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Soar Financial Canada Corp. CEO Kai Hoffmann on His Optimism Heading into 2019, Particularly for Flow-Through Financings, & a Few of His Favorite Gold and Base Metal Stocks

December 6, 2018

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today once again is the CEO of Soar Financial Canada Corp., Mr. Kai Hoffmann. How's it going, Kai?

Kai Hoffmann It's going great, Gerardo. Thanks for having me back on the show here.

Gerardo Del Real: Thanks for coming back on. Every four months we get together, we talk about how tough the resource space is. So thanks for your time today.

Kai Hoffmann: Oh yeah, definitely, definitely. It's definitely not looking as bad as four months ago, that's for sure.

Gerardo Del Real: Let's talk about that. We were talking off air. We were talking about the Oreninc Index and how it's actually risen for the past two weeks. What does that typically mean to you? What do you see coming into 2019?

Kai Hoffmann: Well, I'm quite optimistic coming into 2019. We're just in the middle of tax-loss selling. There's no volume on the TSX, but there's definitely interest in the markets as you can tell. And the right deals attract money. We've seen a strategic deal. We've seen another bought deal, although flow-through, which is going to be a theme for 2019. But there is activity. There's money on the sidelines. I'm quoting Rick Rule here, who's quoting one of his clients, actually, that say, "Hey, Rick, we got money on the sideline. We're waiting for the right deal to enter." Right?

So there is interest in this space. Let's go through this here. The tax-loss selling season right now is brutal. It's worse than ever. I'm blaming the pot space, the cannabis space to a degree for that. People made a lot of money over the last 12 months in that space and unfortunately the mining side is getting the end of the stick here.

Gerardo Del Real: Absolutely. There's three things there, and let's take them in order. You talked about the recent strategic. That was done at a premium, I believe it was something like a 20% premium, and the stock reacted by going up, I believe, 4% the next day despite the premium. And it was significant. It was a $31 million investment by one of the smartest groups in the space. Can you talk about that a bit, Kai?

Kai Hoffmann: Yeah, for sure. It was SSR Mining investing into SilverCrest. I'm quite familiar with both companies actually, really well. It's probably the first strategic financing I've seen SSR do ever. They usually don't invest in junior companies, so I was surprised to see that financing. I'm really happy for my friends at Silvercrest. I know the group really well and personally as well. So really happy for those guys to get a very flooring to the share price. $3.70 I think it was or $3.73.

Gerardo Del Real: $3.73.

Kai Hoffmann: It was an odd number.

Gerardo Del Real: You got it.

Kai Hoffmann: The stock was trading at $3.19 or $3.20 at the time the deal was announced and the shares only jumped up to, I think, $3.28 or something like that. It wasn't massive. I was a bit shocked but that also shows that we're maybe at the bottom of a cycle here. SSR felt the need to do that, to step in to secure 9.9%. It's a good sign and I'm quite optimistic that we'll hopefully get to see a couple more of those financings in the future, next 6, 12 months as the majors or even the mid-tiers – I think the mid-tiers especially – will need to buy up some assets or position themselves at least or give themselves the opportunity to stack up some assets.

Gerardo Del Real: Excellent. The second point I want to touch on that you just mentioned, you said that flow-through capital and financings were going to play a big part into the 2019 outlook that you have. Why?

Kai Hoffmann: I think the best example is last week Barkerville Gold Mines raising $25 million as a flow-through bought deal. I recently sat down with Sean Roosen of Osisko and he thinks 2019 is going to be insane in terms of flow-through based on all the capital gains that all the corporations and all the investors had in '18 and '17.

They're sitting on massive tax gains. So they're looking for tax-eligible flow-through financings to offload some of those gains. He said, I'm quoting him here actually, he'd love to drill from Canada west to east, just put a drill hole every 50 meters. He could possibly do that with all the flow-through money he sees and he's probably being offered as well. And it's not just Osisko that's attracting that money. That's important, but they're definitely the kings of flow-through right now. Hearing it from the horse's mouth is quite, what do you want to call it, encouraging, I guess.

Gerardo Del Real: Absolutely. The third thing that you mentioned there was the crypto space and the cannabis space making the mining space an obvious candidate for tax-loss selling. Do you think those roles will reverse in 2019?

Kai Hoffmann: That's a good question and I pray for it every night. Well, let's look at it. Bitcoin is below $4,000, I believe. I haven't looked at it in recent days. I don't own any Bitcoin, so I couldn't care less really. It's been overhyped and I was joking on my own podcast the other day. I still want to meet that person who bought Bitcoin at $19,000.

Gerardo Del Real: Everybody was raising their hands when they bought in at 1 and sold at 15, right? All the experts are gone now.

Kai Hoffmann: Yeah, exactly. So I'm still waiting for that one person to raise their hands like, yeah, I bought at $19,000, still waiting for that person. But no, the indications are there. The gold space, we're seeing it on a macro level as well. If I look just at the German index, the DAX is actually down 16% year to date. People are starting to get nervous. Companies are not delivering anymore. We see earnings in trouble or companies starting to get in trouble to a degree. They can't keep pace with the expectations of the markets. Yes, there's still cheap money around, especially in the EU.

The U.S. has stepped on the brakes a little bit when it comes to quantitative easing, but rumor has it that eventually we'll go back to that. My opinion is that the lower oil price is quantitative easing for the people. So we'll see some more inflation perhaps, because the people would start spending money like crazy again, they can afford longer car travel.

It all points to the right direction, but I'm definitely not going to make a prediction on the gold price for the end of 2019.

Gerardo Del Real: Well, last time we spoke, and again, this was about three or four months ago, you mentioned there was a flurry of activity in the base metals, specifically zinc and copper. I imagine that's slowed down. Can you chat a bit about that?

Kai Hoffmann: Well, zinc has dramatically slowed down, same as nickel, that's almost disappeared. Companies are completely out of favor. I think the trade wars are to blame for that to a degree. The hype that initially was there is gone. There's still fundamental reasons to own zinc and copper stocks, especially copper. If you look at the EV space, I think that's the biggest driver. We're just looking at stationary batteries are coming online. I'm a bit disappointed that Tesla hasn't rolled out their in-house stationary batteries as massively as I was expecting a few years ago, but that's going to be a massive catalyst for copper. There are some really cheap copper stocks out there right now, but the momentum hasn't reached the space yet.

Gerardo Del Real: Let's get right into it. What do you like in the space? What do you like in gold? What do you like in copper? You just mentioned copper. Let's start there.

Kai Hoffmann: There's one small producer, really, they produce 21 million pounds a year. But they're also an exploration story because if they have one more VMS lens, they're off to the races. So that's Atico Mining, a very quiet group. It's almost like a family-owned company. I think they're trading around $0.32, $0.33 right now. It's an absolute steal. That's something I'm looking at very closely right now, and as soon as I see a bottom forming, I'm going to be buying that one.

Gerardo Del Real: Excellent. The gold space, what do you like there?

Kai Hoffmann: Actually, I was looking at some mid-tier producers. Wesdome's definitely a name that comes to mind. The stock ran a little bit before the fall started to hit. I think we're going to see some momentum returning to that stock. They're having some great results on the exploration side. Kiena is looking better and better every day. That's something investors are going to jump on as well.

Gerardo Del Real: I wrote a piece in the late summer, early fall time, maybe September, and it was titled “The Australians Are Coming.” The premise was that the balance sheets looked great, the currency fluctuations had done wonders, and that I thought that M&A would pick up and they would get a lot more aggressive. Do you see Australian companies with good balance sheets accelerating M&A in 2019?

Kai Hoffmann: I wouldn't be surprised. They've been all over the Precious Metals Summit. You were there as well, if I recall.

Gerardo Del Real: Absolutely.

Kai Hoffmann: And we bumped each other there. They were all over that conference. It's the best conference in the space, in my opinion, to exactly do that, send out your Corp Dev teams and look at opportunities. But we haven't seen anything yet, in my opinion, that's justifying the miniature hype we've all been creating here about the Aussies. They haven't really come back yet. I know they're sniffing around and they're doing their due diligence and they're signing CAs left and right, but nothing's happened yet.

Maybe the strategic deal by SSR into SilverCrest might be the first one. No Aussies involved, but it might be creating some pressure in the space, that's what I mean. I think there's a good opportunity. A lot of the gold stocks in Australia have risen sharply lately, or in the last 12 months, and there's opportunities in that currency, obviously.

Gerardo Del Real: Excellent, excellent. Kai, I know on a personal note, you have a big move coming at the end of the month. Anything you want to plug? You want to tell everybody why you're relocating and what they can expect from you in 2019?

Kai Hoffmann: Well, we're going to be way more focused on Oreninc in 2019. I'll be relocating myself – I'm currently outside of Frankfurt here in Germany – to Vancouver. We'll be way closer to the heart of the industry. Obviously Oreninc and all the other services that we provide will massively benefit from that, so stay tuned and we'll be way more active in 2019 then we've been over the last two years.

Gerardo Del Real: The last time we chatted, you mentioned that you had just acquired TheCompanyNobodyCanPronounce.com domain. How is that coming along?

Kai Hoffmann: I've got to market it a little harder. You know, nobody can pronounce Oreninc, so we started to own that name. TheCompanyNobodyCanPronounce.com, that's the domain name we're trying to use and market a little bit, sort of joking around a little bit here in this space, not taking ourselves too serious. But I've started to own that name Oreninc. When I took it over two years ago, I thought, I've got to change the name, got to change the colors and UI, corporate design and corporate identity a little bit, but I'm starting to own it now. I'm starting to like it.

Gerardo Del Real: I love it, I love it. Maybe I should acquire “the name nobody can pronounce” as Gerardo Del Real does not roll off most people's tongues, if you can imagine that.

Kai Hoffmann: I can imagine that, yes. And Hoffmann with two Fs, two Ns and so people have trouble with that as well.

Gerardo Del Real: There you go. Kai, thank you so much for your time today. I appreciate it.

Kai Hoffmann: Gerardo, thanks for having me on again.

Gerardo Del Real: Take care.

Kai Hoffmann: Bye.

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MARKET SUMMARY

INDICES

Name Last Change
DOW 23675.60 0.35%
S&P 500 2546.16 0.01%
NASDAQ 6783.91 0.44%
TSX 14416.89 0.38%
TSX-V 543.19 0.00%

Resource Commodities

Name Last Change
Gold 1251.31 0.18%
Silver 14.69 0.48%
Copper 2.67 0.090
Platinum 793.36 0.12%
Oil 46.24 7.87%
Natural Gas 3.84 8.08%
Uranium 28.63 0.00%
Zinc 1.17 0.00%

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