●  Bitcoin first appeared in the world in October 2008 in an online forum.

●  A White paper was posted by a person or group by the name of Satoshi Nakamoto, he remains anonymous until today.

●  The White paper describes the idea and the vision behind it. The title was: “A Peer-to-Peer Electronic Cash System”.

●  Every Bitcoin transaction is verified globally by thousands of computers, instead of banks and governments.

●  Each time a Bitcoin is sent from one person to another, it is recorded in a public database. It’s called a blockchain.

The invention of blockchain technology could turn out to be the biggest innovation in human history since the start of the internet itself, maybe even bigger.

To understand Bitcoin, we have to understand Blockchains first.

For me, the following example helped the most:

In today's world, there are two major things humans exchange with each other:

• Information
  
• Value
  
  

The main difference between information and value lies in its functionality. One can be copied, the other can’t.

Here is an example:

1. John sends a photo, a text, a video or audio to Peter. Now John and Peter have it. Both can send it to even more people. The information gets copied. All participants have the exact same file.

2. John sends “value”, for example money, to Peter. It better not be a copy. Money can be either here or there. It can’t be in two places at the same time.

However, “value” can be a lot more than just digital money. It can also be stocks, options, loans, dividends, commodities, art, contracts, in-game items, real estate, loyalty points and many more examples.

The internet is the global standard for the exchange of “information”. But the internet is not very good for the exchange of “value”.

Before the internet, we had private networks, like the “Intranet” in a company. Those were already useful networks, because you could send messages to your colleagues, you could share files, you could do many things — but all within your private network.

Then, the Internet was invented in Switzerland. The global Internet protocols changed everything, because it connected each and every person on this planet who had access to it and allowed them to easily exchange information.

Before that, all those networks were isolated networks, or data islands.

However, what we didn’t have for a long time was a global database for the exchange of “value”. This....ladies and gentleman... is where the blockchain will change the world.

Up until this time the world needed to rely on middlemen (like banks) to exchange value, as it wasn’t easily possible to keep track of value ownership collectively, globally and securely.

Think about the thousands of banks that exist today. Think about Paypal, Wise, Revolut, stock brokers, stock exchanges, Visa, Mastercard, and all the players in the finance sector.

It used to take days to send money from one country to the other. They all operate their very own databases for value and track all the users’ funds in their own data islands. They are now connected through something called APIs with some other players in the industry so the person can send some kind of “value” to someone else. Sounds complicated? It is. That’s why everything takes so long and is so expensive.

Now, think about all the other digital value that is out in this world, but is not at all connected to anything. Digital art, digital in-game asses, loans, even digital loyalty points.
Imagine a world in which there would be one single global database, but not for information, but for value. Imagine this one big global bank, which is not controlled by a company, but by millions of people just like me and you. This is the potential of blockchains.

At its core, Blockchain is nothing else than a public database, the new global standard that enables the exchange of “value”, just like the internet was the global standard for the exchange of “information”.

It will make the exchange of different kinds of value a lot faster, cheaper and easier.
This is Web3. This is a revolution. Not now, but in a few years.

Now, let’s go back to Bitcoin: 

Bitcoin was the first use-case of a Blockchain.
It was the first time you could send some kind of value or money from point A to point B, without the use of a bank or without the need to trust a middleman company.

This doesn’t make Bitcoin good or bad. And it doesn’t tell us if Bitcoin will go to zero or to a million. But it’s important to understand the technology behind it.

The Bitcoin Blockchain went live in 2009

Based on the Whitepaper, it was intended to be digital cash.

Today, people see it more as digital gold and not as a currency in the traditional sense. The reason for this is that there can only be 21 million coins. People started to speculate, kept the Bitcoins, instead of spending it.

Historically, humans and governments have been fairly bad at creating money. Theoretically, governments can print endless amounts of money, and most currencies don’t survive more than 100 years.

Some people believe in Blockchains, but not in Bitcoin. Others believe in Bitcoin, but not in any other cryptocurrency out there. And yet others are convinced Bitcoin turns into some kind of settlement layer that the world trusts.

Personally, I don’t know. I am Swiss, so I am neutral on this. But I think it’s worth reading and learning more about it.

In the next episode, we will look at ETH and the Ethereum Blockchain. The second biggest project out there.

Having said that, I wish you all a great rest of the day, to the moon, and... Never Stop Asking. 

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​In Web3 we need to stop thinking in terms of products, and start thinking in terms of economies, because a Web3 startup does not generate sales from selling products and services, it generates revenue from… (read the full article to find out what it is).

In this article, I would like to elaborate on four main topics that are deeply connected to each other:

1) Digital connection, reputation, and ownership
2) Blockchain in simple words
3) Middleman companies and trust
4) Web2 vs Web3 companies

But first, let me start with an introduction:

We spend easily about 50% of our time awake looking at digital screens. The physical world and the digital world are melting together more and more. Although people try to actively reduce screen time, the reality is that even with less screen time, we will be even more dependent and connected to the digital world. This trend is growing, has been growing, and will be growing for a long time.

Whatever we do on the internet and whatever we post, we are creating something I call a digital reputation. We are leaving behind a digital trail.

In Airbnb, your digital reputation is what people actually trust when they decide to host you. The consequences of bad reviews might be that you are not even allowed to stay.

Your digital reputation can get you a date, but more drastically, it can fail a potential date before it starts. Who can resist the temptation of quickly scrolling through the public information and images of the other person?

A solid digital reputation is also what might land you a well-paying job, assuming the human resources department successfully checks your public social media channels and doesn’t find a red flag during the deep dive into the Google search results.

Over the last two decades, we all have been building a reputation in the digital world, whether we wanted it or not. We are constantly making more connections with people, companies, and to so-called online knowledge sources.

Imagine you meet a new person in a co-working space, during a business event, or anywhere in your life. You meet him physically, shake hands, and then exchange the contact details for the digital connection. But more importantly, right after you separate again, you will probably take a quick look at his profiles, his LinkedIn, Facebook, and google his name.

Your digital identity, your digital data, and even more important, your digital reputation is slowly becoming more important to you than your physical one.

But ask yourself, when everything depends on your digital reputation and your online connections, the one question you need to ask yourself is: who owns it?

An average internet user has 150 different accounts. Yet, you own none of the data. Even with GDPR, the general data protection regulation from the EU, you still own none of the data.

Now it is time for a thought experiment: Imagine you lose access to your water supply in your house. Most likely you will buy some water elsewhere, get it fixed, and continue with your life. What about when your power connection breaks down? Same story, eventually, you will somehow get it fixed and then just continue with your life. But what about if you lose your digital reputation and all your online connections? The reality would be devastating. You will almost need to rebuild 20 years of the reputation you created over that time and will have to make all the connections once again.

All the creative content you created over the years: lost.

All the followers and subscribers: gone forever.

It is one big illusion that we are in control of our digital life.
​

​
​Who owns you when you’re logged into your computer? Who owns your data when you are building your reputation online and connecting to all the interesting people, companies, profiles, blogs, and knowledge sources?

If you spend half of your life in the digital world, but you don’t own what you have built on the internet over all the years, then half of your life is not yours.

This is happening because in today’s world all the data is on centralized databases, owned and operated by corporations, not by you. There is a systematic risk for each and every one of us who stands for a free and open world, and this is where blockchain and Web3 can make a huge difference.

Blockchain in simple words

At its core, a blockchain is nothing else than a database. It is a public ledger. Imagine an Excel sheet that is open for everyone to contribute. However, a blockchain is not owned by a single company or a person, it’s owned by millions of people across the world whose personal computers verify each transaction or each new line that is added to this database. Essentially, a blockchain is a ledger of digital transactions.

Every person with an internet connection can add data to the blockchain, but no one can manipulate it. If you want to change the data, you’ll have to send a new transaction, which will add a new line to the database, and that will connect to the previous one. All transactions will be bundled into blocks, cryptographically secured, timestamped, and connected to each other. If someone tries to manipulate any parts of the database, the other 99.9% of computers will realize that something is not adding up and won’t allow it to happen. This feature, and a cryptographic part of it, makes the blockchain very secure.

This was a very simplified explanation of blockchains and there is a variety of different blockchains with very diverse specifications.

To better understand why blockchains are such a groundbreaking innovation, let me give you a bit of background about the history of the internet. It all started with something that is now called Web1. In the 1990s, websites were rather static and, from today’s perspective, visually not very appealing. People accessed websites mainly to find basic information. It was more about replicating the information of the physical world to the new digital world. Many websites functioned like business cards, containing some core information like address, phone number and opening hours on their homepage.
​
Then, around 15 years later, for the first time users could easily create and upload content online — from text and images to videos. This phase of the internet is considered Web2 now.

​Facebook and other social media platforms started to gain momentum. Users connected with other users, followed and subscribed to each other, and started to build something like a reputation in the digital world. Web2 essentially allowed people to connect and create communities. It allowed them to be digital creators and create the multi-billion creator’s economy we know today.

But, again, the one question you need to ask yourself is: who owns the data?

The short answer is, to no surprise, the big tech companies.

There is this famous saying that if you’re not paying for a service, you’re not a user. You are the product. Companies profit from your data with their private database. They monetize the traffic and attention that you generate for them. In return they give you little to nothing.

Although it is not a secret anymore that tech companies have become slightly too powerful and earn money off of our content, most people are not aware that there is a solution. This is where Web3, Bitcoin, Ethereum, and blockchains come into play. Essentially, Web3 is about digital ownership. And with digital ownership countless new possibilities emerge.

Instead of being a passive user on all those websites and platforms, blockchain technology allows people to become something like their very own tiny little micro-company that owns their data.

We can all own our content, our posts, and our identity. We can allow others to make use of our data and generate us money, just like the big tech companies have been doing it. We have the potential to build a world in which we really own our data, reputation and our connections. And of course, it will not be rocket science to transform yourself into your own micro-company and to allow all this to happen. My prediction is that in most cases, it might require just a single click. It might become the new normal.
​

​For the next part of this article, I’ll talk about why blockchains have so much potential by explaining two very important concepts: information and value. I have also written about blockchain’s potential in a previous article. Feel free to check it out here

Technically, there are two major things humans exchange with each other:

- Information
- Value

The main difference between information and value lies in its functionality.
One can be copied, the other can’t.

1. John sends a photo, a text, a video or audio to Peter. Now John and Peter have it. Both can send it to even more people. The information gets copied. All participants have the exact same file.
   
   
2. John sends “value”, for example money,to Peter. It better not be a copy. Money can be either here or there. It can’t be in two places at the same time.
   
   

However, “value” can be a lot more than just digital money. It can also be stocks, options, loans, dividends, commodities, art, contracts, in-game items, real estate, loyalty points and many more examples.

The Internet is the global standard for the exchange of “information”. Before that, we had private networks, like the “Intranet” in a company. Those were already useful networks, because you could send messages to your colleagues, you could share files, you could do many things — but all within your private network. It was the global Internet protocols that changed the game because it connected each and every person on this planet who had access to it.

Before that, all those networks were isolated networks — or data islands.

However, what we didn’t have for a long time was something like a global database for the exchange of “value”. This is the blockchain.

Up until this time the world needed to rely on middlemen to exchange value, as it wasn’t easily possible to keep track of value ownership collectively, globally and securely.

Think about the thousands of banks that exist today. Think about Paypal, Wise, Revolut, stock brokers, exchanges, Visa, Mastercard, and all the players in the finance sector. They all operate their very own databases for value and track all the users’ funds in their own data islands that are connected through APIs with some other players in the industry so you can send the value to someone else. However, not everyone and everything is connected.

The solution would be a public database that enables the exchange of “value”, a new standard that secures our privacy and allows every person on the planet to participate. It must not be controlled by a single person, a company or organization. This is what a blockchain is.

Instead of connecting millions of data islands through APIs, people will just connect their back end to a blockchain. This technology will have implications on our lives as big as the ones created by the invention of the internet.

Let me give you one more practical example: Think about a digital advertising banner at the top of your blog. It could also be considered “value”, because it can generate money. The reality is you don’t really own the post, and you don’t even own the advertising space. In EventScouts, the web3 Startup we are building right now, you will be able to own your post as well as the ad banner, trade it, and earn money with it. There will be no middleman like Google Adsense in between who takes a hefty cut. Essentially, we give power back to creators, as we try to connect ad banners to the blockchain and make it tradeable and exchangeable with all the other values in the blockchain ecosystem.
​

​About Middlemen companies

If we analyze all the fintech companies mentioned above in this article, we should realize that they offer nothing else than what is called a middleman service. The goal of sending money from point A to Point B is to deliver it to Point B as fast and cheaply as possible. It is not the goal for the end user to go through the hands of a middleman service like a bank or Paypal. As humans, we just accept these methods today because we didn’t have a better solution — until now. Such middleman services don’t add much value to our world, and there are costs of running those trusted third parties. They create a tax on the entire society.

Blockchain will be the solution to this problem, because it allows peer-to-peer transactions, in other words, it allows transactions from people to people directly. It literally removes the middleman company. Web3 is a revolution in how we exchange value with each other and how we are looking at and how we are managing trust.

But let’s quickly look at why trust is so important

People will only buy goods and services from each other if they can trust each other. Naturally, we do not trust each other as human beings. So, over the years we started to create governments, systems, and frameworks and most importantly we created companies.
Before Airbnb, it would have been absolute madness to let a stranger sleep in your house. Airbnb completely changed the game. The reason for this is, that you don’t trust the stranger, you trust Airbnb, the middleman company.

The tech company Uber is actually only connecting two users, a driver who looks for a passenger and a passenger who looks for a driver. They use their own central database to store and manage this data. Again, hopping into a stranger's car was unthinkable only a decade ago. The reason people do it is because they trust Uber and the digital reputation of the participants in the application.

Web3 can make this method of having to trust a middleman company obsolete. Some blockchains come with something called smart contracts. Basically, smart contracts are programmable code that executes itself on a blockchain. In other words, it can connect those two parties mentioned above in the Airbnb and Uber example automatically, without the interaction of other humans. Smart contracts are capable of handling everything from bookings, and payments, to ratings.

Parts of the core business of tech giants like Google and Facebook, who both earn a lot of money through collecting data from users and selling it to advertisers, could technically be replaced through different blockchain applications. A big part of their business is the digital middleman business. Imagine the advertising business model, where on one side is content and traffic, and on the other side are businesses who want to have exposure to it.
​

​
Now, for the last chapter, let’s look at the economic side of things:

We already know who owns our data today. Big tech.

Now, let’s see how Web2 social networks earn money, how it is different from Web3 and what trends we can see in the industry.

Web2 social networks build platforms that let users create content and generate traffic to their domains. The revenue comes either from businesses or from users. They are allowing users to build communities but don’t allow them to be truly the owners of their creations and connections. If the platform dies, so does the content. If they want to censor you, they have the power to do so.

Users get zero percentage of the monetization that Facebook and other social media platforms are making off of them. The one and only reason some platforms like YouTube redistribute a tiny percentage of their revenue to the users is to motivate their power users to create even more content that they don’t own.

Ten years ago, Facebook was the ultimate undisputed center of social activity on the internet. It had literally a monopoly. Ten years later, we are having our own digital spaces for very different environments, for example, work environments, leisure, social activities, education, gaming and much more. Let me explain: most apps have some kind of social part built in that allows you to connect, subscribe and contribute. Finance apps let you follow other traders. Book apps let you follow interesting Authors or other readers, and travel apps let you connect to people or content you may like. We have dozens of apps on our mobile phones for all of our interests, and we joined multiple social networks even if they don’t feel like social networks.

People even use multiple Twitter accounts to follow both, work-related content creators and hobby-related creators. There is a clear trend towards more social connectivity across more platforms. Facebook is losing active users, and new social media platforms are popping up in all shapes and forms.

Our connections, which are built on our reputation, will continue to grow in the digital and virtual world and transform into something that is currently called Metaverse. Maybe best described as a place that merges the physical world and the digital world.

Blockchain will give ownership of the data to people. Users of the internet should own their data, and deserve to earn money with it.

The future is to let people collaborate directly with each other, through the use of blockchain technology. Web3 will create a decentralized environment in which a user can do transactions and interact with another user, without the need of a middleman. Imagine the long-term implications this may have to our society if countless Web2 companies become obsolete, simply because users can send money and value peer-to-peer.

This also means that Web3 startups are fundamentally different from Web2 startups because we are not offering products or services to end users or businesses. Web3 startups are creating economies and the tools to allow people to interact with each other directly, peer-to-peer, through smart contracts.

The token holders, the owners of those smart contracts, collect a minor transaction fee. That’s where the value is. A smart contract is not bound to a single website, a single platform or a product. There can be multiple websites, multiple front ends, all connected to the same public database, the blockchain. A Web3 Startup can and should grow into an online economy, not into a company. It is part of a much bigger decentralized ecosystem.

New decentralised social networks in the creator economy will probably reach mainstream attention only in a few years. Rewarding users with ownership can help attract enormous user bases that have the potential to outcompete the existing, centralised counterparts. The reason for this assumption is that ownership for end-users eliminates the conflict between the centralized company behind a social network and the participants, the end-users. It ensures that all stakeholders (investors, users, businesses) are better aligned.

In Web2, platforms strive to earn as much as possible, while users want to discover relevant content and information. This misalignment is dangerous. Because of network effects and because of the lack of ownership, it is hard for end-users to leave a social network for a better alternative. This all could change if the user is in possession of his data.

We see the job as a Web3 platform to provide the users with the means to transact with each other in a secure and trustable way, not through us and our central database. We create the tools and frameworks that allow users to create and own the assets and then trade them with other users directly.

Web3 is not about selling products or services. It’s about creating economies. The smart contracts that power those economies will collect a part of the value that is traded in those economies. And those decentralized economies could grow much bigger than everything that we can imagine right now.

If you enjoyed this article please also DM me and let me know your thoughts.

My name is Andrin, I’m the founder of EventScouts. I’m here because we are building a blockchain protocol that will allow users to upload information (in our case lists containing activities and events) to a shared database, the blockchain. The content created by users will be owned and controlled by the users, and allowing them to earn money with it directly. It basically is the first blockchain based, user-owned, event and activity database.

event-scouts.com

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​This new system would revolutionize not only the education sector but our entire society. Today, I am more convinced than ever that this system will lift the human potential across all classes, simply because there are more incentives for people to help each other.

Having said that, society would also need to counter the flaws in this new system by implementing new laws and regulations. I believe this is part of every major transformation.

The problem
​

• In the current system there are almost no financial incentives to help someone getting better, learn new skills or improve.
  
  
• The most important people in the lives of young humans, the teachers, have no financial incentive to make someone successful.
  
  
• Your friends, your neighbour, your aunt, your coach, or just people you know have almost no financial incentive to make you successful.
  
  

Wouldn’t it be better if they had?

The solution

Let me explain this new system again in a very simplified way:

People would be seen as their own company. Its shares (tokens) are traded publicly and entitled to “dividends”.

The dividend is paid annually. It can be viewed as an “education tax” and is calculated based on the annual income of that person. Let’s say it is 1% of the salary. It could also be 0.1% or 2%.

The tax authorities will collect this 1% tax through ordinary taxes and redistribute it to people (shareholders) who educated and supported the person over all those years. Those shareholders are mainly teachers and mentors but can be anyone who believes in the person.

Now, we have already created financial incentives for people to help each other, because you can get a small part of someone’s future salary. However, I am not only looking at teachers here. Many people will suddenly have an interest in helping you.
​
All this will be on the blockchain — a shared database — so that everyone can connect to it. If we program it in a smart way then we will create an open, transparent and fair incentive system that brings society a step forward.

​
​Practical examples

To keep it accurate, I replace the word “share” with “token”. Tokens actually represent value or utility on a blockchain. The dividend is of course not a dividend in the traditional sense but represents a right to a payout based on programmed parameters — in our case a part of future salaries.

For every child who enters the school system the government launches its very own token. Imagine your child is called John Doe. He will soon go to school. The government will create the “JohnDoe Token” and issue 100 JohnDoe tokens. Those 100 tokens represent 1% of your future annual salary — every year.

On day one — the day of the launch — the government holds 100% of the tokens. To set the incentive right, teachers directly working with John Doe will receive some JohnDoe Tokens from the government and therefore participate in the future success of your child.

We can discuss and agree about how many shares teachers should receive. Should only the teachers with direct influence on the child’s development get shares? Or the entire team? Or we can discuss other parameters: Like the amount of tokens to be distributed, the time-frame or the impact a certain teachers needs to have. The goal must be to have a fair system with the right incentives for the people working in the education sector to put maximal effort into educating your child.

Over the years teachers get free tokens distributed to their personal wallets as part of this new incentive system. This can be seen as a way to say “thank you” to teachers and might make a little or big difference in their life.
​
When John grows up and starts working, 1% of the salary will now flow back to all the token holders. But this is only a simplified example. In all the years many people could acquire tokens of John — because it is a free market. Friends & family, a neighbour, a coach, or just anybody who believes in John. Those people have no “rights” about John itself. He is not required to do anything for them or meet them personally. But token holders will get a cut of his future income.

​
​The market price

The tokens are publicly tradable on the blockchain. They might appear on different websites. Because of that a real market is forming. There will be no problem regarding the liquidity on the order book to buy and sell those tokens, because in the last few years Bancor invented a new mechanism. You can find out more here: https://support.bancor.network/hc/en-us/articles/360031143851-How-Is-Bancor-Different-than-a-DEX-

In his class, John emerges as a clever student. People close to John and people in the education sector and so-called new “educational venture capital funds” recognize this very early on and buy some JohnDoe tokens. Technically, there is an annual dividend which will probably last for +45 years — all the years John works. The token price itself will peak at a certain time because of the time factor and the total expected cash flow which will sink as John comes close to his retirement age.

If the token price is too high it will be more lucrative for investors and mentors to buy tokens from Peter who might not be as smart as John, but is also expected to land a good paying job.
Alex on the other hand is struggling a lot in school and in life. His family is rather poor. The token price of Alex is still extremely low because it doesn’t look like he’s going to be a top earner in the future — unless he makes a big personal development.

A person close to the family wants to help Alex get back on the right track. This could also be a teacher, a neighbour, a VC, or just anyone. This person realizes the potential of Alex, buys shares and supports him as a mentor.
​
Maybe he provides him with free tutoring, buys him computer software for new ways of learning, helps him with his personal network of people and opens up new visions and possibilities for him. Now the token of Alex appreciates because other people also realize the personal development Alex is making and therefore participate in his success.

​
​A new form of VC’s

The so-called “Educational VC’s” are probably crucial here. They are something new which doesn’t exist yet. I compare them to scouts in sports or VCs in the start-up sector. They pour money and resources into students who have not yet reached their maximum potential — because that is where the greatest return is to be found. In the startup sector, if the market price for a startup is too high, it will not be attractive to invest into them because of risk/reward.

In our case, if they find students with a market price too high, they will not invest and look for students with a lower market price. Those students might be underrated. They are exactly the ones which need the most support. VC’s or mentors will invest resources (time, money, network) into them to make that positive change happen and unlock the full potential.
​
Most money will therefore be invested into students which have not reached their full potential yet. While for top students the token price might already be so high that it makes financially no sense to invest — unless you believe your mentorship will make him even more successful. Therefore, this market mechanism sets the incentives just right and creates a fair system of people supporting other people.

​
​Sports, Music or Comedy

In addition, this new system of “tokenizing the human potential” would not only apply to schools or the education sector in the traditional sense. If a mentor or investor realized that someone has talents in sports, music or comedy the market would realize this fast and will price it into the token price — because now there is a probability that the future earnings will be high.

Investors jumping in early will most likely provide the person with great support — because they have an incentive to do so. This could again be mentorship, access to the personal network, ideas, mental support, resources or just anything positive.

Money flows

An interesting aspect is the flow of money in this new system. The government issues the tokens and guarantees the dividend by collecting and redistributing the tax through the blockchain. Once the government allows the tokens to be traded publicly, and there is interest from someone, the money flows from the private sector to the government.

The government now has the opportunity to redistribute the money directly to the school of the student, therefore creating even more incentives for all people on the frontline of education to help students as much as they can. In the smart contracts many more incentive mechanisms could be programmed.

Ultimately, a whole new incentive system could finally emerge in the education sector and one which lets the entire society collaborate. It is meant not only for teachers but also for private mentors or supporters. Because the power of people helping each other is everywhere — it’s just not fully unlocked.

Maybe at some point ETFs will be created that will invest millions of dollars into a wide range of tokens that represent and support a certain group of students. Due to the market mechanism, the incentive for certain mentors or investor groups would be gigantic to turn bad students into good students — or even bad schools into good schools because that is where the greatest return could be found.

This market price mechanism sets the incentives for people in a way that makes it most lucrative to help the weakest the most. In general it can be said that depending on how big the financial incentives effectively will be it can make a big difference in the lives of many people because now people have more than one reason to help each other. Even if the return is years away or fairly small, it’s worth it — and it is the right thing to do.
​
I believe a wide range of financial products could be created to facilitate the industry even more and therefore pour even more money directly into the education sector and directly to schools. There could be billions of dollars flowing in from the private sector into the education sector in a very targeted manner and fully transparent — which is great to counter corruption in this sector.

​
​One more idea:

Years later, students or ex-students could reward their best teachers, mentors or any influential people in their lives with their own shares and therefore automatically distribute a part of their “education tax” to the people who actually deserve it the most.

All parameters can be programmed securely and transparently in smart contracts. For example, you could program that 1% of new shares are created annually, which people can only transfer to teachers who already own your shares.

Therefore, students a few years after they left school could look back at life and choose the best teachers / mentors they had. This is only an example, the possibilities are absolutely limitless about what we could program into the smart-contracts to create a working and positive incentive system.
​
The distribution of the actual money on the blockchain is anyway fully automated, so there is no risk that the government will lose, delay or mess up payouts.

​At the end, I believe it boils down to one core question:

Do we want a system in which people have financial incentives to help each other?
​
Or do we just continue like we have done for the last hundreds of years.

I believe the education system worldwide needs to radically change to unlock the full human potential. What about we let teachers and other mentors participate in the success of their students?

Imagine that the identity of each child is registered on the blockchain and automatically launches its own token as soon as it enters the government’s education system. Now, all teachers and other people working closely with the child will periodically be rewarded with a certain amount of the child’s personal token.

Once the child turns into a young student and finally grows up and contributes to the economy it’s time that teachers and mentors will get back a reward. A tiny percentage of the salary can now be distributed back to all the people who had a significant effect on the students personal development and skill shaping.
​
This will create a long-term financial incentive for people working in the education sector as well as for other members of society who are ready to help young people become successful.

​Personal token

We can push this thought experiment one step further. If every human will have its own token that is tied to his very own economical success, then we can even give it a market price. In school it will already become clear which students have acquired the necessary skill set to succeed in the education system and will therefore most likely earn money in the future. On the other hand, some students might get on a bad path and it is possible that they will eventually need to be supported by taxpayers money.

Therefore, the token of successful students will appreciated in anticipation of future success — just like a stock of a publicly traded company does. The token of a less successful student will be traded on a discount. This creates tremendous opportunities for teachers, mentors and investors to jump in, buy more of that token, and provide extra support in all areas needed.

The biggest supporters

It’s possible to change young people’s lives if only they are surrounded by the right people, have access to the world’s intellectual resources and over time create a positive attitude, hope and believe in a better future. If an investor now scouts hidden talents or sees potential in any kind of skill that the society appreciates, he can directly invest in the token of this young person and therefore directly participate in the future success. Not only that, I believe most investors would turn into the young people’s biggest supporters since they will also be financially rewarded later on.
​
An investor can choose to buy tokens from top students but will have to pay the premium since the possibility of future economic success is high. Through this incentive system, I believe hidden talents in students from all walks of life will get discovered a lot earlier and a lot faster and will be boosted through direct support of teachers, mentors and investors. Society will greatly benefit through this system. Since tokens of bad students will be the cheapest in the free market, the highest upside will be found exactly there. This will encourage teachers, mentors and investors to bring as many under-supported students as possible on the right track because it is not only the right thing to do but also financially lucrative.

​Human micro-company

This concept very much sounds like the venture capital (VC) world we live in today. And rightly so, the system has proven to be very successful for our economy and therefore also our society. Why wouldn’t it be successful if every human is seen as its own micro-company? VC firms are fantastic in scouting talents. They have a tremendous understanding of who has the right skill-set to build a startup and what teams and ideas might succeed. Not only provide VC firms funding for those startups, they support them through various ways over many, many years.

They push teams hard and demand a lot from them. They manage to make good teams even better but at the same time are also there with support and ideas if things do not go as planned. VC firms have specialised in certain areas, meaning that some VC’s only invest in agriculture startups while others only invest in tourism startups because they are themselves experts in those fields.

If we imagine a world in which every person has its own token traded on the public market then maybe new VC firms will be pouring huge amounts of money and resources into the education sector. The biggest beneficiaries might be exactly those schools or those young people that are off the radar right now and therefore start with a handicap into life.
​
As mentioned above, the token prices of students in bad neighbourhoods and with a bad track record would trade significantly lower. Investments there would yield much higher returns and therefore VC firms could diversify their portfolio through investments into those students.

Even a single investment in only one of the students would benefit the entire class and maybe even the school and neighbourhood. Because the learning of one individual can create a ripple effect within a friends circle or an entire class. Teachers and other people who are close to the most talented students will detect certain skills or a positive change in mind-set early and therefore can jump in before the professional VC’s do and therefore also financially benefit.

​This could again create a ripple effect, meaning that friends could encourage each other to do better in a certain field because their token price will go up.

Initial Token Launch

The token could be programmed in various different ways to further incentivize certain social behavior. The initial token launch should be initiated by the government. At a very young age only teachers and other trusted members are allowed to acquire tokens of the child. This can easily be coded into the smart-contract. Once kids develop strong personalities and get old enough to make their own decisions the market should open for all participants. It’s important that mentors and investors can participate as early as possible since that support is critical at a young age.

The issuer and holder of the token is the government. Once the public gets an opportunity to buy the tokens the government will earn money through the sale, which it can directly reinvest into the education system. It should even consider to redistribute a part of it back to the school of the child — therefore creating an even bigger incentive for the entire local school staff to do well.

Dividends and pay-out

Once the tax office is registering income by a person who was entered on the blockchain ten or fifteen years earlier during the creation of the personal token, money will be automatically distributed back to all token holders — therefore to all teachers, mentors and investors. This can be compared to a dividend as it is recurring income for all token holders every time there is a taxable event.
​
It’s even possible that financial products would be created to increase speculation on the tokens, meaning that people could buy options to bet more money on the future outcome of someone. In most cases this should be positive for the individual as well as for society.
​
Over decades, the market price of a token would go lower as people are slowly approaching the official retirement age. This again can be compared to a stock, which also goes through different periods — from a wild and highly speculative startup period to a more established and mature period in the public market. The price of a stock usually decreases when the outlook for future earnings sinks. The same will happen for tokens that are connected to a human identity and its income.

Downside

We have now seen some major benefits it could bring to our education system. It potentially is a new paradigm shift for our society and the biggest revolution in the sector. It would bring more equality and fairness to students. It would allow teachers and people in the education sector to financially benefit tremendously if they manage to shape a young human and bring them on the right track. It would maybe even motivate more people to become teachers since unlocking other people’s talents could be financially rewarding.

But what about the downside of this system? As a society we do not only want to create a money driven workforce. We want to create a society that cares for each other, that is kind to each other, is peaceful and plays fair. Also, I am aware that not everybody is gifted with the same skills and talents at the point of birth. I am convinced that in todays world people can make it very far in life even when starting with a disadvantage. This new system would allow exactly those people to get the desperately needed support to accelerate in school and reach their full potential early in life.

Reputation or voting system

Almost everything can be programmed into a smart contract. We could discuss a reputation system that punishes bad actors, misbehaving or cheating. Or, we could discuss a system that benefits people who contribute to society with skills that are not always easy to monetize — think about artists, musicians or families. If we can agree that a person contributes positively to society than the early backers of that person should also benefit. A possible solution would be to redistribute some of the society’s gains to the early supporters.

I do not have all the answers for potential flaws in this system. But I would like to trigger a conversation and read more thoughts from people in different fields and with different political views.

Bottom line

My feeling is that this new system allows millions of individuals to get much needed support faster, more direct and more early in life while the current education system completely lacks incentives for people working in the sector.

Today, pupils and students are taught and treated as anonymous groups or classes and the results never have any positive or negative consequences for anyone who was part of their multi-year journey.

Tokenizing the human potential would greatly benefit the entire spectrum of our society and therefore set the right incentives for teachers, friends, family or just anyone to help someone else develop skills.
​
I am convinced it will have a dramatically positive effect on our society and for our country.

First of all, because no one can predict the future. Even if something appears obvious to me or to you, there may be many other factors that start to play into it at a later point in time.

But something became clear to me over the last few years I’ve worked in crypto. People who don’t see the transformation unfolding usually don’t know a lot about blockchain technology. I have yet to meet people who fully understand it and still don’t believe it will happen.

We are about to enter a decade of tremendous change. But what is it that makes it so difficult to explain blockchain?

Explaining blockchain to people requires a certain understanding of the history of money, the current state of technology, politics and even some imagination.

But the single biggest problem is that there are almost none practical use cases. It’s not hard to explain the internet to people today. Pull out your smartphone and order some food. Book an Uber or an Airbnb. Open Facebook and contact someone on the other side of the world. You can even watch a live stream at the top of a mountain — with only a click of a button.

But there aren’t yet any kind of end user applications that everybody is using on the blockchain. So we have to explain it theoretically. It’s almost like the internet in 1991. Back then, the internet technically worked but there simply wasn’t a popular web browser like Chrome or Internet explorer. There wasn’t a popular email service provider like Outlook or Gmail.

It was very hard for people to imagine the effect it would have on their lives. Not even people working in the tech industry could see the full impact it would have. But some people realized that something was about to change.

Today, I believe, we are again at the very same point in time.

When we try to explain Blockchain to people we have to start with Bitcoin, because it started the whole movement of a decentralised web. It was the first use-case on the blockchain, but unfortunately for us the game-changer lies rather under the hood. Most people simply don’t care if a central bank sends the payment from my wallet to the other person’s wallet — or if thousands of computers do it simultaneously.

Unfortunately, the word “Bitcoin” turns off so many people because most of them just see it as money. Speculative, non existing, evil money with nothing “real” backing it.

There is this awkward gap that exists between the people who get it and the people who don’t.
​
It almost seems like we don’t have a common language anymore. That’s why I try to break it down in easier words.

Technically, there are two major things humans exchange with each other:

• Information
• Value

The main difference between information and value lies in its functionality.

One can be copied, the other can’t.

• John sends a photo, a text, a video or an audio to Peter. Now John and Peter have it. And both can send it to even more people. The information gets copied. All participants have the exact same.
  
  
• If John sends value, for example money, it better shouldn’t be a copy. Money can be either here or there. It can’t be in two places at the same time.

However, value can be a lot more than just a digital money. It can also be stocks, options, real estate — and contracts. Basically everything that should only be at one place at a time — even if its value is very, very small.

The Internet is the global standard for the exchange of information. Before that we had private networks. Those were already useful. You could email your colleagues, you could share files within your private network or your company’s “intranet”.

But today, with the help of TCP/UDP, IP, HTTP and other protocols we’ve connected those networks together. That’s the internet we know today. That’s what makes it so interesting and so useful, because the entire world is on the same page.

Until recently, we didn’t have a standard for the exchange of value.

That’s why it is so difficult to send money or other value outside of countries. And It’s also hard to exchange different kinds of value with each other. Or buy or sell only a small percentage of a house — or trade a fraction of a famous Picasso painting.

This is because the databases are not connected to each other. People have to manually check if you really own the house on one database, and manually check on another database if you really have transferred the money to the correct destination address.

If money or value is sent from one person to another — we always need one or multiple middleman services because we can’t just trust each other.

Banks have helped us for a long time, but the entire system operates like private networks. In the last decade more and more private tech companies tried to improve the system through the use of the internet but eventually still just created their very own networks and databases for transferring value.

Lawyers and notaries also perform middleman services during sales processes. What we actually could need is some kind of global database — a ledger — that will keep track of all those activities so that everyone is on the same page. Just like the internet.

And that is what we have today with blockchains.

The world’s first decentralized database that nobody controls alone and everyone can access.
​
Instead of one computer verifying a transaction and checking if there is enough value in your account to execute the transaction, thousands of computers do it at the same time. Not one person or one company controls the database but thousands of computers do so all over the world.

​This makes it impossible for bad actors to cheat — or at least on the blockchain itself.

Code is law. Everybody can use it, everybody can connect to it. No matter if you send a billion dollar or a single cent. No matter if you are rich or poor. No matter in which country you are or what kind of value you send.

The blockchain is just like the internet, but this time it’s not for information but for value.

Bitcoin — some years ago — was seen as some kind of decentralised internet money. Everybody could send money from point A to point B without a bank in the middle of the transaction. Fascinating. But this was just the beginning. Today, it is more seen as digital gold and therefore as a store of value.

A few years after Bitcoin, Ethereum invented so called “Smart Contracts”. It allows users to send all kinds of value from point A to B. Think about all the financial products that exist today, shares, options, loyalty points, user generated currencies or complex contracts in venture financing.

Think about your house in your country’s land registry database. It should only exist once. That’s value that you own. And that became-technically-transferable.

Think about the hundreds of different databases your government uses right now. And all the databases of private companies. They are all controlled by central parties. In developed countries you can more or less trust them.

If you buy a new house they will write that down in their own database. Yes, it might take weeks and will cost a lot of money but eventually it will be written down.

But in many parts of the world this is a huge problem. The bank might refuses to send out the money to the destination you want it to go. Or the bank doesn’t send it as fast as you want it to be — even though it is your money.

What if some people inside a corrupt government don’t want you to own the house anymore? They will just delete the entry of that database, or change it. It will be hard to proof it.

The truth is not in your hand, but in the hand of a central player.

This is the problem. They are controlled by someone else and they are not connected to each other. For end-users the consequence is that the process on them is usually slow and expensive.
​
Removing the middleman from the database has very, very deep implications for our society. It means that suddenly the world connects. You can transfer value within seconds with no central party stopping it. Suddenly, you can trade stocks for real estate — or options for art — with everyone in the world.

​But it also means that in a first move responsibility goes from central parties to end-users. And this is where many end-user applications will be needed to bridge it somehow.

But behind those applications will be a growing global decentralised database — a blockchain — that makes the transfer of value (whatever this may be) fast, cheap, instant and secure.

Removing the middleman means that, technically, we don’t need Uber anymore, because what the company does is connecting two users to each other on a central database.

Google and Facebook, who both earn a lot of money through collecting data from users and sell it to advertisers, could technically be replaced through different blockchain applications. All of those online services are just a middleman service.

The bank that sends money from one account to the other account is also not needed anymore. This doesn’t mean that just everything disappears but that new things will be created. Banks will do consulting or find other fields to generate revenue.

There still needs to be customer support for online services. And you can not let all people handle financial services on their own. But behind the scenes many things will get a lot easier, faster and cheaper — and decentralised.

If this is going to unfold like I imagine it today, then we are going to see huge companies either die or transform into something entirely new.

Entire industries will be transformed because most middleman services for online businesses will be facilitated through the blockchain. The single biggest losers in this decade of transformation could — ironically — be the tech companies themselves, unless they once again adopt to the new world.

We are about to see a rearchitecting of backend systems across all major industries. We all know this. But why does not everyone see the same?

Can it go into battery? 

What we know is that the quality of the Graphmada Graphite is excellent and can go into batteries although in past company presentations Bass did usually target the expandable market more prominently. 

Even though analysts expected a shortage in Graphite for years - so far only expandable graphite has gone up in price while large flake graphite prices itself have remained rather low. 

There is one indicator showing this month that graphite electrode prices have hit a 52 week high in China. If true this would benefit the entire sector. But prices are not traded in a central exchange. Usually, it’s a matter of negotiations and buyers are entering off-take agreements with suppliers and miners of graphite. We do have price indications but it is not as transparent as in other commodities. 

Does Bass have in-house R&D?

For a long time Bass has been a pure miner. They managed to take over the mine in Madagascar, modernize the facilities and went back into production on time. They also managed to sell high quality graphite to various customers around the world. 

What they didn’t have is any in-house R&D team. Or at least I am not aware of that.

However, in late April 2020  Bass announced to have signed a MOU with Swinburne University to advance carbon material research and product development. 

„The combination of the unique qualities of a weathered resource and clean large flake concentrates leave Bass well placed to participate in the development of advanced graphite applications.

Swinburne and Bass will seek to explore opportunities for collaborative research activities, including relevant funding opportunities.“

And earlier, in October 2019, there was another announcement from Bass Metals that we will need to look at closer. 

„Australia-based Bass Metals has entered into an initial agreement with US-based Urbix Resources to develop downstream graphite products.

The agreement will see the two companies work over the next six months to set up a joint venture for the processing of high-grade graphite from Bass’ Graphmada mine in Madagascar into value-added downstream graphite products, including expandable graphite.

The proposed joint venture will combine Bass’ high-grade large flake resources with Urbix’s environmentally-friendly purification methodology that is not reliant on hydrofluoric acid treatments.“
​

What can we expect? 

The recent development seems highly attractive to me. Although we do not know if this Joint Venture will actually happen, and we do not know the terms of the deal, there is still some potential in Bass Metals. 

When looking at the quality of the Graphmada resource it makes total sense to me that the team is now postponing phase two of their original business plan. It makes more sense to work on those partnerships and on downstream activities until graphite prices start to pick up. 

At the same time Bass is, as we speak, expanding its mineral resources, conducting an ongoing and significant drilling program. 

Numbers so far show again predominantly large flake graphite. Or in other words - more of the same. No positive and no negative surprises so far.

The bigger resources does help to underpin a new ‘definitive feasibility study’. And at a later point in time this might help the valuation of the company and eventually the share price when the Graphmada mine is compared to other Graphite mines in the world. 

In Summer 2020, CEO Tim McManus said in an interview with Chris Brown from ‚Morgan Financials’ the following: „It would make us the largest large-flake graphite producer in the world“ 
​

Suspicious moves in the chart

In the last couple of months we can also spot some interesting trading activities in the chart. A sideways channel (From March 2020 until November 2020) is not just going sideways but there are some days where there is (increasing) volume on the buy side.

Since the volume is (with few exceptions) still fairly low it does indicate that some speculation is going on. It's not a killer argument for Bass Metals but there might be something building. 

Is it lasting? We will see. Bass will have to deliver anyways. The increased volumes can be dumb money from people just playing lottery with an almost dead stock or it can be smart money from people that have some insights.

​This movement does not necessarily need to turn into a spike in the share price - but it often does.

Today (24th of November, 2020) - a record volume of 57 million shares have been traded in Australia. Something is going on here.

Other interesting considerations: 

On pitch decks of other graphite mining companies, on those slides on which they compare the different grades of different mines in the world, Bass is never even mentioned. It's like Bass and its Graphmada mine don’t exist. 

It's literally perfect. Bass is not on the radar of most investors. 

​There is tremendous upside potential for this stock - if only they survive.

Update: January 14th, 2021

Since I wrote this research report, two major announcements were made: 

1) New screening machines 

Bass receives outstanding test results from alternative screening process to Stage 1. • Utilizing hard data from Stage 1 production Bass continues to refine Stage 2 studies. • Screening improvements and future availability of hydro-electric power represent significant improvements to the governing parameters of the expansion of the Graphmada Mining Complex. • Bass has begun the search for strategic investment for its Stage 2 expansion for large scale mining and processing operations. ​

https://hotcopper.com.au/threads/ann-efficiencies-identified-for-expansion-of-production.5798780/

2) The switch to grid power (saves around 30% of cost)

The Government of Madagascar’s is progressing a major electrification project between the capital Antananarivo and the port city of Tamatave, electrifying areas along National Road 2, immediately adjacent to the Graphmada Mining Complex. • Upon completion of the electrification project, valued at EUR 203 million, Bass plans to access mains power via the construction of a 20-kV power line from the nearest substation to deliver cheap and clean baseload power to service an expanded Bass’ operation with a materially reduced operating costs.

Power was the largest C1 production cost in Stage 1, contributing 47% of operating costs in 2019, equating to $0.30/kWh. Access to grid power from 2024 could halve power costs to approximately $0.15/kWh, effectively reducing C1 operating costs by 30%. The opportunity to utilize grid power allows the Company to consider Dredging or Hydraulic Mining to potentially realize further cost savings for the Project. The delivery of clean power to the Project will provide the added benefit of significantly improving the quality of life in the local rural community surrounding Graphmada.

“This is a paradigm shifting development for Bass and its stakeholders, with the introduction of clean energy via hydro-electrification having the potential to significantly reduce operating costs for Stage 2.

This has a material impact on the economics of the Project and confirms Stage 2 operating costs will be in the lowest quartile of graphite production globally. The Company will incorporate this latest development into its expansion studies and will align its strategic goal of Stage 2 large scale mining and processing operations with this development.​"

https://hotcopper.com.au/threads/ann-clean-low-cost-energy-for-graphmada.5780750/

Update: January 28th, 2021

I took some time to re-read again the announcements about Urbix Resources:

30th Septemer 2019

• Bass singes MoU with (...) Urbix

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02152987-6A947447?access_token=83ff96335c2d45a094df02a206a39ff4

26th March, 2020

• Bass extends alliance discussions:

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02219179-6A973345?access_token=83ff96335c2d45a094df02a206a39ff4

17th November, 2020

• Bass concentrates achieve outstanding results

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02309601-6A1007423?access_token=83ff96335c2d45a094df02a206a39ff4

If and when they will announce a potential JV deal to the market we don't know. But it looks as this this is going into the right direction. A reader of my blog pointed out to me that Urbix Resources does have several other MoU in place with other companies or have done test work with graphite. 

Battery Materials:
https://www.asx.com.au/asxpdf/20171219/pdf/43q93ngm3lqstt.pdf
19. December 2017: Offtake agreement & binding test work term sheet and MoU. 
10. October, 2019: "The Memorandum of Understanding (MOU) signed by the two companies lays the foundation for establishing the development of a graphite purification facility in Mozambique. Under the terms of the agreement, both the companies will complete all necessary feasibility study work for the proposed JV purification facility."
I am not sure about the current status of this relation. Additional research needs to be done. 

Archer Materials: 
https://www.asx.com.au/asxpdf/20180905/pdf/43y2k8hc2w21gh.pdf
Here I will need to do additional research about the current status of both Archer and the partnerships. To me it doesn't look like it would effect BSM in any way. 

Renascor Resources:
https://renascor.com.au/wp-content/uploads/2019/11/20191118-Battery-Grade-Graphite-Produced-via-Low-Cost-Purification-1999737.pdf
18. November, 2019: So far I couldn't find additional information about a potential JV or any kind of partnership between Renascor and Urbix. I am now trying to check what kind of mine Renascor operates. 

Update 16th August 2021: 
Join my Discord for in-depth discussions about Greenwing Resources (before: Bass Metals)  https://discord.gg/Qy5GwEYne3

Update 9th September 2021: 
Last night, I did sell my position due to the recent developments of the company. 
I believe the renaming of the company was the right move.
I also believe the share consolidation was the right move and overdue.

However, I am a bit sceptical in regards to the new lithium project in Argentina.
Usually a company needs many people with a chemistry degree (as lithium mining it is not really mining). GW1 doesn't have that yet.

On the positive side the new resource (San Jorge) is very near to Neo Lithium. I know NLC well since I also wrote a research report about it here. The area there is fantastic, maybe the best in the world. But I don't know about San Jorge itself. Because of that uncertainty I had to exit. 

Therefore, I did cash-out and will follow the company from the sideline. If there is a good opportunity I might enter it again since I still think the Graphit resource they have is very interesting and even the Lithium resource might turn into something. 

No breakthrough

The agreement between Enwave and Nestle turned into - nothing. Today, we are in year 2020 and I finally believe Enwave has broken through. And not only that. The valuation has come down massively.

• In 2010, Enwave was trading at TSX-V for CAD 1.25.
• Today, Enwave is trading at TSX-V for CAD 0.84. 
  
  

What exactly is Enwave selling?

Enwave is commercializing a new method for dehydrating food. 

It sounds a bit boring, I agree - but don’t get tricked here. 

The technology is called Radiant Energy Vacuum (REV). 

In simple words, it is a rapid and low temperature drying method. 

The big advantage is that it maintains the product’s colour, flavour and nutrients a lot better than other drying methods like ‚air drying‘ and ‚freeze drying‘.

Examples of products

Here are some example of products that you can place into the REV machines: 
- Fruits
- Vegetables 
- Probiotics 
- Enzymes
- Proteins
- Food cultures 
- Vaccines and antibodies.

Where is the focus? 

Enwave mainly focuses on those three fields: 

- Food & Ingredients 
- Flower & Industrial Hemp (Marijuana)
- Pharmaceutical 

Enwave also writes:

“Other innovative near-term commercial products include bean-based cluster snacks, meat-based ‘chip’ snacks and starch-based, puffed fruit and vegetable snack products. 

REV’s unique ability to remove moisture homogeneously from foodstuffs at low, controllable temperatures allows for novel and varied product attributes to be created.”

What are the Benefits?

Here are some benefits of Enwave’s technology: 

• High speed processing
• New product opportunities 
• Reduce energy usage
• Scalability 

In my opinion, the biggest benefits are new product opportunities that come with Enwave’s machines. Those would not be possible in the same quality with alternative drying methods like ‚air drying‘ and ‚freeze drying‘. Or at least not that I know. Somebody might come up with a superior technique at some point in the future. 

In addition to that, companies can heavily reduce energy costs due to its rapid drying times. At the same time, it is possible to massively increase the output - something that is fairly important in the low margin food industry.

Different machines

Currently, Enwave sells two types of machinery in different power classes: 

NutraREV (Drum-based) 
- 10 KW Machine
- 60 KW 
- 100 KW 

QuantaREV (Tray-based)
- 10 KW 
- 60 KW 
- 120 KW 

NutraREV is suitable for the dehydration of organic materials that don’t break while QuantaRev can transport product loads either via a belt or try system. Both types come in different sizes ranging from 10 kilowatt to 120 kilowatt. 

Where was this technology invented? 

The technology was originally developed by Dr. Tim Durance. 15 years ago he was doing research at the University of British Columbia when a revelation hit him.

To him it was apparent that microwave-drying's only significant problem was high temperatures that could potentially damage the product. 

Dr. Durance made the logical inference that the use of vacuum in the process would reduce the temperature and thus remove the biggest obstacle to large-scale use. 

It was originally only designed for food products. The company has since then signed development agreements with various Tier 1 pharmaceutical companies. Today, they have an ongoing partnership with Merck. 

On the official website Enwave lists the following benefits using the REV technology: 

• Dry Vaccines allow for lighter weight, reduced shipping costs
• Eliminates the need for cold chain storage
• Continuous production, reduction of facility size
  
  

"EnWave’s REV™ technology allows for rapid, gentle drying allows the active components of vaccines to remain alive but also allows for extreme precision over the final moisture content enabling a long shelf life."

What is the 'Moon Cheese' story?

Enwave’s flagship product is Moon Cheese,  which is available at Starbucks.

It’s a ‘healthy’ snack product made of 100% cheese and full of proteins - thanks to Enwave's drying technique. . 

The formation of ‘NutraDried LLP’ and the launch of Moon Cheese was originally an experiment which turned out to be extremely successful. 

How did 'Moon Cheese' start? 

In 2013, Enwave had only a few installations of REV machines and there was a need to de-risk the technology. Enwave had to build out its own successful production facility to convince potential partners to license REV technology.

Luckily, Moon Cheese was a huge success with annual revenues growing over the past three years from less than $300k to several millions today. 

Moon Cheese is now also available in Starbucks, Costco, Whole Foods and many more.

In total Moon Cheese is available in over 25’000 stores across the United States. Enwave claims that they are in discussion with another 61 retailers representing an additional 7’000 stores. 

In 2013 the company was established to commercialize ‚Moon Cheese‘ as a proof-of-concept, together with the joint-venture partner ‘Creations’. 

On February 21, 2018, Enwave decided to purchase the remaining 49% non-controlling interest in Nutradried from Creations for a total cash consideration of 1.8 million USD.

Since 2019 the business is 100% owned by Enwave. 

Will it be a take over? 

My prediction is that eventually Enwave will sell this business to a big food company like Kraft Heinz Co., Mondelez International or Nestlé. 

Some investors calculated that the price for NutraDried could be around 30 million USD. This number is based on pre covid-19 numbers and doesn’t take into account potential future growth in 2021-2024. 

The cash could be fully or partly paid out to investors as a special dividend. Also, the sale could lead to an estimated 4 million USD annually in royalties for the usage of the REV technology. 

However, this is also a matter of negotiations. The numbers are highly speculative but in my opinion rather conservative. 
​
Considering Enwave’s current enterprise value of 60 million USD I believe risk / reward is getting more and more interesting. 
​

Cash on the bank
​
With no debt and over 10 million USD cash in the bank and some assets in hand I am confident Enwave will survive this crisis.

Sales have been picking up all the way until the pandemic hit. Personally, I feel more comfortable investing in a company that has been hit hard hard by outside factors than when a company struggles with home-made problems or industry challenges.

However, outside factors can eliminate a company, too. That’s why we need to be sure that this company survives. 

International travel restrictions 

In most cases, Enwave’s staff can’t travel overseas and is therefore unable to install the machines for their customers.

For the installation of smaller machines, it is possible to advise some customers remotely but it remains an uncomfortable issue for Enwave. 

Potential customers are hesitating to finalize orders for new REV machines and 'Moon Cheese' sales are down as Starbucks and other shops are closed or work on limited capacities. 

Enwave pushed online sales for 'moon cheese' which resulted in a 130% increase in revenue. At the same time overhead costs for the mother company reduced by 30%. And lately, many potential deals that were 'on hold' for months are now starting to be reactivated and signed. 

There might be some light at the end of the tunnel. 

Low revenue big loss

I believe Enwave has enough cash to survive and enough of an interesting technology to secure financing - if needed.

I believe that business will pick up again once the pandemic is over, therefore, I feel fairly comfortable that Enwave will make it through the storm. 

However, revenues will be low for some time and the losses big in the next few months.

In regards to the stock and its valuation the question remains how much of the bad news is already priced in? 

Bottom Line

Between 2017-2019, the company booked major progress in all areas of the business.

Enwave has built a strong foundation and managed to attract many new customers in the cannabis space.

I am confident that Enwave will heavily profit from those new partnerships at some point in the future. 

Enwave targets a large addressable market and the deal pipeline seems to have gained momentum - until Covid-19 hit.

Looking at 2010, with only a handful of customers and almost no revenue, Enwave’s technology was not proven.

Today, Enwaves technology works fine and has created a “hit” product with moon cheese.

The valuation today is similar to 2015 and well below 2010. But the risk/reward ratio is substantially better today. 

Is it the breakthrough? I believe we are already past the breakthrough. 

I will wait for a good opportunity to build a position. 

Update 16th August 2021
Join my Discord to have in-depth discussion about Enwave:
https://discord.gg/Qy5GwEYne3​

What is Graphene? What is Graphite? And what is the difference?

In very simple words, take this grey or silver stone called Graphite. You probably already have heard of that. Now, take one very, very small layer from it and you will end up with a material called Graphene. And this Graphene has some very interesting characteristics. 

To make it short: 

• It is the strongest material of nature, about 200 times stronger than steel
• It is 100.000 times thinner than a human hair.
• It is elastic and more flexible than fiber carbon.
• It is waterproof and it is repelling water and corrosion.
• It has a high thermal and electric conductivity, greater than that of copper or silver.
• It is virtually transparent to light (because optical absorption of a single layer of graphene is only ~2,3% in the visible spectrum.)
• It heats up less when carrying electrons (lower Joule effect) and consumes less electricity than silicon for the same task.
• It can react chemically with other substances to form new compounds with alternative properties, opening up an unlimited range of application areas.
  
  

For all these reasons above, the array of possibilities for its applications is so wide and so varied that it has the potential to lead to a technological revolution and may at one point even replace fundamental materials such as silicon.

Almost every product currently existing could somehow be improved by adding or replacing it with Graphene. In addition to this, an unbelievable amount of new products could be created. Because of its thinness, this material is considered two-dimensional. It is the only material that can remain stable at just one atom thickness. When mixed with other substances it could get even better.

This really does sound like a wonder material, doesn’t it? 

Natural Freak Deposit

Thompson later described his discovery near the Swedish town of Vittangi as a "natural-freak deposit". The graphite is so concentrated that it can be sliced easily into blocks. Arguably, those blocks are easier and cheaper to process then what top producers work with in China. This is something I could not verify. 

Powerful competitors
There are many existing companies who have their eyes and ears on every new trend and will invest millions or billions of dollars to be at the forefront of a new revolution. Their goal and their interest is not always very clear. In commodities markets dirty games are played on a regular basis. 

Some players may want to create a shortage of a certain resource to force other players out of the market - only to sell the same commodity later for an even higher price. However, most of the time it is very straight forward. Big players want to earn money directly by speculating on supply and demand or by betting on promising companies. Sometimes, commodities can also become a strategic interest for certain nations or interest groups. I will come to that later. 

Predictions

Looking at the battery industry, current estimations predict a huge shortage in graphite for the second part of this decade. The driver behind this is mostly the electric vehicle market which needs a massive amount of batteries that include huge amounts of graphite. However, this will only happen if the EV revolution will happen at the pace that analysts expect it to happen. 

Some of the big players in the industry already have plenty of experience with other battery materials. They are better positioned and have more resources and knowhow than Talga has. Also, they have access to a greater talent pool and they are financially less under pressure. However, even for them it remains a challenge to create something from scratch. 

If they find startups which they believe are well positioned and can add value to their business they will simply try to buy it, form a joint venture - or knock it out of the market somehow.

If you bet on a startup with no existing products there is a huge risk that it will never make it to the market. History has shown that less than 5% of game changing startups will become a major player itself.

Therefore, be careful when considering investing in companies like Talga. 

Korean companies securing essential patents

Some investors say, Graphene was one of the most investigated materials in the last few years. So I tried to do some research here. Huge companies from various sectors all around the world have already been working on it for years. Korean companies are securing essential patents related to the commercialization of graphene. The website graphene-info.com writes that between 2005 and 2013 nearly 3000 graphene-related patents have been applied for alone in Korea. On the forefront of this are Samsung, followed by LG. 

Bending smartphones

Graphene was already used to create bending displays for smartphones and TV’s. The media jumped on those news. Graphene also received increasing media attention when prototypes of transparent devices were circulating through social networks. So let’s look at the other side of the story. 

The risk of graphene

Because it is so thin and lightweight and at the same time very tough, the very nature of graphene might be cause for health concerns. What if we breathe in these particles? It is often looked at asbesto or the danger that comes when coal dust gets into the lungs because we are talking here on the level of nanomaterials. Therefore, a lot of research has to be made to really understand the effects this material will have - also when recycling it. 

Companies that would want to replace plastic for graphene would require the product to be 10 times better than the old one. If it is only a little bit better, it's not worth the risk of switching from an existing, well-established product to a new less tested one.

Real life products? 

Graphene is stronger than steel, conducts electricity better than copper and is so light and flexible that companies like Samsung Electronics are using it to develop new devices. But let’s have a look at other graphene products that exist today. 

In the year 2013 the company HEAD started shipping graphene-enhanced tennis rackets. Maybe you remember the moment when you were holding your friends ultra-light tennis racquet for the very first time. The same goes for some shoes, helmets, ski equipment or bicycle frames that are so light that you actually can’t believe it when holding it the very first time. The sport industry has been an early adopter of graphene enhanced products. Today, graphene is widely used in consumer electronics. However, it is not as visible as in the sports equipment. 

Some articles stated that automotive company Ford is mixing graphene with foam constituents, and the resulting parts are said to be 17% quieter, 20% stronger, and 30% more heat-resistant.

The future batteries? 

And since we are just talking about numbers let’s go through another wave of claims that I can not verify but that do sound very promising: 

• Graphene’s high electron mobility is 100x faster than silicon
• It conducts heat 2x better than diamond
• Its electrical conductivity is 13x better than copper
• It absorbs only 2.3% of reflecting light. 
  
  
  

Those numbers are perfect for future batteries. And Talga is betting big that its product will be in the batteries of the future. 

No doubt, graphene is very exciting but producing high quality materials is still difficult. Many companies around the world are producing different types and different grades - ranging from high quality single-layer graphene to graphene flakes produced from graphite in large volumes. The market is controlled by privately owned companies and they tend to be very secretive. 

So what is Talga doing? 

As stated before, Talga used to be a gold miner. In simple words, they were about to dig gold out of the ground. Today, Talga owns 100% of five graphite projects in Sweden and is digging graphite out of the ground.

Here are the five graphite projects:

• Vittangi 
• Jalkunen
• Raitajärvi
• Pajala
• Pitea

Potential Market for coatings

Graphene coatings could be found in applications where water-repellent surfaces are required. For example ship hulls, glass surfaces (mirrors, windows, windshields) and textiles. 

Coatings with superior chemical, moisture, corrosion, UV, and fire-resistance properties could also be use cases for Talgas graphene. On medical devices, these coatings would provide a biocompatible surface that is resistant to degradation. 

There are potential applications for graphene coatings in nearly every industrial sector, from aerospace to personal care. Examples include: more efficient and flexible solar cells, nano-electronic devices, supercapacitors, high-sensitivity gas sensors, molecular separation, and medical implants.

Talga started shipping samples

In 2016, first samples were shipped to end users. Talga also announced a collaboration with Tata Steel UK. In the months and years that followed a huge amount of partnerships and collaborations were reported. Most of them were so-called NDS, non-disclosure agreements. 

In a company presentation they described it as follows: 

‘Talga has evolved into a high tech advanced materials and technology company with a unique vertically integrated graphite to graphene product supply chain.’

New focus 

However, in the last two years Talga’s focus shifted again. This time the focus is a lot more on batteries. Talga started to call itself a ‘a vertically integrated producer of advanced battery anode materials and graphene additives’.

There wasn’t much news about the graphene additives anymore. Does this mean that potential customers didn’t bite on the samples? Well, this is hard to say. Talga has a lot of partnerships but for most of them we don’t know what the deal is. 

Pablo Alto rumours 

Talga has created a research and product development team in Cambridge and presented some impressive test results. 

On social media managing director Mark Thompson was seen flying to Pablo Alto only days after releasing some spectacular result for their anodes. He commented his tweet saying ‘Pablo Alto is calling’.

This was music to the ears of investors. However, there wasn’t too much news that followed in the months after. 

Talga in a nutshell 

• Unique Deposits called „freak of nature“ - highest grade graphite in the world
• Demonstrated ability to produce high quality graphene direct from raw ore 
• Top mining jurisdiction - no or very limited mining licence risk
• Trial mining up and running - already selling samples of real products.
• Talgas facilities are very close to the largest battery gigafactory in Europe. 
• Over 36 partnerships and/or NDS’s signed 
• Own research and development team in cambridge working for several years now
• Massiv potential to scale up
• Undervalued relative to its peers based on the financial metrics at Vittangi alone.
• For strategic reasons to be in the EU may or maynot be a benefit
  ​

Talnode and Talphene

Their main graphite product from Talga is called Talnode. The main graphene product is called Talphene. 

Talga is targeting commercial production in 2023 and is currently engaged directly with a range of major battery manufacturers and automotive OEMs. Personally, I believe 2023 is too early for a commercial production. 

Today, Talga has 36 commercial engagements for Talnode underway including one to supply to Daimler. 

In-house research and development

Talga has built an in-house R&D team of 35 mining, technology and product professionals. Some are ex-Toyota, Tata, Dyson and Cambridge University alumni who are leading the Company’s creation of ready-to-use products.

High grade, low impurity, big resource

With 35*6km in size, the 3Q from Neo Lithium is now the 6th largest brine project worldwide on a total resource basis, and of those, it's the only project with low critical impurities that is not in production yet. To have low impurities is important because there is a very direct correlation between impurity content and cost of production. Put simply: the higher the grade, the smaller the ponds required, and therefore the less capital needed. The 3Q project has the lowest combined critical impurities worldwide.

It is the 4th highest-grade project worldwide. The high-grade core in the north is the second (!) highest grade resource in the world. Therefore, NLC will have the ability to start to mine in the northern part first. Waldo Perez said the lifespan of the northern mine alone, which contains the high grade lithium, is about 20 years. For decades to come, NLC will be able to use both the high-grade product in the north and then the average grade product in the south. 

In terms of size and quality, this project is simply outstanding. 

Recyclable mineral deposit 

Basically, what Perez found is a recyclable mineral deposit. When we look closer at the resource we find springs that are literally feeding lithium brine into a so-called lithium lake. There are only two lithium lakes currently known in the world. One of them is in China, the other one is now on NLC territory. The brine on the surface makes up only 2% of the total resource, the rest is under the ground or inside the salar. In the lake, the brine continues to evaporate. It could be seen as a recyclable mineral deposit. But realistically, NLC would mine much faster than the lithium could flow into the lake. 

90 million raised

In early 2016 Perez and Karayannopouulos joined forces and started the company, naming it Neo Lithium Corp.. After a couple of financing rounds and a little bit of work in Argentina they listed the company in July 2016 on the Toronto Stock Exchange through a reverse takeover (RTO). In total, they have raised over 90 million and moved it from discovery, to resource estimation, to preliminary economic assessment, to an updated resource estimation and to pre-feasibility study in a little over three years. 

For investors not familiar in the mining industry, before a project becomes a mine, several technical studies must be completed on a deposit before the real operation begins. All of these studies analyze and assess the same geological, engineering and economic factors but with different levels of detail and precision.

With more drilling on different spots and down to different depth levels, the estimation of the entire resource becomes increasingly more accurate and further economic and engineering factors are added to the study. These reports figure as continuing baseline material for negotiations to finance pilot plants first and eventually full mine construction when numbers from pilot plant operations are confirmed.

The way into production

During this process, with no revenue and a high cash burn rate, many companies are under constant threat of running out of money. When results of new drilling campaigns are not confirmed later on or the deposit turns out to be less promising than originally expected, investors hesitate to provide further money, as it is not economically feasible or promising enough. 

There are many factors that can bring a project down, starting from commodity prices that change too fast in the wrong direction or political factors, like additional forms of taxation or costly environmental permit requirements.

However, it is also possible that once the price of a commodity suddenly appreciates, a project, once completely terminated years ago, becomes lucrative again for investors.

Finally, there are many ways to go into production. Often, a promising project is taken over by a big player in the industry. This can happen early, or after all the technical work has been done, all the permitting is in place, and the full feasibility study confirms the deposit and the economical feasibility.

However, many times a strategic partner comes on board in a joint venture and develops the project together with the original team that discovered the resource. There are many ways a project can go from discovery to production. In some cases, banks and institutional investors simply provide the money through further funding rounds to have the original team go into production themselves. This also depends on the background of the team. 

In the case of NLC, the team is an expert in discovery and has the ability to lead it through the technical work to full feasibility. In an interview, the chairman said they would have some knowledge to go into production themselves, but maybe not all of what's needed. To me, it seems that they are trying to close down a deal in a joint venture. 

Several factors to be considered

With cash burning fast, and financing rounds that usually only provide money for the next phase, companies are under constant pressure. If drilling campaigns fail to deliver on their promises, it gets hard to find new money for the next step. There are several factors that can kill a project before it goes into production. Share prices usually follow certain milestones, but with the usual hypes of the stock market - up and down.

When companies do further drilling and discover more or better resources, the project becomes more valuable and share prices often go up. When companies receive approvals for mine construction or if environmental studies get approved by the authorities, the risk of a project failing goes down, which makes it more likely to earn money in the future. This usually also leads to a stock price boost. 

On the other hand, bad drilling results, approval delays for mine construction applications, or anything related to the political head wind are usually seen as big risks, which puts pressure on the stock price. It is therefore a constant valuation between risk/reward.

One of the most important factors is obviously the underlying commodity. If demand is expected to increase over the next decade and supply from other mines will struggle to deliver, then it is more likely that the price will stay high and the project, becomes, or remains, feasible and profitable. In the case of lithium, the question is this: How much demand will there be in the coming years, and what is the supply relative to this.

Lithium is not a commodity. 

The biggest problem is, that lithium is not a real commodity. 
Yes, it could be seen as a commodity since it is taken out of the ground, but it can't be immediately loaded onto a truck and sold. It is more of a chemical product. 

We have to distinguish between the following: 
- Lithium carbonate 
- Lithium hydroxide 

Lithium carbonate usually comes from brine projects, like the ones from Neo Lithium. It is used in most of the current batteries that power EVs. However, some analysts see and predict new types of batteries, which require more lithium hydroxide, growing faster. Lithium hydroxide is usually produced by hard rock projects. 

New battery type 811

There are huge innovations happening in the battery sector and the composition of the perfect battery is probably still far away. However, there are a lot of talks about the NCM 811 (cathode with nickel, cobalt, and manganese in a ratio of 8:1:1) type of battery.

The mainstream battery - NCM - began to gain popularity shortly before the first iPhone from Apple was released. NMC 111 or NCM 333 (⅓ Ni, ⅓ Mn, ⅓ Co) was the first to become commercially successful. Today, NCM523 (nickel/cobalt/manganese in a ratio of 5:2:3) and NCM622 (nickel/cobalt/manganese in a ratio of 6:2:2) are widely used in EV's.

But new EV models in China have started to use the NCM 811, and also other big auto manufacturers are shifting to it. Despite speculation that this type of battery would quickly reach mass adoption, most analysts don't see the shift happening that fast, due to safety concerns and cost challenges.

The total market share of NCM 811 (by capacity deployed) was in May 2019 at 2% at the global level, and 4% in China. However, it is important to keep an eye on it, because this would shift demand more to lithium hydroxide.

Is Neo Lithium mining the wrong lithium?

This is up for discussion. Forecasts indicate that demand for both types of lithium is about to increase heavily in the coming years. While hydroxide will grow faster in percentage, in absolute numbers lithium carbonate demand will still be higher over the next decade. 

Gabriel Pindar, chief operating officer of NLC, said in an interview that: 
"You could also go from carbonate to hydroxide. The advantage of this way is that the quality gets assured. It's a little bit more expensive to get there but you don't have impurities. You are almost guaranteed not to have impurities in the hydroxide." 

To me, it seems that if the 3Q project can be operated as low cost as the management believes, especially in the first years by starting mining in the very high-grade zone in the north, they should be able to adapt to changing market environments whatever form of lithium is needed. However, Pindar did not reveal how much more expensive this 'little bit' is. If anybody has numbers here, please contact me. 

High in the mountains

The 3Q project is located 30km from the Chilean border and has direct road access to pacific ports. The paved highway, which the company states is 60km of all-weather road, sounds attractive. But because the project is in the Andes mountains, at an altitude of 4000 meters above sea level, there are still complicating factors to get their product to coastal ports. Weather conditions are difficult and can stop or delay production. On the other hand, big players have profitably been operating lithium mines inside the lithium triangle for years.

Constantine Karayannopouulos, who is also chairman of Neo Performance Materials, a company in the rare earth sector and trading on the Toronto Stock Exchange, said in an interview that they were a little bit in a hurry at the beginning of the project as they needed to prove the resource fairly quickly. In the Andes, at 4000 meter altitude, with seasonal weather patterns that impact progress, the window for drilling campaigns are between October and April, which is the Argentinian summer.  Once they had some numbers, they could build on that and obtain further financing. After new drilling the next year, they found even better resources. And recently, they released a press statement reporting a resource upgrade of another 227%. The project seems to get even bigger and better, in terms of size and quality. And in the last update, they stated that they could still drill deeper. 

A race into production

However, it was important to hurry up. Waldo Perez described it as 'a race into production' between all the companies trying to ship lithium to the market. Analysts are therefore trying to find out if this could lead to an oversupply, although demand is likely to sky-rocket soon. 

For me, it is impossible to calculate the numbers here. Currently only about 1-3% of all new cars registered are EV's, a number which I find still very low. I do believe that once this number reaches maybe about 20-30% it could lead to a hockey stick growth, meaning that the time it takes from 30% to 60% market penetration is a lot faster then it took from 1% to 30%.

As soon as prices for EV's are down to comparable levels in the range of current gasoline cars and charging stations are widely spread over the countries, customers would feel a lot more comfortable to finally shift to electric vehicles. This number could then go up quickly to maybe 90% or more. Governments worldwide are supporting and incentivizing this transformation. 

China, for example, wants to have all its cars to be EV's by the year 2040. Also, big car manufactures are pouring in literally billions into the development of new EV models and are announcing new EV models on a regular basis. It's hard to see this transformation stop or reverse. 

Therefore, the transformation looks to me almost inevitable. However, we have to keep an eye on the battery technology itself to be ready to change positioning in case batteries come to market that do not require lithium anymore, or less of it. However, so far I only see the shift away from lithium carbonate to lithium hydroxide. 

Supply side of the story

What about the supply side?

There are big names in the game that have mines up and running not far from the 3Q project. In May, the second biggest lithium producer SQM said it would delay a key expansion of production capacity from the Atacama salt flat until the end of 2021. 

This means, SQM does not believe demand will pick up sharply before 2021 when considering also the supply side of it. For NLC the question is, if they can find a JV partner that wants to invest now, signing a deal that is financially good for NLC, when supply and demand is still fairly even. With USD 40 million in the bank, they should be able to survive for at least two or three years, although they have accumulated a workforce of nearly 100 people today. NLC is operating a camp high up in the mountain, internally referred to as the lithium city. 

Pilot plant is up and running

Constantine Karayannopouulos said about himself that, as a chemical engineer with his experience and background, he knows how to start with an idea, using sophisticated engineering and technology aspects to develop it into a cash flow projection. 

Perez has assured investors that every tool they use in the operation is proven from other lithium mines close by. There is nothing new, and therefore, there is no risk from a technical standpoint. They are now fine-tuning the pilot plant to take the new numbers into the feasibility study. 

Gabriel Pindar, director and COO, said they are using proven technologies that have been utilized by major companies in the region to minimize operational and construction risks.

Neo lithium has now already over nine ponds and pumps in operations. The pilot plant was commissioned to operate with a designed capacity to produce 50 tonnes of lithium carbonate per year.

In my opinion, I believe the team should not run into major problems from a technical perspective since they have done it before and proved themselves, when leading the technical work at Lithium Americas. 

Strategic partner

For investors, there are just three big questions. Who will help them finance to go into production, how will the deal look like for shareholders and when will it be announced?

Last year, Karayannopoulos said:
"We are having a number of discussions with potential strategic partners who would bring, in addition to a balance sheet and the ability to help us finance the project to construction and startup, they perhaps would be bringing market skills and technical skills. We are waiting to decide on who are partner will be, before we start formally the full scale feasibility study, which is not a cheap thing to do. So we are making sure we get it done right."

Now, a half a year later, in march 2019, NLC have presented the PFS, the pre feasibility study, with updated numbers:

"The robust project economics generated from the PFS further validates our view that the 3Q Project is an exceptional project, particularly when our industry faces unprecedented growth and it needs predictable, long term, low cost producers. We are not short of options, and the next step is a careful analysis of how to maximize value for our shareholders.”

Neo Lithium believes that they need a total CapEx of USD 318,9 million (before PFS - USD 490 million), in a conservative estimation, and ??? (before PFS - USD 320 million) to go into production. The cost of production is at USD 2914 (before PFS - USD 2791.-) dollar a tone per lithium carbonate equivalent but is likely to be further optimized. 

Their goal is to produce 'battery grade lithium carbonate' and in a phase 2 and 3 'lithium hydroxide' and other products.

In November 2018, Perez said: 
"I am hoping that by the end of next year (2019) the FS (feasibility study) should be complete. As you notice I always deliver what I say and I have been keeping a very good record so far. I don't want to fail on that one."

Only to add:
"Engineering is always a complex task. Our objective is next year but a time lag in between is always possible".

Permits

NLC has almost every permit so far: 

• Permit for the use of the road 
• Permit for the use of the surface 
• Environmental permit

The last permit which is missing is for mine construction. This could only have been sent after the pre-feasibility stage. In an interview earlier, Perez said it will take about 1-2 quarters after submission to get the last permit for construction of the mine. This would mean that the permit could be granted between July and October 2019. 

NLC owns 100% of the 3Q project. In Argentina, there are two mines already in production. NLC believes they will be the third. 

The upcoming election in Argentina is a factor to watch out. It currently looks like Mauricio Macri, who has been generally supportive of the mining sector, could again win the national election. 

There is hardly any junior miner with a shareholders base like that of NLC. The reason is the quality of the project and the experienced management team. JP Morgan, Blackrock, Royal bank of Canada, and big funds have been buying into the stock at around one dollar. The current price is much lower. 

Interview 2018

In an interview with 'Proactive Investors' at the end of November 2018, four months before NLC published the new updated PFS (pre-feasibility study) with the new numbers and the updated valuation, Waldo Perez was asked how it is going regarding the talks for a potential partner. 

Perez responded by saying: 'Very well, very well, actually there are even more partners lining up on the discussions. '

In the months before, new drillings have been made and this data was about to find its way into the new study.

Perez added: 
'It is very important, in order to guide this discussion, to have this pre feasibility study. Because otherwise, it is more difficult to have discussion based on an outdated original economic evaluation as we had. which basically was from the year 2017. It is very important that now we update with all the information with what we have been producing.'

When asked about what he is looking for, in particular, from potential partners. What they need to have, Perez responded: 

'Honestly, it's a combination. What we are looking for is full financing. I am looking to finance the lithium project to production. Now, different partners have different qualities. Some of them are related to the mining industry. Some of them are related to the lithium business. Some of them are related to distributing or selling the product worldwide. And those are the type of things that match what we need. We are basically very good in mining lithium, finding and discovery. But others are also end consumers. Considering that there are different partners in line, they have also different objectives. "

Andrew Scott, the interviewer from 'Proactive Investors', then asked Perez about when, realistically, he might be looking to have some deal done?

'Well, it is a dance of two. So, one thing is my wish. As you and many shareholders are probably aware. I was trying to close a deal this year. Now I know, it is going to go to the next year (2019). 
But Andrew, it's better to have a good deal with the right valuation as a not so good deal with an old valuation. So, patience sometimes is important and pays off. So, I ask the shareholder just hold on, let's get the new valuation and get a better deal.'

• On March 21, 2019, the new valuation (PFS) has been published.
• On April 15, 2019, NLC submitted the Environmental Impact Assessment (“EIA”) for Construction of its 3Q Project (the last missing permit).
• Between July and October 2019, the last missing permit could be granted.
• With the new valuation now published, NLC might now be in the process of finally closing a JV deal.
• On July 18, 2019 Perez bought NLC shares at a price of CAD 0.63

Conclusion: 

NLC remains a speculative buy since they are still missing one permit and have no financing nailed down yet. SQM, Albemarle and Livent are probably the lithium stocks to go with at current levels. 

However, risk/rewards seem to be getting more and more attractive at NLC and the next months could finally bring further clarification. The final permit may be granted soon and discussions might now be going to the final stages since it is already 4 months after they published the PFS. 

​If the offers in the current market environment are not good enough, NLC does have enough cash to wait for better offers. That is a luxury not every junior miner has. In their back, they have a strong shareholder base with names like JPMorgan, BlackRock and others. NLC own 100% of one of the biggest and highest-grade lithium resource in the world. 

​Interestingly, only two months ago in early May 2019, diversified company Westfarmers offered AUD 776 million to take over lithium developer Kidman Resources. According to Benchmark Mineral Intelligence, Wesfarmers could be the first in a wave of large diversified conglomerates that move into the battery metals space.

Today, on 19th of July 2019, Waldo Perez bought additional NLC shares worth around USD 55'000.- at a price of CAD 0.63 and at a market cap of CAD 70 million.

Yes, I have to admit, I am fairly attracted by confident CEO's. 
​
Share price today at 19th of July, 2019:
CAD 0.61 (Toronto, Canada)

Update: 20th January, 2021
I have taken profits at CAD 3.80. 
If it will cool down a bit I am ready to buy back the same amount of shares. I am still a huge believer in the project and in the NLC team. In the meantime I will move the money to a company called Bass Metals: bass-metals-zero-or-100x.html

Update: 20th Nov, 2022
In January 2022, Zijinoffered $6.50 per share in cash for Neo Lithium, representing a total purchase price of $960-million.

https://www.newswire.ca/news-releases/neo-lithium-corp-announces-closing-of-plan-of-arrangement-with-zijin-mining-group-co-ltd--897827987.html

​The CEO believes ODH is undervalued. Is he right?

To test this claim, we will take a deeper look at the Swiss company, its history, its founder, its financials and at everything that could have an effect on the stock price. And, we will never stop asking. The easiest way to start the research with is probably to quote the CEO and try to find out if he is right or not.

It was Sunday evening, October of last year, when Khaled Bichara, the CEO of a unique town builder called Orascom Development Holding (ODH), and his team published a press release. Months before, they hired an external property valuator to value their assets in one of their operational destinations called 'El Gouna'.

"We believe our assets are not adequately reflected in ODH's stock price."
CEO Khaled Bichara (Sunday, 21 October 2018)

The outcome of the report was not that much of a surprise for many long term shareholders since it was always clear that the company owns many assets with substantial value. However, the extent of it was for many investors still a peachy surprise. The remaining land, CBRE wrote, is worth USD 1.82 billion and therefore 170 times its current book value.

Stock price should be up 4.1 times to reach fair value

Here is Khaled Bichara's full quote:

"I am pleased with the completion and publication of this valuation report performed by CBRE. The report reiterates our earlier conviction that our Group owns many assets with substantial hidden value kept at book value in our financial statements. Moreover, we believe our assets are not adequately reflected in ODH's stock price. The 17 hotels in El Gouna alone plus the remaining land would make up more than 4.1 times the current market capitalisation, using CBRE's market value."
CEO Khaled Bichara (Sunday, 21 October 2018)

• The stock price at the moment of publication was CHF 12.70.
• The stock price today, almost exactly nine month later, is CHF 13.70.
• The market cap based on current share prices is at CHF 547 million.
• The CBRE report valued the land and hotels in El Gouna at USD 1.82 billion (CHF 1.79 billion)

The international town builder
​
Since 1989, Orascom is building entire towns which include marinas, hotels, villas, golf courses, shops, businesses, restaurants and everything a town requires. The company owns the land and controls everything on it. In the destination of El Gouna thousands of people are living permanently in the city and the company earns on every dollar what the residents and tourist spend there.

The CBRE report was only covering the town of El Gouna in Egypt. However, CBRE will look at the other 8 operating destinations, too:

• El Gouna, Egypt
• Hawana Salalah, Oman
• Andermatt, Switzerland
• Luštica Bay, Montenegro
• Jebal Sifah, Oman
• Makadi Heights, Egypt
• O West, Egypt
• Taba Heights, Egypt
• The Cove Rotana, UAE
  
  

While another four destination are in the pipeline:

• Eco-Bos, United Kingdom 
• Chbika, Morocco
• As Sodah Island, Oman
• City Walk, Oman
  
  

The CBRE report raises an important question.

How is it possible that the remaining land and hotels at one single destination, El Gouna, could exceed the market cap of the entire company by a factor of four?

Fortunately, there are indicators we can look at to better understand why ODH is trading at such low levels. 

The Sawiris Dynasty

Orascom Development Holding is headquartered in Switzerland, trading mainly at the Swiss Stock Market and also at the Frankfurt Stock Exchange in Germany, with fairly low volume. Despite trading at exchanges in mainland Europe and several European operations, ODH fundamentally remains an Egyptian company, with its roots in the country, and most of its revenue still coming from there. 

Behind the company is a business man and billionaire called Samih Sawiris. He founded the company exactly 30 years ago, is a Coptic Christian, and comes from a very wealthy family.

Samih Sawiris's father, Onsi Sawiris, was born in 1930  and has three sons that now run his legacy business:

• Naguib Sawiris (17th June 1955)
• Samih Sawiris (28th January 1957)
• Nassef Sawiris (19th January 1961)
  
  

Onsi Sawiris lost his construction company under President Gamal Abdel Nasser before he left for Libya. Some years later, after creating a new construction company, he lost it to Muammar Gaddafi before returning again to Egypt to start it all over. 

• 1950: Onsi Sawiris founded a construction company in Upper Egypt
• 1961: The construction company was nationalized and Onsi Sawiris left for Libya where he continued his construction career
• 1976: Onsi Sawiris returned to Egypt and founded Orascom Onsi Sawiris & Co

From the official website of Orascom Construction

• Nassef Sawiris, the youngest of the three sons, is now running the Construction Company. His net worth is estimated to be at USD 7,8 billion.
• Naguib Sawiris heads Orascom Investment Holding, which was Orascom Telecom before. His net worth is estimated to be at almost USD 3 billion today.
• And then there is Samih Sawiris, who is also a billionaire and runs Orascom Development Holding, the company we are talking about now.
  
  

Samih Sawiris - The Egyptian Pharao

The Sawiris dynasty is very influential in the country, and although they own and control some of the biggest corporations in the region, it is said they are very well respected throughout the nation.

Born in Cairo in 1957, Samih Sawiris studied in Berlin and is fluent in German. Father Onsi Sawiris was making sure that all of his sons could benefit from a decent education and sent them to international high schools in Cairo, and later, abroad for studies in Switzerland, Germany and the United States.

Back in Egypt, Samih Sawiris created his first company in his twenties with a loan of around USD 50k from his family. He was selling newly upcoming fiberglass boats and enjoyed a juicy first mover advantage and a monopoly for quite some time.
​
Speaking about his past he says that it was a huge help that he could use the well-established Orascom brand from his father which opened him many doors at the beginning.

Sawiris can't collect taxes, but fees

His passion for boats then lead him to the idea of finding a quiet and peaceful spot on the red sea coast to build a second home for his family, friends and himself to enjoy time at sea and away from the noise of Cairo.

From here, his next move was to found a quiet, seaside town called El Gouna. It is Orascom's flagship destination and looks a little bit like a tropical Venice. Today, well over 20k residents and tourists are permanently living in a place what only 30 years ago was nothing but desert.

Orascom Development Egypt, which is 84,79% owned by Orascom Development Holding in Switzerland, owns and controls everything inside the destination. This ranges from hotels, golf courses, schools, shops, businesses, a hospital and even its own football club in the Egyptian Premier League. There is an international film festival happening once a year, an international squash tournament and entertainment all year round. 

Since they can't collect taxes, they are free to collect fees. Shops and businesses have to pay fees and Orascom Development earns on everything from electricity to its waste management service.

Since it is run more efficiently than other towns in the country, El Gouna has lately turned into a startup hub where new ideas can be tested more quickly compared to other cities.

Orascom is in full control of its destination and currently won't allow fast food chains to enter the town. Sawiris also makes sure to not only attract the rich, but also a good mix of people from all classes and countries.

Samih Sawiris repeatedly needs to remind admirers of his creation that the successful development of El Gouna was nothing but planed. He started small and added part for part, step by step. And as El Gouna quickly grew and became successful, Sawiris then became an expert in building towns, and from there, used his expertise to build more successful towns across the world.  

Buy land for nothing and start building

The strategy is similar in almost every country he steps in.

He buys land for almost nothing, usually a symbolic dollar per square meter somewhere remote but in a beautiful landscape. The place must be within a 2 hour reach to an airport - one of his few essential requirements.

Then, he starts building basic infrastructure: A hotel, real estate, villas, a marina, shops, a golf course and leisure facilities. The cash flow from operations is reinvested into the town, which, in turn, makes it more popular, attracts more visitors and increases real estate demand. Average selling price per sqm goes up, and what once was a worthless piece of land slowly becomes increasingly and exponentially valuable. And the bigger and more attractive the town gets the more valuable the land becomes.

According to the CBRE report, the land is now worth 170 times what it's currently worth in the books. 

So, how much is the land worth today? Well, that is difficult to nail down since for many years Samih Sawiris simply didn't care too much. The land was not for sale and his vision and business model is for the next generation. This all started to change in the last couple of years. During the Arab spring and the fight for survival, ODH needed to sell land for cash. And last year, the management actively approached a property valuator to conduct a fair market value study with the goal to show investors how many assets they actually own. Here it is again: 

"Orascom Development Holding (ODH) assigned CBRE Group Inc, one of the best-known international property valuators with more than 450 offices worldwide, to conduct a fair market value study for its remaining land bank and its 17 hotels with 2,654 guestrooms in El Gouna, Egypt.

CBRE's report valued the remaining 22.9 million sqm of undeveloped land in El Gouna at an aggregate market value of USD 1.82 billion, 170 times its current book value which stands at USD 10.7 million."
Press release (Sunday, 21 October 2018)

Why these numbers are not in the books?

If they would put these new numbers from the valuation report into the financial statements, it would result in massive gains and would therefore be taxed heavily. For ODH, and its daughter company ODE, it is not exactly a good time to realize these gains now since they need the cash to pay back debt and invest into the destinations. Therefore, the management decided to leave it hidden in the books. Investors looking at the balance sheet won't see it directly but it is real value inside the company and should therefore be taken into account when valuing the company.

IPO price at CHF 152.-

Historically, most destinations and therefore most of the revenue and profit came from Egypt. However, Samih Sawiris always had a conservative approach and tried to avoid risk and debt. When the massacre in Luxor killed 62 people in 1997, Orascom survived. Having no debt at the time of the attack saved him even though the Egyptian tourism market dried out.

In 2008 he took the company public through an IPO at the Swiss Stock Exchange. The IPO price was set at CHF 152.- and went up to CHF 175.- during the first couple of days. The goal was to finance the international expansion, to de-risk the business model through geographic diversification, and to better protected his assets from governments. A wise step that probably saved the company from losing land a couple of years later during the Arab spring.

But let's take a step back again, to 2008, when things turned very ugly for the company.

Disasters of biblical proportions

The business model of ODH is extremely long term. It may take up to 10 years until a destination is profitable. In the very first years, planning is costly and infrastructure has to be built first before people can settle down.

Right after the IPO in year 2008, and just when they kick started new projects outside of Egypt, ODH and its share price faced substantial pressure during the big financial crises that crashed real estate markets worldwide and heavily challenged emerging markets like Egypt.

Only three years later, in 2011, the Arab spring happened. The first wave of the revolution dried out the tourism sector, putting heavy pressure on earnings and consequently also on the stock price, again.

ODH's flagship destination El Gouna in Egypt was still profitable during those times, showing how robust the business model actually can be when not reliable entirely on tourism but also on permanent residents living in the destinations and spending money year-round.

Selling land to save the company

But since many destinations abroad were in the ramp up phase, cash from Egypt could not be sent to the new projects anymore as ODH's cash cow was severely hit. The new destinations in Montenegro, Switzerland and Oman desperately needed money to keep building their towns. To perform and to be able to contribute revenue to the group, it was crucial for them to quickly reach critical mass.

The holding company and its daughter companies suddenly found themselves in massive trouble. One solution in those years was to sell land, something that Samih Sawiris and Orascom Development generally tried to avoid, believing that value creation on their own is clearly more valuable for shareholders.

Arab spring, first revolution, second revolution

Just when tourism was about to recover and the share price finally was picking up again, the second wave of the Egyptian revolution in summer 2013 again put heavy pressure on the tourism sector. When Mohammed Mursi was removed, Abdel Fatah al-Sisi came to power.

The chaotic weeks and months before and after these events sent shockwaves through the entire world. Orascom Development found itself in even bigger trouble. When debt on the balance sheet grew to unhealthy and dangerous levels, investors bolted. The Billionaire Sawiris became a one-man bank, self-funding his sinking ship, as banks became wary of funding his projects.

In 2014. the losing streak continued when first a bomb exploded inside a tourist bus in the region of Taba Heights, very close to one of the Orascom destinations, killing Korean tourists. Later heavy flooding destroyed some Orascom hotels also in Taba Heights and forced the group to shut down most operations, a destination that was once the second biggest revenue contributor to the group, right after El Gouna.

However, it did not have a major effect on ODH's financials, as these destinations had good insurance coverage. And as the tourism industry was in a depression anyways, for ODH it was almost a relief that the flooding occurred at that time and not once tourists were back in full numbers.

Russian airliner crash over Sinai in 2015

But with other destinations still desperately in need for cash, Samih Sawiris took over the CEO position in 2014 from Gerhard Niesslein, an international manager he hired only three years earlier. Leaving the board of directors to manage the daily business again himself is not something Sawiris is good at or enjoys, a statement that comes from Samih Sawiris himself.

Four years after the initial spark of the Arab spring and after many years of reported losses, some of them over hundred million dollars, tourism in Egypt finally rebounded. At the same time destinations outside of Egypt started to slightly mature. But the long-sought tourism recovery wasn't supposed to happen yet.

A Russian airplane leaving a popular tourist destination of Sharm El Sheik, close to the Taba Heights destination, was shot down by terrorists on the Sinai Peninsula, killing all 224 people on board. Almost every country announced travel bans, often applicable for the entire country of Egypt, and today some countries have yet to lift their bans on the southern Sinai Peninsula. 

The following year was devastating for the Taba destination and the biggest tourism crises Egypt has ever faced. In 2016, the company started the year with a new CEO. Khaled Bichara took over and the share price in the following months fell to as low as CHF 4.40.-, bringing the market cap down to around CHF 200 million (USD 200 million).

Considering this, the company at that time was still controlling the 100 million sqm of land spread over various countries and with infrastructure and marinas in place, or under construction, at many destinations.

Europe’s largest leveraged buy-out

Ironically, Samih Sawiris hired Khaled Bichara in January 2016 to clean up his own mess when stepping down as the CEO and moving back to the Board of Directors.

Bichara might not be very well known internationally, but he does have an impressive track record. Samih Sawiris knew that very well as Bichara has worked for Samih's brother Naguib at Orascom Telecom Holding.

In contrast to Samih Sawiris, who is very conservative and tries to avoid risk if possible, Naguib Sawiris is not afraid of risks. He is constantly looking for opportunities to expand his empire, sometimes in some of the most dangerous places on earth like Iraq and Pakistan.

In 2005 he found a target in Italy to expand his Orascom Telecom Holding by acquiring Wind Telecomunicazioni for about 15 billion dollar, at that time one of Italy's leading telecommunication providers. Two-thirds of the transaction was financed by debt, and the deal ranked as Europe’s largest leveraged buy-out in history. The corporate world took a second-glance at this deal because, usually, it is Europe buying in Africa. This time the Egyptians went shopping in Italy.

After the takeover, Naguib Sawiris installed about five Egyptian managers. Bichara was executive chairman of Orascom Telecom Holding and became chairman of Wind Telecommunication in Italy. He revitalized the company in just three years.
​
When Russian operator Vimpelcom agreed to acquire most of the telecoms assets in a $6.5 billion deal, creating the world’s fifth largest mobile network operator (MNO) by subscriber base, Bichara became the president and COO of VimpelCom Ltd.

Three Pillar Strategy

Today, it looks like Khaled Bichara has revitalized Orascom. For three years, between 2016 until 2019, much of his salary was directly linked to the ODH share price. Now, as it became obvious that the compensation plan was fairly explosive, and could have cost the company a substantial amount of money if the share price had sky-rocked to old levels, Sawiris made a new deal with his CEO.

The share-based compensation will take the form of restricted share awards, which provide for a staggered allocation of a total of 2.5% of the outstanding ODH shares over five years.
At the same time, Khaled Bichara will be awarded 2.5% of the outstanding ODH shares in a private transaction from the holdings of majority shareholder Samih Sawiris. These shares are subject to a five-year lock-up period.
ODH press release

After spending three years at the company Bichara seems to have gained the full trust of Samih Sawiris as he basically becomes a partner during the next five years. He was hired to clean up the company and transform it from an Egyptian company to a well structured international company.

And after three years with Bichara at the steering wheel, Sawiris, who owns 70% of the Group through himself and his family, seems to be very confident that he has found the right man for this job.

Three years earlier, in June 2016, the new management communicated a three pillar strategy to the market:

• Establish enhanced business practices
  
• Strengthen ODH's balance sheet
• Leverage of ODH’s brand
  
  

Bichara transformed the company to a destination based structure. Each destination was to become a separately managed entity, with a tailored commercial strategy and financing plan, headed by its own CEO or General Manager.

He wanted to take out the necessary impairments on the investments that did not generate value, reduce the debt balance in Egypt, restructure the company’s debt in other destinations and monetize non-core assets and minority stakes in certain destinations.

He himself wanted to enter the first home market in Cairo, a project that he was very convinced would be a great success. He pitched it to the ODH board of directors and got approval. He moved and installed some of the company's best managers to develop the destination with the name 'O-West'.

Three years later, O-West's pre-launch phase was completely sold out in a matter of weeks and, a few months ago, the first phase of the launch was reported as almost sold out. As revenue recognition will start to kick in during the beginning of 2020 it is already one of the biggest destination in the Orascom portfolio.

Bichara has ticked almost every box of the earlier mentioned three pillar strategy. And last year he communicated a new goal:

"The next goal is to focus on shortening timeline to profitability"
ODH presentation (2018)

In the first quarter of 2019 Orascom Development Holding reported a net profit of CHF 1 million. However, for shareholders it was still a loss.

He put his house at stake

Early in his career, in the 90's, Bichara asked the banks for a loan to start his internet venture. The bank had so little faith in his startup’s venture that he had to take a loan for the business out against his house. Bichara co-founded LinkDOTnet, the first internet service provider in Egypt.

"Starting a business around the internet, people weren't sure if it would be something. It took us a whole year and a half as a company to do our first transaction."
Khaled Bichara

When it comes to management skills or managers he looked up to when he was studying in the United States he mentions the legendary General Electric CEO Jack Welch. Bichara describes himself as a team player that is very result oriented, gives power to his team, but expects results in return. His strengths are said to be his analytic skills and his focus on numbers. Something that Orascom Development was lacking in all the years before.

Khaled Bichara himself told a Swiss newspaper that he is not as kind as Samih Sawiris was as a CEO, referring to the Orascom destination managers who could ask for more money whenever they needed more - and usually got it somehow.
​
He and his team are strictly following the path towards profitability, and budget discipline is one big part of it. After three years with Bichara in power, financial results are starting to shine, with 2019 targets well on track.

Floating of the Pound

In 2016, during Bichara's first year in charge at Orascom, Egypt's central bank floated the pound in an attempt to stabilize its economy. Almost overnight the pound lost 50% of its value. Orascom's balance sheet was still overloaded with debt, unfortunately mainly due in USD. The run of bad luck for ODH continued and Bichara needed to act fast.

In 2016 and after almost a decade of trouble, Net Debt to Adjusted EBITDA was at a factor of 14.5 (!). Bichara then sold non-core assets and restructured debt. In September 2018 it was down at a factor of 3.5.

On a positive note, the low prices for holidays in Egypt have attracted many tourists during the last three years. Today, El Gouna and Orascom Development Egypt is reporting the most profitable year in the history of the company as visitor numbers are increasing and the town is growing fast with real estate sales also at record levels.

Yet, hotel room prices in USD have not reached old levels and have therefore still room to grow to heights before the EGP was floated. This would further increase ODH's margins and profits.

Ferociously, step by step

After all trouble-filled years, something has happened that many investors might not fully realize yet. Orascom Development Holding has ferociously worked on its diversification. The projects that were launched in Oman, Montenegro and Switzerland in the years before and after the IPO are now contributing revenue to the group's results. Many destinations are already profitable or at the brink of it. 

The resort of Hawana Salalah and Jebel Sifah in Oman have contributed almost 32% to the revenue of the group in the first quarter of 2019, while Egypt still accounts for a little over 50%.
Last year, the new destination in Montenegro contributed already 10% to the group's revenue. Even the Swiss destination will finally be consolidated in the course of the next two years, adding more revenue and maybe future profits to the holding company. 

Valuation (Growth)

Looking at the growth rate in the last couple of quarters, something to mention is that the quarterly revenue growth is at about 30% and has been so for quite some time now. Tourism has almost dried out, and therefore this growth comes from very low levels. 

Some of the revenue growth is not visible in the financials of the holding company because the devaluation of the EGP has resulted in lower numbers in CHF. However, there is a fair chance that we will see a growth rate in the range of 20-30% or more for another couple of years.

1. One reason for future growth could be that the destinations in other parts of Egypt, Oman, Montenegro and Switzerland might be able to grow faster since many destinations have reached critical mass and are therefore more attractive for real estate buyers since major project failure risks are off the cliff and the cities are finally getting filled with life and entertainment.
   
   
2. A second reason could be that, starting in year 2020, the company will see major revenue recognition from the O-West project. If a client buys real estate from Orascom he does not have to pay everything at once. Usually the payment is made over 2-3 years and is split into 8-12 installements. Therefore, a lot of what has been sold recently will be recognised in the future. The deferred revenue balance can be checked on the ODH quarterly presentations.
   
   
3. A third reason is that through the devaluation of the Egyptian pound, prices tourist pay in USD are still well below of what they were ready to pay for the same hotel room a decade ago. The industry might be able to increase prices while at the same time cost for food, labour, energy, etc. in EGP might not increase at the same pace. This would be very attractive for operating margins of companies in tourism industry.
   
   

Valuation (Market Cap / Enterprise Value)

At this point, even though a market capitalization of CHF 660 million looks extremely low for a company of this proportion the number to look at is the enterprise value since it is equally important to look at the debt side of the balance sheet, too. And with around CHF 400 million there remains still a lot of costly debt on the ODH balance sheet.

• The market cap of Orascom Development currently is CHF 551 million.
• The enterprise value of Orascom Development currently is CHF 969 million.
  
  

Valuation (land bank)

So far, CBRE has only taken a closer look at two destinations.

• El Gouna (Egypt)
• Andermatt (Switzerland)
  
  

The project in the destination of Andermatt was personally bought by Samih Sawiris during the crises years to reduce financial pressure on the holding company.

Today, ODH owns 49% of ASA, the company behind the Andermatt project, but will buy back 1% and one share to consolidate it during the next two years. Samih Sawiris will forgive CHF 150 million in debt that ASA currently owes him.

Since he is, with about 70%, majority shareholder of ODH he will 'only' lose around 20 million, something he said in an interview with the Swiss financial portal 'cash.ch' he is ready for since it brings clarity to ODH shareholders about the future of the project, something that will lead to a stock price boost and benefits him financially as well.

"The transaction would take place at a purchase price of CHF 3.2 million, valuing ASA equity at CHF 320 million. This enterprise value was determined by way of an independent third-party valuation."
Press release (09 January 2019)

Let's do the math

Orascom Development Holding owns:

• 84.79% of 'Orascom Development Egypt S.A.E.' --> which owns El Gouna
• 49.00% of 'ASA' --> which owns the project in Andermatt
  
  

CBRE valued (only remaining land and hotels) El Gouna as following:

• USD 1'816'000'000.-
• CHF 1'772'524'960.- (current price)
• CHF 1'502'923'913.- (84.79% stake)
  
  

CBRE valued (entire ASA company) Andermatt as following:

• CHF 320'000'000.-
• CHF 156'800'000.- (49% stake)
  
  

CBRE confirmed therefore a total value of at least = CHF 1'659'723'913.-

More value from other destination to be added on top 
​

• ODH owns and controls a portfolio of 13 destinations.
• CBRE has only valued two out of 9 operating destinations so far.

Alone the remaining land in El Gouna and the hotels that CBRE looked at are worth 3x the current market cap. CBRE did not value other buildings or assets Orascom owns inside the destination.

At this point, we have to remind ourselves that ODH owns and controls an entire city with hundreds of building, its own infrastructure and everything that comes with it when over twenty thousand people (permanent residents and visitors) are living there all year round. 

I expect that the valuation of remaining land and hotels in many other destinations of the Orascom portfolio will add at least another billion on top of the current valuation, with more hidden value still hiding inside the towns.

If ODH keeps growing the towns, the remaining land and its assets will become even more valuable over time. CBRE might have to look at it again in 10-20 years.

Business model in a nutshell: 

In the 2009 annual report, the company described the business strategy as follows:  

1. Securing of vast tracts of land banks in untapped yet attractive regions at relatively low cost.
2. Development of independent fully-fledged towns with all necessary facilities.
3. Monopoly-like situation due to control over the entire value chain.
4. Financing through pre-sales of residential units and recurring revenues.
5. Upside revaluation of the land bank over the medium to long-term.

"The Group controls the entire value chain, exercises influence on prices and profit margins and is able to deliver stability through its unique business approach and has therefore a much stronger position than any regular real estate developer. Since Orascom Development manages each building phase, planning will be in line with client demand and, more generally, demand will meet supply and prices will remain well controlled. 

This is achieved by securing vast stretches of undeveloped land at low cost, thereby limiting the financial risk, via purchases, leases and options, against relatively small amounts of money which is then developed into a year-round destination. The main advantage of such a procedure is to limit the related carry cost of an undeveloped portion of land bank, given the relatively low price paid, which limits the revaluation downside but at the same time provides a buffer for a high revaluation upside.

To illustrate, the value in El Gouna increased from approximately CHF 2/m2 in 1989 to at least CHF 68/m2 in mid-2008, according to international real estate realtor ERA. "
ODH Annual Report 2008

In 2018, the CBRE report valued the remaining land already at USD 80.- per square meter. 
And this is of course only the average, while some plots closer to town or the beach will be sold for a multiple.

The risks

While this may sound too good to be true there is also the risky side of it.
As we have seen over the last decade, the tourism sector is a fragile plant that can grow very fast but, in the wrong conditions, shrink even faster. A terroristic attack or any problems in Egypt could bring real estate sales and tourism numbers down again. 

If we then look at the CBRE report and the valuation, we could not argue anymore that anybody would be ready to pay USD 1.82 billion for land and hotels where nobody wants to be anymore. Valuation is always just a number. If anybody is ready to pay for it when it matters is a whole different story.

The opportunities

Theoretically, Sawiris could give the green light to his management to start liquidating core assets or land reserves. This would fill up the companies bank accounts very quickly and would send share price sky high. However, it is probably not going to happen. For the company and its shareholders it is more attractive to control the entire destination and make use of the increased land prices later.

There is an unprecedented amount of hidden value in ODH's company valuation. For many years a combination of bad luck and company errors have ruined almost every bit of hope and trust that was left.

All the land that has quietly increased in value over the last decade since infrastructure was put in place is not adequately reflected in the balance sheet. Therefore, the true value of the company is currently not being represented, neither in the financial statements, nor in the stock price.

It is very hard to argue that the company is worth so much less compared to the last decade when ODH has been building so much and diversified to different countries, ultimately de-risking the business model in the process.

Comparing 2007 and 2019

• In 2008 investors were, at the peak and during the hype, ready to pay well over CHF 150.- per share for a fairly smaller version of Orascom which was mainly operating one single destination called El Gouna and a couple of other businesses. The company at that time was profitable though.
  
  
• In 2019 investors have been paying between CHF 13.- and CHF 18.- per share for a far bigger ODH in terms of assets. The company is better structured, more mature, more diversified and is awaiting major contributions of nine operating destinations which have reached or are about to reach critical mass.
  
  

Numbers to compare

Full year (Target) 2019:

• Revenue - CHF 400 million (without the Andermatt project / without most of OWest)
• Adj Ebitda - CHF 74 million - 77 million
• Share Price - Currently between CHF 13.- and CHF 18.-
  
  

Full year 2018:

• Revenue - CHF 340 million
• Gross profit - CHF 109 million
• Net profit - CHF 37 million (LOSS)
• Share price - CHF 11.- and CHF 18.-
  
  

Full year 2008:

• Revenue - CHF 568 million
• Gross profit - CHF162 million
• Net profit - CHF 116 million
• Share price - > CHF 25.- and CHF 175.- per share
  
  

Full year 2007:

• Revenue - CHF 407 million
• Gross profit - CHF 129 million
• Net profit - CHF 103 million
• Share price - not listed
  
  

Conclusion

1. While Orascom Development Holding still doesn't earn money for shareholders it seems that they are getting very close. Many projects are in the end of the last phase of reaching critical mass and are, after many years of master planning and infrastructure building, finally contributing revenue and profits to the holding company's financial results. The Price-to-Earnings ratio (P/E) for next year is below 6 and there is a high chance that profits only start to kick in now. 
   ​
2. I expect the land bank in many ODH destinations to continue to become more valuable in the upcoming years. Besides the usual ups and downs of daily business, boom and bust speculation or real estate cycles, the company should be able to grow and expand the existing destinations over many decades to come.
   
   
3. Behind the company is the richest family in Egypt who should be able to survive and navigate through another potential crises. Additionally, the current management team seems to have a strong focus and a clear plan how to reach profitability soon, while almost every KPI is pointing north.
   
   
4. The opportunities that come with controlling entire towns in many different countries where thousands of people live year-round, as well as the option to use the remaining large land bank to keep building and expanding these destinations, sounds very attractive to me.
   
   
5. Considering that the current market cap is only about CHF 600 million and that alone the CBRE fair value report showed that the assets in ODH's flagship destination are worth almost 2 billion, with many more destinations to be valued separately, I believe risk/reward is very attractive and that there is some huge upside potential from both the value perspective in the long term and the growth perspective in the short term.
   
   

Therefore, I tend to agree with the CEO.

"We believe our assets are not adequately reflected in ODH's stock price."
CEO Khaled Bichara (Sunday, 21 October 2018)

Share price today at 25. June 2019:
CHF 13.70 (Zurich, Switzerland)

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Update 16th August 2021: 
I am working on an update. In the meantime join my Discord for in-depth discussion:
https://discord.gg/Qy5GwEYne3