Chris Hilliard, chairman and managing director of privately held magnesium battery company MagPower Systems, might not be the most obvious person to go to for advice on navigating the public markets. However, Hilliard has extensive experience in the public space, and laid out for Magnesium Investing News what he believes are important factors to consider not only when investing in magnesium, but also in the resource sector in general.
MagPower is a magnesium air fuel cell technology company that’s focused on developing efficient magnesium battery technologies. Though the company is not a manufacturer, it is currently seeking partnerships to help commercialize its magnesium saltwater battery system.
Prior to working with MagPower, Hilliard founded private capital consultancy Peak Producers, which has raised a total of $60 million in combined public and private capital raising activities since its inception. He also previously served as associate director, vice president and branch manager at a leading Canadian investment dealer and was vice president of a boutique investment management firm. Certainly, Hilliard has experience to back up his opinions.
Hilliard started with a fundamental part of investing: due diligence.
“The best simple answer is always do the appropriate amount of due diligence, regardless of what the company is,” he said. “Make sure you’re dealing with reputable people. Make sure you’re dealing with subject matter that makes some degree of common sense and that in no small way comes back to the opportunity for real value as opposed to just salesmanship.”
Speaking further to the importance of “real value,” he stressed that investors “need to understand [when] making an investment what the possible outcomes are.”
Protect, profit, exit
To help figure that out, Hilliard outlined three things investors should look at when considering an investment, coining the phrase “protect, profit, exit.” He explained, “it’s simply answering three basic investor questions. How is the company going to protect the capital that you give them? How is the company — and you as the investor — going to profit from the capital that you give them? And most importantly from an investor standpoint, how are they going to exit? So you’ve got protect, profit and exit.”
Continuing, he said, “people talk about price-earnings ratios, but most little companies don’t have any profits, and they don’t have any earnings — they don’t have a P/E ratio. So I talk about a PPE ratio.” Hilliard added, “if an investor can have those questions answered, then we’re in pretty good shape. And that’s true not just of magnesium, but of any investment, and that again reflects the opportunities that are held out to the investor.”
Echoing advice from Rick Rule, Hilliard also pointed to the importance of gauging a company’s credibility when looking at the “protect” and “profit” parts of the equation. He used MagPower as just one example. “If you look at our company, for example, the credibility is enhanced because our investors are able to receive a 30-percent tax credit from the provincial government, even though it’s a private company,” he said. “You shouldn’t make an investment based solely on the tax implications, but it’s always helpful and it’s useful to know about. Also, in some way that’s a validation of at least [a company’s] corporate structure and corporate governance.”
Poignantly, Hilliard spoke to a central tenet of investing — a very basic one that sometimes that bears repeating in the public space: investors are in it for the money.
“In my opinion, people don’t invest in a company because they want to invest in a company. People invest in something because they want to be able, at some future point, to retrieve that capital. It will hopefully have grown, and they want to be able to do whatever it is they want. They want to buy a boat. They want to buy a vacation house. They want to go on a vacation. They want to buy a house for their kids, whatever it is that they want to do,” he said.
Although public companies are often concerned with raising capital, and rightly so, Hilliard noted that it is also important to look at whether a company adequately considers the point of view of the investor. Investors “don’t want the money inside a company forever and ever amen,” he said. “They are investing because at some future point they want to be able to have more money to be able to do something with. Whatever that something is, whatever the dream is. So they need to know how they’re going to get their money out.”
As Hilliard stated, it’s important to remember that exit strategies could play out in a number of ways. “That could happen because the company is taken over and they receive cash or shares in another company. It could happen because the company starts earning a great deal of money and starts paying out a dividend. That’s still an exit strategy.”
To be sure, navigating the resource sector can be difficult, and there are often a number of competing factors to consider. However, at the end of the day, looking at how one’s capital will be protected, how viable and profitable a business plan is and how and when one — as an investor — can exit certainly makes for a strong foundation for investment decisions. “I think it’s relatively simple,” Hilliard said. “It [all] comes back to governance and credibility.”
Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned.
Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.