With legalization of marijuana a hot topic heading into the summer of 2018, the newest issue of the CSE’s flagship publication, Public Entrepreneur, focuses on the highly dynamic cannabis industry.
This edition of the magazine features interviews with a diverse range of cannabis entrepreneurs, a reflection of just how far the industry has come in the span of about five years. From stories about firms cultivating cannabis to the variety of delivery systems to the expansion into consumer products such as beverages and more, this issue provides interesting perspectives on the cannabis industry from the folks working to bring ideas to market.
CSE-listed firms featured in this edition of the magazine include:
In addition, this issue also features an in-depth interview with four women cannabis influencers who share their perspectives about being a woman in this fast-moving space and where they see opportunities to change perspectives, both about marijuana as well as what defines an entrepreneur and business leader in the cannabis industry.
Cryptocurrencies remain a hot topic in financial markets in the opening quarter of 2018, and Canamex Gold Corp. (CSQ) is moving to become the first company to issue a crypto-token backed by gold, and from its own project in Nevada no less. The team is also looking at working with other companies in or near production to help them finance with crypto-token gold and silver royalty streams, instead of traditional debt and/or equity financing.
It is a new concept and takes some explaining, but the potential to eliminate further dilution for equity holders and create new models for valuation is both vast and fascinating. Canamex Gold Corp. Chief Executive Officer David Vincent recently gave Proactive Investors a look inside this new funding paradigm.
Canamex Gold Corp. is literally taking currency back onto a gold standard with the introduction of its gold-backed token with an offering currently underway. We’ll get to your pioneering business structure in just a moment, but first, the Bruner gold project underlies the token. Tell us about Bruner and the plans there.
We’ve got Bruner to the stage where we need to complete the engineering studies, the environmental permitting and then we should essentially be at the Preliminary Feasibility Study stage, for a mine financing decision. We hope to be at that point around the fourth quarter of this year. At that time, we will make a funding decision to construct the operation.
The intention is to use the crypto-token model as the funding mechanism for the mine construction, which means it would be a non-dilutive financing for shareholders. So instead of doing a traditional equity and/or debt financing, we’ll be doing a crypto-token financing, backed by a gold royalty stream off the project
It’s a win-win situation for shareholders and for token holders. Token holders will be buying the tokens at a significant discount to the spot gold price, and the tokens will be tradeable on the Ethereum blockchain, potentially at a significant premium to their issue price, including a speculative premium that we can’t define until it’s actually trading.
This is a pioneering concept and has not been done by anyone else to my knowledge. Where did the idea come from?
It came from looking at gold streaming royalty models, which traditionally is an agreement between two parties: one is the project owner and the other is the royalty buyer. Royalty buyers include such companies as Franco Nevada, Silver Wheaton Precious Metals and Royal Gold.
Our concept is to take a gold royalty on the Bruner property, which has a small portion of the PEA defined resource, and tokenize it. Instead of the royalty being purchased by one party, it is purchased by many parties who hold the tokens and these will then have liquidity on the Ethereum blockchain.
You announced an offering earlier this month for US$5 million. Are you at liberty to give us some insight on how that is going?
It is going very well. There is a lot of interest, particularly out of the United States and Europe. We are receiving application forms and cheques. We’ll keep the private placement offering open until the full amount is raised and then launch a pre-ITO (Initial Token Offering) on the back of it.
The advantage of coming in on the token offering now is that the buyers get a priority allocation into the pre-ITO at a discount.
For those new to the cryptocurrency world and the concept of this offering, can you walk us through the steps? An investor commits to the current private placement offering and you are talking about an ITO. How do the two fit together?
They are similar in many respects. The current private placement offering is more of a traditional financing mechanism under the current regulations and instead of being issued gold royalty crypto-tokens they will be issued a gold royalty token certificate. The names and details will be held in a register. Then the difference with the ITO is that the certificates can be converted to crypto-tokens at a price discount into the pre-ITO, and then they become tradeable on the Ethereum blockchain. And at that point the tokens have liquidity.
So, chronologically, you close the offering and then there is an ITO. What happens next, and what will you use the proceeds for?
The intention is to close the offering and go into pre-ITO, which would be priced accordingly and dependent on the spot price of gold at the time. But again, the pre-ITO offer price will be at a significant discount to the spot price. Looking at the monthly price chart of gold it appears very bullish. We expect that the price of gold could be over $1,400 an ounce in two or three months, then it means the pre-ITO price would be higher than the current private placement offering. Perhaps 10% higher. So, coming in now has distinct early mover advantages.
The funds from the private placement and pre-ITO will be used to fund the company for the balance of this year to get to the mine financing stage in Q4. We may not do the main ITO until the third quarter. The advantage is that by that time we will know what the speculative premium is for these tokens on the blockchain, and then we can price the tokens according to the market price, and not the spot gold price. If there is a significant speculative premium the price of the tokens in the ITO won’t be anywhere near the levels we are offering in this private placement. Investors coming into the current placement are coming in at what could prove to be a very low price.
The work you have done on the token to date affords you rights to do this for other asset owners, does it not?
Correct. We are looking at a number of possible business models. We might set up a subsidiary newco, for example, that becomes like a royalty company and it raises capital via crypto-token issues. It might have a number of royalty streams in North America and other safe jurisdictions and the capital raised to purchase those royalties would be via crypto-token issues, backed by the gold and silver royalty streams.
We’ve already deployed six exclusive token names on Ethereum. They have been deployed but not issued yet. So, we could use those tokens to fund additional royalties in the future through a royalty aggregation model.
You are also a highly respected technical analyst of financial markets. What do you see for gold, and why?
I look at long-wave analysis and currently we are in what is called a fifth K-wave, which is a Kondratieff wave. K-waves last 60 years, so we are on the fifth one of the last 300 years. This wave should peak in 2027, which is where I expect this current gold bull cycle to start topping out. We should see a mid-cycle correction in 2023. I suspect the price will move up toward the previous high of around $1,900 over the next five years, correct and then in the last part of the cycle into 2027 move much higher than $1,900. Basically, a full-on bull market. The fifth wave of the fifth K wave, which should generate a big move higher.
And if you look at the fundamental background it is not good. Interest rates have been too low for too long and there is lots of debt out there, much of which will not be paid back, so defaults are on the horizon. Interest rates thus rise because of a global debt default scenario, where lenders demand a higher interest rate risk premium. What’s this going to do to the gold price?
And silver is even more undervalued than gold. Silver has greater leverage to the upside. You could see Canamex launch a silver crypto-token before long, again using a royalty streaming model.
Aside from Bruner, are there any projects in the Canamex portfolio investors should be aware of?
We have the Silverton gold exploration project. It has similar geology to Newmont’s Long Canyon in Nevada. Long Canyon is a dolomite breccia. Our geologist Greg Hahn, who has built three mines in his career, thinks Silverton has tremendous upside and part of the money raised in this placement will be used for an initial drill program on the Silverton project.
Any other insights from the intersection of cryptocurrencies and hard assets before we bring our discussion to a close?
Just that I think we have tremendous value inherent in Canamex Gold Corp. We have three pillars to the business model: the Bruner gold development project, the Silverton gold exploration project and the cryptocurrency model for funding. Based on our updated Preliminary Economic Assessment, which came out in January 2018, the net present value (NPV) at the current gold price of Bruner is about $1.60 per share, using the current shares on issue. The stock trades at around $0.20, or an 88% discount to NPV. Where are you going to find better value than this in the market?
Jared Lazerson, chief executive of MGX Minerals Inc (CSE:XMG, OTCQB:MGXMF), tells Proactive they’ve furthered their reach into the emerging energy space with the acquisition of ZincNyx Energy Solutions Inc.
Canadian group ZincNyx Energy Solutions has developed a modular energy storage system (ESS) designed for energy storage in the 5 kW to 1 MW range for extended periods..
Its technology consists of three main systems each using zinc and air to store energy in the form of zinc particles.
International Cobalt Corp. (CSE:CO) focuses on primary cobalt projects, and while it has a couple of good land packages under its control in Idaho, a recently closed $10 million financing means the company now has the wherewithal to consider additions to its portfolio as well. Chief Executive Officer Tim Johnson explains the outlook for cobalt, why supply constraints are here to stay, and how International Cobalt is positioning itself to take advantage of the favourable supply/demand environment.
What outlook for the cobalt market do you hold at International Cobalt and how does that shape your strategy in terms of project acquisition and allocating human and capital resources?
We think prices will remain strong both near term and long term. Basically, we just cannot see anything on the horizon that’s really going to change the amount of cobalt coming on line. In December 2017, Glencore announced it was going to double their production in the DRC (Democratic Republic of the Congo) and there was no effect on the market whatsoever. As long as the battery space stays strong, we think cobalt will stay strong.
This environment really puts us into acquisition mode – we are actively looking for new projects in the space. Exploration in the cobalt space is not very mature at all, and there are going to be a lot of discoveries and news releases from various companies over the next few years. We want to be right in the middle of the mix.
Walk us through the components of your project portfolio. What has you the most excited and what work is upcoming?
We’ve got two projects in the Idaho Cobalt Belt and we bracket eCobalt Solutions’ advanced project. Although there has been a fair amount of historic work done on our landholdings, the majority of it by Noranda in the 1980s, our team has not really had boots on the ground yet except for a site visit.
We anticipate doing a full geological work-up on both projects, to include extensive soiling and mapping. I’d say half of our Blackbird project has not been mapped geologically.
So, we are excited to get to work on the projects and because there are many companies in the belt, including us, there is going to be a lot more exploration. It is a world class belt as far as cobalt goes, so you are going to see lots of news coming out of it.
You mentioned that you are in acquisition mode. What types of additional projects would appeal to you, and how do you assess them?
We are looking for primary cobalt. We are not as interested in nickel secondary cobalt or silver secondary cobalt. Primary cobalt projects are few and far between and we are doing a lot of digging to find good ones, looking mostly in North America. We have feelers out in Africa as well, but any acquisitions we make in the near term are likely to be North American.
Cobalt really is an underexplored mineral. It is not like the molybdenum days of the early 2000s, when once moly started to rise in price everyone had a near-term moly mine. A lot of work will be needed to bring supply on line.
Does that mean most of the projects are early stage?
Right now, most of the cobalt supply is from secondary sources such as nickel and copper. There hasn’t really been a focus on looking for primary cobalt projects, so anything you find is quite early stage. It is not like you are going to find something that was almost a mine and didn’t make it because of prices and now it is coming back up. And if you do find that it is most likely in the DRC. You know anything you get into is going to be a long-term project and you’ll have to structure your efforts to support that.
The financial markets are supporting mining exploration companies once again. What observations do you have on the current health of the market, and particularly with regard to the cobalt space?
Cobalt is definitely popular. There are a lot of financial professionals we have talked to who would like to get in on the space, but there are limited opportunities to do so. It has to do with the maturity of the exploration cycle – there really aren’t a lot of high-quality projects out there and the price of cobalt does not seem to be going down. Any decent projects have high valuations, and those are the projects the money is looking for.
What kind of timeline are you giving interested parties in terms of the work you have planned. And are you only interested in projects you can own 100%?
We are open to looking at other opportunities, whether it be joint ventures or strategic investment. Because we are an early entrant into the Idaho space you kind of wait to see how things shake out. I think the belt will potentially see consolidation, as there are some smaller players getting good results but there are no majors there yet. Once some of the juniors have more success the majors will come knocking.
Cobalt is hot and there are lots of entities jockeying for position. Are they mostly Canadian companies or are some from other jurisdictions?
There are a few Australian companies in the space, and money is coming out of Australia as well. We got some backing out of Australia and other companies we have seen did as well. Some groups that had success in the DRC are starting to look for safer jurisdictions.
How are you going to pay for the acquisitions and work on the project portfolio?
We recently closed a $10mln financing. Our plan is that the new capital would support at least two years of exploration. We are talking all of our ground proofing this summer, a potential initial drill program in the fall, followed by another drill program in 2019. That is the plan with our existing assets, so things could change, of course, if we completed acquisitions.
International cobalt has enjoyed a good start to 2018 in the markets and on the corporate front. Is there anything else you’d like to comment on?
Just that we are very happy with our land position in the Idaho Cobalt Belt. The historic data we are turning up is proving our theory right. There are new reports being made available by the Idaho Geological Survey all the time and each time we find one we get excited again. Most of the work is by Noranda so we have high confidence in its quality and really want to get boots on the ground and follow up on everything.
The main revenue-producing component of Global UAV is its services division, consisting mainly of photogrammetry and geophysical surveying, but it offers a full-service package in the field of unmanned aerial vehicles (UAVs)
Global UAV Technologies (CSE:UAV) is one of the few listed operators in the fast-growing field of unmanned aerial vehicles (UAVs).
Formed just more than a year ago, Global UAV has quickly merged complementary businesses, allowing it to be a “one-stop shop” for those requiring UAV – or “drone”, if you prefer – services and for those who want to offer their own drone services.
The group has been assembled quickly through acquisition. The focus has been on buying companies with proven technologies that provide cash flow. As a result, unlike many nascent technology companies, it is already earning revenues, including a modest profit in the third quarter of 2017.
Admittedly, those revenue and profit numbers are small at the moment, as might be expected of a company capitalised at less than C$20mln. With revenues rising rapidly and a high-margin business model, however, there is every reason to believe the stock is readying for take-off.
Using drones to provide information on the physical properties of a land mass
One of the group’s subsidiaries, Pioneer Aerial Surveys, is the industry leader in drone geophysics and field operations.
In simple English, the company’s drone service can provide information on the physical properties of a land area. This service is a more cost-effective operation than manned surveys and can reach places a manned aircraft or ground crews would find hard to access.
Pioneer Aerial’s UAV-MAG surveys are in high demand from mineral exploration and mining companies worldwide.
In a similar vein, Global UAV’s other services subsidiary, High-Eye Aerial Imaging, provides low altitude, high definition, LiDAR (light detection and ranging), aerial surveying, photography, videography and other aerial mapping services.
Again, mining companies are keen on this stuff, but so too are the construction, engineering and agriculture industries, to name a few.
The company manufactures its own drones
The company uses its own drones, designed and manufactured by its NOVAerial Robotics division.
Its flagship Procyon 800E helicopter is used by international customers and is considered one of the best UAVs in its class. The single-rotor helicopter style design of the Procyon provides higher payload capacities and longer flight times than a typical commercial-grade multi-rotor UAV.
As a small progressive company that keeps abreast of industry trends, Global UAV president James Rogers thinks their products and services will keep them “ahead of the pack.”
The company also has a division, UAV Regulatory Services, which provides an online service called Easy SFOC.
This service assists clients with the preparation of special flight operation certificates (SFOCs). These certificates are required for the operation of recreational and commercial drones in Canada.
“It can be a fairly complex process to apply for that [an SFOC], so UAV Regulatory essentially offers a consultancy service to consumers who are interested in starting their own business. We can guide them through the regulatory requirements to help them get their licenses,” explained Michael Burns, CEO of Global UAV.
Together, these four businesses within Global UAV provide a fully integrated profile of manufacturing, services and regulatory compliance unique to the UAV industry and its customers.
“Right now, the main revenue-producing component of Global UAV is our services division, consisting mainly of photogrammetry and geophysical surveying,” Burns explained.
“The geophysical surveying services have been very lucrative for us. We have been the leader in this commercially since 2014 when we really brought this technology to market. We set ourselves up as a commercial supplier of the UAV-MAG services through Pioneer Aerial,” Burns continued.
“We’re able to offer to our customers either a full-service package, where they can hire us to come and do the work, or we can also do a sale. If a customer would like to purchase the equipment and get set up as a user, we can sell them a drone, train the customer and set them up with all the regulatory framework.” Burns added that it is a very attractive model for small companies.
The top line is heading higher – rapidly
A chart of quarter-by-quarter sales for Global UAV shows the sort of vertical take-off one might expect from the company’s drones.
In the first quarter (the three months to January 31), sales were C$22,386; in the second quarter they soared to C$181,204, and in the third, they rose to C$333,529.
The third quarter – to the end of July – saw the company move into the black, with net income of C$154,956.
A NOVAerial drone typically sells for US$30,000 to US$40,000. Therefore, the company does not exactly need the manufacturing clout of General Motors to keep that top line moving north at a rate of knots, especially as a high-margin business that gets the bottom line heading in the right direction as well.
According to auditing and consulting services provider PwC, “the drone revolution is disrupting industries ranging from agriculture to film-making”.
PwC values the emerging global market for business services at US$127bn, with infrastructure (US$45.2bn) and agriculture (US$32.4bn) the two biggest markets, while mining, where Global UAV is already strong, is valued at US$4.3bn.
In conclusion, the market opportunity is enormous. As James Rogers observed, however, North America is not awash with listed pure-play UAV companies, with big names such as Facebook, Google, Amazon and Boeing certainly having their fingers in the pie.
“Global UAV offers a ground floor entry opportunity to get into the drone sector.”
Mining investment is back in a big way if the first quarter of 2018 is any indication, and it’s helping set the stage for one of the largest and most storied mines in the United States to finally come back onstream – the Bunker Hill Mine in Idaho’s Coeur d’Alene Mining District.
Seasoned mining industry observers won’t be surprised to learn that the man behind the project is Bruce Reid, Chief Executive Officer of Bunker Hill Mining (CSE:BNKR). Reid has acquired, worked on and sold six mines in his career, five of which are currently in production (number six is slated to begin producing in 2020 or 2021). Bunker Hill will make seven and mark the culmination of an effort ongoing for over two decades.
“I tried twice in the last 20 years to get Bunker Hill but wasn’t able,” Reid explains. “When the largest shareholder of what has become Bunker Hill Mining asked me to lead his company, I told him, ‘Go get the Bunker.’”
Sure enough, he got it, although the deal originally agreed with the heirs of the long-time owner was re-written in August 2017, shortly after Bunker Hill Mining began trading on the CSE.
The Bunker Hill mine went into production in the mid-1880s and remained in operation until 1981. For many years early in its life it was said to be one of the largest mines in the world.
“Bunker Hill leads the way as one of the most important mines ever in American history,” says Reid. “It produced over 35 million tons of high-grade lead-zinc, about 8.5% lead, 4.5% zinc and 2 to 3 ounces of silver. When it closed it had resources and reserves of over 60 million tons, or almost twice what had been mined.
“Collectively, it has about 9 million tons of 5.5% to 6% zinc, 2% lead and a little more than an ounce of silver left in stopes that are already open and not flooded.”
That is a major amount of rock waiting to be harvested, and the cost of getting the mine back up and running is far from astronomical. Just US$15mln would re-launch operations at 1,000 tons per day, and scaling up to 3,000 tons per day, as plans call for within two years, could make Bunker Hill the largest lead-zinc-silver mine in the United States outside of the gigantic Red Dog mine in Alaska, according to Reid.
Why, then, if all that ore is just sitting there has the mine remained inactive for so long? The owner at the time proved hard to convince and the US Environmental Protection Agency (EPA) was heavily involved as well, running a wastewater treatment facility onsite to deal with acidic effluent. While the Mine itself was not involved, the associated lead-zinc smelter caused significant pollution in the entire Silver Valley and the district was the site of a billion dollar cleanup through the EPA Superfund. That is mostly completed now as the Valley is in much better condition.
The deal now in place with the mine owners is a 24-month lease under which the project can be purchased for US$25mln over 10 years. Another US$20mln would go to the EPA, this amount a partial acknowledgement of costs accumulated for clean-up over the years. An operating Bunker Hill Mine would also pay the EPA $1 million per year to continue operating the wastewater plant.
“The EPA has proven to be a good partner — they are reasonable,” says Reid. “People want to see the mine back in production for a number of reasons, one of them being jobs. But also, this mine, if left alone, will only get more troublesome as parts internally break and water starts leaking from different areas. If it’s in production, however, we’d have the cash flow and earnings to build up the closure bond, and to take care of many longer term problematic areas.
Reid is not only a formally trained geologist, but also a former analyst and successful investment banker. He thus has detailed insight into the metals markets Bunker Hill would once again serve.
“Zinc is in a deficit in terms of the raw metal,” Reid explains. “We are still losing production even with the price being up, and some mines that have been dragged back into production are running out of ore. The zinc concentrate market is even tighter – it looks like concentrate could be in deficit for another three years.”
And while one might think the omnipresent talk about future battery technologies would undermine the lead market, Reid says it is “amazing” how tight the lead concentrate market is right now.
Details regarding the path to production for Bunker Hill are still to be decided but could entail initially toll milling (utilising another entity’s mill), although ultimately the company will want to build its own mill plant.
“My estimate is that starting the mine utilising a toll milling arrangement is estimated to be about $10 million including working capital,” explains Reid. “I’m in active discussions with a number of financiers and toll milling partners and we hope to be in production in 2018. The longer term goal, though, is to build our own expandable process plant right on site, which is also part of the Patented Land package involving the entire Bunker Hill Mine site.”
It is an amazingly near-term timeline for a small company that began trading less than a year ago, but given the Bunker Hill Mine’s size, grade and favourable jurisdiction, plus the strength of Reid and his team of local professionals, the market is buying in, having taken the company’s share price as high as $3.15 since its debut.
Also amazing to observers who know how the financial markets work is that Reid, his team and that the one large shareholder have put their shares into a voting trust and none of the shares can be sold until there is a change of control, which is another way to say that Reid must sell the entire company for the insiders to ever realise on their share positions. We’re talking approximately 15 million shares out of the company’s 33 million outstanding.
That lock-up suits Reid just fine. He knows he has a monster by the tail and his track record suggests that few people could be better at finding a buyer when the time comes.
“This is one of the most important lead-zinc resources in the Americas that is not producing currently,” Reid concludes. “And then once we put it into production we’ll follow up with a drill programme to beef up reserves and resources. Bunker Hill is a big one. It will outlast us all.”
Welcome to inaugural issue of Public Entrepreneur, the new magazine published by the Canadian Securities Exchange (CSE).
Public Entrepreneur represents a bold and exciting new chapter in the CSE’s story, one that will better reflect the growing presence of the “Exchange for Entrepreneurs” in the Canadian public market space.
With over 350 securities now listed on the CSE and more joining every day, share turnover measured in the billions and innovative new services, like tokenized securities being brought to market, we believe this new magazine will chronicle the next chapter in the CSE’s storied commitment to public entrepreneurship.
To that end, Public Entrepreneur will continue the traditions started by its predecessor, the CSE Quarterly, namely, to focus on the stories and entrepreneurs that emerge from CSE-listed issuers. Publication will also continue to take place quarterly. What is new, however, is that Public Entrepreneur will also broaden its scope to include coverage of the opportunities and personalities that shape life in Canadian public markets.
We hope you enjoy this first issue of Public Entrepreneur and look forward to bringing readers even more great content in the next issue. For readers interested in accessing archives of the CSE Quarterly, click here.