Pinnacle Digest is an online financial publication that focuses on speculative opportunities in Canada’s small and micro-cap space. These opportunities can also be defined as early or development-stage ventures, most of which are unknown to the broad investing public.
Pinnacle Digest hosts a monthly stock contest, produces dynamic videos for its clients in the small and micro-cap space, and publishes a free weekly newsletter for its subscribers. Our newsletter is often centered around macro issues impacting Canadian small and micro-cap stocks. Additionally, the Pinnacle Digest newsletter includes reports on its clients and sponsors from time to time.
PinnacleDigest.com, including any of its authors, employees, or consultants, are not registered broker-dealers or financial advisors. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. Never make an investment based solely on what you read on PinnacleDigest.com or in its newsletter. As with all investments, an investor should carefully consider her investment objectives and risk tolerance before investing.
While we like to view ourselves as sector agnostic, most companies we write about and take on as clients are in the technology or natural resource sectors. The companies we work with and feature can be classified as high-risk, high-reward opportunities. We have featured companies that have failed to achieve their goals and inevitably lost all value. We’ve also featured companies that increased in value roughly 5-10x. Such is the nature of the small and micro-cap space. It’s risky and not for everyone.
While the market capitalization of a small or micro-cap stock varies depending on who you ask, we believe a small-cap stock is a company with a market cap below C$500 million, while a micro-cap stock is a company with a market capitalization below C$50 million. Given that the average market capitalization of a TSXV-listed company was C$27 million in December 2019, most TSXV and Canadian Securities Exchange issuers likely fall under the micro-cap category.
Small-caps are typically very risky investments and it can be argued that micro-caps are even riskier than small-caps.
Headquartered in Calgary, Alberta, the TSX Venture Exchange is a Canadian stock exchange that provides early stage companies with access to investment capital. As of September 2020, there were approximately 1,600 small and micro-cap companies listed on the TSX Venture, many of which are pre-revenue mineral exploration or technology companies
While the TSX Venture is home to a diverse range of companies, it has a significant weighting toward mining and exploration companies. As of January 2020, there were over 900 mining/exploration companies listed on the TSX Venture. Roughly 50% of the world’s public mining companies are listed on the TSX and TSX Venture.
The second most popular sector on the TSX Venture is Diversified Industries (~180 issuers), followed by Technology (~160 issuers).
Headquartered in Toronto, Ontario, the Canadian Securities Exchange is an alternative exchange for Canadian small and micro-cap companies. While the CSE has provided a platform for emerging companies to raise capital since 2001 (then known as the Canadian National Stock Exchange), it rose to prominence with the advent of Canada’s legal cannabis industry. The CSE saw a massive influx of cannabis-related investment activity.
In recent years, the TSX Venture’s total market capitalization has been 3 – 5x that of the CSE’s. Much of this is likely due to the fact that it has more public companies trading on its exchange.
The term ‘junior miner’ refers to a small or micro-cap mineral explorer, mineral project developer, or small-scale producer. While a junior miner may have producing assets, most are pre-revenue exploration or development companies that are searching for new mineral deposits (i.e. gold, silver, copper, platinum, palladium, etc.) or trying to expand upon one. Non-producing junior miners have no cash flow and are almost solely reliant on equity financings to fund their operations and exploration programs, making them highly speculative investments that are not suitable for most investors.
A private placement is the sale of securities through a private (as opposed to public) offering. Investors who take part in a private placement are typically family and friends of management, accredited investors, or institutional investors. Both public and private companies frequently use private placements to raise capital for their initiatives.
Public company private placements are comprised of units. In a unit, there is typically a common share in the company as well as a warrant or half-warrant. Warrants give the purchaser of the unit the right to buy an additional share of the company at a predetermined price (aka the exercise price) within a predetermined timeframe. Warrants are intended to incentivize investor participation in a financing round. Warrants are also a benefit for the company issuing them, as they can potentially be a source of future capital. The proceeds used to pay for warrants end up in the company’s treasury.
It’s important to note that the shares purchased in most private placements are typically restricted from trading for 4 months in Canada. One negative aspect to private placements is that they lead to further dilution for current shareholders.
Canadian resource companies have the ability to deduct certain operational expenses through the Canadian Exploration Expense (“CEE”) and Canadian Development Expense (“CDE”). By issuing flow-through shares, resource companies can pass on their CEE or CDE write-offs to investors (hence the term “flow-through”), allowing investors to deduct these expenses against their own personal income.
Ultimately, FTS benefit the resource company by passing on exploration and development expenses while providing the individual investor with tax incentives. Many attribute much of Canada’s mineral exploration culture to this favorable investing/tax incentive created by the Federal government.