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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
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Contents CSE | Quarterly Issue No. 1 - 2016 www.thecse.com Publisher Uptick Mail Inc. #317 – 1489 Marine Dr. West Vancouver, BC Canada V7T 1B8 1.604.202.7841 Group Publisher Terry Tremaine Production Manager Christie Smith Editor in Chief James Black Free Digital Subscription Published by Uptick Mail Inc. on behalf of the Canadian Securities Exchange. To receive your complimentary subscription, please visit www.thecse.com and complete the contact form.
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CEO’s Message
Feature Story 7 International Wastewater Systems Modernizes Energy Recycling with Fresh Take on Familiar Technology by Peter Murray Company Profile 10 Western Uranium Blends Big Resource Base, New Technology in Low-cost Model by Alistair Ford 13
Earth Alive’s Unique Microbial Technologies Gaining Traction in Mining, Agriculture Industries by Peter Murray
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Adaptability the Key to Success for Pasinex by Ian Lyall
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MGX Minerals Thinks Outside the Box in Pursuit of Grand Goal by Peter Murray
22
DNI Metals Sees Vertical Integration as Key to Success in Tough Market by Jonathan Jones
24 Editorial: Metals and Mining Index Registers Final Lows by Steve Kanaval
www.thecse.com | @CSE_News
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
CEO’s Message It is hard to believe we are already gearing up for another PDAC Conference in Toronto. We are excited to once again join the tens of thousands of delegates from across the globe in what truly is the “place to be” for those involved in mineral exploration and those of us on the capital markets side who support their endeavours. Having attended recent mining conventions in Vancouver (specifically the Vancouver Resource Investment Conference, and AME BC RoundUp), the impact that depressed commodity prices and slowed global economic growth are having on many publicly listed resource companies and their investors is clear: times are tough. That said, miners, at least in my experience, are tougher and, as a rule, more optimistic than most. Fortunately, for resource companies (and their shareholders) who are ever more mindful of how and where hard-earned investment dollars are spent, there is some good news. I am pleased to report that the CSE’s streamlined regulation model and fixed listing fees are working in favour of companies as they restructure, fine tune, and execute their business plans for the future on our exchange. We continue to deliver on our mission to lower the cost of public capital and, as shown by the growing numbers of companies listing on the CSE as well as by the firms highlighted in this edition of the CSE Quarterly, our model clearly aligns with what junior firms need and want during these challenging times. I hope you enjoy this special PDAC issue, which focuses on both Resources and Renewables. The CSE continues to play host to a wide spectrum of companies in many sectors, and we thought it appropriate to broaden the scope of this issue in light of some of the great stories we are seeing emerge on our marketplace. As always I encourage our readership to meet the CSE team in person at the PDAC. We look forward to meeting you at our booth, at one of our events, or somewhere in-between at the PDAC Conference 2016!
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We continue to deliver on our mission to lower the cost of public capital...
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Sincerely,
Richard Carleton CEO The Canadian Securities Exchange (CSE)
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feature story
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
International Wastewater Systems Modernizes Energy Recycling with Fresh Take on Familiar Technology by Peter Murray
“W
hy didn’t I come up with that…it’s so obvious?” Pretty much all of us have seen a new product or service and wondered why it took so long for someone to finally do something with an opportunity that had been sitting right under everybody’s nose. Lynn Mueller is one executive who refused to let such an idea get away, founding International Wastewater Systems (CSE:IWS) in 2010 to make a difference for customers and the environment by recycling something most of us discard on a regular basis without even thinking. Warm water from showers, kitchen sinks and other sources cascades down the drain in huge volumes every second of every day, the energy initially used to heat that water being lost completely, or actually becoming a detriment by reaching our oceans and introducing unneeded heat to them.
International Wastewater Systems, or IWS as the company calls itself for short, recaptures that energy using technology that Mueller, the company’s president, explains is a century old, quickly sending it back up the chain to be used again. It is a simple concept and it works, Lynn Mueller with users in Canada, the United States and Europe addressing their energy needs in a responsible way, and saving money at the same time. The equipment that makes this happen is called the SHARC unit, developed in-house during the company’s first four years.
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
“I started out as a refrigeration mechanic, spending my early work years doing refrigeration and heat movement,” explains Mueller. “All I’ve ever known my entire life is how to move heat. “International Wastewater Systems invented what we call SHARC technology, which is sewage heat recovery specifically designed to recapture a third of the energy used in the world that finds its way down the drain,” he continues. “We refer to ourselves as the ultimate in renewable energy. It is the same energy – we just use it one day, recapture it, and then use it again the next day.” The company did all of its original SHARC system installations in and around Vancouver so it could access them easily for monitoring and tweaking. A couple of years ago product refinement had reached the point where Mueller decided that SHARC was ready for prime time. The reaction has almost been more than the company can handle, with Mueller referring to the last 24 months as a “blur of growth” characterized by interest from all over the world. It helps that SHARC is eminently scalable, with Mueller explaining that the system can handle anything from a single building to a district energy system. Not surprisingly, SHARC units are custom-designed for each installation. An easy way to understand the SHARC technology is to visualize it in stages, the first filtering out waste within the sewage that streams into the unit and returning it to the sewage flow so it can continue on its merry way. What’s left is water that is clean enough to put through a heat exchanger, which extracts the heat energy for reuse. 8 | www.thecse.com
“You temporarily intercept the flow, clean it up, use it for your heating needs, and then it goes off to the sewage treatment plant,” says Mueller. “We’ve just had a thermal effect on it and nothing else. We have not done any chemical processes or altered it in any way other than recovering the heat from it.” Which brings us to that vintage technology – the heat pump. “A heat pump is really just a glorified refrigerator,” explains Mueller. “If you put warm food or beverages into a refrigerator, a few hours later your food is cold but the back of your refrigerator is warm – that is a heat pump in action, moving heat from the warm product into the refrigeration system and then by means of that heat pump it is rejected outside.” Within the realm of IWS’s technology, that warmth is most often directed back into a building or used to heat water. One of the installations of which IWS is most proud can be found in Sechelt, a small town popular with tourists and retirees on British Columbia’s picturesque Sunshine Coast. “Sechelt built the world’s cleanest and most efficient water treatment plant,” says Mueller. “The water leaving the Sechelt Water Resource Centre is of a quality such that you can actually drink it. “The philosophy at the treatment plant was to be completely sustainable. Energy recovered from the sewage heats and cools the entire building, so it uses no fossil fuels. The system has worked flawlessly now for two years and people come from all over the world to see it.”
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Potential users in Europe needn’t travel quite so far to see the SHARC system in action, as IWS has an office in Leicester. And there are more international locations to come, as the company follows a philosophy of supporting the communities that welcome its products. “Part of our strategy of being sustainable is that we want to manufacture and employ people where we do business. Rather than building things offshore, we want to be a functioning, live part of every community where we operate. For example, we want to open an office in Australia and will find a way to manufacture there and create jobs and become a functioning part of a sustainable, local community.” The sustainability part is reflected not only in a commitment to respecting local communities, but in the efficiency of the system as well. IWS’s equipment is not something developers install just to make themselves feel good. The units run at what Mueller explains as somewhere between 400% and 500% efficiency, meaning that for every dollar spent operating the system, the owner gets back around $5.00 worth of heat. With economics like that, it is easy to understand why the business is growing quickly. Mueller says he foresees orders totaling tens of millions of dollars over the next three years, with cash flow likely turning positive in 12-18 months. The public listing on the Canadian Securities Exchange in October 2015 was seen as a cost-efficient way to give the company access to the capital that will help fuel its revenue growth.
At the moment, revenue is generated in one of two primary ways, depending on jurisdiction. In North America and most other markets, units are sold to the user, with IWS also collecting an ongoing revenue stream through maintenance work. In the UK, however, the company enters power purchase agreements for its installations through the government’s Renewable Heat Incentive. This program sees the government commit to paying a project owner a rebate for recovered green energy for 20 years. IWS partnered with British institutional investors for the capital it needed and Mueller says the groups are working together well and should enjoy good returns on investment. Helping to open additional international markets for IWS going forward is a new product called Piranha. This is a standardized, self-contained heat pump built specifically for hot water heating that, like the bigger SHARC units, recovers heat from wastewater. The stand-alone Piranha system is designed for residential buildings of between 50 and 200 units, and given the pace of urban densification worldwide seems like a product tailor made for the times. “At its core, our message is that we can retrieve energy for you efficiently and without effort on your part, so there is no reason to throw it away,” concludes Mueller. “As we move to a carbon free economy, we have developers coming to us and saying they want to plan for the future and get off of fossil fuels as much as they can. We are the vehicle to do that because we can recycle more energy than anybody else and do it for any building in the world.” n Originally published on Proactiveinvestors.com February 22, 2016
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company profile
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Western Uranium Blends Big Resource Base, New Technology in Low-cost Model by Alistair Ford
T
wo things make Western Uranium (CSE:WUC) stand out from the junior mining pack: size and technology. The first is straightforward enough. Western Uranium is the second largest holder of uranium resources in the United States, according to Chief Executive George Glasier. The largest holder is Energy Fuels (NYSE:UUUU), a company to which Western Uranium has close connections. “We acquired our base assets from Energy Fuels in August 2014,” says Glasier, so there’s one connection. There’s also the small matter of Glasier having founded Energy Fuels himself. So if there’s a man who knows his US uranium, it’s Glasier. And the company he’s now proceeding to build is a clear reflection of that. A lot has been achieved in a short time. At the time of the acquisition from Energy Fuels, Western Uranium was private. But shortly after that, in December 2014, it listed publicly on the Canadian Securities Exchange. 10 | www.thecse.com
And following on from there Western Uranium acquired Australian company Black Range Minerals in a 1-for-750 allshare deal. The entity thus created now controls a total resource base of upwards of 100 million pounds CEO George Glasier of uranium and 35 million pounds of vanadium across two of the key US uranium mining states, Utah and Colorado. It was the acquisition of the seven permitted uranium mines that came with Black Range that catapulted Western Uranium into the number two slot behind Energy Fuels. But there was more to that deal than just building scale.
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Because it was with Black Sunday Mine Complex Range that Western Uranium acquired the second factor that gives it the edge over its junior peers: technology. New technology in mining can be a mixed blessing, as anyone who’s followed the trials and tribulations of investing in nickel laterite processing can testify. In uranium, certain types of deposit are amenable to leaching in-situ, which cuts down considerably on waste and completely does away with the need for tailings facilities. Black Range’s technology doesn’t quite do that, but the effects and benefits are comparable. It’s called “ablation”, a term borrowed from the medical profession, and it was originally developed by metallurgists looking to apply it to refractory gold deposits. That didn’t work, but the same metallurgists then applied the technology to sandstone-hosted uranium deposits and the results were a whole lot better. “Ablation causes a collision between sand grain particles,” says Glasier. “It removes the uranium coating and leaves a clear particle. That means it can leave up to 80% of the rock at the mine site.” Perhaps even more significant in this environmentally conscious age, it’s a completely physical process and doesn’t involve any chemicals. Thus, the use of sulphuric acid in the milling process at a uranium mill can be significantly reduced. “It should substantially reduce the cost of producing uranium from our mines,” says Glasier. So, with the two arms of the company – the resource base and the technology – in place, the next trick will be to find the finances to initiate production. To that end, Glasier is about to embark on an extended roadshow that will encompass the US, Canada and Europe.
The thinking is that it will take approximately US$3million to get mining operations at the Sunday complex in Colorado into production while building the required additional ablation production units (‘ABT Units’), addressing the additional permitting costs of the State of Colorado for use of the ABT Units in the mining process and to retire the remaining debt. That money will probably be raised through equity. At the same time though, the company will also be working on putting together a US$35 million debt package to allow for the construction of a mill at a site already permitted at Pinon Ridge in south-western Colorado. The permitted mill site is currently owned by Pinon Ridge Mining Inc., an affiliate of the Company with common ownership interests of the principles of Western. Ultimately, says Glasier, the plan is to produce upwards of 3 million pounds of uranium per year, and at very low cost. Why so low? The first answer to that is the ablation technology, which is patented and tested. The second is that Western Uranium’s tenements also allow for a substantial vanadium credit to be applied in any economic model that gets built.
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Panoramic view of the Gypsum Valley side of the SMC looking southwest from across the Gypsum Valley. Mine dumps from left to right are the Sunday / Carnation, St. Jude and West Sunday. The Topaz mine is out of sight on the far right, tucked into a drainage ditch.
All told, Glasier reckons that Western Uranium will go into the lowest 10% of the cost quartile, which is welcome given that the uranium price has been relatively depressed of late. Indeed, that weaker uranium price is the reason why the seven mines that Western Uranium acquired from Energy Fuels ceased production back in 2009. Other than the naked economics, they are ready to go.
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By the end of the year,” says Glasier, “we’re going to get production at the Sunday mine complex.
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But will the uranium price improve? Longer-term, there’s plenty to be optimistic about. China is building nuclear reactors at a rate of knots. And Russia too is set to add significant new nuclear capacity, although the country is also one of the main producers of uranium. It’s estimated that by 2025 the number of nuclear power reactors in the world will have risen from the current 439 to a more substantial 497.
Western Uranium itself already has one secured customer. An off-take agreement is in the bag with one US utility and doubtless there’ll be more to come. What the pricing will be in further deals is an open question, but it was interesting to see commentary from Cameco (TSE:CCO) recently in which the uranium giant argued that a position of oversupply is likely to linger for most of this year, but that an uptick may then be likely. If so, the timing would suit Western Uranium nicely. “By the end of the year,” says Glasier, “we’re going to get production at the Sunday mine complex.” Work on the mill will probably be well underway too, and there will be the additional kicker of marketing the ablation technology to companies overseas. The application to sandstone-hosted uranium deposits would suit some of the more well-known African uranium deposits in particular, and could well have a significantly beneficial impact on the economics of these projects. More immediately though, the next crucial steps will involve the financing, a listing on a US exchange, and then deployment of those funds to generate early production. Because this is not a market in which a junior miner can afford to take its time. But George Glasier knows that. “The company’s moving fast in a tough market,” he says. “We are a low-cost and near-term producer.” n
Originally published on Proactiveinvestors.com February 22, 2016
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company profile
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Earth Alive’s Unique Microbial Technologies Gaining Traction in Mining, Agriculture Industries by Peter Murray
L
istening to David Gilmour speak about the development of his company, Earth Alive Clean Technologies (CSE:EAC), is nothing if not inspiring. His is an approach in which shortcuts are neither sought nor tolerated – do things right, or don’t do them at all. By the sounds of it, that commitment to doing things the proper way is about to start paying off. And not just on a single flagship product front but two, both with potential, as Gilmour puts it, “to grow into $100 million businesses.” Earth Alive uses a fascinating set of technologies that rely on specifically selected microbial strains to create products for two very different industries: agriculture and mining. Among the important outcomes is better soil health and consistency, both for agricultural operations that need stronger soils to cultivate healthier crops, and for mining operations where dust contamination from dry and loose soils is a constant problem affecting production and profitability, health and safety, and the environment.
These are not new challenges the company is addressing. On the agriculture side, environmentally sustainable fertilization and irrigation are necessities of which we are all aware. Organic agricultural production and consumption is growing rapidly, and the company’s unique biofertilizer technology is ready to help growers meet demand for their products. On the mining side, dust suppression is typically controlled with chemical treatments and huge amounts of water – sometimes millions of litres per day at a single mine site. Needless to say, such solutions are costly not only in financial terms but also in their impact on the environment. The company’s proprietary EA1 dust control technology is positioned to help mining companies worldwide better their dust control practices. Earth Alive in its current form began five years ago when Gilmour, who is both the company’s founder and CEO, took over a research and development company that was following a mandate to develop low-cost, high-performance fertilizers that were also environmentally sustainable. www.thecse.com | 13
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
One of the first things he realized was that while the company had great products, as well as the patents to back them up, agriculture is a market where people are set in their ways and products are heavily regulated. The company would need to seek government David Gilmour, CEO certification before going much further. Time to pivot…if only temporarily. “We soon identified an opportunity to develop a high-performance, organic dust control product for a client involved in a huge mining project in Latin America where the use of chemicals and water was being constrained in a big way,” explains Gilmour. “That put us on the map.” But while replacing magnesium chloride and petroleum derivatives or obviating the use of extraordinary amounts of water is a noble goal, Gilmour and his team are realists. “There are three characteristics we kept in mind at all times, “says Gilmour.
Application of product
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
“One, it has to work well or better than the chemicals we replace, two, it has to be economically viable to use for the client, and three, it has to be environmentally sustainable. Green technologies are great, but if they don’t work just as well as the chemicals they are designed to replace and cost more, nobody will adopt them. Those three characteristics form the basis of our product development.” Marketing was difficult when Earth Alive first started reaching out to potential users. “We got to the market one company at a time, which for a small company like ours is very laborious. When we announced the Brenntag agreement just before Christmas, it was the launch pad for broader distribution. Now we are talking to every major mining company in the world, and a lot of that reflects Brenntag and their network of relationships in the mining sector.” The agreement Gilmour refers to is with Brenntag Latin America, a subsidiary of Brenntag AG, the world’s leading distributor of chemical products. Put simply, Brenntag knows everyone and sells them lots of products. It is one of the most powerful allies Earth Alive could have aligned itself with. As EA1 dust suppressant took off, the company was busy in the background completing its main agricultural product, Soil Activator, which uses microbial strains that each have a particular influence on soil and the growth cycle of plants. One of the key strengths of Soil Activator is that it is not crop-specific. “Soil Activator is efficient on everything from wheat to arugula, from tomatoes to bananas,” says Gilmour. “It works well on its own for organic agriculture, but can also be utilized in tandem with traditional chemical fertilizers to better their performance and enhance absorption by plants.” Underlying the impressive efficacy of Soil Activator is a return-to-the-basics approach to fertilization. “The product utilizes different micro-organisms and a proprietary synergistic active,” explains Michael Warren, Vice President of Global Operations, Agriculture Solutions. “We identified and use unique strains that are able to fixate nitrogen, solubilize phosphorus and chelate iron, among other benefits. These are actions that very few biofertilizers can achieve. “There is often a whole host of nutrients already present in soil that plants just don’t have the ability to absorb. Soil Activator will render these nutrients and make them available to plants.”
As with EA1 dust suppressant, Earth Alive has found a ready distribution partner for its biofertilizer in Brenntag, announcing a separate agreement for the exclusive distribution of Soil Activator with its Latin American subsidiary in February. With the Brenntag sales and distribution network in 16 Latin American countries set to augment existing business in a big way, Gilmour is looking for Earth Alive to turn profitable later this year. “We built the company in a way that our overhead is low, and now the whole production, distribution and sales chain is aligned with our partners. All those years of preparing the business model and getting it to execution -- the table is set,” says Gilmour. “We have passed the developmental stage and are now onto full commercialization,” he continues. “I really have to thank our shareholders for their support and patience. They know that we are always progressing and always working to deliver on the business plan we put forth. We could not have skipped the steps we took the past three years and still brought our technologies to market successfully. But the result is that our technologies are now real players out there on the international market.” n Originally published on Proactiveinvestors.com on February 23, 2016
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company profile
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Adaptability the Key to Success for Pasinex By Ian Lyall
“I
t is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” The quote above is often wrongly attributed to Charles Darwin. But it does, I am told, summarise eloquently his seminal work, ‘On The Origin of Species’. It might equally be applied, in stock market terms at least, to the junior miners that have survived the recession that has decimated the industry. Adaptability has been the watchword for Pasinex Resources (CSE:PSE), joint owner of the Pinargozu Mine in Turkey’s Adana Province. It and local partner Akmetal set out in 2012 to compile a significant zinc resource - in the order 10 million tonnes - from claims staked around the historic Horzum Mine. Pretty soon the cold harsh realities of life caught up with the companies, which luckily enough had a plan B to fall back on.
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This was to mine high grade direct shipping quality zinc, crush it and send it off for export. In a time where the capital markets have been shut to juniors such as Pasinex, the Pinargozu operation has provided manna from heaven - or at least a welcome source of working capital. To date 16,000 tonnes CEO Steve Williams of zinc mineral grading around 35% have been unearthed from this carbonate replacement-style deposit. The extraction costs are currently around US$140-150 per tonne, while Pasinex and its partner receive “well in excess of US$200” a tonne for what they ship from Pinargozu. With 120 people on-site, production is ramping up from 25-30 tonnes a day to around 60 tonnes.
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
This equates to output of around 20,000 tonnes a year. As capacity grows, costs ought to fall. Exploration work – the company carried out 12,000 metres of drilling last year – is aimed at finding and chasing high grade veins and delineating enough ore to keep the hoppers full. “There was an old small-scale miner who went in and dug some high-grade zinc at very small tonnage,” says Pasinex Chief Executive Steve Williams, explaining how Pinargozu came into being. “But that was clearly an indication that there was more high-grade zinc and that proved to be the case. “We went in and started exploration and drilling. We found some very high-grade material and quickly realised there was the opportunity to get in and start mining. “The horrible situation we have in the market and the terrible situation the exploration industry finds itself in was very much a driver for this.” Located in the Taurus Mountains, Pinargozu is thought to be the sweet spot for a much larger zinc deposit. In fact the area, which hasn’t been extensively explored using modern techniques, is itself a small part of a belt that extends into Iran and Afghanistan.
In a different world, one where the capital markets were open, share prices were buoyant and there was ready demand for new zinc projects, the Pasinex-Akmetal ground would have been comprehensively explored and its potential tested. In the current environment compiling an independent resource estimate is a waste of time and money. When the wind changes Pasinex will adapt its plan of attack, says Williams. In the meantime, it will look at methods to expand output a little further. The commodity markets haven’t been especially kind to Pasinex. The price of zinc has come down to 77 cents per pound from around US$1.10 at its height last year. Pasinex’s budgeting is done at 67 cents, which is more conservative than other operators out there. But like its rivals it is operationally geared to an uptick in the price of the metal. This could happen if the older, less economic mines continue to be shuttered. Glencore recently turn the spigots down - but then as Williams points out it could very easily push output up when the market conditions become a little more benign. Demand for zinc might start nudging up in the latter part of 2016, but don’t bet on a recovery in the mining sector this year, says the Pasinex boss.
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
“Zinc I think will be one of the first metals to move; capacity is being removed. “The [equity] markets? Well, I’m really not so confident. The big miners still have some big news to shake out. That will keep pressure on share prices.” In Turkey foreign companies almost always take a partner. Pasinex’s Williams said he’s has had some minor differences of opinion, but the experience with Akmetal has been an “overwhelmingly positive” one. The Turkish miner has been able to interact more astutely with the politicians than a foreign company might, while it has also been active and effective on the ground with the local population. This expertise was used to good effect to fully permit and bring Pinargozu into production in about two years. Practically, Akmetal had the plant and equipment needed to mine the deposit. The country itself is caught on the fringes geographically but in the middle politically of one of the most volatile regions in the world. Millions of Syrian refugees have flooded over the border since the hostilities began, and Turkey’s major cities are on red alert after a series of bombings. But while Adana is near to the border, the mountain mine of Pinargozu remains isolated from what’s going on around it. “We are in the northern part of the province so it is business as usual and we don’t see anything,” says Williams.
“But the country as a whole has been influenced by the conflict and in particular the refugee crisis. “Turkey is a strong country, but in a difficult area of the world.” Pasinex is an oddity on any exchange - a revenue generating mining junior that is able to survive under its own steam. Is this recognised by the market? Definitely not at the moment. Neither is the long term potential of its zinc assets, or the copper property we haven’t even touched on. But this is the harsh reality of life for the likes of Pasinex. “This last three years have been very tough for us as it has for everybody,” says Williams. “I think doing what we have been doing is the right thing for this moment in time. “At some point we’ll get recognition for what we have done and the assets we have.” n
Originally published on Proactiveinvestors.com on February 22, 2016
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company profile
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
MGX Minerals Thinks Outside the Box in Pursuit of Grand Goal by Peter Murray
T
he stated goal of MGX Minerals (CSE:XMG) – to put seven to ten mines into production over the next decade – is as ambitious as they come. But speaking with the company’s CEO, Jared Lazerson, a philosophy begins to show itself that is different than that typically followed within Canada’s junior mining community. It is certainly one that fits the company’s objective. MGX does not embrace an exploration model aimed at defining an ever-expanding resource, but rather a more standard business model with near-term profit as its core objective. Thus the vision of bringing multiple mines on-stream, and doing so as quickly as possible. Or what Lazerson refers to as a “right into production model.” The first property scheduled for production is Driftwood Creek, a 776 hectare magnesium project located in the East Kootenay region of British Columbia.
Magnesium is a mineral most people have heard of but few probably know what makes it useful. In different forms, magnesium can do everything from strengthening steel to fortifying vitamins, and is also used for wastewater treatment.
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One of the potential game changers in the magnesium oxide market is that it can be used as a replacement for gypsum in drywall.
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THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Lazerson believes magnesium oxide (what the magnesite at Driftwood Creek would become after beneficiation and secondary processing) is suited to yet another application which is still emerging but could grow to be huge. “One of the potential game changers in the magnesium oxide market is that it can be used as a replacement for gypsum in drywall,” Lazerson explains. 20 | www.thecse.com
“There is in Asia very heavily produced magnesium oxide wallboard and this is a market we are moving on quickly.” He goes on to explain that wallboard out of China is characterized by “a wide variety of qualities,” which means there is opportunity for a company with a reliable source of highquality magnesium oxide to address North American demand for wallboard. “It is being used in high-rise buildings and also in Florida and other areas where flooding is common,” says Lazerson, explaining that drywall containing magnesium oxide has parallels to cement products, absorbing some moisture but not losing its structural integrity when it dries out. “In terms of where the massive growth in market demand for the commodity is, we are betting on that,” he says. Magnesium alloy is a different story and, for the time being, not something MGX wants to target. Like various other commodities, magnesium alloy’s is a market somewhat controlled by large players and governments. Lazerson explains that the US maintains high tariffs to discourage Chinese and Russian imports, leaving the country with the highest magnesium alloy prices in the world. “You have one market that is fantastic and then the rest of the world is reasonably priced. It fits more into that space where there is sufficient supply globally to support demand.” With the end user equation seemingly figured out, the question of what hurdles are left to clear before reaching commercialization at Driftwood Creek is an obvious one.
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
MGX announced in January of this year that a mining lease had been awarded for the project by the province. Separately, it received a permit to conduct bulk sampling of 100 tonnes of material at the site in the fourth quarter of last year. Its road permit came around the same time. “In terms of getting stakeholder sign-off – government, First Nations, local community – the mining lease required everybody to sign off, so that is a big step in terms of not running up against any major delays,” says Lazerson. The bulk sample, he explains, “will allow us to put some hard economics to it – we will see really what it is and what it costs to operate in a true mining environment.” Major steps to go include construction, meeting capital requirements, environmental permitting, and then obtaining the actual mining permit. Anyone who knows anything about mining understands that while that might be a short list, the timeframe to check all the boxes is almost always tremendously long. But Driftwood Creek has a major advantage in that production will not result in any tailings to speak of. “We don’t have any tailings – we will essentially sell 99.8% of our product,” says Lazerson, adding that “our permitting will be tied largely to showing the public and government and other stakeholders that there are no tailings issues.” If all goes according to plan, the mine could be in production before the end of 2016. Looking beyond Driftwood Creek, MGX recently entered a purchase agreement to acquire a 100% interest in 96,000 hectares of property in Alberta. The land package contains multiple oil and gas wells that the company says contain brines rich in lithium, potassium and magnesium. It comprises six permits and six permit applications. Like Driftwood Creek, the Alberta properties reflect an approach of acquiring projects with fairly well outlined deposits that can be put into production for initial outlays of no more than $50 million. Lazerson explains that lithium, similar to magnesium, is a fit for the company mandate: “industrial minerals, Western Canada, low barriers to entry, low capex.
“We are going back into existing oil fields that are essentially barren. You are at a 98% water to oil ratio, so there is some oil in there, but it is nominal compared to the level of brine.” Risk management is another theme that runs throughout a discussion with Lazerson. In discussing MGX’s commitment to operating in Western Canada he references his team at length. “Everybody on the ground in terms of geology and engineering has done a tremendous amount of work in Western Canada and I can’t overstate how important an understanding of the local geology, community and infrastructure is – these are what allow us to do things relatively inexpensively, but more importantly than anything, quickly. “That’s what maybe sets us apart about the way we do business. We consider time as the most expensive thing, and really the enemy of all that we do.” Another pillar of the MGX strategy is a focus on industrial minerals with “a small footprint,” the reason being, according to Lazerson, that these types of projects tend to require smaller amounts of capital to put into production. Driftwood Creek is a good example, and because it is a magnesium oxide resource there should be minimal environmental impact at the mine or in the processing. Implied, if not directly stated, in all of this is the vision of establishing MGX as a company that walks the walk, if you will. A company that gets mines up and running efficiently and makes money. Once that track record has been established, attracting new projects and financing, not to mention all the other tasks that need taking care of in order to accomplish corporate objectives in this incredibly challenging business, would become that much easier. Ambitious to be sure, but worth the effort. n
Originally published on Proactiveinvestors.com February 24, 2016
www.thecse.com | 21
company profile
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
DNI Metals Sees Vertical Integration as Key to Success in Tough Market by Jonathan Jones
DNI
Metals (CSE:DNI) is lining up all the pieces to become one of the world’s leading graphite producers, using a three pronged approach of exploration, distribution and refinement. Success begins with finding the goods, and this is a base DNI has covered, having purchased a high-quality graphite project with a mining license in Madagascar in 2014. Some of the best large flake discoveries are in Madagascar and Stratmin (LON:STGR) owns and produces there from one of the top graphite deposits in the world. That deposit happens to be just down the road from DNI’s project, with both sitting along the same trend. DNI Chief Executive Officer Dan Weir points out his site is also close to the main shipping port and has ready access to a paved highway. “I believe that DNI sits on a world class graphite deposit,” said Weir, “as we are located on the same trend as Stratmin.” Working in Madagascar has some important benefits as compared to other parts of the world, including Canada. While there is good graphite in Canada, Weir concedes, it is difficult to get at.
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Currently, only one small mine in British Columbia is in production, and it can only operate for six months of the year. “Most other North American graphite deposits are hosted in hard rock. They have to drill it, blast it and grind it up really, really small, and process it - there’s a huge cost to do that,” Weir said. Conversely, Madagascar has material which is “like going to a sandbox, where you go in with an excavator or a shovel and you dig it up and process it.”
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Another benefit to being in Madagascar is that it has one of the best mining codes in the world. “To get a permit in Canada probably takes around three to four years - it’s very difficult,” Weir said. Weir joined DNI in November 2014, and since then has acquired a full mining permit in Madagascar. He would likely still be waiting for the go-ahead in Canada. The combination of a good permitting environment and soft host rock that makes for easier processing culminates in a reasonable price tag to go into production. Weir expects to begin commissioning the facility in the first quarter of 2017, with the mine set to be operational midway through the same year. Overall, the project is slated to cost $10 million to $15 million, which is a fraction of the spending proposed in North America by other graphite companies. Moving toward production, DNI plans to complete a resource estimate, with drill results and a preliminary economic assessment expected by the end of this year. In tandem, DNI is acquiring two copper-zinc exploration companies with $2.3 million in working capital that will be directed to development costs at Madagascar over the next year, as the project heads toward the construction phase. While the company takes the Madagascar project forward, Weir is also looking to add value in other ways. This is where part two of the plan comes in — establishing a reputation in the graphite space. Success in the industrial metals world begins pre-production with off-take agreements and relationships; with this in mind, Weir has established a distribution network buying graphite from Brazilian producers and selling into North America. “I am making a little bit of money from that,” he said, “but not a lot. The whole point is to build off-take relationships with buyers of graphite, so that when we come to market for financing to build DNI’s mine in Madagascar the end users will know us, respect us, and DNI will have established a reputation of high-quality graphite and partnerships with buyers,” he said. The third and final stage to DNI’S vertical integration strategy is acquisition of a laboratory 20 kilometres outside of Toronto. DNI looks to establish this lab as a hub for innovation, not just in the mining sector, but in batteries, pilot plant development and clean tech. In the future DNI will purify its graphite at the facility.
The lab works with some of the largest companies in the world. DNI is buying the laboratory for $4 million, and while this seems like quite a large chunk of change for a small company Weir points out that the assets and property value are around $3.6 million, making it a low-risk proposition. The transaction is expected to be completed over the next few months, Weir said, giving the business some cash flow to help toward building the mine in Madagascar. “The shining star in this whole transaction is, what other junior mining company is cash flow positive?” said Weir. While the company builds relationships with buyers, builds its project in Madagascar, and acquires the laboratory, there is one overhanging issue that Weir is also quick to address – the graphite price. “Graphite prices in 2012 were twice what they are today,” he said, though he is not concerned, and his reasoning is two-fold. Firstly, new supply is unlikely to come to market in the near term, particularly in North America, where he believes that economically, the more expensive hard rock projects will be difficult to commission and put into production at current graphite prices. “We see a lot of growth around the world,” Weir said, noting that demand from new sectors such as lithium batteries was beginning to pick up. With a potentially world class project in Madagascar, relationships with most of the major graphite buyers in North America, its own laboratory, and a positive outlook on the price of graphite, it is no wonder that the Chief Executive is “extremely excited” about his company’s future. n Originally published on Proactiveinvestors.com February 24, 2016
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editorial
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
Metals and Mining Index Registers Final Lows Special Editorial Presented by Equities.com by Steve Kanaval
W
hen one looks at the past 10 years in these combined resources they juxtapose each other in what they represent. Metals have long been a flight to quality for investors, and gold bugs who know that global unrest and volatility should bring higher pricing. Conversely, natural resources represent a change in global demand and a shrinking planet with exploding population, which need these precious resources as the world becomes one unified Facebook page. For this exercise we will use a widely followed index, S&P Metals & Mining (XME), to track our musings and will act as a benchmark to see behind and thusly ahead. In order to see where we are going we need to carefully and expeditiously look back at where we have been. The first thing to look at is how this combined index acted during the massive devaluation of all assets during the housing crisis of 2008. It was swift and damaging, and like most asset classes, took no prisoners. The velocity of this fall is most evident in late 2008, when these two representative assets (Metals + Mining) dropped from an excitable peak to give back 40% of a move it took 5 years to build. So, let me say this again: it took 5 years to build and it took weeks to give it back.
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The Selloff
This selloff scared the pants off near everyone. Most were not able to keep an eye on the ball because during late summer of 2008 the world was coming unglued—only to be saved by T.A.R.P. During this time all assets were getting smashed, and it didn’t matter what you held: bonds, real estate, metals, resources, or equities. These were the most uncertain times for any investor, and for many portfolio managers these were the most trying of their careers. After the dust cleared in 2009, Bear Stearns and Lehman were gone, and the act of “short selling” was not only for stocks, but for your house. Greed had turned to fear so quickly that we went from a liquidity glut to a liquidity halt. Banks just simply stopped lending money because they greedily lent it to everyone to make a buck. I guess greed and fear are the critical axioms of capitalism. Markets found a bottom and business chugged forward in 2009, followed up with a solid 2010, in turn drawing investors back to the market. Many were subtly lured back on the logic that the Chinese would pay any price for natural resources like metals. They had already bought nearly all U.S.based investments, treasuries, stocks, and real estate. Certainly the Chinese would swallow up all the lithium, coal, and oil shale. It would all be sold in an upward spiraling price inflation frenzy that would leave North Americans dripping in riches.
THE CANADIAN SECURITIES EXCHANGE – The Exchange for Entrepreneurs | Quarterly Issue No. 1
The benefit of the mass of land where we all sit would be our ticket to riches and the freedom that comes with it. The world had at long last figured out what we had, and now they wanted it. The world wanted North American commodities, metals, and resources, and they were finally willing to pay top dollar as commodities globally turned into frenzied acquisition mode driven by insatiable global hunger and need. This was only the start of the problem, and if you jumped in the water thinking, these August prices were nothing more than a value, well, you were terribly wrong. The market fell 70% from here, harder and faster than the first leaving many broke, out of business, or out of the market entirely.
The 3-Year Head Fake
By the end of 2008, you saw in metals and mining what you had in each asset class: a volatile bottom followed by a 3-year bounce. This bounce convinced everyone that good times were here forever, and I hear many Canadians talk about the great years of prosperity in Vancouver and Toronto. Everyone had a surprising 2009, a better 2010, and a great start to 2011. In fact, the sense was that those shaken out of the market either in job turnover, lost investment, or failed business had been cleared in the final flush (in the second half of 2008) and M&M had returned to safe investment status. Look around you, they said, business is booming! 2011 looked to be another great year. All the footholds were there and the investors, workers, salesman, customer support staff, technologists, and human resources had all returned. Though, the real insult was still on its way for Mining and Metals. Over the next five years it would all go away and end up lower than the horrible 2008 selloff. Jobs again evaporated. The only ones who remained were the technologists, who since 2011 were the only ones really at the forefront of an indemand industry. Technology and social media were the new resources in this young century, and so juxtaposed are mining and metals that one wonders why no one saw this. Few were asking: what happens if this demand is just a short-term thing? Shouldn’t we be looking for a trend with wind in its sails versus bleeding our legacy resources to the highest bidder?
Dollar Peak and Lower Oil Make this Bottom Eminent
The Metals and Mining Index (XME, pictured above) is registering its final lows and it becomes more conspicuous. When you look back at the pricing, you had a massive dump in 2008, a stairstep recovery from 2009 to 2011, followed by a grindingly painful 5-year decline from 2011 -2016, which is finishing and here we sit walking the last steps of a market bottom. 2016 is the year you will look back as critical because this will be the year the pain and confusion end, and the 3-year rally begins. We have a few more weak hands to be squeezed out this year, but the metals and mining stocks are registering their final lows. This bottom in 2016 is not as clear as the 2009 capitulation conclusion, where all assets had nowhere to go but up because the decline was so swift. The unique coincidence in 2009 (which we will not have in this cycle) was that a global commodity rally began and coincided with the selloff in nearly all other asset classes. You will not have a global commodity rally, but you will have a selloff in the U.S. dollar, and a further decline in oil prices. This is the crux of my thesis associated with owning the metals and mining index via this ETF. This index’s real value (the XME) is in the $35 to $40 range, where it has spent much of its time. If you see the big picture, the return to true valuations takes a while after painful declines and constant exhausted exits. The driver and catalyst will be a lower dollar and lower oil, and with that I think we are in similar sentiment to 2009—nowhere to go but up. n
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