Paul Andreola is one very patient–and very successful–investor.  In the 20 years that I have known him, he has been a stockbroker, a CEO of a public company, a company founder, and a full time investor.  He has looked at the investing  game from every angle.

And last week he tweeted out:

Despised is right!  Even I despise Canadian oil stocks some days!  (Like TODAY!) So I brought Paul into my studio for  a quick interview to get updated on what he is seeing in Canadian energy stocks, and his investing strategy.  Here’s what he had to say:

https://www.youtube.com/watch?v=sTbW3zFFT8M&feature=youtu.be

Keith Schaefer
Publisher, Oil and Gas Investments Bulletin

Shipping has not been a great industry–for management teams or investors–for several years now.

I warned readers to avoid the sector like the plague back in 2016 with this story here: http://bit.ly/tankersoversupplied

The sector is capital-intensive, has no product differentiation (ie. one ship is the same as the next), and frankly, my experience has been that management teams are not very good.  They’re willing to drive shareholder value into the ground (like American natgas producers!) to grow.

All this and years of cheap credit have led to overcapacity for 10+ years.  Here’s two charts that show the growth in the global fleet:

Those are not bullish charts.  And of all the segments of the shipping business, the clean tankers have been one of the worst.

Clean tankers carry refined products like gasoline, diesel, distillates as well as chemicals.  This contrasts with dirty tankers, which carry crude.

Source: Scorpio Tankers Stifel Conference Presentation

The misery in the sector reached its peak in 2018 when rates for MR (mid-range) tankers collapsed to below $5,000 per day last summer.

It has been bad for so long.  So when someone starts talking bullish, and I mean REALLY bullish, I take notice.

Last Thursday Scorpio Tankers President Robert Bugbee was answering a question on their conference call when he said it would not be unreasonable to see cash flow of $25/share at some stage in this cycle.
Wait, what was that?

Scorpio Tankers is a $28 stock.  Only a few weeks ago, it was an $18 stock.

$25 per share of cash flow? Now that’s bullish!

What’s Going On Here? 

It seems too good to be true, so I dug in.

There are a couple of things at play.

First, we have a 20 year low in shipbuilding orders.  The product tanker order book stands at multi-year lows.

It has gotten so bad that shipyards are being paved over for commercial real estate.  Those that remain have consolidated.

The order book today stands at 134 ships.  That is 6.2% of the fleet delivering over the next 3 years.

Source: Ardmore Shipping December Presentation

Here’s a Bloomberg chart that shows somewhat the same thing:

With so few new ships on the horizon, net fleet growth over the next few years is expected to be below 2%.

On top of that you have healthy scrapping.  There were 49 MR tankers scrapped last year.  Expectations are for similar numbers going forward.

The only thing that will slow down scrapping are higher rates.

Summary: the supply side will remain very constrained in the near term.

The Demand Side: Refinery Starts and IMO 2020

Demand hasn’t been a problem for clean tankers.  MR tanker demand has been growing close to 4% for the last 18 years.  That is expected to continue going forward.

Beyond the long-term trend, there are reasons that demand could accelerate even more in the short-term.

First, the new refining capacity the Middle East has been building for the last few years is coming online now.  Governments there want to diversify their economies away from upstream production.  That means refineries are producing fuels for export.

That means new MR and LR trade routes and more product being shipped.

Second, IMO 2020.  While the ban on high-sulphur fuel oil (HSFO) in ships is likely to disrupt the entire industry, the biggest disruption will be on the product tanker sector.

Why? Because all that replacement low-sulphur fuel needs to be shipped on clean tankers – MR’s and LR’s.

IMO-2020 is like a one-time step-change for shipping refined product.

IMO-2020 is also expected to improve refinery margins.  This will provide incentive for refiners to produce more product IN GENERAL. Gasoline, diesel, and distillates will all see increases.

In fact, on the Scorpio earnings calls there was even a question about the potential need for floating storage next year–but for gasoline, not oil.

It is hard to believe but stranger things have happened.   That the question is even asked tells you something about the changes on the horizon.

End Game

Here’s the next big question – does this all end badly?

At the 13^th annual Capital Link Shipping forum, Bugbee put it like this:

“Of course, we won’t change as an industry”.  “Of course, we will shoot ourselves in the foot in the future.  But right now, after 11 years of a terrible market the gun has been taken away from us.”

“We’re little children.  We’ll never grow up and if you keep feeding us candy, we are going to be sick and you guys will have to clean the mess up – that will happen again.  Its just not going to happen for a little while.”

Like I said, that sounds like it could have come from US natgas producers.  But it speaks to my comments about management in the industry.  Ironically, the most bullish thing about the tanker business is that even the executives have no faith in it.  It has been so bad for so long – shipping companies have worn out their welcome.

Even their own executives refer to themselves and their peers as children!

It will take more than a few months of blow-out earnings to earn the trust of the capital markets back.

Where Are We In The Cycle?

If it really is going to get good, it should start this fall.

The Market is going through a period of lots of refinery maintenance in the US Gulf Coast (USGC).  That means reduced supply of refined product.

Thanks to IMO 2020 this year’s maintenance is particularly heavy.  Every single refinery is giving guidance that their maintenance schedule is longer than expected.

They are doing the maintenance now to make sure they can run hard and fast in the fall and next year to fully benefit from IMO 2020.

Yet in spite of that we are not seeing a weak rate environment.  Even the companies themselves have been surprised at the strength.

In the first quarter freight rates for all the clean-tanker classes (LR2, LR1, MR and Handymax) were at their highest level since 2015.  They were strong through January, February, March, and now April.

The storm of refinery maintenance is almost behind us and rates haven’t given an inch.

This bodes well for the market in the fall.  That is when the demand from IMO 2020 will begin to ramp.  It is also a seasonally strong period for tanker rates.

Throughput is expected to ramp through the summer, climbing towards a seasonal peak in August.  Product supply is expected to increase 4.6 million barrels a day from March levels.

Both the end users and charterers see what’s coming.  Lot’s of talk on the calls about customers wanting to extend their books.

But apart from the weakest hands, the tanker owners are balking at chartering their vessels on period rates.  This is their change to capitalize – finally!

Super Cycle?

The million-dollar question is – how long will this last?

Here are a few points to consider:

• The benefit from IMO 2020 will continue for 2-3 years.
• Vessels from the last super cycle (2003-2008) are going to become 15+ year-old vessels as we hit the next decade (Most terminals don’t take clean petroleum products in ships that are more than 15 years old.)
• The capital markets remain tight for these players – meaning very few new ships until at least 2021

I don’t like using the term super-cycle.  It’s a good way of ending up with egg on your face.

My gut reaction is – this is bound to end badly; I just don’t know when.

But maybe that is the point.

Again, turning to Bugbee – the best thing for the industry is investor derision.  These are, after all, “children”.

As long as the market keeps the candy hidden on the top shelf, these companies can generate big cash-flows.  If those cash flows can continue for a few quarters, maybe years, they could actually make some money for their shareholders.

For a while.

Its enough to make me want to get my feet wet.   But I’m reluctant to jump right in–because the good times will end and in the shipping business it tends to end faster than anyone anticipates.

Remember, Halloween is a party, but only lasts one night.

Can somebody tell me why the (Canadian) oil industry hates Justin Trudeau so much?

Alberta seems to think the Prime Minister has it in for them.  They’ve gone so far as to send a caravan of trucks across the country just to let him know how angry they are!

But I just don’t get it.  Don’t these people understand?

Justin Trudeau is Canadian oil producer’s best friend.

These companies are PRINTING MONEY – and who do they have to thank for a big piece of it?

You got it – Justin.

CHA-CHING!

Oh sure, he’s bungled the pipeline debate to high heaven.  Overpaid for a pipeline that may never get built.  Praised the industry while stabbing it in the back with Bill-C69, which will make it much harder for any new pipeline to ever get built.

I get it.  He’s not perfect.  But who is?

What is overlooked is that Justin has put an extra $10/barrel directly in each oil producer’s pocket.

How many times can you say a government gave a gift like that?  Not too often.

So how did Justin give the oil business such a boost?

Simple.  He has done his darnedest to make sure the Canadian economy underperforms.

Squeeze small business.  Raise taxes.  Make it nearly impossible to buy a home.  He’s popped the balloon on growth better than an economic hitman.

And it worked!  Just last month the Bank of Canada slashed GDP growth forecast to 1.2% in 2019.  That is down from an already paltry 1.7%.  Bank of Canada Governor Stephan Poloz all but admits that rate cuts are in the cards.

A bad economy means a bad currency – and that’s good for Canadian oil producers.  The Canadian Dollar hit a four month low recently on the downbeat forecast from the Bank of Canada.

But wait you say – they Canadian Dollar is up on the year, right? Marginally.  That’s not so bad.

It’s true.  But it misses the big picture.

Oil prices surged more than 40% since the beginning of year.

On December 24^th the price of WTI crude was $43/bbl and the Canadian dollar was 73.5 US cents.  On April 23,  WTI crude hit $66/bbl and the Canadian dollar then was is 74.46 US cents.

The Canadian Dollar is a petro-currency.  As oil goes, so does the loonie.

Until now.

The historic correlation between oil and the Canadian dollar has long been accepted.  But over the last couple of years, and this year in particular, that correlation has entirely broken down.

Source: XM.com

Why?

It’s the economy stupid.  Even a healthy oil market can’t help Canada right now.

There are a few things at play.

Laura Cooper, head of FX solutions and strategy at RBC Wealth, says that pipeline constraints are the culprit.  The lack of growth is keeping a lid on bullish oil sentiment and with it, any appreciation of the loonie.

Second, as Poloz hinted and many other economists have said, the Canadian economy is just not doing that well.

As famed economist David Rosenberg recently pointed out, Canadians are taking more part time jobs, racking up more debt, and seeing very little income growth.  Meanwhile the last federal budget did nothing to fix the real problem – declining productivity.

“Declining productivity” – that’s just another way of saying we are getting less competitive.

Which is exactly what you’d expect to happen with Justin’s policies.  It all means dim prospects for the loonie.

“We’re basically looking at a situation that is very difficult to find any positives for the Canadian dollar overall,” said TD currency strategist Mazen Issa “In fact, it’s probably going to continue to get worse.”

But wait.  It’s not all bad news.   The weak dollar is a BOON for oil companies.

Every cent of decline is another dollar in producers’ pockets.

Based on historic norms I would wager that with WTI at $65/bbl the loonie should be at around 85 cents right now.  Instead it’s below 75 cents.

That difference equates to a $10/bbl lift in prices for Canadian producers.

Subtract some royalties and the rest of that drops straight to cash flow.

By way of example, let’s take MEG Energy (MEG-TSX).  It’s a highly levered, mid-tier oil producer.  MEG generates a whopping $350 million in additional cash flow with the Canadian Dollar at 75 cents versus if it was at 85 cents.

Meg Energy has a $2 billion market capitalization.  That means that MEG is getting 15% free cash flow – directly from Justin!

This is just one example.  I could go down the list of Canadian oil companies and give you the same sort of numbers:  Crescent Point, Cenovus, Whitecap, and so on.

All that cash.  Stuffing their coffers.  They owe Justin so much.

But what thanks does he get?  How is he repaid for squashing the Canadian economy, killing productivity, just at the time when oil prices start to take off?

He gets nothing. No love. Life’s just not fair.
Keith Schaefer
Publisher, Oil and Gas Investments Bulletin

EDITORS NOTE:  Several OGIB companies are reporting INCREDIBLE Q1 numbers.  If you’re not already a paid subscriber to OGIB, it’s time to get the BEST energy stocks working for you – take a risk-free trial starting TODAY – Click HERE.

I can’t believe it has been ten years – an entire decade since I launched the Oil and Gas Investments Bulletin in the spring of 2009.

I started with a mission to explain The Shale Revolution in simple English to retail investors…and make some money doing it, by trading my own account.

While the energy sector has struggled over this ten year period, my personal portfolio – made up entirely of OGIB subscriber picks – has done very well by any measure.

The chart below compares the OGIB results with both the XLE (energy sector) and the S&P 500.  While my OGIB portfolio is up nine-fold the energy sector is up only 50 percent – it is always about exploiting the cyclicality of the energy industry not suffering from it folks!

Despite this, I do feel that I’ve left a ton of money on the table… because the energy sector is only 5% of the world’s 40,000 publicly traded stocks.

I’m at a disadvantage with just one small sector.

There is no question that over the last 10 years I have become a much better investor, honing in on what to look for in financials, how to talk to  management, market expectations and more.

I’ve also developed many more valuable connections throughout the North American investment industry.

As I have started to use all this experience and discipline to branch out to other sectors to stay alive, relevant, and wealthy – I found success again in my premium subscriber group The Conversations. With The Conversations we have been finding dirt cheap, rapidly growing small-cap companies across many different sectors – not just the energy sector.

There is a world of opportunities out there folks and I want a piece of them.  The chart above shows the investing performance we have accomplished with just the energy sector to pick from – I know that I can do even better with more freedom!

That is why I’m so excited to announce that I am launching a new subscriber service at www.investingwhisperer.com. This is where I’m going to be investing in companies outside of the energy sector – the other 95 percent of the market.

There will be no change to my OGIB service. I’ve still got my seven figure OGIB portfolio to invest and for the first time in awhile, oil stocks are making me good money!

But if I can grow my portfolio nine-fold over ten years while investing in a sector that only went up 50 percent…. I can’t wait to see what I can do with Investing Whisperer where I get dig out the best small-cap opportunities in every sector!

I’m NOT doing micro-caps or companies with no revenue.  I’m looking for companies that trade between $1-$15 and are either self-funding, or about to be self-funding in the next quarter or two. My colleague Paul Andreola does the micro-cap investing, and he is very talented at it.

I have a new writer/researcher.  I have several new research services to which I subscribe. With OGIB I spend $80,000 per year on research alone – and that doesn’t speak to what I spend on dinners with CEOs or industry experts, plus the cost of attending conferences, travelling to meet management and paying my analyst/writers.

At Investing Whisperer I’ll be doing the same because I’m going after the best small growth stocks in every sector.

Investing Whisperer subscribers won’t be just getting me – they will be getting access to the knowledge and ideas that come from the tens of thousands of dollars of research that I purchase every year.

I’m still buying all of the stocks I choose from my research – eating my own cooking, so to speak. The real money in the business is deploying my own capital.  I really do make my money by risking my family’s money in the stock picks I provide you.

It was stock picks like Canadian Energy Services (CEU-TSX; $2-$11), Pacific Ethanol (PEIX-NASD; $3-$23), and Resolute Energy (REN-NYSE; $5-$48) that made the big difference for me.  But even when energy stocks were tough, I found stocks like Northern Tier (NTI-NYSE; $19-$31) and Viper Energy (VNOM-NASD; $16-$42).

What would you pay to increase your wealth 900% in the next decade? $20,000?  $50,000? $100,000? You can get my full research reports and market timing for just US$99/month – BUT THIS PRICE WON’T LAST LONG.

After the first 3 months, getting full access to my research and stock picks will be US$1,497 annually, or $125/month.

Ten years have passed and my OGIB investment performance has turned $10,000 into almost $90,000 in a sector that has seen many of the very best hedge funds forced into liquidation.

I produce results because I have no other choice.  This is how I make my living.

Over the next ten years I’m taking things up another notch – I’m going to keep growing my OGIB portfolio and I’m ready to take what I have learned there and use it to fish in a pool that is ten times as large with much bigger and better opportunities.

MY FIRST PICK IS READY TO GO.  It’s a technology stock with a clean share structure, where management owns a lot of stock, has fast growing revenues and a very cheap valuation.  I just put $75,000 of my own money into it.

Get this stock working for you quickly – they are about to announce their next set of quarterly results!

Yes, I want to start subscribing to InvestingWhisperer!

Sounds interesting. Tell me more!

I can’t believe I’m saying this – but I think Canadian oil stocks could outperform US oil stocks this year.  The charts look great, and it looks like we’re coming out of maximum pessimism in the oilpatch.  That’s where BIG GAINS are made.

The Market is starting to price in three factors IMHO:

1. The heavy oil story in Canada – heavy oil prices bottomed at US$10/b in late 2018, and now they are over US$50!  Nobody thought that would happen so quick.

2. Regime change in Alberta and Ottawa – the left wing New Democratic Party will almost certainly get defeated in this Tuesday’s election.  And the federal election in October is now a toss-up – only 6 weeks ago I would have bet you a steak dinner that Prime Minister Justin Trudeau would get re-elected with a majority

(However, if there is an upset in the Alberta election on Tuesday and the opposition UCP – United Conservative Party – doesn’t win a majority, you can throw all those good looking charts in the garbage.)

3. Natural gas prices will stay low, and maybe even go lower in 2019 as LNG prices around the world are collapsing – threatening a very important relief valve in US pricing.  As I’ve said many times, there is no such thing as an “oil producer” in the United States – they ALL have much higher natural gas weightings (due to deeper geology) than Canada, and that will mean much lower realized pricing in the coming quarterlies for US producers.

Basically, Canadian geology and profitability will finally outweigh our dysfunctional governments in the minds of institutional investors, and there is now a “catch-up trade” underway in Canadian energy stocks.

Several Canadian oil producers now have Free Cash Flow ratios that would make them world leaders in almost ANY industry – and the Market is now willing to see through the political clouds and take a chance here at ridiculously valuations – I mean two and three times cash flow.

(Note that very few of the intermediate and even larger US independent producers generate Free Cash Flow.)

A huge free cash flow yield means a company can buy back LOTS of outstanding shares in two or three years. Valuations like that self-correct quite quickly.

Huge differentials – the industry term for discounts – have been more than priced in for these companies while the reality is the opposite – heavy oil “diffs” in particular have come in dramatically (see Point #1).

Here are some charts of Canadian oil stocks that show what I’m talking about:

I told my premium subscriber group on our bi-weekly Wednesday call – when charts start to perform like this sector-wide, what’s really important is – DON’T THINK.  Respect the charts and buy (mostly) the larger cap players who are so cheap they could still double (both by deleveraging and getting a multiple increase) and some (just a little bit) of the more volatile juniors that have lower quality shareholders (almost all retail, no institutional) and will go down in price a lot more when the chart starts to consolidate or when a small bit of bad news hits.

Production declines in Venezuela and Mexico should drive the Canadian heavy oil story for months; probably several quarters and quite possibly for years. (But things do change fast in energy!)   If you believe – as I do – that the Saudis can’t actually produce more than 10.5 million bopd for any real length of time, then the heavy oil story has YEARS and these stocks could hit 2014 levels (that would be a quadruple for most of them still).

Only a few short weeks ago I never thought I would say this – but I think Canadian oil stocks will outperform US oil stocks in 2019.

Find out my Top Picks today!   To subscribe to my Oil and Gas Investments Bulletin independent research service, click here:

Click here for monthly access $ 59 a month (no refunds)
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Keith Schaefer

Publisher, Oil and Gas Investments Bulletin

Before I begin investing in a new sector, I want to talk to the smartest people in that industry.  Canopy Rivers (RIV-TSXv) President Narbe Alexandrian is one of those people in the fast growing marijuana sector.  I sat down with Narbe recently and was able to learn a lot about how this public Venture Capital firm has created some early successes, and how and his team are positioning the company as marijuana, hemp and CBD gain acceptance around the globe.

The stock made a quick 50% move once I profiled the company in early January!

I’ve enclosed most of my interview with Alexandrian below.  I think you’ll learn A LOT about the industry, how Alexandrian sees it developing and a bit more colour on what I see as the biggest catalyst for their shares this year – their very accretive investment in a company called PharmHouse.

Keith:    Narbe, I have so much ask you – especially how your team is positioning Canopy Rivers for the long term.  But first tell me how you started with Canopy Rivers.

Narbe:    I joined Canopy Rivers about eight months ago. My background has been mostly in the technology trade. I started my career at Deloitte as a Management Consultant and in M&A while getting my CPA. I then moved into the tech industry – where I’ve spent the last decade working with startups and helping them grow.

Over the last four years, prior to joining Canopy Rivers, I worked at OMERS Ventures as a venture capitalist, the largest tech VC in Canada.

I was at OMERS Ventures fairly early when we were just a single fund, $180 million of assets under management. Prior to leaving, we had raised two other funds, with just under a billion dollars of assets under management and a very strong portfolio.

I made the move to cannabis when I started seeing the same things as a I saw in the Canadian tech industry back in 2011/2012. Back then, there were no real venture capitalists in tech – companies needed to move to the US when they got to a certain size, because there was a lack of capital in Canada.

In cannabis, it’s sort of the same, but in the opposite fashion. You have strong operators that are finding angel and early stage funding, and hedge funds who are backing pre-public companies – but nobody is taking the risk in the middle of the lifecycle, writing cheques in Series A to Series C rounds, and being patient with their capital. The larger US players can’t fully participate in funding startups, due to legality issues there, giving Canadians a powerplay.

Keith:    So where do you focus all this time and effort… how do you see the marijuana business unfolding in the next few years and where do you think is the best place to put investors’ money?

Narbe:    We believe that cannabis industry is going to move in five distinct waves, in any developed country that is looking for legalization. The first wave is cultivation – these are the farmers of cannabis. First movers have historically profited the most from this, in geographies where licenses are hard to get and fairly scarce.

From there, there’s the wave of ancillary businesses. These businesses are the providers of products/services related to the broader cannabis economy. Ancillary businesses are subject to less risk from fewer rules and regulations to abide by, but represent close to three times the size of the cultivation industry. Our data shows that there are 3,000-4,000 cannabis ancillary businesses alone.

The third wave is consumer product goods. We believe that the end-consumer still doesn’t have much loyalty across product offerings yet – the industry is just too new. Over time, brands will dominate, commanding high margins and extreme customer loyalty. There’s a lot of consumer mind share for cannabis companies to capture, and until consumers see the Guinness or the Marlboro of the cannabis world, it’s still up for grabs.

Wave four is big pharma, where over-the-counter and prescription drugs will come out that help lighter symptoms, such as arthritis, sleeplessness, and inflammation, to harder symptoms such as epilepsy and cancer.

Finally, we get to wave five, which is mass market. Here we will expect three to four companies to begin mass consolidation of the industry, becoming the Coca-Cola and Pepsi of the cannabis world.

Keith:    Got it. So, to talk to me a little bit about quality of management so far in these companies that must rank range from soup to nuts. And how do you handicap that? Is that a place where you guys can see a big value-add, using your network to help put senior people in? Are teams open to that? What about that idea?

Narbe:    Yeah, absolutely. There are companies out there that have great promoters but not much substance, commanding huge valuations. Unfortunately, many of them are riding the wave of popularity that cannabis has brought on, and likely won’t be able to withstand the long-stretch. What we like are strong entrepreneurs and repeat entrepreneurs, who understand the ebbs and flows of the life of being an entrepreneur, and have made the move from a traditional industry into the cannabis industry.

For example, we could get a former Coca-Cola product manager that decides to get into cannabis beverage space, bringing in their understanding of supply chain, product development and branding. And they come and pitch us on making a cannabis product. They have the contacts, the experience and can do what a family brand like Coca-Cola cannot, which is build a business in cannabis.

Keith:    Would you be willing to give me an example of a company in your portfolio?

Narbe:    Well, let me tell you a bit about one recent investment – LeafLink International. We identified that the cannabis industry was becoming increasingly fragmented in the market. There are over 5,000 cannabis dispensaries in North America alone, and over 2,000 brands. As a retail operator, it would be impossible to keep track of inventory, re-stocking and discovering new brands.

We went out to the market – with our proprietary due-diligence process – to find the best technological solution for that need. After speaking to dozens of companies within the space, we kept hearing about how they compared to LeafLink, a company that was capturing ~50% of any given market within 6-8 months of launch. With all the problems we were seeing with the supply chain in Canada and the UK, we thought this investment was a no-brainer.

Keith:    Right. Okay. And in terms of… You touched briefly on jurisdiction. You want to maybe give me a little more color there. What are you seeing where… The international arena is obviously a little less developed, but maybe there’s more upside there because of that, or do you have to be more patient, take a longer term view there, or is there any catalyst in any of these international jurisdictions that you think that’d be coming up this calendar year that could kind of change the landscape for that particular jurisdiction, or…

Narbe:    The catalyst for international expansion is governed by regulation. In many of these international jurisdictions, they’re getting closer and closer to legalization, either from a recreational or medicinal standpoint. We’re seeing a lot of these countries are looking at Canada as the poster child.

They are patiently waiting to see how the legalization program works out, while also kicking the tires with their voting body to see how they would react to a potential decriminalization or full-blown legalization. Geographically, we’re seeing a lot of movement in the US, Europe, Latin America and Australia, with some whispers from the likes of population powerhouses, India and China.

At the end of the day, it’s a $600 billion dollar industry on a global scale, but to get there, you have to have favorable regulations.

Keith:    Obviously there’s a higher threshold for investing in a pre-revenue company. What do you look for when it’s pre-revenue, which by definition is a little higher risk, earlier stage?

Narbe:    At the pre-revenue stage, the focus is on the operator of the business because things could change and the business model could pivot. At the post-revenue stage, the focus is more on the business model and and traction.

Keith:    What do you think is the most underappreciated part of this market by the mainstream street retail… the sell-side.

Narbe:    The most under-appreciated part is how difficult it is to likely get proper talent within a cannabis company. For a lot of these large LPs, it’s a bit easier because you have an established company, established stock, a business model and so forth. In contrast, a startup has to convince someone from the traditional space to leave their job and come into an industry where it’s highly regulated and it’s difficult to bring products to market.

Keith:    Okay, for… We’ve talked a lot of macro stuff. Just within your own portfolio, you’ve kind of had a chance now to get familiar with it. And some of the stuff you were probably involved in; some of it you perhaps weren’t. Tell me a little bit about what’s your favorite investment? What… which company in the portfolio gets you the most excited right now?

Narbe:    To be frank, all of them are. I love all of them equally. There’s always a rule in VC that you can’t really pick your favorites. And I have to stick to my guns here – I don’t have a favorite. I like them all equally.

Keith:    Well, let’s talk about PharmHouse just because that’s kind of one of the bigger ones. When I did my original piece of the company, I really kind of focused in there because certainly that’s the one that I saw that had the scale to provide the biggest upside for Rivers’ stock this calendar year.

Can you run through with me how you see that investment developing. What do you see as the milestones for that company, being as it does seem to be such a big, big thing for you guys. The Street’s modeling a lot of cash flow to that play for you guys by the end of this calendar year. What do you see as the mini-milestones there is going to lead up to the street starting to recognize the value there in Rivers?

Narbe:    I mean you have the recipe for success in PharmHouse. You have a 1.3 million square foot facility with operators that have been working on greenhouses for decades and have become leaders in this space. I think the investment community overlooks how potentially large and accretive this partnership could become.

Our Pharmhouse partners operate over 30 million square feet of greenhouses across the world and CIBC estimates they do north of  USD$1 billion in sales per year in tomatoes, peppers and cucumbers.

Our partners’ geographical greenhouse footprint covers the United States including States like California, Michigan, Colorado, Florida, Ohio and Illinois. All of these states allow cannabis consumption in some form and five of them are in the top 10 most populated States in America.

This is really important as Rivers has an international non-compete with PharmHouse, allowing us to purchase up to 49% of any of these operations at book value, giving us a long-tailed call option on future US and international operations as those markets open up.

And we operate in a fantastic region, Leamington, Ontario, where you can get access to the talent you need to develop strong product, a strong management team, and a strong agricultural team. Then you bring in Canopy Rivers and the backing of Canopy Growth, which is the largest cannabis producer worldwide.

Keith:    Does the size of your facility put any extra pressure or hurdles in your way because obviously you guys are huge.

Narbe:    It’s difficult to secure an area that’s the size of three football fields than it is to secure a thousand square foot room, particularly when you need to have video surveillance covering the entire facility, laser motion sensors, and detectors through the roof. You need to secure this whereby there’s an alarm that would be triggered if anybody tried to penetrate the area.

That being said, the security team that we’ve engaged has secured million square foot facilities for Canopy Growth. So, we’re pretty comfortable with our business plan layout and making sure that we know how to pass the test, if you will, in that we’ve written it a few times. So, while it’s challenging, and it was challenging the first time Canopy went through it. Olivier Dufourmantelle, our COO, he has probably helped with the licensing of over 5 million square feet of grows across the country. We’re pretty confident in our ability to get that done.

Keith:     Narbe,  we’ve covered a lot here today. Is there something that we haven’t covered that you think is important to any part of the company or the industry, that you think is intriguing or maybe underappreciated by the street or interesting to you guys?

Narbe:    I think the one thing I’ll leave you with Keith, is that the company has grown substantially with the ~$300 million it has raised to date. The pipeline is in fantastic shape, and right now, where it’s trading in the market, investors have an opportunity to invest in a portfolio of the next generation of leading cannabis companies, all at pre-public valuations. At a high level I’d say that you’ve got more fuel and more gas in the tank, a more robust management team, a great opportunity set, and pipeline system that’s sourcing and identifying opportunities.

Keith:    Narbe, thank you so much for talking with me today on the cannabis space and what your team is doing at Canopy Rivers to make money from all that.

Narbe:    Thank you, Keith.
Keith Schaefer
Publisher, Oil and Gas Investments Bulletin

Euro Sun Mining (ESM:TSX) is my Gold Stock of the Decade.  This company has EVERYTHING I want to see:

1. SIZE–10 million ounces of gold equivalent, in Europe, permitted for production in an area where large scale mining has been done for over 100 years.
2. Only 71 million shares out and cashed up with a recent financing
3. Management bought this financing (and their average cost is still close to $1/share–higher than today’s price!–NO cheap stock on this company!)
4. CEO Scott Moore and his team have an incredible track record in adding value for their shareholders–their last four projects are now in production
5. DIRT cheap valuation vs. peers
6. A “Popcorn” market for gold stocks–they’re popping all over right now.

This company has leverage both in the ground and in the share structure, and a management team that can–and has–delivered the goods.

I think I’m going to make A LOT OF MONEY on my 150,000 shares–the numbers I laid out for you in my last email say I have a great chance of making 20x my money–$1,000,000 for me if I’m right!  For me, it’s The Gold Stock of the Decade.

When I bought the stock on the 30-cent financing, Euro Sun was valued at just $2.50 per ounce of gold equivalent (some copper) in the ground. At 60 cents it still leaves a potential 22-bagger on the table for every investor today; 2,200%!!  This is not my opinion, it’s from the hard numbers in the table below:

At 80 cents a share, Euro Sun is still a potential 17-bagger–1672% to be exact!

 Great Location, Permitted, Highly Economic

Investors have abandoned this sector and nobody is looking at what these companies are actually doing.
Euro Sun Mining owns 100% percent of the 10 million ounce Rovina Valley Project in west-central Romania — a developed and secure nation that is a member of the EU and NATO.  And it is PERMITTED for production.

This is a perfect place to operate a gold mine. This is an established and prolific mining region with THREE large gold mines located within 40 kilometers (25 miles) of each other.  There’s over 40 million ounces of gold in this Tethyan Gold Belt–this is like Nevada, or Red Lake Ontario, or Johannesburg South Africa.  But nobody knows about it

Rovina is officially #14 in the world for gold deposits.  Though I don’t want to be a bad guy, I will say, that 7 or 8 of those ahead of Rovina will almost certainly never see production.  The last four assets that Euro Sun CEO Scott Moore has owned are all in production.

The local labor force is skilled and hungry to work and there is excellent road and rail infrastructure already in place.   The mining permit arrived last November, when the Market was collapsing and nobody was paying attention.  This is HUGE!

Another huge advantage….the cost of power in Romania is DIRT cheap at just $0.07 per kilowatt hour.
The geology here is simple and everything lines up for this to be a very large, very low-cost project.  It’s got huge size, low cost and one of the best teams–It’s the Gold Stock of the Decade.

The independent, third-party engineers who completed Euro Sun’s February 2019 Preliminary Economic Assessment (PEA) of Rovina Valley peg the projects operating costs at just $752 per ounce.

That puts Rovina Valley’s operating costs in the lowest 25 percent of the industry.

My only concern? Euro Sun shareholders get robbed of this project with a near-term takeover by a larger player for just a triple or quadruple on my money.  Shareholders deserve MUCH more.

With gold prices at $1,300 per ounce a $752 ounce operating cost makes for some fat margins.

And their capex is DIRT cheap for a mine this size–just over $300 million plus a contingency.

Developing this mine will be so simple–nobody has to move, there’s no using cyanide and no wet tailings. (Dry stack tailings are rapidly becoming the new standard for mining, and CEO Scott Moore’s team is embracing that.)

Rovina has:

1. low capital costs,
2. low operating costs,
3. skilled local labor,
4. PERMITS,
5. full social license

The combination of low operating cost and low cost of development make for a powerful economic combination……..and a no-brainer takeout target for every larger operator in the industry.

Now, I would buy the stock just for all that, but when I tell you what CEO Scott Moore has done in the very recent past, you will understand why this is my Gold Stock of the Decade. I think I can make $1 million here.

CEO SCOTT MOORE HAS MADE OVER $1 BILLION
FOR HIS SHAREHOLDERS!!

Management, management, management.  CEO Scott Moore has shown the Market and shareholders time and again he is one of the best financial minds in the mining game, worldwide, regardless of commodity.
Moore specializes in brownfields development, not greenfields, which is discovering a new deposit and turning it into a mine 10 years later.

He and his team buy an unloved asset with some warts on it, and do all the tough work, i.e. a new mine plan, permitting, financing, etc.  Anything in-the-ground or above-the-ground, Moore’s team has shown they add HUGE value in a short amount of time.  Here is a quick list of some of his recent GOLD successes:

This chart above is the #1 reason I own the stock. 

If Moore had just 1 million ounces in Tim-buck-too, I would back this man.  He delivers.  But here he has TEN MILLION OUNCES of gold equivalent, in a European country.  You see all that money Scott has made his shareholders in the last decade?  He never had an asset this big.  Think what he and his team can do with this.  You don’t have to think–I’ll tell you.  They can make it a 22-bagger–I hope!

When you meet him, he is not flashy.  He is an MBA, but he is a down-to-earth, matter-of-fact, roll-up-your-sleeves and park-the-ego-at-the-door kind of guy.

The 10 million ounce Rovina deposit is one of the most sought after gold assets in the world.  Moore bid FOUR times for this deposit before convincing the seller to part with it.  Last year, Euro Sun was $1.80/share with this asset and no permit!

Few Stocks Can Make Me $1 Million.
My Gold Stock of the Decade-Euro Sun Mining-Could Do It.

I have a chance to make more than 20x my money on Euro Sun–and I think it could happen in a short period of time, given the gold market I’m seeing lately.  Nobody is embarrassed if this stock is at $4; every metric says it could be double digits and still not fully valued.

I could tell you more about how profitable Rovina will be.  I could get into more detail of Moore’s previous wins.  But I think I have painted the right picture here.  The valuation on gold developers like Euro Sun are crazy cheap, and ESM has a team and a near term plan to get it into production–the short term value creation here is incredible!  This is the right stock at the right time.

On top of that, it’s a tight stock and management’s cost on their stock is right in at this price level.  No cheap stock, and Euro Sun just cashed up.

Gold stocks are very perky right now.  The Market is looking for gold stocks.  When Euro Sun gets discovered, I think it will move BIG and move FAST.  I wanted to get positioned–count me long and a bit biased therefore–before the Market gets wind of it.  And you, dear reader, are the very first group to hear about this story.  Many other groups will after today. 

DISCLAIMER: Management has reviewed and sponsored this article.The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons.  Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom.  Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity.  He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.

I’m watching gold stocks right now jump 50-100% in the blink of an eye–even though gold itself is fairly steady at US$1300/oz.

So I went to do my research.  Where is the leverage now? Which is the best company? I run a lot of numbers in my research–you should know that about me.  I found a stock that I think is set up be…please be sitting down…a 22-bagger.

A 2,200 per cent win–just for this stock to get an average valuation….and a valuation that I will explain in full detail in a moment.  It’s all based on very real numbers.

It’s The Gold Stock of the Decade.  I immediately went out and bought 150,000 shares.  I had to–these stocks are now jumping 50-100% so fast, and by any metric I throw it at, this gold stock is the cheapest I have ever seen.  When this stock moves it will move BIG and it will move FAST.

And this is BIG–10 million ounces in the ground, in one of the most prolific gold belts in the world, and fully permitted.

And it’s run by one of the best teams in the business–their last four gold deals are all in production now. I couldn’t ask for anything more.  Oh, wait yes I could–I could ask that it has WAY less than 100 M shares out and be primed to be one of the lowest cost producers in the world.  Guess what? This has it ALL.

I’ll tell you how I found it, and then I’ll tell you the name and symbol.  First off, I saw the junior gold producers popping 30-50% in just a few months–or better. Here’s some recent fast movers:

K92 Mining KNT-TSXv has doubled from 70 cents to $1.40–up 100%
Equinox EQX-TSXv is up from 90 cents to $1.35–up 50%.
Wesdome WDO-TSX–$3.60 – $5.40–up 50%
Atlantic Gold AGB-TSX–$1.50 – 2.25–up 50%

So my question–what’s next?  Where’s the next easy 50% PLUS gain?

I spent 18 years raising money for gold stocks before I did oil and gas, and I know the answer to this–it’s in the developers.   Only the leverage here is 10x what it is in the junior producers.  That’s right–10 times.  I’ll explain.

Developers are the companies who have real gold deposits, but are not in production. Right now, around the world, there are several multi-million ounce gold deposits that could go into production–but need all the stars to line up for that to happen.

They need a management team that can raise money.  They need a good gold market.  They need permits, grade, social buy-in from the nearby towns…it’s a long list.  It takes years and years…and it seems like forever.  No wonder investors just sell these stocks and leave them for dead.

And when I say dead, I mean–stocks in the developers’ category can trade at less than 1% (one per cent) of their NAV if they were in production. Imagine the financial win that creates for one of these assets that makes it to production.  And this team’s last four assets are all in production. ALL of them.

Do you know what kind of profit scenario that brings investors who buy these stocks just before gold starts a bull market?  I am talking wealth creation that lasts for generations.

Even if you don’t catch the top or bottom, investors can make their year, or their decade, on one of these stocks.

And you guessed it: I found The One.  It’s The Gold Stock of the Decade.

Now if you follow my research, you know that I need ALL these stocks, regardless of industry, to check off several boxes:

1. Management teams who have built and sold juniors before
2. Management must have a lot of skin in the game; own a lot of stock
3. Tight share structure (100 M out=Strike 1, 200 M shares out=Strike 2, you get the picture).  This gives me (and all shareholders) LEVERAGE.
4. Low cost producer–bottom 25% for sure, preferably bottom 10%.

Like I said–this gold stock ticks ALL these boxes!

This gold stock has pretty much everything I look for–except one thing.  I like to buy expensive stocks, where the management team can use their best-of-breed valuation to buy other companies.

This company is NOT like that.  This stock is DIRT cheap.  When you look up the phrase “dirt-cheap” online, there is a picture of this 10-million-ounce gold deposit.

That’s right–a full 10 million ounces.  And get this–not only is it one of the world’s largest—it’s permitted to go into production!

Let me tell you what DIRT cheap really means.

On average an ounce of gold resource in the ground is worth $95 per ounce.

I am NOT making this up.  That is the going rate of most recent arm’s length industry transactions–here’s the list:

 
The price paid per ounce of resource in the ground ranges from a high of $226 per ounce to a low of $11 per ounce.  The average is $95 per ounce and the median is $97 per ounce.

How does the micro-cap gold miner that I am writing to you about today stack up against those numbers?

My Gold Stock of the Decade is trading at $4.22 per ounce.  My Grade-7 math says this stock has the potential to be a 22-bagger–just to meet the average valuation of $95/oz.  That’s LIFE-CHANGING WEALTH. Can you see the shore from your yacht yet?

That chart shows my Gold Stock of the Decade is incredibly cheap–without question.  But let me be conservative: the high point valuation is $226 per ounce–a 53-bagger–and the median/average falls just under $100 per ounce…..but let’s throw all of those out the window.  Let’s just take the low point valuation of $11 per ounce.

I hope you see that the stock price of My Gold Stock of the Decade is almost a TRIPLE–just to reach the most conservative transaction valuation.  That tells me that when this stock gets discovered, it will move FAST and it will move BIG.

And hey, I’m barely half done here.

This company’s story gets better and BETTER and BETTER.

At such a low valuation, you might think this is a debt-laden junior or one operating in an unstable, 3^rd-world jurisdiction.

But this is a debt-free company, in a developed country with a WORLD CLASS asset–10 million ounces!

And this crazy-huge, low-cost gold deposit–is permitted for production!  Permitting has become THE most difficult thing for talented management teams to achieve–anywhere in the world.

But here, that bridge has been crossed.  This means social license, it means jobs, it means local prosperity and a win-win-win scenario. (It also means the value of the ounces in the ground should be A LOT higher right now.)

And remember that I told you I want a low-cost producer…this mine will produce for 30 years at a hair over US$750 per ounce All In Sustaining Costs (AISC) for 30 years.  Here’s how that stacks up–see how my Gold Stock of the Decade beats them all except one:

Source: Financial Filings Of Respective Miners

You will see in my next email that my Gold Stock of the Decade is independently calculated to produce gold at a lower cost than all but one company on this list–it will be the 2^nd lowest cost producer among a well-heeled peer group.

 
Even More Important:  Management Track Record

Convinced yet? Because by any measure my Gold Stock of the Decade is DIRT cheap.  That’s not my opinion; it’s what the numbers show.

But in the mining business cheap alone doesn’t cut it.  You must have a management team that can not only fund these assets, but build them and sell them.

Quality of management is everything. People truly are the most valuable commodity.

The management team of this junior gold miner acquired this asset in 2016 from a much-less-well-prepared operator. The past two-plus-years have involved the management team quietly preparing the property for development —permitting, PEA work, laying all of the groundwork to get up and running.

Now we are at the stage where this team is ready to make some noise.

For this group this acquisition is the continuation of a career of buying, developing and selling projects for multi-bagger profits.

This team has repeatedly made themselves and their shareholders a lot money.  As per usual on this deal they own a ton of stock themselves and are fully aligned with shareholders.

The track record looks like this:

In my next email–when I give you the name and symbol of my Gold Stock of the Decade–I will repeat with chart with all the real names included. But note that these buyouts totalled over $1.8 billion.

This is how you win as an investor in the resource sector.  You find serial entrepreneur teams like this and ride their coattails.

These kinds of entrepreneurs buy low, add value and then exit……..rinse and repeat again.  They don’t go to work for big paychecks, they go to work to create value and get rich beside shareholders.

That’s why I just bought 150,000 shares of my Gold Stock of the Decade–not only can I ride on the coattails of this management team…I can do it by getting in today at a DIRT cheap valuation.

That creates a powerful double whammy for the stock.  A DIRT cheap entry price and a management team that is adding HUGE incremental value going forward.

 
Do Not Miss My Next E-Mail…

When I find:

1. a DIRT cheap company like this
2. in a sector I think is about to soar
3. and has scale and size
4. that also has a proven entrepreneurial management team
4b. who own A LOT of stock…
5. in a tight share structure…

I get VERY excited.  Like I said–this stock can change my life.  I put $50,000 in.  Grade 7 math says I could get $1,000,000 out.

The action in the stocks of gold producers is screaming that the Market is about to experience a bull market in gold. After a quick 50-100% gain of many junior producers, developers are the next group of stocks to have Big Runs.

After years of investor neglect, these stocks are trading DIRT cheap–even the high quality ones.  But I’ve found The Gold Stock of the Decade–10 million ounces!  Permitted!

In my next e-mail I’m going to provide for you:

1 – Name this $1.8 billion management team and explain why this asset is a perfect fit for them.  Everything they touch goes into production.  And this is the largest gold asset they’ve ever had–in a share structure with under 100 M shares out–that creates HUGE leverage.

2 – The timeline over which I see the team building and selling this development — or in other words Cashing In

3 – The details of this 10 million ounce mine-in-waiting, and how they got it

4 – The most important part……the name and ticker symbol of my Gold Stock of the Decade
To be clear…you don’t need to be a gold bull or a fan of gold miners to appreciate this opportunity. You just need to understand very simple math and love a micro-cap bargain.

Objective numbers show this stock has the potential to be a quick 22 bagger.  That is LIFE CHANGING WEALTH.

Watch your in-box, the name and symbol of this one is coming to you TOMORROW.
Keith Schaefer
Publisher, Oil and Gas Investments Bulletin