Abaxx Technologies: Partnership with MineHub

Video: An overview of Abaxx's deal with MineHub. It's bigger than the market realizes.

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Transcript

Abaxx Technologies, a new futures commodity exchange operator, just signed a partnership agreement with MineHub, a digital supply chain solutions company.

In this video, we’ll review the terms of this partnership, and what it means for Abaxx Technologies. The market didn’t seem to care about this deal, but it could actually have major, positive long-term ramifications for the stock.

Before we get started, if you’re unfamiliar with Abaxx Technologies, I recommend reading my write-up on the company on Substack, which outlines its investment thesis. You won’t have the context of what I’m discussing in this video without reading that report, so you should read that first if you’re interested.

So, In this deal, MineHub is receiving around 219,000 shares of Abaxx, which are worth around $2.5 million CAD, in exchange for Abaxx getting 8.3 million shares of MineHub. Those 8.3 million shares correlate to a 10.9% stake in MineHub, with the potential to raise that ownership stake to 19.9% through an additional 8.6 million warrants that expire in November 2024.

It’s worth noting that both companies have agreed to undisclosed, daily selling limits of those shares. This is important because MineHub is probably going to have to sell their Abaxx shares. In their financials ending April 30th, they had $1.3 million in cash and burned around $1.2 million in the same quarter. Considering we’re heading into August as I record this video, the company is likely strained for cash. So, MineHub selling those shares is probable.

But with the financial aspects out of the way, what are the intangible benefits of this deal? They could be significant.

First, we’ll have to discuss what MineHub actually does.

MineHub digitizes the commodity supply chain instead of relying on spreadsheets or paper documentation. Given their complexity, the commodity markets are notoriously slow to adopt new technologies. So, MineHub offers a SaaS platform for participants to better track commodity shipments.

MineHub offers post-trade management services, which means it tracks supply chain data after a buyer and seller complete a transaction. This plays into Abaxx’s vision of smarter markets, where traders are provided with all of the information they need about a particular commodity.

Abaxx has been developing blockchain technology to track different specifications and origination data about any given commodity or shipment. For example, any individual LNG shipment would have a record on the blockchain that would tell you where it is, where it’s sourced from, who owns it now, the CO2 emissions associated with making that LNG, and so on.

By contrast, as I mentioned earlier, the current, outdated system tracks this information in various spreadsheets or paper certifications that can be lost, forged, etc. It’s an incredibly inefficient system. We’ve seen this in a variety of scandals in the mining space, where metals go missing or there was straight-up fraud that occurred. 

The most recent example of this that MineHub’s CEO has been bringing up was with Aurubis. Apparently, a criminal gang was organizing a theft ring to steal metal inventories. This is a large problem that both Abaxx and MineHub are working to address.

So, by now integrating MineHub’s software, Abaxx can handle smart tracking of the origination of commodities that are trading on their exchange, and then MineHub’s technology can be used to track transactions after a trade is completed. This offers additional insight and digitized tracking of the entire supply chain from when a commodity is first produced, to when it is supplied to a buyer.

As MineHub’s CEO, Andrea Aranguren has also mentioned, these software services can also be used to track the CO2 emissions associated with these supply chains for sustainability goals and reporting. That can significantly reduce costs for commodity firms, as their supply chains can be incredibly complex to track, especially associated emissions.

Later, this synergy between systems can allow Abaxx to offer two different, market-changing products. The first is the ability to create entirely new futures contracts based on the emissions profiles associated with the creation of a given commodity. So, that can pave the way for ESG contracts that might provide better pricing for commodities produced in a more environmentally friendly ways.

The other product could be what Abaxx calls Full Digital Title, or FDT. Abaxx’s blockchain technology allows them to know all the specifications of a commodity, track it transparently, and know exactly where it is. This means that banks can better ensure a commodity is valuable and verifiable, so companies can use them as collateral for loans.

Many of these potential benefits are outlined by MineHub themselves as potential growth opportunities for their company, so this partnership makes sense in so many ways.

This is why I find it increasingly likely that Abaxx will just acquire MineHub, at some point. So, I don’t feel a need to buy any shares in MineHub itself. Given the level of synergies, I’d be very surprised if Abaxx didn’t just buy them.

Besides just those longer-term synergies on the technology front, there are also shorter-term benefits that Abaxx can utilize or monetize relatively quickly. I’m going to play a clip from the CEO of MineHub’s recent interview about this partnership with Resource Stock Digest. You can find a link to this interview in the description, but listen to this:

Interview with Review Stock Digest: 3:48 to 6:20

So, as Andrea mentions there, MineHub might offer ID++ and that suite of Abaxx products as a premium product to their existing network of clients. This is the first time we’ve heard of any monetization opportunities opening up and Abaxx’s technology side of their business. And the best part is that she mentions that their clients were actively asking for the technology that Abaxx has been developing. That is direct confirmation that commodity market participants are interested in what Abaxx has to offer. Of course, the same goes for Abaxx, so they might offer MineHub’s services as a premium product as well. The synergies continue.

She said something even more important on that call: how Abaxx could utilize MineHub’s existing network of commodity traders and producers in the copper and aluminum space. Copper is a potential futures market that Abaxx has likely been looking into for some time now. The commodity exchange’s focus is on serving markets that will be crucial for the energy transition, particularly new battery metals contracts. Copper will certainly play a key role in electrifying the world, so the connection there is obvious.

If we take a look at MineHub’s existing clients, over 150 in total, we see:

• BHP, one of the largest mining companies in the world

• Codelco, the largest copper producer in the world

• Sumitomo, one of the large Japanese commodity trading houses

• Southwire, the largest copper cable and wire manufacturer in North America

So we can see that MineHub has already integrated many of the largest players in the copper and aluminum sector. These aren’t small companies. Now Abaxx can potentially provide them identity management services with their ID++ technology, and work with them to develop and bring liquidity to new copper and aluminum futures contracts in the future.

If Abaxx has these companies trade on their exchange early on, then market adoption of those contracts could essentially be guaranteed. We’re talking about 150+ participants, primarily in those two markets. That’s a big deal.

So, for the cost of this deal with MineHub, which was $2.5 million CAD, Abaxx has:

• Reduced potential expenses and time spent on developing software like MineHub’s for tracking commodities, CO2 emissions, and so on.

• Disclosed their first way of monetizing ID++.

• Probably furthered their progress on offering Full Digital Title or green futures contracts for different grades of commodities.

• Gained an avenue for leveraging their relationship with MineHub to work with some of the largest copper and aluminum industry participants in the world on new futures contracts.

This partnership is great for both companies, and I’m assuming that there are so many synergies here… that Abaxx will eventually acquire MineHub outright. Either way, this is amazing news. Yet again, the market is totally discounting what’s going on here. But that’s also the opportunity for those paying attention, like ourselves.