Usually we reserve our Canadian picks for our sister blog. We had a nice run of luck in Canada, led by our 2,500% winner last May on Therma Bright Inc. (THRM.V). The junior Canadian market was particularly lucrative for many people and we certainly weren't the only ones to make big calls on it. We avoided the Canadian junior markets for several months as we expected it to cool off. Now that it has, we have found two stocks in particular we think have easy 3-5x upside potential in the near term, perhaps by early fall. We are so confident of these picks that we are putting them on our main blog for exposure. Plus they both have reasonably actively traded and liquid OTC symbols. Both of these stocks offer 3-5x upside based on fundamental potential, plus more for the technology. But most important, both management teams of these companies don't even have to do anything. There are outside forces which will occur that will guarantee a higher value for investors.
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The two stocks in question are Sparton Resources Inc. (SPNRF) (SRI.V) and Petroteq Energy Inc. (PQEFF) (PQE.V). We are going to start out with Petroteq.
PQEFF rose 53% on Friday after reiteration of a share purchase initiative taking place from a buyer in Europe:
"RYLBO, SWEDEN / ACCESSWIRE / July 16, 2021 / Regarding Petroteq Energy Inc. ('Petroteq' or the 'Company') (TSX-V:PQE) (OTC:PQEFF) (FSE:PQCF), Uppgard Konsult AB ('Uppgard' or the 'Company') announces that on July 7, 2021 the Client signed an engagement letter with a renowned international law firm based in Canada with proven experience in the field of mergers and acquisitions as well as in the energy sector in general and oil & gas in particular.
The scope of the work is to assist with regards to takeover bid / tender offer for shares in Petroteq Energy Inc. in Canada.
We are looking into further strengthening the team and bringing in another consulting firm that has extensive experience and knowledge in the North American markets.
To further earn shareholder confidence, the Client provided Uppgard Consult AB with a hard proof of fund for 120 million Euro to demonstrate the financial resources necessary to support the proposed acquisition and the future development of the technology and expansion of the business.
Uppgard Konsult AB has permission to disclose the proof of funds to shareholders interested in the takeover offer.
Uppgard Konsult AB has made an official offer to purchase up to 200 million shares of Petroteq Energy Inc. at 0.50 Euro per share cash from it's shareholders, subject to Uppgard Konsult AB's terms and conditions.
It's expected and anticipated to complete a his offer by September 30, 2021.
For further information please visit the website of the German Federal Gazette:
https://www.bundesanzeiger.de/pub/en/start?2
(https://www.bundesanzeiger.de/pub/en/start?2)
and/or contact Uppgard Consult AB at:
email: info@uppgardab.com
tel.: + 46 (8) 465 026 18
Upon clicking on the link and searching for 'Uppgard' or 'Petroteq' select under Business Disclosures the latest offer from the 06/29/2021 'Freiwilliges öffentliches Kaufangebot an die Aktionäre der Petroteq Energy', Amendment of publication of 04/16/2021, the purported offer can be reviewed in the German language.
The purchase offer is subject to Uppgard Konsult AB's terms and conditions.
The German federal gazette the 'Bundesanzeiger' , is the official publication of the Federal Department of Justice and Consumer Protection, of the Federal Republic of Germany and the official proclamation and announcement organ for legally mandated announcements by the private sector in Germany.
Please note that this is not investment advice or an offer to purchase investments.
We strongly recommend that all investors consult with their own financial representatives or investment advisors before making any decisions."
This is not the first time this offer was put out, as PQEFF ran from $0.05 to $0.25 in late May upon first announcement. The original intent was to focus on investors in Europe but it looks like the purchaser has expanded their search to Canada as Europeans likely didn't hold the 200 million shares desired. PQE/PQEFF has 504 million shares outstanding. The 0.50 Euro price translates to a $0.59 price on PQEFF and $0.75 for its Canadian counterpart PQE, representing a 340% upside.
Not all the shares will be purchased, but buying pressure of 200 million shares will certainly push the stock price to something well above the teens, if still short of the bid offer for those who are unwilling or unable to participate in it.
This bidding process appears unusual and iffy, but it does make sense. There is no way that an outside firm would have been able to purchase 200 million shares on the open market without pushing it up to well over $0.50. Plus there are laws about announcing stock purchases when exceeding 10% ownership stake. The company is going through legal avenues in Europe and Canada to see this bid through, plus is willing to prove that it has the money to interested sellers, so it's not a pump or Ponzi scheme to get the share price up.
Why such an effort to buy Petroteq? Simple, the company has developed a proprietary solvent-based technology process that cleans oil sands of all hydrocarbons without using water or emitting significant greenhouse gasses. The company released news after hours on Friday related to restatement of the books due to the CEO not properly disclosing a debt security. If this creates any selling pressure, this is a major buying opportunity. The debt security in question is secured against assets not related to the technology so it should have no impact on the bid offer.
Next up is Sparton Resources. It owns an 89.8% stake in VanSpar Mining which in turn owns 9.8% of VRB Energy, a renewable energy storage company in China. The net result is that SRI owns 8.8% of VRB. BCPG, a leading renewable energy company in Thailand, made a $24 million convertible bond investment in VRB. The bond converts into a 2.18% stake in VRB, implying a $1.1 billion valuation upon conversion. Assuming SRI's stake gets diluted to 8.6% upon conversion, the value of its stake in VRB would be $95 million US. This compares to a $13 million US valuation of the OTC listing. Even chopping that value into half implies about a 3-4x upside to the stock.
Like we said before, Sparton doesn't actually have to do anything in this scenario. It sits back and waits for VRB to develop its business. So what does VRB Energy actually do? The company uses its vanadium redox battery (VRB®) technology to store renewable energy at a large scale. This has come at a particularly good time as China is evaluating alternatives to lithium storage systems after an explosion killed two firefighters in Beijing.
Sparton reacted positively this past week as it announced that VRB's vanadium based storage system was one of the handful selected for national evaluation in China. It's a relatively small project to start with the China State Power Corporation purchasing and installing a 500KWh vanadium flow battery set to be operational by late September. However, post-evaluation success would likely lead to far more contracts. VRB has previously signed an agreement to build China’s largest photo voltaic solar integrated battery system. This agreement will be a thousand times bigger at 500 MWh.
VRB Energy is Chaired by Robert Friedland, who is also the founder and Executive Co-Chairman of Ivanhoe Mines Ltd. (IVPAF) (IVN.TO) and is the Chairman and President of Ivanhoe Capital Corporation (IVAN). So he has tremendous global capital markets experience and is one of the leaders in financing energy transition projects. IVAN is a SPAC created with the following mission:
"The SPAC plans to target industries related to the shift from fossil fuels towards electrification, and targets may include those in the supply chain from mine site to the end user of electrification products and services, including in the transportation, e-mobility, electric propulsion, battery technology and storage sectors. These include mining companies (copper, nickel, cobalt, and the platinum group metals), battery and component manufacturers, electric grid companies, EV makers, and other disruptive ventures."
While this is a wide range of possibilities, VRB Energy would fit the bill quite well within this SPAC. Should Friedland decide to use IVAN to take VRB Energy public or use another shell for doing so, we would expect Spartan to immediately rise to the value of its post-merger stake in VRB in order to cover off arbitrage. While that would entail more dilution, the value of VRB is just going to keep on rising as it's obvious that the vanadium storage system is gaining significant traction in China and will likely expand internationally.
We expect PQE and SRI to rise to around $0.50 CAD in relatively short order, approximately $0.40 for the OTC listings PQEFF and SPNRF.
Disclosure: We are long PQE and SRI through the TSX Venture Exchange.
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