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.
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!
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.