Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
(Bloomberg) — Leave it to a Canadian to see the parallels between small-cap mining and cannabis.
Paul Rosen, former chief executive of Cronos Group and a director at iAnthus Capital Holdings Inc., decided last summer the legal marijuana sector needed another way to finance projects. So, he took a page from the junior mining and exploration stocks that are the backbone of the Canadian Securities Exchange, and launched a company that funds projects in exchange for royalties once the operation’s up and running.
“I found there were some four-corner parallels between how mines are capitalized — and what happens once they’re capitalized — and cannabis,” Rosen said in an interview in New York. “They’re both really expensive, but you know if you can get the product out of the mine, there’s a demand for it.”
Rosen started Tidal Royalty Corp. last year and took it public on the CSE this June, right alongside all the small-cap resource stocks that inspired the business model.
To be sure, there has been a connection between the small-cap mining space and Canadian cannabis since the first stocks began trading in 2014, as several pot listings came about through reverse takeovers of defunct junior miners. Aurora Cannabis Inc., the second biggest company in the sector, listed via a reverse takeover deal with Prescient Mining Corp.
Meanwhile, investment bankers like GMP Capital Inc. and Canaccord Genuity Group Inc. moved into pot in a big way after mining deals dried up during the commodity slump that followed the financial crisis. Canaccord last year was the biggest dealmaker in the Canadian cannabis industry.
One year in, Tidal has signed four or five letters of intent — including with a cannabis company in Illinois — and Rosen says he expects to close all of them.
“I kept starting at the U.S. industry and I saw so many conditions in the U.S. that reminded me of what Canada was like when I entered,” he said, noting that while about three-quarters of necessary capital has already been spent getting Canada’s cannabis sector up and running, the U.S. has a lot more runway. “The U.S. is always 10 times bigger. In cannabis, I’d say it’s more than 10 times bigger.”
(By Anne Riley Moffat)
