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Financing Resource Companies w Gordon Keep – Ep. 6

by | Mar 20, 2019 | Investor Relations, Public Co's

SUMMARY

What would you learn from 35+ years of building companies in the capital markets? 

In this two part episode, Gordon Keep expounds on his experience building over 250 companies and the lessons he’s had with public venture capital.

Gordon is the CEO at Fiore Management and Advisory Corp. From his early days with the TSX Venture, helping write regulations, being an early mover into South America with what was Yorkton Securities and on to his enduring partnership with Frank Giustra to build some of the world’s most notable resource companies.

This is a history lesson where Gordon reflects on some of the deals that put Canada on the map as a major player in the international resource space. This is also a tactical discussion. We discuss listing through CPC’s, RTO’s and IPO’s, what to pay for a shell, how to pick partners and how to tactfully take profits… We also talk timing… They won huge on Uranium, Gold and Lithium, but lost on Potash… In Gord’s words, they missed it by about 8 or 9 months.

Gordon, Frank Guistra and Brian Paes-Braga now lead the Fiore Group where they continue to advise and build remarkable companies. This is an episode you won’t want to miss… in fact, listen closely with a notepad as there’s so much value in the experience he shares.

Gordon Keep on:

LinkedIn

TRANSCRIPTION

* This is a software-transcribed article.

Cory Cleveland: [00:00:00] So when I did my research and reached out to you, it struck me. I mean it is thirty five plus years of both figuratively and literally finding gold. And as we discussed earlier that the working through your art in and through some now two hundred and fifty public companies you’ve been involved with.

 

Gordon Keep: [00:00:20] I think its around that. I don’t know the exact number but it’s plus or minus twenty five from the companies I created. Some of them were the same company. You do a deal, you drill, it fails for whatever reason it fails. We restructure it, which I know was one of later questions to make it usable again and then you go and try again. Some of them we may have used the same vehicle three or four times but that’s again part of why people like the Venture Exchange and why shareholders will participate is because any good management team doesn’t abandon their vehicle. Even if it doesn’t work, alright well let’s give you another shot. Granted you’re not getting near your money back on those situations business everyone rollback or whatever, it’s part of it. But at least it doesn’t go to dust. You get another shot at something. Average down is the ugly saying is… We’re you’re averaging down means you lost money…

 

Cory Cleveland: [00:01:20] In that then you surely have taken perhaps what was been a failed project and turned that around. Do you have any memorable stories.

 

Gordon Keep: [00:01:28] We really haven’t done a lot of that… That’s, that concept’s more of an industrial concept in my mind where you take a product that’s not selling well but most of our areas in the resource space. So we take failed companies or failed shells that have been something else and I will work with my partners and will acquire a vehicle from someone that had it before was unsuccessful and doesn’t want to have to answer those shareholder questions anymore. And hand the company off to us. Usually at a fairly discounted price but they know that they handed it off to a group that will find something. So I look at it more that we create a lot of different companies and different ideas rather than go rescue…

Of the 250 things that we would have stepped in that’s… And staying in the same business. That would probably less twenty. It’s mostly where we find a vehicle that’s been busted up by whatever reason. Bad management, bad assets, bad structure and then we can fix it up and go into a space that we think is the market wants to fund and the market wants to invest in. And that changes… (inaudible) back in the Yorkton days. Gold was the only thing that was financible. With the coppers and the lithiums and the uranium’s and the rest of that were not. The gold space had a lot of different imputuses to create new opportunities. You had gold moving up, back in the early 90s, late 80s in price and then people were funding it. And then you may even be too young to really remember this but South America didn’t have any Western exploration done for 30 years. Most of socialistic type governments there at the time, Chile was the first to allow Western capital come in and all the sudden their GDP and everything else started to rise significantly. With all the copper mines and so on and it almost folded overnight it was incredibly how quickly Venezuela, Colombia and Argentina all opened up. You had at that point you had projects that hadn’t had any real capital thrown at them as I said for 30 years.

It was a whole bunch of great assets out there that were privately owned by families and in South America and they were looking to either advance them or sell them. Mexico as well for that matter. And that provided a huge opportunity that’s really probably where Frank, myself and the Yorkton team really made our original mark. It was being early into South America. At one point Frank could walk into almost every President of the country’s office. He would know him. It was ridiculous as we opened an office in Santiago and everyone looked at us and said what would you open an office in Santiago for? There’s no money in Santiago. We weren’t opening an office in Santiago for money. We’re opening office so we would then have people to talk to who want to sell its assets. As the world runs on assets. Money you can find any but the need to find good assets. So that’s why we opened our office in Santiago. And sent a lady down from here and hired a local Chilean and it was a very successful office. Katherine McCloud who went down there ended up taking her original fortune when she left their and bought an asset in Peru and Barrick ended up taking her company. Some very smart decisions definitely.

 

Cory Cleveland: [00:05:28] In that time, there must be some amazing stories that defined your career. What comes to mind?

 

Gordon Keep: [00:05:36] Ahhh, I don’t know… Venezuela which today is a pariah state but it’s now crystal lex and all the fighting over in that area. It really opened up… That’s where Ian Telfer, Robert Freedlan and ourselves all did a deal together called VenGold. Which was actually the company that paid off my mortgage and my golf membership. So you know that one, I remember well. But there were so many of them. There really was. And it was really how the business evolved.

 

Gordon Keep: [00:06:10] We were early adopters and to finish part of the story this late in the cycle RBC went down to look at an asset. The vendor said, “Well who are you?”

 

Gordon Keep: [00:06:25] “We want to talk to the big guys. We want to talk to Yorkton.” Because we had an office there and they’ve been dealing with us. Little they know it’s whatever billions of dollars of market cap that Royal Bank was back in the mid 90s, whereas we were like 10 million and under brokerage firm. So it just shows out by being in the place with right access to us, people actually thought were the cat’s meow. But again I’m really getting kind of ancient history here because this is 30 years ago, twenty five years ago. Toronto would not fund the venture market back then. Institutions in Toronto… there’s very few of them that would gravitate towards that space. It was too junior for them. So there were two other aggressive but Toronto based firms that called First Marathon and Gordon Capital. They had access into the institutional marketplace in Toronto but they didn’t have access to deal flow. So we started to do deals with them where we would bring project we’d bring the retail and Western institutional community that was already participating and they would bring institutional capital from the Toronto part. And we did a lot of deals with them… We called ourselves the unholy trinity… but ahhh.

 

Gordon Keep: [00:07:54] That’s how the Toronto market in a lot of ways decided that the risk taking in the venture space was worth it. Because they’re making good returns on their money and they didn’t have to wait to be the guys about the stock at five bucks.

 

Gordon Keep: [00:08:08] They could be in their at the 25 cent or 50 cent financing and went from there.

 

Cory Cleveland: [00:08:14] In doing some of my research I came across a globe Mail article the writer… He penned a piece there about saying through a byzantine system of shell companies, frutive share purchases and elaborate compensation schemes is the way this…

 

Gordon Keep: [00:08:34] That’s an old article… Did it have every bodies picture in it… that one?

 

Cory Cleveland: [00:08:34] Yeah. So it apparently was updated in 2017 but when you read that it comes across as a bit nefarious. But in the discussion we’re having. There’s I think there’s a story that needs to be told to help clarify that.

 

Gordon Keep: [00:08:56] Yeah, I don’t know how to answer that perfectly. But success does breed jealousy. The compensation thing is wrong. That’s not how we make our money we may have contracts with companies that we help with M&A, we get a fee for it. But you know, we are… I don’t know if we’re criticized, I think the system is criticized and we’re criticized because we’ve had some success at it and have been able to repeat that success. That because we acquire the cheap shares at the early stages that we’ve got a low cost base to finance the company and like Lithium X is a recent example where at 15 cents, 50 cents, a dollar two, a dollar 62… Constantly raising prices higher as the asset develops and we ultimately sold it I think at two dollars and 61. You know We had people like ourselves that own shares in that vehicle. I don’t remember what the price was but it would have been somewhere between three and five cents a share. So we have those people have those shares made a lot of money if they held on all the way to $2.61.

 

Gordon Keep: [00:10:07] Obviously early adopters were the 15 cent financing market with there. And then as it started to succeed then we were able to do another.

 

Gordon Keep: [00:10:17] I can’t remember if it was a 60 cent around. So those guys did very well. The two guys ended up doing very well at $1.62 if they bought near the top and went down then when we sold it at a significant premium is when they all made.

 

Gordon Keep: [00:10:31] So it can look like we’ve got an oversize return because we’re in early and we’re taking the risk early and putting the package together. So I think that’s where that’s coming from. We didn’t steal anybody’s money, we didn’t rip anybody off in the sense that as soon as we got the 50 cents we blew all our shares in the market… We’re gone. That’s what some people assume is happening.

 

Gordon Keep: [00:11:02] Obviously, if you end up in that situation where you have the opposite occur where it runs up to a dollar or two and then the world decides that he doesn’t like whatever product is… Lithium which the lithium space has softened out… The stock might go down to 50 cents and then they all say we’ll look at how much they assume we also that a dollar. Of course everyone sells at the top and then they complain that we took advantage of them. We didn’t. We rode the whole thing up and down with them we put in our own money at the various levels as well. So there has been some criticism on that but I think it’s misinformed and not knowing how it’s all put together. But yes we do make outsized returns because we know how to do it and we do it properly. We’ve never had a regulatory problem. I have been sued once and that was for takeover bid that we started that they didn’t like and it wasn’t me personally it was a company I was on the board of. We settled for a million dollars which shows how material the thing was. I don’t know where it’s really coming from besides people not really knowing how the system works or what risks are in there or what have you.

 

Gordon Keep: [00:12:21] The stock exchange when I joined it in August 83, they had one policy.

 

Cory Cleveland: [00:12:29] One policy.

 

Gordon Keep: [00:12:30] A Stock option policy. It was the only policy they had.

 

Cory Cleveland: [00:12:31] It was a wild west.

 

Gordon Keep: [00:12:34] The rest was seat of the pants, who you knew kind of approach. In 83 the new VP Doug Garrett made a conscious decision to upgrade the right word but to add more professionals in the listings department.

 

Gordon Keep: [00:12:55] So you hired a bunch of CA’s, lawyers, MBA’s to become the listening people. Once he had that team in place, then set about creating the policies that are the stock exchange today.

 

Gordon Keep: [00:13:13] So my cohort of 10 of us sort of there for three years creating what I think is the TSX Venture as we know today with obviously some bolt ons after. Yeah. There was 24 policies in place when I left. Well everything in theirs I was asking them were reactions to Murray Pezim type deals or abuses or the Carter Ward scandal or the other things that happened in 80s (inaudible).

 

Gordon Keep: [00:13:46] It really wasn’t any regulation so that was a very fascinating time to be there and very educational when those of us who were there. I’ve been on the advisory committee to of the stock exchange since I left the stock exchange. I was associated with the policy making. I know why the policies are there. The guys that are administering them have no idea how they got their in the first place and what the actual original logic for it be… Right. Obviously as the industry has matured the policies have matured with them moving on to changes and more restrictive, less restrictive depending on how many David Bains articles are coming out being very negative or some other when it was called the scam capital of the world by New York papers and so on. So everyone’s reacting to try and figure out how we could improve the reputation. I think it’s a good reputation over the years of trials and errors and fixes.

 

Cory Cleveland: [00:14:53] So in your opinion today’s Venture and today’s markets are in a better condition than then were in past.

 

Gordon Keep: [00:15:01] Oh definitely. It’s much better market in the sense that they’re out of control and never use the right words. There’s certain oversight and responsibilities and so on into the marketplace it more so than a lot of other stock exchanges in the world. I think the TSX Venture is unique. The closest would probably the Australian Stock Exchange. AIM which was a junior London market tried to figure out how to get into that space. They never have and never did. And now they’ve sort of walked away from it. Australia of course collapsed in the 90s initially.

 

Gordon Keep: [00:15:45] It’s now coming back but it’s never gone global except for maybe South America and Africa a little bit. But the Venture Exchange is still what most American people come up to. There is no equivalent in the US. NASDAQ is not the same rules. The junior New York Exchange used to be the AMEX. That’s not the same either. It’s just very logical or even certain amount of structure I guess is the right word. With all these policies and expectations, some Commission Securities Act policies that allow the exchange to operate. It’s still a high risk market by venture market (inaudible). But it’s I think it’s a very efficient well-run market that people doing it the right way will find success.

 

Cory Cleveland: [00:16:45] So what would you say to those who have who are operators or CEOs who look and say it’s too regulated. This is too hard to operate. What are they missing?

 

Gordon Keep: [00:16:57] I think a lot of what you hear there is hearsay.

 

Gordon Keep: [00:17:01] There was a lot of people complaining about the exchange delays this and that takes too much time. Most of that is is not true if you know what you’re doing and you’re doing it properly and doing proper fashion in a timely fashion and to have a proper team managing the process. There are times in which they definitely overreach or occasionally you’ll get some biases from individuals within the organizations that hold things up. And they’ve got they’re working on that. They’re constantly trying to fix that. They’ve got the problem to train someone to do their job. It’s a two or three year process. To get a really top notch person you’ve seen enough to know where to say yes and where to say no and where to have some flexibility. Which is again one of the things I like about the exchange is they have a set of policies but they’re prepared to amend them individually. If you have a reason that they showed and the reason is logical meat or not offensive to what the policies are saying. So (inaudible) and knowing where the hotspots are and where the flexible spots are because I’ve been doing it for 30 years. I know I know where we’re the ones that we can’t move and ones that as long as you have a reasonable set of expectations you can negotiate with the exchange to come up with a reasonable solution.

 

Gordon Keep: [00:18:44] Is it overregulate. Sometimes. It definitely sometimes a lot of people complain about that process. I think more of that is a function of the way Securities Act is not doing the same as the stock exchange. Most people entering into this space don’t know the difference what the roles are and they often blame the stock exchange for things that the stock exchange doesn’t rule on. I’m sounding like a cheerleader for the stock exchange. .

 

Gordon Keep: [00:19:15] I do think it’s well-run. I think it’s a good institution properly managed to conserve its role of capital formation…. Sorry

 

Cory Cleveland: [00:19:29] I know I don’t want to just interrupt but I definitely want to. There’s so many questions I want to ask but be conscious of time as well. So if you don’t mind I’ll jump in every once in awhile.

 

Cory Cleveland: [00:19:40] With that difference between the regulators and the exchange itself…

 

Gordon Keep: [00:19:50] The exchange is a form of regulator.

 

Cory Cleveland: [00:19:51] Certainly. And then on top you have the regulators. What do you see there? What are you what’s your your impressions your feeling about the state of regulations now comparing to the past or to… Anything that. What’s what’s your impression of the regulators at this point?

 

Gordon Keep: [00:20:09] Well right now I think it’s not a bad spot. It can still can get better. There’s been ebbs and flows over 30 years. It hasn’t all been easy pie or whatever or the exchanges had different approaches at times where they’ve been very draconian in their approach and that’s because they got burnt on something and got their wrist slapped by the commissions or general media or whoever. So they’ve they’ve had to react back and forth. And in really hot markets, you get a lot of crap thrown at the exchange because people can raise money on the back of next to nothing sometimes in tough markets they can’t raise any. And the exchanges always got these sort of temporary policies that they take in and out to try and adjust to what’s happening with the market.

 

Gordon Keep: [00:21:05] But they’re never perfectly on time because it takes a while to filter to a lower level and the people who get frustrated with the process but then the securities commission side of the equation is still a little bit messy in that you’ve still got the 13 jurisdictions. You’ve got Ontario who historically has been trying to make sure a national commission came out with them at the head of it. That’s why it’s never happened because rest the problems of lack of it and lead it. And the current proposal which has been sort of dormant for the last three or four years but started about seven years ago I guess it was. National regulator when B.C. and Ontario and the Feds agree to try and create such an instrument and set it in Ontario was prepared to take an equal provincial role not the dominant and myself and a few others were advisers to Mr DeYoung on the BC side as that was getting set up. Now has got sort of hung up by a bunch of changes the Government’s everywhere. That’s the problem with securities regulations is that they’re provincially. So every time you have a different Premier who has a different mandate or different ideas they don’t necessarily keep the process moving forward. Same with the federal government it is no longer as strongly supportive of the process of pushing the process that was when Flarity was alive. The concept’s a good one where you do not have any province and you had a situation where you only have to go through one body to make changes.

 

Gordon Keep: [00:23:03] Right now the whole period for instance which is 18 months at the beginning of my career and now down to four months people think they should go to zero.

 

Gordon Keep: [00:23:11] Or some people think they should go zero. To make any of those changes you can do it just in B.C. or you can do it just in Alberta which is historically what’s happened in B.C. and Alberta have fairly common approaches to regulation. The CPC program actually came out of Alberta as the JPC Junior Pool Company… which then got adopted by us and then adopted by the country.

 

Gordon Keep: [00:23:37] So most of the innovations… hold periods, shortening short form prospectuses stuff most that came out of the West. Out of Alberta and BC. And after Ontario realized the world hadn’t fallen apart, they decided liked it to. So the advantage of having one, ultimately if it ever does happen is that you don’t have to go back to each legislation, each time it changes done there’s any change, that has to go through 13 legislatures can take three or four years just with government changes. Nothing happens fast and of course that’s why most of the acts are now set up… It’s in the policy section for the changes are going to be made. They can be made in the regulatory part rather than at the legislature part. So the. But even there you still have to have 13 different regulators decide that that’s a good thing. And they all have different mandates. Toronto’s mandate is predominantly mirror image what’s going on in the US. That doesn’t generally apply to TSX Venture. So they’re not… Historically they have not been overly concerned about the venture market. If its collateral damage because of some policy but it allows them to mirror image what’s going on in the US so they can have the Royal Banks and the major companies that make up the TSX 300 be able to survive and raise capital, that’s all the really care about.

 

Gordon Keep: [00:25:21] It’s it’s a tough area. The good news is we have. This area… can’t remember now. But there’s a… Everybody but Ontario is a member of it and they all adopt each other’s. In other words you file a prospectus in B.C. you nationally file it as well as well except for Ontario. But every other province they rely on BC. If BC says this document is OK to raise money off the back of the other is just blanket rubber stamp it. So you don’t have to have 13 different people giving you comments. Ontario has never joined that as its accepting make sure the National Commission was there and they weren’t going to help. Now having said that trying to to throw Ontario completely under the bus… for most cases they go along with what the CMA recommends and does and they participate in it even though they’re not a member. There are the biggest province… Getting way into the right.

 

Cory Cleveland: [00:26:28] But it plays such a big part in how a company exists within the marketplace. For a CEO out there who’s running a junior company on the Venture or the CSE what should they know but what should they be aware of to make sure they can navigate that that landscape?

 

Gordon Keep: [00:26:49] It’s really only material to them when they’re going public or raising capital cause that’s when you’re touching those organizations. And we’ve talked off line previously as to RTO’s versus CPC’s versus IPO’s. And the reason that I predominantly one of the reasons to one of the reasons I predominately do RTO’s versus CPC’s or IPO’s is on an RTO the jurisdiction has been transferred to the stock exchange.

 

Gordon Keep: [00:27:35] So you’ve got to deal with 13 commissions. You deal with the stock exchange. The stock exchange isn’t quite as encumbered by regulations and sister province regulations. So they have more flexibility in negotiating with you in how to structure a deal or what disclosure needs to be done on financial disclosure. There is a base document but there’s always tweaks in it. I’ve run into this many times when I file something with the commission in B.C. and they said “Yeah, we agree with you, but unfortunately Ontario won’t. Therefore we can’t give you a receipt for your prospectus because they won’t co-receipt it. Which means you can’t move forward. They always have to be cognizant of what their sister provinces hot buttons are or other areas. So. So as a CEO you’ve got to recognize you’re stuck in that environment. You can end up in the ugly vortex where you’re spinning around and never getting out of the environment because it’s it’s one thing after another or the two of them don’t agree. And now what do you do when you get two regulators won’t tell you which way to go because they each have a different opinion.

 

Cory Cleveland: [00:28:47] And then add to that a lawyer who perhaps is cooking fees.

 

Gordon Keep: [00:28:55] You hope your lawyer is not doing just to make fees, but you do need. To answer another part of the question in dealing with them you can’t just have someone who did your wills come into your securities. You gotta have someone that knows the system understands where the areas are. Obviously my business is is helping companies do this and giving them my 35 years experience. In managing this process and understanding if you get a no from any regulator is that a real no or is that just come and talk to us about how this can be tweaked you better, or explain to us. Because we you got to remember when when you’re giving documents to these regulators to look at, they’re looking at what you’ve sent. They don’t have all that history of five years that you’ve been running this company and everything that you know that that just seems obvious to you but it isn’t because they’re only reading what’s in front of them so they’re providing comments on that. And sometimes the comments are kind of weird because they don’t have all of that.

 

Cory Cleveland: [00:30:00] They don’t have full context…

 

Gordon Keep: [00:30:01] Exactly.

 

Cory Cleveland: [00:30:03] So is there is there a benefit when communicating with the regulators the commissions or the exchange to over communicate or what have you found works works best?

 

Gordon Keep: [00:30:17] It’s a delicate balance. And again if you have someone that’s experienced in the process, they all know what they need to know. They’ll know what you don’t need to tell because sometimes too much information gets us bogged down in thinking about stuff that really isn’t material to the end result. And you can get you can find yourself all of sudden having to generate a whole bunch more information to give them what you really wasn’t pertinent to the area. But the people are these are people that are looking at it… This is not machines. So they’re always curious themselves and everyone has their in the business they understand the business. But if something’s a little out of what they’re used to seeing you know as we go through crypto currencies and these other changes which are new to the community they want to learn as well. So they may actually bog you down educating themselves about your business. And I don’t mean that that’s negative as it sounds it just to tell them too much, It may be not overly helpful and can actually create a lot more paperwork. But I’ve seen lot of situations where a company will send in the materials, do exactly as their asked. So they follow procedure, they haven’t done anything wrong and they get back an eight page deficiency letter which is not atypical. A lot of it is repetitive stuff, so it really probably boils down to three pages but they take it as written. Please tell me this and they look at it. They talk to the lawyer and go “Oh my God”. This is going to take me three weeks to answer this question and a lot of times those questions are throw away questions by the regulator. They’re asking a question to be informed. If it really is gonna be a huge energy waste or not actually produce valuable response and some of it won’t, you just phone them up and say this question is stupid. It doesn’t make sense it’s not going to come out even if I spend three weeks giving you you’re still not going to know what to do. Right. That kind of thing can happen often. Especially if it’s outside the mining world where it’s with 4310. There’s not a lot of variations. Anything that’s not directly related to that can have interesting quirks to it. So I always recommend to the people take the questions, answer the ones you can answer. Don’t fight stuff you don’t need to fight and if they’re four or five areas where you just don’t think the that they’ve asked you the right question. Again this is one of the things I tell myself you never answer someone a question question because I may not have asked you the right question. You find out that they’ve asked you a question then you give them the answer. It applies to my partners as well I will not let myself talk to my partners until they actually understand fully that the question is the proper question. The exchange and the commissions are no different than that. They are just they’re reading it. They’ve got tons of these companies coming through them maybe doing five a day. Who knows maybe more and some of the smaller stuff and they’re just banging out sort of routine questions and they’re not always right. So go and talk to them and say OK I can’t give you this but if I give you this… Then they’re pretty good. There’s, I’ve never really had a problem with the exchange not taking a meeting to discuss a letter to discuss some issues. Their role is to get your company listed and fund it so they can add it to the roster and get trading fees listing fees and see a successful company that they can put up on the board. So they’re not there to harm you but they’re also there to protect the reputation of the TSX Venture. The Venture has a pretty good reputation around the world.

 

Cory Cleveland: [00:34:05] It’s really interesting to hear that perspective. Having been through a few deals myself it’s… It’s really easy to get wrapped up in the frustrations of having to deal with those those questions, those letters the regulators and I think perhaps for some it too easily becomes a common enemy.

 

Gordon Keep: [00:34:24] Yes but I also the benefit of a experience. Having drafted some of the policies, or part of drafting some of the policies,.

 

Cory Cleveland: [00:34:36] We touched on it a bit but can we go into more… The differences you see between listing processes from IPO to CPC, QT’s and on all the acronyms that go along with them. Can we dive into each one and then specifically speak to why you’ve chosen a path?

 

Gordon Keep: [00:34:55] Sure. What order do you want to do it?

 

Cory Cleveland: [00:34:59] Well, you choose.

 

Gordon Keep: [00:35:01] Well we should do RTO’s last because that’s where I spent all my time talking.

 

Gordon Keep: [00:35:05] The CPC concept really it’s an interesting genesis of how it started as a JCP junior capital pool in Alberta. And they… It’s kind of weird that… we’re all adults we’re all in the finance world but you have cultures that come from different places. So in Calgary which of course is the oil and gas center of Canada. They had a certain culture about how JCP should work which is you create a shell company or shelf company I guess. And you seek capital with… back in those days with… we’re talking hundreds of thousands of dollars so there… But they more or less knew where they’re going to go. What acid they they’re going to put into it before they went public which was not the culture of Vancouver. We thought that was offside because if you knew what you’re gonna put in it that should be in the prospectus. So we had our own venture capital rules or something that Vancouver called it one is the ASC and the VSE but as part of the maturation of the industry when we merged to create the CDNX briefly when it was just Alberta and BC merged, we came to a common understanding. So… you can’t know for sure what’s in there but a lot of people that create CPCs have an idea. A lot of people are simply creating them so they’re ready to go when someone has an asset.

 

Gordon Keep: [00:36:41] As an example last year’s cryptocurrency boom between, not last year’s… a year and a bit now. So … the September to December of ’17 hypermarket in the crypto-space. If you had a CPC you could go and try and find it. If it was already created and done, you could at least at that point go in and cut a deal with somebody in whatever form of crypto that was going to be financible at the time and get launched fairly quickly. So that was the advantage of the CPC. The money that was in the Treasury was really just walk around money. That’s, in most cases the four to five hundred thousand is not going to build the business. It’s just going to cover the legal fees for doing the business and getting started up. The other advantage that the exchange has done is, and the Commissions have allowed is CPCs I think. I don’t actually know, I don’t do them. I think they can raise up to three million dollars now so they have real money now. And that was again one of the adaptations that’s happened over the years. The exchange is tempting to what the market needs and wants. The problem with that, again which the adaptations have happened, before you’d have to go back to your shareholders that bought the seed level and say I’m going to acquire a crypto deal, please vote Yes. The exchange after doing this for as many years as it’s been and never having a No. Shareholders have never ever ever wrote that down. It’s why are we making companies go through that 90 day process to 60 days. How quickly you can get it done. So now you don’t have to do that. If it’s an arm’s length transaction. So they have adapted. So that helps in your timing.

 

Gordon Keep: [00:38:32] In those shares that are in seed there’s a lot of escrow up to three year, six year I think the six year is gone but the three year hold periods to the people that started up the company. There was certainly a lot of risks that if you started a CPC and you didn’t find an asset within 24 months then theoretically it was supposed to be wound up money given back to the original investors whatever was left and the founders who put in their original money and did all the work failed of course because the asset got zero. So it was a high risk for those people to take. Still is. Nine times out of ten when the markets get soft like that and CPCs are starting to fail, the exchange will adapt their policies and say OK we’ll give you three years… we’ll do whatever. They recognize that there’s no deal flow there’s no money in certain markets and get flexibility. I think they’re now allowing companies to turn themselves into NEX issuers and I apologize who don’t know exactly what happens to you. I think some shares get cancelled out of the escrow but…and you can get listed on NEX and be a regular shell as a CPC. The escrow causes problems for some people. You still have to go through the regulatory process of doing the CPC. Creating it and the shareholder approval may or may not be a problem.

 

Gordon Keep: [00:39:58] The IPO’s is an area I’ve just always stayed away from. That’s some true. I think I’ve done two or three. And it’s the function that I talked about the beginning of this talk where you have too many problems with the commissions. They don’t… A phrase I use is that they don’t have a sense of humour. They have a set of policies which are they read as black and white. Is very limited in their ability to do very them because they are also tied into what they could read with the other provinces. They don’t have individual flexibility and you can get bogged down financial statements is an area. You can get bogged down.

 

Gordon Keep: [00:40:44] In fact, as a total aside in a deal which I did as an RTO, which is the biggest deal to this day ever done on the stock exchange called of UrAsia. When we went to the stock market to raise another hundred and fifteen million and so we went public in November and then we went to raise another hundred and fifty million dollars in February we bumped our head pretty hard against the commission’s rules and policies even though we had a major accounting firm provide us with their opinions and so on. The commission has decided that financial statements we used which were irrelevant to the situation but necessary under the black and whites, weren’t proper and we had not necessarily acted promptly so long as that is that if I actually tried to do that as an IPO it never would have heard and never would have never never got raise three minds that I felt never got built because of the regulatory nightmare getting stuck in something they’re not prepared to be flexible on. Luckily for us in the timeframe between November and February we had actually taken control of the company have produced some natural state and could actually deliver it. So we’re able to raise money but it cost us about a month. Friedland’s kind of answer you never sleep on money. You don’t waste a day or two if it’s ready to give it to you take it because tomorrow something could change. You have Trump in this kind of market do anything that can change the market and all of a sudden, the money isn’t there. So the risks of the IPO in my mind can be too regulated. You can get caught a lot long time. That’s one of them.

 

Gordon Keep: [00:42:25] And now turning to the RTO. What are the advantages of the RTO.

 

Cory Cleveland: [00:42:29] And this is your chosen method.

 

Gordon Keep: [00:42:31] All our business. Some are RTO are actually with broken CPC’s. I don’t actually know that it’s a CPC till I do my research later but those are OK because they’re already hit the NEX board and they won’t set up policies that allows it to be just like another RTO with one or two minor tweaks to it. It doesn’t bother me. I find out after I negotiate an acquisition that there’s this extra a little piece of work involved. The RTO has many advantages you acquire some shares from the old shareholders as I’ve said so to get some cheap price. One of your questions in here was how do you make sure your structure is right. Well you make sure that the five shareholders that are selling you their block of stock… It’s unlimited the number of people that can buy that stock. So you want to make sure that everybody that you think is important to know that company has a vested interest if you’re buying for argument’s sake 2 cents a share of two million shares you’re going to make sure that the people that buy those that are offered those shares to help you build this company are people that will help build the company.

 

Cory Cleveland: [00:43:50] As Brady Fletcher puts it, that village…

 

Gordon Keep: [00:43:52] It is the village it’s it’s it’s it’s it’s everybody it’s it’s guys that are going to do the assets finding or evaluation or development it’s going to be the guys that are going to know all the various forms and places you can go raise capital so they want to go and help you raise the capital. Um, you have conflict of interest with the brokerage industry so you’ve got to be careful that you aren’t putting someone that you need in conflict. So they have to manage those mature works but so it’s similar to CPC where you’re creating with your own friendly shareholder base. Now you’re only getting so much of the shares because the rest is in the general public’s hands but none of that is escrow that’s all free trading. So you don’t have to worry. People don’t have to worry that they have to wait three years to see if they’re going to be successful. And it’s also not public. No one knows who owns those shares unless there is a party with more than 10 percent or that party becomes an insider of the company by director, officers of other means is public. So a lot of institutions or others that may participate later don’t want their name out. They want the private aspect of… But probably the biggest advantage, two biggest advantages on the RTO. One is you can announce your deal today. And while you’re preparing your disclosure document that the exchange will need before they’ll bring it back to trade because they usually help you on the announcement of the RTO, you can be raising your money.

 

Gordon Keep: [00:45:33] So in an IPO you got to finish your prospectus, file your perspectus get your prospectus in which you can take anywhere from three to six months nine months depending on how complicated your stuff is and then you got to go to market. The market might be gone. You’ve spent six months getting all your disclosure documents ready and no one cares… So what you want to do in the RTO is, you want to have a pretty good idea before you acquire an asset that you think it’s fundable. And then you’ve got your business going properly. You will announce the acquisition and then you will go to your key players you know like to fund early. They take a risk, they’ve financed you in the past. So obviously first timers that’s all the more difficult to do because they don’t have a past but those of us that have got couple hundred of these behind us, or 50 of these behind us or whatever you’ve got to past, you’ve shown that you stick with the deal. They’re comfortable putting money in early in the transaction. And if you’re worried about the timing because even an RTO can take… Quickest you can do one is six weeks. And that’s that’s knowing what you’re doing and really playing… Cutting all the corners you can. Normal is sort of six months to nine days is not unreasonable expectation and quite often you take as much as six months. I prefer not to get into those but in the 60 or 90 degree things so you announce one group of your team which is working away on the disclosure document. The broker may or may not need PowerPoint something that they can use to go and sell some of it.

 

Gordon Keep: [00:47:25] Let’s say you’re going to raise 20 million bucks on the announcement. You’re going to know we’re five of it… some of its going to come out of your own pocket, someone is going to come out of others. You’re gonna have a lead order somewhere in the concept. You’ll have talked to someone said hey if I get a gold deal through that’s got some sort of resource, will you be, is that what you’re looking for. If you give me money on the back of that and so you’ll have an idea who you’re gonna go to. It may or may not need to be marketed after that. So let’s say we have 10 done and 10 needs to go and find other people to join you. They can do that while you’re doing your documents so that can start the same day or if you need a PowerPoint drafted and you haven’t done that in advance. Then you spend a week tightening that up such that the broker has something to talk with. But they can raise the money and then you can you actually raise it so you put it into escrow or into trust. Terms different. Put into a trust account with a transfer agent as a special warrant or some instrument like that that such that if something happens the deal dies or doesn’t get approved. You can give them money back. So that’s why it’s a special one versus straight share. But the money is there. The people can’t take it back. Money is done. You know you as soon as you get approval you’ve got a deal. You don’t develop the asset. You know the IPO you can’t do that. CPC you could. But especially now the removal of shareholder approval so they’re not that much different than the RTO now.

 

Gordon Keep: [00:49:06] The RTO gives you control of time. That to me is hugely important. I have to wait for regulator to tell you before you do your RTO, the first thing you do is you get together with your advisory group and you walk over the stock exchange and you say here’s the deal we’re talking about. Here’s our draft news release. What are the problems that you guys see. That’s the pre-meeting you should have and they’ll come up say well you get this or this and that. There’s always some interesting wrinkles in something and you may not have thought of it that’s bumping against one of the regulatory or hot buttons and then you talk in that meeting of how you’re going to solve that problem. How are you going to get there. And then you announce and you’re ready to go. You know that tacitly as long as what you said in that meeting doesn’t change anything like the stock exchange is going to ultimately give the documents back up. You’re going to deliver in the interim you can have that money. The money comes together now. Now you just wait the last 30 days while you’re going through the regulatory process.

 

More to come in Episode 7 – Part 2.