C3 Bullion describes its mission as operating in the space between investors and gold mines by providing capital and expertise to gold producers in return for physical gold from the mines the firm works with. C3 Bullion says this is a happy medium between buying gold bars or investing in gold ETFs – or stepping into the mining sector itself.
This approach, backed by a $50 million capitalization via its C3 Fund I, enables C3 Bullion to identify existing gold mining operations with sizable deposits but a need for capital investment to bring additional gold to the marketplace. The firm’s business model enables these companies to grow without having to compromise their equity.
When the Basel Committee on Banking Supervision’s Basel III minimum requirements for international banks took effect in January 2022, physical gold remained a tier 1 asset, but paper gold reserves were lowered to tier 3. It was obvious that the demand for physical gold was, at least in the short run, going to outpace the growth in the world’s supply of physical gold.
Since then, big banks have broken records to increase the share of their portfolios held in physical gold. Similarly, financial advisors have instructed individual investors to increase gold’s share in their portfolios from miniscule or even nonexistent levels up to 5 to 10 percent. C3 Bullion opted to serve both gold mining companies and investors in a tailwind market.
When Luciano Duque was promoted from chief investment officer to CEO at C3 Bullion, he was quick to refocus the company to increase its focus on capital markets from equal emphasis on mining and capital markets to 70 percent in capital markets and just 30 percent on mining. C3 will also place more weight on gold financial products.
Duque says the goal is to place more weight on gold financial products to take advantage of rising gold prices at a time when demand continues to outpace supply. C3 is also downsizing its mining operations and will rely more on its mining partners rather than employing a full team. The plan is to hire high-level mining people as well as local contractors who are experts to oversee mining inspections.
Step 1 was gaining Securities and Exchange Commission approval for C3 Bullion Inc., the firm’s fund manager, to raise capital from the public – capital that would enable C3 Bullion to provide direct loans to mining companies to be repaid in gold bullion. By opening a fund capped at $50 million in round 1, C3 provided a pathway for even minor investors to get a piece of the action – both modernizing and democratizing how gold is processed and sold to consumers.
Step 2 was identifying active mines (and, down the road, even inactive mines) that needed an influx of capital to expand operations and recover more gold. The capital infusions enable mines to, say, double the amount of ore crushed and extracted. Under the typical five-year agreement, the mine pays interest on the loan in fiat, repays the principal in bullion at a discount on the market price (but higher than the extraction cost), and pays a royalty to C3 Bullion on its increased production.
The property, equipment, and the actual gold in the ground provide security for these loans to operating mines. The simplicity of the agreement enables loans to close in just 60 days compared to six months to a year for mines dealing directly with banking institutions.
In return for sacrificing a portion of their production for a fixed time frame, the mining companies get equipment, expertise, and capital that will enable continued production long after the loans are repaid in bullion.
Duque believes these short-term loans, repayable in gold bullion, are far superior to purchasing shares in the mining companies themselves. With shares, if there are no dividends there is no return on investment. The C3 Bullion business model enables profits to come from the mine’s production – not its overall profitability.
Duque says that C3 Bullion is on the verge of rolling out its tokenized version that will enable structuring loans to specific mines for investors who want a more personalized relationship with their investments. Increased reliability of private credit through the blockchain will quite likely bring growth to that portion of the investment marketplace – and more investors for C3 Bullion.
In Duque’s view, the biggest driver of gold price increases today comes from individuals and firms seeking to increase the amount of gold in their investment portfolios – a wise choice in a volatile, uncertain marketplace racked in recent years by localized and global market fluctuations due to conflicts, regime changes, and advancing technologies.
Duque says C3’s primary focus on existing mines is based on the fact it takes years to identify minable deposits, purchase and bring production equipment online, and begin selling gold. Those long lead times discourage investment given historic wide fluctuations in the price of gold.
Until Basel III there was a lot of underinvestment in gold – but today production increases are not keeping up with demand – and it will be years before supply catches up. That bodes well for C3 Bullion, whose business model relies on an in-and-out approach and short-term rewards for investors with low risk of loss.
C3 Bullion, says Duque, is now being approached by banks that want to use the gold in their vaults as collateral for lines of credit. This opens new avenues for financing expanded gold production by existing mines and may even stimulate growth in gold exploration and development.
For the moment, though, Duque says there are lot of mines in the Americas that are still significantly undercapitalized and a lot of people in search of physical gold.