The New Gold Buyer on the Block: What Are They up To?
Global Analyst Adrian Day looks at Tether and what its plans are in the gold market, specifically with the junior royalty companies in which it has been building positions. He also looks at the latest developments in several of the companies on his list.
Tether, the sponsor of the world's largest dollar stablecoin (crypto backed by dollars), also has a gold-backed stablecoin (Tethergold, with the symbol XAUT) that has been growing dramatically. From its launch in early 2020, XAUT has grown to over $2 billion in value today. As a consequence, Tether has become one of the largest buyers and holders of physical gold. Indeed, in the second and third quarters of this year, Tether purchased more gold than any individual central bank.
So great has been the growth that Juan Sartori, vice president of Strategic Projects for Tether (and chairman of Elemental Royalty), said last week that the company has deliberately slowed its growth so as not to affect the gold market. Tether is buying gold not only to back XAUT, but also for a small part of the backing of its dollar stablecoin (USDT), as well as for corporate reserves. It now holds around $20 billion in physical gold, up from "just" $12.9 billion at the end of the third quarter.
Tether Believes in Gold and Hard Assets
In a talk last week sponsored by Canaccord, Sartori said he expects USDT and XAUT to grow tenfold in the next few years as more people adopt crypto wallets just to buy these two stablecoins. Though on USDT, Tether is raking in billions of dollars in Treasury bill interest that is not passed on to USDT holders, Sartori said the company is not making money on XAUT; "for us, it's almost ideological."
(In addition to gold, Tether owns a lot of Bitcoin and has been buying Latin American farmland.) Sartori indicated that ways to make money would present themselves in the coming years. But he said it would not lend out the gold, even to strong institutions such as central banks, because it wanted no counterparty risk at all.
Where Is the Gold To Come From?
The biggest challenge for Tether, as the gold stablecoin grows, will be having a secure source of gold supply. Sartori said the company had approached miners for offtake agreements, but did not indicate if it had any in place now.
In truth, though offtake agreements for base metals and smaller resources such as rare earths make sense, offtake agreements in gold really do not make much sense.
How Royalty Companies Fit Into the Strategy
And here is where royalty companies come into play. Sartori commented that royalties present "the most incredible way of investing in long-term supply," with high margins and little risk. One idea was to link Tether's royalty interests with a gold token, so that it would receive gold without production having to be changed into dollars (and back again).
This strategy explains why Tether, with its enormous war chest, did not take a stake in one of the large royalty companies; they trade at premiums, and Tether needs to buy sources of gold at or near NAV. Hence, the junior royalties. In noting that Elemental trades below NAV, he said Tether was prevented from buying more shares in the market because it already holds 32% of the shares, but the implication was that it would if it could. He was talking about his book, but it made sense.
The Strategy is Playing Out
In recent months, after taking control of Tether and completing the acquisition of EMX, Tether has accumulated shares in other royalty companies. On Tuesday, it announced it had increased its position in Metalla to 6.6%, all shares acquired in the market, and to over 10% in Gold Royalty, also all in the market. It had gone to over 13% at the beginning of the month, before Gold Royalty issued additional shares for an acquisition. It is believed that Sartori has made direct approaches to some large shareholders of both companies to acquire their blocks, but has been rebuffed.
It also acquired a 12.67% interest in Versamet when it teamed up with the Lundin family to buy Royal Gold Inc.'s (RGLD:NASDAQ) block. It makes sense that Tether will next acquire Equinox Gold Corp.'s (EQX:TSX; EQX:NYSE.A) block; that company clearly needs cash to reduce its debt, and has a lock-up on its shares that expires at the end of this year. B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX) also has a block, 32%, and could also do with the cash, so we would expect Versamet to fall soon and be incorporated into the Elemental Royalties Corp. (ELE:TSX.V; ELEMF:OTCMKTS) mothership. Both Gold Royalty Corp. (NYSEAMERICAN) and Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) will be more difficult, given that there are no large blocks of willing sellers.
I suspect that after Versament, Gold Royalty will be the next to fall. As for Metalla, Tether has shown itself to be a disciplined buyer since it started buying shares in August, and will likely slowly but steadily continue to accumulate shares while attempting not to affect the market price. Each additional 1% of the shares outstanding must be reported, so we will be able to see their progress. Given just four supportive shareholders and management hold nearly 35% of the shares, if Tether can't pry shares from one of those shareholders, it will be a long and tough slog to gain control. Perhaps for the time being, they will be satisfied with simply holding a meaningful share interest.
Metalla Is a Buy, With Upside and Strong Downside Support
In any event, given the company's long-term strategy, I do not see them stopping, and so they act as a very firm support for the shares of Metalla Royalty.
Continue to buy.
I should disclose that both SMA clients and the Europacific fund I manage hold shares in Elemental and Metalla, as well as Equinox and Versamet.
'This is Just the Beginning'
Tether clearly has not ended its foray into gold. Last month, it hired two senior gold traders from HSBC, including the global head of metals trading. This suggests that Tether is not done buying gold.
As for how high the gold price might go, when Sartori was asked that question last week, he replied, "I don't want to give a number because I don't want you to think we are crazy," adding "we are very, very, very positive on gold, and equally negative on traditional currencies; this is just the beginning."
Barrick Finally Confirms Reports of Corporate Split Potential
Barrick Mining Corp. (ABX:TSX; B:NYSE) confirmed press reports that it was looking into a split in the company, specifically by exploring an IPO of a subsidiary holding the company's North American gold assets. Barrick emphasized that it would maintain "a significant controlling interest" in the new company. The new company would include Barrick's share in the Nevada Gold Mines joint venture (NGM) and Pueblo Viejo (PV), as well as the new, wholly owned, Fourmile discovery in Nevada.
The offering would be of "a small minority interest". The company said it would update the market on progress with its full-year results in February. The full value of Barrick's North American holdings could be as high as $62 billion, or about 85% of the full value of the company. However, that assumes the unit is given the same value as, say, Agnico, and that would require operational improvements to close the gap. In addition, with Newmont Corp. (NEM:NYSE; NGT:TSX; NEM:ASX) having to pay Barrick as much as $19 billion to put Fourmile into the Nevada joint-venture (see Bulletin #980), that would go a long way to realizing any price tag that the entire unit would carry.
One analyst commented that such an IPO would neatly package the assets in which Newmont would be most interested. But if that is the point, then why not simply negotiate directly to sell those assets to Newmont with an IPO.
Small Spin-Off May Not Do Much, but Current Quarter Should Be Strong
The percent of the unit that would be separately traded was not provided, but given Barrick's commentary (and the fact that Newmont holds around 40% of both NGM and PV), for Barrick to retain "a significant controlling interest" suggests only a very small interest would be separately floated. This raises the question of the extent to which the separate company would actually realize full value.
On the contrary, it may become an orphan stock. Barrick's fourth quarter should be a strong one the company had long guided for the fourth quarter to be its best of the year meaning it would meet its full-year production guidance. Barrick has resumed operating the Mali mines, which should give a modest boost to production in the quarter, as well as to the balance sheet with the return of 3 metric tons of gold seized by the government a year ago (and ordered returned by a court), worth over $425 million. Costs should be lower, while recent asset sales (Hemlo and Tongon) will see the cash position increase meaningfully.
Given this, Barrick's share price should see further advances into February; hold.
Pan American Reports on Year's Drilling
Pan American Silver Corp. (PAAS:TSX; PAAS:NYSE) provided a 2025 exploration update. It was busy, with 333,830 meters drilled in the 12 months from November last year.
The results released were near-mine exploration at seven different mines, focused on resource conversion.
The results released represent only 70% of the total drilling performed by the company during the period. The results at most mines look encouraging, particularly at Jacobina and El Pe?on, which both saw higher grades, but nothing dramatic.
We are holding for leverage to silver prices (the share price has just kept pace with the silver price over the last six months).
Fortuna Sees More Strong Results From Likely Next Mine
Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) reported more drilling results from the Southern Arc deposit at its Diamba Sud project, which is moving towards a feasibility study with a production decision expected by mid-2026.
After a strong price move over the past few weeks, we are holding.
Gladstone Buys Oil Services Company
Gladstone Investment Corp. (GAIN: NASDAQ) has acquired Rowan Energy, an oil services company, providing senior secured debt and major of the equity.
This further diversifies the portfolio, though with perhaps added volatility (though we believe buying at a good point in the cycle).
Trading just a tad above book and with a regular yield of 6.9%, Gladstone is a hold.
Hutchison Gets Compensation for Taken Land
Hutchison Port Holdings Trust (HPHT:Singapore) said land held by its Yantian Terminals will be expropriated by the local Shenzhen government. Hutchison owns 56% of the Yantian Terminals company, which will receive a little over $1 million for the land.
With an indicated yield just over 6%, Hutchison is a hold.
Midland Issues More Equity
Midland Exploration Inc. (MD:TSX.V) has issued more than 5 million shares, representing nearly 5% of the share count. Most of the shares were issued as flow-through shares, at a modest premium to the market, while Centerra exercised its rights to maintain its 9.9% ownership with at-the-market shares. Some insiders also bought shares.
Midland has a history of issuing shares every year, with the share count having virtually doubled from 57 million in 2017 to 113 million today. More shares out make it more difficult for the share price to move up.
We are holding while the market digests the increased share count.
TOP BUYS THIS WEEK, in addition to any mentioned above, include Kingsmen Creatives Ltd. (KMEN:SI), Lara Exploration Ltd. (LRA:TSX.V), and Fox River Resources Corp. (FOX:CSE). If you are underinvested in gold, you can also buy OR Royalties (OR:TSX; OR:NYSE).
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Important Disclosures:
As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of B2gold Corp., Equinox Gold Corp., Elemental Royalty Corp., Metalla Royalty & Streaming, Barrick Mng Corp., Pan American Silver Corp., Fortuna Mining Corp., Midland Exploration Inc., Lara Exploration Ltd., Fox Riv Res Corp, and Or Royalties Inc..Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: All. I determined which companies would be included in this article based on my research and understanding of the sector.Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.For additional disclosures, please click here.
Adrian Day Disclosures
Adrian Day's Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor's opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. (C) 2023. Adrian Day's Global Analyst. Information and advice herein are intended purely for the subscriber's own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.