Ideas Contest First Pass

I made an informal contest on Twitter for investment ideas.  Let's talk about the entries:

Abaxx $ABXX.NE

Aka the winner (I have a small 1.25% target position now).

When the prize is a book about Robert Friendland it is a bonus that this investment is something Robert Friedland has invested in.

They are trying to set up a new physically settled commodities futures exchange. I'm a big fan of physically settled exchanges because it keeps pricing more honest. You can still manipulate things, but not too much or you end up owning or giving up a bunch of physical product to call your bluff. LNG, Nickel, and Carbon seem to be early focus.

CAD$184m market cap on the Neo exchange (now known as CBOE Canada). Speculation 0f NASDAQ uplisting or some kind of US primary exchange listing.

If this gets off the ground it could be a valuable company, but I don't feel like I have enough insight into the odds of success versus failure to invest as a long term investment.  Good team and an idea I like that if successful would be worth quite a bit, so that's something.

However, as a short term trade on US uplisting it could work out. I'll probably exit after the US listing unless I see more traction on their go to market strategy execution. But I like a short term trade (I'd guess they'll uplist in the next 30 days but have no insider knowledge) where I also have some potential exposure to positive news flow on the long term fundamentals while I wait for the short term catalyst to play out. CEO buying also goes in the positive signal category.

Awale $ARIC.V

Newmont has a 75% earn in on one of their projects with some good recent drill results. Orecap (formerly known as Orefinders) has come in and restructured the company including replacing the CEO.

I'm trying to avoid investing in pre-discovery explorers because my track record is so bad. This is a little farther along and you could argue some of the recent drill results would qualify as discovery holes. But in my view they need to find some better grades to make the project work. Newmont paying for the drilling and the cheapness of the company do make it interesting for those who prefer higher risk higher reward exploration investments.

Downside Risk: High
Upside Potential: High
Cheapness: A

Shanta Gold $SHG.L

A producer just brining on its second mine and with a big well developed exploration project in the wings. It's a common pattern that existing producers don't get enough value in the market for new mines coming online and don't get enough value for new exploration.

US$150 market cap plus US$20m debt, so US$170m enterprise value. In 2022 they produced 65koz Au and with the new mine coming online are targeting 100koz.

Unfortunately their existing 65koz mine lost money in 2022. To me that means the new 35koz mine and exploration project have to bear the full weight of the enterprise value, which is a heavy weight to bear.

Crysos Corporation $C79.AX

They make the new photon assay and license the tech. It seems like the real deal. Non-destructive assays that are cheaper/faster/more accurate than fire assays. I'm sold on the tech.

AUD$447m market cap. The current revenue is small and growth is constrained by how fast they can build the machines (currently expanding to 18 unit per year manufacturing capacity). But the business model of leasing the machines with minimum payments and payments based on number of assays performed has the potential to provide a SAAS like model with steady cashflow and high ROIC once they reach deployed scale. Like a fast growing SAAS company it's really hard to put a value on it now because so much of the value lies in the future and contains so many unknowns.

Annual revenue is minimum AUD$1.4m per unit and probably closer to AUD$1.6m per unit including everything.

Like many growth stocks it's easy to get to a reasonable valuation if you project a certain number of units and a certain net profit margin. But unlike SAAS that growth is constrained by manufacturing and there are real costs both to build units and to service them.

Imagine 5 years out they have 100 units and 50% net profit margins. That would give AUD$80m in profits. But you'd have to discount that back to today and include all the cost to build another 80 units. By the time I do all that I arrive at a valuation pretty close to what they trade at now. So to see upside I think you have to project more than 5 years out and believe they can grow to 200 units in something like 7 years, which isn't a setup I like.

Capital Limited $CAPD.LN

78% of revenue is from drilling, but the company is diversifying into contract based equipment, lab services (ie Crysos photon assays), etc. They focus on operating mines. The overall margins area healthy and relatively stable.

It's not expensive at a P/E of 10ish, though on cyclically high margins. They also have some nice areas to expand in the lab services, solar+gen electric mine power, etc.  They have a slide in their deck listing 12 competitors across drilling and mining services and all of them trade at low multiples.

Britannia $LBLAB.CN

Red flags

  • 2022 mining lab revenue $0
  • canabanoid labs (trend chasing)
  • QH as advisor
  • CSX listing
  • First Photon unit expected in September 2023

If you want pure play exposure to a photon machine operator you have to look past a lot of red flags.

Silex Systems $SLX.AX

Science project companies can be good investments, but they require deep understanding of the science and in this case I'm putting this in the too hard for me bucket.