Thanks for the great read. FYI, there are three potential company maker projects in the pipeline (see latest micocapclub interview on youtube). Another in NA ("good visibility", linked to existing operating mine) and one in LA.
Just a couple of questions/points as I’ve just started reading up on BQE.
I noticed that BQE has removed any mention of Seabridge and KSM in their latest Q3 filings, do you read anything into this or is it nothing to worry about? Further I saw that KSM is facing a new petition that might delay delay the project up to a year (I guess this is very common in the mining business).
I also saw that the company GoGold Resources mention BQE as their SART design and costing consultants for their Los Ricos project in Mexico. This might be the one refered to as: ”Continued plant automation services for a new water treatment plant for water recycle at a gold mine in Mexico.”
I wouldn't read anything into KSM no longer being listed as one of the Technical Services bullets in the Q3 release. That's likely attributable to BQE not actually earning any revenue/performing services for Seabridge during the Q (likely because there was nothing to do). BQE is entrenched in the project as the water treatment provider and Seabridge would have to go through a lot of regulatory hoops and cost to replace BQE with someone else, as far as I understand it (part of why their place in the value chain is so attractive).
On the petition from the indigenous group, I likewise am not worried about that. These are constant in Canada and but do not usually interfere with outcomes.
And thanks for sharing on GoGold, i wasn't aware of that. SART projects will generally not be a valuable as selenium, but every project is meaningful for BQE at this early stage.
Appreciate the response Jake, that seems like a likely explanation, since it seems strange that seabridge would’ve abandoned the relationship after all this time.
Regarding GoGold, yeah it might not be a major contract given SART economics, but it is for sure ”nice to have” another contract to be able to follow the development on.
Jake, I'm blown away by this and your previous write-up on BQE. You have done an excellent analysis. I have two questions along the lines of due diligence:
1. To what extent do you believe the company has barriers to entry. You mention that BQE has several patents, some of which have expired or are expiring. I'm a bit lost on why there are not other competitors coming into this market. What prevents others from entering this market?
2. BQE has some Chinese JV partners. Chinese companies are renowned for misappropriating intellectual property, and going off on their own. Unlike a behemoth like Microsoft, BQE is not in a position to protect themselves legally and litigate the partner into oblivion. Does this risk concern you? If not, why not?
1. So the first thing to note, before directly answering your question, is that BQE is so tiny relative to the size of the market for these services, that there is plenty of room for competition before this remotely becomes an issue. On actual barriers to entry, I wouldn't focus much on patents, although the Selen-IX tech is unique (and it's their most important line of business now). What I would focus on instead is: a) Incentives -- acquiring the 'know how' and expertise that BQE offers is too expensive to justify the minimal cost savings of bringing this service in house for the mining companies (water treatment is a tiny, tiny fraction of overall spend) -- so I don't expect this service to be in-housed; b) sticky relationships -- because this is mission critical (projects cannot operate without the service) and because of point a), BQE's customers tend to stick with them over time. E.g. Glencore has been a partner for +20 years; once BQE builds trust, there is little incentive for the miner to find another provider; c) they are a first mover in some respects, particularly on non-biological selenium treatment - and again, even if someone else developed a new propriety method, there's just too much blank space in the market for competition to really matter at this point; and finally d) the know how component of this is very important. Remember, every project is ad hoc and BQE comes in to do consulting work early on to develop and implement a tailor-made solution; not only does this require a ton of pre-acquired knowledge, but this knowledge compounds with time, making their early mover advantage and flexible capabilities very important for the ability to take on novel and complicated water treatment applications.
2. I'm not worried about this because 1) the China JVs are becoming increasingly unimportant to the broader book of business and 2) they have already worked with their JV partner, Jiangxi Copper, for nearly 20 years and this hasn't been an issue.
A nice read Jake! Cheers
Thanks for the great read. FYI, there are three potential company maker projects in the pipeline (see latest micocapclub interview on youtube). Another in NA ("good visibility", linked to existing operating mine) and one in LA.
Great work!
Thanks!
Tank you for a great presentation Jake!
Just a couple of questions/points as I’ve just started reading up on BQE.
I noticed that BQE has removed any mention of Seabridge and KSM in their latest Q3 filings, do you read anything into this or is it nothing to worry about? Further I saw that KSM is facing a new petition that might delay delay the project up to a year (I guess this is very common in the mining business).
I also saw that the company GoGold Resources mention BQE as their SART design and costing consultants for their Los Ricos project in Mexico. This might be the one refered to as: ”Continued plant automation services for a new water treatment plant for water recycle at a gold mine in Mexico.”
The project expects a positive outcome for their permit in march 25, and they should release a new NI 43-101 within the next 45 days, as they have published a feasibility study recently: https://www.prnewswire.com/news-releases/gogold-announces-results-of-los-ricos-south-feasibility-study-with-after-tax-npv-of-us355m-302352875.html
Perhaps not a company maker project but they estimate a total LOM capex about 326M$
Thanks Nicolas.
I wouldn't read anything into KSM no longer being listed as one of the Technical Services bullets in the Q3 release. That's likely attributable to BQE not actually earning any revenue/performing services for Seabridge during the Q (likely because there was nothing to do). BQE is entrenched in the project as the water treatment provider and Seabridge would have to go through a lot of regulatory hoops and cost to replace BQE with someone else, as far as I understand it (part of why their place in the value chain is so attractive).
On the petition from the indigenous group, I likewise am not worried about that. These are constant in Canada and but do not usually interfere with outcomes.
And thanks for sharing on GoGold, i wasn't aware of that. SART projects will generally not be a valuable as selenium, but every project is meaningful for BQE at this early stage.
Appreciate the response Jake, that seems like a likely explanation, since it seems strange that seabridge would’ve abandoned the relationship after all this time.
Regarding GoGold, yeah it might not be a major contract given SART economics, but it is for sure ”nice to have” another contract to be able to follow the development on.
Jake, I'm blown away by this and your previous write-up on BQE. You have done an excellent analysis. I have two questions along the lines of due diligence:
1. To what extent do you believe the company has barriers to entry. You mention that BQE has several patents, some of which have expired or are expiring. I'm a bit lost on why there are not other competitors coming into this market. What prevents others from entering this market?
2. BQE has some Chinese JV partners. Chinese companies are renowned for misappropriating intellectual property, and going off on their own. Unlike a behemoth like Microsoft, BQE is not in a position to protect themselves legally and litigate the partner into oblivion. Does this risk concern you? If not, why not?
Chris, I appreciate the kind words.
1. So the first thing to note, before directly answering your question, is that BQE is so tiny relative to the size of the market for these services, that there is plenty of room for competition before this remotely becomes an issue. On actual barriers to entry, I wouldn't focus much on patents, although the Selen-IX tech is unique (and it's their most important line of business now). What I would focus on instead is: a) Incentives -- acquiring the 'know how' and expertise that BQE offers is too expensive to justify the minimal cost savings of bringing this service in house for the mining companies (water treatment is a tiny, tiny fraction of overall spend) -- so I don't expect this service to be in-housed; b) sticky relationships -- because this is mission critical (projects cannot operate without the service) and because of point a), BQE's customers tend to stick with them over time. E.g. Glencore has been a partner for +20 years; once BQE builds trust, there is little incentive for the miner to find another provider; c) they are a first mover in some respects, particularly on non-biological selenium treatment - and again, even if someone else developed a new propriety method, there's just too much blank space in the market for competition to really matter at this point; and finally d) the know how component of this is very important. Remember, every project is ad hoc and BQE comes in to do consulting work early on to develop and implement a tailor-made solution; not only does this require a ton of pre-acquired knowledge, but this knowledge compounds with time, making their early mover advantage and flexible capabilities very important for the ability to take on novel and complicated water treatment applications.
2. I'm not worried about this because 1) the China JVs are becoming increasingly unimportant to the broader book of business and 2) they have already worked with their JV partner, Jiangxi Copper, for nearly 20 years and this hasn't been an issue.