Kai Hoffmann on Junior Mining Investing, State of Mining Finance & Needed Regulatory Improvements
In this interview, Kai Hoffmann shares his approach to investing in junior miners, his first-hand knowledge on the state of the junior mining capital markets and some suggestions for the stock exchange regulators in order to keep junior mining companies and their press releases more honest.
Kai has been an active member of the junior commodities market for about a decade. He is currently also the Managing Director of Soar Financial Partners, an investor relations and public relations consultancy, based in Vancouver, Canada. In Sept 2016 Soar Financial acquired Oreninc. And Oreninc is one of North America’s leading financial websites in the junior commodities space. Kai is a frequent speaker at mining conferences around the world.
0:05 Introduction
2:14 Kai’s background & junior mining sector experience
4:30 State of junior mining finance market
7:45 Profile of junior miners who can raise money well in today’s market
8:56 Honesty in junior mining press releases
11:01 Suggestions for the stock exchange regulators
16:57 Kai’s approach to junior mining investing and thoughts on current investment opportunities
BEGIN TRANSCRIPT:
Bill: How did you get interested in finance and investing, and how did you find your way to focus on the wild, wild west of junior mining?
Kai: Well, the wild, wild west it is, definitely. I got involved 10 years ago. It started out of dumb luck, to be honest. I used to work at a small corporate finance boutique in Frankfurt. We structured our own deals, took them public in Germany. One of the deals we worked on back in ’08/’09 was a Rare Earth deal. That’s where I caught a first whiff of the market. I was a young kid back then, I was 24, 25, just fresh out of university and saw how much money you were able to make and we got to market the company in San Francisco at the Hard Assets Conference back then when it was still hopping, and the Vancouver show. I think that was in 2010 when the conference was split between the two hotels there. I think it was the Hyatt and the Fairmont Hotel, Vancouver.
I met some great people. Some of them, the first and second person are still really good friends of mine that I’ve met in the industry. One of them had a booth next to me in 2008 and I’m still good friends with him. I got attracted, obviously there is money to be made in this industry if it’s done correctly, but I also had a couple scares in the industry where I figured out, now, this is not how I want to make my money. I just have a different approach to mining IR and mining corporate communications than others probably do.
Bill: Did you start out on the investor relations side when you were 24 or 25 years old?
Kai: I wouldn’t call it that. I was an office administrator for a while and then I merged into a role of marketing. We did road shows for our clients. One of them was an Oil Company, the other one, as I said, was a Rare Earth company. We started marketing the company in Germany to newsletter writers, journalists, and it grew into that role. It was never really defined as an IR role. It just really was supporting where support was needed. It turned out to be a marketing role. Back in 2011 just before PDAC, I started my own company, Soar Financial Partners.
Bill: That would be eight years ago or so. When you started and you developed your business plan, did you factor in the boom-bust cycle of mining into your business plan?
Kai: I had fantastic timing because I started my company February 2011 with a market was still very frothy, but only three months later, I think everything went sideways. I had one client that paid some ridiculous prices, I called back then, that kept me afloat for a while. In 2015, I almost got wiped out and really appreciate where I’m at now. I live in Vancouver now. I moved here three months ago. The sun is shining, it’s a blue sky, it doesn’t get much better than this.
Bill: And you focus on the state of junior mining now. In Vancouver now, what is your typical day look like? Is it mostly meeting with junior mining execs, or is it researching the state of junior mining finance?
Kai: It’s both. You get a good feel for the industry meeting people on the streets and having meetings, but I have to limit myself, otherwise I wouldn’t get any work done, and do the research and talk to other newsletter writers or other parties involved in the mining space to get a feel for what’s happening and what we can put into our research here.
Bill: The President here in the United States, every year he does the State of the Union. How would you succinctly talk about or describe the state of junior mining finance right now?
Kai: It subtly changes pretty much every week. The state of finance, I called it a PDAC, and I think we call it that, our report that we put out with the PDAC together with Oreninc, “Junior Mining, or Mining Finance at a Crossroad”, and I think that’s pretty much where we are. The market doesn’t know where it wants to go. Macro-economically speaking, gold price should be much, much higher, but I’m not a gold price forecaster. I leave that to others.
It subtly changes. It’s seasonality. People are more prone to invest earlier on that if it wanes off. Right now, for example I’d say the market is pretty much dead. Junior marketing finance has really slowed down. State of finance, that’s a good question. We saw 2016 as a false start. 2017 started off okay, but then things died off. 2018 was another lost year, and let’s just pray that 2019 doesn’t turn out to be the same.
Bill: You look at the numbers, open financing, closed financing, and study these type of things. Are you finding that there are many financings that are being forced to offer full warrants? What’s the breakdown between financing that has full warrant, half warrant, and no warrant? Do you know those off the top of your head?
Kai: Roughly 50 percent of the financings do come without a warrant which is fairly positive, but we see more and more companies having to give in to investor demands and having to offer a warrant. One financing I saw the other day, they offered a quarter warrant. I think it was really just flipping off the investors who demanded it, because I think that’s just symbolic. Other than that, a lot of companies have to give at least half a warrant with somewhat interesting pricing to make it interesting for investors right now to even look at a financing.
Bill: Some of these companies, they announce a certain number and then raise half of the number, or they announce it and they withdraw it. Do you keep track of those at all?
Kai: No. We track the open and close and I do have to take a closer look at how many of the financings that happened to open actually do close. I’d have to run the numbers on that. Opening a financing is fairly easy. Closing it is the hard part.
Bill: Speaking in generalities, when you analyze the companies that are able to effectively announce a financing, raise the full amount, not offer a warrant in today’s market, what are some of the key characteristics of those companies?
Kai: Typically there’s a few groups in junior mining that are still very, I wouldn’t say, powerful, but at least capable of raising money, even in a bad market. The banks trust them, the investors trust them, they do have a track record of success. With that success or past success comes future successes, meaning they can raise money.
I think one company that just recently did that was Minera Alamos. I’m sure we can mention the names. It’s all public knowledge, but the Osisko Group, The Oxygen Capital Group, for example, or even The Discovery Group out of Vancouver. They were all able to raise money. Bluestone raised 22 million dollars in a bought deal that was upside twice. Those are the groups in a bear market. Yeah, I don’t want to use that word. It feels like saying Voldemort, but in a market like this is probably key. Another thing you’d have to look at is jurisdiction. I think that helps as well with the capability of raising flow-through financing in Canada. You might be able to weather the storm here a little better than others.
Bill: You worked on the corporate communications side. I’d like to talk to you a little bit about company press releases. We chatted about this, you and I, off mic in the past. When you’re analyzing a company’s press release, and I’m thinking as I ask this question, more about early-stage companies that are announcing drill results or something do to with their resource, what are some of the dishonest tactics that you don’t like, or what are some of the things that should be said that aren’t said in these press releases?
Kai: I’m often puzzled by the timeliness of press releases and the urgency to put stuff out. Sometimes you see press releases that are completely outdated when they’re put out, which makes them completely irrelevant for me. We talked about this off mic. IR press releases where companies give away five percent of their outstanding shares for marketing purposes. In my opinion that’s very material press release, but the market or the public only hears about that, pretty much a month later, when after the shares have been issued. That’s something I have a big, big problem with, because that is material news that is share price influencing, and if you look at the share price of said company, we’re not going to name it here, but that is something that should be closer looked it, also from regulatory authorities, in my opinion.
Bill: Just based on your decade of experience, have you ever looked, ever observed the regulatory body going back and basically chastising a company, saying, “Hey, you had material news that you did not release in a timely manner?”
Kai: There have been a couple instances when it came to marketing expenditures, but I wish they would’ve done that way more often. They criticize companies for using similar words in press releases that might not be 100 percent accurate, but they’re completely honest companies, they go the right way about things. They might’ve used the wrong word in the press release and IIROC completely exaggerates on their feedback. They have the stock halt for two, three days, just to change a word in a press release. For me, that’s ridiculous. I think they’re focusing on the wrong things. The junior mining is a tough business anyway, to clean that up would be a better use of time than going after companies using the wrong words. I think that could be done in a quicker and easier way.
Bill: As investors, we, of course, need information to make educated and informed investment decisions, and one of my pet peeves when I started to invest and research this sector is that the information that’s available is just not user-friendly. SEDI.ca Is not user friendly whatsoever, although there are certain suppliers like CanadianInsider.com And CEO.ca, which makes accessing those things a lot easier.
I was thinking about this. With the new technologies, the 3D modeling technologies, which basically can communicate visually the potential ore body or a given resource of a company to investors, there are certain earlier stage or developer companies that use this. Do you think it should be, perhaps, mandated by the regulatory bodies for a company that has, at least, an inferred resource with a press release talking about whatever they’re doing with that resource or drill holes? Do you think maybe they should be required to have a visual depiction of those drill holes they’re reporting on, and that 3D model in the press release?
Kai: Your comment covers a lot of issues that I think, need, definitely addressing. One of them is SEDI, SEDAR, those websites are probably from the ’80s, if at best. When was the internet invented? I think ’89? ’90? Something like that? I think the websites were set up at the same time. They work okay, but definitely not user-friendly. Trying to find joint venture agreements or material contracts on their website is just impossible. You can’t even look because all the documents are all scanned. They’re not digitized, so you have to just images that you can’t search. It’s unbelievable how antiquated those databases are.
Thanks to other services, it makes them easier and what makes it easier for investors, as you said, are certain third party providers, you mentioned a couple websites that make at least the insider tracking more visible. New technologies are coming up, and one thing I really like, I see a shift in how companies, at least, present their information, and there’s one company here out of Vancouver that really helps visualize drill holes and presentations in a better way. Not making it necessarily easier to understand, because it’s still quite technical, but at least more visually appealing.
The somewhat technically inclined investor will at least get an idea of what’s happening where the drill holes are coming down. That company is called Vrify. I’m mentioning them because I think they do a great job. I think there should be a couple more companies, hopefully coming out with similar services just to increase awareness, and companies should be obligated, as you said, and that’s a big issue. They put out fantastic drill holes. Apparently fantastic drill holes, but there’s no drill hole map or even location map or anything to be found on the website. Cross cuts, any sections, other people in the industry way more influential, perhaps, than myself, Brent Cook, Joe Mazumdar and others are frequently complaining about the companies putting out drill holes but not offering sufficient information to do proper due diligence.
Bill: I’ve even thought, just as an investor that they should almost be made to use the word “infill” or “step-out” hole, because sometimes you don’t know.
Kai: Exactly. Without a map, how are you supposed to know? It’s super difficult, and sometimes companies work two, three, four projects at the same time, and trying to keep track of what’s going on is almost impossible.
Bill: Yeah. If you did have the ear of the securities regulator, and you were influential enough and they wanted to hear what you had to say and implement it, what would be a couple of the things that you would want to see first implemented?
Kai: One thing that really irks me is how insiders can sell stock without having to properly report it, sometimes reporting it a year late for a minimum penalty, which is rally frustrating. It’s happened, I’ve seen it. Another thing is flow-through financings that need to be monitored more closely. I think it’s a big issue when companies issue flow-through financing at the same price as hard dollars. As we all know, flow-through financings come, usually with a huge tax benefit to the person subscribing to them, and usually, unless they’re really going into a strategic hand through charitable flow-through, those shares usually hit the market fairly quickly again.
That needs to be tighter regulated. Overall, press releases is a tough issue. One thing that makes Oreninc unique is because we do track all the financing of the space and because the press releases are not standardized, we do have a unique ability to track those financings that would be taken away otherwise, but certain standardization probably would be helpful.
Bill: One of the things with the insider trading, I just don’t understand where, now with Twitter and technology, someone in China can tweet, and literally half a second later, myself in America can read what they just wrote. How can a CEO or an insider of a company, when they buy or sell, how could the general public not know that within a matter of, literally, seconds? I’ve always struggled with that, as you’ve said, not only do some not report in a timely manner, but I don’t see why the public shouldn’t have that knowledge almost immediately.
Kai: Exactly. It should be going through a public platform or something. It’s for the regulators to figure out, but it’s unbelievable. I’ve seen it happen. It’s almost destroyed a company, almost broke it down to bankruptcy because the share price just dwindled, and the company was caught in a death spiral. They had to roll back to get somewhat back to a share price where it was meaningful to raise money. They’re struggling again, and only a year later, we found out that the CEO back then was selling stock. It’s unbelievable, and in my opinion, that guy should be in jail and never be allowed in a position to run a public company again, either director or a C-sweep.
Bill: When you’re investing, let’s get to your investment approach. Where do you focus jurisdictionally in your personal investments?
Kai: I’ve really shied away from Africa these days. I think a good example, unfortunately, was Orca Gold the other day, and I’ve heard a lot of takeover rumors and the company is looking at it. I’ve always stayed away just because of that political risk. I know the management team, they’re great guys, they don’t deserve it, but there was a coup the other day in Sudan, and of course the stock plummeted. I haven’t looked at the share price in a while, but last I saw it was down at least 20, 25 percent.
My point is, I invest money in jurisdictions that have I believe are currently really safe where, I’m going to say it again, in a bear market there is lots of opportunity out there to invest your capital in North and South America, particular US, Canada, and Mexico. I personally like Peru, these days, quite a bit as well, to deploy your capital. The little bit of capital that is available to invest these days.
Bill: Do you focus most of your capital on early stage companies, and if so, are there any companies you’d like to mention?
Kai: Yeah, I invest a broad range. I have invested into companies that are currently looking for projects. I own a couple producers. There are companies sort of like Regulus Resources, that are either misunderstood or the market just simply ignores, or just doesn’t pay attention to, which is frustrating. Integra Gold, for example, in Idaho, is a fantastic project. The share price is just dwindling. No reason, they have gold in the ground, it’s an old past producing mine. If they really wanted to turn on the jets, they could be back in production in three years if really necessary. That’s in a perfect world, obviously with financing and all available.
There are so many great opportunities out there and just looking at my portfolio, I think broad spectrum, not all of them I’m happy about, obviously, and I’m quite under water on some, but yeah, Cartier Resources is another great example of stock that’s not moving at all. Anonymous selling, nobody knows who it is. Takeover target. I could mention probably 20 more that are not even in my portfolio, and I don’t mind doing that, because there’s so many great opportunities out there. You pretty much just throw an arrow at the dartboard, and you’ll hit something good.
Bill: But because we’re in a bear market, as you said, then you’re going to look at their … I assume one of the first things you’ll look at is their financial statement to see how much cash they have?
Kai: Cash is definitely an indicator, but also as I said, there’s three, four, maybe five groups out there right now that regardless of the cash position of the company can raise money. We’ve just seen Barkerville raise another 20 million dollars for their exploration program. There is money out there. People are making money hand over fist in the cannabis space, and those investors have been in the mining space before. Most of them, at least, besides the millennials, maybe, that just started investing in cannabis, but attracting those will be the challenge of the next decade, probably, getting them back into mining, but that’s a different story. There is capital available is my point, and just trying to get those people to come back is a challenge, that’s all.
Bill: For those companies like Equinox Gold that take on problem projects that most of the investment community that follows mining know about, and then you get a well known team that takes on this project, what are some things that you look at when you’re looking at a company that’s taking on a problem project and saying, “We can fix it.” What do you want to see before you put your investment dollars into that company?
Kai: That’s a good question, because I don’t think I’m the typical investor because I’m not patient enough. I wouldn’t say I’m a four month hold kind of a guy, and then I’m out. I’m usually the bag holder when it comes to that, but even for me, those projects, it’s the proof of concept. Getting those projects back up and running, happy to assist. I usually have the vision to see the management team being able to do that, but my personal investment capital is probably not patient enough, and I’d be lying to myself if I was saying it was.
I usually hold a stock 12 months, but I usually come in for other reasons. I am a typical retail investor to a degree. I wish I had more capital to allocate to be less greedy. Fortunately I’m still young so I’m a little more risk averse than I probably should be, but there are good management teams that will be doing it over and over again. As I see myself as a typical retail investor, I don’t think I’m patient enough to see it through to a degree. I’d be happy to support it, sell it and know the right investors for it, but I try to put my money where my mouth is. That’s not always possible, hence limited funds, right?
Bill: Because you stay on top of the junior mining news, when you see a company have maybe some negative news, but it’s an otherwise company that has things going for it, do you look for those steep selloffs and then get those quick 40 percent rebounds? Even as I’m saying this question, Kai, I have in mind Miramont Resources, where they announced some results that the market didn’t like. There was a great expectation going into the announcement of their drill results, the stock sold off heavily, there was a negative article written about them, sold off again. Then there was some more positive results and the stock bounced back from, I think it was US 9 cents to 13 cents, something like that. Do you look for opportunities like that in the short term, or is that not where your investment eyes are focused?
Kai: I wish I was a trader more to take advantage of that. I seriously do. I hear quite a few things on the street here as well, and I’ve been trying to get better at it to take advantage of those opportunities. I just don’t have the capacity. I wish I did. There are some good opportunities to make money, as you said, Miramont dropped down. It was at 12 cents Canadian. It’s back up at 18 cents. That’s an easy 50 percent within three, four weeks.
I usually trade in stocks that I’m really close to management teams. That’s probably one of the advantages and one of the reasons that I do like the industry so much, because you are quite close to CEOs or decision makers. It’s not like you get insider information, I don’t care about that, but I do like having access and getting updates when I need them. Being in Vancouver, obviously is an advantage as well.
Bill: Well, you’re hearing from Kai Hoffmann today. This is someone you want to follow, and his company, Oreninc, you want to follow their work on the state of junior mining finance. Kai, for the listeners that want to keep up to date with you, your thoughts and your work, how would they best do that?
Kai: Yeah, probably easiest to follow me either on Twitter @Oreninc. It’s O-R-E-N-I-N-C. Or Oreninc.com, or just shoot me a message, direct message via Twitter or Linkedin even. Happy to answer any questions, and I hope it was somewhat insightful today.
Bill: Kai, I appreciate the conversation, and I look forward to chatting with you again.
Kai: Thanks for having me on, Bill, much appreciated.
