Goldcorp dips a pinky toe in blockchain waters
Canadian gold mining companies have moaned for months that cryptocurrencies and blockchain companies are luring investors who would otherwise put their money into precious metals.
Now, Vancouver-based Goldcorp Inc., one of the world’s largest gold producers, is dabbling in its own blockchain investment, albeit in a minor way: This week, it sent 3,000 ounces of gold — worth about US$4 million — from mines in northwestern Ontario to the Royal Canadian Mint in Ottawa, where it will be used to back a new digital trading currency.
“Gold is mostly mined in the ground and put back in a vault,” said Dave Stephens, Goldcorp’s vice-president of corporate development and marketing. “This makes it easier and more accessible for investors to directly own gold.”
New York-based TradeWind Markets Inc. will operate the trading platform, called Vault Chain, which essentially digitizes gold. It uses blockchain — the same technology behind Bitcoin and other cryptocurrencies — which uses a distributed ledger to record all transactions.
Through an agreement with the Mint, every trade on Vault Chain will be backed one-to-one by physical gold bullion in storage at its vault. The system went live last week and, theoretically, any gold producer can use it to sell gold.
So far, the system only has Goldcorp’s 3,000-ounce deposit.
To put that deposit in perspective, 3,000 ounces of gold represents 1.4 per cent of the 209,000 ounces of gold Goldcorp produced from its Red Lake mines complex in 2017, and an even smaller 0.12 per cent of its estimated total gold production last year of 2.6 million ounces. Put another way, $4 million represents 0.6 per cent of the company’s $658 million in net earnings last year.
“It just so happens that we ship once a week (from Red Lake) and that was one of the shipments,” Stephens said about the deposit.
But he added that if the trading platform takes off, it provides Goldcorp with new buyers beyond the banks that currently purchase all its gold.
TradeWind was one of the finalists in Goldcorp’s #DisruptMining event in 2017, an annual competition it hosts to showcase new technologies in the mining sector.
Although TradeWind did not win the event, it subsequently received investments from Toronto-based global investment manager Sprott Inc., as well as IEX, a stock exchange featured in Michael Lewis’ 2014 book, Flash Boys.
Goldcorp also owns five per cent of TradeWind, Stephens said.
Matthew Trudeau, president of TradeWind, said he hopes to create a system in which gold can be used as collateral in lending transactions, and one that will improve the provenance and traceability of gold.
“The exciting thing is we’re taking an inefficient manual market,” he said, “and moving it to a technology-driven market where all the participants can meet and transact electronically — versus using telephones, emails and instant messages.”
Eventually, Trudeau added, the company could create similar systems for other precious metals and work with central banks in other countries.
The platform differs in at least one key way from Bitcoin and some other cryptocurrencies: The blockchain, or the ledger that records the transactions, is private, and only people who have identified themselves can use it. Some cryptocurrencies allow two people who do not know each other to conduct a transaction.
Stephens said the combination of gold and blockchain could have potentially far-reaching consequences. The “holy grail” is to create a crypto coin with a stable value, he said, and backing a coin with physical gold bullion may provide that stability.
He wouldn’t commit to how much gold his company will eventually sell on the platform.
“I don’t think there’s an upper limit,” Stephens said. “In theory, this could go global and we could put all of our gold on this platform.”
• Email: gfriedman@postmedia.com | Twitter: GabeFriedz