Analysts' Ideas of the Week · 2020. 12. 28. · Analysts' Ideas of the Week Japan’s Recent...

Analysts' Ideas of the Week Japan’s Recent Announcement Another Catalyst for EV Metals

December 28, 2020

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PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

FRC Top Picks Since the Canadian stock markets are closed today, we are not presenting WoW performance of our top picks. However, we would like to bring your attention to Elys Game Technologies (NASDAQ: ELYS); a recent addition to our list of top picks. Since our initiation report on December 16, 2020, ELYS’ shares are up 51% on no company specific news. ELYS is a licensed gaming technology company with an Italian and U.S. (pending license approval) sports betting platform. ELYS is awaiting its first sports betting license in the U.S., and expects to launch operations in D.C. in Q1-2021. The company has arrangements with two operators to use its platform. ELYS is trading at 3x revenue. Online-gambling and fantasy-sports company, DraftKings Inc. (NASDAQ: DKNG), which went public earlier this year, is trading at 46x revenue. We estimate that the average EV/R ratio of the betting industry is 7.3x. Our report on ELYS can be viewed here. A noteworthy development last week was Japan’s announcement of its plans to stop sales of gasoline powered cars by the mid 2030s. California and major European nations have previously announced similar plans. We believe this new announcement by Japan will further increase investors’ appetite for electric vehicle metal projects, which have been rising in the past few months. Visit our top picks page to access names of juniors focused on EV metals.

Weekly Mining Commentary The S&P 500 was up 1% today from the latest stimulus package signed by Trump.

Despite the continued surge in COVID-19 cases in Europe and Canada, six of the

seven global equity indices we track were up WoW.

Source: FRC / Various

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Although the U.S., India, and Iran reported declines in new cases in the past week, most of Europe, Canada, and Mexico continued to experience a surge in cases. The newly emerged, and highly transmissible strain in the U.K. is concerning, but there is no evidence to suggest that the current vaccines will be less effective against the new strain.

Source: https://www.worldometers.info/coronavirus/

Commodity prices remained relatively flat in the past week, with WoW changes remaining under 2%.

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Valuations of gold and base metals producers also remained flat in the past week.

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Inventory levels of copper declined on the LME, but increased on the SHFE (Shanghai), and do not provide any specific insights.





We believe that restrictions are unlikely to be relaxed until there is a decline in new

cases. We maintain our outlook, and expect the global economy to recover to pre-

COVID levels by mid-2021. We expect base metal prices to be under pressure in the

coming weeks based on tight restrictions, and the prior run-up in prices. Our commodity

price forecasts (unchanged) are shown below:

In the following section, we review companies that announced key developments in the past week.





Mining / Exploration

Company Name:

Ticker Symbol

Current Share Price:

FRC Fair Value Estimate:

Date of PR:

Eskay Mining Corp.

TSXV: ESK $1.95 NA Dec 22, 2020

PR Content Ongoing drilling confirmed two precious metal rich VMS deposits at the TV-Jeff target (Golden Triangle in B.C.) on joint venture ground held with Kirkland Lake Gold Ltd. / TSX: KL (80% Eskay / 20% Kirkland). Received results of nine of 20 holes; all of them encountered significant Au and Ag intervals. Best results were:

• 5.1 m grading 31.23 gold Au and 138.1 gpt Ag

• 4.1 m grading 11.09 gpt Au and 44.2 gpt Ag

• 11.24 m grading 4.1 AuEq



FRC Opinion Positive - Jeff and TV are approximately 1.8 km apart. A geophysical survey suggests that both targets could be part of a larger 6 km long corridor. Assays for the remaining 11 holes are expected in January. We will publish an update once all the results are announced.

Company Name:

Ticker Symbol



Date of PR:

Golden Minerals Corp.

NYSE: AUMN US$0.72 US$0.95 Dec 22, 2020

PR Content Commenced mining at its Rodeo gold project in Durango State, Mexico. Management expects to start transporting material for processing at its Velardeña oxide mill (60 miles from Rodeo) in January 2021.

FRC Opinion Positive – We are pleased to know that AUMN is on track to commence gold production, as expected, next month. Per a recently completed PEA, the mine is expected to produce 13.2 Koz in 2021, and 14.4 Koz in 2022, with a mine life of 2.5 years. The company is in a strong cash position, with US$8.7 million in cash, and cash equivalents, as of September 30, 2020.

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Company Name:

Ticker Symbol



Date of PR:

Noram Ventures Inc.

TSXV: NRM $0.50 NA Dec 22, 2020

PR Content Initial results from the first drill hole, taken from 137 ft (42 m) to 227 ft (69 m), returned an average value of 1,049 ppm lithium, with a high of 1,900 ppm.

FRC Opinion Positive – These values are inline with the current resource estimate of 0.75 Mt lithium carbonate equivalent (1,136 ppm) indicated and 0.43 Mt (1,045 ppm) inferred. As the hole was drilled outside the existing resource, we believe these results will result in resource expansion. Noram plans to complete an updated resource estimate in H1-2021. Initial chemical engineering studies have shown potential to produce 97% pure lithium carbonate. Noram’s shares are up 178% since our initiation report in September, and have surpassed our previous fair value estimate. We are temporarily retracting our fair value estimate, and will provide an update as soon as results of the current drill program are announced. These results will provide us insights on the resource expansion potential.

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Company Name:

Ticker Symbol



Date of PR:

Braveheart Resources Inc.

TSXV: BHT $0.14 $0.32 Dec 23, 2020 Dec 24, 2020

PR Content Closed the previously announced acquisition of the Thierry mine project in Ontario, and commenced a PEA, which is expected to be completed in Q1-2021.

FRC Opinion Positive - Thierry will add geographical diversification to BHT’s portfolio. A resource study completed in 2012, on the Thierry underground deposit, showed 322 Mlbs of copper at 1.66% indicated, and another 538 Mlbs at 1.6% inferred. In addition, there are 449 Mlbs at 0.38% inferred on the K1-1 deposit (3 km east of Thierry), which is amenable for an open pit operation. A PEA completed in the same year had returned a before tax NPV10% of $200M, based on US$3.8/lb Cu and US$10.1/lb Ni. The initial CAPEX was estimated at $523M, with a cash cost of $1.8 per lb Cu. As the PEA was completed eight years ago, we are not in a position to comment whether the project will generate attractive NPV and IRR at our long-term forecasts of US$3/lb Cu and US$8/lb Ni. We will update our fair value estimate when the PEA results are published.

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Company Name:

Ticker Symbol



Date of PR:

Grid Metals Corp.

TSXV: GRDM $0.15 $0.54 Dec 24, 2020

PR Content Closed a $2.74M private placement.

FRC Opinion Positive – This financing was on the back of promising drill results from the East Bull Lake ("EBL") palladium property in Ontario. One of the holes returned 119 m averaging 0.75 g/t Pd, 0.21 g/t Pt, 0.04 g/t Au, 0.08% Cu, and 0.05% Ni. EBL is an early stage/relatively untested property in Sudbury. Grid’s flagship asset is an advanced stage nickel-copper-palladium asset in Manitoba. A 2014 PEA had returned an AT-NPV7.5% of $97M at US$3.4/lb copper, and US$8.5/lb nickel. Grid’s current market capitalization is just $12M.

Company Name:

Ticker Symbol



Date of PR:

Tartisan Nickel Corp.

CSE: TN $0.33 $0.57 Dec 23, 2020

PR Content Closed a $1M flow-through financing.

FRC Opinion Positive – These funds will be used towards surface exploration and definition drilling at the flagship Kenbridge nickel-copper-cobalt project located in Northwestern Ontario, and 80 km north of New Gold’s (TSX: NGD) Rainy River gold mine. A historic 2008 PEA on Kenbridge had returned a BT-NPV7.5% of $253M. TN’s current market capitalization is just $34M. An updated 2020 resource estimate showed 95 Mlbs Ni (0.58%) and 53 Mlbs copper (0.32%) measured and indicated, and 22 Mlbs Ni (1%) and 14 Mlbs copper (0.62%) inferred. TN’s share price is up 38% since our initiation report in October 2020.

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Cannabis

Company Name:

Ticker Symbol



Date of PR:

Delta 9 Cannabis Inc.

TSX: DN $0.53 $1.24 Dec 21, 2020

PR Content Announced the opening of its sixth retail store in Manitoba, bringing the total store count to nine. Management plans to open up to 20 stores by 2022.

FRC Opinion Positive – We are pleased to see DN opening another store in line with our expected timelines. We are conservatively estimating 12 operating stores by the end of 2021. In our update report earlier this month, we had projected $71.49M in revenue (unchanged) for DN in 2021.

Weekly Cannabis Commentary

Cannabis Industry Performance

December 24, 2020

Company YTD 1-Week 1-Year

Aphria Inc. 41% -3% 40%

Aurora Cannabis Inc. -64% -3% -64%

Canopy Growth Corp. 27% 3% 26%

Cronos Group Inc. 0% -2% 2%

Tilray Inc. -49% -2% -48%

HEXO Corp. -39% 0% -50%

Organigram Holdings Inc. -40% 5% -45%

The Supreme Cannabis Co., Inc. -75% -9% -76%

AVERAGE -25% -1% -27%

MIN -75% -9% -76%

MAX 41% 5% 40%

Indexes YTD 1-Week 1-Year

HMMJ -3% 0% -6%

MCAN 10% 2% 15%

XCAN -28% 0% NA Source: TMX Money, FRC

Over the past week, the Horizons Marijuana Life Sciences ETF (TSX: HMMJ / “HMMJ”), the Standard & Poor’s/MX International Cannabis Index (“MCAN”), and the Standard & Poor’s/TSX Cannabis Index (“XCAN”) generated returns of 0%, 2%, and 0%, respectively.

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On December 11, 2020, Health Canada opened a 30-day public opinion forum to get inputs for the Cannabis Act. We expect rules of packaging and advertisement to be among the key issues that would be considered for review. In 2021, with more U.S. states legalizing cannabis, and an increasing number of European countries opening up medical cannabis use, we anticipate M&A activities to increase as larger companies try to gain market share amid a rapidly changing industry landscape. We note that Aphria’s proposed acquisition of Tilray is at an EV/R multiple of 10x vs the sector median of 7x. Our top picks list includes two cannabis companies - Inner Spirit Holdings (CSE: ISH) and Delta 9 Cannabis (TSX: DN) – they are trading at just 2.5x and 1.7x, respectively. Valuation of Select Canadian LPs The following chart shows the average Enterprise Value to Revenue (“EV/R”) ratio of the Canadian cannabis companies we track.

Average EV/R (October 2019 – December 2020)

Dec 18, 2020 Dec 24, 2020

Company Ticker TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA

Aphria Inc. TSX: APHA 5.2 40.0 4.8 37.5

Aurora Cannabis Inc. TSX: ACB 8.5 NM 8.0 NM

Canopy Growth Corp. TSX: WEED 24.2 NM 24.0 NM

Cronos Group Inc. TSX: CRON 60.9 NM 57.0 NM

Tilray Inc. NASDAQ: TLRY 8.4 NM 8.2 NM

HEXO Corp. NYSE: HEXO 6.3 NM 6.0 NM

Organigram Holdings Inc. TSX: OGI 5.3 NM 5.4 NM

The Supreme Cannabis Co., Inc. TSX: FIRE 3.8 NM 3.5 NM

AVERAGE 15.3 NM 14.6 NM

MEDIAN 7.4 NM 7.0 NM

MINIMUM 3.8 NM 3.5 NM

MAXIMUM 60.9 NM 57.0 NM Source: S&P Capital IQ, FRC





The average EV/R, as of December 24, 2020, was 14.6x – a WoW decrease from 15.3x. The average EV/R, from October 7, 2019 to December 24, 2020, is 11.9x. Canadian Retail Cannabis Pricing Province (As of 2020/12/28) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price

B.C. 10.06$ 10.14$ 8.42$ 276 3.93$ 80.29$

Ontario 9.79$ 9.99$ 8.08$ 312 4.00$ 23.98$

Quebec 9.20$ 9.16$ 9.55$ 214 4.85$ 14.55$

Alberta 11.40$ 11.39$ 11.39$ 324 3.93$ 22.00$

N.B. 9.68$ 9.92$ 7.58$ 166 3.50$ 16.28$

P.E.I. 9.81$ 9.83$ 9.49$ 161 2.20$ 23.30$

Newfoundland 10.13$ 10.09$ 10.36$ 153 4.46$ 15.40$

Yukon 14.98$ 15.07$ 13.95$ 12 10.49$ 16.15$

N.S. 10.40$ 10.45$ 9.82$ 176 5.36$ 42.85$

Nunavut 11.69$ 11.80$ 12.41$ 34 5.19$ 17.91$

Northwest Territories 11.54$ 11.54$ 3 12.08$ 13.00$

Manitoba 11.53$ 11.50$ 11.62$ 320 4.90$ 20.43$

Saskatchewan 12.85$ 12.91$ 12.08$ 176 4.95 38.50

CANADA 11.00$ 11.06$ 10.40$ Province (As of 2020/12/21) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price

B.C. 10.09$ 10.18$ 8.42$ 273 3.93$ 80.29$

Ontario 9.78$ 9.97$ 8.08$ 314 4.20$ 23.98$

Quebec 9.20$ 9.16$ 9.55$ 214 4.85$ 14.55$

Alberta 11.41$ 11.40$ 11.39$ 322 3.93$ 22.00$

N.B. 9.66$ 9.90$ 7.58$ 166 3.50$ 16.28$

P.E.I. 9.79$ 9.81$ 9.49$ 159 2.20$ 23.30$

Newfoundland 10.13$ 10.09$ 10.36$ 153 4.46$ 15.40$

Yukon 14.98$ 15.07$ 13.95$ 12 10.49$ 16.15$

N.S. 10.40$ 10.45$ 9.82$ 176 5.36$ 42.85$

Nunavut 11.69$ 11.80$ 12.41$ 34 5.19$ 17.91$

Northwest Territories 11.54$ 11.54$ 3 12.08$ 13.00$

Manitoba 11.53$ 11.50$ 11.62$ 316 4.90$ 20.43$

Saskatchewan 12.91$ 12.97$ 12.08$ 172 4.95 38.50

CANADA 11.01$ 11.07$ 10.40$ Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram declined week-over-week to $11 from $11.01. The below chart shows Canadian retail dried cannabis flower pricing since we began price coverage.

Canadian Retail Dried Cannabis Flower Pricing

Source: Online Provincial Cannabis Stores, FRC





Canadian Retail Cannabis Stores As of December 28, 2020, there are 1,384 retail cannabis stores, a week-over-week increase of 11 stores across Canada, including 10 in Ontario and one in Quebec. We continue to expect a significant increase in Ontario’s store count due to the recent mandate of the Alcohol and Gaming Commission of Ontario (AGCO) to approve more Retail Store Authorizations (RSA).

Nationwide Store Count

Dec-7-2020 Dec-14-2020 Dec-21-2020 Dec-28-2020

Geographic Region Store Count Store Count Store Count Store Count Population Population / Store

Alberta 543 543 547 547 4,428,247 8,096

B.C. 281 298 300 300 5,120,184 17,067

Manitoba 38 38 38 38 1,379,121 36,293

N.B. 20 20 20 20 780,890 39,045

N.S. 20 20 20 20 978,274 48,914

Newfoundland 27 27 27 27 520,437 19,275

Northwest Territories 5 5 5 5 44,982 8,996

Nunavut n/a n/a n/a n/a 39,486 N/A

Ontario 262 290 312 322 14,745,040 45,792

P.E.I. 4 4 4 4 158,717 39,679

Quebec 45 45 45 46 8,552,362 185,921

Saskatchewan 50 50 50 50 1,181,987 23,640

Yukon 5 5 5 5 41,293 8,259

CANADA 1,300 1,345 1,373 1,384 37,971,020 27,436 Source: Provincial Websites, FRC





Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst(s) about any companies and industries mentioned. 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. Certain companies mentioned in pages 2, 7-11, and 12 are covered by FRC under an issuer paid model. FRC or companies with related management, and Analysts, may hold shares in some companies mentioned in this report. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. To subscribe for real-time access to research, visit https://www.researchfrc.com/website/subscribe for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company, industry, 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 the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward-looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.
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Analysts' Ideas of the Week · 2020. 12. 28. · Analysts' Ideas of the Week Japan’s Recent...

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