Deferred Consideration

12 Months Ended

Dec. 31, 2020

12. Deferred Consideration

Deferred consideration represents an obligation the Company assumed in connection with the 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 $230,137 and $173,024 at December 31, 2020 and December 31, 2019 using the following assumptions:


	December 31, 2020			December 31, 2019
Forward-looking gold price (low) – per ounce	$	1,903		$	1,535
Forward-looking gold price (high) – per ounce	$	2,662		$	2,328
Forward-looking gold price (weighted average) – per ounce	$	2,117		$	1,757
Discount rate		9.0	%		10.0	%
Perpetual growth rate		0.9	%		1.5	%

The forward-looking gold prices at December 31, 2020 were extrapolated from the last observable CMX exchange price (beyond 2026) and the weighted-average price per ounce was derived from the relative present values of the annual payment obligations. The perpetual growth rate was determined based upon the increases in observable forward-looking gold prices through 2026. This obligation is classified as Level 3 as the discount 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 $17,374 and $13,953 and long-term amounts payable were $212,763 and $159,071, respectively, at December 31, 2020 and December 31, 2019, respectively.

During the years ended December 31, 2020 and 2019, the Company recognized the following in respect of deferred consideration:


	Years Ended December 31,
	2020			2019
Contractual Gold Payments	$	16,811		$	13,226
Contractual Gold Payments – gold ounces paid		9,500			9,500
Loss on revaluation of deferred consideration – gold payments (1)	$	(56,821	)	$	(11,293	)

(1)

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

In addition, losses arise due to increases in the perpetual growth rate and a reduction in the discount rate used to compute the present value of the annual payment obligations.