Royal Silver Company Bonds: Ponzi or Plodding?

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You might not be familiar with Royal Silver Company if you don’t follow the Silver coin market, but over the last 24 months this company has built quite a name amongst coin collectors for their .99999 (5 x 9s) Silver coin products (technically they are rounds as they aren’t legal tender). Most Silver coins are produced in a lower finesse such as the American Silver Eagle (.999) or Canadian Silver Maple (.9999), so these new coins from Royal Silver Company became somewhat a novelty for collectors, chasing the finest Silver coin available on the market.

This is a blurb available on the Royal Silver Company’s website:

Royal Silver Company is Bolivia’s only silver refinery and custom smelter. We sell a retail product: the world s first .99999 pure silver coins. Our retail product is sought after by collectors and silver coin investors, for its unique purity and limited availability. We charge a high premium over spot silver, limiting sales to match our production capacity.

In mid 2010 they released their first coin in this fine grade, the 2010 Andean Cat:

While I can appreciate the novelty of owning the finest Silver coin I must admit their first coin certainly didn’t do much for me from an aesthetic point of view. However their designs have improved over the course of the past two years:

Royal Silver Company 2011 Blue Throated Macaw & 2012 Anaconda

Around 12 months ago (July/August 2011) the Royal Silver Company started offering (reportedly the world’s first) “Silver Bonds” in order to expand their operation in Bolivia. A total of 400 certificated were/are on offer at a cost of $5000 (potentially raising up to 2 Million Dollars). 

This Royal Silver Company Silver Bonds made news on Yahoo Finance:

Royal Silver Company is a Panama corporation with a wholly-owned subsidiary in Bolivia.  The company uses an advanced hydro-metallurgical method for producing silver from mined ores.  Furthermore, the company uses zero emission technology in order to produce certified .99999 silver.  The company currently employs about 75 people.


The company has a new limited membership opportunity for silver.  Royal Silver Company is offering 400 memberships at a cost of $5,000 each, as long as spot silver is between $35 and $40.  The cost of membership climbs to $5,625 if spot silver is between $40 and $45.  Each membership acts like a bond, a silver bond.  Each silver bond entitles the holder to receive a 1 oz silver coin each month until the silver bond matures in 2 years (24 total silver coins).  Upon maturity, the holder receives their initial dollar investment back.  This may appeal to investors, because it is rare to find an investment that pays you interest or dividends in physical  silver .  However, the downside of course is that the initial payment is paid back after two years in U.S. Dollars .  The company’s website contains more details and even explains that investors can sell their membership back to Royal Silver Company anytime before the 2 year maturity is due. Yahoo Finance

Well known YouTube personality stellaconcepts (aka John Christian, online entrepreneur behind Top Stocks, Spotmex and now Chief Technology Officer for ABX Global) also plugged these Silver Bonds on his YouTube channel:

These paper certificates were to provide bond holders (/club members) with a regular stream of Silver coins paid (in place of cash interest a bond would normally pay), with the redemption of the bond possible at any time over it’s life or otherwise paid out in full at the end of the 2 year term (in US Dollars). As stellaconcepts points out in the above video, it’s possible to hedge your exposure to currency movements for those who were concerned about loss from a change in the exchange rate.

Being a member of the club also allowed you to purchase coins wholesale up to the value of your bond ownership (e.g. owning a single $5000 bond allowed you to purchase up to $5000 in Royal Silver Company coins at wholesale prices, $3 over spot), meaning return on investment would be quite significant (should everything go to plan):

You can read more about the bonds on the Royal Silver Company website (they call the program Royal Silver Club): Link to Brochure.

The brochure outlines risks associated with the investment including the following warning:

There was little said about the program (from those who invested) for some months. Some positive feedback from a member on Silver Stackers was reported in January:

“I just want to give some good feedback about Royal Silver Company. 6
months ago I bought into the Royal Silver Company Clubmembership (1
bond) and to date I have 6 coins as promised with no dramas.” Link

It seemed that all was on track. 

The CEO of the company (Brian McConnell) posted every now and again on the Silver Stackers forum, including this in April this year:

However on June 13th this year Silver Stackers forum member Dusty posted discontent with the service he had received from the Royal Silver Company (relating to timely delivery of coins as part of the Royal Silver Club of which he had 3 memberships) and advising us that he had cancelled his memberships to this program (and in turn expecting return of his capital within 30 days as per conditions outlines by the company). You can read the post in it’s entirety here (Link) and Dusty is also organising a sorted timeline of events for me which I will post on the blog at a later date.

The thread also highlighted other poor turn around times which customers of the company had received (although not all explicitly the fault of Royal Silver Company):

1. “I too am having problems with RSC. I placed an order on June 5 and wired
out the money. As of right now, they still do not show the wired funds
in my account and they have not responded to my email from the other
day.”

2. “I had a serious wait to get the 2010 cats. I ordered them late November
’10 and got them April ’11. Sounds like the communication system hasn’t
improved from the time I ordered to the OP’s experience. I recall
sending numerous emails and although I got responses promising they’d be
sent soon, at the end it went silent until I received a  PM here that
my coins might be in a lot this person received from Brian and indeed
they were.”

3. “Same experience when I did the first group buy for Andean Cats a year or
so ago. Between the wire fees, delays, dealing with FedEx/Customs, was a
terrible experience. Despite many many requests to do another group
buy, I just didn’t want to deal with the hassle.”

Brian McConnell (CEO, Royal Silver Company) also responded in this thread (here), part of which is below:

Royal Silver Company has successfully delivered coins around the world for 2 years, since we first started minting.  EVERY order on our books has been delivered or will be delivered.   Anybody who has ever canceled an order has received a refund.  Anybody who wanted a coin replaced has received a replacement.  (We replaced hundreds of early coins, at our cost, with higher-quality strikes). We do this from the most challenging business environment in the Western Hemisphere, from a land-locked, impoverished country high in the Andes Mountains–a country with little industrial development, expensive transportation to world markets, no access to capital markets, governed by people who do not share our free-enterprise values, where the rule of law is a foreign concept, and where people speak Spanish, not English.  Holidays are many, strikes are common, blockades are the order of the day.  Bolivia is the Wild West in every sense of the word. Continues

Later in the thread Dusty says his refund was supposedly being processed on June 13th, the day he posted the thread, however as of July 26th he was yet to receive a refund or be kept filled in on it’s progress (and was also missing several dividend coins).

On August 6th Dusty advised members on Silver Stackers that the CEO of Royal Silver Company had promised the return of his $15,000 (for 3 Royal Silver Club memberships) by the 15th of August. The date came and went and Dusty still hasn’t received a refund of his $15,000 invested into the Silver Bonds. 73 days later when the company claims they will repay within 30.

Another member on Silver Stackers (Wiowi) who private messaged me said the following about his experience with Royal Silver Company:

I too have come against a blank wall with responses from RSC/Brian
MCConnell.  I have one membership, the certificate was signed on
3/01/2012.  I received 3 coins at that same time, but none since then.  I
thought this was a poor performance from RSC and Brian, and after
reading about your (Dusty’s) misfortune I decided to ask a few questions
too.  During the last 10 days I have sent emails to RSC via their
“contact us” on the website, to Brian directly and to the Commercial
Registry of Bolivia (FUNDEMPRESA).  In those emails I requested return
of my $US5000.00 (giving 30 days notice) and that they forward me my
outstanding membership coins.  I also requested acknowledgement of my
emails, but I have not received a reply.

The last communication I had from Brian was this on 14/07/2012….

“(my name):
We
have been delayed to all customers and Members on silver coins for
refining issues that have been resolved, finally.  Australian Members
are behind by 6 months.  We will be sending coins to Australia shortly
to bring everybody up to date.  Thank you for your patience.
Regards
Brian”

This brings us to the question posed in the post title: Are the Royal Silver Company (Royal Silver Club) Silver Bonds a ponzi scheme or is the company just plodding (slow) with delivering what they promise?

My read of the situation (given most customers appear to eventually receive their products) is that the company most likely just has cash flow issues, rather than it being intentional purpose to deceive and retain customer funds. However an investment like this can go bad even the most well intentioned people at the head of the company.

These events are likely to leave a bad taste in the mouths of those involved and who have read the experiences of those affected, so it makes me wonder how easy the next company with an innovative investment opportunity might fare in the precious metals coin market…

My advice if you want a guaranteed investment in the precious metals market, then forget mining companies, forget unallocated accounts, forget bonds or any other form of paper investment and stick with purchasing physical Gold and Silver!

I will provide an update on how this situation resolves in a later posts/s for those interested, so if not already subscribed via email updates you can click the link below to do so:

BB.

 

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2012-08-25 02:58:48

Source: http://www.bullionbaron.com/2012/08/royal-silver-company-bonds-ponzi-or.html