Canadian mining leader Nolan Watson on new gold standard

At the Subscriber Investment Summit in Vancouver last Thursday, 35 year old Sandstorm Gold CEO Nolan Watson made the case for a new gold standard.

At the Subscriber Investment Summit in Vancouver last Thursday, 35 year old Sandstorm Gold CEO Nolan Watson made the case for a new gold standard.

“I believe that if you take actual physical gold in a vault and transact it electronically, that will be the first time in my generation that we will have something that actually can be true money.”

Watson pointed out the US monetary base has tripled over the last nine years. “What they are effectively doing is government sanctioned theft of people’s life savings and it is very frustrating.”

“One day we will be able to use our phones to spend money in gold.”

Watch the video of Nolan’s presentation below, and here’s the full transcript:

Nolan Watson, Sandstorm Gold CEO, Subscriber Investment Summit Presentation
October 9, 2014 – Vancouver, Canada

NW: I am going to be talking a little bit about Sandstorm but even more than that in an environment today where gold prices are low and Sandstorm Gold being a gold company, I want to talk a little bit about reminding people why gold and why we’re in the gold business and more particularly with respect to Sandstorm, why we have built an entire business around gold and why we are going to continue to do things in the gold space and that will give you an indication on why it is important to us, how we think about it going forward in the future. As was mentioned I am the president and CEO of Sandstorm Gold. We are a NYSE and a TSX listed company. Our market cap is about half a billion dollars. We are five years old, Vancouver-based, and having a lot of fun building the company.

So, from a high level perspective I will talk a little bit Sandstorm here then talk a little about gold. So Sandstorm, we have a diversified portfolio of streams and royalties. I think everyone here is familiar with what a royalty is which is just revenue from the various companies. A stream is very similar to a royalty, the difference is minute. But effectively a stream is where we get a % of a mines production for the life of the mine and we pay a fixed ongoing number for that. For example, the average payment we make is between is about $400 per ounce and the the difference between $400 and spot, that’s our profit.

Today Sandstorm Gold we have $70 million in cash and no debt. Now is a good time to have cash on your balance sheet if you’re a company that is trying to continue to grow and diversify. Speaking of diversification as at today we have 46 streams and royalties so in 5 years since we started the company with one asset, we have been able to diversify and grow fairly quickly.

Today, 14 of our assets are currently cash flowing so we have significant cash flow from operations and we have gold price leverage, which is what I really want to talk about today. Unfortunately the gold price leverage has been working against us. Our plan is eventually the gold price leverage will be working for us.

I am a very passionate person about gold. In fact, many people do not know this about me but I am going to pull it out right here this is my wallet and everywhere with me in my wallet for years I have had this gold coin. I always keep it with my wallet because I want to remind myself that gold is money and when my kids ask my questions and I am not sure if I should say yes or no I flip it and that is how I parent.

Now getting into gold I think everyone fundamentally understands that the governments of the world are over levered. There was a bit of a mis conception in 2009 we really got over-levered around the world and therefore we’ve been in this deleveraging phase every since.

I think it would be surprising for most people to see, that if you look at a chart of the world total debt, divided by the world total GDP. Debt is now 210% of GDP, it is 30% higher than it was in 2009. The difference is the government’s have been levering themselves up.

I would be curious to see by the way of a show of hands that if anyone believes that the US government is expected to pay off its debt the same way you and I would be expected to pay off a mortgage.

Nobody, OK thats good.

The obvious thing that you have to do is expand the monetary base. A lot of people don’t fully understand what a monetary base actually is, it’s a bit confusing with M0, MB, M1, M2, and M3, and what are the definitions of these things.  From a very high level perspective, if you take money and you put it into the system, and then in a fractional reserve banking system, it gets lent out and re-deposited into a bank and re lent again, that money grows with what is called a money multiplier. M1 is after the money multiplier effect.

The monetary base is just the actual amount of dollars that you put into the system before it actually started getting multiplied by that fractional reserve banking system.

And so, you would expect with world debt like this you that the one thing you would probably be doing is that you would be expanding the monetary base that we know is happening right now but we probably don’t realize at the extent at which this happening.

This is a chart of the monetary base for the last 40 plus years. It has tripled in the last 9 years. The velocity of money has been slowing down so we do not feel the effect yet on the price of gold and inflation, but make no mistake, this is how the government plans on getting their debt to GDP ratios back on side. What they are effectively doing is government sanctioned theft of people’s life savings and it is very frustrating, and it is something that I see. It’s not the sophisticated people who lose out. The sophisticated business people we know we have to put our money into hard assets.

I put my money in real estate, I put my money in gold, I put my money in other forms that can not get inflated away. It’s the person that slaves day in day out, putting money in their savings account, that when this money printing happens, and that money is devalued, those are the people that the government is stealing money from.

So, I just want to talk a little bit about why I think gold is important and refresh peoples memory

It sort of is an antiquated idea. For some of you that have grey hair in the room you will remember but for people like me graduating from university, I thought gold was an outdated concept. We have developed sophisticated monetary systems that are way better, we don’t need gold anymore.

To refresh people’s memory, money has three main characteristics, It is a unit of account, It is a store of value,. and it is a medium of exchange, and you have to have all 3 characteristics.

Paper clips are a good unit of account if we have 100 or 200 paper clips… obviously paper clips are not money.

Diamonds are a good store of value but every diamond is different from every other diamond so it is not good medium of account or medium of exchange unless you are a warlord in Africa.

Dollars are a great medium of exchange, because I bought my coffee with them this morning and they are a good unit of account. We all know they are a terrible store of value. A lot of people have said gold is money, well, technically. with the definition of money, the way we use it today, gold is not money… it’s a fantastic unit of account it is the best store of value gold is not a good medium of exchange anymore. I can’t spend that gold coin, in fact I have gotten stuck in countries before where credit cards were cut off because VISA just does that every now and again, but I had my gold coin with me and nobody let me spend it. For quite a while, gold has not been a good source of true definition of money.

I believe that with all the changes that are happening with technology and the banking system the emergence of things like bitcoin the fact that it is not going to be very long before you can take your handheld device and wave it at something at stores in fact it is already happening and that’s how you pay. Your payments are going to be done through your smartphone. There are companies like Square and now Apple Pay just launched a little while ago. Any exchange that you want in any currency on one device is going to be able to transact currencies very easily and so therefore, I believe that if you take physical gold actual physical gold in a vault and transact it electronically, that will be the first time in my generation that we will have something that actually can be true money. Clearly the central banks aren’t going to want it, the governments will not want it.

It will have to be something created outside the banking system, and eventually be a forced option on the banking system.

I do not believe that gold will not be the only money, I believe that governments will always want the right to print unlimited amounts of money. As a good example of that when I first started sandstorm one of my first investors, I have some awesome and very colorful investors

They sent me a letter and all it was, was a handwritten note that said, Never forget why you are in the gold business. What is was was it was a Zimbabwean currency. This is perhaps an extreme example of currency printing. This is a $100 trillion dollar note.. it is a real note and that is why we are in the gold business and that is why Sandstorm has built a business around gold. And you can get a very artificial sense of the lack of need for gold especially in days like today where people are seeing the gold price drop and gold companies drop. We believe in gold, and we are building a business around it. We are going to spend the United States dollars in our bank account on gold and buying gold ounces in the ground and that is what we do.

One of the criticisms that gold could ever be an legitimate currency is that if there is a 4 trillion dollar US monetary base today that is before the leveraging of the fractional reserve system. There is actually $2.7 trillion worth of gold sitting in vaults that is not including jewellery, jewellery would take that number closer to $6 trillion, now half of that is owned by central banks and half of that is owned by others. To compare that to the US monetary base only 10 years ago, the amount of gold today, at today’s price, is somewhere between the US monetary base of ten years ago and where it is today. So it is actually a viable currency, it is absolutely something that is technologically capable of doing. I do believe that there will be a new gold standard. Now, make no mistake even if that does not happen gold is a good safety of value and it has value for that today and we are going to continue building our business at Sandstorm irrespective of this issue. I truly am a believer that one day we will be able to use our phones to spend money in gold.

So, with 30 seconds left I have one slide left, Why Sandstorm?

  • We have exploration upside with no exploration cost because of the fundamentals of our business;
  • We have gold price upside because we are a gold royalty and streaming company and we have fixed cash costs forever;
  • We have diversification so you do not get that one asset risk when you invest in a junior mining company.

That is what Sandstorm is and that is why we are doing it. We are excited to be running this business. Thank you.

This is not a recommendation to buy or sell securities. May contain errors. Contains forward looking statements. Always do your own due diligence.

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By Tommy Humphreys

Tommy Humphreys is a writer and web producer. He is the founder of CEO.CA and also serves as an advisor to executive search firm Odgers Berndtson.

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