AlphaNorth may hold shares or warrants for 65 to 70 companies in its portfolio at any one time. Steve Palmer was asked to talk about a few of the firm's recent investments and those companies that are well positioned for growth and success in 2022.
Mr. Palmer advised that one area where AlphaNorth is seeing growth opportunities is in both gold and copper as prices for these commodities are rising, but for different reasons.
Palmer stated that, "if I were to pick one area that we're doing a little more work on and are more active in it's probably in the metals space in copper." He added that while markets have obviously seen a huge run up in prices for lithium due to the surging demand for batteries, copper too is very much a battery metal that will continue to be required in greater quantities as the world endeavors to electrify everything.
AlphaNorth believes copper is going to be in huge demand, so it has recently added some copper names to its equity holdings. With copper prices now trading near all-time highs at ~$4.45/lb the future upside potential for copper looks particularly good based upon the supply demand picture of the commodity.
Palmer believes gold will also trade higher in 2022 for several reasons including inflation concerns, increases in demand and perhaps as prices rise investors who may have previously invested in bitcoin or other crypto currencies may move some of their risk assets into precious metals such as gold. To manage the risk associated with investing in junior mining companies, AlphaNorth takes a basket approach by holding 10 to 15 precious metal stocks in its portfolio which operate mostly in North America.
One notable firm in the biopharma area is Algernon Pharmaceuticals Inc. (AGN:CSE; AGNPF:OTCQB; AGN0:XFRA). AlphaNorth was quite active in adding to its position in the company at the end of 2021 when the company's shares traded below CA$5/share due to some tax loss selling and the company's aggressive 1:100 reverse stock split. Algernon had also made a foray into developing a drug to treat COVID-19 but the clinical trial results were unsuccessful.
The company now appears to be on new footing with numerous positive developments including a reduction in the total number of shares outstanding to around 1.7 million and a rebound in the share price to over CA$8/share. The company still has a market cap of only about CA$13.4 million which is still very cheap, considering that they have CA$2 million in cash, a product for chronic cough and IPF in Phase 2 clinical trials and another product going into the clinic to evaluate DMT for treating stroke. You can read more about the potentially world-changing trials here.
Palmer expects the company will be announcing new drug candidates in the coming weeks and months.
The company is currently conducting Phase 2 trials for chronic cough in Australia and New Zealand. The trials have completed enrollments with results expected in Q2/22.
Palmer noted that the company's preclinical data showed that Algernon's drug produced better results than the drug currently in a Phase 3 trial by Merck & Co. Inc. (MRK:NYSE).
He pointed out that BELLUS Health Inc. (BLU:TSX; BLUSF:OTCPK) also has a drug for chronic cough that recently completed a successful Phase 2 trial and that company has grown to a market cap of nearly CA$1 billion as a result of that one clinical trial for chronic cough.
Palmer stated that Algernon's preclinical data is actually better than the Bellus Health product and that unlike the other studies, the Algernon trial is also targeting idiopathic pulmonary fibrosis (IPF).
The company is also now evaluating a second drug candidate called DMT for stroke. DMT is a psychedelic medicine that could help in the treatment of stroke and this will be the first ever attempt to clinically test this compound in stroke patients.
Palmer explained that an important aspect of the company's business model is that they are using existing off-patent drugs that have been used for other indications or in other countries that have already gone through an approval process.
Palmer stated that "the benefit of this strategy is that it shortens the timeframe of the trials, because they can generally skip the Phase 1, because they already know that the drug is safe, and they can get right into Phase 2 to identify whether it works or not."
Another company that AlphaNorth has invested in is Reliq Health Technologies Inc. (RHT:TSX.V; RQHTF:OTCQB; A2AJTB:WKN).
Reliq Health monitors patients at home via its own software that generates roughly US$50 per month, per patient to monitor various aspects of their health care. The CEO is an M.D. so the company is run by a team who understands the ins and outs of the medical system. The firm typically contracts with large U.S. healthcare clinics.
Mr. Palmer commented, "I think this is a big trend in the healthcare space as people don't need to go and have a physical visit necessarily all the time."
"The companies iUgo software platform is also used for patient compliance in terms of their medications, so we like this company because it's a highly scalable business that can add patients to the platform quite quickly as recurring revenue and is fairly profitable so we're pretty optimistic there," Palmer added.
AlphaNorth indicated that the company is now planning to list its shares on the NASDAQ in 2022. Mr. Palmer remarked that, "the company has a market cap of around CA$200 million and expects to be cashflow positive and profitable in Q4/21, which if achieved could be a catalyst for a lift in valuation."
In Q4/21, AlphaNorth added a new investment in the energy space in Southern Energy Corp. (SOU:TSX). Southern Energy is a CA$29 million market cap company with ~78 million shares outstanding. The company currently produces about 2,000 boe/day of natural gas in the onshore Gulf Coast region.
Palmer mentioned that the company just raised around $10 million to drill three new low-risk wells. AlphaNorth feels that if drilling these development wells is successful it could more than double the company's production. Therefore, "they could exit the year with quite strong production numbers that throw off significant cash flow which would allow them to be self-funded to drill additional wells beyond that." Palmer noted that the price of natural gas has been strong recently and is now trading around Henry Hub US$3.93/MMBtu.
AlphaNorth commented that Southern Energy's business model and outlook is a pretty simple story. The company is generating approximately US$900,000 in cash flow monthly and they just raised additional capital to drill more wells. The company has a good growth profile with strong gas pricing going forward and is not in need of further financing.
According to Steve Palmer, the company previously had significant hedged positions which expired in December 2021. Palmer remarked that as natural gas prices have increased in recent months the firm will likely benefit from higher spot prices.
The firm is now drilling three wells and the initial results are expected to be received in late March 2022. AlphaNorth believes that positive results from these low-risk wells would provide a strong potential short-term catalyst.
Palmer noted that if the company were indeed able to double production volume and monthly cash flow by YE/22, it would then be delivering around US$22 million annually in cash flow. Since the company has a market cap of approximately CA$29 million they are almost going to cash flow their market cap, so "That's why I think it's multiple times your money on this, potentially."
AlphaNorth advised that it recently took a large stake in Fabled Copper Corp. (FABL:CSE). Fabled was spun out from a previous company and just began trading via a direct listing in December 2021. The company has a market cap of about CA$8.5 million and holds CA$4.5 million in cash.
The firm raised the money in summer of 2021 and used part of the proceeds to collect channel samples and perform geophysics work. Earlier this month some positive sampling results came back which included 10 samples of which all returned high-grade 1.0% Cu or higher. Some float and grab samples returned 16-20% Cu with one 4.60 m sample returning 14.30% Cu. Last week the firm announced further sampling results showing 19.60% Cu and 14.40 g/t Ag at the Mac Occurrence.
The company is mining in northern B.C. which is a very good jurisdiction. As the company has a nominal market cap and an enterprise value of only CA$4 million, AlphaNorth thinks there is a lot of upside potential in this company as they continue to release results. The company plans to begin drilling in June. In the meantime, more news should be coming out related to the sampling efforts conducted in H2/21.
In summation, Palmer remarked that, "Fabled Copper is a well-funded company that is engaged in mining a commodity that he likes (copper) in a favorable jurisdiction." AlphaNorth is hopeful that if ongoing exploration results continue to come in as favorably in line with sampling data, then the value of the company's stock could perhaps go up by multiples. Palmer reiterated that demand for copper is increasing as a significant amount of the material is used making electric vehicles. Palmer stated that, "I think there's an opportunity here for the junior copper space especially if copper breaks out to new highs and everyone's going to get excited and be looking for how to get in early on the next 10-bagger."
Steven Palmer, CFA is the President, Chief Investment Officer and a co-Founder of Toronto-based AlphaNorth Asset Management. AlphaNorth manages the AlphaNorth Partners Fund, a diversified, Canada-focused, long-biased small cap equity hedge fund. According to Mr. Palmer, since it was established in 2007, the AlphaNorth Partners Fund has returned a total of 315%, vastly outperforming both its benchmark TSX Venture index, which declined by over 65% during the same period, as well as the large cap TSX Composite index.
Just a few months ago the firm was recognized at the 2021 Alternative IQ Canadian Hedge Fund Awards, winning first place for five-year performance, returning 40.35% annualized over the period.
In addition to winning first place in 5-year performance, the firm placed second in 3-year performance with a return of 40.98% and showed third in 1-year return with a gain of 153.35%.
The AlphaNorth Partners Fund makes investments across all sectors with the objective of getting in early on situations where the firm can earn multiples on its money. Palmer stated that AlphaNorth makes diversified investments in biotech, technology, precious metals and in other special situations such as consumer product companies.
1) Stephen Hytha compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
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