NASDAQ:BGL
Tom Kerr, CFA: Hello, everyone. My name is Tom Kerr. I'm a senior equity analyst at Zacks Small Cap Research. Welcome to another episode of our Fireside Chat program. Today, we have the CEO of Blue Gold Limited, Andrew Cavaghan. Blue Gold is a vertically integrated gold fintech company. The platform will support a gold-backed stable coin, a consumer-facing digital wallet, and a proprietary gold production and trading platform. The stock trades on the NASDAQ under the ticker of BGL. We initiated coverage of Blue Gold on December 3rd with a price target per share. That's US$20 per share. Welcome Andrew.
Andrew Cavaghan: Thank you. Pleased to be here.
Tom Kerr: Give us a few minutes into the background of the company, a little bit of the history, and kind of just what led us to where we are today.
Andrew Cavaghan: As you said, we listed just this year in June. When we came to market, we came very much with the Bogoso-Prestea gold mine as the asset that we owned and managed. However, at the time we listed, there was still a dispute with the government of Ghana on that asset. And that forced us to think about diversification while we resolved that dispute.
So, we started looking immediately at the way we could deploy our team on other acquisitions, looking at Latin America and other opportunities in West Africa. And we also started thinking about tokenization, which isn't necessarily a natural thing that other mining companies are doing, but we felt very much fitted in with the themes and the macro trends, the increasing permissiveness and enhanced regulation around tokenization in the US.
We hired a team of engineers and started working really hard on thinking through how you actually go about tokenizing gold, and then beyond that, thinking about how you can make that gold useful as money. How do you get it back to being money? The ethos which we started talking about, that unified everything that we were working on, was mine to wallet. So, mining the gold all the way through to tokenizing it and then spending it in the shops, making gold useful again. That’s the journey that's got us to this point.
Tom Kerr: We'll get to the mines and the gold in a second, but maybe just start with the Standard Gold Coin, your token. For people who may not understand what a stablecoin is, and particularly a gold-backed stablecoin, maybe just give us the basics of what that is expected to look like.
Andrew Cavaghan: Essentially, it's a one-to-one, gold-backed token. So, for every token, for every Standard Gold Coin, you are the legal owner of one gram of gold, which sits in a vault. In fact, the token itself has within it a smart contract that identifies the precise serial number of the gold bar that you're a part-owner of. They're kilo bars. And if you own one Standard Gold Coin, then you own 1,000th of that bar. Now, why is that a useful thing for someone to have? Why not just own the gold physically yourself?
Well, for a number of reasons. Owning gold comes with a cost. You've got to store it, and you've got to insure it, probably. If you store it in your own home, you might get burgled. You could have it stolen from you if you're moving around with it. And of course, if you're storing it with someone else, you've got to pay them to do that. If you want to transport it or turn it back into a currency that you can spend, that's also a hassle. You've got to move it, and there are costs associated with that.
What the tokenization does is it creates a digital replica of the gold that's contractually linked to the gold in the vault. And you can carry that token on your phone. And at any point in time, you can liquidate your token and turn it back into gold. So, if you decide you don't need the token anymore or you just want the physical gold, you can do that at any time.
The way we're setting our token up is that we have a guaranteed buyback. So, if you come to us and say, I actually just want to sell this back to you, we'll buy it back from you. You'll be able to trade it on the normal exchanges, you can trade it with other people, or you can use it as a means of payment. You can pay someone else using a QR code on your phone. So, you can transfer it immediately from one person to another.
Or, in due course, what we're working towards is being able to spend your Standard Gold Coin through a Visa or MasterCard in the shops or at an ATM to draw your local currency out. So, it becomes useful and practical, and of course, without those negatives, without the costs associated with holding the physical gold. That's what the gold coin is.
Tom Kerr: I understand there's a lot of interest. Maybe update us on, I believe, there are pre-orders, indications of interest. Where does that stand? What sort of a launch date are you expecting for the actual standard gold?
Andrew Cavaghan: There has been quite a lot of interest. We think that this will appeal to retail for people, average people like you and I, having it in our wallet, but also to institutional buyers as well, who can hold much larger quantities of it. We have pre-registrations of a million tokens.
After we announced it, there was a kind of surge of interest, and we expect to be bringing this to market in early January. We're actually just preparing to go through the final stages of testing during the end of December so that it's all ready for January. And then it will be open to the public. So, you'll be able to buy coins directly, we'll mint coins for you, or go on to an exchange and buy them through the exchange.
Tom Kerr: Got it. You touched on the consumer part of the platform, which is branded Blue Gold One. Maybe explain that because I understand it to be an app. It's going to be a debit card, maybe expand on the consumer-facing platform, and the stablecoin links to it, I guess, or is connected?
Andrew Cavaghan: That's right. For the token to be truly useful, we think you've got to be able to have real-world ability to spend it, and that's why we're developing what we're calling the One App. And that is in development. We've got quite a big team of people working to bring that so it's ready for what we hope will be Q3 next year.
Essentially, it's a bit like a neobank in that you will have the ability to put your dollars or your pounds, your USDC, so your digital currency and your Standard Gold Coin, all within the same app. You'll be able to move your Standard Gold Coin and switch it for any one of those currencies. You'll be able to manage how much you keep in each. We're working on partnerships so that you'll be able to receive your salary directly in Standard Gold Coin. If you say, Look, I actually prefer to get paid in gold, you can do that. We're looking at ways that you might be able to borrow against your gold as well, and to spend it through the Visa and MasterCard channels.
Now all of this is being built on regulated platforms and infrastructure that's been built. We're not building all of this from the bottom up. We're working with partners that have already got all of this payment infrastructure in place, and we're working with partners that have the ability to provide those other financial services I've mentioned. Through that, we're piggybacking on the regulatory regime for each of the countries in which they operate. So, when we launch, it will be on tried and tested platforms and will be able to operate in most places in the world.
Tom Kerr: Before we move on to the gold trading platform and the gold mine, how do you monetize that, or the tokens and the consumer platform? Is it fee income or spreads? How is the revenue generated?
Andrew Cavaghan: The token has a minting fee of 3%. That's basically your kind of one-off cost for all of the convenience benefits you have of not having to pay for the custody of the gold or the insurance, and having the convenience of being able to walk your token around in your pocket with you on your phone. If you liquidate your token, so you turn it back into gold, there's a 3% cost to that as well. That's basically the trading fee because Blue Gold is providing a longstop on that gold, on that token, so that you can exit it.
But once you've got it, the transaction costs, so every time you trade it or transfer it or convert it into dollars or pounds or euros or whatever, there's a very small transfer fee of 0.02%, which, compared to the sort of costs if you were transferring money bank to bank, is obviously very, very small. And that's one of the benefits of using blockchain to make payments.
There will be costs associated with using Visa and MasterCard that are their normal costs, and we'll get some rebate from that. So, as a financial service provider, we will benefit from that, but it's not going to cost you.
Tom Kerr: Since you guys are vertically integrated, you're going to be responsible for obtaining this gold that goes into the consumer tokens. And there are two areas now you’re creating, or already have: a proprietary gold trading platform, and then also the mine in Africa, in Ghana, that is currently under review, dispute, however you want to describe it. Describe those two sources for us and where they stand.
Andrew Cavaghan: Obviously, to meet the demand, there needs to be physical gold. You can't just have the token. So, we've put in place a trading partnership within an outfit called DL Hudson Dunes, and they have committed to supply us with 1 million ounces, which is over $4 billion worth of gold, and that's available on demand. As the token orders come in, we can fill those orders instantly with the gold through our trading partnership.
In addition, we have formed a proprietary trading partnership with DL Hudson Dunes to move slightly upstream for in-country purchases of gold, so proprietary trading, where an opportunity to buy at a discount to the current gold price exists. And that might be buying directly from mines or buying from licensed traders in countries that produce gold. That is a revenue and profit opportunity, even in the near term, potentially in the next few weeks. So that's exciting for us from a business perspective.
And it's very closely adjacent to our experience on the gold production side because we were working with those sorts of intermediaries as a client, because we were selling gold. So, it's a natural progression that we still very much appreciate doing this in partnership with DL Hudson, who've been doing it for over 100 years and bring all of their expertise as well.
Moving further upstream from the trading to the mining, we do have this property, 5.1 million ounces of gold in Ghana, that is disputed. And we have been litigating that with the government of Ghana. I'm actually here in Ghana at the moment and very actively engaged in bringing that dispute to a positive resolution. So we're hopeful that that will be resolved soon, and we have the funding lined up to restart the mine, and then we can start producing our own gold, which is obviously at a much, much greater discount to the gold price, particularly where it sits now, and will generate a lot more free cash for the business.
Tom Kerr: So, the way you look at the mine, it's almost just a margin enhancer to some degree, or to put it another way, if the mine does not restart, are there enough sources through the other trading platform to make this whole system work?
Andrew Cavaghan: Think of it in terms of increasing margins as you move out from the token. The token is a revenue generator in itself, as I've described, but if you move one step out in both directions, you get the trading margin as you move upstream one step, and you get the financial services margin as you move downstream one step. And then moving upstream to the mining, that's where your highest margin is. By being involved in all stages, you capture more of the value from the gold lifecycle. However, for the token to be successful, you could just focus on the token and its natural uses downstream with the financial services, the One App, and the natural one step up with the trading.
So, all three of those activities we're currently engaged in or in the process of launching in the coming days and weeks. So, you're right, the mining is not essential to the success of those three activities, but it's clearly very value-enhancing. It's something that we have the in-house expertise, we have the senior team already in place, as well as the mid-level team to do that, so we're very focused on achieving that.
Tom Kerr: You mentioned you have funds to restart the Ghana mine, if necessary, but what about other corporate financing to help develop the token and the platform and so on?
Andrew Cavaghan: Well, a lot of the development work's been done, really. It's been done through a lot of hard work and a lot of in-house expertise that we've brought in. So, to have the tokens and circulation start generating revenue for the One App and the trading, we don't really need that much more runway.
What we have in place is sufficient with our current partners. The really heavy lifting from a financial perspective is on the mining side. That's the big capex. There's also the big positive cash flow once it's up and running. But the token and the trading and the fintech, they're all relatively light costs from an investment perspective.
Tom Kerr: And just to go back to the mine for a second, it's a restart of a mine, it's not a development of a mine. Is that correct?
Andrew Cavaghan: That is correct, yeah. The Bogoso-Prestea mine has been operational for over a hundred years. It's had an estimated half a billion dollars of investment into the infrastructure over the years. It has an operational processing plant. It's got a whole camp infrastructure, and it's got an underground infrastructure as well.
It still requires rehabilitation investment, particularly because it's been through this lengthy dispute and inactive during that time. But it's not the sort of investment you would make if you were starting to build a mine from scratch, so that's the great advantage of it. And of course, we're very familiar with what needs to happen.
Tom Kerr: Got it. Let's move on to industry dynamics. I guess there are two industries. Gold is basically the backbone of your whole platform. We're at elevated prices, high prices, a lot of volatility. Any thoughts on that continuing? And then the tokenization of gold. I know there are hardly any people who are doing that, but any big picture industry thoughts?
Andrew Cavaghan: Yeah, gold's been on a real run, driven by macro factors: a weakening dollar, global political uncertainties, the wars, so that's pushed it. It's kind of flattened off a bit. I mean, I think a lot of the banks are calling for a higher price, so we'd expect to see that go up a bit more. I think what's interesting is what would really drive the gold price up in the next major leg. What would get it over five or over 10?
I think this tokenization opens up the demand for gold in a way that it hasn't been until now. People who buy gold are central banks and ETFs. Typically, they're the main buyers. With the plans for tokenization, which isn't just us; others are doing it, it democratizes gold in a way because individuals can buy it without all of the cost overheads that you have, the infrastructure you need to have in place for storage and insurance, and so on, that make the barrier to entry higher for the retail investors. So, by taking those away, and you can fractionalize gold ownership down to fractions of a gram, you can buy one token, for us, that is a gram, but you can buy subsets of that right down to single milligrams. That could really drive demand, and that may well be something that pushes the price up in due course. We'll have to wait and see.
In terms of the tokenization itself, there's only about $3 billion worth of tokenized gold in circulation. There's over $30 billion worth of gold above ground. About $12 trillion of that is reckoned to be in vaults. I'm a strong believer that there's a good case for tokenizing a lot of it because it becomes more useful for the people who've got it. It's dead sitting in your safe, whereas if you tokenized it, you could use it, and it still sits safely in the safe. But someone else is looking after it and paying for it.
I think the key barrier, and the one that will win in this market, is the one who can present the most trusted and transparent platform for the tokenization of gold. And that's what we're aiming to do. We're a publicly listed company. We are subject to higher regulations, both personally as officers and corporately as a listed company. The issuance of these tokens is coming out of a Wyoming trust, within the regulated regime in the US, and Wyoming is one of the most forward-thinking states within the tokenization world. The gold itself is being stored by Brinks in the UAE and will be audited monthly by a Big Four accounting firm.
So, we're really trying to set our stall out to give the maximum assurance to people that this is real and that you can go and redeem your gold. You can burn your token, as it's called, liquidate your token, and take your gold whenever you want, which is the ultimate test that this is real.
Tom Kerr: I think that's a lot of the misunderstanding by investors. They think they own theoretical gold, but the gold they own is labeled, registered, however you want to say it. I think that's a big differentiator. You haven't given guidance or anything like that, or financial projections. I don't think you’re prepared to do that now. But, just looking at the operations of the digital platform, you would think, you know, there's no capex, you're not building factories… You would think there'd be a relatively straightforward path, a relatively quick path, to breakeven or profitability.
Andrew Cavaghan: Well, the great thing about the three components of the business I described – the fourth one is the mining, but the three components being the tokenization, the OneApp, the fintech, and the trading – is that they don't require a lot of people, they don't require a lot of investment, and they're very scalable. We've got a clear route map to revenue in each of those three areas and breakeven profitability in those three areas.
The mining does involve a lot of capex, and it does involve a lot of people, but it does also generate a lot of cash. But you don't have to carry all those people until you're actually moving ahead with the mining, so that's not weighing us down. I therefore feel that we've got a robust business model that we're rolling out, and I expect to see it coming into fruition during Q1 and Q2 next year.
Tom Kerr: That makes sense. It's a great story, and thanks for your time today.
To read all of our reports on Blue Gold, investors can go to scr.zacks.com as well as our social media channels. To find more specific information on the company, you can also go to their website at bluegoldone.com.
And that concludes our Fireside Chat for today. Thank you for being here.
Andrew Cavaghan: Thanks very much.
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