Today we will be discussing a way an investor could leverage their risk while at the same time hedging their bets. Investors may sometimes decide to take on a full position when investing, although there are alternatives to hedge ones bet through a unique diversification method. For example, an investor can deploy capital into two different companies who have inter related interests in each others value. An investor can split his/her investment into these two companies and would therefor diversify while keeping the leverage in the investors holdings. Below are companies we believe present this interesting leverage opportunity to investors and serves as great examples how one can diversify their capital and at the same time, potentially provide them with higher returns.
The good news is that there are ways in diversifying your portfolio in to names or sectors that don’t have a direct correlation with your core holding. For example, a speculative investor in the cannabis space can invest some capital into the crypto or mining space which have a low correlation to the events in the cannabis sector and a different set of macro and micro catalysts. Both crypto and mining are highly speculative when looking at small and micro-caps and therefore benefit from the overall speculation in the market. However, neither crypto nor mining move in direct correlation to cannabis. Therefore, a speculative investor can end up with a similar exposure to risk/return while mitigating some of the sector risk. The goal is to end up with a portfolio that is almost 100% invested but in multiple areas.
Below are examples of companies that we feel present an interesting diversification opportunity to some investors.
Hashchain Technologies Inc.
Hashchain Technology (TSX.V: KASH) (OTC: HSSHF) is a Canadian based cryptocurrency mining company whose also diversified its growth strategy to include blockchain-based solutions. Currently Hashchain owns and operates 100 DASH mining rigs and 8,495 Bitcoin mining rigs located in low-energy cost areas with energy rates in the range between $0.03 - $0.04/kWh. Low energy rates are an important factor for a cryptocurrency mining company as a higher energy cost equals less profitability. Recently Hashchain announced that the company accumulated 104.53 Bitcoins with an accumulated gross value of CAD $870,000 and 30.03 Dash with gross value of $6,600 based on both currency worth $8,321 and $221 respectively. This accumulated value of cryptocurrencies only account for the 4,000 additional mining rigs since the company’s deployment dated in their July 18th press release. With the accumulation of cryptocurrencies such as Bitcoin and Dash with the companies current 8,495 mining rigs, this growth doesn’t take into account the amount of additional mining rigs that Hashchain is currently adding under operations and the company recently announced the acquisition of 2,500 additional mining rigs. Hashchain plans on bringing its total mining operation to 11,995 rigs. We expect that the company will provide the market with an update on accumulation and growth after once all of its crypto miners are in place and operational. Those that are bullish on the price appreciation of cryptocurrencies should consider looking at the potential growth which Hashchain Technologies could provide as they expand their mining operations in North America and continues to execute on the company’s blockchain solutions strategy.
Block One Capital Inc.
Interestingly Block One Capital(TSX.V: BLOK) (OTC: BKPPF) is the leveraged position to Hashchain Technologies Inc. In May Block One Capital sold it’s 90% stake in TG12 Ventures Inc, a crypto mining company based in Montana. This transaction resulted in Block One receiving $3,115,000 dollars worth of Hashchain shares which totals 8,900,000 KASH shares at a deemed value of $0.35. Although the value of Hashchain technology has declined since the transaction, Block One Capital is viewed as a long-term investor in KASH and Block’s investment in Hashchain will grow as the company continues to execute on its growth strategy along with the price appreciation of both Bitcoin and DASH currencies. Block One also has other investments such as Shopin which has resulted in returns of 2.5 times its original investment. Investors who are bullish on both Hashchain Technology and cryptocurrencies like Bitcoin over time can diversify into both companies. Example if Hashchain Technology were to rise to $0.50 within the next 6 months due to the companies own growth coupled with the price appreciation of Bitcoin, that would give Block One Capital a return of $1,335,000 dollars on the company’s investment in Hashchain Technology. This would represent a great investment for Block One Capital and should present a positive increase in its share price.
Kintavar Exploration Inc.
Kintavar Exploration Inc. (TSX.V: KTR) is a Canadian public company who is focused on the exploration and drilling of copper on its Mitchi property located just below Abitibi Green Belt in Québec, Canada. Recently the company completed its private placement and received significant institutional support from the Caisse de dépôt et placements de Québec, that manages public and parapublic pension plans who have over $300 Billion under management. Kintavar is a very interesting copper play as the company is now fully funded to the tune of $10.2 Million for its operations and most recently the company has announced some of its grab samples from the 2018 summer drill program. Recently the company announced grab samples from its Mitchi property which resulted in high grade copper zone being identified at Nasigon-Sud totaling samples between 1.45% to 9.21% with assays from five final trenches that are still pending. With the company’s exploration and drilling program under way, the company will provide the market with more results from its properties and more assay results will continue into the fall. We expect to see additional assay results from Kintavar’s operations in the near term and with more positive drill assays will result in a higher share price. The investment from Caisse de Dépôt into Kintavar Exploration gives us reassurance of the potential of the company operations and results and this solidifies its growth as an institution like Caisse de Dépôt would be in for a long-term investment and is looking for a significant return on the firm’s investment.
Another example of leveraging your investment is GéoMéga Resources. GéoMéga (TSX.V: GMA) (OTC: GOMRF) is a Canadian based mineral exploration and evaluation company whose focus is on the separation of rare earth metals. Previously the company owned multiple mining properties in Québec’s Abitibi Greenbelt. These properties include the Anik, Rivière à l’aigle, Gaspard, Lac Storm, Comptois, 3G Maryse, and Macdonald were sold to Kintavar Exploration. With the sale of these properties, Géoméga received the issuance of 17,857,143 shares of Kintavar Exploration. This issuance of shares to Géoméga for the sale of the property gives the company a 32.8% equity stake in Kintavar Exploration. This large ownership represents great potential value for Géoméga as the company will benefit as the price of Kintavar shares rise. Investors should note that Kiril Mugerman, CEO of Kintavar Exploration is also the CEO for Géoméga Resources. Géoméga has a current market capitalization of $7.4 Million and with the company’s 17,857,143 shares of Kintavar priced currently at $0.39, this gives a total equity value of $6,964,285. This equity ownership in Kintavar Exploration which Géoméga holds is another great example of leveraging an investment.
In closing we can see that these companies serve as perfect examples for which investors can use to mitigate their risk and lead to significant returns. By investing in both companies, you are speculating that both companies will go up, but say for example company (A) is down 10% and company (B) is up 30%, this gives the investor a current return of 20% from both securities. But if both companies go up 20% this gives the investor an initial return of 40%. Leveraging an investment we believe presents investors with lower risk at times and presents interesting results over time.
Forward Looking Statements: This article may contain "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections as of the date of the content is published on this website. Wherever possible, words such as "anticipate", "believe", "expects", "intend" and similar expressions have been used to identify these forward- looking statements. Information in this article has been furnished for your information only, is accurate at the time of posting, and may be superseded by more current information. Except as required by law, we do not undertake any obligation to update the information, whether as a result of new information, future events or otherwise. This article should not be considered as personal financial advice. Full Disclosure: Equity Insight is a paid client of Block One Capital Inc. Equity Insight Inc. may hold positions in companies who are discussed in this publication. Equity Insight reserves the right to buy/hold/sell securities before and after of this publication.