Tag Archives: featured

Zinc One Moves Into The Bracket Of Imminent Zinc Producers

* Zinc is just turning the corner where supply won’t be able to meet demand, hence prices are heading higher

* Large mines have been closed down and there’s nothing in the pipeline to replace that production shortfall

* Underground zinc mines/projects are looking at 5-8% grade, Zinc One’s Bangará Mine is >20% Zn starting right at surface. This is the equivalent of a gold mine with Au 15gr/t grade

* People – Nothing is more important and CEO James Walchuck is a company builder and mine builder – he builds mines for a living

zinc_supply-demand

Zinc One – A Junior With A World-Class Mine

Zinc One Resources (TSX-V: Z OTC: ZZZOF) is a new zinc company that was launched on January 24th, 2017. Right out of the gate Zinc One announced an acquisition which has now closed.

The move to acquire the Bongará Zinc Mine, including the Charlotte Bongará Zinc Project, will put Zinc One Resources (V.Z) on the map of imminent zinc producers.

Bongará is a former producing, very high grade mine in Peru that was closed down in 2008 due to bad market conditions (low zinc prices). The acquisition also includes the Charlotte Bongará zinc project and this is the first time these two adjacent projects have been owned by the same operator which makes this even more attractive.

In fact, these two projects combined offers an incredible opportunity to identify a very high-grade resource along a 4km-long trend.

Grades – There’s nothing like this

A normal zinc deposit runs around 5-8% Zn, and that’s true for many of the deep underground deposits that are around today. Bongará has over 20% Zn with sweet spots of even more than that, up to 25-30% Zn.

And here´s the beauty of this story – it sits right at surface. The Bongará project is one of the highest graded zinc mines in the world that is located in a great jurisdiction. It will be mined by open pit and there’s very little overburden, basically just use excavators and truck it to the processing plant.

So, what does open pit mining really mean? Well, it’s the absolute best way of mining with potential hurdles easier to handle. More importantly, it’s the cheapest way of mining. We like low cost and low cost is how you make money.

“We don’t know of any other deposit that is out there right now, in the world, that is mining with these kinds of grades” – Jim Walchuck, CEO

So how much is 20-25% Zn grades? What is it worth? How much is it in terms of gold equivalents? The grades we are talking about here is worth around US$600/tonne or 0.5 ounces/tonne of gold if you will (15 gr/t Au). There are very few mining operations in the world with these attributes, even fewer that are open pit mines.

Bongará is a unique project and it could fit well in the portfolio of any mid-tier mining company. In fact, as Zinc One moves Bongará closer to production, there’s a real risk/possibility of Zinc One being taken over.

Potential for the stock Z.V

Zinc One recently closed a $10-million financing and after all is said and done, we are looking at approximately 98m shares outstanding, or a ~70 Mcad market cap. As this article is written, Zinc One should have approximately ~C$12 million in treasury.

We know things don’t happen overnight, but now with the acquisition finalized and lots of money in the bank, Zinc One should very well motivate a market cap of anywhere between 200-300 Mcad, probably even higher than that as the bull market in zinc moves spot prices higher.

That indicates a potential upside of at least 3-4 times from today’s levels. It’s our guess that Zinc One will become a “zinc-market-darling” over time as there aren’t that many “pure” zinc juniors out there. Even fewer of them are of any higher quality and with the fundamentals for zinc being so strong, we are thrilled to have Zinc One as our core zinc holding.

In comparison to Zinc One, one can look at Arizona Mining. Formerly known as Wildcat Silver, this poor management tried to market their flagship project as a silver project back in the day when silver was hotter than zinc. Arizona has exactly three times (!) as many shares out as Zinc One and a market cap of almost 700 million (seriously!?). On top of that, at least from our point of view, Arizona is poorly run and might also have very big issues with their metallurgy. If we were into shorting, we would seriously consider shorting Arizona Mining and go long Zinc One Resources.

As we have explained earlier to our subscribers, large zinc mines have already or are on their way of closing down and this supply shortage isn’t going to be met with any “quick fix”. Spot prices are currently sitting around a very healthy $1.15/lb, zinc is in a bull market and we think it’s going a lot higher. Don’t you just love this chart below?!

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Meeting the management

On several occasions we have had the pleasure of meeting with Zinc One’s CEO, James (Jim) Walchuck. This guy is truly a hardcore mining guy with a vast experience of building companies and putting together the right teams. Mr. Walchuck is an experienced mining engineer with 36 years in the mining industry under his belt. He left us with an impression of being a calm and structured man but with his mindset to build a fast growing and aggressive zinc company. Jim’s background is the one of being an operator – we know he will by assets that can be put in production.

In the mining business, nothing is more important than the people running the company. Without great people, it doesn’t really matter how good of a project the company has. Jim Walchuck and Zinc One is a perfect match.

“The goal of Zinc One is to have this mine back into production in 24-36 months” – Jim Walchuck, CEO

Gecko Research meets and talks to CEO Jim Walchuck

We urge everyone to listen to Jim as he discusses the Bongará project and its advantages to other projects.

Zinc One is put together by well-connected and well-known people in the mining industry and as this new story unfolds, it will get a lot of attention in the market. We have been buying shares both in the recent financing as well as in the open market.

We own shares in Zinc One and we have done our due diligence. It’s time you do yours.

Gecko Research sends out a Weekly Update to our subscribers. It’s a free publication where we write about what we do with our own money. Don’t forget to read our disclaimer.

Emblem Cannabis’ Advantage Over Peers – Interview With John Stewart, President Emblem Pharmaceutical

Jan 26, 2017

john_stewart_emblemJohn Stewart, President of Emblem Pharmaceutical, used to run the pharmaceutical company behind the narcotic painkiller OxyContin, Purdue Pharma. Since leaving one of the largest privately owned pharmaceutical companies in the world, John is now one of the founders and key people behind Emblem Cannabis Corp.

Emblem IPO’d in December of 2016 and is listed on the Toronto Venture Exchange (TSX-V: EMC) as well as in the U.S. (EMMBF). The Emblem stock instantly became a market darling and is one of the top Canadian Licenced Producers with the largest number of shareholders.

At the Canaccord Cannabis Investment Conference in Vancouver we had the opportunity to talk with John about Emblem and its pharma division. This 20-min piece is a must listen as John is one of the most respected people in the Canadian marijuana industry.

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The Canadian Marijuana Sector Is The Next Big Thing

Gecko Research, Jan 4, 2017

There is an ongoing bull market that hasn’t been internationally recognized yet and that’s investing in the North American marijuana sector. One really needs to understand that there is one going on south of the border and another one north of the border. They are two completely seperate bull markets and at very different stages as well. One we love and one we wouldn’t touch with a ten-foot pole.

The U.S. marijuana sector is not only mature, it’s in quite a bad shape from an investor’s standpoint. The U.S. cannabis sector is years ahead of the Canadian and has at this stage gone so far as to attract scam artists. On the OTC alone there are now almost 400 companies that call themselves cannabis stocks. These are mostly penny stocks with no revenue or any prospects thereof. Investors that don’t suffer from a gambling habit should stay away.

In comparison, Canadadian listed marijuana producers are easy to keep track on as they are just a little more than a handfull. We believe that the marijuana sector in Canada is setting itself up to become the next big thing everybody wants to get in on. Sure, it hasn’t gone unnoticed that the sector has done very well this year and is currently working itself through a well-needed consolidation, but we think the bigger moves are yet to come as we are still in the early days.

We have started to look more closely into the sector and there are some quality companies out there. But what is very striking is the amount of crappy companies overwhelming this sector. For those of you interested to invest in marijuana, we urge you to be very picky and only go for the really high quality names.

Marijuana for recreational use in Canada is getting more and more acceptance and support. It looks like the changes in the laws will be put in motion to make it legal for anyone over 18 years of age to use. As most of you already understand, it doesn’t necessarily take for laws to have passed, it’s enough if people expect it to happen to get a huge amount of interest and investment dollars to get the bull market going at full speed.

medical_cannabis


Background

In 1923 marijuana was prohibited in Canada and during the next 80 years, public opinion supported the unlegal approach to marijuana. Today we have a totally different situation both in Canada and around the world. More Canadians now prefer softer marijuana laws and according to a poll made by Globe and Mail, 68% of the Canadians now consider legalization of recreational marijuana to be a reasonable approach.

Justin Trudeau – The Road To Legalization
A year ago Justin Trudeau was elected Prime Minister in Canada after a record election of the Liberty Party. One of Trudeau’s first proclamations in office was the announcement that a federal-provincial-territorial process was being created to discuss a suitable process for the legalization of marijuana possession for recreational purposes.

This decision is driven by the wish to reduce access for young Canadians, remove cash flow from reaching the criminal sphere and to bring down the amount of taxpayer money used to enforce marijuana laws.

Trudeau first publicly expressed an interest in the legalization of marijuana back in the summer of 2013 when he said:

“I’m actually not in favor of decriminalizing cannabis. I’m in favor of legalizing it. Tax it, regulate. It’s one of the only ways to keep it out of the hands of our kids because the current war on drugs, the current model is not working. We have to use evidence and science to make sure we’re moving forward on that.” (source)

canada_cannabis


Marijuana in Canada

The Canadian marijuana sector today is worth approximately C$100M and it is growing rapidly. Patient growth is over 10% month-over-month (!) which means that in one year’s time Canada will have 360,000 registered patients. For you to better comprehend the significance, Health Canada has estimated that the market for medical marijuana, by 2024, could reach over 450,000 patients and be worth over $1.3 Billion. By the look of things, Health Canada is wrong by at least 6 years. The point we are making here is that the growth is much stronger than ever anticipated.

When legalization for recreational use becomes a reality, all numbers above becomes insignificant from an investor’s perspective. The marijuana sector in Canada will rapidly increase in size and many forecasts available today point to the range of a C$7-10B market. To put this number in context, Canadians spent C$8.7B on beer in 2014. We know we are still in early days when we have identified a sector that will grow from $100m to a multi-billion industry almost overnight.

With some of Canada´s most acknowledged businesses and entrepreneurs openly indicating their interest in the medical marijuana sector we guess the stigma that has surrounded cannabis for many years is starting to erode.

marijuana_sector_growth
Investors need to be picky and should look to invest in those companies that will become large and robust. In the next 3-6 months, we want to invest in newly created enterprises with a solid business plan, great management and access to capital. We are looking to invest in just a few companies and get positioned for what we believe will be one of the best performing sectors in 2017-2018.

We believe that the companies of higher quality that are formed today will become majors in this sector. These are the companies that will over time offer best returns at the lowest risk.

The sector will cleanse itself over time as the strong companies will likely consolidate the sector as a whole while the weaker low quality companies will die and disappear. That’s why we are keen on identifying the higher quality new start-ups now and ride them as they grow towards becoming majors in the most interesting bull markets we have seen in a long time.

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We have identified such a company which in fact is just about to go public, Emblem Corp.. There’s little doubt in our mind that Emblem will become one of the leading marijuana producers in Canada and we could easily see them reaching north of $1B Mcap within 24 months. We expect them to start trading somewhere around a C$250-300M Mcap.

Emblem Corp. (TSX-V: EMC)

Let’s walk you through the main points on what we believe will be one of the strongest entries by a Canadian marijuana company during 2016. On November 16th, Emblem announced the closing of one of the largest IPO’s (Initial Public Offering) ever done by a Canadian marijuana company. Emblem looks to commence trading on Friday December 9th on the Canadian Venture exchange, ticker symbol ‘EMC’.

Share Structure And Cash
The IPO was priced at $1.15/sh + 1/2 a warrant which with Emblem’s earlier financings gives Emblem a fully diluted share structure of ~111m shares (we might be off a little bit but we are close enough). That 111m shares includes warrants and stock options and when all of those are exercised it will bring in another ~C$36m in cash adding to the ~C$30m post-IPO cash position.

Access To Money
Simply a non-issue. In general, marijuana is becoming such a strong sector and this is recognized by the brokers and financial institutions. More importantly, which we will try to describe, is the quality of Emblem itself. When we started looking at the sector a few months ago, we found a couple of decent companies, but none of them convinced us as much as Emblem has.

We mentioned that the size of the IPO is C$23.7m but readers should be aware of the enormously big interest in Emblem. The book was nearly two and a half times oversubscribed and that is as good of a “quality approval” as anything. Emblem could have easily raised $55-60M if they had wanted to.

People
Valuating a company is so much more than just comparing numbers to its peer group. Over the years we have learned the hard and expensive way that who is running the business is definitely one of the most important things to look at before investing.

Producing, selling and distributing marijuana is not so much different from selling aspirin or any other pharmaceutical drug. We can’t really see a better mix of people running Emblem than this:

EMC_management_teamClick to open in new window

 

To see founders, management and employees invest their own hard earned money into Emblem is refreshing and it has made our investment decision so much easier. Six million dollars isn’t small money and it sends a clear message that they believe in what they are creating, one of the best marijuana companies in Canada. To see the people handling our money also having “skin in the game” is important to us and it should be important to you too.

Emblem Gets It – Three Legs To Stand On
In our mind, there are two approaches to the marijuana business, either you are an LP focusing only on production and wholesale or you take the same route Emblem has where they control everything from start to finish. Emblem has created three legs in its business:
1) Production
Phase 1 is already producing and Phase 2 will take Emblem to a total production capacity of 2,100 kg (Q2 -17). Phase 3 is already financed and will take total production to a rate of 11,600 kg (Q4 -17). Phase 4 could start producing in Q2 -18 and would bring Emblem’s total capacity to 21,100 kg. The timing for planned production expansions vs. when recreational marijuana consumption becomes legal might become nothing less than perfect for Emblem.

2) Pharmaceutical
This division is led by John H. Stewart, former President & CEO of Purdue Pharma Canada (1991-2006) and Purdue Pharma U.S. (2007-2013), one of the largest privately held pharmaceutical companies in the world. Marijuana is so much more than just smoking, the market segment for oils, gel caps, sprays, trans-dermal patches and pills is a huge potential revenue maker. Many of these products will actually be produced from parts of the plants that would otherwise have no other use, kind of like monetizing the by-products to use mining terminology.

3) Education
What’s important for every LP out there is to get patients to buy their product. Once a patient is registered they pretty much stay loyal to that LP. One way is to open up medical marijuana clinics which require large investments. Emblem’s approach is a much cheaper and cost effective way to acquire customers. Emblem establishes education centers within already existing medical clinics (1) as well as within stand-alone medical cannabis clinics (2).

Profit Margins
Production – Flowers
Emblem is not your average producer/seller, instead Emblem will deliver medical-grade marijuana from their state of the art production facility which we are convinced over time will reward the company with a premium for their product. But already today Emblem will enjoy huge margins on their production and sales (see chart below).

Starting up a new business is capital intensive but Emblem is fully financed through the phase 3 expansion. Most listed marijuana companies in Emblem’s peer group have yet to reach profitability. Emblem’s goal and prediction is that they will deliver a net income in Q3 next year, just ~9 months from now.

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Production – Oils

Producers are now able to monetize the entire cannabis plant, not just the dried flower. To produce these oil products require specialized pharmaceutical industry expertise which is exactly what Emblem has.

The flower margins are looking good, oil operating earnings are a dream as they are projected to reach 90%. Or put in another way, it would be like selling a gram equivalent for $15 that cost $1.50 to produce. Estimated oil revenues from the first 12 months are expected to be $2.9m.

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Timing From An Investment Perspective

Supply and demand. Probable legalization in 2017. These two circumstances argue that we are long ways from bubble territory. At the same time we have seen Canadian marijuana stocks double in price in the last three months (after 12 months of consolidation). These facts only reinforce the need for investors to be diligent in their research before making an investment decision.

We feel we have been just that, diligent, and we have come to the conclusion that we are in early days of what will be one of the fastest growing sectors, all categories, in the coming years.

Valuation And Comparison To Peers
At $1.15, Emblem would have a fully diluted Mcap of 128 Mcad, but on a fully diluted basis this would also mean holding ~$66m in cash. It doesn’t take a brain surgeon to understand that this valuation is not where Emblem will start trading at.

Let’s look at some of the peer group companies and their fd Mcap as per Dec 7th (1):
* Mettrum – 342 Mcad
* Organigram – 366 Mcad
* Aphria – 582Mcad
* Aurora – 728 Mcad
* Canopy Growth – 1,240 Mcad (2)
(1) Cash positions not taken into consideration
(2) Canopy reached a 2,070m Mcap when ATH C$17.86/sh was reached on Nov 16th

It’s obviously not fair to just look at Mcap’s, all companies have different production and growth profile, cash position and so much more. But it gives you a feeling of where Emblem could start trading at. We suggest you download each company’s presentation just to get a feel for the numbers and compare those to Emblem’s ditto.

Canopy Growth is the first Canadian marijuana company to reach a Billion dollar valuation (currently $956M Mcap). If plans become a reality, Canopy will reach a production capacity of 24,300 kg in 2018 while Emblem’s plans will take them to 21,100 kg in the same timeframe. By that calculation one could argue that Emblem will reach a Billion dollar Mcap in the not too distant future. It’s still not a fair comparison to make as Canopy have come further along. But it gives us a feeling and an idea of where Emblem very well could end up.

Conclusion
At this stage and with a long term view, one can probably throw a dart and buy any marijuana stock out there and still do extremely well in the coming years. Some caution is justified though because in the short term, the Canadian Marijuana Index look toppy. Emblem does provide us with an advantage as it’s not yet publicly traded and has a lot of catching up to do. Canadian investors are yearning for more names to invest in and we feel Emblem will be the top pick in the sector for others as well.

Remember, buying a marijuana producer is not like buying an early stage mining exploration play where one drill hole decides if your investment will be a success or not. Marijuana producers will not only be in an environment where they enjoy great margins on their product, they also have a production growth factor almost unheard of to consider.

The marijuana companies will be in an environment where they enjoy great margins on their product. However, one must be extremely picky and only invest in the truly high quality companies, the rest should be ignored. Look for 1) a great business plan 2) the right people to execute that plan and 3) make sure that the company has access to future funding as costly financings equals heavy dilution to shareholders.

Emblem Corp. Investor Presentation
https://www.dropbox.com/s/giglqdsfdyhkqqc/EmblemCorp_Presentation_November2016.pdf?dl=0


Disclosures:

1) Gecko Research (“the Author”) is not a registered financial advisor and investors should seek professional advice before making any investment decision. Our research is independent and is based on our view of the company or sector based on publicly available information. Factual errors might still occur, and it is every reader’s obligation to do their own research and not to solely rely on information given by the Author. The article is our view about the stock and do not constitute advice to buy or sell shares in the companies we discuss or any other company. The Author’s mission is to provide transparent viewpoints on companies we believe provide good investment opportunities. Gecko Research is almost always invested in the companies we write about and thus one can assume that there is some bias within our investment ideas. Although we see ourselves as long term investors, we might buy and/or sell the stocks we write about at any time. In no event shall the Author be liable to any person for any decision made or action taken in reliance upon the information provided herein. In other words, make your own decisions and proceed at your own risk. Investing in junior companies is associated with very high risk as well as extreme volatility. For those of you who cannot deal with that kind of environment, we think you should perhaps look elsewhere for investment ideas. As Gecko Research might occasionally be reimbursed for costs while visiting project sites or arranging investor presentations, Gecko Research does not get reimbursed for the articles we write. To learn more about Gecko Research, sign up for our free newsletter.

New Investment Idea – Hello Pal (CSE: HP)

Jan 3, 2017

Introductory Remark

The article below is the exact newsletter that was sent out to our subscribers on Tuesday, July 19th, 2016. We would like to take the opportunity to get readers who are not yet subscribers to have a feel for what we are doing at Gecko Research.

Our newsletter is free and easy to sign up for, just make sure that you add ‘info at geckoresearch.com’ to your contact list to ensure that our emails end up in your inbox.

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Introduction

Many of you are probably caught by surprise now as we normally are thought of as being a resource newsletter and while that is true, it’s also far from the truth. We make investments in order to make money, it’s as simple as that, and when we see an opportunity we like we act on it. At the end of the day it’s all about risk vs. reward and today we are introducing a tech company that offers great reward in our mind.

Ten days ago we travelled to the beautiful city of Hangzhou in China (this >9 million people city will host the next G20 Summit on Sept 4-5, 2016) to see for ourselves what Hello Pal was all about. Not only did we get the chance to meet the friendly and welcoming staff of Hello Pal, we also had the opportunity to meet with one of Hello Pal’s largest shareholders. We went to the offices of New Margin and sat down with its Managing Partner Mr. Hans Xu.
Mr. Xu is one of the largest shareholders of Hello Pal and his/New Margin’s participation is a large part of our investment decision.

It’s mind-boggling how large the upside can be if Hello Pal turns out to be a success. We are not saying this will be the next Snapchat or Twitter, but Hello Pal most definitely has all the components to reach its own level of success. And for the next 12 months or so, we see very little risk which we will explain more about.

Hello Pal (CSE: HP / OTCQF: HLLPF / Frankfurt: 27H)

To invest money in an app are in many cases a “fly or die” scenario, either it won’t go anywhere or it will fly to the moon. So while these investments are quite risky, we would suggest that Hello Pal isn’t as risky due to the participation and backing of its largest shareholder New Margin.

Investment Highlights

  • Hello Pal was recently launched and already achieving high numbers of registered users with no marketing and thousands of new users registering daily
  • Recent oversubscribed financing and no debt with low burn rate.
  • Launching aggressive PR and user acquisition campaign. Expansion of technical and marketing team
  • Major Chinese shareholders with substantial financial backing and deep business and entertainment networks
  • Messaging has emerged as the new frontier of social on mobile and apps built on messaging platforms have high user retention and engagement
  • Rapidly growing language learning market particularly in mobile E-learning

People
Many people can come up with a great idea, but if you don’t have the right people to execute the idea, it’s at risk of becoming a failure. KL Wong, founder and CEO of Hello Pal, has an impressive CV to his name. KL, a Malaysian born, studied and worked in the UK for 10 years. He graduated with a law degree from Cambridge University and started off his career as a lawyer at Clifford Chance (world’s largest law firm) in the UK and Hong Kong. KL is fluent in English, Mandarin and Cantonese, and has a working knowledge of Malay and French. He is currently learning Japanese and Korean.

In 2008, shortly after the birth of his daughter Felicity, KL founded BrillKids Inc., creator of the multiple award-winning early childhood education program Little Reader. Having already one internet success under his belt, KL Wong knows what it takes to make Hallo Pal his next success.


Money, Valuation & Listings

Hello Pal first got listed on the CSE (Canadian Stock Exchange) on May 13th of this year after closing an oversubscribed placement of C$1.8m. Most of this money will be used in large part for user acquisition in order to aggressively increase the user numbers further.

Apart from a strong investor demand, Hello Pal also has the backing of New Margin, one of the top three Venture Capitalists in all of China with more than US$3B under management. New Margin has invested more than $1.7B in more than 160 companies of which over 40 have gone public in domestic or international stock exchanges. That track record speaks for itself and as the Chinese are well-known for their patience and shrewdness, we don’t see a lot of risk in the next year at least as New Margin will support Hello Pal going forward.

In the world of apps & internet the upside is virtually unlimited which makes for great risk/reward. And although the risk is also there, we don’t see it as very big in the first year or so because of the backing and strong connection to New Margin. Hello Pal will not have an issue finding new money as they go forward.

Hans Xu, whom we had the pleasure to meet on our trip to China, is a key managing partner at New Margin. Not only that, he is personally one of the largest shareholders in Hello Pal. For someone with Hans’ connections, influence and investment experience, Hello Pal must be a small investment in comparison. That tells us a bit on how big the potential in Hello Pal is.

Now why would a multi-Billion VC firm invest and support a small start-up app? What’s better than a quote from Hans Xu himself on the matter:

“Hello Pal is one of the best app ideas since I saw QQ* which is now worth billions”

Fully diluted, Hello Pal has 70m shares which at 40 cents give the company a Mcap of 28 Mcad. With what’s known today, that feels like a fair valuation. At the same time one must recognize that Hello Pal is a fairly new company and unheard of by most investors. As milestones are met and the app grows, we think the industry will be forced to discover and recognize Hello Pal. The potential for exponential growth is absolutely there and if that happens, we want to be invested.

Hello Pal’s main listing is on the Canadian Stock Exchange under the symbol ‘HP’. To make things easier for international investors, Hello Pal has established secondary listings on the OTCQF under the symbol ‘HLLPF’ and on the Frankfurt Exchange under the symbol ’27H’.

*QQ is a chat application for Facebook

 

What is Hello Pal?
Hello Pal has several layers which makes it very useful for a large audience even though their needs might be slightly different. This is also a large part of why we think Hello Pal has a great chance of success.

Hello Pal was launched on Android in May 2015 and on IOS in November 2015. By June 1st (seven weeks ago) Hello Pal had more than 700,000 downloads from more than 100 countries without having been promoted at all. It’s amazing what word-to-mouth can do if the app is good, but imagine what could happen when the company soon starts to actively promote Hello Pal in order to expand the user base.

Hello Pal is a free social language learning app where phrase books, vocabulary lists, translation tools and an integrated social network all combined turns Hello Pal into a great language learning tool.

As a user, you don’t need to know a single word of Chinese, Russian, Thai and Spanish etc. in order to instantly communicate and make new friends. By using Hello Pal’s partner matching system, you can connect with people all over the world, without the barrier of not knowing their language. The best way to learn a new language is by speaking it and that’s exactly what Hello Pal will let you do.

The app is absolutely free and on top of the main Hello Pal app, there are also six separate phrase books available for downloading (Chinese, English, French, Spanish, Japanese and Korean).

hp_programmersProgrammers working in the offices of Hello Pal, Hangzhou, China.


Going forward from an investment perspective

We learned that Hello Pal has an average of 3,500 downloads/day and that number has been steady for months. Assuming that the growth continues in the same pace, roughly 105,000 new users are added every month. By end of August or early September Hello Pal should be able to have north of 1m downloads, an even more impressive milestone when one considers that this has been accomplished with little money spent on marketing.

In order for the company to start monetizing Hello Pal (creating revenue), we have asked around and the general opinion is that at least 2m users is required. If we assume that marketing efforts along with increased peer-to-peer recommendations speed up new downloads, that 2m mark could be accomplished 6-8 months down the road. It’s our opinion that once that 2m hurdle is achieved the investment risk is significantly lowered and if >3m downloads is reached, we may have a home-run on our hands.

When the 1m mark is reached it does not only give Hello Pal plenty of time to further develop the app, Hello Pal is also sending a clear message that they should be taken seriously.

Just five weeks ago, Hello Pal surprised us a bit when they were able to hire Daniel Kou as their Chief Technology Officer. For a small start-up to attract such a respected and experienced person as Daniel Kou is very impressive to us. Daniel’s experience ranges from app development, system architecture design and programming to project management and product design, and includes 8 years working at Huawei Technologies as Chief Architect of several key product lines.

daniel_kouHello Pal Appoints Former Huawei Chief Architect Daniel Kou as Chief Technology Officer.

In the picture above, Daniel Kou is presenting to us the next product coming out of Hello Pal, the Hello Pal Travel app. Out of the whole idea ‘Hello Pal’, the company intends to develop three apps; Hello Pal, HP Travel and HP Language Learning (we are not sure of the name yet).

The bottom line when developing social apps like Hello Pal is to get enough users to be able to monetize; implement in-app purchases such as translation services, stickers, games and much more. We have bought an initial position and we are prepared to be patient with your investment, but we will always be part of the possible trigger that when dealing with the internet and apps, things can explode overnight. As targets are reached and progress is made, risk is lowered and our investment should appreciate.

learn_travel_date

Paper
The only point we would like to make here is short and concise, Hello Pal is not a mining company in the need of 10-12 years and 200m to build a mine. Their cost structure with offices in the Ukraine, Hangzhou and Hong Kong is tight and we don’t see future financings as very dilutive. In fact, since we assume that most of the cash in future financings will go towards expanding the user base, this will be extremely accretive for shareholders.


Conclusion

Going back to the Introduction above:
“It’s mind-boggling how large the upside can be if Hello Pal turns out to be a success. We are not saying this will be the next Snapchat or Twitter, but Hello Pal most definately have all the components to reach its own level of success.”

We would like to add to that an even more important component, at least for the next 6-12 months before the app gets more established, and that is the participation of New Margin. Their presence provides Hello Pal with help to industry collaborations, secure future financings and in general provide their industry knowledge and expertise.

Our investment in Hello Pal is something that may require some patience on our part, which is not a problem for us. At the same time it’s an exciting feeling to know that a tech company like Hello Pal can virtually explode to the upside under the right circumstances.

 

Downloads

Gecko Podcast: Interview with Founder and CEO Mr. KL Wong

Hello Pal Investor Presentation (pdf)

Hello Pal News Releases

Hello Pal Quick Tour (YouTube)

Hello Pal Tutorial – The Basics (YouTube)

Hello Pal Tutorial 2 – Text and Voice Messaging in a Foreign Language (YouTube)

Hello Pal Tutorial 3 – Helping Your Pal When Receiving And Sending Messages (YouTube)
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