Deferred Consideration

9 Months Ended

Sep. 30, 2020

11. Deferred Consideration

Deferred consideration represents an obligation the Company assumed in connection with its acquisition of the European exchange-traded commodity, currency and

leveraged-and-inverse

business of ETFS Capital Limited (“ETFS Capital”) which occurred on April 11, 2018 (“ETFS Acquisition”). The obligation is for fixed payments to ETFS Capital of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”).

The Contractual Gold Payments are paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold and are subject to adjustment and reduction for declines in advisory fee income generated by such products, with any reduction remaining due and payable until paid in full. ETFS Capital’s recourse is limited to such advisory fee income and it has no recourse back to the Company for any unpaid amounts that exceed advisory fees earned. ETFS Capital ultimately has the right to claw back Gold Bullion Securities Ltd. (a physically backed gold ETP issuer) if the Company fails to remit any amounts due.

The Company determined the present value of the deferred consideration of $207,748 and $173,024 at September 30, 2020 and December 31, 2019 using the following assumptions:


	September 30, 2020			December 31, 2019
Forward-looking gold price (low) – per ounce	$	1,889		$	1,535
Forward-looking gold price (high) – per ounce	$	2,678		$	2,328
Forward-looking gold price (weighted average) – per ounce	$	2,104		$	1,757
Discount rate		10.0	%		10.0	%
Perpetual growth rate		0.9	%		1.5	%

The forward-looking gold prices at September 30, 2020 were extrapolated from the last observable price (beyond 2026) and the weighted-average price per ounce was derived from the relative present values of the annual payment obligations. This obligation is classified as Level 3 as the discount rate, perpetual growth rate and extrapolated forward-looking gold prices are significant unobservable inputs. An increase in forward-looking gold prices and the perpetual growth rate would result in an increase in deferred consideration, whereas an increase in the discount rate would reduce the fair value.

Current amounts payable were $17,202 and $13,953 and long-term amounts payable were $190,546 and $159,071, respectively, at September 30, 2020 and December 31, 2019, respectively.

During the three and nine months ended September 30, 2020 and 2019, the Company recognized the following in respect of deferred consideration:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Contractual gold payments	$	4,539		$	3,502		$	12,362		$	9,710
Contractual gold payments – gold ounces paid		2,375			2,375			7,125			7,125
Loss on revaluation of deferred consideration – gold payments (1)	$	(8,870	)	$	(6,306	)	$	(34,436	)	$	(5,939	)

(1)	Losses arise due to increases in the forward-looking price of gold and the magnitude of any gain or loss is highly correlated to the magnitude of the change in the forward-looking price of gold.