In 2013, the last year for which accurate data is available, around 40% of physical gold traded in the world moved through Dubai.
This gold was going from west to east, from south to north and into and out of Europe - much of the trade ended up in China, but there was also significant business volumes done with India.
In short, Dubai is a global hub for the gold trade and anyone looking to enter the market would do well to base there.
The thinking is pretty clear, as executive chairman Richard Poulden explains.
“At the UK Investor show I stood up in front of the audience and apologised,” he says, on the phone from his office in Dubai.
The reason for the apology? Simply, that alongside such industry luminaries as Rick Rule and Eric Sprott he called the gold price wrong back in 2012.
“When we launched Wishbone,” he says, “gold was at US$1,350 per ounce and all of us thought it was going to US$2,000 and beyond. In fact it went to US$1,380 and turned around and went back.”
The weakness in the gold price since Wishbone listed has somewhat hampered its ability to make progress with its gold exploration properties in Queensland, Australia.
Indeed, raising meaningful amounts of capital for pure exploration has been nigh on impossible for any company for at least a couple of years now.
Instead, junior miners are in increasing numbers reverting to the old model that the London investment community always used to favour before the froth and excesses of the boom: namely that exploration upside be supported by cash flow.
This is precisely the model that Wishbone is now adopting. “The company will be cash flow positive and still have the exploration assets,” says Poulden.
But he’s clear that at this stage the trading business in Dubai is all about moving gold on from a seller to a buyer. For now Wishbone itself won’t be taking speculative positions in the market, although that may change at a later date.
Rather the idea is to pick up the 2-4% margin on each transaction, to conduct three or four transactions per month, and to build a cash positive business from there. Currently Black Sand’s main network of suppliers are in South America where two contracts are already in place. Poulden believes that using his network of global contacts, gleaned from his time at Sirius Minerals (LON:SXX) and elsewhere, the group may be able to expand this and source more from other regions.
To get the trading business fully up and running the company will require up to US$10 mln in working capital, though not all at once. Poulden is confident that this money can be raised as debt at a reasonable rate, and that if margins and volumes build as he anticipates the sense of being geared in this manner will become obvious.
“We’ve got a significant level of interest,” he says, in referring to potential debt providers.
And he’s got a significant level of interest in the market too. Volumes this year have hit record levels, peaking at a daily trade of 82 mln shares on January 12th.
There’s some ground to be made up yet before the share price returns to the levels it was at when Wishbone listed, but the Black Sand acquisition could well mark the start of a substantial recovery.