This could be a belter.
However there are a number of risks as outline in the article I have copied from the economist.
In summary the locals are getting to vote on whether the mine goes ahead and the initial signs are not great that they will approve it. Inevitably, money and politics will be operating behind the scenes, so it might get over the line.
Most people sniggered when Donald Trump proposed buying Greenland in 2019, but he had a point. The world’s biggest island has a rich helping of rare-earth minerals, and the superpowers want them.
These 17 elements, ranging from scandium to lutetium, lurk in the depths of the periodic table and turn up in all things electronic. The renewable-energy revolution will also rely on them for power storage and transmission. On the darker side, weapons—including nuclear ones—need them too.
A new open-pit mine at the top of Kuannersuit, a cloud-rimmed mountain near the settlement of Narsaq in the south of the island, may provide a goodly chunk of the rare earths needed to ditch fossil fuels. So believes Greenland Minerals, actually an Australia-based company, which has been angling for the excavation rights for the past decade.
Greenland’s environment ministry has given a tentative go-ahead. A majority of parliamentarians have already declared themselves in favour of digging. In early February the townsfolk of Narsaq will hear representations from the island’s government; though a dependency of Denmark, Greenland enjoys self-government in most areas except defence and foreign relations. A consultation phase is to last, provisionally, until mid-March.
Residents of Narsaq welcome the opportunity to learn more and to have their say. Urani Naamik (“No to Uranium”), a community lobby, has strong support. Nobody wants (mildly) radioactive dust, an inevitable by-product, drifting down to settle on their town and pastures. Many worry about the lake of waste—a sludge of chemicals and discarded rock fragments—that mining would leave on top of the mountain.
But Greenland’s politicians are in a quandary. The country’s two largest parties both want full independence from Denmark, which currently provides half the territory’s annual budget. But they would then need to be self-sustaining. Greenland would depend on fish, tourism, fresh-water sales and minerals. The last is by far the most valuable.
Christian Schultz-Lorentzen, editor of Greenland’s Sermitsiaq newspaper, says a bigger long-term issue is who gets the mine’s spoils. Shenghe, a Chinese conglomerate, is the largest shareholder in Greenland Minerals. The Danish government, in a frenzy of Atlanticism, earlier managed to stop Chinese companies from investing in the expansion of two airports on the island. Will it preserve Greenland’s rare earths for nato?
•Passionate, talented, founder led company
•Founder/CEO has a reasonable salary and ~22% ownership with recent insider buying on market indicating aligned management
•Board members Paul House and Ian Roger Moore have also recently purchased shares on market
•Talented and experienced senior management team (4 PhDs) and BOD with proven track records
•Founder uses terms like “we” vs “I” when discussing company
•IP and patents filed in Europe, Japan, Australia, Russia, Singapore, Indonesia, China & USA*. Were the first proteomics lab (2009) to be recognised and accredited worldwide.
•Possess a competitive advantage – PromarkerD test - currently no other test for predicting a patient’s risk of developing diabetic kidney disease. Commercialised, low-cost, high-speed test.
•Potential for further moats with pipeline of R&D – for example detection of endometriosis via blood sample as opposed to laparoscopy (minor surgery), among others.
•Potential to serve customers globally (working on expanding into US), operates in a stable market, serves/potential to serve multiple industries (healthcare, biopharma, agricultural, elite sport health and animal health)*. For example, they test proteins for A2 Milk.
•Possess economies of scale
•Have large addressable markets, short clinical development time for new products (24 to 27 months) and proprietary platform technology
•Has several projects in pipeline, 4 of which are roughly 1 year from commercialisation
•Little coverage (unknown)
•Tailwinds – rates of diabetes are increasing – one of the world’s fastest growing diseases. Growing biosimilars market further fuelled as existing drugs come off patent.
•Free cash flow positive
•Debt free with a current ratio >7
•Scalable with high margins - employ an out-licensing model for their current & future diagnostic tests allowing them to leverage sales and marketing of their distribution partners
•Analytical services revenue ($1.5M FY19) helps offset R&D and product development expenditure – not your typical biotech nor does it have a binary outcome (ie. success or complete failure)
•World leading facility in Western Australia (recently upgraded) with a $4m co-investment from Federal and State Government agencies
*R&D pipeline (not yet proven) exploring diagnostic tests for endometriosis, giardia, asthma & COPD, plant dieback, diabetic retinopathy, oxidative stress (human & animal applications), cancer, COVID-19
PIQ has asymmetrical payoff atypical of your standard biotech company. Revenue from their analytics division de-risks and lowers the downside by funding the R&D arm of the company. They are currently free cash flow positive as a result. PIQ has patents approved and pending (including the US) which provide them with a strong competitive advantage until 2031 in a highly competitive sector. Regulatory (need to reduce healthcare costs) and societal (increasing rate of diabetes) provide tailwinds that will benefit the company.
They have a passionate, founder led management team with plenty of talent; however, management have missed some significant milestones – most notably in the commercialisation of their PromarkerD product in the US and this is where my biggest concern lies. However, recent management buying on market eases this concern.
For a biotech company lacking your typical binary outcome, PIQ may be best suited as a bottom drawer or coffee can stock as the payoff could still be some time away.
Would Sell If
The company’s current focus is to commercialise PromarkerD test in major markets such as the US, develop more diagnostic testing and grow its analytical services revenue.
Therefore, I would sell if:
•Management fails to execute into the US market
•R&D pipeline (diagnostic testing) has multiple failures, limiting their growth into additional markets
•Analytical services revenue declines or flat lines for a significant period or is unable to continue to fund PIQs R&D
Disclaimer: I hold a small position in PIQ and will add as management executes.