U.S. investors and institutions are seeing green in their rare earth elements (REEs) and strategic metals investments, and one investment bank is leading the way. Merriman Capital Services Group Managing Director Spencer Grimes shares his secret to investing in the right cleantech companies in this exclusive interview with The Gold Report.
The Gold Report: Tell us a bit about Merriman Capital Services Group, the advisory services that you provide to investors and perhaps some of the company's history.
Spencer Grimes: Merriman Capital is a financial services firm focused on fast-growing companies and their institutional investors. Solid fundamental analysis is at the core of everything we do and what drives our business decisions. As such, we view equity research as the point of the arrow among our services, which also include investment banking and institutional sales and trading.
TGR: In the past, Merriman specialized in tech-related investments. Has that evolved?
SG: Yes. When Jon Merriman helped establish the firm in February 2002, the mission was clear: Revitalize the boutique investment-banking landscape by servicing emerging-growth technology, telecom, consumer, media and Internet companies. The West Coast growth banks that once advised these companies had disappeared, having succumbed to larger financial institutions or were destroyed by the effects of the Internet meltdown of 2000. Merriman saw the need to fill this void.
Subsequently, in 2004, we established our cleantech industry practice, making us one of the first Wall Street firms to devote significant resources to this sector. As it relates to companies we advise in the Services Group, our cleantech practice has adjusted along with advancements in green technologies and a rise in the rare earth element (REE) space. These types of companies are no longer limited to the end producers of hybrid cars or lithium batteries. Institutional investors are seeing more opportunity in the commodity side of cleantech. This is also evident in the types of companies we've been working with on the OTCQX.
TGR: Your work with the OTCQX has helped Canadian issuers be presented to U.S. investors, so it is easier for them to participate?
SG: Yes, Sally. Simply put, the OTCQX allows U.S. investors to invest and see real-time trading in U.S. currency through U.S. broker/dealer information systems. The Canadian companies that list don't have any redundancies, in terms of reporting. It's a very efficient, cost-effective manner for them to engage with U.S. investors more fully. To date, we've seen great success.
With the increased number of companies listing on the OTCQX, we've started seeing interest from investors and institutions that previously weren't engaged because they didn't do commodities. Now, these investors are starting to come around and see it as a cleantech play. They see how lithium integrates and operates within the battery space, the way vanadium can be added to increase storage time for the smart meter and how wind and solar can benefit from some of these rare earth and strategic metals to increase productivity and lower price. When investors thought it was just commodities, they weren't sure; now, the macro picture is starting to take a different shape in their minds. I think there's great opportunity here.
TGR: Over the last few years, the specialty metal and rare earth space has shifted from being small and misunderstood to being able to attract more mainstream investors, including institutions, as you mentioned. Tell us about some equities that you think would be of interest to North American investors.
TGR: Stans Energy, despite its name, is an REE company with assets in Russia. What do you find interesting about the company for the U.S. investor?
SG: In my opinion, it's really the only pure-play investment in a known commodity and a proven resource. I know the company would argue that nobody else has the assets available to do what it does. Stans has done a lot of work to prove that out; for example, within the past 15 months, it has acquired 100% ownership of the former Soviet mine, Kutessay II-the only mine in the world located outside of China to ever produce all 10 heavy rare earth elements (HREEs)-Dysprosium, Erbium, Europium, Gadolinium, Holmium, Terbium, Thulium, Ytterbium, Lutetium and Yttrium. I think the stock price has reflected that.
TGR: What can you tell us about Medallion?
SG: Medallion is a rare earth company that's just getting into it. It is strategically positioned to meet the challenges of evaluating and cost effectively exploring low-cost HREE deposits. Medallion's HREE mines, Eden Lake and Red Wine, are two of the finest REE exploration properties in North America. Demand for HREEs is projected to grow at an annual rate of nearly 10%.
TGR: Any other companies that you assisted with OTCQX listing that you'd like to discuss?
SG: One company that we haven't listed on the OTCQX but have gotten to know recently is Energizer Resources Inc. (TSX.V:EGZ; OTCBB:ENZR). It's interesting to me because of the company's vanadium play. Energizer owns 100% of one of the largest vanadium discoveries in the world located in Madagascar. This discovery is fairly recent, and the company has an enormous opportunity for success.
TGR: We talked about some of the rare earth players, Stans and Medallion. We've also talked about a vanadium company, Energizer. What about lithium, or any other specialty metals, companies?
SG: Nemaska Exploration Inc. (TSX.V:NMX; OTCBB:MNKEF) is in the specialty metal space, specifically lithium. It is in early stages and preproduction, but I really like the team. CEO Guy Bourassa has been fantastic in the way he's approached the business thus far. I like the work Nemaska's doing in the James Bay region of Quebec with its main properties all 100% owned and easily accessible by roads year-round. Its subsidiary, Monarques Resources Inc. (Monarques) will soon spin off with great potential. We're very interested in seeing progress on that one.
TGR: Merriman Capital is cosponsoring a resource investor conference in New York City with 49 North Resources Inc. (TSX.V:FNR). Can you give us some more information about the conference and why you're involved?
SG: The event is April 26-27 at The W Hotel New York. We're excited to be part of it because, as we've had more and more success in the resources space, we find more investors who want to see the companies we're working with and the opportunities that are out there. Main Street U.S. investors are not as familiar with the commodity space or resources in general as are investors in Canada and Australia, for instance. But with recent activity and success over the past few years, a lot of U.S. investors see that this may be more than a blip on the radar. It's not necessarily a bubble, but rather a part of a longer-term trend as we progress into a new phase of the economy. We're excited to have investors attend. The conference is free; for more information, visit our website at www.merrimanco.com or the conference website at www.fortyninenorth.com/conferences.php.
TGR: And is the conference open to portfolio managers, brokers and individual investors? Also, will there be an opportunity for investors to meet with management?
SG: Yes to both questions. We've seen a lot of interest from institutional, as well as retail, investors. There also will be a couple of keynote speakers, including David Franklin from Sprott Asset Management and Rob McEwen from McEwen Capital.
TGR: I'm sure you agree it is exciting to find a full-service investment bank in the U.S. interested in making a commitment to this space.
SG: Yes. And while it's nice to be a leader in this space, I do think that more people will come on board. What's paramount is the convergence of commodities with the cleantech play. As U.S. investors learn how these companies are the building blocks of solar, battery smart grid technologies and so on, the more opportunities will emerge for these investors to make money. If investors can find an opportunity to increase alpha, they will move toward it.
TGR: Thank you for your time today.
SG: You're welcome, Sally. Thank you.
Spencer B. Grimes is managing director of Merriman Capital Services Group, where he runs day-to-day operations. Previously, he oversaw the corporate services practice at Merriman, where he specialized in advising corporate management teams on a variety of matters, including executing complex trades, share-repurchase programs and coordinating with investment banking to assist in financing transactions. Prior to his tenure at Merriman, Spencer held similar roles at Morgan Stanley and Hambrecht & Quist.
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1) Sally Lowder of The Gold 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 Gold Report: Medallion Resources and 49 North.
3) Spencer Grimes: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: We were retained by Stans and Medallion to be quoted on the OTCQX.
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