the current price of gold is, minus the current operating and sustaining cost that large miners are incurring per ounce at their operating mines.  That’s where the $958 “intrinsic value” per NatGold token comes from, and that’s probably the most absurd part of this idea.   Heck, 10% of that is probably absurd.

Maybe they’ll be successful at creating a token which more closely approximates the average value of small deposits, like $10-100 per ounce, depending on whether it’s reserves or resources — that would still be very difficult to swallow, since it applies a simple formula to assess the value of that gold underground, and we know there is no standard formula that makes sense across different projects… but perhaps investors will buy this idea that “gold we’ve found but promised not to produce” has some “real asset” value.  I don’t think investors will buy that, but I’ve been wrong before… and I’m certain that they won’t buy the idea that these tokens have a value of 30X or 100X the money that is spent to create these “tokens” by buying mineral properties.

OK, that’s also dumb — I should never say I’m certain about anything, particularly in the world of cryptocurrencies.

So… if this tokenization structure is created, and the first deal with Great Eagle closes later this year, which underground gold ounces would be most likely to get “tokenized” next?  The strongest incentive would be to tokenize projects that will never actually be worth anything, because they were unlikely to be produced anyway or the company that owns the asset is out of money and can’t easily raise more — maybe it’s a project that’s too small, or too hard to permit, or too expensive to mine, but is at least classified by their geologists as “indicated resources” (or whatever).   If Great Eagle (or others who follow their lead) can convince other investors that they’ll find resources they can buy for $12.50 per ounce, and “tokenize” them into something worth 10X that, maybe they can ride this really bizarre train for a little while, and create some windfalls for somebody (themselves first) through this “financial engineering”… but I hope not.

The whole NatGold idea sounds so prone to manipulation that I’d imagine the tokens wouldn’t be worth very much in any sane world, once they are created and become available for trading… but you never know. Certainly lots of much stupider cryptocurrencies which are backed by nothing, and will never have any real world relevance, have traded at crazy values from time to time.

There are a lot of gold “cryptocurrencies” that are backed by actual mined gold, of course, and that’s a much easier process — you just buy a gold bar in a vault and “tokenize” it so it can be traded… though in most cases, just like with gold ETFs, there has to be some process for redeeming those tokens (or ETF shares) for a share of the physical gold, even if that right is only given to large investors or market makers, otherwise the price tends not to track very closely to the real traded gold price.

Sorry for the crazy length, I get a little intense when people are trying to tell me that they can turn a hot dog into a side of beef… let me sum it up a bit.

Yes, you can buy shares of Great Eagle Gold (GEGC.CX, GEGCF OTC in the US) today if you wish, following their 30-cent private placement and this promo by Williams they’re trading at about C$0.17 on the Canadian Securities Exchange.  Their private placement deal, which is intended to begin to raise the money to put this plan into action, kicked in at 30 cents per share, and included warrants to buy more at 75 cents, and that was the second small private placement so far, so it looks like they’ve raised about C$1.5 million dollars (they were effectively a shell before, with no real assets — they changed their name to Great Eagle Gold about a year ago, making that small investment in Colombia, and then transitioned to focus on this “NatGold” idea in January).  For some reason, those US OTC shares were quoted at up to 80 cents or so yesterday, probably because someone got excited after hearing this Jason Williams promo and signed up and bought shares, and if the story heats up the trading might be nutty at times — but keep in mind that this is not the kind of stock that we’re used to looking at. Great Eagle has a market cap of something like $5 million, and barely trades at all — recently, it looks like the only shares changing hands are in ridiculous little trades of literally $100 at a time, which can move the share price by 50-100% or more.

So God knows what this super-illiquid stock might do… but in terms of being a real business, keep your hopes pretty limited… remember, this is from the Great Eagle Gold press release that came out last month:

“Once its acquisition is completed, Great Eagle Gold Corp.’s Cahuilla Gold Deposit, a NI 43- 101 certified resource located on a U.S. patented land claim in California, has been preapproved for this initial tokenization. The project boasts 1,420,660 indicated gold resources and 82,487 inferred gold resources, qualifying it for the minting of 584,761 NatGold coins with a gross projected baseline intrinsic coin value exceeding US$560 million. Of the total 584,761, after paying tokenization fees and ESG contributions, Great Eagle would retain 470,733 (80.5%) NatGold coins of which 47,073.3 (10%) would be allocated to the NatGold Dividend Program for direct distribution to Great Eagle shareholder’s digital wallets.”

To be a little blunt, there seems to be a LOT of bullshit thinking going into that “intrinsic coin value” — no matter how much magical fairy dust you sprinkle on a claim on 1.4 million ounces of indicated gold resources, they can’t hide the fact that they’re buying a mineral deposit for $18 million and then paying a 20% fee to turn that resource into “tokens” and preserving that ownership in a trust for the token holders, leading to the same exact project suddenly being worth, in their deluded intrinsic value calculation, $560 million.  Remember, the only real economic actor in this picture, the exploration company that initially discovered and spent money on drilling to define this resource, is happy to sell this deposit for $18 million, after spending $24 million and many years of their time exploring the property. Depending on how you look at it, this is either a way to great a “greener” version of gold to back some future currency, adding value mostly by promising not to waste money trying to dig up that gold… or it’s a way to inflate the value of all those dumb little junior mining projects which will never become mines.

Great value can certainly be created by great discoveries in the mining space, but this seems like a project that’s designed to create great value without a great discovery, and without doing much work.   Coming up with a way to turn nothing into something is obviously appealing, but, equally obviously, it’s unlikely to work.   The basic financial agreement throughout history has been that gold has value because it’s rare to find economically viable deposits, and it takes a lot of work to produce gold from those deposits… so perhaps these NatGold folks will be able to standardize the value of an initial part of the work, the early stage-discovery and resource definition part, and convince people that all indicated resources are of equal value… but I suspect that the world won’t change that fast, and that standardization in this area is more likely to hurt investors than to help them.

You might disagree with me, and that’s OK — it’s your money.  Maybe this NatGold thing will end up taking off and getting cryptocurrency traders excited, which could pass on a glow to the shares of the company which plans to create and own the first crop of these tokens (or of OroEx, the currently private company trying to engineer this tokenization system into existence)… though we do not know, of course, that this Casuillas/Great Eagle deal will go through as planned.  It could create a surge of excitement for a while, it could collapse in on itself like a house of cards.

So color me skeptical that this crypto/gold financial engineering idea can make an undeveloped gold deposit somehow become dramatically more valuable, either because it’s more environmentally friendly or just because it creates a cryptocurrency with some aspect of a “real asset” backing… but I’d be happy to hear your thoughts, just use our friendly little comment box below.   Don’t worry, we won’t bite.

Disclosure: Of the investments mentioned above, I own call options on Seabridge Gold, and I own some physical gold and silver. I will not trade in any covered investment for at least three days after publication, per Stock Gumshoe’s trading rules.