Brian Paes-Braga of Lithium X, Fiore Group Talks Growth – Ep. 3
Brian Paes-Braga is a partner and Managing Director at the Fiore Group as well as the founder of Lithium X. He has a remarkable story of taking an opportunity, structuring it up with good partners and using public venture capital to create tremendous value. We discuss his early experience in the brokerage industry and the process of how he structured Lithium X. We also talk about the importance of a powerful narrative in raising over $50+ million for LIX.
Brian provides some great first-hand experience in reflecting on the growth of LIX and the deals he is focused on now. Enjoy the show.
Brian Paes-Braga on:
* This is a software-transcribed article.
Cory: [00:02:01] Brian thanks a lot for taking the time. Happy to have you on and want to start with the first question. How about you give us some the background of where you started and where you’re at now.
Brian: [00:02:12] Sure, yeah! … I started in the brokerage business after dropping out of University of Calgary in 2008 when I was 20 years old. It was a very tough time to start things out because my last day of classes was in April and May of 2008 and then my first days on the job or September 2008. Little did I know that I was going to be starting during one of the worst financial crises in modern times. So it was it was a great learning lesson for me to really see what can happen when the markets become filled with fear and many people really didn’t know what was going to happen the next day. But it was awesome to… well it wasn’t awesome but… it was it was interesting to experience that and then actually I was hired by a gentleman by the name of Stuart Warburg who had founded a small brokerage firm called Jordan Capital Markets in February 2009. I was a stockbroker there for four and a half years. Really enjoyed that time. I was mentored by Stu who is known to have hired some very successful people in our business of building predominately natural resource companies. I was there until I was just under 25 years old. We built that firm from… it wasn’t easy. It was still some pretty tough times but we built that firm from kind of five to six employees to over 50. We actually opened up an office in Calgary and actually down in Colombia in South America and then I went and joined a small family office fund by the name of Pathfinder Asset Management. I think that’s where you and I met. And my role there was running an exempt market dealer with another partner and that firm was called Intrinsic Capital. And I guess from… transition from brokerage to more by called merchant banking as a market dealer. Really got more involved with companies and management teams. I’d say it was one of the frontlines or riding shotgun with some of these CEOs that we were looking to capitalize and help bring public into Canada and they did a few transactions. One in particular was really exciting and has done very well, still is a great company today, called Helius Medical Technologies. Definitely the one that stands out which was a… Or is a medical device company, it’s really working on brain trauma, PTSD and has some incredible support from likes the US Army, they’re actually New York Stock Exchange listed now and… very very successful company working on some incredible products for some pretty serious issues. And then in 2015, so three years ago almost four years ago now, I came up with this concept of Lithium X which was very simply a way for small cap natural resource speculators to get a pure play exposure to the electric vehicle / consumer electronic kind of battery boom. There was a few lithium names out there that had been really working hard and really kind of trailblazing the space but I hadn’t seen anyone really kind of preach the theme of this battery revolution that was happening in energy. And as I mentioned in consumer electronics. So Lithium X was sponded at the time lithium was around $5,000 dollars a tonne and it reached over $20,000 dollars a tonne on the market… trading market in China during the company’s existence. And in two and a half years the team and I, we were able to raise just over $50 million dollars of equity and we were very fortunate and successful in selling the company to a Chinese firm earlier this year for $265 million dollars of cash. And through that experience I was the CEO and founder of that from the start to finish. A very well known financier in our country by the name Frank Giustra, him and I partnered up and we’ve invested in many different companies together both public and private. Focused a lot on some philanthropic efforts which I’ve definitely gotten the bug from Frank on. And I’d say, in summary I tried to keep it as short I could Cory, that’s kind of the last 10 years from a professional perspective.
Cory: [00:07:13] It’s great man, and what a run! I’ve seen a lot of similarities or interesting correlations between those who started in the brokerage industry and those who were able to create successful companies. What did you take from there? What should CEOs know about brokers and bankers that you knew that made you successful with Lithium X?
Brian: [00:07:38] Great question! So as I kind of take a 30,000 foot view of what I’d call the Canadian small cap ecosystem, I felt bad not just being a broker that was obviously one step. But understanding what makes a broker successful and how are they a tool for an entrepreneur in the public markets. And then overlaying that and understanding what makes the investment banks work and how is that a tool for an entrepreneur, public markets entrepreneur. And then how does private equity play into this ecosystem? How does the regulatory body play into the ecosystem? How does marketing of a small cap company…. play into the ecosystem? I think, Cory what I could tell you… not trying to divert your question from being a broker. Broker is a very important role and I learned a lot, but I’d say it’s more of a holistic understanding of how to utilize the tools in this ecosystem to create shareholder value. Give yourself the chance to create shareholder value by utilizing these tools and then obviously choosing the best capital providing source which I’d say in many ways is that directs high net worth, family office, even small cap institutional direct relationship is very powerful too. So, I’d say being a retail broker really taught me about just a day to day markets getting up every morning watching the market, understanding how markets work and it’s pretty amazing as you can probably attest to as well that… When you are a broker you really get a feel for the… it’s almost like learning a sport or you’re learning a video game for some of our younger friends on a gaming craze. But… you start to understand… fear and greed, and markets, and supply and demand and especially in commodities it’s such an international market…. I think you start to get a… if you’re conscious… you start to get a feel for it. And I don’t know if there’s any other way you can get a real front row seat other than being a stockbroker and like I said, getting up every morning on the West Coast here at market opens at 630 closes at 1 o’clock. That discipline and it just… it ingraines in you this understanding. And then I think you take a step back to try to be a successful CEO in this space and really understand the tools that are there in the ecosystem and what triggers to pull at what times to give yourself, as I said, the best chance to create shareholder value for the company.
Cory: [00:10:35] How about we go down on that path there. Those triggers, the marketing, the speaking of the market… It needs to be strategic. One of the things I admired about you in Lithium X is you had a hell of a story. The reason why I say that is not that it turned into an incredible success but it was simple, easy to understand. What do you have to say about that? Or what advice would you have for CEOs when it comes to speaking to the market?
Brian: [00:11:03] Well… I’m still learning. So there’s no right answer but I can speak to what I think worked at times. So one thing I’d say is, what I realized quite quickly was at the time 2015, a lot of natural resource companies and probably the word complacencent’s too harsh. But I’d say along those lines I think many of the companies that I was looking at really hadn’t spent the time on marketing because the value driver of many of the companies that I didn’t finance as a broker and that I’d seen in… as I was putting together Lithium X with our team… they just didn’t put marketing at the top of their of the priority list. They thought that their asset was the value driver and that was going to work itself out. And what I found was, actually no. Our markets are extremely inefficient in my opinion, extremely inefficient because… any healthy market there’s multiple and many participators. And that’s what creates liquidity and price discovery and all these things we learn and finance 101. For the small cap space, especially natural resources, there just aren’t a lot of market participants especially nowadays with such little capital flow and even in 2015 there’s such little capital flow. So I felt like, how do I resonate with capital providers outside of the natural players, capital players? in terms of… really in the grand scheme of things, small Canada. Canada’s a very small capital markets relative to United States, relative to Europe, relative to Asia. So I tried to simplify a story that would resonate with the largest array of potential shareholders and call it a shareholder acquisition strategy. And we tested many things and… was it perfect? it wasn’t perfect but. I think I mentioned it at the beginning, it was a theme that I could understand myself and try to simplify. And the way we preached our mission was to help win the world of fossil fuels. And I don’t know if a lot of natural resource companies listed in Canada at the time really approached things that way. I think a lot of them approached the discussion with… “I have X amount of millions of tons or pounds” or whatever…
Cory: [00:13:36] … One of the things I often say is emotion trumps logic.
Brian: [00:13:40] Yes!
Cory: [00:13:41] It opens the discussion. And then they hear.. “Hey, here’s what we have!”.
Brian: [00:13:45] Totally. Yeah, and you’ve always been good. I remember when you were talking about your projects when I was at Pathfinder and Intrinsic. You had the same ability. It was kind of… it’s important to get the emotional discussion going and then rationalize the decision sometimes later. But… get the emotional hook and as you said, have a discussion. We’re all just human beings and it doesn’t matter if you’re the largest fund manager in the world or a retail investor that likes to buy a couple hundred dollars worth of stock. We’re just human. So… I felt that worked really well. It was trying something I think quite different. I had some partners look at me a little cross-eyed when I was trying to trademark the name Lithium X because I envisioned Lithium X being almost like a Chevron for Tech Com if we continue to advance the business. It would be this… “Powered by Lithium X on the side of a…”
Cory: [00:14:37] That’s cool.
Brian: [00:14:38] Yeah. I mean, just ideas like that I can tell you some of my partners looked at me crosseyed at “What are you doing spending the money on trademarking Lithium X? As in… No… you know, I’ve got this vision! And… I don’t know it was… I also attest some of it to just basics like I’m a young I’m younger than a lot I was younger than a lot of the CEOs and I just had a different view based on my experience of being on the planet as a young sub 30 year old and a lot of the CEOs that are in our industry are just older and they’ve got a different experience on this planet. And they’ve got different needs and wants and desires and I was just in a very fortunate position where I had some more established backers and Frank Giustra and Paul Matyzek and others many supporters and they enabled me to preach this and I think it worked really well.
Cory: [00:15:35] No kidding. You know, it’s great to hear you say that because I think it’s something that everyone on the market needs to hear. And especially when we start to look to a younger demographic who is still active in the markets albeit in different ways. The next question I have is, what was the first step? You chose the CPC model, the capital pool company, took a shell. That was the vehicle you used to build Lithium X. What were the mechanics of that?
Brian: [00:16:04] Yeah, Cory it’s a great question because it took me… be a broker than being a merchant banker, exempt market dealer. It took me years to just figure this out because I was always like.. “Well, how does this work?” And I think it’s important that you’re educating people on this because it’s an incredibly powerful tool to raise capital and go public in my opinion. So, when I approached Frank in December 2015 to pitch in the concept. He said: ” [will] love to do it!” I was absolutely frightened because…
Cory: [00:16:43] I bet!
Brian: [00:16:43] … frightened and excited at the same time. But it was frightening as in “well, I can’t mess this up. This is what I’ve always want to do” … so had the conversation and then he put me in touch with his partner, a gentleman named Gord Keep. A wonderful guy who’s worked very closely with the Exchange and Securities Commissions and all that. He used to work at the Exchange back in the days with Frank for… about 30 years now and knows the rules inside and out. So it was nice to be able to go to them. Frank saying – “Yep, I can do this! I’d like to provide capital and my credibility” and Gord – you’re gonna be able to put through the mechanics of what I’m envisioning. So, what did that mean? That meant that Frank and Gord and their capital partners owned a shell and what that meant was, different percentages of that shell were owned by those parties. That was their equity. I then went and negotiated a deal with the vendors, with the gentleman that was the prospector who put the land play together and what I did was wedge a VC private company in between that discussion so that I was able to earn my equity. And I look at it… if you can envision kind of three things coming together on one of these transactions: There is the shell. There’s the capital, so the concurrent financing. And then there is the private company that is what secured the opportunity. And I will mention really quickly that the gentleman that I negotiated the deal with on the project, he’s actually a gentleman that I’ve known for a very long time. I went to school with his kids. And… it’s funny how life comes full circle. And it was a competitive process because a neighboring property and company was doing really well, called Pure Energy which these prospectors that I negotiated with were the vendors on as well. And there’s a few different groups and I was very fortunate to have the relationship that I had with clients, Clive Ashworth is his name and we’d be able to get the deal done. So, these three things came together. I got my share ownership through the vend in which was… I think 3.0 million shares, 2.93 million shares… that ended up being pro forma about 10% of the company once we had completed the amalgamation. And for some of your listeners, I think the most important thing during that exercise is just really understanding who’s going to be your support in terms of ownership and breaking down the pie of who’s going to be motivated from an equity perspective to really help drive value with you and support you. Whether it’s access to capital providers, whether it’s introductions to potential team members, whether it’s introductions to potential acquisitions. You know, that’s really your one chance to really make it right, and it’s never perfect. From other companies I’ve built now. But… that’s kind of the arts… as opposed to the science. So I hope that helps.
Cory: [00:20:04] Yeah, it’s been really interesting and I’d love to dive in… I mean we could get deep down even to the theoretical finance of it all but I know we don’t have time for that. I can see we’re checking off the questions as we go although I’m not asking them. The last point you made about choosing those capital providers, choosing those partners who are in the equity positions… Getting out there and getting in front of them and meeting them. What would you find or what did you find as your most… and this includes when you’re public as well… most effective channel for speaking to the market or speaking to your investors?
Brian: [00:20:44] Cory. I think it’s a almost a full time job just speaking through all mediums. I don’t know if I would say there’s one in particular. I think face to face is obviously the most powerful but it’s the least scalable. So, I think that things like this, podcasts, interviews are the most scalable and maybe not as impactful as a face to face. Or conferences… lots of distractions but a good place to meet everyone from the industry. I’d say… I think it’s very just disciplined strategy that you’re always thinking about another potential supporter. And it’s a matter of… basic marketing just converting converting prospective customers, converting prospective investors and it’s a continuous process till… this day on all the different things we work on. It’s a continuous process and I don’t know if I point to one that has been better than another because different ones have worked at different times to help achieve the goal. I think it’s just something where you… for us we just tested as many different things as we could. And once we started to see success and one of the things we did, we would just start to spend more time on more capital and allocate more resources to that initiative. But the world changes so fast nowadays, that initiative can change also. I think what it comes down to… if I can just take even a step back… it just comes down to the team you put together. I felt so fortunate in Lithium X where we had the support of Paul Matysek from driving really on the ground in the country, advancement of the project and technical expertise and everything else that Paul is. He is incredible. And then we have Bassam Moubarak who came in halfway through Lithium X evolution and really mastered the sale to the company and buttoned down everything of what we needed to do from due diligence and everything and then I had Lucas Cahill who ran really all the things I would say he would put on presentations and organize roadshows and it was just awesome… right arm. And then, we had obviously the support of Gord Keep and Fiore and his team from a back office regulatory perspective. And then you’ve got your council which was with John Anderson at Stikeman who’s an incredible M&A attorney and supported us like crazy. So I don’t know… I should mention also… we had an incredible institutional support from both Canaccord, Jamie Brown there at Canaccord and Marcus Freeman who runs Australia. And then understand the market and getting… even the first narrative that went out on on Lithium X was written by Tommy Humphreys at CEO.ca. And… you think of all those components and then as a CEO… what I was able to do, because of Paul and Bassam’s ability, and I should mention Will Randall who actually is Argentine and worked in country, they were able to really develop the asset where I was able to have this support, this entire team and put together a strategy that allowed us to raise money at ever appreciating prices which we started at 15 cents, and then 30 cents, and then $1.2 per share, and then $1.65 and then two financings at $1.90, and then an eventual sale at $2.61 cents. Even as I say that to you, this doesn’t happen without someone that can kind of put that strategy together and all those people… and there’s probably many more. But, that really hit on each core pillar to… give yourself a chance to be successful in this very tough business.
Cory: [00:24:44] I can see the the ingredients there but also the methodology which came behind it.
Brian: [00:24:50] Yeah, exactly.
Cory: [00:24:53] Let’s take it forward to right now. What’s happening in your world? What’s keeping you busy?
Brian: [00:24:59] So I’ve gotten pretty active Cory in some philanthropic efforts which have given me a lot of satisfaction. But I’d say, on the professional side really after selling Lithium X in March and we’ve built many public companies during that run and invested in a few very cool private startups. I’d say that a lot of my time right now is actually being spent supporting the CEOs of the companies that we’ve made minority investments in. And I’ve got a lot of fulfilment out of that. And I’d say just where I think we are in the economic cycle. I’m not overly convinced of where the world is at right now in terms of being long only equities. I think that it’s interesting time in the world right now which I think actually could bode very well and I’m definitely talking my own book right now but for precious metals at some point here. So… I guess I’m cautious right now in terms of where we’re at in the equity cycle and I’m just really supporting the companies that we’ve invested in. And then we are looking at at building out a… not looking out but we’re in the midst of building out… alternative lending business to the natural resource space, in particular mining. So… at its essence Cory, as I’ve had some time to reflect, what I’d like to be is known as a great capital partner for opportunities here in Canada. And if entrepreneurs build a business and have a have a kind of tougher time or just don’t have the experience navigating how to get capital who to get it from, why to get it from that person. And I’m talking both equity and debt. And if we can help provide that guidance by being partners, by writing checks and being partners. I’m talking both in public and private. Some of the biggest successes that we’ve had… and we’ve had some real epic mistakes too… but some of the biggest success we’ve had, have actually been private companies lately that are just building awesome products and I’m getting a lot of fullfiment out of that. Not rushing into being a CEO of another public company because it takes such a special moment in terms of cycle in terms of the right… whether its commodity, the right product. And, there’s nothing overly obvious to me right now. And I’m not saying I wouldn’t do it again. But there’s nothing that’s really given me conviction to go and do it again.
Cory: [00:28:11] It’s certainly a commendable calling when you talk about being a good capital partner. I think a lot of companies need that in a big way. So… it sounds very interesting. I know that you’re tight on time here. If there is one point or maybe two or three points, whatever you’d like to share, for CEOs who are out there who… have a good company, a good mission and are looking to advance themselves. What advice would you give them?
Brian: [00:28:39] Well, now being maybe more on the other side of the table. Actually Ian Telfer said this to me, who’s an incredibly successful executive who built Wheaton River which is now GoldCorp., he’s still the chairman of GoldCorp. and many other successful companies actually with Frank Giustra. He said, you’ve got to put yourself in a position to get struck by lightning. What he meant by that, not from that sense but from a good perspective. I think just passion and hard work gets you that position of almost… just having the opportunity to be sort of alive. So I’d say just let that drive you because any… and I’m referring to smaller companies Cory, that… aren’t proven and you try to make it work and you’re… a startup and an entrepreneur. You’ve just got to drive with passion and knock down doors and opportunities will come. And I believe in karma, I believe in things that work out if you’re doing the right things. It’s going to happen.
Cory: [00:29:39] For all the Brian enthusiasts out there. How can they follow the work you’re doing now?
Brian: [00:29:44] So I’m just working on that but you can… my website’s now set up which is BrianPaesBraga.com, instagram has been a pretty comfortable place for me to share some content which is @BrianPaesBraga. And I’m just working on the Twitter sphere… I’m learning that universe that I think is BrianPaesBrega too. It shows how much I use it. But how you spell BrianPaesBraga is B R I A N P A E S B R A G A.
Cory: [00:30:22] Excellent Brian! Thank you so much for the time. It’s been a really insightful.
Brian: [00:30:26] My absolute pleasure. Thanks Cory!
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