The Great Graphite Rush of 2012

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The Great Graphite Rush of 2012

(Initially Published February 23rd 2012) 

Graphite prices have yet to go critical in 2012 remaining stable since late last year, but the same can’t be said for the mining stocks as Graphite Fever has gripped the mining community (see Graphite... Set to go Critical in 2012).  New acquisitions are announced on a weekly basis and share prices of almost all the companies in this sector are taking off.   If price action is any indication that there is growing interest in this sector, one only has to look as far as the share prices of the companies in the sector doubling, tripling and quadrupling in 6 weeks.  The Graphite theme has started the year with a bang and will continue to gain traction and momentum as all the household names in the sector are moving at a torrid pace and will continue to do so for the next 18 months and most likely continue out on a 5 year cycle.

Opportunities like a rebirth of a sector don’t come around every day and to be in on the ground floor of this BOOM is something special and you should consider yourself lucky for you early adopters.  The last sectors that saw this type of excitement and share price appreciation were uranium and more recently rare earths.  Although even uranium did not get off to the bang that graphite has since December.  One reason for this is that developing a graphite mine, no easy task in itself is so much easier than uranium where radioactivity and special permits are needed or even rare earths where processing challenges keep many companies up with nightmares.  Not so in the graphite industry that is both 10 times larger than the rare earth and uranium markets and is expected to experience unprecedented growth expected not seen in either sector.  Growth so big that it could be ten times the size of either market.  If the graphite market doubles, that is a factor of 10 when compared to the rare earth market doubling or the uranium market doubling.  Meaning all things being constant, 10 times the mines will be needed when compared to either rare earth's or uranium.  This long neglected sector that hasn’t seen any investment or development since Ballard in the early 2000’s has a long way to come back.  You can’t even really call this mining sector with not one Canadian public company actually mining graphite although Northern Graphite looks to be in production by 201 and Focus Metals 6 to 9 months after NGC.

Gentlemen start your engines, pick your favorite stocks or a basket of them and outperform all your friends who still haven’t heard of graphite or the BOOM that is happening in this sector.  Last summer when I first caught wind of this critical material for the electrification age... 1 in 20 had heard about graphite, now maybe 4 in 20 have heard about.  There is still a lot of people to tell this story too.   If you got graphite in your portfolio, it is going to outperform anything else this year as it is clear there is need for mines in this sector.

Further evidence is the amount of companies in the sector.  Last summer there were 2… now there are at least 14 and counting.

Trading summer of 2011

1.       Northern Graphite NGC-V

2.       Focus Metals FMS-V

Acquired projects and actively exploring

3.       Strike Graphite SRK-V

4.       Standard Graphite (formerly Orocan) SGH-V

5.       Lomiko Metals LMR-V

6.       Solace Resources SOR-V

7.       Cedar Mountain CED-V

8.       Energizer Resources EGZ-T

9.       Soldi Ventures SOV-V

10.     GeoMega GMA-V

11.     Greenlight Resources GR-V

12.     Rare Earth Metals RA-V (subsequent to the Jan 23. initial publishing date)

Companies currently not trading or listed…

13.   Mega Graphite (IPO March)

14.   Tasex Capital (Flinders) TAX.p-V

15.   High North (Canada Graphite) HN.p-V (IPO April)

There are companies that I have missed, but you can’t keep track of them all.  NGC and FMS will remain the industry leaders while Standard Graphite, Lomiko, Cedar Mountain, Energizer, Solace and Strike are my early favorites in the next group down which is 2/3 of them.  At this point in time it is hard to differentiate one from the other as it is early and all the projects now are similar to each other and are the best of the bunch from 20 years ago and on par or close to projects like Focus Metals Lac Knife and/or Northern Graphite's Bisset Creek.  People keep asking me which graphite stock is better?

They are all good and any one of these companies in this list will be at least 100% high by next year, even the companies that are still not trading.

Mega, Tasex and High North are all big projects that require capital so are all holding off while companies like Lomiko, Strike, Cedar Mountain and Standard Graphite play catch up.  Once these companies are valued between $20M to $30M market cap, the environment for larger capital projects becomes more favorable for the market to support.  The market will not buy the more expensive valuations that these projects require because these projects still have risk and there is still too much perceived value with other companies.   Why would you buy into a $20M placement value with a project that has less work when you can buy a project that has the same mining potential and a similar risk profile for $5M?  You don’t.  You buy the cheaper company because it has greater investment potential.

Northern Graphite NGC-V $2.00 / $76M market cap

January 1^st 2012… $0.92 +$1.08 / 117%

NGC was $0.92 when I first mailed out the New Year’s letter mentioning graphite as a top theme for the year.  It closed $2 today and looks like NGC is heading for $3, an important mark for any junior looking for money and a fast-track mine.  NGC announced positive pilot plant test results with initial recoveries between 90.5% and 94.4% at a 94.5% purity or greater.  What is important to note is that 80% of Northern Graphite’s production is +80 mesh with 96.7% purity and 50% of NGC production is +48 mesh achieving 97.7% purity.  Purity is very important in lithium ion batteries which NGC production is of very high quality and will require little upgrading.

Another major announcement the company made in early February was that NGC entered into a partnership with Grafen Chemical Industries which has developed a process to make Graphene from Bisset Creek’s +48 and +32 mesh product.  Signing this deal with Grafen reinforces that large fake mineralization is the premium product in the industry, not only for Li ion batteries but for Graphene production.

Industry Rumor... there are rumors flying everywhere that Northern Graphite is working out a deal with an end-user for their flake graphite at that includes a $7,000 per tonne off-take agreement and a 9.9% equity in the company.  If Northern Graphite signs an off-take agreement for $7,000/tonne... forget the moon Alice, we are going to mars!!!  We are going places no investor has ever been before. The whole industry will fly to the moon and back in anticipation of large flake graphite prices taking off again.    With NGC signing such a rich deal for the highest quality natural graphite in the world, it is easy to see graphite prices at least doubling from here and possibly more as graphite mania heats up like the uranium market did in 2005 and 2006.  Why would an end user sign an agreement that is double to triple the current price of large flake graphite?   

1. Security of supply
2. No large quantities of premium high purity flake graphite available
3. Synthetic graphite, the only substitute product costs 15,000 to $20,000 per tonne.
4. Cost reduction - with peak oil, synthetic graphite could easily move well above $25,000/tonne making natural graphite a cost-effective alternative with only mining costs and a natural demand curve.

Currently auto makers use synthetic graphite in Li-Ion batteries making natural flake graphite an obvious choice for manufacturers as a way to get materials prices down and secure supply.  Synthetic graphite has both a limited supply and derived from oil, so as oil goes up in price, so does synthetic graphite.  It is a natural progression to use large flake graphite in mass production as manufacturers will be looking to cut costs down.  Tesla's battery is $32k and requires approximately 100kg of graphite.  At synthetic graphite prices that is $1,500 to $2,000 and possibly much more depending on where crude oil prices go.  Using natural graphite would reduce the material cost to $250 to $700 depending on where the the long term price of high purity large flake graphite ends up.  So ya, the industry rumor that NGC is signing a very rich off-take agreement is very believable. 

This is identical to what happened in the uranium market when end users started buying uranium in the ground... this happened when uranium was $30 - $40 dollars and it proceeded on a torrid pace for 18 months to top out well over $125.  If these rumors are any indication, graphite prices are set to explode!!!  This is only the beginning of the Great Graphite Rush of 2012.

Focus Metals FMS-V $1.04 / $88M market cap

January 1^st 2012… $0.63 +$0.41 / 65%

FMS has had to deal with a little bit of disappointment since the beginning of the year.  Lac Knife is not as good as it first appears.  Information they released in a technical report showed that 53% of the graphite at Lac Knife is uneconomic.  It is probably why the company staked more property in southwestern Quebec because their 15% deposit became a 7% deposit over night with less distribution of large flake.  With companies like Lomiko sitting on 28 meter intervals at 8% and with better mineralization in a known large flake camp, there could be better opportunities out there than Lac Knife. 

Lac Knife still looks like it is more economical than Bisset Creek and will provide higher returns per tonne… but the two companies are much more comparable.  Even more so if Northern Graphite signs this rumored $7k off-take agreement.  Certainly with Northern Graphite being closer to production, have a pilot plant running and high quality mineralization with top notch management, it deserves to be valued closer to FMS market cap than at the start of the year.  When a lot of people got those numbers from the filed report on Sedar, the choice was an obvious one and they went straight to NGC.

What it should highlight is that Lomiko’s potential with Quatre Milles could be a project with similar numbers to Lac Knife now that we know Lac Knife is really  7% grade and not 15%.

Strike Graphite SRK-V $0.285 / $11M market cap

January 1^st 2012… $0.115 +$0.17 / 148%

Strike Graphite has done what Strike does best.  Raise money at cheap prices and grow the market cap by issuing shares.  With the recent placement at $0.175 and the shares issued for projects in Tanzania and the Strike Graphite projects there is a lot of shares outstanding.  These guys have done a great job of running up the shares with the company closing in on 70M fully diluted and now just starting exploration on the projects.   Jody Darouge is running the projects at SRK meaning they have a competent technical consultant, but the share structure is already damaged with this company and SRK will always have to churn through shares.  The company also dragged their feet on basic exploration procedures which should have been done as diligence.   The brokers are in SRK really heavy so it is churning at $0.30 not gaining any momentum because the brokers are selling their warrants at a profit. The company recently released results of an airborne mag on Simon Lake that shows a very large and intensely mineralized graphitic conductor of up to 25km in strike length.  But until there are some holes plugged into Simon Lake, Simon Lake remains a wild card and I am very surprised SRK has announced intervals with grades on holes that were visually estimated.  No one in their right mind is going to build a mine on someone’s visual estimates from the 70’s.

SRK also announced the acquisition of the Wagon Graphite Project which is already a better project than Deep Bay East because of the camp and style of mineralization.  It is located15km east of Timcal.  15 samples ranged from 0.57% to 18.13% Cgr with flake sizes recorded up to 3mm in diameter.   The property has tons of potential being another Graphicor project back in the day and covers an 18km strike length of formations.   

Standard Graphite SGH-V $0.59 / $10M market cap

January 1^st 2012… $0.29 +$0.30 / 103%

Standard Graphite has gone about methodically doing their business staking land and running EM surveys right out of the gate.  Something SRK should have been doing 4 months ago.  With the latest information coming back from the little Bryan Property it looks like it might yield up some good exploration results.  The EM survey yielded two conductors several kilometers long with the second conductor 1km north of the Little Bryan mine appearing quite intense and very continuous.  Considering high grade material was mined on this site, the discovery of a graphitic trend in silicates/marble rocks bodes well for exploration on the project.

Solace Resources SOR-V $0.28 / $3.7M market cap

January 1^st 2012… $0.10 + $0.18 / 180%

Solace finally announced acquisition of the Monpellier graphite project in Quebec.  The exposed outcrop was sampled over a 7 meter width with individual grades ranging from 0.84% to 14.4% Cgr.  SOR is following the Standard Graphite model and Monpellier is the first of 4 acquisitions with the biggest and baddest of the bunch yet to come.  Solace is now the cheapest of the graphite stocks and is a company that will trade up very fast with a low float and quality graphite projects being vended into the company.

Lomiko Metals LMR-V $0.115 / $6.4M

January 1^st 2012… $0.04 +$0.075 / 188%

Lomiko has finished correcting and is about to close the financing and start the next leg up.  The company has the highest value project of any of the juniors and is still one of the cheapest.  This company should at least have a similar valuation to SRK or SGH nad in my opinion should be worth more because of the advanced nature of Quatre Milles.  LMR-V has the inside track to have a FMS/NGC type project.  It has by far the most historical work on any project and Lomiko recently announced they will be completing a 43-101 with the historical work which will give investors a good idea of what Quatre Milles is all about.  I would not expect a resource in the 43-101, but the historical work will be used in the resource report indicating grade size and drill hole location and give an indpeth review of the exploration work done in 1989/90.  This will give LMR a great base to work off and a head start putting a resource together on their property in a cost effective manner.  Technically Lomiko looks like it is ready to breakout after hitting a $0.13 and consolidating for a two weeks.

Lomiko has tons of news drivers including…

• 43-101 report
• Drilling announcement
• Closing of the financing
• Expanding the technical team

On top of the news drivers there are two other important fundamentals… our big insider is done selling  and PDAC is 10 days away!  Technically LMR is primed to break out and run right past $0.20 into PDAC and out the other side.  All graphite stocks look like they will continue to run at least until the end of March/April period.

*Please note that market caps do not take in to account recent financings or any outstanding warrants. 

In other events…

Energizer Resources EGZ-T $0.295 makes a very big discovery in Madagascar at Green Giant. Early indications are that they are on to a very large graphite camp.  118.6m @ 6.24% Cgr in drill core and 106m@ 7.11% in trench sampling show a very large high grading deposit.  Energizer also signed a deal with DRA Mineral Projects to develop Green Giant.  This is one that will be a mine in the next 3 to 5 years.

Cedar Mountain Exploration CED-V $0.23 acquires the Graphite Creek Project in Alaska.  This project has 80% large flake distribution and grades between 5% and 10%.  It has the potential for a 200Mt graphite deposit.  Cedar Mountain is another early contender that is ideally located close to tidewater and easily shipped to Japan or even China.

Soldi Ventures SOV-V $0.155 acquired the Lochaber Graphite project in Quebec that has thin widths but was visually estimated to grade very high.  They recently made another acquisition acquiring the Cameron Graphite Project in Quebec which appears a little better at 8 meter widths and grades of up to 15%.  A bulk sample was conducted in 1965 with final test runs producing a 97.4% Carbon purity with 90.15% recoveries.  On top of that +48 mesh recovery was greater than 50% in different crushing scenarios.  The Cameron Graphite project could be a real winner in Quebec.

Graphene is exciting… but it’s Lithium Ion Battery Demand that Will Drive the Next 3-5 years. 

What makes this sector even more exciting is graphite demand is clearly tied to peak oil and gasoline prices over the next decade.  The drive to alternative energy vehicles is the key link to many of these companies and their hopes to mine, be bought out or secure off take deals.  Without this incremental demand coming online over the next 2- 5 years… this theme is dead.   As gasoline prices continue to edge higher in the age of inflation, consumers will be forced to adopt affordable alternative fuel vehicles and adoption rates will be much higher than anticipated.  Adoption rates are the wild card in the demand equation and could choke supply because of not enough of the right type of graphite is available.  There is already limited synthetic graphite on the market and it costs well over $15,000/tonne and increasing as the price of oil increases. 

Graphene will play a more important role in graphite demand from 5 to 15 years from now, while getting mines into production to support electric/hybrid vehicle mass production rollout over the next 3 years is the priority.  Just from Tesla’s Model X and S they could be selling 30,000 to 40,000 cars per year by 2014 which is a quarter of the total output of Northern Graphite.  Tesla is designing power systems for other manufacturers as well.  Every auto manufacturer is forced with the same choice and is going down the road of electric and hybrid vehicles.  If gas prices go to over $5 a gallon in the US over the next 18 months, you will see much faster adoption rates than anyone anticipated.

Incremental demand for Lithium Ion batteries is expected to grow on average 25% a year.  That is over 300,000 tonnes of large flake demand by 2020.  Nuclear pebble bed reactors are expected to take up 400,000 tonnes of supply by 2020.  While Li-Ion battery demand may be elastic and change accordingly to oil prices, pebble bed reactor demand is inelastic and the 400,000 tonnes needed per year is locked in stone unless all these reactors are cancelled now. 

And then you have fuel cell technology which saw an emergence in graphite in the early 2000's with Ballard. Fuel cell technology has been long in developing and perfecting, but 10 years after the initial Ballard excitement, even fuel cells are a legitimate technology.  Fuel cell technology could require the entire current 1.2Mt market for graphite!  

This is just the start of a major bull market in a sector that didn’t exist 18 months ago. At the end of this run 5 years from now, some of these stocks will have gone up 1,000% to 10,000% and be developing major graphite mines.  If everything comes together like a once in a 100 year perfect storm... this could be 10 times bigger than anything we have seen in any materials sector since the the turn of the 19th century gold rushes  Some say this is like the beginning of the Uranium boom while others say it is like the Lithium boom and still others want to compare it to the recent rare earth boom.  I say it is better than any boom this millenium because this is a sector where it needs mines fast-tracked to construction for the next 5 to 10 years and depending on how technology plays out... Could need a lot of them.  More mines than there currently are companies trading on the Venture market.  This is a sector where building a mine isn’t impossible, doesn't require the endless permits or $1B cap-ex that most large high value mines require.  These projects are relatively cheap and still return cash flows that leave most $1B cap projects in envy.   


This is a sector where there is real incremental demand from several angles and is a sector that has no companies and no major mines outside of China.  It is also a sector where the largest mine in the industry is only 40,000 tonnes meaning there will be need for at least 10 to 20 to 30 new graphite mines outside of china over the next decade.  That doesn't include the mines that will be depleted over this decade and need to be replaced as well like Timcal's Lac des Iles or the mines in China that are becoming less competitive.  This is a sector where the returns are off the chart for the minimal dollars required.  It is a sector where there is ton of excitement about chasing pencil lead.  The fundamentals in this sector from mine to pencil suggest that the perfect storm is brewing in graphite and the early birds in this sector will get the worms.

Note… early birds and worms are plural.

Out of the 15 companies listed above… half may be mines in ten years.  Those are odds that just don’t happen very often in mining.   So are these prices rises justified?  Every single penny is justified and my gut tells me that this is just the beginning and graphite stocks will be in high demand all year for several years.  Themes just don’t come around like this very often.  The last one was uranium 8 or 9 years ago and if projections are right, the graphite rush will make uranium in 2005/06 look like a blip.  

There might not be another hot theme like this for another ten years.   Don’t hum and haw about graphite and watch these stocks go up.  Join the party and make some money!

Christopher Skidmore

Beat the Market Stock Picks

One Step Closer to German Unification of Europe

Germany gets her way and enslaves the Greeks which…

Paves the way for markets to go higher.

When you read news articles this week you will read the Greek parliament succumbed to the E.U.

It is a misprint.

The Greek parliament succumbed to Mario Draghi and the German Union. Anyone telling you the European Union is a group of independent states come together for the common economic good of Europe has the blinders on. The European Union was a fraud from the beginning.  It was set up so the strongest states in Europe could survive and thrive off the backs of the weaker economies in an environment where the only thing common about the European Union was the currency. Germany has had a decided advantage over the rest of Europe operating in an environment where the only thing that changed was a much weaker than normal dollar for export allowing German industry to flourish where it once had to compete against the high cost of exports. When the EU came into fruition, it gave Germany overnight a decided advantage over the rest of Europe.  Just over a decade later, Germany is on the verge of controlling 3 European states….Greece, Ireland and Italy. When Germany runs your country, you are in for some pretty severe times while they try and streamline your nation’s economy.  Extreme and drastic cuts of 20% to the minimum wage further enslave the poorest of the poor in the Greek economy.

The Germans live in a country with no minimum wage so this is obviously no big deal to them.  So would you expect any less?

I have no opinion on how minimum wage affects the economy. I do know that minimum wage raises the standard of living for the poorest people in society. Canada has one of the highest minimum wages internationally while Germany has none. Greek minimum wage is not the problem as the dutch have double the Greeks minimum wage.  Greek minimum wage is only 66% their Canadian counterparts.

Super Mario…? Suuuure… The bond vigilantes were his dogs.

Someone give this guy a medal for calling off his own dogs. Some are calling Draghi Super Mario for supposedly arranging financing’s that brought rates down in the peripherals, we all know better. As soon as Germany had her German Sachs people in place in the Italy, Greece and the EU. The bond vigilantes suddenly disappeared. Coincidence? I don’t think so.

Nice to know you can hire out rouge American financial institutions to target your enemies’ financial paper and force them to into submission.

This is 21st century warfare and you have just seen the 21st century financial version of German blitzkrieg over the rest of Europe.  Done by none other than Germany, Euro Sachs, and the Goldman Union.

The good news with the Greeks passing their austerity measures to secure payments is that markets can now ignore Europe and let them muddle in mess while the rest of the world returns to growth.

What depresses this picture even more… you might not like the way Germany is going about taking financial control of Europe, but after it is said and done, there may be economic benefit to being ruled by a country like Germany who understands what it takes to be a leading global economy. There will be benefit from having streamlined economic policies, and reforms across Europe that create a true economic block under German control.

The even better good news… No one really cares as long as Europe remains a stinky smelly pile of poo across the sea.

Let’s just applaud Germany for finally doing what they couldn’t do 100 years ago and give them even more kudos for not using tanks this time.

Trading patterns (Algo) indicate typical bull market activity

One thing I have noticed in this market is a strong pattern of selling worries and news and then having the market grind higher by the end of the day. This is a typical bull market trading pattern climbing the wall of worry.  Sell the resistance in the morning on worry and then climb back up that wall. The underlying fundamentals scream that you want to be long this market and the action confirms this.  Sell the jitters and buy the reality.

There will be no liquidity event in 2012.

This market remains extremely cheap with the US markets in a recovery mode and the whole world expecting China to bottom this year with a pro-stimulus regime assuming power.  A China bottom is what investors are waiting for on the TSX and materials stocks. Without a China bottom, the TSX will never have the 1,000 point premium it commanded less than a year ago.  With little expectation of direct QE injections by the FED this year and playing the waiting game for China to come out its slump, now is an excellent time to buy many oversold materials stocks. Two sayings that come to mind are… “buy them when no one wants them” and “BUY LOW.”

In the middle of a Mining Supercycle… you can’t really say no one wants them, but many oversold commodities stocks are trading at or near 2009 lows.

The TSX remains a screaming buy. I don’t expect the TSX to lead the market anytime soon as the American markets are leading the recovery and will continue to. I do see very good value on the TSX. The TSX has traded a premium to the INDU and I expect that premium will come back as commodities come back in vogue. This won’t’ happen until China starts heating up although the smart money has been driving many copper stocks and even the actual commodity back up in January.  Many are expecting a Chinese recovery, this is clearly noted in the recent moves in copper stocks and the underlying commodity. Is Doctor Copper right? With copper stocks one of the big movers so far in 2012, it looks like emerging markets may finally be out of their funk.

For now, momentum remains firmly entrenched in the US markets with investors searching for yield, value and growth. There is still a lot of that in American markets at the moment.

With the S & P 500 at record earnings and the lowest multiples over the last decade except for the 2008 crash, a higher multiple will drive this market to and through a breakout this spring even on less than stellar earnings reports in Q1.  This market deserves a much higher  multiple at this point in the US recovery. Currently the market receives earnings multiples of 13 times which puts the SPX at around 1,350 for the year. Just on increased earnings multiples to 14 or 15, could see markets hit 1,400 to 1,500 by the end of the year.  If the US recovery continues to pick up steam.

46% of companies’ earning’s misses a sign of capital spending and hiring…

Not an economic slowdown

One negative sentiment I see in the headlines is that companies are not beating this quarter estimates like they did in last few quarters for which some bears are taking as evidence of a turnover and a top in the markets. I see things much differently as both hiring and capital spending will eat into the bottom lines of corporate profits. So for some who say there is evidence that we are at a top… I say this is evidence that we are finally seeing the long awaited jobs recovery and capital spending hit the books.This is good and will reinforce another 12 to 18 month bull market with increasing sentiment across the entire economy.  If this is the year that US housing starts to re-inflate, 2008 and 2009 will be a distant memory.

After all is said and done it’s not earnings beats that drive the economy and GDP growth, it is hiring and capital spending. With the USD at relative lows compared to global currencies and rising labor costs in developing markets. The outsource decision is often not an alternative that is put on the table as much. Companies may even start repatriating profits and focusing on spending in the US where growth and expansion in many sectors has been non existent for the last decade or two.  The USA is a much more competitive manufacturing block than it has been in decades and prospects of an even weaker dollar to come make manufacturing in the USA a possibility.  Setting up shop in the USA is a foreign concept to most boards, but the numbers don’t lie, repatriating profits to invest back in the USA economy is a viable alternative for many of these multi-national US companies.

Technically speaking…

This market wants to go higher. Everything the market is doing points to a major breakout this spring. One point that I didn’t realize that Eric Coffin was kind enough to bring up at the World Outlook Conference in Vancouver, BC… this is a sell in May year for Canadian stocks and this year Canadian companies won’t be affected by the typical PDAC March curse. The one factor that changes the habitual selling in March this year is the fact that there were not many private placement financing’s in fall 2011 meaning there will not be many free trading shares that financiers are looking to dump on the market after the 4 month hold.

December saw a definitive break in downtrend in North American markets. It saw a cup and handle formation in the US markets and an inverted head and shoulders on the TSX. These two patterns developing in early December gave me confidence to expect a break in trend which happened just before Christmas. We got our continuation pattern and now markets are set to rock and roll and break out to multi-year highs.

This is an atypical bull market – It’s An End of the World Bull

These markets will continue to grind higher and climb that wall of worry. This is a bull market to end all bull markets in 2012 and this is one run you don’t want to miss out on. 1,500 on the S&P is a reality and I would be surprised if the SPX doesn’t break that number by Q4 or Q1 of 2013. It’s the type of market where you put any and all extra cash at work. Put a second mortgage on the house, sell your kids, rent out your wife… do anything and everything to get as much cash in this market. Did I just say rent out your wife? Yes. Conditions and setups like these don’t happen too often, so do anything you can to get invested with as many dollars as you can and stay invested in this market all year.  Once the SPX 500 breaks out of current 1350 – 75 resistance, 1,500 is my target. It’s what I am calling an End of the World Bull.

It wouldn’t be the end of the world without an end of the world bull… Would it?

When Armageddon comes in an end of the world bull… you want guns (technology metals), gold (copper, silver, platinum, palladium) and groceries (potash and phosphates.)

It’s an end of the world bull and in this type of market you can buy any ‘ol’ $0.03 or $0.05 stock and you will line your pockets with cash.

Christopher Skidmore

Abattis Biologix... The next $100M Neutraceutical Company

Bringing you undervalued, high growth opportunities... Abattis Biologix Corporation … The Next $100M Neutraceutical Company CNSX: FLU Share Price: $0.055 Shares Outstanding: 51.7M Fully Diluted: 68.2M Market Cap: $2.5M Bio-Med and Bio-Tech Stocks are Back in Vogue The Bio-Med/Tech sector has been a long suffering sector since the dot com crash. Over the last decade this theme has languished while commodities have taken over as the dominant growth theme. Bio-Med/Tech’s had entrenched themselves in the 1990’s as the pre-eminent growth story along with tech and after 10 years of consolidation as a sector, the growth story is back on. Recently the investment environment has turned extremely favorable with $100M to $1B buyouts in the sector with the flavor being spiced heavily towards the fast growing natural health product industry. An aging demographic of baby boomers who are now well into their 60’s are flocking to natural health medicine to keep them looking and feeling healthier in hopes of enjoying the highest quality of life in their retirement. The Bio-Med/Tech theme started to hear rumblings when Obamacare was announced which may or may not be having an effect on the rebirth in this sector. One thing for certain is that North America is an aging population with a generation of baby boomers trying to stave off death, stay young as possible and enjoy the best quality of life one can attain in your golden years. Health issues that remain at the forefront of this industry with very large markets are the anti-viral, anti-inflammatory, cardiovascular and joint health categories. All aspects of this industry will benefit immensely as society deals with the needs of an aging population, but there is an immense opportunity providing relief and prevention medicine in the growing $25B Natural Health industry. The penny sector has come to life with a company I wrote about last year, biOasis Technologies BTI-V tripling in value over the last 2 months from $0.50 to over $1.80. (BTI is UBC research & development company with a focus on breaking the Blood Brain Barrier by piggybacking previously ineffective drugs with Transcend). The recent action on the share price of BTI is showing signs that this sector is heating up, especially for a company with a niche market story. The renewed fervor for Bio-Med and Bio-Tech stocks and the strong outlook in the sector has created an investing environment for start-up companies to come to life and thrive. One such company that has quietly gone about its business putting together the necessary pieces of the puzzle creating a strong Bio-Tech start-up with the right mix of management, product and marketing strategy is Abattis Biologix FLU:CNSX. An Ounce of Prevention is Worth a Pound of Cure A growing trend in this industry is for individuals to focus on prevention and natural health as a major part of one’s health regime instead of relying on pharmaceuticals to fix things when you run into health problems. Traditional pharmaceuticals focus on a cure based approach and do not address the quality of life issue. Natural (neutraceutical) medicine on the other hand can focus on the same type of cure based approach as well as be very effective as prevention medicine. As our society becomes increasingly more educated about health issues and how to stay healthy for as long as possible, people are turning to natural health products such as krill oil, berry extracts and other plant and animal based derivatives to get vital ingredients that have been proven to optimize a person’s health. Have you ever heard the saying ‘an ounce of prevention is a worth a pound of cure?’ Learning about healthy living and available health products that improve your life can significantly improve the quality of life over the duration that an individual lives. An added benefit of using natural health products as part of a lifestyle is that over the next generation, a change in societal attitudes about health and staying healthy could have a drastic reduction on long term health care costs. ‘Going Natural’ can also eliminate many serious side effects and complications with pharmaceuticals which will further eliminate costs. Natural health solutions have a major advantage to products offered by major drug companies. They have the advantage of being cost effective when compared to costly patented pharmaceuticals. A trend towards natural health care will eventually decrease burdens on the health system over the longer term. The neutraceutical market is a growing industry with products that are just as competitive as pharmaceuticals and have the added advantage of keeping you healthy. Growing trend to natural health products and preventative medicine. Neutraceutical are often a less costly alternative to expensive pharmaceuticals Prescription costs to continue to rise while neutraceuticals price point remains constant Trend to neutraceuticals to avoid harmful side effects of prescriptions Natural products are increasingly more effective vs. pharma counterparts with more advanced extraction technology available to the industry. ‘Prevention’ is always cheaper than ‘treatment’ This high growth sector offers lofty premiums for companies with niche products such as ColdFx, Neptune Krill Oil and other animal and plant based derivatives. Evidence the neutraceutical market is heating up… Two highly visible takeovers in the last year Industry darling Valeant NYSE:VRX formerly known as Biovail recently bought out Afexa for approximately $100M whose sole product is ColdFx, a widely marketed natural cold product with sales of $40M in the most recent year. Royal DSM a Netherlands based bioscience’s company agreed to by Martek BioSciences for $1.09B in December of 2010. Martek was a world leader in producing DHA from algae. DHA – An Essential SuperOmega Companies are after the SuperOmega, DHA. It is the key ingredient in Neptune Technologies and Bioresources TSX:NTB NKO. NKO is a product refined from Antarctic Krill Oil. NTB is a natural health biotech worth $125M with annual revenues of less than $20M. At its highest valuation Neptune was worth $250M last spring. The neutraceutical sector offers lofty valuations for companies that develop niche products for the market such as Neptune Krill Oil (NKO), ColdFx or in Abattis Biologix case, DefenZall and their DHA infused Krill Oil platform. Abattis Biologix… …The best $3M opportunity anywhere in the biotech sector At a pint sized $3M market cap, this little biotech start-up has a platform of products that will be the envy of any neutraceutical company. Abattis has products that will compete directly with both Afexa and Neptune. If successfully marketed, just these two products alone have the potential toproduce stellar combination of revenue streams to Abattis. Afexa had sales of $40M from ColdFx in 2010/11 and was recently bought out by Valeant for approximately $100M. Neptune is a krill oil company that has annual revenues of less than $20M and worth $125M market cap. If you add the two potential revenue streams together of $40M and $20M with a combined $250M market cap, those are dizzying heights for a tiny start-up worth $3M. Abattis has the product line and industry expertise to compete with Afexa and Neptune’s products. Abattis should command a valuation well past the current $0.06 share price as they rollout the product lines in 2012 from several platforms. Abattis isn’t going to turn into a $100M market cap company overnight , but they are targeting products in an industry that have potential to earn yearly revenues in excess of $50M from the two closest competitors of Abattis. A Solid Foundation to Build From There is no start-up in the Biotech industry that has positioned itself for the explosive growth potential that FLU represents. Abattis Biologix FLU has quietly gone about its business in 2011 putting together key pieces in creating an emerging natural health products company capable of multimillion dollars in sales. Abattis products plan to be at the forefront of several different health categories including anti-viral, anti-inflammatory, cardio-vascular and joint health. The company has a key (patent pending) product in their DefenZall Cold and Flu lineup and in producing their own DHA infused oils from krill. Abattis acquired companies in late 2011 that give them key licences and facilities to produce a large lineup of natural health products outsourcing and producing patented materials in Asia and assembling the products in Canada under the label Made in Canada. This gives Abattis the ability to be a low cost producer in the industry with an identical manufacturing structure as neutraceutical giants Jamieson and Natural Factors. Recent moves by the company to acquire Northern Vine and Sci-Natural Wellness Corp provide Abattis with a product platform licenced by Health Canada with licences to produce up to 200 products. The production facilities allow Abattis to expedite production of DefenZall and their krill oil products. This instantly makes Abattis a strategically integrated specialty biotechnology nutritional company with products licenced by Health Canada. It also speeds up Abattis production timelines by 18 – 24 months with the acquisition of the facilities approved by Health Canada. With production facilities in Langley, BC and the ability to produce products at a low cost advantage by outsourcing key ingredients offshore, Abattis has positioned itself with the recent acquisitions to hit the ground running. The company has identified marketing and distribution channels in the US and Canada and built a management team that has history managing successful biotechnology companies. Dr. Tim Fealey heads up product development with his 30 years of experience serving as worldwide VP R&D with Proctor and Gamble and The Coca Cola Company. With Tim on the board of directors and his extensive industry connections and technical expertise, it allows Abattis to access DHA, Astaxanthin and other innovative proprietary ingredients from sustainable sources. Without Tim, Abattis’s plans to produce a low cost/high quality Krill Oil product competitive to Neptune Krill Oil would not be possible. Tim served as Martek Biosciences Chief Innovation Officer. Martek BioSciences recently sold to DSM for $1B. Martek is the world leader in producing DHA from Algae. Dr. Tim Fealey wasn’t ready to retire and he wants to build another $1B business at Abattis Biologix. A Focused Strategy Targeting Market Need The key acquisitions above position the company for rapid growth in manufacturing and sales of natural health products targeting key health segments such as… Anti-viral - Product launch of DefenZall targeting Cold and Flu. Spending on Flu products was $7B 2009 and $10B in 2010 representing a huge market for an effective product. Tamiflu sales average $880 million per year. Anti-inflammatory – Abattis Krill Oil (AKO) and Red Algae (DHA and Astaxanthin) product platforms target this $60 billion market specifically with DHA infused and Astaxanthin products. With an aging population this is a segment that is expected to continue to see extensive growth. Cardio Vascular – Heart and Cardio Vascular diseases cost the economy almost a trillion dollars a year in direct and indirect economic costs. The figure was estimated at $863B in 2010. AKO is excellent for the cardio vascular health. Abattis plans to produce Nitric Oxide tablets for those with circulatory problems. The Nitric Oxide discovery and its relation with the circulatory system won the Noble Prize in 1998. Joint Relief - Abattis will also produce glucosamine, chondroitin and MSM which is another natural health product that is popular for anti-inflammation. Cognitive Decline and Migraine Headaches – Abattis has a natural health product that is very effective against migraines and other cognitive issues. Key Product Platforms DefenZall Cold & FLU DefenZall FLU (patent pending)is Abattis flagship anti-viral product that could drive revenues at Abattis ‘viral’. DefenZall provides strong anti-viral protection against both colds and influenza. Here is how DefenZall fights virus… Prevents viral progression by… Preventing viral replication Preventing further cellular infection by protecting uninfected healthy cells This 2 pronged attack of inhibiting the virus to replicate and protecting healthy cells allows the body to concentrate defenses on existing infected cells and ultimately shortens recovery time. Tamiflu, the world’s #1 selling drug nets $880M in revenue a year and up to $2.5B annually during pandemics. People spent $7B on FLU in 2009 with that number jumping 40% in 2010 to $10B. This indicates that the FLU market is going parabolic and ‘viral’ in spending with huge year over year growth in this specific segment. Tamiflu is a product made from a plant called Chinese Star Anise. Tamiflu offers only one strain of antiviral protection coming from one specific plant, it is a powerful strain, but there is evidence that strains like H1N1 have become resistant to Tamiflu. DefenZall is a blend of several natural anti-viral products making it much more complex for the virus to figure out. Studies have shown when you supplement Tamiflu with DefenZall; Tamiflu becomes much more effective, significantly decreasing symptoms and duration of ill-health. DefenZall is a New and Improved ColdFx… With bonafide FLU protection that ColdFx doesn’t have!!! DefenZall Daily is an improved competitive product to ColdFX. Abattis has an additional product that Afexa did not have when it was taken over for close to $100 million. This is the DefenZall Flu Protection. The product has the identical active ingredients as Afexa’s ColdFx and has the added protection of the Elderberry which is famous for providing protection and relief against several strains of influenza including SARS and H1N1. If you had the choice of buying a product that was identical to ColdFx, but had the added protection against the several strains of influenza, which product are you going to buy? Seems like a no brainer to me. Sales of ColdFx went from ~$1M in 2003 to $30M two year later in 2005 and peaked at $50M in 2008 before leveling off at around $40M per year. If Abattis can match the performance of ColdFx, the valuation of Abattis will rapidly increase. DefenZall is a product that instantly makes Abattis a very important up and coming player in the natural health sector. The health industry is always looking for and trying the next best thing. Just like ColdFx, sales of DefenZall could go from zero to $50M in less than 5 years. If people start buying DefenZall for FLU protection, it could open up a market even bigger than the one ColdFx currently supplies. DefenZall is a product that could quickly initiate a $100M takeover valuing FLU at $1.50 to $2 per share. The #1 marketing strategy in the world… producing improved versions of tried and tested products. 1. Produce an improved product that is identical to a current market 2. Place the product beside the old version 3. Watch the improved DefenZall cannibalize ColdFx sales. Abattis is following a no brainer sales strategy angling DefenZall Daily and DefenZall FLU Protection to be a repeat new and improved ColdFx story. Do you want just Cold protection? Or do you want Cold and Flu protection in the same pill? DefenZall is a capsule recommended 3 times a day just like ColdFx and is recommended to be taken a as daily supplement. DefenZall is Cold and FLU that Protection Works! Medicinal Ingredients in DefenZall Daily: Each 3 capsules contain: Beta Glucan 200 mg Astaxanthin 300 mg Hemp Protein 525 mg Spirulina 300 mg Kelp (Fucus Vesiculosus) 300 mg Zinc 30 mg Vitamin B12 9.9 mcg Abattis Krill Oil (AKO) Krill Oil, the Super Fish Oil contains the Super Omegas DHA andEPA. These two Super Omegas are two of the most powerful nutritional supplements known to man that exist in nature. Krill oil can be shown to be extremely effective against several life threatening and quality of life diseases. It can be even more effective where one’s diet is not rich in seafood. This is typical of the North American diet. Krill Oil Can… Reduce your risk of a cardiovascular event by up to 45% Vanquish artery-clogging LDL by up to 55% Reduce harmful triglycerides by up to 27% Slash heart-damaging inflammation up to 29% Raise HDL up to 44% Soothe joint pain up to 29% Boost your memory as much as 48% Reduce facial wrinkles as much as 51% Increase your energy by over 50% Decrease symptoms of PMS as much as 47% Super Omegas DHA and EPA are so effective in Krill Oil that it is 54 times more powerful than ordinary fish oil. Abattis management has the technical expertise through proprietary processes to source both DHA and Astaxanthin from algae. Algae is the source of nutrition for all life in the sea. The krill eat the algae, the fish eat the krill, the bigger fish eat the smaller fish, and marine mammals and dolphins and whales eat the bigger fish. The components in Algae are a source of nutrients for all marine life. Krill Oil is made of 5 vital components (Everest Nutrition’s Krill Oil) Omega-3 300mg EPA 165mg DHA 95mg Phospholipids 500mg Astaxanthin 1.6mg Krill Oil is marketed by many as the lifeblood of the sea and is the superior fish oil on the market. Krill is the base of the food chain in the ocean and eventually becomes food for everything in the sea. As you go up the system, vital nutrients like DHA and Astaxanthin that originate in the algae are removed from the system. Having the ability to produce and reintroduce these two vital nutrients into the food chain in all lines fish oils will give Abattis a superior advantage in producing quality and effective products in the industry that people want. Abattis plans to utilize Dr. Fealey’s expertise to produce a low cost/high quality krill oil product competitive to Neptune Krill Oil (NKO). Dr. Fealey, former Chief Innovation Officer of Martek, the world’s leading biotech company producing DHA from algae can produce a patented line DHA infused products. Astaxanthin and DHA are the lowest values in krill oil. Having the ability to increase these values to desired levels and infuse both DHA and Astaxanthin into low-cost krill oil could turbocharge Abattis Krill Oil (AKO) with levels that no other krill oil producer can compete against. The company also plans to produce Salmon and other fish oils, but (AKO) infused with DHA and other derivatives such as Astaxanthin sourced from algae will be the primary marketed product. The product will be competitive with Neptune’s NKO (Neptune Krill Oil) at much lower price point as well as having the capacity to expand the lineup into several different fish oil products. Astaxanthin… Another Super Nutrient Astaxanthin is another niche product that Abattis has direct manufacture relations with in addition to the DHA expertise that Dr. Tim Fealey provides. Astaxanthin crosses the blood brain barrier BBB and is another super nutrient that has been professed by many people including professional ironman triathlete Tim Marr. Marr is not the only one who has found its secret as many triathletes have found it extremely effective among triathletes of all ages who use the supplement for its anti-inflammatory properties and to fight sun damage. Astaxanthin is also a powerful antioxidant in the fight against cancer causing ‘Free Radicals.’ Astaxanthin has a pretty a heavyweight imagine in Naturopathy… Powerful Anti-Inflammatory - $60 Billion market King of the Carotenoids The World’s Strongest Antioxidant Decrease in joint soreness – overuse injuries The Athletes Secret Weapon!!! o Increased Stamina o Makes you stronger o Recover Faster o Prevent joint and muscle soreness Those first three are what steroids offer…and you can get all that from one powerful little nutrient that originates in algae called Astaxanthin. Astaxanthin can be marketed with krill oil or on its own as. The anti-Inflammatory segment in health is a huge market worth close to $60B dollars. Inflammation is a constant problem for elite triathletes who train 6 – 8 hours a day running, cycling and swimming. The fact that elite triathletes seek out Astaxanthin as a nutrient to battle inflammation from constant overuse is testimony that this powerful little nutrient, the base for all food we know provides relief for the most strenuous cases that the human body can provide, the endurance athlete. Health benefits from Krill Oil and the Super Omega 3’s DHA and EPA include… Cardio vascular disease Asthma Cancer Anti-inflammatory ADHD Improved immune function Depression Joint Health Saskatoon Berry Abattis other neutraceutical strategy is to develop a line of berry extracts including a little known superberry similar to the Brazilian Acai berry, the Saskatoon Berry. The Saskatoon berry is a high antioxidant berry that is often compared with Acai for its potency. Abattis believes they can market the Saskatoon Berry as a standalone power juice product platform and as a line of extracts. The Saskatoon berry has comparable levels of Polyphenols to acai and antioxidant levels comparable to blueberry. If Brazil can market, produce and export a superberry such as Acai, the same is true for Canada’s undiscovered superberry, the Saskatoon berry. Clinical studies indicate the phyto-ingredients in Saskatoon Berries fight against… Cancer Heart Disease Diabetes Oxidative Stress Cholesterol Diverticulosis Inflammation Cognitive Impairment Nitric Oxide Nobel Prize Discovery in 1998 The Nitric Oxide (NO) discovery and how it affects the circulatory system is one of the greatest discoveries in heart medicine since the triple bypass. The American Heart Association says “the discovery of nitric oxide and its function is one of the most important in the history of cardiovascular medicine. “ Nitric oxide helps regulate the Endothelial System which plays a vital role in cardio vascular health. Scientists identified Endothelial System Dysfunction as a major contributor to all cardio vascular diseases making NO a very important contributor to cardio vascular health. Whenever the system has insufficient levels of Nitric Oxide, the endothelial system starts to deteriorate. Dysfunction occurs and eventual cardiovascular disease persists. Scientists have identified 40–50 years of age in humans when the body starts to produce insufficient levels of nitric oxide to maintain and regulate the endothelial system. Abattis through Dr. Samuel Brant has developed a proprietary blend if nitric oxide sourced from beets, artichoke and other high nitrogen products to produce a high quality nitric oxide blend that is second to none. Abattis target market is the massive cardio vascular health segment that costs the world’s economy almost a trillion dollars in direct and indirect health costs. A secondary market that Abattis will be targeting is the workout supplement market. Nitric oxide has found to be very beneficial for athletes if they take it before a workout. It increases strength, stamina and speed in the body by increasing NO levels in the body. Currently the most effective natural workout supplements for sale are specifically derived nitric oxide blends. Products like NO Explode have taken the workout industry by storm. Boosting nitric oxide levels in the body before a workout allow a person body to be able work faster, harder and longer. Nitric Oxide is certainly a much more effective energy booster for workouts than popular red bull and 4 hour energy drinks. Regular users of nitric oxide describe the energy effectiveness of Nitric Oxide the same as consuming 10 cups of coffee. In a 40 clinical day study NEO40 was shown to… Increased Plasma nitrates and nitrates in the body Significantly reduced triglycerides Modest reduction in blood pressure Key Management When it comes to investing in Biotech and Biomed stocks, there is no industry at start-up stage that is more dependent on management. Management can make or break any public company, but it is even more so crucial in this industry as you are depending on management’s ability to bring innovative, effective and competitive products to market. Dr. Tim Fealey (Global Product Development Advisor) – Dr. Fealey has extensive technical expertise to process and source low cost Krill Oil, DHA and Astaxanthin and experience as Chief Innovation Officer at DHA leader Martek Biosciences make him an invaluable asset to the Abattis team. Executive at Procter and Gamble and Coca Cola give Tim access to extensive industry contracts, networks and preferential treatment among contacts. Mike Withrow (President & CEO) – Mike has extensive experience in the neutraceutical sector founding both BioExtracts and Biocell Labs. Mike has key understanding marketing products in the natural health industry. He is adept at managing a fully integrated biotech company from product innovation and intellectual property to manufacturing and marketing of the Abattis product lines. Dr. Samuel Brant LLC (Chief Science & Medical Advisor) – Dr. Samuel Brant is the face of Abattis to the public. Dr. Brant is a gifted educator who enjoys teaching the principles of healthy living. As part of a marketing strategy Dr. Brant will be hosting a radio show that will promote the benefits of healthy living which will be an avenue to market Abattis extensive line of natural health products. Dr. Phil Hardy – Dr. Hardy is Abattis hands on in the lab science guy. Dr. Hardy is co-founder of North American BioExtracts and Pine River Petrochemicals and has been a biotechnology contractor for years.Dr. Hardy was integral in the development of FDA approved Medical Food for Alzheimer’s disease. He also helps the company grow Astaxanthin under a NRC grant. Abattis Biologix… The next $100M Biotech company When your product has… Active ingredients of ColdFx Plus ingredients from the Elderberry made famous as a natural flu remedy With studies showing increased effectiveness of Tamiflu with DefenZall. You have a product that will quickly eat into ColdFx sales. When you have the ability to… Source inexpensive Krill Oil, DHA, Astaxanthin and other innovative proprietary ingredients from sustainable sources Have one of the world’s leading DHA experts at your disposal from Martek who was the company’s Chief innovation Officer. Plans of making major inroads into the lucrative Krill Oil industry are quite realistic. When management has a proven track record… Marketing and bringing products to market. Managing intellectual property and being at the forefront of innovation. Extensive industry contacts with a vast network of established distributors to work with to execute on the marketing plan. Future revenue streams seem but a formality. Abattis Biologix is a $3M market cap biotechnology start-up that is positioned to walk among giants. They have two product platforms that compete against $100M companies in Afexa and Neptune. They have the right management with experience in corporate innovation and strategy, scientific innovation and marketing expertise to the consumer. They have numerous intellectual property and patented process that give the company real IP value. They have made recent acquisitions to start production and marketing of their most valuable product lines. With Abattis on the verge of rolling out several products in 2012, this company is starting on its path to a conservative $100M valuation if Abattis management executes on their plan for growth and value creation. Given the extensive track record and experience of management in the industry, the experience in all aspects from product innovation to sales and marketing, given the superior lineup of products that Abattis plans to roll out… Abattis is already well on track to be a major player in biotech industry. Abattis Biologix has entered into a 3 month marketing, promotion and corporate advisory contract with Beat the Market.