Kennedy Ventures - A Blockchain Winner?

Tuesday, Nov 07 2017 by
3

Do I know anyone using bitcoin on a daily basis? The answer is no and I suspect that is the case for the vast majority of people. Do I believe that it fills a void in the economic system? Again, the answer is no. Where will it be in terms of its rate against the dollar in, say, one year? I don't have a clue. Having said all that, there is a glaring reality that the blockchain technology underpinning the currency is now making inroads into the real world. I will expand on this and give an example of a company that may well be impacted by it.

Although Tantalum is not exactly a household word, it certainly is used by far more people than bitcoin. In fact, it's quite likely that you are utilising it right now in a gadget that you are using or carrying. Fair enough, the quantity may be absolutely microscopic but it is incredibly useful and sought after, especially for the production of electronic components. And therein lies the problem. It's mined in some of the most dangerous and conflict ridden parts of the world, such as Rwanda and the Democratic Republic of Congo (DRC). Whether we like it or not the problems affecting these areas are now impacting us. From terrorism to the migration of millions of people. In a globalised world of mass transport and communications systems, their issues are now our issues.

One of the drivers of the carnage that has impacted places like the DRC has been the money derived from mining, amongst other things, Tantalum. To put this into context, the Great African war in the DRC killed 5.4 million people by 2008. This tragedy has not gone unnoticed. Both the US, through the Dodd-Frank Act and the EU with The Conflict Minerals Regulation have sought to address the problem. In essence, both require companies based in their jurisdictions, and beyond, to use certified sources of certain minerals and that includes Tantalum. That takes me back to the technology behind bitcoin.

I would suggest that the blockchain lends itself to verifying the source and confirming the end user of this very valuable commodity. Moreover, I would argue that the dynamics of the Tantalum industry are favourable to a blockchain based supply system. For a start, there are very few major end users and those in the US are 100% dependent on imported Tantalum. They need some form of legal protection. There is no consumer market – unlike Gold which is widely traded and seen as a medium of exchange. Therefore, a black market is unlikely to develop outside a blockchain supply system. And finally, although it is a strategic resource, the market for Tantalum is relatively small – some 1100 tonnes was produced in 2016.

To get an idea of where the supply chain for conflict minerals is heading, it may be worth looking at the following start-up. https://beta.theglobeandmail.com/report-on-business/small-business/startups/startup-uses-blockchain-to-ensure-minerals-come-from-ethical-sources/article35022916/?ref=http://www.theglobeandmail.com&. Incidentally, as the article points out, some US$1.4B was invested in blockchain start-ups in the last 9 months of 2016.

It may still be early days and it clearly is a micro cap company but Kennedy Ventures (KENV) is in the first stages of producing Tantalum from its Tantalite Valley Mine in Namibia. It's shipping it to customers in the US and already has a long-term supply arrangement with one customer and is negotiating with a second. In the short-term it's looking at pushing up production to 5-10 tonnes per month. That will give it some 4% of the global market. Its main advantage is in providing a verifiable, high quality source of a key commodity that is in high demand but needs to be responsibly sourced. I would argue that given the legal consequences of not complying with US and EU legislation, the company has significant pricing power. The amount of Tantalum used per unit, of say mobile telephones, is minuscule. Whether a customer pays ten or twenty per cent more from a certified source is largely irrelevant compared to the costs, including reputational damage, of not complying with the relevant legislation.

Although I am sceptical about bitcoin, I am bullish about the technology that drives it and the companies that may benefit from it, Kennedy Ventures could be a case in point.

By the way, I am a shareholder in Kennedy Ventures.


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Kazera Global PLC, formerly Kennedy Ventures plc, is an investing company. The Company focuses principally on the resources and energy sectors. The Company focuses on projects located in Asia and also in other geographical regions. The Company focuses on tantalite production through its interest in African Tantalum (Pty) Limited (Aftan), which owns and manages the Tantalite Valley Mine (TVM) in Namibia. TVM is located in Southern Namibia, near Warmbad in the Karas District. Aftan is a tantalum company. Aftan also focuses on projects, including other minerals (lithium, mica and feldspars); other deposits (South Africa, Zimbabwe and Mozambique); outsourced materials (concentrates and slags), and downstream processing (blending and chemical). Its proposed investments may be in quoted or unquoted securities, companies, partnerships and joint ventures or direct interests in projects, among others. more »

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4 Posts on this Thread show/hide all

timarr 9th Nov '17 1 of 4
4

That works if - and only if - you can link the physically mined mineral to the record on the digital ledger and I don't know how you'd do that. There are some things that lend themselves to this - so Everledger use blockchain to track diamonds, but that's done by etching an identifier onto the diamond itself, and it's the identifier that's then tracked.

You can put humans on a ledger by using DNA analysis, or property records by linking them to digital map based information. But you couldn't put a specific quantity of water on the blockchain because you can't distinguish it from any other equivalent quantity of water.

Of course, you can pack your tantalum in cases and seal those cases with IoT sensors and put the sensors on the ledger and monitor them using a smart contract and then track the cases but that's not a real solution, you can suborn the packaging operatives or meddle with the sensors or bribe the people at the receiving end. Perhaps each lump of the stuff has a unique radioactive signature or something, maybe that could be tracked. Dunno.

A lot of the more outlandish blockchain claims are in this kind of area - tracking physical assets (like fish, one of my favourites). Some of it is possible and credible but much of it is simply hype either generated by people who don't know what they're talking about or by smart people trying raise money from the gullible. Blockchain is a fantastic idea which could revolutionise chains of trust and shrink supply chains dramatically - but it's not a silver bullet.

timarr

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LongValue 9th Nov '17 2 of 4

Broadly speaking, I think that a blockchain solution to some conflict minerals is going to be difficult to implement. As you point out, diamonds can be tracked but only after having been etched with an identifying code. That said, diamonds are, largely, consumer products with a ready made market and can be sold according to colour, clarity, cut and carat. I would suggest that it is not difficult to envisage a black market for non-etched and, therefore, untraceable diamonds. It goes without saying that the diamond industry is well established and sizeable. To put that into perspective Antwerp has some 380 diamond workshops. Worldwide the number of diamond workshops are multiples of that.

By contrast, the market for Tantalum is completely based upon its commercial use. There is no consumer market for the commodity. The ultimate users, such as Apple, are relatively few in number. As are the refiners. With such a short supply chain and a limited number of players, I would argue that a decentralised ledger could be ideal. Incidentally, it also appears to be a very opaque market when compared with others in the commodity sector. I would have thought that paying a premium for supplies that have some form of certification would be worth it considering the potential consequences of not complying with US and EU legislation, such as class action suits brought on behalf of people in conflict zones. I also suspect that issues may even be raised by auditors. And of course there are reputational factors: Some 40% of Tantalum production is coming out of the Democratic Republic of Congo and is, in part, fuelling violent chaos that is now impacting the rest of the world.

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LongValue 20th Nov '17 3 of 4

For anyone looking for a better understanding of Kennedy Ventures, this recent interview with the CEO may be worth a listen. Considering the size of the company, it appears to have achieved a significant milestone in winning a multi-year supply contract with the world's largest end user of Tantalum. Incidentally, it's now planning to exploit, what it believes, are sizeable Lithium deposits at the same property in Namibia.

http://webcasting.brrmedia.co.uk/broadcast/5a04676d2be9fc7f4f905832

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LongValue 8th Feb 4 of 4

Yes indeed, the road for resource companies is often long and tortuous. And so it has proved with Kazera Global, formerly Kennedy Resources. As I write the stock is up over 3% on today's opening price and yesterday it finished up over 28% on its opening and that was on strong volume. However, its fortunes now rest on the outcome of a JORC report due to be produced in the next month or so. The results that have been published so far appear extremely encouraging.

Putting the company into some context, global Tantalum production, according to the USGS, in 2017 was just 1,300 tonnes. And yet this element is used in a variety of electrical products with the major use being in capacitors. It may only be used in microscopic quantities but its qualities put it in high demand in certain areas such as missile technology. With the majority of the production coming from unstable parts of the world such as the DRC and Rwanda, it's not surprising that alternative and more reliable sources are being sought. Moreover, there is now a plethora of legislation both in the US and the EU aimed at dealing with conflict minerals. If, and it's a big if, Kazera can provide a stable supply of Tantalum then the upside could be huge.

The one downside is the lack of transparency in the Tantalum market. Put simply, its pricing structure is shrouded in secrecy. Maybe this is unsurprising as much of what is being produced in places like the DRC is finding its way into mainstream electronic gadgets. Should an illicit consignment from a conflict zone be traced back to a multi-national producer of, say, mobile telephones, the legal consequences could be huge. But the lack of information means that figuring out a market price for the commodity is very difficult. At the same time, it does strongly indicate that a verifiable source of Tantalum will almost certainly sell for a premium over the unverifiable.

This was probably the riskiest investment that I have made in decades. The logic was fairly simple. The company produced a strategic resource that was increasingly subject to laws related to its provenance. It was in production and could clearly access sizeable quantities of Tantalum. Could this be worth many multiples of its market capitalisation? It might, in a relatively short period of time, be a key producer of an increasingly important mineral. Anyway, that was broadly the logic.

As it panned out, the company turned its attention to obtaining a JORC report rather than simply producing and selling its Tantalum output. That JORC report is about to be published in the next month or so. The results so far released are very positive. But only the full report will reveal whether this is something very special and obviously economically viable or simply another mining flop. The upside could be very substantial but the loss may be complete. Certainly not an investment for the faint-hearted. However, the company is valued at the price of a small house in a fashionable part of London. From my perspective that seems quite ludicrous if it can economically deliver a sizeable chunk of the world's Tantalum needs from a reliable and verifiable source.

And, yes, I am still invested in the company.

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