Opinion: Tokenizing pounds in the ground 

A reader recently introduced me to an interesting idea: a firm in the United States is looking to “tokenize” unmined gold resources. 

Here’s the pitch from the company ‘NatGold’ (emphasis added): 

“The junior mining sector – once the speculative engine of the gold industry – has lost its fuel. Permitting is a brick wall. Capital has moved on. And promising projects are turning into stranded assets before they ever get a chance to deliver. 

“Even for those who succeed, the value often arrives too late – or at too high a cost. For most? The path ends before it ever truly begins. That’s why we created NatGold. It’s a rigorously structured model—built with legal, engineering, and blockchain-grade security at every layer.” 

First of all, I have no affiliation with this outfit. I just thought their pitch reflects the common catch-cry from the junior mining sector: “The model that once funded discovery is dead.” 

Amid bullish conditions in the precious metals market, gold juniors aren’t gaining traction or investor interest. That’s effectively starving them of the capital needed to continue exploration or develop new deposits. 

Filling the void 

With its tokenizing strategy, Natgold is perhaps filling the long-lost void for the junior miners, pioneering a new funding model outside the traditional stock market. 

Many blame the lack of interest in junior mining stocks on the overwhelming focus on new-age investment themes like crypto, meta, and AI. According to them, the tech sector has sucked speculative capital away from the junior miners.  

But NatGold has perhaps hit on something important here. It’s finding common ground between crypto speculators and explorers needing capital. 

In the token space, NatGold joins other companies like Madison Metals which has proposed a token system for future uranium production, and the Frank Giustra-backed Streamex that aims to turn gold assets into tradable tokens.  

How it works 

The process of creating a digital token on a blockchain to represent the value of a real-world asset, in this case unmined gold, sounds straightforward. But in this case we are not dealing with an easily measurable asset. Deposits are hidden below the surface. 

The dilemma is that measuring mineral resources is an arcane discipline. It’s also hidden behind a curtain of industry jargon. No two deposits are alike, so how do you value that as a token? 

For example, resources fall into different categories depending on how well geologists perceive the deposit. We call it resource estimation, a geological model that moves through different levels of confidence that’s built around the number of drill holes. 

Imagine an early discovery made by an exploration company: There might be five or six drill holes spaced over two or three hundred metres, leaving a lot of unknowns in the model. 

At this early stage, geologists can only make vague guesses as to how many ounces might sit below the surface. They sketch in the gold from one drill hole to the next and assume that it runs evenly from one point to the next.  

But that involves huge assumptions. A drill hole might be 5-10 cm wide. Plus, gold deposits rarely ‘drift’ evenly from one spot to the next. Nature is inherently unpredictable. Faults, pinching and swelling, shear zones, or any number of geological variations often trash any early assumptions made by an exploration company.  

Boiling it down 

More drilling means fewer gaps, which means less room for optimistic, sometimes creative assumptions on a resource’s size.  

That’s why the industry has designed standards, like the JORC code in Australia that classifies a deposit into categories. That way, investors can at least gain some confidence in how many ounces, pounds or tonnes a company has guessed it owns.   

But it’s still tenuous. Even when a company claims it has “de-risked” its project through extensive infill drilling it’s still a long way from a certain outcome. This is why financial analysts have such a dilemma in valuing junior mining stocks. 

Resources are hard to define. Even with extensive infill drilling, there’s no guarantee that what geologists have measured reflects the reality of what the miners actually find. Gold, especially, is inherently unpredictable. 

Is tokenizing the solution? 

In terms of introducing a new crowd of investors to the opaque world of exploration, then certainly. That could unleash a wave of fresh capital for cash-starved juniors.  

But for investors, the ultimate prize remains just as allusive, valuing a junior mining stock won’t become any easier. Speculating on a token or buying a share in an explorer won’t make an ounce of difference.  

The only way you can bend the odds in your favour is to get a handle on geology so you can at least exercise some due diligence over company reports. The stuff that matters, not what they teach you at uni! 

James Cooper is a geologist based in Australia who runs the commodities investment service Diggers and Drillers. You can also follow him on X @JCooperGeo.