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Taylor MacDonald: Off the Beaten Path
Source: Karen Roche of The Energy Report (8/25/10)
Taylor MacDonald, vice president of investments with Pathfinder Ventures Corporation in Vancouver, has a knack for discovering the undiscovered. In an exclusive interview with The Energy Report, Taylor drills down in the niche of innovative technology companies serving the resource sector and shares some names that most mainstream banks have never even heard of.
The Energy Report: Tell us about your resource holdings outside of the mining space.
Taylor MacDonald: We have a number of oil and gas positions that I’d describe as a little off the beaten path, including Tag Oil Ltd. (TSX.V:TAO), Primary Petroleum (TSX:PIE), Pacific Rodera Energy Inc. (TSX.V:PRD), Realm Energy International Corp. (TSX:RLM), as well as Porto Energy Corp., which is a private Portuguese oil and gas company slated to go public later this year.
TER: You said earlier that you also look for niche players, or "tech special situation" companies that are addressing a problem that resource companies are experiencing.
TM: We’re quite fond of a couple of companies that solve problems for the sector. My best pick right now is a company called Cortex Business Solutions Inc. (TSX.V:CBX). Cortex has an innovative system that takes account payables, receivables and invoicing systems for oil and gas companies paperless. In an age where everything is done electronically, a lot of industries—oil and gas included—still use paper invoicing systems, which is prone to human error.
Cortex set up the central hub called the Cortex Network. They charge an initial setup fee, and then they collect a small "toll" every time a document is passed through the system. It’s a great business model. A new management team took over three years ago and retooled, reworked and expanded the core technology . Then about a year ago, Husky Energy Inc. (TSX:HSE) mandated that all of their 10,000 suppliers had to be on the Cortex Network. From the people who do the wiring to the guys who make the meals for their employees to the pipefitters, any time they’re going to be invoicing with Husky, they’ve got to be on the Cortex Network.
Husky signed on for an initial five-year term with an option to extend for five years. This announcement was quickly followed up by three other major hubs signing on—Apache Corporation (NYSE:APA), Bonavista Energy Trust Ltd. (TSX:BNP.UN) and Murphy Oil Corp. (NYSE:MUR).
Where this really gets interesting is when Cortex is able to move beyond the oil and gas space, which I hope will happen in the next year or so. There are still a lot of different industries that are using paper-based systems.
TER: Does Cortex have competition?
TM: The main competition actually stems from people using internal systems: monsters in the industry like Safeway Inc. (NYSE:SWY) and Wal-Mart Stores Inc. (NYSE:WMT), and a few of the oil and gas majors that have their own proprietary systems. But there’s a lot of potential room in this space for Cortex to move around and a huge market opportunity.
This is my best pick in the technology sector. If I could tuck away one name and not look at it and let it grow for a few years, this would be it, and it’s my largest personal investment.
TER: What is another example of a technology company helping to solve a problem for the resources sector?
TM: It’s early stage, but Ridgeline Energy Services Inc. (TSX.V:RLE) is an illiquid, small-cap environmental service company for the oil and gas space. The company operates "green fill sites" that remediate contaminated oilfield soil to landfill standards. They have one site up and running now and expect to add another half dozen by the end of next year and then each year thereafter. It’s a great way to have localized soil remediation sites that provide daily cover for landfills, reduce trucking costs and eliminate stockpiling of contaminated soils. Each site generates up to $1 million in revenue and margins of up to 45%. With a market cap of only $8 million, this is an attractive stock based on the fundamental business, but the key reason we’re interested in this company is that they seem to have cracked the code on processing water contaminated in the production of oil and gas. Frac water is the current focus for Ridgeline, but the new technology has potentially great application to any water with high levels of hydrocarbons, chlorides and heavy metals, a big problem for the oil and gas industry. Initial trials have been successful with cleaning up water in British Columbia and they are in the process of setting up contracts with major oil and gas companies subject to additional field trials. Ridgeline also has very strong insider ownership and really good management.
TER: Taking the toxic materials from oil production and somehow breaking it down in a benign way is exciting. This has been a fascinating conversation. We appreciate your insights.
Taylor MacDonald is vice president of investments at Pathfinder Ventures Corporation, a Vancouver-based family office. He graduated from the Wharton School, University of Pennsylvania, with a Bachelor of Economics in 2004. Prior to moving to Pathfinder, he worked in equity research at Raymond James Ltd. in Vancouver, investment banking with Haywood Securities (UK) Ltd. in London, England, and institutional equity sales at RenCap Securities in New York. He has been a CFA Charterholder since 2009 and is a Level II CAIA candidate.
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DISCLOSURE:1) Karen Roche of The Energy Report conducted this interview. She personally and/or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report or The Gold Report: None.
3) Taylor MacDonald: I personally and/or my family own shares of the following companies mentioned in this interview:, Tag Oil, Cortex Business Solutions, Ridgeline Energy Services. I personally and/or my family am paid by the following companies mentioned in this interview: None.