Monetary Metals is planning to launch its second gold-denominated bond in January, after successfully completing a $6 million one-year bond offering that paid interest and principal in gold. The bond, which the company said was the first “proper” gold bond since 1933, yielded 13 percent on the amounts that were drawn.

“We’re proving to the world that gold can be used to finance production,” says Keith Weiner, founder, chief executive and chairman of the Scottsdale, Arizona-based investment firm. “We have a pipeline of gold bond deals we’re working on.”

Unlike traditional financing from investment banks, miners that raise capital through Monetary Metals can avoid hedging against a fluctuating gold price, which also comes with its own risks. And the miners can achieve better terms when they access gold-denominated debt.

Gold has been surging and hit a near five-month high of $1866.60 a troy ounce in mid-November, after consumer prices were reported in October to have risen by 6.2 percent over the previous 12 months – the biggest annual increase in 30 years. Investors also worry about all the money printing by central banks to stimulate the economy during the pandemic. The Federal Reserve Bank of New York projects that the US Federal Reserve’s balance sheet will reach $9 trillion by the end of next year.

“What we’re going through looks very much like 1929-35,” says Larry Lepard, founder of Equity Management Associates, whose EMA Fund invests in silver and gold mining companies. “We’ve got way too much debt and spending, and we have to go back to a monetary system that’s sound.” Lepard says that purchases of gold and silver coins have risen fourfold since 2019, and he thinks gold prices could rise from three to seven times’ their recent levels.

Financing inefficiencies

In late November, after the CPI print, Bedford Row Capital, a global non-bank structuring specialist based in London, was planning to launch the first tranche of a bond offering on behalf of Raptor Capital International, a precious metals streaming and royalty finance company based in Monaco that stakes medium-scale mining operations in the US, Canada, Australia, New Zealand and Mexico.

“There are inefficiencies in raising money, in the mining industry particularly, and this opportunity is really interesting,” says Scott Levy, founder and chief executive of Bedford Row. “The mines have done a lot of hard work and are now wondering how they can access financing to get to full production.”

The overall plan is to raise as much as $500 million to acquire 1.2 million ounces of gold across 25 projects at a 65 percent discount to the current market value of $2.2 billion. The initial $30 million tranche will be used to purchase 67,000 ounces of gold, or roughly $121 million of market value, at the same discount and over the same five-year period. Raptor provides non-dilutive finance and immediate monetisation, and once the mine is in production, the gold is received and sold for a profit.

Raptor says it only invests in a project after thorough due diligence and at no more than a 15 percent loan-to-value ratio, which is senior secured by a lien over the mine, plant and equipment. The company would retain royalties for the life of the mine.

“Finance is now ripe for disruption,” says Weiner, who started Monetary Metals after earning a doctorate in economics, having sold his software firm just before the financial crisis began. Levy, too, ran a technology business in the 1990s before getting into finance and fund management. Says Weiner: “If and when Monetary Metals borrows for our own growth expansion, it will be in gold.”