Siddharth Rajeev, B.Tech, MBA, CFA
Analyst
August 11, 2016
Globex Mining Enterprises Inc. (TSX: GMX / OTCQX: GLBXF / FRANKFURT: G1M) - Project
generator with a diversified North American portfolio - Initiating Coverage
Sector/Industry: Junior Resource
www.globexmining.com
Investment Highlights
With a portfolio of 147 projects, Globex Mining Enterprises (“Globex”,
“company”) is a prospect / project generator (“PG”) with a diversified North
American portfolio of mid-stage exploration, development and royalty
properties. The portfolio is diversified across commodities, including projects
targeting precious metals, base metals, specialty metals, and industrial minerals.
The current portfolio includes over 30 historic mines, and 49 projects with
historical or NI 43-101 compliant resource estimates.
A PG’s business model is to acquire early stage projects at reasonable
valuations, and advance those projects by partnering with other resource
companies. This model allows PGs to simultaneously advance multiple projects,
and significantly increase their probability of success.
We estimate there are approximately 20 PGs listed on the TSX/TSV exchanges,
or approximately 1.6% of the 1,235 resource companies listed on the two
exchanges.
Globex’s CEO, Jack Stoch, has been heading the company since 1983. Jack
Stoch and his spouse, Dianne Stoch (Executive Vice-President, Director of
Globex) own 4.17 million shares, or approximately 9% of the total outstanding
shares.
Opportunistic buying and selling / optioning out the projects is key in the PG
business, and Globex’s management has demonstrated their ability through their
long track record.
Globex’s revenues have averaged $1.55 million per year for the past eight years,
which came from royalties and option revenues.
The company maintains a tight capital structure with 46.5 million shares
outstanding, and no debt.
We are initiating coverage on Globex with a BUY rating and a fair value
estimate of $1.00 per share.
Market Data (as of August 11, 2016)
Current Price
C$0.40
Fair Value
C$1.00
Rating*
BUY
Risk*
4 (Speculative)
52 Week Range
C$0.18 - C$0.51
Shares O/S
46,502,706
Market Cap
C$18.60 mm
Current Yield
N/A
P/E (forward)
N/A
P/B
1.2x
YoY Return
135.2%
YoY TSX
2.5%
*see back of report for rating and risk definitions
Risks
The value of the company is dependent on commodity prices.
Globex does not currently have a regular stream of cash flows.
Ability to identify partners with strong technical background and access to
capital.
As a PG holds a lot of projects in its portfolio, it can be challenging for investors
to understand and estimate the PG’s true intrinsic value.
Key Financial Data (FYE - Dec 31)
(C$)
2008
Cash
$1,140,052
Working Capital
$4,477,128
Debt
Equity
Revenues
Net Income (Loss)
EPS
2016 Fundamental Research Corp.
$12,147,612
2009
$3,187,490
$12,077,114
2010
2011
2012
2013
2014
2015
$352,863
$2,074,901
$521,496
$164,380
$231,713
$199,817
$572,989
$2,932,635
$3,964,976
$4,710,430
$2,765,352
$2,233,595
$1,322,342
$1,372,955
-
-
$13,818,432
$16,725,875
$17,658,441
$19,468,382
-
-
2016 (6M)
-
$16,637,871
$15,054,494
$15,680,683
$3,685,945
$418,013
$626,644
$3,753,145
$884,654
$750,209
$1,326,640
$1,160,338
$530,442
-$1,130,554
-$1,373,576
-$2,033,573
$358,768
$2,942,677
-$844,806
-$5,342,113
$2,417,033
-$72,058
-$0.06
-$0.07
-$0.10
$0.02
$0.12
-$0.03
-$0.14
-$0.06
0.00
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Prospect /
Project
Generator
Model
A prospect / project generator’s (“PG”) business model is to acquire early stage projects at
reasonable valuations, and advance those projects, either to production or to position them as
acquisition targets for larger companies, by partnering with other resource companies.
The projects in a PG’s portfolio are typically optioned out to third parties (termed as Options
Partners “OP”) in return for cash, shares, or a combination of both paid in stages, and a
commitment to spend a pre-specified amount of capital towards the advancement of the
projects. The OPs typically receive an option to acquire a significant interest in the projects,
while the PGs retain a minority interest and/or royalties. If an option is successful, the
prospect generator gains from the significant increase in valuation of those properties. In the
worst-case scenario, if the work done on the property by the OP yields unfavorable results,
the partner will decide not to exercise its option and return the property back to the PG. The
primary objective of PGs is to significantly improve the probability of success by
holding and simultaneously advancing multiple projects versus the model of traditional
junior resource companies to hold and advance one or two projects at a time. A typical
generator holds over 20+ projects in its portfolio, with a few even holding 100+ in their
portfolios. Globex currently has 147 projects in its portfolio. This model offers generators the
potential to generate consistent and recurring revenues from the minority interest / royalties
on the projects that eventually advance to production.
Unlike investments in traditional junior resource companies where most investors speculate
on a significant payoff in a short time period, investments in prospect generators are typically
long term investments. PGs are ideal for investors seeking exposure to the commodities
markets and the mineral exploration / development business without having to bet on the
outcome of a single or handful of projects. We estimate there are approximately 20
prospect / project generators listed on the TSX/TSV exchanges, or approximately 1.6%
of the 1,235 resource companies listed on the two exchanges.
The primary advantages of PGs are:
The downside risk of an investment in a traditional junior may be close to 100% if its
primary project turns out unsuccessful. PGs have a much lower downside as they put
their eggs in multiple baskets, allowing them to significantly reduce the inherent risk of
the highly risky mineral exploration and development business. The downside to this
feature is that PGs also have lower upside potential as they tend to hold only minority
equity / royalties in projects.
PGs are able to simultaneously advance multiple projects.
As the joint venture (“JV”) partner or OPs outlay most of the capital for exploration /
development, PGs generally have to spend less. For example, Altius Minerals (TSX:
ALS / the largest prospect generator by market capitalization on the TSX Exchange)
spent $16 million on exploration in from 2005 to 2015, versus $370 million spent by its
partners (Source: Global Mining Observer).
The following chart shows that generators have secured $2 in JV funding for each $1 in
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equity raised from 2012 to 2015.
Source: Sprott / Visual Capitalist (2015)
One of the primary risks of traditional resource companies is share dilution. PGs typically
have lesser need to raise equity and therefore, have lower risk of share dilution than
traditional juniors.
As mining and commodity markets are cyclical, prudent generators can take advantage of
downturns to acquire properties at depressed valuations.
Management of generators tend to have higher share ownership, aligning them with
investors.
Source: Sprott / Visual Capitalist (2015)
From an investor’s perspective, although a strong management team is important for any
resource company, it is even more critical for prospect generators. A successful PG relies
heavily on a high quality team, including geologists, geotechnical crews, and support staff.
The success of such companies depends heavily on management’s ability to consistently
identify good projects, acquire those projects at reasonable valuations, and subsequently
attract high quality OPs.
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Key risks of the PG model: As a PG holds a lot of projects in its portfolio, it can be
challenging for investors to understand and estimate the PG’s true intrinsic value. PGs may
also be wrongly perceived to have lack of focus. Another key challenge of this business is
that management has to be always actively seeking opportunities for acquisitions and option
partnerships. Inability to identify strong partners may result in not being able to efficiently
advance its projects.
We believe it is extremely important for PGs to regularly and efficiently communicate their
strategy
and
direction
to
investors.
We
found
Globex’s
website
(http://www.globexmining.com/) to be not only user-friendly and transparent for investors,
but also extremely detailed as the platform offers pertinent information on many of the 147
projects currently held in the portfolio.
The following tables include most of the currently active PGs listed on the TSX and TSXV
PGs on the
TSX and TSXV exchanges. Altius Minerals with a market cap of $448 million is currently the largest, with
Mirasol (TSXV: MRZ) and Eurasian Minerals at second and third places, with market
Exchanges
capitalizations of $137 million and $125 million, respectively. Globex is ninth on the list
with a market capitalization of $19 million. Only Altius and Globex are listed on the TSX,
while the rest are listed on the TSXV exchange. Although most generators target a wide
range of commodities, each company tends to have its own regional focus. As examples,
Mirasol is focused on South America, Globex is on Quebec and Ontario, and Evrim (TSXV:
EVM) is on British Columbia and Mexico. We believe Globex has one of the most
diversified portfolios, with exposure to a wide range of commodities.
The median market capitalization is $19 million, and the average excluding the top five is
$15.5 million. Except Altius, none of the generators currently generate any significant
recurring royalty revenues. Most companies carry no debt on their balance sheets. The
average cash on hand is about $3.7 million, and the average excluding the top five is
approximately $1.8 million.
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Company
Ticker
1
Altius Minerals
2
3
No. of
Shares
(millions)
Focus
TSX: ALS
$448.2
$502.9
43.8
Global
Mirasol Resources
TSXV: MRZ
$136.7
$123.2
44.7
South America
Eurasian Minerals
TSXV: EMX
$124.7
$117.8
73.8
Global
4
Midland Exploration
TSXV: MD
$56.8
$46.4
54.1
Quebec
5
Lara Exploration
TSXV:LRA
$46.8
$44.7
31.3
South America
6
Golden Valley Mines Ltd.
TSXV: GZZ
$30.8
$44.0
115.8
ON & BC
7
Millrock Resources Inc.
TSXV: MRO
$22.3
$20.4
44.5
Alaska, BC, SW USA, Mexico
8
Cornerstone Capital
TSXV: CGP
$21.4
$20.2
284.9
Ecuador and Chile
9
Globex Mining Enterprises
TSX: GMX
$19.1
$18.4
46.5
Quebec and ON
10
Almadex Minerals
TSXV: AMZ
$18.9
$15.0
44.1
Mexico, Nevada and BC
11
Evrim Resources
TSXV: EVM
$18.7
$13.3
50.5
Mexico and BC
12
Renaissance Gold Inc.
TSXV: REN
$16.3
$14.7
32.0
Nevada
13
Riverside Resources Inc.
TSXV: RRI
$16.0
$12.0
37.4
Mexico and BC
14
Miranda Gold
TSXV: MAD
$14.5
$12.7
103.4
Colombia / Alaska
15
Avrupa Minerals Ltd.
TSXV: AVU
$10.0
$9.9
69.3
Portugal, Kosovo and Germany
16
Transition Metals Corp
TSXV: XTM
$7.3
$5.4
33.7
Canada
17
Alianza Minerals
TSXV: ANZ
$3.6
$3.4
25.9
Peru, Mexico, Nevada and Yukon
18
Sphinx Resources
TSXV: SFX
Quebec
Average
Average (excl. top five)
Company
2016 Fundamental Research Corp.
Market
Enterprise
Capitalization Value ($,
($, millions)
millions)
$2.1
$1.8
57.6
$56.3
$15.5
$57.0
$14.7
66.3
$72.7
Cash ($,
millions)
Revenues Net Income
EV /
(LTM) / $, (LTM) / $,
Revenues
millions
millions
EV /
EBITDA
1
Altius Minerals
$9.6
$11.2
-38.5
44.9
62.6
2
Mirasol Resources
$18.7
n/a
-$7.20
n/a
n/a
3
Eurasian Minerals
$3.8
$1.6
-$7.00
n/a
n/a
4
Midland Exploration
$9.3
$0.2
-$0.70
n/a
n/a
5
Lara Exploration
$1.2
n/a
-$1.50
n/a
n/a
6
Golden Valley Mines Ltd.
$4.1
$0.1
-0.7
n/a
n/a
7
Millrock Resources Inc.
$0.8
n/a
-$3.70
n/a
n/a
8
Cornerstone Capital
$0.1
n/a
-$4.60
n/a
n/a
9
Globex Mining Enterprises
$1.1
$0.6
-$2.60
n/a
n/a
10
Almadex Minerals
$5.5
$0.1
-$1.40
n/a
n/a
11
Evrim Resources
$2.9
n/a
-$1.80
n/a
n/a
12
Renaissance Gold Inc.
$1.0
n/a
-$1.70
n/a
n/a
13
Riverside Resources Inc.
$3.8
n/a
-$2.20
n/a
n/a
14
Miranda Gold
$1.8
n/a
-$1.50
n/a
n/a
15
Avrupa Minerals Ltd.
$0.2
n/a
-$1.40
n/a
n/a
16
Transition Metals Corp
$1.3
$1.3
-$0.80
4.3
n/a
17
Alianza Minerals
$0.5
n/a
-$3.40
n/a
n/a
18
Sphinx Resources
$0.5
n/a
-$0.10
n/a
n/a
Average
Average (excl. top five)
$3.7
$1.8
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As resource companies account for more than 50% of the TSXV, we consider the TSXV to
be a good benchmark to evaluate the performance of PGs’ shares. The following chart shows
the PG index versus the TSXV composite index.
Prospect Generator Index
S&P/TSXV Composite
Index
Average Daily Return
0.02%
-0.05%
Average Annualized Return
-1.5%
-13.9%
Standard Deviation of Daily
Returns
2.41%
1.46%
0.01
(0.03)
Jan 1, 2008 - Aug 3, 2016
Average Daily Return / Stdev of
Daily Return
Source: FRC & Other Sources
As shown above, the PG index has clearly outperformed the TSXV since January 2008.
Since January 1, 2008, to August 3, 2016, the average daily return was 0.02% versus the
TSXV’s -0.05%. The annualized return during the period was -1.5% for the PG index versus
-13.9% for the TSXV.
The following are few of the key success stories in the PG space:
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Almaden Minerals (TSX: AMM), formed in 1986, was a PG focused on Mexico.
Success on one of its projects, the Ixtaca Gold-Silver Deposit (4.3M oz gold equivalent
of resources), resulted in a spin-off of their remaining 20+ projects into a new public
company, Almadex Minerals (TSXV: AMZ) in 2015. Almaden currently has a market
capitalization of $145 million, while Almadex is at $19 million.
In August 2010, Fronteer Gold Inc. acquired AuEx Ventures, Inc. for
approximately $280.8 million. AuEx Ventures, Inc. was a TSX listed PG with over 20
exploration projects in Nevada/Utah, one in Spain and four in Argentina. Fronteer was
subsequently acquired by Newmont Mining (NYSE: NEM) for $2.3 billion in February
2011.
In February 2015, Osisko Gold Royalties Ltd (TSX: OR) acquired Virginia Mines
Inc for approximately $461 million. Virginia was a PG with a focus on Northern
Quebec.
In April 2016, Nevsun Resources Ltd. (TSX: NSU) acquired Reservoir Minerals
Inc. for US$365 million. Reservoir Minerals was a PG with a portfolio of precious
and base metal exploration properties in Europe and Africa, and a high grade copper
discovery in eastern Serbia.
In May 2016, Goldcorp Inc. (TSX: G) announced the acquisition of Kaminak Gold
for approximately $520 million. Kaminak was a PG turned into a development
company after seeing success at the Yukon based Coffee Gold project.
Globex History
and
Management
Geologist Jack Stoch is the founder and CEO of Globex Mining. After gaining control of
Globex (inactive at that time) in 1983, Jack Stoch attracted a group of exploration
professionals as Directors, acquired several early stage properties, and listed the company’s
shares on the Montreal Stock Exchange in 1988. Shares were subsequently listed on the
Toronto Stock Exchange in 1995, and delisted from the Montreal Stock Exchange in 1997.
In addition to the TSX, Globex’s shares are currently listed on the OTCQX International
Exchange, and six German exchanges including the Frankfurt, Munich, Berlin, Stuttgart,
Tradegate and Lang & Schwarz Stock Exchanges.
Jack Stoch and his spouse, Dianne Stoch (Executive Vice-President, Director of Globex)
own 4.17 million shares, or approximately 9% of the total outstanding shares. The
following table shows the ownership of senior management and board members.
Management & Directors
Shares owned
Jack Stoch
3,078,444
Dianne Stoch
1,114,647
Ian Atkinson
Chris Bryan
Johannes H. C. van Hoof
Sub-Total
72,500
164,000
4,429,591
% of Total
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The company’s board has five members, of which three are independent. Brief biographies of
the management team and board members, as provided by the company, follow:
Jack Stoch – Director, President and Chief Executive Officer
Jack is a major shareholder of Globex and is an experienced geologist with an
entrepreneurial spirit, devoted to building Globex into a highly successful public mining and
exploration company. Following a stint with Noranda Exploration Ltd., Jack, in 1976, started
acquiring and vending exploration projects, through his own consulting businesses, Jack
Stoch Geoconsultant Services Ltd. and Geosol Inc. At one time, Jack was reported to be the
largest private mineral rights holder in the Province of Quebec, Canada. In 1983, Jack Stoch,
gained control of Globex and has since amassed a mature exploration portfolio. He has
attracted a knowledgeable and well-connected Board of Directors and has expanded the
Company’s exploration, evaluation and mining team. In 1972, Jack earned a B.Sc. in
Geology from Sir George Williams University in Montreal, with additional graduate courses
at McGill University. He was awarded the designation Acc. Dir., Accredited Director in
2007 by the Chartered Secretaries Canada and is a registered Professional Geologist in both
Quebec and Saskatchewan, Canada.
Dianne Stoch – Executive Vice-President, Director
Dianne was formerly Chief Financial Officer and Treasurer of the Company. Prior to joining
Globex over 20 years ago, Dianne was employed by Noranda Inc. for more than 18 years, in
a variety of accounting/financial positions including Head Office Corporate Planner and
Senior Accountant Analyst, revenue planner for the Horne smelter in Rouyn-Noranda. In
2007, Dianne was awarded the designation Acc. Dir., Accredited Director, from the
Chartered Secretaries Canada.
James (Jim) Wilson – Chief Financial Officer, Secretary-Treasurer
Jim holds a Bachelor of Commerce (Honours) from McMaster University as well as a
Chartered Professional Accountant (CPA) and Certified Management Accountant (C.M.A)
designation. He is also a member of the Institute of Corporate Directors (ICD) and the
Institute of Internal Auditors (IIA). Over his career, Jim has held a number of senior finance
roles with various organizations in the mining and insurance industries prior to joining
Globex in 2009. These organizations have included Falconbridge Ltd, Canadian Life and
Health Insurance Compensation Corporation as well as First Metals Inc. In addition, to his
experience as a finance officer, Jim has also acted as an independent consultant to a variety
of private, not-for-profit and public corporations and in this role, he spearheaded financial
process and internal control over financial reporting initiatives.
Ian Atkinson – Independent Director
Ian Atkinson, M.Sc, A.K.C., D.I.C., a geologist, is currently a Director of Globex as well as
Kinross following his appointment in February 2016. Mr. Atkinson was previously President
and CEO, and a Director, of Centerra Gold before retiring in 2015. He has more than 40
years of experience in the mining industry with extensive background in exploration, project
development and mergers and acquisitions. Prior to his ten-year tenure at Centerra, Mr.
Atkinson held various senior leadership positions with Hecla Mining Company, Battle
Mountain Gold, Hemlo Gold Mines and the Noranda Group. Mr. Atkinson has contributed
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Page 9
to the discovery of several major mineral deposits and been involved in a number of large
global mining projects in his career. Mr. Atkinson holds a Bachelor of Science degree in
geology from King’s College, University of London and a Masters degree in geophysics
from the Royal School of Mines, University of London. Mr. Atkinson is the current Chair of
the Compensation Committee. Mr. Atkinson is also a Director of Kinross.
Chris Bryan – Independent Director
Chris Bryan is a retired geologist, previously President of CBIM, a private OSC-registered
investment counsel. From 1994 to 1995 Chris was President of Ophir Capital Inc., an
investment management company. Prior to that, Mr. Bryan was Vice-President, Director and
Portfolio Manager of Bolton-Tremblay Inc. Chris was also a mining analyst/ portfolio
manager at the Caisse de Dépôt et Placement du Québec from 1985 to 1989. The seven
years previous were spent as a mining analyst with Lévesque Beaubien Inc. and Nesbitt
Thompson Inc.Chris received his B.Sc. (Geology) from Sir George Williams University, a
graduate diploma in Geological Sciences from McGill University and in 1978, a B. Comm.
from Concordia University, Montreal.
Johannes H. C. van Hoof – Independent Director
Hans van Hoof is Director, President and CEO of NSX Silver Inc. and Executive Chairman
and a director of NS Gold Corporation, companies listed on the TSX Venture Exchange. Mr.
van Hoof has held senior positions at various European financial institutions, including PVF
Pension Funds, Paribas Capital Markets and Bankers Trust. His roles during the past 22
years include senior Portfolio Manager, senior Risk Manager, Deputy Head of global equity
derivatives, Managing Director responsible for M&A arbitrage, derivatives arbitrage and
venture capital investments as well as Chairman and Senior Executive Officer of Soros
Funds Limited in London. In 2002, Mr. van Hoof founded VHC Partners alternative
investment management group, active in hedge fund management, corporate and project
finance advisory services, private equity investments and charitable projects.
Our net rating on Globex’s management team is 4.25 out of 5.0 (see below).
Management Rating
Technical Experience
4.25
Experience in putting mines to production/generating
prospects
4.25
Track record in raising capital/working for public
companies
4.00
Experience in projects similar to the current project
4.50
Net Rating
4.25
0%
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20%
40%
60%
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100%
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We believe that the Board of Directors of a company should include independent or
unrelated directors who are free of any relationships or business that could materially
interfere with the director’s ability to act in the best interest of the company. An
unrelated/independent director can be a shareholder. The following table shows our analysis
on the strength of Globex’s board.
Poor
Business
Model and
Investment
Criteria
Average
Good
Three out of five directors are independent
X
Four out of five directors hold shares of the company
X
The Audit committee is composed of three board members, all
are independent
X
The Compensation committee is composed of three board
members,all are independent
X
Globex Mining follows a prospect / project generator model. Management defines Globex as
a mineral property bank with a diversified North American portfolio of mid-stage
exploration, development and royalty properties. Management diversifies their portfolio
across commodities by investing in precious metals, base metals, specialty metals and
minerals (such as manganese, titanium oxide, iron, molybdenum, vanadium, lithium, rare
earths, etc.) and industrial minerals (such as feldspar, mica, silica, apatite, talc, magnesite,
etc.).
Within North America, the company’s primary focus is on Eastern Canada and the U.S. –
specifically regions with strong geological / mining potential, and low political risk. The
company maintains a tight capital structure with 46.5 million shares outstanding, and
no debt. Since listing in 1987, the company has never done a share consolidation.
Globex’s head office is located in Toronto, Ontario, and its principal business office is
located in Rouyn-Noranda, Quebec. In addition to the senior management team, Globex has
14 employees, including six geologists, three technicians, and one dedicated land man.
Globex rarely acquires any grass roots or very early stage projects. Management looks for at
least one or more of the following features in a project prior to making an acquisition:
Historical or NI 43-101 resource estimates
Historical drill intersections of economic interest
Historical production
Mineralized showings or drill targets (geophysical / geochemical / geological)
Located in prolific mining camps
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Current
Portfolio
The following chart shows a summary of the company’s current portfolio. Of the 147
projects, 69 are focused on precious metals, 43 base metals and polymetallic, and 35 on
specialty metals and mineral projects.
Source: Company
The land packages are located in one of the following locations - Quebec, Ontario, Nova
Scotia, New Brunswick, Tennessee, Nevada and Washington, and in prolific mining camps
such as the Cadillac Break, Porcupine-Destor Break, Rouyn-Noranda, Val d’Or , Joutel ,
Malartic, Chibougamau and Timmins Mining Camps, etc. The following map shows the
properties’ locations. Notice the strong focus on Quebec and Ontario. Within this area, the
key focus is on the Abitibi greenstone belt, which extends from Wawa, Ontario to Vald'Or, Quebec. It is one of the most famous and prolific gold and base metal producing areas
in the world.
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Precious metals
Base metals
Specialty Metals
Industrial Minerals
Source: Company
The current portfolio includes over 30 historic mines, and 49 projects with historical or
NI 43-101 resource estimates.
Management estimates that projects in which it has royalties, has under option to others, or
owns outright, have historical and NI 43-101 compliant resource estimates of at least 6
million oz of gold, 10.5 million oz of silver, 296 million lbs of copper, 201 billion lbs of
zinc, 155 million lbs of lead, in addition to nickel, lithium, magnesium, talc, iron, titanium,
mica, molybdenum, feldspar, manganese, etc.
The following chart of acquisitions shows a few sample projects to demonstrate
management’s diversified focus across commodity and stage.
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Source: Company
In the above chart, Montalembert (located near Waswanipi, Quebec) is an early stage highgrade gold prospect. Globex acquired a 100% interest in the property in 2015 by staking.
Recent assay results from this project include - 84.0 gpt Au (gold), 64.5 gpt Au, 36.3 gpt Au
and 17.3 gpt Au – indicating high-grade potential. Globex is currently working on the
property and intends to do a bulk sample.
The Devil’s Pike gold property, located in south central News Brunswick, is an example of a
more advanced stage project, with an inferred resource estimate of 214,800 tonnes grading
9.60 gpt Au for 66,300 oz Au (cut), and 13.48 gpt for 93,100 oz Au (uncut). In January
2016, Globex acquired a 100% interest in this project from Tri-Star Resources plc (AIM:
TSTR) for 350,000 shares of Globex and a 1% Net Smelter Royalty (“NSR”) payable after
the property has produced 600,000 oz of gold.
The above chart also shows investments in rare earth, lithium, and base metal projects.
Opportunistic
Transactions
Globex’s management has been highly opportunistic in the past and have been actively
acquiring assets at depressed valuations over the past few years. The following table
shows a few of the recent transactions to demonstrate management’s opportunistic buying
and their ability to subsequently option out the assets at higher valuations.
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#
Acquisition
Acquisition Price
Deals
Transaction Date
1
Beauchastel-Rouyn Property Acquired by staking
Polymetallic (Cadillac Break)
Granted option to acquire 100% in return for
$60,000, 1 million shares, 3% GMR, 1% of which
may be purchased for $1M.
02-Aug-16
2
Duverny Township, Quebec
$15,000 cash, Globex shares valued at
$136,500 cash, 1 million shares, 1.5% GMR and
$85,000 1.8% NSR (acquired and sold in a
assumption of underlying 1.8% NSR
short time period)
3
New Brunswick Woodstock
Area (manganese)
Acquired by staking in 2010
4
11-Jul-16
$200,000 cash, 4 million shares, 3% GMR,
Minimum $1 million in exploration
29-Jun-16
Parbec QC (NI 43-101 resource
547,000 oz Au inferred and
Acquired in a property trade
indicated)
$550,000, 2 million shares, 2% GMR, $4 million in
exploration
Feb. 4, 2015
5
LaMotte Nickel cls, QC
Acquired by staking
1,200,000 shares, Sliding scale GMR 1 to 2%
20-Aug-15
depending on nickel price, $500,000 in exploration
6
Integra MacDonald Claims
Zero cost
$175,000, 100,000 shares, 3% GMR
Feb. 10, 2015
7
Ramp Property, ON
Part of a property trade transaction
Yearly cash payment of $250,000, 2.5% GMR
31-May-16
8
Chubb and Bouvier LI, QC
1% NSR to vendor purchasable at
$60,000, 2.4 million shares, 2% GMR plus
anytime for $200,000 (acquired and sold in
assumption of underlying 1% NSR
a short time period)
26-May-16
In the table above, a good example of a deal with potential for recurring option revenues is
#7 (Ramp Property, ON). A 1994 historic resource estimate on the property stated a total
geological ore reserve of 793,474 tons grading 0.235 opt for a total of 191,284 ounces of
gold. On May 31, 2016, Globex announced that it entered into a tentative agreement to
option the property to RJK Explorations Ltd. (TSXV: RJX.A), subject to the following
terms:
$10,000 upon signing;
$250,000 on or before August 15, 2016;
$250,000 in each subsequent year subject to an adjustment for inflation;
A 2.5% GMR, 1% of which may be purchased in increments of 0.5% at any time for $1
million for each 0.5%, within 3 years of commercial production.
#2 and #8 in the table above are good examples of management’s ability to purchase and sell
properties at a relatively short time period (“flip”).
A good example in the table above is #3 (New Brunswick Woodstock) – Globex acquired
this manganese asset by staking in 2010. In June 2016, the company announced that it signed
an option agreement with Sunset Cove Mining (TSXV: SSM) wherein Sunset can acquire a
100% interest in the project for $200k in cash (to be paid over 2 years), 4 million shares, and
a 3% GMR.
Royalty Deals Examples
In the following section, we present brief descriptions of select projects to demonstrate
management’s investment criteria and execution strategy.
Nyrstar’s Mid-Tennessee Zinc – This has been one of Globex’s best royalty deals. In 2007,
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Globex sold their right to acquire this property for 600,000 common shares of Strategic
Resource Acquisition Corporation (SRA), and a 1% to 1.4% gross overriding royalty on all
future zinc production from the Mid Tennessee Mine in Tennessee, USA.
SRA subsequently went bankrupt and Nyrstar (ENXTBR: NYR) acquired the property in
2009. According to the agreement, Globex is entitled to a 1.4% royalty when LME zinc
prices are at or over US$1.10 per lb, or 1% when the price is between US$0.90 and US$1.09
per lb. The following table shows Globex’s royalties from this project.
Metal royalty income
2010
2011
2012
2013
2014
2015
$124,741
$490,525
$403,266
$69,522
$1,020,232
$605,282
The volatility in royalties was primarily due to the changes in zinc prices. Globex generated
$0.61 million in royalties in 2015 (mine closed mid-year due to low zinc prices) versus $1.02
million in 2014. In December 2015, Nyrstar announced that it was placing the project on care
and maintenance as a result of the low zinc price environment. Subsequently, in January
2016, Nyrstar announced that they are putting up all of their mining assets for sale. Although
it is not possible to speculate on the outcome of this event, this investment has already
generated a strong return on investment for Globex through the royalties received so far.
According to management, the project has a 25 year zinc resource outlined and open in many
directions.
Examples of
deals with
medium term
production
potential
Bell Mountain, Nevada – This project is located approximately 95 miles southeast of Reno.
It lies along the eastern margin of the Walker Lane mineral belt, which has a long history of
exploration and production and contains several other past-producing gold-silver deposits
and major mining districts (e.g. Tonopah, Rawhide, Paradise Peak) with significant precious
metal production.
Source: Laurion Mineral Exploration Inc.
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The Bell Mountain deposit is characterized by epithermal gold and silver mineralization
hosted in vein structures. A detailed feasibility study was completed in 1991, and a permit for
mine operations was received in 1992, for the construction of a conventional open-pit and
associated heap leaching facility. However, the project was subsequently shelved due to
falling global precious metal prices. Globex obtained the Bell Mountain property in 1994,
and optioned it to several parties since then, who carried out surface mapping and sampling,
airborne geophysics and extensive drilling. The property was returned back to Globex by all
of the partners due to their inability to continue to inject additional capital into the project.
The most recent resource estimate on the property (calculated in 2011), showed 266 koz of
measured and indicated, and 45 koz of inferred gold equivalent resources (see table below).
Measured
Indicated
Total
Measured
&
Indicated
Inferred
Tonnage Average
Average
Total
(000
Gold
Gold (oz)
Silver
Silver (oz)
Equivalent
Tonnes) Grade (g/t)
Grade (g/t)
5.952
0.531
101,534
16.62
3,180,127 159,355
3,810
0.518
63,484
19.22
2,353,780 106,280
9.761
0.526
168,018
17.63
5,533,907
265,635
2,046
0.449
29,550
13.26
872,411
45,412
This property is considered to have adequate infrastructure to support a mining operations.
Globex’s current partner on the project, Eros Resources (TSXV: ERC), is advancing the
project with the intent to put it into production. Globex retains a 3% Gross Metal Royalty
(“GMR”) on the project.
Magusi River and Fabie Bay Mines - Polymetallic (Quebec) - The Fabie Bay and Magusi
River are classic volcanic massive sulphide (VMS) style deposits, and part of a large
property totaling 7,151 ha in Duparquet, Duprat, Hébécourt and Montbray Townships in
Quebec. Globex originally acquired the properties in 2002, later opinioned it to Noranda Inc.
for a brief period, and sold to First Metals Inc. in 2006. First Metals had achieved
commercial production at the Fabie Bay mine, but operations were suspended in early 2009,
due to falling metal prices. Globex generated royalty revenues of $0.96 million in 2008.
Globex reacquired the property from First Metals in March 2011, and optioned it out to Mag
Copper Ltd (CSE: QUE) in the same year. However, inability to raise capital by Mag
resulted in the project going back to Globex in February 2016. A NI 43-101 compliant
resource estimate calculated on the property by Roscoe Postle Associates Inc. (“RPA”) in
March 2012, showed the potential for a high grade copper deposit, with significant gold and
silver.
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Area
Tonnes
Cu%
Zn%
Ag (g/t)
Au (g/t)
High Grade Copper
729,000
3.26
0.58
43.4
0.41
High Grade Zinc
580,000
0.39
8.57
42.1
2.34
Total Indicated
1,309,000
1.99
4.12
42.8
1.27
355,000
3.41
0.39
24.2
0.26
Inferred
Management believes the Magusi River Deposit may be open at depth and laterally, and that
there is a good potential to increase the extent of the currently known massive sulphide
mineralization. The company is currently seeking an OP for this project.
Timmins Talc-Magnesite Deposit (Ontario) - Globex purchased the Deloro Magnesite
Property in 2000 through receivership. The claim holdings lie in south-central Deloro
Township, approximately 11 km southeast of Timmins, Ontario. As the name suggests, the
deposit is a potential source of magnesite and talc. The following table shows the project’s
resource estimate, as per a 2010 Micon Technical Report:
Category
Tonnes
Indicated
Inferred
12,728,000
18,778,000
S ol MgO
Magnesite
S ol Ca (%)
(%)
(%)
A Zone Core
20.0
0.21
52.1
20.9
0.26
53.1
Inferred
5,003,000
A Zone Fringe
17.6
2.82
34.2
Talc (%)
35.4
31.7
33.4
A Preliminary Economic Assessment (“PEA”) conducted on the property by Micon in 2012
indicated an after-tax Net Present Value (“NPV”) of $258 million at a discount rate of 8%,
and an after-tax internal rate of return (IRR) of approximately 20%. The proposed mining
method (500,000 tpa) for the Timmins Talc-Magnesite project is open pit mining with truck
haulage delivering to a process plant located approximately 1.5 km southwest of the deposit.
The total capital cost is estimated at $265 million. According to Globex, they have made
significant progress since the PEA. In 2014, the Ontario Government granted to Globex a 21
year mining lease. Management states that they now have an alternate plan to significantly
reduce the capital cost, shorten the time period to production, and reduce metallurgical risks.
Globex is currently seeking an OP or financing source for this project.
Examples of
Exploration
Projects
Francoeur-Arntfield Mines - Gold (Abitibi - Quebec) - Globex signed a Binding Letter of
Intent with Richmont Mines Inc. (TSX: RIC) to acquire a 100% interest in the Francoeur
Mine, Arntfield Mine, Arncoeur and Norex properties in March 2016. This agreement was
finalized in July 2016. The properties, subject to a 1% NSR, are located west of RouynNoranda, Quebec. It is estimated that 2.19 Mt @ 6.17 gpt Au were mined from Francoeur
producing 0.4 Moz of gold. The adjacent Arntfield Mine is reported to have produced 0.48
Mt @ 3.98 gpt Au and 0.93 gpt Ag between 1935 and 1942.
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Source: Company
Richmont recommenced production at the Francoeur Mine in 2010 / 2011 and produced
1,265 oz of gold in 2011, and 3,401 oz in 2012. However, high operating costs and low
realized grades forced them to suspend production in late 2012. The Francoeur project
currently has a measured and indicated resources of 67koz (6.47 gpt) and inferred resources
of 4koz (7.17 gpt). The acquisition includes surface infrastructure (modern office complex,
headframe, core facility and core and data library, hoist, and sundry buildings and equipment.
Francoeur Gold Property
M easured Resources
Indicated Resources
Total Measured & Indicated Resources
Inferred Resources
Tonnes
(metric)
40,000
280,000
320,000
18,000
Grade
(gpt Au)
5.89
6.55
6.47
7.17
Ounces
contained
7,600
59,000
66,600
4,150
Management is currently compiling data to delineate high priority, near surface drill targets
and in surrounding areas of current mine workings both near surface and to depth.
Pandora Wood & Central Cadillac Mines - Gold (Quebec) - The property is located
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midway between the mining cities of Rouyn-Noranda and Val d’Or in Quebec, at the prolific
Cadillac Break. Ownership is shared equally between Globex (50%), and partners Agnico
Eagle / Yamana Gold (Canadian Malartic Corporation – 50%), and Globex as the operator.
The property is located 3.5 km west and along strike from Agnico Eagle’s producing Lapa
Gold Mine and east of Agnico Eagle’s La Ronde Gold mine. The resource estimates on the
property are shown in the map below.
Source: Company
Duquesne West Property - Gold (Quebec) - The Duquesne West property is comprised of
60 claims totaling 929 ha located 32 km northwest of the mining town of Rouyn-Noranda
and 10 km east of the town of Duparquet in Duparquet Township, northwestern Quebec. The
property is held 100% by Duparquet Assets Ltd., a company owned 50% by Globex and 50%
by CEO, Jack Stoch. Mr. Stoch invested in the project several years prior to becoming
involved in Globex. The property is located 4 km east and along strike from the past
producing Beattie and Dorchester mines, which produced 8.4Mt @ 3.5 gpt Au and 1.2Mt @
9.3 gpt Au, respectively, and 3.5 km west of the past producing high grade Duquesne Mine
which produced 199,912 t @ 10.3 gpt Au.
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Source: Company
The property was optioned to several companies, including Noranda Exploration, Santa Fe
Canadian Mining Ltd., Kinross Gold (TSX: K), Queenston Mining Inc., Diadem Resources
Ltd., and Xmet Inc. In 2011, Watts, Griffis & McOuat Limited (“WGM”) calculated an
inferred resource of 4.17 Mt @ 5.42 gpt Au containing 0.7 Moz cut or 0.85 Moz uncut across
eight zones. Management is seeking an OP.
Joutel Mining Camp - Copper/ Zinc/ Gold (Quebec) This project has two historical
copper, zinc, silver mines (Poirier and Joutel Copper), and one historical gold mine (Eagle
Mine). Historical resources on this project are shown below:
Joutel Mine: 242,800 t at 10.37% Zn
Poirier Mine:
West & Q Zones – 1,400,863 T @ 1.24% Cu and 9.77% Zn
East Lens – 300,000 T @ 8.06% Zn
Main Zone – 534,000 T @ 2.5% Cu
Eagle Mine: 277,710 t @ 5.83 g/t Au
Globex believes there is significant potential to increase resources and develop additional
drill targets on this project.
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Source: Company
Chibougamau Independent Mines Inc. - In 2012, Globex spun out its assets located within
the Abitibi – Chibougamau Mining District in Lemoine, McKenzie, Obalski and Roy
Townships, Québec, to a newly formed public company Chibougamau Independent Mines
Inc. (TSXV: CBG). CBG is a related party as it has the same management team as Globex.
Globex shareholders received one CBG common share for each Globex share held. A total
of 27.90 million common shares of CBG were issued to Globex shareholders.
Globex currently has a 3% GMR on CBG’s properties. The following table shows the
historical resource estimates on CBG’s properties.
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Name of Project
Bateman Bay
Historical
Resources
Cu %
Au g/t
396,665 tons
2.64%
4.35 g/t
Zn %
Berrigan M ine (North Zone)
1,388,915 tons
1.77 g/t
3.17%
Berrigan M ine (South Zone)
259,637 tons
0.58 g/t
3.05%
Grandroy M ine
181,000 tons
1.50%
Kokko Creek
115,000 tons
1.50%
0.21 g/t
Quebec Chibougamau
19,191 tons
1.93%
2.64 g/t
T-Zones (T-10)
449,095 tons
0.91%
2.38 g/t
T-Zones (T-9)
50,000 tons
2.21%
T-Zones (T-8)
440,000 tons
8.48 g/t
CBG recently completed a $1 million financing, and is focused on developing drill targets for
later this year and optioning out certain assets.
Management’s
Near-term
Objectives
Management’s focus on the next 12 months are the following:
Financials
Sales and optioning of properties;
Targeted exploration on select properties;
Selective property acquisitions;
Exploring optioning of the Timmins Talc-Magnesite project to advance it towards
production;
Establishing specific exploration objectives for the Pandora-Wood & Central Cadillac
property, and moving the Ironwood deposit towards production.
At the end of Q2-2016 (ended June 30, 2016) the company had cash and working capital of
$0.57 million and $1.37 million, respectively. The company has no debt. The total book
value of its property assets were $15.47 million as of June 30, 2016. The company has raised
a total of $21.45 million since 2008, at an average rate of $2.52 million per year. The
following table summarizes the company’s financial performance since 2008.
Key Financial Data (FYE - Dec 31)
(C$)
2008
Cash
$1,140,052
Working Capital
$4,477,128
2009
$3,187,490
2010
2011
$352,863
$2,074,901
$521,496
$164,380
$231,713
$199,817
$572,989
$2,932,635
$3,964,976
$4,710,430
$2,765,352
$2,233,595
$1,322,342
$1,372,955
$141,440
$142,819
$142,293
$50,074
$50,074
LT Investment in JV
LT PP&E
LT Mineral Assets
LT Def. Exploration Assets
Total Assets
Debt
Equity
Cash from Financing
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2012
2013
2014
2015
2016 (6M)
$547,529
$516,505
$476,914
$525,668
$565,053
$507,993
$459,337
$420,570
$400,715
$2,842,204
$2,870,356
$2,907,036
$3,049,515
$3,045,931
$2,994,878
$2,963,217
$2,908,634
$3,034,505
$7,136,945
$8,100,884
$8,382,227
$11,907,484
$13,664,519
$17,382,627
$12,841,478
$11,848,864
$12,384,797
$16,201,306
$15,377,831
$17,769,507
$21,491,143
$24,235,500
$24,565,333
$19,034,080
$17,174,211
$17,764,409
-
-
-
-
-
-
-
-
-
$12,147,612
$12,077,114
$13,818,432
$16,725,875
$17,658,441
$19,468,382
$16,637,871
$15,054,494
$15,680,683
$2,023,593
$994,969
$4,031,605
$2,075,477
$5,918,133
$2,579,052
$2,341,212
$1,010,716
$476,941
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Total (Jan
2008 - June
2016)
$21,451,698
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Globex has spent a total of $0.65 million in cash for property acquisitions ($80k per year)
and $25.35 million in deferred exploration expenses ($2.98 million per year) since 2008.
They have also written off $14.92 million ($1.75 million per year) in property assets since
2008. Every year-end, the company writes down assets to zero or near zero if there has not
been significant exploration on the property within the preceding three year period.
Key Financial Data (FYE - Dec 31)
2008
2009
2010
2011
2012
2013
2014
2015
2016 (6M)
Total (Jan
2008 - June
2016)
-$4,177,849
-$1,924,068
-$2,461,581
-$4,004,265
-$3,058,245
-$4,808,256
-$2,431,902
-$1,793,777
-$685,693
-$25,345,636
-$34,670
-$28,152
-$65,534
-$228,447
-$136,844
-$41,581
-$43,384
-$27,978
-$40,329
-$646,919
-$1,751,154
$628,427
$1,568,168
$2,858,077
$454,354
-$373,669
$42,842
$114,694
$272,538
$3,814,277
$185,143
$912,314
$1,379,878
$375,492
$1,001,140
$1,082,969
$7,132,983
$2,754,258
$91,160
$14,915,337
(C$)
Deferred exploration
expenses
Mineral properties
acquisitions
Proceeds from mineral
properties optioned / sale
of investments
Impairment of mineral
properties and deferred
exploration expenses
The company has raised a total of $3.81 million ($0.45 million per year) in cash from
property sales and proceeds from optioning out properties.
The following table shows the company’s revenues and net losses since 2008. Option income
comes from the cash + share payments made by the OPs. Royalty revenues totaled $3.93
million from January 2008 to the end of June 2016, averaging $0.46 million per year. Except
for $0.96 million in royalties on the Fabie Bay property in 2008, all of the company’s royalty
revenues have come from the Mid-Tennessee Zinc project.
Key Financial Data (FYE - Dec 31)
Net Option Income
$2,677,751
$252,266
$501,903
$3,262,620
$481,388
$680,687
$306,408
$545,056
$495,442
Total (Jan
2008 - June
2016)
$9,203,521
Royalties
$1,008,194
$165,747
$124,741
$490,525
$403,266
$69,522
$1,020,232
$615,282
$35,000
$3,932,509
Revenues
$3,685,945
$418,013
$626,644
$3,753,145
$884,654
$750,209
$1,326,640
$1,160,338
$530,442
$13,136,030
$1,307,127
$1,084,740
$1,499,214
$2,103,657
$1,814,142
$1,368,241
$1,168,449
$1,035,181
$432,811
$11,813,562
-$1,130,554
-$1,373,576
-$2,033,573
$358,768
$2,942,677
-$844,806
-$5,342,113
$2,417,033
-$72,058
-$5,078,202
-$0.06
-$0.07
-$0.10
$0.02
$0.12
-$0.03
-$0.14
-$0.06
0.00
(C$)
G & A Expenses
Net Income (Loss)
EPS
2008
2009
2010
2011
2012
2013
2014
2015
2016 (6M)
General and Administrative (“G&A”) expenses, which include salaries, administration, and
professional fees and outside services were $0.43 million in the first six months of 2016, and
have averaged $1.39 million per year since 2008.
Stock Options
and Warrants
We estimate the company currently has 3.01 million options outstanding (weighted average
exercise price of $0.25) and 3.07 million warrants outstanding. At this time, 2.84 million
stock options and nil warrants are ‘in-the-money’.
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Valuation and
Rating
We normally use the following three valuation methodologies to evaluate traditional junior
resource companies: Discounted Cash Flow (“DCF”) model, comparables valuation, and real
options valuation model. As PGs hold and advance several properties in their portfolio
through partnerships, we believe the most appropriate method to evaluate a PG is through
market comparables. Our traditional valuation methods can be used once a PG starts to
generate significant / regular royalties from one or more of its projects, or the development of
at least one of its projects turns out highly successful resulting in a significant increase in its
valuation.
We estimate that the current average Price to Book (“P/B”) of PGs (listed on the TSX and
TSXV exchanges) is 2.9x. The average, excluding the top five companies, is 2.7x.
Company
P/B
1
Altius Minerals
1.3
2
Mirasol Resources
6.5
3
Eurasian Minerals
3.1
4
Midland Exploration
2.3
5
Lara Exploration
n/a
6
Golden Valley Mines Ltd.
1.3
7
Millrock Resources Inc.
3.9
8
Cornerstone Capital
n/a
9
Globex Mining Enterprises
1.2
10
Almadex Minerals
1.8
11
Evrim Resources
5.5
12
Renaissance Gold Inc.
n/a
13
Riverside Resources Inc.
2.4
14
Miranda Gold
4.7
15
Avrupa Minerals Ltd.
4.5
16
Transition Metals Corp
1.0
17
Alianza Minerals
1.1
18
Sphinx Resources
n/a
Average
Average (excl. top five)
2.9
2.7
Applying a 2.7x P/B ratio to Globex’s book value of $15.68 million, we estimate Globex’s
fair value should be $0.90 per share at this time. We are initiating coverage on the
company with a BUY rating and a fair value estimate of $1.00 per share.
Aside from the strong upside potential of some of the projects in the portfolio, we believe
Globex’s top strengths are its management’s long-track record in the PG business, high
2016 Fundamental Research Corp.
“10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
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PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Page 25
equity ownership, recent track record of opportunistic transactions, and its ability to maintain
a tight capital structure. Being a PG advancing multiple projects simultaneously, we
expect several catalysts for the share price over the next 12 months.
Risks
The following risks, though not exhaustive, may cause our estimates to differ from actual
results:
The value of the company is dependent on commodity prices.
The company does not currently have a regular stream of cash flows.
Management’s ability to continue to identify and acquire good projects at reasonable
valuations.
Ability to identify partners with strong technical background and access to capital.
As a PG holds a lot of projects in its portfolio, it can be challenging for investors to
understand and estimate the PG’s true intrinsic value.
Access to capital and share dilution.
Foreign exchange risk.
We rate the company’s shares a risk of 4 (Speculative).
2016 Fundamental Research Corp.
“10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
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PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT
Page 26
Fundamental Research Corp. Equity Rating Scale:
Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk
Hold – Annual expected rate of return is between 5% and 12%
Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk
Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events.
Fundamental Research Corp. Risk Rating Scale:
1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry.
The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is
conservative with little or no debt.
2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive
to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash
flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt.
3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive
to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and
coverage ratios are sufficient.
4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a
turnaround situation. These companies should be considered speculative.
5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products.
Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding.
These stocks are considered highly speculative.
Disclaimers and Disclosure
The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and
opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness.
There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares
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The distribution of FRC’s ratings are as follows: BUY (70%), HOLD (8%), SELL (5%), SUSPEND (17%).
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This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and
uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are
not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services;
competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in
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these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or
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updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter.
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2016 Fundamental Research Corp.
“10+ Years of Bringing Undiscovered Investment Opportunities to the Forefront”
www.researchfrc.com
PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT