Tuesday, 20 February 2018

My Notes on the IDK AGM

I was at the ThreeD Capital (IDK) AGM earlier today. There was only a handful of people in attendance, including CEO Sheldon Inwentash and CFO Gerry Feldman. Mohammad Abuleil, CEO of Fintech Select (FTEC) was also in attendance. It looks like he was there for a meeting with Inwentash after the shareholder meeting. Though he may also be a shareholder in IDK. I did not ask.

Here are my bullet points to the meeting. Keep in mind this is just my interpretation and from memory a few hours after attending. So I might be slightly off on some details though I believe I got the gist of everything that was discussed:
  • This was a very informal AGM, completely different from what I am use to. Usually a formal vote of the motions laid out in the circular is done but Inwentash decided to skip all that because he said resolutions all passed with ~99% votes in favour of all motions. He preferred to go straight into a question and answer period. Throughout the meeting he was very confident (borderline arrogant) and casual. He did make mention that he would do things a little differently than at Pinetree, which I interpreted it as an admission that some mistakes were made there, a good sign in my opinion. 
  • His investment strategy will be focused around fewer companies for IDK, as opposed to Pinetree where a wider net was cast due to the hit-and-miss nature of exploration.
  • He is very passionate about his Blockchain and AI investments in IDK, and came off as less passionate about the mining projects, saying that he has geologists to take care of those.
  • In the roundtable of questions, the shareholder to my right asked Inwentash about his recent sell of IDK stock, beating me to the punch. Inwentash refused to comment on trading, though I believe he sold for tax planning purposes. He reiterated that he was very confident about IDK.
  • I asked him about the out-of-date NAV up on the website (as of September 30). When can we expect an update and can we start seeing a monthly report on NAV? Gerry Feldman led this conversation, though they were both on the same page that monthly NAV reporting is the goal. There are specific accounting challenges to this, namely, how to account for the ICO investments made. This is new grounds in the field of financial reporting. Feldman mentioned that he is working with Ernst & Young on this, and they don't have an answer yet. My interpretation is that this will be quite a task, and it could be months before we see monthly NAV reporting. 
  • December NAV will likely come in tandem with December financials, IDK's Q2. Deadline for that is the end of February.
  • Future NAV reporting will likely come in the form of one top line number, possibly with a chart to show % of portfolio in ICOs, public companies, mining versus tech etc. No definitive framework was discussed, but it will probably be less detailed than Pinetree's old data.
  • My interpretation is that the NAV as of September, and even my more recent estimates, are wildly incomplete. I tried estimating it myself based on publicly available data like IDK's recent private placement investments made in APP and FDM, among others, but the company has never publicly disclosed its ICO investments, which I am led to believe are substantial. We will just have to wait for the NAV update to get a clearer picture of exactly how much IDK is worth. I am more interested in March quarter-end than December quarter-end, since I think a lot of activity took place in January. With the market cap at around $20 million, there is the possibility that IDK is trading at a discount to NAV now, though that is just my wild guess.
  • IDK almost got into crypto-mining, but decided against closing some deals in that sector. The focus is on ICOs though crypto-mining operations remain a possibility. I get the feeling that Inwentash doesn't like mining as much, stating that businesses that are making 90% margins can't last forever and something will have to change, particularly with the power usage being dedicated to this kind of thing around the world. 
  • Inwentash made a qualitative statement about day traders, negative market forces and people who may dislike him, particularly because of the ending at Pinetree. He does not worry about people focused on short term moves, or any doubters against him. He is interested in the long-term moves building up the company. He appeared to be sincere with a bit of a chip on his shoulder when he said this. 
  • Inwentash was quite passionate in explaining his AI technology for mining, which he believes will greatly aid with drilling decisions made by explorers who use the technology. He plans to charge companies upfront for use of the technology, plus a royalty. There weren't any specifics mentioned with how this will work or why he is so confident. He did make mention that when they wiped a map clean in Quebec and applied their AI technology to it, they found 85% of the mines in the province with it. (I don't know what he meant by mine - the strict definition of a currently operating mine, or those that include past mines and ones being built as well, as well as untapped deposits).
  • My interpretation of the AI is that it might be an uphill battle to gain market acceptance and clients. Since it is new technology and I don't know if there is any third party data out there to prove that it works. My guess would be that they will use the technology on mining companies in which IDK holds a stake, as well as other Inwentash-related companies to collect anecdotal evidence. If the technology works, I think it could snowball as prospective clients will save millions in exploratory drilling costs before proving out a resource to go into the infrastructure building phase. 

Sheldon Inwentash: A gold bull's perspective on blockchain

Inwentash ended the meeting with a rant on blockchain from his perspective as a man who has been in the gold sector for over 25 years. It was fascinating listening to him apply principles and opinions learned from that industry to blockchain. First, he very strongly believes that blockchain will create "financial anarchy" and is not going away. It allows for financial transactions to occur in a trustless environment, eliminating the need for a financial intermediary. Central banks cannot control the flow of cryptocurrency, which is why so many authorities out there speak out against it. (This is the kind of "conspiracy" speak I often here from gold bugs as well, though I tend to agree with at least part of this thought process. Really, who knows if the bankers are actively seeking to destroy cryptocurrency because it is a threat to their positions of power, or if in their little T-Bill world, the volatility of these things gives them nightmares and they can't help but spread the joy to everyone else).

He said that the balance sheet of the United States and many other sovereign nations is basically bankrupt and the only way to pay off that massive debt is to devalue their fiat currencies to a fraction of what they are worth today. What would be the other side to that devaluation equation? All of the world's gold can't even fill up an Olympic-sized swimming pool, so he offered up cryptocurrencies as a potential benefactor as well to gold. He likes them because there cannot be any debt written against cryptocurrency like with fiat, and the limited supply.

He mentioned that he has been looking into blockchain and bitcoin since 2014 and wanted to buy some bitcoin back then, but couldn't figure out a way. He said even now it's a pain because you have to submit a copy of your passport among other things just to open an account. I haven't tried opening a crypto-trading account but I understand those similar pain points from opening FX accounts and sportbooks in the past. Inwentash then pointed at Mohammad Abuleil and mentioned that is why he likes what he is trying to do to bring bitcoin to the market. It wasn't clear if he meant FTEC or another project that Abuleil may be working on, since Inwentash never mentioned FTEC by name. Still, this is a very good sign as that has been a major part of my investment thesis on FTEC.

I mostly agree with what Inwentash said about blockchain. One point of contention I have is that he didn't mention the asset side of the balance sheet. While many sovereign nations are loaded up to the gills in debt, they also have access to land, natural resources and the tax base and economic output of their people as sources of paying off debt. While cryptocurrencies don't have debt, the assets/functionalities they are tied to are usually virtual ones, ones that do not carry nearly as much value as a large plot of land or the ability to set tax policy might today. That may change in the future as the world gets more computerized and virtual, though some virtual assets and services may turn out to be worth a lot while others turn out to be worthless. So an investor has to be careful with which altcoin they decided to invest/speculate in.

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