On Monday Sept. 15, HIVE Blockchain Technologies Ltd. (TSX-V: HIVE)  began trading on the TSX Venture Exchange.  The company commenced mining operations and began accumulating cryptocurrency the same day.  It is providing access to the seemingly complex world of cryptocurrencies in a traditional way, through the public markets. However, it is also providing investors a unique opportunity to get access to the blockchain technology that will change how business is done.

At the very core of the global economy are contracts, transactions and records which define the economic, political and legal systems people operate in.  However, the global system has not kept paced with advancements in digital payments systems which is creating massive slowdowns and backlogs for transactions being processed through financial intermediaries; this will have to change.  

Blockchain could solve this problem. The technology is at the heart of bitcoin.  Blockchain is an open, distributed ledger that can track transactions between two parties in a verifiable and permanent way. The ledger is programmable to trigger transactions automatically.

In a digital world where increasingly two parties never meet and will never meet, there needs to be a way to ensure confidence and the origin of any agreement or payment. When Ronald Reagan was negotiating with Russia over a nuclear arms deal, he often quoted a Russian proverb: “trust but verify.”

Blockchain offers this and helps to remove and reduce much of the insecurity and necessary due diligence with a built-in verifiable method, allowing transactions to quickly proceed with confidence which improves the speed of business to match the booming digital economy.

With blockchain, contracts are embedded in digital code and stored in transparent and open databases, where they are protected from deletion, tampering, and revision.

Every agreement, process, task, and payment would have a digital record and signature that could be identified, validated, stored, and shared.  Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction.  Blockchain is a disturbed network, a peer-to-peer network that does not rely on a central authority because of its inherent security. Here lies the massive potential of blockchain technology.

Blockchain was introduced in 2008 as part of bitcoin, a virtual/digital currency that does not rely on a central authority such as a bank or government for issuing the currency, transferring ownership, and confirming transactions. Bitcoin and digital currencies are the first examples of blockchain technology.

E-mail enabled person-to-person messaging, bitcoin with blockchain accounting enables person-to-person financial transactions without going through a financial intermediary.

The development and maintenance of blockchain is open, distributed, and shared. A dedicated team of volunteers around the world maintains the software. Just like e-mail, bitcoin first caught on with a relatively small community. However, the community of supporters is changing as people are realizing the potential.

According to Marco Iansiti and Karim R. Lakhani writing in the Harvard Business Review, at the end of 2016 the value of bitcoin transactions was expected to hit $92 billion. That’s still a fraction compared to the $411 trillion in total global payments, but bitcoin is growing fast and increasingly important with instant payments and foreign currency and asset trading, where the present financial system imposes limitations.

According to a recent IBM study, one-third of C-level executives are using or considering adopting blockchain technology within their organizations. The study found that executives hope to enable new transaction applications that could help create trust, accountability and transparency among their organizations and partners.

Eighty percent of the 3,000 executives surveyed in the IBM study, indicated that they were using or considering blockchain either to develop new business models in response to a changing financial landscape. Furthermore, 71 percent of business leaders who are actively using blockchain believe that industry associations will play a key role in advancing the technology, suggesting widespread creation of industry standards.

The earlier a company is able to develop a business model around blockchain, the better they will be able to control its and its profitability.

Bank of America, JPMorgan, the New York Stock Exchange, Fidelity Investments, and Standard Chartered are testing blockchain technology as a replacement for paper-based and manual transaction processing in such areas as trade finance, foreign exchange, cross-border settlement, and securities settlement. The Bank of Canada is testing a digital currency called CAD coin for interbank transfers. According to the Harvard Business Review, there should be a proliferation of private blockchains that serve specific purposes for various industries.

All this is going to create massive demand for digital currencies to enable the blockchain infrastructure to work. However, there have been many campy and independent solutions created to mine digital currencies however the small scale limits their scalability and corporate adoption.    The heavy data requirements limit the average user from mining without incurring massive expenses.

Industrial-scale mining is highly profitable even with cryptocurrency prices far below current levels. Professional-grade, scalable infrastructure is necessary to support a growing blockchain ecosystem.

In 2013, Marco Streng, a 29-year-old German mathematician, saw an opportunity for industrial digital mining and built a privately-owned cloud cryptocurrency mining company, Genesis Mining.

Crypto miners secure transactions on the blockchain and, in exchange for expending considerable computing resources to do so, are rewarded with newly minted cryptocoins.

Genesis’ customers purchase contracts that secure the computer processing power used to create Bitcoins or other cryptocurrencies like Ethereum. The processing power is produced in data centres built in remote northern locations (to keep the computers cool), with access to cheap electricity and great web connectivity. The company’s first industrial data centre was in Eastern Europe, with facilities added in Iceland,  Sweden, and more planned locations.  

Streng realized something was missing – accessibility. Many people won’t purchase Bitcoins or buy a cloud mining contract because of its complexities–both real and perceived, and yet these same individuals want to invest in what is fast becoming the future of banking and finance.

This is why one company, HIVE Blockchain Technologies Ltd. (TSX-V: HIVE) was created with the goal of building the leading listed blockchain company through the development and ownership of cryptocurrency mining infrastructure and other related blockchain businesses.

“The concept with HiVE is to give Genesis a footprint outside of the cryptocurrency world and build a bridge from the blockchain space to traditional capital markets,” commented Marco Streng said in an interview.

HIVE fills a gap in the equities markets by offering access to the growth of the blockchain sector in a traditional investment vehicle, shares. Shareholders gain exposure to both an operating cryptocurrency mining business and resulting cash-flow and price performance of a growing portfolio of cryptocurrencies generated from mining activities without having to select from the wide variety of currencies being developed.

HIVE is a partnership between Genesis Mining, the world’s largest cloud bitcoin mining company with over 700,000 customers, and Fiore Group, a leading Canadian merchant banking firm led by Frank Giustra, Gord Keep and Brian Paes-Braga.  

Frank Holmes serves as the company’s non-executive chairman. Mr. Holmes is the founder and CEO of U.S. Global Investors, an award winning asset management firm specializing in gold and emerging markets.

Bjoern Arzt, Tobias Ebel, and Olivier Roussy Newton have also joined the board of directors of HIVE. Mr. Arzt and Mr. Ebel both advise Genesis and are Managing Partners of Logos Fund, a successful cryptocurrency mining investment fund based in Zug, Switzerland. Mr. Roussy Newton is an investment banker and entrepreneur focused on early stage blockchain and quantum computing firms.

Transformative applications of the blockchain are being developed and it is far from being a mature and established industry. But it makes sense to evaluate their possibilities now and invest in companies developing the technology for commercial purposes.

The long term value in blockchain will be most accretive when tied to a new business model in which to underlying value of the peer-to-peer frictionless transactions detaches from the short sighted use of blockchain for cryptocurrencies.  

In the interim, HIVE technologies offers a safe and understandable route to participate and profit in digital currencies and from a technology that is in its formative stage which eventually will change how global payments are done.

The ground floor on blockchain technologies is here.

Spin-out of two (U$2.3 billion and U$190 million) gold start-up successes since 2011 has the talent and potential of the originals

Liberty Board at the historic Moosehead Pit at Goldstrike. From left: Rob Pease, Mark O’Dea, Don McInnes, Sean Tetzlaff, Cal Everett

The gold mining industry is massively depleting its reserves, not finding new deposits fast enough, and could be on the cusp of its most profitable turning point ever.

Gold mine supply will peak in 2019 and continue falling through at least 2025, according to BMO Capital Markets and Bloomberg.

Producers like Newmont (NYSE:NEM), Goldcorp (NYSE:GG), Barrick (NYSE:ABX) and Kinross (NYSE:KTO) are looking to the Western United States for their future pipeline. They have all made new investments there and are searching for more. Acquisitions are being focused in stable political and operating environments.

New gold finds have long been richly rewarded.

As an example, investors turned $200 million to $2.3 billion with Fronteer Gold, a Nevada explorer acquired by Newmont Mining (NYSE:NEM) in 2011. In 2016, Endeavour Mining purchased True Gold for U$190 million. Both discoveries were developed from the same group of scientists, led by Mark O’Dea.

Of the last 7 heap leach gold mines put into production in the world, 2 are from the O’Dea Oxygen group. They find deposits, drill them off, de-risk the discoveries and then sell or build them. Two other heap leach deposits from the same group are now being permitted to be built in Turkey by Alamos. That’s 4 projects out of a tiny universe where new discoveries are rare.

The dream team of gold scientists behind Fronteer and True Gold are doing it again.

This time, the industry is starving for new discoveries. A brutal six year bear market has prevented producing companies from investing in exploration. Meanwhile, everyday, gold miners deplete their ores. They are forced to dig deeper, and mine more difficult rock. Plus, project development timelines often take ten or twenty years.

As a result, there are now undeveloped gold resources with bigger valuations than similar projects already built — with construction costs already sunk.

“The older you get in this business, the lower-risk oriented you become in your investments,” commented Liberty Gold (TSX:LGD; OTC:LGDTF) CEO Cal Everett. Originally called Pilot Gold (TSX:PLG), the Fronteer spinout was rebranded Liberty Gold this year to reflect its Western US focus. Kicking rocks at Liberty is the same technical team who developed Fronteer and True Gold.

Liberty Team at Stamp Mill at Goldstrike

To name a couple of those key players:

  • Dr. Moira Smith is Liberty’s VP of Exploration and helped drive Fronteer’s Long Canyon discovery, which is now critical to Newmont’s growth. Smith has been involved in 7 significant gold mine discoveries in her career that are now in development or in production. “The lady’s absolutely brilliant,” Everett says.
  • Dr. Mark O’Dea is Liberty’s Chairman. He guided Fronteer to a $2.3 billion sale. More recently he established True Gold, a West African gold developer, that was bought out for U$190 million.

And Liberty now has fresh eyes to build towards a major discovery. It poached Cal Everett, Liberty’s President and CEO, following a recent Corporate acquisition.

Everett is a geologist from New Brunswick, Canada. His father was a military policeman. The younger Everett spent his early career in exploration working with large mining companies. He changed careers to the finance side and excelled as an investment advisor beginning in the early 1990s. Building his own proprietary resource models, and with an international network of geologists, Everett became one of the mining industry’s most influential discovery financiers, working with BMO Capital Markets, PI Financial and later, founding Axeman Resource Capital.

Everett was advising another explorer in 2014 that was competing with Liberty to acquire the past producing Goldstrike project in Utah.

When Liberty outbid, O’Dea offered Everett the top job a year later when the Company was looking for a management and direction change. For Everett, the team and projects were too good to pass up.

“They have an incredible screening process, having been all over the world. It’s no accident they do metallurgy early, avoid political risk, focus on large land positions and other vetting procedures up-front.” Everett says.

On Liberty’s assets, “Three major district-scalable projects, all that are drill confirmed and have given grade in the jurisdiction where everybody wants to be.”

“The secret to this business is when you have a big discovery in a district but still at an early stage, you never stop drilling. You drill until the market wakes up and pays attention.”

THE PROJECTS

The discovery formula is simple. Acquire past producing Carlin – style heap leach oxide gold mines in the Western US that closed 20 years ago in a U$350 gold market, re-interpret thousands of historical drill holes into a new target model and then drill out the discoveries in a higher priced gold market.

The Goldstrike asset in Utah is getting the most drilling this year with, with 3 drills operating almost year round, 50 holes in the lab on any given day and approximately 50 new holes drilled a month. Last week, a discovery was announced 6 km from the known resource area confirming the project is in a gold district by itself. Liberty is finding mineralization nearly everywhere the right rocks are outcropping at Goldstrike. There were 1519 historical holes and now 345 Liberty holes, with an 84% hit success rate over a 22 square kilometre drill confirmed target area. Fresh permits for 150 additional drill sites will help Liberty’s goal to define a million-ounce plus oxide gold resource in the near-term. Preliminary metallurgy has been released with 86% recovery of leachable gold in less than 10 days. This quick and high recovery will help establish Liberty as a low-cost gold producer.

The Kinsley property in Nevada was in production in the mid 1990s but shuttered due to low gold prices years ago. There, Liberty Gold made new high-grade gold discoveries below a past producing surface oxide gold mine and established an initial resource that remains totally open for expansion. The target is high grade at depth, not leachable gold at surface. Kinsley has excellent metallurgy and warrants aggressive follow-up drilling. Liberty is the operator of the project and holds a 79% interest. This year a short four hole drill test successfully found the extension of the high grade deposit to the east, 29.0 metres at 5.30 grams per tonne gold and 3.0 m at 3.68 grams per tonne gold, with a higher grade zone above it with 7.6 m at 6.84 grams per tonne gold and 4.6 m at 12.4 grams per tonne gold. There are many untested targets on the property.

The Black Pine project in Idaho was a significant mid-90s gold producer which Liberty acquired last year for US$800,000 cash, 300,000 shares and a 0.5% royalty. Everett says it’s a Goldstrike look-alike but 12 months behind in terms of advancement. Liberty is currently working on a Plan of Operations to gain approvals for a large exploration program at Black Pine. In the meantime, Liberty’s technical team has vast historical data to devour, including 1,866 historical drill holes. The Black Pine drill target area is drill confirmed over 12 square kilometers. Just gathering this information today for all three projects could cost in excess of Liberty’s current valuation of roughly $65 million (not including $14 million in cash at March 31, 2017).

Liberty Gold also owns an under-appreciated Turkish mineral portfolio. One of the interests, Halilaga, a copper-gold-moly deposit partnered with Teck Resources, was roughly valued at US$66 million in 2015 by Brent Cook, an influential mining analyst, but is a mere footnote in the Liberty Gold story today. Liberty also owns 60% of the TV Tower project, near Halilaga, with six gold and copper discoveries already.

The sale or joint venture of the Turkish assets could raise non-dilutive capital for Liberty to fund aggressive exploration at Goldstrike, Kinsley and Black Pine. Everett does not want to raise equity while Liberty’s stock trades near all time lows. He’s taking responsibility himself now to ramp up marketing. Liberty will have a presence at the major mining trade shows this Fall and is hosting a revolving door of technical presentations.

In the downturn, Liberty shares have fallen from over $3 in 2011 to less than 45 cents at press time. Macquarie mining analyst Mike Gray rates Liberty Gold an Outperform and Top Pick with an initial CAD $0.90 price target. That will prove to be a very conservative target if Liberty enjoys a sample of Fronteer’s success — an inevitability, according to its CEO.

In Everett’s words: “The mining companies know that if you have the district, and you keep drilling, you will find more gold. It’s as simple as that. We are advancing Goldstrike, targeting it to become a minimum 100,000 ounce gold producer. It just takes drilling and scientific back up to try and reach your goal.”

As gold producers struggle to find new mines, Liberty is literally at the ground floor of growth — advancing its three key projects. With many paths to unlock value and the industry’s brightest geologists at the helm, Liberty is one of the few companies positioned to profit from gold’s production growth problem.

Other Western USA gold plays worth mentioning:

Gold Standard Ventures (TSXV:GSV, NYSE:GSV). Moved quickly in the bear market to consolidate a large and strategic land position in Nevada’s Carlin Trend where it is making new discoveries. Gold Standard has attracted strategic investment from OceanaGold and Goldcorp. With a $500 million valuation, it is the most advanced junior in Nevada.

Newcastle Gold (TSX:NCA, OTC:CTMQF). Newcastle boasts an impressive management team led by Detour Gold founder Gerald Panneton and financial backers including mining magnates Richard Warke and Frank Giustra. Developing the multimillion ounce Castle Mountain project in California. Several drill rigs turning to grow and upgrade resources on the production fast track. Valuation today approaching $175 million.

Fiore Gold (TSXV:F, OTC:FIORF). Another Giustra-backed gold vehicle, with Pan, an operating gold mine in Nevada, Gold Rock, a nearby development project, and Golden Eagle, an exploration play in Washington State. Fiore Gold is the pending business combination of Fiore Exploration and GRP Metals, the recapitalized Midway Gold. It is expected to trade in Fall 2017 with a roughly $100 million market capitalization. Investors will be watching to see if Fiore can successfully ramp up the Pan mine and take advantage of other growth opportunities in Nevada.

Barrick Gold (NYSE:ABX). Major producer Barrick is leaning heavily on its Nevada assets to help lower production costs, and recently acquired the Robertson property from Coral Gold Resources in the Cortez District. Barrick is on track to reduce its debt to $5 billion by the end of 2018 and appears to be on track after a sold quarter.

Goldcorp (NYSE:G). It’s no secret Americas-focused gold producer Goldcorp is making bets on small exploration companies to fund its future growth, and hasn’t been shy about the Western United States, where it recently acquired a gold mine in Nevada, and backed a junior there, Gold Standard Ventures. Goldcorp has been one of the worst performing gold stocks of late but refocusing on the Western United States is a step in the right direction.

Newmont Mining (NYSE:NEM). Nevada is the workhorse of Newmont Mining, one of the world’s largest producers. Operations include 11 surface mines, eight underground mines and 13 processing facilities. Annual production from Nevada alone exceeded 1.6 million ounces in 2016, obviously requiring new discoveries or M&A to be sustained.

Kinross Gold (TSX:K, NYSE:KGC). Kinross is on track to meet its annual production guidance of 2.5-2.7 million ounces of gold and costs of $660-$720/ounce and AISC is expected at $925-$1,025/ounce. Production is expected to double at Bald Mountain in Nevada, however the Buckhorn mine in Washington State has recently run out of ore.

Disclaimer: All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance. Forward-looking statements are often, but not always identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Much of this report is comprised of statements of projection. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Risks and uncertainties respecting mineral exploration companies are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this newsletter.

Tommy Humphreys is an online financial newsletter writer. He is focused on researching and marketing resource and other public companies. Nothing in this article should be construed as a solicitation to buy or sell any securities mentioned anywhere in this newsletter. This article is intended for informational and entertainment purposes only!

Be advised, Tommy Humphreys is not a registered broker-dealer or financial advisor. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer.

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