Ever since the Royal Canadian Mint (RCM) started selling gold and silver on the commodities market they have been required to file additional reports.
Such reports, intended to inform people buying those popular Exchange Traded Receipts (ETR), are not packed with the sort of detail that collectors would love, such as detailed monthly coin mintages, but it does give us a bit of a sneak peek into what is going on, without having to wait for the annual report.
For instance, the second quarter report reaffirms something Canadian Coin News has been saying for years: the non-circulating legal tender (NCLT) coin market is critical to the RCM’s performance.
It is, simply put, the reason that profits are up compared to last year, even though revenues are down.
The RCM divides its operations into several categories: Canadian circulating coins, bullion and refinery, foreign coins, and what it calls numismatic. That can be a bit confusing to us, because we use the term numismatic to mean pretty much all coins, medals, and paper money. In the RCM the term is used to mean NCLT coins produced for the collector and gift markets.
The first three groups can generate big money, particularly bullion where the RCM literally brings in close to 80 per cent of its revenue. However, all of those lines operate with very small profit margins, in other words most of that money has to go back out the door to pay for metal and production. The same is true of Canadian circulation, which is low profit work, and the highly competitive world of foreign orders, where the RCM needs a sharp pencil to make a winning tender.
Bullion buyers are mostly investors who buy their maple leaf products at pretty close to the melt value, leaving very little profit for the RCM.
Circulating coins are produced at a modest profit, but the Mint’s owner, the government of Canada, pretty much gets its coins for cost.
The one area where the RCM can make a really good mark-up is in the world of NCLT. Collectors, and gift buyers, are motivated by many factors: mintage, completeness, artistic merit, theme, potential secondary market performance, and innovation, to name a few. For that reason we happily pay hefty premiums above both face and melt for coins that speak to us.
That’s the reason why an increase in numismatic sales of just 4.4 per cent, translates into an increase of more than 20 per cent in profit, even though bullion sales have dropped by nearly 50 per cent, and foreign and circulation essentially have stayed the same.
It is the reason that 2014 will see the launch of some 200 different NCLT products, many of which will sell-out in the course of the year.
We collectors, thinking back to the days when it was possible to still buy one of each product offered in a year, may wonder who is buying all this stuff, but somebody is, and has been for several years now.
Next time someone tells you the hobby is dying of old age, remind them that more people than ever before are buying NCLT coins. The hobby isn’t dying, it is changing.