COINS can perform handsomely as an investment but, like any class of collectable item, you won't strike it rich collecting just any old thing.
Short of travelling into the future to see what the market wants, your best bet is to take some advice on coins that have the best chances of increasing in value: rare coins in perfect condition and with a history.
Eion Blignaut, a senior broker at SA Coin, which deals in rare coins, said the market in South Africa began to formalise in 1995, which was good news for collectors.
With formal coin grading came more transparency and less price manipulation for profit.
South Africans can now have coins graded in the US. Collectors need to become a member of one of three grading agencies - NGC, ANACS or PCGS - and it will then cost about $15 for a coin to be valued, excluding courier fees to the US.
"These are the three accepted grading agencies worldwide," Blignaut said.
"They have a shared database and all three accept each other's grades. A grade is guaranteed worldwide as long as the coin container supplied by the grading agency remains unopened. To prevent a conflict of interests the grading agencies cannot buy or sell coins.
"By the same token, you cannot and should not get a trader to grade a coin for you," Blignaut said.
Coins that have been damaged or even cleaned, won't be ranked.
Graders work on a 70-point scale, with only those coins in flawless condition receiving a score of 70. This rating scale applies to both mint-state and proof-state coins.
Ordinary coins such as those produced by the South African Mint as currency are called mint-state, while those deliberately minted to be of higher quality and with more defined, highly polished surfaces, are called proof-state.
Proof coins are usually produced in limited runs specially for the collectors' market.
Proof coins are usually more valuable because they are rare and are bought by collectors who would get them graded immediately and preserve them.
These coins are also more likely to be towards the top end of the 70-point scale. The rule of thumb is to try to buy as high a grade in as rare a coin as you can afford.
"The top three or four layers of grading - that is, from 67 upwards - are the rarest, so don't make the mistake of going to an auction site and buying lots of lower-grade coins," Blignaut said.
"Before you buy you should speak to an expert about why you're buying, what your goals for the investment are, and what will happen at the end of the investment term.
"For example, if you plan to leave coins as an inheritance, it won't make sense to split them between children unless the coins are all identical."
There are various ways to enhance the value of your collection.
The first is to continually upgrade to rarer coins higher up the 70-point scale. Another way is to buy sets.
Coins from the old Zuid Afrikaansche Republiek (ZAR) have proved desirable, but while the Paul Kruger legacy has driven price growth in that sector of the market, it is the legacy of another statesman which is driving the most significant growth in values.
Blignaut said: "ZAR coins have seen 8% - 15% growth in value a year, but Mandela coins have come off a low base and initially experienced annual growth in value of 100%, which has moderated to 20% in general and more for higher grades."
Nelson Mandela is the first former head of state to feature on more than one coin, with the 1994 inauguration R5 coins being joined by a 2000 post-retirement run and a 2008 90th birthday tribute coin.
Blignaut said: "Coins from a mint run are less likely to be perfect. From the 2008 run, 5-million were mass-produced and although there were no 70-pointers, there are 13 known 69-pointers, 112 68-pointers and 25500 67-pointers that have been graded.
"There were 5000 of the 2008 Mandela coins made in proof state, 80% of them were graded and there are 97 known 70-pointers ... if you have one of these, you have one of only 97 out of 5000," said Blignaut.
Mandela coins had a record run after their introduction. A mint-state 69-pointer 2008 Mandela R5 coin was recently sold by SA Coin for R2.5-million. This is the value of rarity.
Blignaut said the 14 brokers operating in South Africa mostly deal in Mandela coins, which are largely responsible for the huge growth in the local market.
"Everyone loves Mandela, and there is good demand around the world because of the man. When there was news of his health deteriorating recently, we saw a run on Mandela coins," he said.
ZAR coins from 1892 and 1893 were also highly sought-after.
"They were the first coins minted in South Africa," Blignaut said.
"Not every special coin will be in demand. It's who wants to buy them that really matters. The Mandela coins have just gone ballistic. It's what the market wants, and you can't really decide that.
"Like any investment, if you do your homework and listen to advice, you can do very well. It's a five-year-plus game. If you buy a 58-grade coin, you're probably wasting your money. And if you buy something that hasn't been graded already, what are you buying? Do you know? Why take that risk?"
Tax-free hard cash
Because coins are rated as collectors' items by the SA Revenue Service, collectors pay no taxes on their sale. "This is very beneficial from an estate tax point of view," said Blignaut.
"Coins can also be moved, as currency, out of the country. They can be sold relatively easily and are thus very liquid - they can be converted straight into cash. The higher the grade, the easier the coin will sell and the bigger the demand will be," he said.
Error coins, fakes or freak coins may be rare and have some interest all of their own, but they will almost always have less value - the coin market is all about perfection. Blignaut said a market for bank notes existed, but was much smaller than the market for coins.
The coin that bought a state
THE most valuable coin ever produced in South Africa is called the Single 9 - a unique coin that President Paul Kruger had minted to ensure that his Zuid-Afrikaansche Republiek met the definition of a sovereign state: one that mints its own money.
"'Oom Paul' was the first machine at the ZAR mint and Britain had hijacked the coin dies to turn the ZAR effectively into a protectorate by removing its ability to stamp coins," said Eion Blignault.
"So, the mintmaster took an 1898 Pond and stamped a 9 on it. That coin was sent to the US ambassador in Pretoria as the first of the 1899 coins." The ambassador then declared the ZAR a sovereign state.
"The coin sold for over R4-million a decade ago, and it was reportedly sold again for $4-million. It is now worth about $10-million because there is only one."
* This article was first published in Sunday Times: Money & Careers
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