The first millionaires of the Gold Rush were those who sold picks and shovels.
Today, the equivalent could be clicks and eyeballs. Exploration and mining are fraught with risk, and few such ventures work out.
One Canadian micro-cap seemingly has a unique approach to monetising the sector. In fact, it calls itself "the smartest way to invest in resources".
Does EarthLabs offer a positively skewed risk/reward ratio?
EarthLabs.
A unique portfolio of activities
Making sense of the business model of EarthLabs (ISIN CA27034B1085, CA:SPOT) takes some effort.
Newcomers to the company's website will likely feel overwhelmed by what appears to be a plethora of brands and subsidiaries.
The site lists lots of media assets related to the mining sector, such as:
- COM: the top global news source for the mining industry.
- DigiGeoData: the Google maps of mining.
- The Northern Miner: legacy news publication since 1915.
- CA: the largest social media platform for resource investors.
- Canadian Mining Journal: magazine for mining professionals since 1882.
- Symposiums – global investor events platform.
Besides, EarthLabs holds royalty streams from a number of mining operations across Canada's Newfoundland region, as well as from a mine in Botswana. These typically comprise 0.2-1% of a mine's gross revenue, less a proportionate share of transportation, insurance, and processing costs, and some of the royalty stakes come with additional options.
Last but not least, EarthLabs holds CAD 44m in cash and investments.
How does this all fit together?
The mining-related publications create a huge audience. Mining companies need to reach out to the public to distribute news, raise money, or advertise jobs. EarthLabs can offer these companies a broad array of advertising opportunities and access to investors. Given its pool of cash and the investment expertise of its management, EarthLabs can also make early-stage investments into mining ventures, or even get paid for advertising in equity and options. Never mind the ability to charge high prices for the various conferences and symposiums that it organises.
When it comes to mining-related media, EarthLabs almost has a monopoly. Cynics would say that it is the ultimate platform for ramping stocks and frontrunning exciting new mining ventures – all entirely legal, of course.
What caught my attention was how seemingly cheap the company is.
At 137.4m outstanding shares and a share price of CAD 0.19, EarthLabs is worth just CAD 26m.
The digital media business of CEO.CA alone is already worth an estimated CAD 40m, while the 0.2% royalty stake in NFG Queensway is allegedly almost worth as much as the market cap. Let alone the rest of EarthLabs' investment portfolio and the other digital media assets.
There were times when this type of portfolio mix was in demand. Between mid-2020 and mid-2021, the stock shot up from CAD 0.14 to CAD 1.43 – a 10x return in just a year.
It's now back to where it started its journey. Given the bombed-out share price, is it worth picking up a few shares at current valuations and wait for the next cycle?
The bad news first
A cursory look reveals many problems and explains the low share price.
EarthLabs' investment portfolio isn't particularly transparent. It's clear that the stock is undervalued, though it's difficult to work out how much exactly.
The company also doesn't seem to have an active strategy of using the current bear market in mining and exploration companies to build interesting, strategic stakes that could later be promoted and offloaded for a multiple.
The management team appear fairly costly, and they also don't seem particularly hungry. Given how low the share price is, where is the insider buying by management team members who are mortgaging their house to load up on their own shares?
Holding companies of this type almost always trade at a discount. It only changes if a company is split up or liquidated. I see no real catalyst right now.
So why publish an article about it?
A late-stage play for the next mining cycle
Junior miners have an attraction of their own. Stocks in this sector can appreciate by 10x, 20x or 50x when times are good – all the more if they start their ascent from a depressed level. And boy, are junior miners depressed right now!
However, as everyone knows, a mining venture is a hole in the ground with a fraudster next to it.
I'd love to find a way to bet on the junior miner sector as a whole and capitalise on its huge upside, without the risk of an explorer's cash burn resulting in ongoing dilution. Ideally, I'd like to have real industry insiders help me pick the right investments, backed by a platform that allows them to (legally) promote the companies they are invested in.
My hope was that EarthLabs was making money in its media and conference business, and that it was able to sit out bear markets before raking it in during the next cycle.
The problem is, EarthLabs is losing money from its media and conference business. Despite its leading market position and its large user base, the company lost CAD 1.96m or CAD 0.01 per share during the first half of 2024. That's not a catastrophic loss compared to its cash and investments of CAD 44m, but it doesn't compel you to invest.
It reminds me to some extent of ADVFN (ISIN GB00BPT24C10, UK:AFN), the British investor information portal that I had featured on 2 August 2024. Millions of users, a tiny market cap – and at least in theory, massive upside once the user base gets monetised properly. The problem is that the monetisation has not advanced sufficiently yet to give the user base a higher value.
One of EarthLabs' largest shareholders with 17% is Eric Sprott, the legendary resource investor and billionaire. Management and employees own nearly 10%. You'd think they have an incentive to move EarthLabs to profitability, which I'd see as step #1 before this company becomes investible.
Until then, EarthLabs remains a quirky find that was worth adding to the watchlist. It could become a compelling late-cycle trade during the next bull market.
A hidden investment gem that nukes cancer – literally!
A new "mainstream therapy" for tackling 50 (!) different forms of cancers?
The global hunt is on for Actinium-225, the uber-rare nuclear isotope that has turned out a potent weapon against cancer.
The trouble is, hardly anyone has got any of it.
Hardly anyone – except a little-known Belgian company which has suddenly emerged as the potential global market leader for supplying the material.
A hidden investment gem that nukes cancer – literally!
A new "mainstream therapy" for tackling 50 (!) different forms of cancers?
The global hunt is on for Actinium-225, the uber-rare nuclear isotope that has turned out a potent weapon against cancer.
The trouble is, hardly anyone has got any of it.
Hardly anyone – except a little-known Belgian company which has suddenly emerged as the potential global market leader for supplying the material.
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