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Q121 Report: Memento Mori

The first half of Q121 was very much a continuation of the cross-asset bull market that investors may have grown accustomed to over the past year. As the second half of the quarter began, however, the market gave way as treasuries sold off against higher inflation expectations, driven by a stream of reassuring economic data and the successful vaccine roll-out in the United States. Equities sold off against the subsequent spike in yields despite Federal Reserve Chair Jerome Powell’s efforts to placate the market. Commodities as a whole rallied against this activity in the bond markets, with oil and copper continuing to rise into March, whereas precious metals slumped. Predictably, this drawdown was reflected in the Canadian venture market with the TSXV drawing down nearly 14% peak-to-trough between mid-February and early March. Given that growth stocks were the ones that experienced the most severe re-ratings against higher yields in US markets, we were not surprised to see Canadian small-caps in popular themes like clean tech, ESG and cannabis be pared down by a multiple experienced by the broader equity indices. Despite these market conditions, Intrynsyc had a solid quarter attributed to a strong early quarter performance in companies like NEXE Innovations (NEXE-V) and closing private placements for Prime Time Cannabis (Private) and Imperial Helium (IHC-V). Please see below for more commentary on our most active portfolio names for Q121.

NEXE Innovations (NEXE-V)

We started the year off with a bang helping NEXE’s go-public effort in December (initiation report here) and the frothy ESG market lifted the newly listed shares significantly past our expectations to a high of $5.90 in February. Part of the momentum in Q1 was from a string of positive news releases: meeting ASTM and EU standards for compostability on their Nespresso-compatible pods, government grants for plant-based materials manufacturing, doubling of its facility’s footprint, and launch of its in-house brand Xoma Superfoods that focuses on the very high-margin coffee/super-foods market. Overall market ESG sentiment was also a major contributor to share volatility; both the 536% rise from IPO and the more recent 67.8% pull-back mirror those of the Invesco Solar ETF (TAN-NYSE, a great proxy for ESG investor sentiment), as it rose 30% and dropped 30% over the same period.

NEXE is targeting rapid growth as evident from their latest raise of $34.5M at $2.00/unit on April 7th with a half warrant at $2.50. In our view, this recent capitalization means investors will get their first good look at the capital allocation skills of the management team regarding ramping up production capacity and M&A. From a trading standpoint, the float is still limited via escrow release schedules and large insider ownership, but the daily trading volumes are healthy and opportunities abound from the recent volatility. Dates to watch the stock trade as shares come off escrow are April 15th, June 15th, July 15, 2021, August 15th and lastly October 15, 2021.

Prime Time Cannabis (Private)

Primetime Cannabis is a California based cannabis supply chain company with a focus on distribution and finished goods manufacturing for leading brands. Though one can argue for diminishing returns setting in for the Canadian cannabis market, there is considerable market share to be unlocked in the US through incremental state-level legalization (as we have seen this quarter with state-level legalization in New York) and upcoming federal laws aiming at loosening up banking laws and potentially, federal legalization. Prime Time represents our bet on the sustained growth in US cannabis. With forecasted revenue of USD $150M+ this year, the company’s peers are the top 10 US MSO’s– against which Prime Time stands significantly undervalued at 0.49x EV/2021E sales vs. the peer average of 4.0x. We were pleased to close off the oversubscribed go-public round for Prime Time at nearly $30M and are currently advising the company on its Q321 public listing.

Imperial Helium (IHC-V)

Helium is a non-renewable resource used mainly in cryogenics (MRI’s, NMR Spectroscopy), semiconductor manufacturing, pressurizing and purging, and arc welding. Production of Helium has fallen 2.75% CAGR over the last eight years from 6.5Bcf/annum to 4.9Bcf/annum in 2020, and demand over the same period has remained relatively flat around 6.0Bcf/annum. The combination of weak supply, the vulnerability of the global supply chain to exogeneous shocks (i.e Qatar embargo), and the oligopoly-like structure around refined Helium leads us to believe this is a sector with decent upside potential for Helium producer-refiners.

Imperial Helium Corp has various modes to extract Helium with their technology, but their main path to profitability is through well origination with Helium concentrations greater than 0.5% in the “Shallow Prairie Gas Plays” area in Alberta (Sweetgrass Arch). The Sweetgrass Arch area is densely packed with existing gas wells that will provide valuable geological data that management can use to make better decisions for locating Helium extraction. The current lease holds an estimated 1Bcf of recoverable Helium that is modeled between USD$200 – $300/Mcf. After extracting the Helium, Imperial will refine the Helium and store under pressure for transportation.

On February 18th, 2021 we advised Imperial Helium Corp’s financing which was an oversubscribed go-public round that raised $14M to develop a pilot plant that will tune their refining process, provide resource certification, and fund acquisition of additional resource assets. We anticipate a listing early in May.

Pan Global Resources (PGZ-V)

We have been covering Pan Global Resources (PGZ) since 2019 and the story continues to improve. PGZ has steadily been advancing their 100% owned copper-gold La Romana VMS target since that time and has had a 100% hit rate over the thirty-seven holes drilled to date. The most recent holes extended the strike length an additional 400 m and down dip the deposit is defined to 200 m. What was even more impressive is the consistency of mineralization along the mise-a-la-masse (MALM) conductor axis. Why this is important is because this anomaly extends further to the east and an additional 1,700 m which remains to be tested. Note there is one historic hole along this conductor that intersected mineralization indicating that mineralization is present along strike. Our take on PGZ – current drilling has outlined a near surface high grade (1% CuEq) open pittable resource of 10 – 15 Mt our internal estimate) that can be mined and processed at two adjacent operating mills (Rio Tinto’s Atalya Mine & First Quantums Las Cruces Mine); however, the real upside is associated with the five untested gravity anomalies to east. Gravity has been a critical tool in finding deposits in this region. We believe the Company is grossly undervalued with significant upside based on a clear line of sight to PGZ doubling our internal resource estimate with the upcoming drill campaign.

Mantaro Silver Corp (MSLV-V)

Mantaro Silver Corp (soon to be listed MSLV) is a junior exploration company focused on high grade silver exploration in Peru. Mantaro holds a 100% interest in five Peruvian silver focused properties located within major mineralized belts. MSLV is backed by a solid management team led by Dr. Chris Wilson (Chairman and CEO) who has over 30 years of global mining experience across a variety of spectrums. He has worked for companies, such as Ivanhoe, and SRK Consulting. Dr. Wilson has specialized experience with vein systems including orogenic and intermediate to low sulphidation types which Peru, as the second largest silver producer in the world, is recognized for. MSLV has also brought on Dr. Quinton Hennigh who has been involved in multiple high-grade discoveries such as the Swan Zone discovery at Fosterville, among others. Mantaro’s flagship asset Santas Goria, is a high-grade silver-polymetallic vein system with reported grades up to 400 oz/t silver and up to 270 gpt Au. It is located along trend and in the same belt as numerous other deposits such as Toromocho which produces 9 Moz/year. Historic channels samples from underground returned assays of up to 29% Cu, 29.8% Pb, up to 7.5% Zn and over 500 oz/t Ag with limited exploration at depth. In addition, the property has over 10 km of intermediate sulphidation veins that have never been tested. Mantaro is planning on completing a 5,000 m drill program to test the numerous high-grade vein sets that litter the property and test the depth potential of historic ore shoots that grade up to 15 oz (+450 gpt Ag). Mantaro’s TSX.V listing is imminent, and we look the Company to create value through the drill bit in the near term. Permits are in hand and the Company is poised to begin testing multiple compelling targets in the near-term.

Looking Ahead

Though we have experienced a return of volatility in the venture markets, certain key tailwinds have been established as of quarter-end and early into the new quarter for popular themes including ESG investing and cannabis. For example, President Biden’s proposed $2.2tn infrastructure bill has reinvigorated companies with ESG exposure such as clean energy and copper mining/exploration companies. Investors also appear to have calmed around inflation as long-dated yields have backed off from their February highs, with precious metals rallying in tandem. All this to say that things appear rather serene compared to February. Indeed, the mid-quarter sell-off served as a reminder to never forget that the market could whipsaw, and on a dime. Fortunately, as we write this memo, the deal-flow continues to flow– enabling us to continue meeting with as many companies as possible to source new opportunities. We are looking forward to another productive quarter.