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Quarterly Report – Momentum Accumulates Down the Miner Risk-Profile

Last quarter we published “A Flight to Quality”, where we took you through our gold thesis in the context of a rapidly evolving global pandemic response. There, we recommended a tactical entry into a basket of gold producers and near-development explorers. The rationale was that these companies would remain solvent until sentiment shifted back into risk, and be buoyed by a rising gold price driven by an expansionary Fed and weaker dollar.

As gold rallied, we saw momentum accumulate down the miner risk-profile: with investment in senior producers first, then the mid-tiers, then the near-development juniors and so on. As interest picked up, we participated in four early stage junior exploration financings: Blackrock Gold (TSXV: BRC), Tectonic Metals (TSXV: TECT), Pan Global Resources (TSXV: PGZ) and Portofino Resources (TSXV: POR). All things holding equal, we believe that explorers will continue to attract even more risk capital going into the new quarter. Our technology/alternatives portfolio also gained on the continuous growth of Exro Technologies (CSE: XRO) and the acquisition of Askott Entertainment (Private) by FansUnite (CSE: FANS). Please see below a more detailed review of select names in our portfolio.

Blackrock Gold (TSXV: BRC)

Blackrock Gold is a junior explorer focused on exploration in Nevada. BRC recently optioned, and is currently drilling, the Tonopah West Project which was historically the third largest producer in the Tonopah District. What has really drawn our attention to BRC are the historic grades and untapped potential that is yet to be exploited at Tonopah West. Mining in the area shut down primarily due to many different factors: the great depression, plummeting commodity prices, and operational issues—but not because they ran out of ore. As historical records indicate, many of the veins had limited development suggesting the potential for additional resources along strike and down dip.

The current drilling (assays pending) is targeting the Victor Vein which, prior to the closure of the mine, was being mined at up to 24 m in thickness with an average grade of ~1 oz/t AuEq. We would also like to highlight that this land package hasn’t been consolidated since the 1960’s and thus hasn’t seen any modern exploration to date as a whole. The property also has three other compelling targets that benefit from the fact that this is a “data rich” property providing BRC a considerable head start in terms of targeting over their peers. BRC benefits from being located in a tier one jurisdiction, testing known high-grade veins structures, and is poised to make a major discovery—stay tuned for first assay results.

Exro Technologies (CSE: XRO)

Long time portfolio company Exro Technologies had the most significant 6 months of its public history so far in 2020. After participating in their oversubscribed $4m financing at $0.35 per share in February, the stock rocketed in May and June making multiple ATH’s including an intra-day high of $1.55 in early June. This was on the back of multiple new partnership agreements and confidence in the relatively new CEO Sue Ozdemir’s (ex-head of small motor division at General Electric) ability to bring the company’s promising technology to commercialization. The company just closed an oversubscribed $8m financing at $0.70/share which should take the company into commercialization. We took Exro public in 2017 and couldn’t be happier to see where the company is going.

Askott Entertainment

We first met Scott Burton from Askott Entertainment in 2016. Since then, we have participated and helped finance their $0.42 (2017) and $0.62 (2018) rounds which were supposed to lead into a go-public event in Q1 2020. Once COVID hit, the company had to pull back with the plan to try again later in the year. How things change! On June 19th the company announced a definitive agreement to merge with FansUnite (CSE: FANS) to create a leading on-line gaming company focused on sports betting, e-sports wagering and casino games. The company is merging at an equivalent of $0.71/share or $27 m market cap and is currently raising a concurrent financing which is expected to close near the end of July. We believe that 1+1 = 3 in this transaction and look forward to seeing this next chapter come to fruition.

Our process is backing companies that meet our due diligence standards and make sense through a lean macro view. For precious metals, we continue to emphasize the Fed’s expansionary regime and trending weaker dollar as cornerstones to our thesis. Our copper outlook is improving on the account of recent supply disruption and improving macro data from major economies, namely China. We will publish a comprehensive note on our precious/base metals outlook in the future. Looking ahead, we hope to leverage our deal flow and in-house technical expertise into another profitable quarter moving forward.

 

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