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June 09, 2023

Equity.Guru

Investment information for the new generation

Brascan Resources (BRAS.C): A multi-sector bet with heavily undervalued ‘bananas’ potential

I like betting on rocks. Microcap mining delivers the investor the sort of high risk/high reward opportunities that, if they get just a little bit of love from the retail audience, can really deliver multiples in return for a small bet.

But if there’s one thing I like when I’m gambling – and make no mistake, all microcap resource explorers are gambles – it’s spreading my bet across the table.

You want to go all in on 32 red? Okay man, shoot your shot, but I’m going to spread mine across five numbers. If I’m playing blackjack, I’m gonnatake the split every time.. I might even take insurance. If we’re betting on the ponies, you look for the win, I’m going to look for a place. Sure, when you win you’ll win more money than I will, but I’ll win more often.

So when a mineral explorer shows up with a gold property that looks tasty, and a lithium property that looks tasty, and a critical metals property that looks tasty, I’m not going to criticize them for diversification, I’m going to reward the fact that there are three ways for me to win.

This isn’t a notion always shared in the resource space. “Stick to your knitting,” is the cautious cry of those who couldn’t fathom a company advancing both a gold property and a lithium play at the same time but, as a journalist who writes about the stockmarket and also owns a chunk of an English football club, and also owns arguably Canada’s largest professional wrestling promotion, I’m more likely than most to see the value in spreading your bets across several sectors.

BRASCAN RESOURCES (BRAS.C) is right in my wheelhouse because;

  1. Gold, lithium, and battery metals exposure spreads the risk
  2. Each of their properties is in good places surrounded by larger players
  3. The guy running the show is mental

And when I say he’s mental, I mean that in a good way.

Sure, the technical folks will look at drill reports and distance to seaports and historic data. And I can look at the insanely low market cap and see a lot to like there.

But the intangible for me is, time after time, I see companies that do well in the mining game are either SUPER-corporate and buttoned down, or SUPER-bonkers, with very little in the middle. The extremes are the ones who inspire the market.

Take Dev Randhawa as an example. If you know mining at all, you’ve heard stories about Dev of Fission Uranium fame. I’ve lived those stories.

Dev will show up at an event surrounded by tight suits, he’ll say bananas things that make people do spit takes, and then he’ll move on, leaving his Men in Black crew to remind everyone around them that ‘he was misquoted’ and ‘you didn’t hear what you think you heard’ or ‘hey, here’s a Brass Rail gift card, ask for Shandi’ or, most importantly, ‘how much of the financing do you want?’

Of course, there are plenty who dive under tables and refuse to engage with Planet Dev, but there are many more who say “Dev’s got something new” and just throw money at it, knowing he’s going to chew up the stockmarket scenery, dominate headlines, and draw dollars in. He’s like the Gamestop of Canadian mining, in that none of it makes any rational sense, but people keep buying in anyway because shit’s going down out there and everyone is watching.

The bananas guys have a lot going for them in an industry that has, for a few thousand years, not innovated a whole lot. When everyone else says something can’t be done, the true crazies say “Hold my beer.” They run through the walls because they don’t feel pain in their heads. They’ll make that crazy bet that might just come off, because they feel the power of Satan running through their veins and some teacher in school once said they’d never amount to anything and they’ve never forgotten.

Sure, sometimes the innovators innovate themselves right out of business, but I’m a believer in the nutty bois and that belief has regularly done well for me.

So when Balbir Johal shows up at my office wearing green wraparound Kits sunglasses and a vest that looks like it might still have some cocaine from the late 70’s disco scene still wedged in the seams, I know I’m in for an afternoon.

We get a lot of differing management styles showing up at Casa Guru, from the corporate shark to the boiler room landlord, the ‘good guy trying to build a legacy’ to the self-professed promoters who know we’re going to kick their ass but just want to ensure they’re in the conversation.

Bal is like what would you’d get if someone put out a Mr Potato Head version of all four. He’s a genuinely likeable guy with tons of experience, who has worked his way to the top and knocked his chin on every step of the ladder coming down the other way.

“I’ve made a lot of guys wealthy,” he tells me. “I’ve mentored dozens of guys and watched them get rich, watched them move up from the pub to Hollyburn, made all the mistakes, all the discoveries, I’ve had shells that ended up billion dollar companies, and done all the things that get you kicked out of the bar before closing.. but I’ve never screwed anyone over, and I’m still standing, and this one… this one is my legacy,” he says. “This is one is the retirement plan.. one good hard five-year run where we’re going to change the game.”

To be clear, Bal is a baller. I’ve never seen shoes with a higher polish. Ask for his elevator pitch and you’ll be there 25 minutes because there’s no part of his properties he doesn’t know, no competitor he hasn’t looked deep at, nobody he can’t get on the phone, and no story that is left untold.

He reminds me a bit of Hunter S. Thompson, a great American writer of the 20th century who penned Fear and Loathing in Las Vegas, among other things, and who I briefly considered a friend back in the day. Thompson had a spice carousel on his kitchen counter, next to his typewriter, that contained every drug known to man. And as he talked to you, he’d spin that thing around and casually pull out some coke, or ether, or LSD, and he’d take a hit that would kill a scrub turkey and you’d think, holy christ he’s going to die.. but he didn’t. He’d just stay level, pontificating about politicis and life like a warrior philosopher, knowing absolutely what he’d need to ingest next to maintain his focus. I’d be staring at the hairs on my elbows and he’d be on the phone to a Presidential candidate, calling him a yellow dog and grilling him on foreign policy.

Let’s be clear – if Thompson hadn’t been a nutbar, he’d have been a nobody. The greats leave no fingerprints on their handbrakes.

So here’s this guy sitting on my office couch, telling me what he’s planning to do with a $1.3 million market cap company, and god help me but I believe.

In a nutshell, this is the plan:

  1. Alegre Gold Project: This project in Para State, Brazil, has excellent potential for gold production, with active small-scale operations reportedly producing over 1 kilogram of gold per week from shallow surface excavations.
  2. Albany Forks Rare Earths Project: Brascan’s acquisition of the Albany Forks REEs project in the Porcupine Ontario Mining Division further diversifies its portfolio and could potentially tap into the market for niobium, a battery metal.
  3. Brasil-Li Lithium Property: The acquisition of the Brasil-Li property in Minas Gerais, Brazil, places Brascan in a prime location for lithium exploration, as it is situated near major lithium deposits and has access to existing infrastructure.
  4. James Bay Lithium Claims: Brascan has recently acquired new claims in the James Bay region of northern Quebec, which show great lithium potential. As the demand for lithium continues to rise, driven by the electric vehicle market, this acquisition further expands Brascan’s portfolio in a young investor-friendly way.
  5. North Atlantic Aggregates/REEs partnership: Brascan executed a Share Exchange Agreement to acquire interest in North Atlantic Aggregates, with potential for minerals such as ilmenite (titanium dioxide), magnetite, scandium, vanadium, phosphorus, copper, cobalt, graphite and aggregates like granite, sand, quartzite and gabbros.

Let’s be honest, that’s a lot.

Bal’s going to take that collection of potential and, well, work it. Drilling is happening currently on some of it, and most of it sits alongside existing working projects owned by others.. in fact, some sits inside other projects.

“I don’t have to raise much to work these,” says Bal, “because I have access to people who know their stuff and like what they see.”

I give Bal a little crap for his Brazilian exposure, joking that it’s nice of him to explore prospects in developing countries so they can get on with nationalizing them, and he laughs, pointing out that the company his was named in honour of was a firm in the 70’s that did business in Canada and Brazil and turned that into a multi-billion-dollar financial juggernaut of the time.

“Guys like you see ‘developing world’ and think how hard that’s going to be to work,” he says. “I look at those people avoiding places like South America and say thank you! More for me!”

With decades of experiencing working in countries like Brazil, Bal’s team have boots on the ground and they’re making moves, unopposed.

“If Brazil turns out to not be the place for us, we’ve got another option in Northern Quebec. If lithium as a sector does well, we’ve got two bets on the table. And if lithium dips, we’ve got gold in Brazil, and rare earths in Ontario, and the aggregates deal in Newfoundland.. where do you want to be, the Maritimes? We’re there. What do you want to dig up, niobium? Gold? Scandium? Vanadium? We’re there.”

If we’re speaking of betting, let’s be clear that Bal isn’t going to land all of these projects perfectly. There’ll be low times for gold, and lithium, and rare earths can be complicated. And to work all of these, that’ll take more money than he has.

“All true,” he says to me. “If anyone in my position told you it’s all going to work, punch that guy in the nose because he’s lying to you.”

“I don’t need every project to pay off,” he explains. “I need one. Just one. If any one of these projects shows itself as having what we think they have, you’re going to see us work it hard. I’m not here to make a three-bagger. I’m here to take something to production and leave a legacy, and the property, the drills, and the markets will tell us which project that is.

He’s bananas. But he’s also here, in my office, not Zooming from home.

He’s bananas. But he’s here, pitching his heart out.

He’s bananas. But he’s somehow managed to get five interesting properties into a company with a market cap lower than the value of a free-standing Abbotsford two-bedroom.

At this point, you might think I’ll talk about how I bought some stock because I like the deal. That’s the usual thing, what you’d expect to hear from anyone in the market awareness space. We often buy the stock of the companies we’re doing business with, because we can see what they’re planning and believe in them.

Well that’s the case again here. But I didn’t just buy in.

I bought 5% of the company.

Because bananas recognizes bananas.

— Chris Parry
FULL DISCLOSURE: Client company, and we’re a shareholder.

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