Abaxx Technologies (NEO: ABXX and OTCQX: ABXXF)

Abaxx Technologies Inc (NEO: ABXX and OTCQX: ABXXF), referred to simply as Abaxx for the remainder of this writeup, is a potentially high return on capital business that operates as a Regulated Market Operator (RMO) and Approved Clearing House (ACH) in Singapore. Per p. 4 of its Q3 2023 Management Discussion and Analysis document, the business describes itself as follows: “Abaxx is a development-stage financial technology company that has created proprietary technological infrastructure for both global commodity exchanges and the digital marketplace. The company’s proprietary technology is aimed at increasing transaction velocity, data security, and facilitating improved risk management for commodity exchanges, including Abaxx’s majority-owned subsidiary, Abaxx Singapore Pte. Ltd. (“AEX”, or “Abaxx Exchange”), which operates a commodity futures exchange that is seeking final regulatory approvals as a Recognized Market Operator (“RMO”) and Approved Clearing House (“ACH”) with the Monetary Authority of Singapore (“MAS”). Abaxx is a technology company engaged in development and deployment of trust enabling Internet protocols. The Abaxx corporate mandate includes accelerating commerce and reducing exposure to risk in targeted global industries. Abaxx commenced its business operations in January 2018.

The Company has developed a business strategy comprised of core components: (i) developing new internet communication protocols and proprietary financial software architecture with a vision for global commodity market trading; and (ii) commercializing the majority-owned commodity futures exchange and clearing house utilizing Abaxx technology, including foundational products in new liquified natural gas (“LNG”) benchmark contracts, a new market structure vision for precious metals and battery metals markets, and new initiatives for enhancing Environmental, Social, and Governance (“ESG”) related markets and data. Consistent with its innovative and fresh approach, Abaxx is listed on the Cboe Canada Exchange (Cboe Canada Exchange:ABXX) as well as the OTCQX (OTCQX:ABXXF), and provides its shareholders with the potential for significant long-term value creation.”

The business generated revenue last year to the tune of <CAD$300,000 which was due to an investment outside of its core operations.

Why In the Hell Am I Writing About a Business Like This?

If you must know, I found out about Abaxx on X. I checked on the thread where I initially saw a post about it, but for some reason the replies to the post are restricted and I couldn’t see the person who posted it or who I replied to, but whoever they are I’d like to thank them. I hope the markets are in their favor.

If you’ve read this newsletter before, you’ll know that I’ve mainly stuck to businesses that generate a lot more than CAD $300,000 a year in revenue and have or at least have a potential pathway to high returns on capital. You’re right to question what I’m doing, but I encourage you to read a bit more before brushing this idea aside. Abaxx falls into the second category of businesses I described two sentences ago. It has the potential to have high returns on capital because of the kind of business it is. As stated in the introductory paragraph, Abaxx is an exchange and clearing house. These kinds of businesses are some of the wonders of capitalism. I’ve posted screenshots of some publicly traded exchange and clearing houses below and their performance against the S&P 500 to give a better representation of what I’m talking about.

****** I downloaded these screenshots from TIKR. I am reliant on its data which may or may not be 100% accurate. If there is a mistake then I apologize, but I’m using them to prove a general point which I describe below.

Please be aware that each company’s performance is shown on the orange line and the SPY’s (SPDR S&P 500 ETF Trust) performance is shown on the blue line. I had to use the SPDR S&P 500 ETF because TIKR does not offer the pure S&P500 Index. ******

Cboe Global Markets

CME Group Inc.

Euronext N.V.

Intercontinental Exchange, Inc.

London Stock Exchange Group plc

Nasdaq, Inc.

OTC Markets Group Inc.

Singapore Exchange Limited

Each exchange is different from the next. They may trade different products at different volumes with different participants in different geographies, but one thing binds them together and that is their collective outperformance against the S&P 500 over a long period of time. Exchanges like those posted above often have high returns on capital and outstanding cash flows and frequently they have both. That’s not to say that every exchange does well, but the point is that a fair number of them do. Abaxx’s future performance is unknowable, but I find it encouraging that it operates in such a fertile sector of outperformance.

History

I’d love to write about the storied history of Abaxx, but the reality is that it’s short and explained very well by Slide 10 of the Q1 2024 Investor Presentation that is shown below and is linked here.

CEO

Joshua Crumb is the President and CEO of Abaxx and has acted in this capacity since December of 2020. Per the company’s website, linked here, Mr. Crumb is described as, “A serial financial technology entrepreneur and former Goldman Sachs Executive Director and Senior Commodities Strategist, Josh combined his passion for energy markets and technological innovation to launch Abaxx. He holds a Master of Science in Mineral Economics, a Graduate Certificate in International Political Economy and a Bachelor of Science degree in Engineering from the Colorado School of Mines.”

Mr. Crumb has also been a director at several companies. Per the 2022 Annual Information Form, which can be found in Abaxx’s SEDAR profile, he was “Chief Strategy Officer of Goldmoney Inc. (July 2015 to June 2018) and a Director of various public companies including: Mene Inc. (2018 to present); Fortress Technologies Inc. (2018 to 2021); Solitario Zinc Corp. (July 2017 to present); and COIN HODL Inc. (2018 - 2021).”

Per the most recent data I could get on TIKR, Mr. Crumb owns 15.4% of Abaxx. You love to see that kind of skin in the game.

Executive Compensation

Information on Abaxx’s executive compensation is sparse. The most recent information I could find was the 2022 Executive Compensation document . The document can be found on SEDAR.

Elements of the compensation plan unsurprisingly include a base salary, annual bonus, and long-term equity incentive plans in the form of stock options and Restricted Share Units (RSUs).

The information provided about the granting of annual bonuses and long-term equity incentive plans was vague.

Regarding the annual bonus on p.2 of the 2022 Executive Compensation document, “The Corporation may provide NEOs with annual bonus payments from time to time at the Compensation Committee’s discretion. The Compensation Committee will determine annual incentive amounts in its discretion, based on individual completion of milestones designated by the Compensation Committee, achievement of corporate goals, and benchmarks relating to the Corporation’s overall performance. NEOs will also be eligible to receive a bonus for extraordinary achievements from time to time.”

Regarding the long-term equity incentive plans on pp. 2-6 in the same document, “Options and RSUs are granted by, and at the discretion of, the Board upon recommendation from the Compensation Committee. In monitoring or adjusting the option allotments, the Board takes into account its own observations on individual performance (where possible) and its assessment of individual contribution to shareholder value, previous option and RSU grants and the objectives set for the Named Executive Officers. The scale of options and RSUs is generally commensurate to the appropriate level of base compensation for each level of responsibility. The Board will consider the overall number of options and RSUs that are outstanding relative to the number of outstanding Common Shares in determining whether to make any new grants of options or RSUs and the size of such grants.” As of the publishing date of the document, “… up to 10% of Common Shares may be reserved for issuance pursuant to option grants under the Option Plan” with 2.5% of shares being available to be issued, and “… the number of Common Shares issuable under the RSU Plan shall not exceed 10% of the total number of the issued and outstanding Common Shares at the time of grant and the total number of Common Shares issuable to insiders within any one-year period under the RSU Plan shall not exceed 10% of the issued and outstanding Common Shares.”

Based on this information, I’m not crazy about the compensation plan, but I don’t think it’s the worst one ever either. I wish the Compensation Committee and Board of Directors had definitive standards or hurdle rates for the annual bonus and the long-term equity incentive plans, but maybe they’ll get around to those once the business starts generating meaningful amounts of revenue. It’s absolutely something to keep an eye on.

What Does Abaxx Do?

Let’s start by going back to what Abaxx is. The introductory paragraph states that the business was seeking approval as a Recognized Market Operator (RMO) and Approved Clearing House (ACH). Said approval was granted by the Monetary Authority of Singapore (MAS) on December 7, 2023. The company had been seeking approval from MAS since 2020 and could not operate without it.

So, what does an RMO do? I found a few definitions via Google, but to save time I’ll summarize them as best as I can. An RMO operates a regulated trading venue or marketplace that brings together buyers and sellers of financial products.

In the same vein, readers may wonder what an ACH does. Per Investopedia, “A clearinghouse is a designated intermediary between a buyer and seller in a financial market. The clearinghouse validates and finalizes the transaction, ensuring that both the buyer and the seller honor their contractual obligations.”

Singapore has come up a lot in this writeup and you might be curious, like I was, as to why Abaxx chose to operate there instead of literally anywhere else in Asia or around the world. Nancy Seah, the CEO of Abaxx Exchange, gave some insight in a press release dated 1/23/23, where she stated, “Asia continues to be the fastest-growing demand center for energy products and we believe our choice to operate out of Singapore positions us strategically to be at the global hub of commodity trading while benefiting from its robust regulatory framework.” The press release can be found in Abaxx’s SEDAR profile.

This question was also addressed on Slide 10 of the Q1 2024 Investor Presentation. The slide is shown below.

I haven’t touched on how Abaxx makes money, so I’ll address that now. If you look at the Corporate Timeline slide in the History section of this writeup, you’ll see that the business makes its money through royalty payment agreements with Abaxx Singapore and Base Carbon. I discuss Base Carbon more in the Valuation section of this writeup. The Abaxx Singapore royalty is 3% of gross revenues and Base Carbon’s is 2.5% of gross revenues.

Abaxx also has a Master Licensing Agreement with Abaxx Singapore. Per pp. 17 – 18 of the Q3 2023 Financial Statements, “The Company has developed proprietary digital technology and intellectual property for application to exchange trading and clearing for commodities and financial products including liquid natural gas as well as other tradable commodities and applications. (“Exchange Technology”).

During the period ended December 31, 2019, the Company entered into a Master Licensing Agreement (“MLA”) with its majority owned affiliate Abaxx Singapore. As a result of this agreement, the Company was assigned exclusive title rights of use as well as the sub-license rights to the Exchange Technology by way of a master license agreement.

The Company maintains ownership of the intellectual property licensing in the MLA.

Abaxx Singapore has agreed to pay the Company earnings if in the future it sub-licenses the Exchange Technology, in which case as a result of the MLA royalty fees would be as follows:

• An amount equal to 20% of revenues on the first USD$2,000,000

• An amount equal to 10% of revenues on the next USD$3,000,000

• An amount equal to 5% of revenue on any excess revenue

Payments from Abaxx Singapore under these agreements are due monthly to the Company. As of September 30, 2023, no amounts have been accrued by Abaxx Singapore and no amounts have been recorded as receivable by the Company under either a royalty agreement or the MLA.”

What Makes Abaxx Unique?

Now that we have a baseline understanding of what Abaxx does, we need to understand what is unique about the business. How can it differentiate itself from competitors?

The first unique attribute that Abaxx has is simply receiving approval from MAS to be an RMO and ACH. Obtaining licenses for these kinds of businesses are a hassle as evidenced by the fact that it took more than three years for Abaxx to get it.

There’s a quote from Thomas LaSala, the former Global Chief Regulatory Officer of the CME Group, on Slide 22 of the Q1 2024 Investor Presentation that backs up this point. Please note that the bolded words below are from the slide and not emphasized by me.

He said, “The regulatory challenges in establishing and launching a new global commodity futures exchange and clearinghouse are tremendous. Global markets require new and innovative risk management tools within the purview of a respected rules-based framework, such as that provided and supervised by the MAS. Abaxx managed to reach this historic milestone by proving that their risk and regulatory systems are sound and ready for the marketplace.”

One last feather in Abaxx’s cap highlighting this unique attribute comes from Slide 18 of the Q1 2024 Investor Presentation which states that the business is now the only commodity-only futures exchange and clearinghouse based in APAC (excluding China) solely dedicated to physical delivery commodity futures. That seems like one hell of an advantage.

Yeah, yeah, yeah, not bad. But what else does Abaxx have up its sleeve? There’s plenty of other exchange businesses out there.

If you recall the introductory paragraph again, it stated that “Abaxx is a technology company engaged in development and deployment of trust enabling Internet protocols…” and that the company has a two pronged business strategy of  “… (i) developing new internet communication protocols and proprietary financial software architecture with a vision for global commodity market trading; and (ii) commercializing the majority-owned commodity futures exchange and clearing house utilizing Abaxx technology, including foundational products in new liquified natural gas (“LNG”) benchmark contracts, a new market structure vision for precious metals and battery metals markets, and new initiatives for enhancing Environmental, Social, and Governance (“ESG”) related markets and data.” Delving deeper into its technology and product offering reveals two additional differentiating factors.

Technology

Here is what Abaxx has to say about its technology solutions on pp. 4 – 5 of the Q3 2023 Management Discussion and Analysis filing, “The Company is also developing new proprietary software and middleware as well as adding some third-party vendor technology to its existing suite. This software augments and provides additional functionalities previously unavailable. These additional modifications will be suitable for Abaxx Exchange and Clearing operations and will provide an excellent opportunity for alpha testing prior to full operational abilities.

The Abaxx vision for Global Commodity Market Trading Infrastructure 3.0, which Abaxx describes as the “Commoditization of Trust®”, is a software architecture which is natively comprised of emerging software technologies which utilize novel machine learning and blockchain-like algorithms including deep learning and natural language processing (“DL/NPL”), self-sovereign digital identity (“ssdID”), encrypted content-addressing distributed file systems, smart contracting languages and protocols, and distributed ledger and decentralized datastore technology (“DLT/DDS”).

As a development stage business, the Company has generated eleven (11) process and software user interface patent applications. The Company has also engineered a foundational internet ssdID and messaging protocol called "ID++", and developed alpha-stage software applications (e.g., Abaxx Console) using the Commoditization of Trust architecture in the fields of:

• ssdID based verified-credential management, authentication, and identity and access management (IDAM);

• end-to-end encrypted and compliant financial messaging and video chat, with enhanced deep learning and natural language processing applications;

• multi-cloud storage of financial data using encrypted content-addressing distributed file systems;

• ssdID-enabled electronic document and smart contract signing; and

• digital-contract custody and other financial workflow management applications.

Abaxx intends to commercialize its software technology suite and the Software and IP Portfolio through business to business (“B2B”) strategic partnerships, where emerging technologies can be applied to specific markets heavily reliant on transactional transparency, transaction execution velocity, and compliance with stringent data regulation requirements.”

Slides 26 and 28 of the Q1 2024 Investor Presentation showcase Abaxx’s technology further. Both slides are shown below.

Okay, great. What does all this technological jargon mean in layman’s terms? How does all this technology “enable trust” and move towards the “Commoditization of Trust®” mentioned above? Ian Forester, Abaxx Tech’s Head of Product, was asked a question about how technology can make a carbon market product “smarter”. His entire answer is shown below and starts at the 16:17 mark of Part 2 of the Abaxx Holiday Special podcast linked below. I know it’s a wall of text, but it really gives critical insight and answers on how Abaxx’s technology creates trust between it and its users. Pay particular attention to the parts about the “hierarchy of information” and “triangle of trust”.

“Yeah, I think that's, I think you're right. Carbon is a great place because at the end of the day carbon is a data driven commodity. Your guest from a couple weeks ago, Ken Nukem, he laid it out pretty well. He was saying that in order to believe that this stuff has value, you have to believe that the way in which it's produced has credibility. So, now we're not just valuing something based on what it is but we're valuing something based on how it's made and as Josh was saying, there's, the only way to price that is by looking at the metadata, right? You can't just look at the thing coming through and what you can see and test and quantify once it's in front of you, but you have to look at the chain of everything it's been through before that moment.

The problem is that that metadata gets stripped out fairly early by existing network architecture. So, retaining those initial claims really becomes a game of telephone that requires the end user off-taker to trust every other link in the supply chain to have refrained from transforming that metadata along the way. This is an unreasonable expectation because the way that data moves across network perimeters is through transformation. So, if you're requiring the end user to trust that the data hasn't been transformed and the only way that the data has gotten to them is through a transformation mechanism you have a paradox. You're basically requiring that the off-taker trusts a hierarchy of relationships and history has shown so many repeated breakdowns of those types of systems that I think the intuitive skepticism is entirely reasonable.

So, how do we fix this? And I think that happens when we replace the reliance on a hierarchy of relationships with a reliance on a hierarchy of information. So, to accomplish that we need networks that can transport data without transforming it. And we need that transport layer to be built so that it can't be undermined or controlled by any single actor. Josh was saying you're going to put all of your data in a single repository. Well, who's watching the repository? Who's watching the watcher of that repository?

You need to have a trust architecture that supports transparent verification by a third party in a way that's equally fair to platforms and users, whereas the current architecture gives a sort of home field advantage to platforms. We can accomplish this. This is achievable. Using zero trust architecture and verifiable credentials and pass keys to build the triangle of trust as the atomic unit of that fabric. In the triangle of trust you have three parties, none of whom are trusted any more than the other. So, you have a holder, in our case the user. We have an issuer, in our case that would be the platform, and then someone who can verify a claim made by a holder, so that would be a verifier. The issuer trusts the holder but doesn't trust the verifier. The holder trusts the verifier but doesn't trust the issuer. And the verifier trusts the issuer but doesn't trust the holder. Because everyone is trusted equally the hierarchy of relationships is flattened and gets replaced with that hierarchy of information where a piece of information rather than an entity maintains a senior or junior position as well as retains a persistent coherent identifier as it moves across networks.

The way it works now, the issuer is trusted by the verifier and the holder and this gives them the ability to manipulate the information hierarchy in a way that gives them an unfair advantage. So, you know, I think this is going to be crucial to our sanity our survival and the survival of our economies in this century and beyond.”

Link to Part One of the Abaxx Holiday Special podcast:

Link to Part Two of the Abaxx Holiday Special podcast:

PRODUCTS

The business claims that three of its products are ready for launch with two additional offerings in the pipeline. The first of the three is a set of three regional liquefied natural gas (LNG) future contracts. The markets served by these contracts are North West Europe, North Asia Pacific, and United States Gulf of Mexico. The second and third products are benchmark contracts for carbon credits and nickel sulphate.

And you might be thinking, Yeah, yeah, yeah, great. But why these products specifically? I think it’s fair to understand why the benchmarks are physically settled first before answering that question.

Abaxx had an entire white paper written about the benefits of physically settled commodity benchmarks. It is titled Back to the Future(s): The Best Commodity Benchmarks Are Still Physically-Settled and a link to the paper can be found here. I highly recommend reading it.

The answer to why Abaxx will offer physically settled futures benchmarks is due to a belief that financially settled ones aren’t as effective. Please note that the text in bold is emphasized in the whitepaper and not by me.

Quoting pp. 3 – 4 of the paper, “Why are reliable commodity futures benchmarks physically-settled as opposed to financially-settled? Craig Pirrong, Professor of Finance and the Energy Markets Director for Gutierrez Energy Management Institute at the Bauer College of Business at the University of Houston stated it well: “Cash settlement works if there is an independent, reliable, relatively un- manipulable source of cash market prices that can be used to set a futures price at expiration. The markets for which these conditions prevail are very, very small. Cash settlement works in equities for contracts like the S&P500/eMini because there is an active, transparent cash market for stocks. It works pretty well for live hogs because the USDA collects data on the price paid for every animal bought by processors.

Beyond those examples, cash settlement is problematic, or in many cases, actually counterproductive. In the late-90s/early-00s, cash settlement in natural gas indexes was rife with misreporting and fraud. In 2008 I wrote a few posts about reports that banks were putting the lie in LIBOR.

Virtually no commodity market has enough active, transparent cash markets to support cash settlement.”

Commodity futures markets evolve from illiquid bilateral contracting, not well-functioning highly liquid cash markets. The challenging and expensive logistics of the commodity trade set a high barrier to entry. Through the process of standardization, the physically-delivered commodity futures benchmark builds on the structure of bilateral contracting and improves it. The next step in commodity contract standardization is the creation of a centralized futures trading venue where buyers and sellers are matched on common standard terms, reducing credit risk through the clearinghouse, and allowing the standardized futures contract to trade in a liquid fungible way that promotes price discovery and the efficient transfer of risk. The sequential development of a physically-delivered commodity futures benchmark is an essential stage in the growth of the physical commodities market.

The physically-settled commodity futures benchmarks help markets develop by drawing more and more diverse participants to the markets, thereby creating deep and more diverse participation in the price discovery process than is possible in any index methodology. In contrast, participation in index calculations relied on by most financially-settled pricing instruments tends to be relatively limited to those willing and able to meet the criteria in the index methodology.

The most recent well documented issues with LIBOR manipulation speaks strongly to problems with financially settled products with little correlation nor ultimate convergence to the physical underlying markets.”

The TL;DR is that, in Abaxx’s opinion, physically settled benchmarks offer a more reliable and trustworthy form of settlement versus financially settled benchmarks.

Now the answer to the question of why Abaxx is offering an LNG, carbon, and nickel sulphate futures contracts. The first part of the answer relates to demand. The business cites research data in public filings that the required investment to transition to renewable sources of energy will cost more than $100 trillion. That’s one of those numbers you see in a corporate presentation that you cannot really fathom, but even if you cut it in half or by three fourths, you still get a massive number and one hell of a runway for growth. The second part of the answer is that for one reason or another, the contracts Abaxx will offer aren’t available through existing exchanges. Management believes and has claimed in multiple public filings that the business has a first mover advantage in the contracts that will be offered. This piqued my interest because rarely do you hear a management team say this. I’ll discuss this more in the Risks of this writeup.

Per the Q1 2024 Corporate Update, linked here, Abaxx is currently working on an additional battery metals contract and a separate contract for precious metals. I was unable to find out about what the second battery metal product is, and I only have a hunch for the precious metals contract. Per the Green Investing YouTube channel, it might be a contract involving gold. The company references the size of the physical gold and futures market in the Q1 2024 Investor Presentation, but that was the only clue. There was no mention of any other precious metals contracts in the documents I read.

Something that deserves mentioning about these products is that management has been very hush-hush about they work. There was nothing in any of the documents that I read that explained the dynamics or mechanisms of any of the contracts. This is understandable considering that they don’t want competitors copying their products, but boy would it be nice to at least understand how the products work. Maybe we’ll get some clarity on this topic once the exchange is up and running.

SmarterMarkets Podcast

The third unique part of the business is the SmarterMarkets podcast. Per Slide 38 the Q1 2024 Investor Presentation, the podcast is ranked in the top 1% of all podcasts globally with 1.7 million total episode downloads. It claims that 70% of podcast listeners are director level or above at their organization and that 57% of listeners work in the Energy, Financial Services, and Technology sectors.

Episodes include current employees discussing energy, political, commodity, financial, or market related problems and topics with industry insiders and executives.

I don’t foresee this being a huge portion of Abaxx’s bottom line, but it is an effective form of marketing and brand building. The podcast episodes can be found at smartermarkets.media.

Valuation

Writing about Abaxx’s valuation, given that the business isn’t fully operational yet, is a fool’s errand and a waste of my time.

I will use the rest of this section to discuss the investments the business has made outside of its core operations and two additional assets that it owns.

Per the Q3 2023 Financial Statement, which can be found in its SEDAR profile, Abaxx has five investments outside of the core operations of the business.

1. Four of the investments aren’t material in my opinion. Their total value is <CAD$5 million. One investment is an unsecured convertible note, another is for preferred shares, one is for common shares, and another is in a mix of preferred and common shares.

2. The fifth and most material investment is in a business called Base Carbon (NEO:BCBN and OTCMKTS:BCBNF). Per p. 10 of the Q3 2023 Financial Document, “Base (for the Benefit of Air, Sea, Earth) Carbon Inc. (“Base Carbon”) is a globally diversified asset development firm in the business of sourcing, financing, developing, and trading carbon credits. Base Carbon’s mandate is to be the preferred carbon project partner for financing, streaming, technology, and access to markets. Base Carbon is an early-stage business with revenue streams that are still being developed as the business was recently launched. Abaxx Technology Crop. was a founding shareholder of Base Carbon and at September 30, 2023, holds approximately 16.33% (December 31, 2022, 15.6%) of shares outstanding that was acquired for $2,490,695. The quoted market value for these shares in Base Carbon at September 30, 2023, was $8,316,041. This value has not been adjusted on the balance sheet due to IFRS equity accounting as an investment in associate. The Base Carbon Royalty provides that Base Carbon would pay Abaxx a 2.5% royalty for the usage of software it developed. The royalty is indefinite in term and Base Carbon has the right to buy back the royalty upon the payment of US$150,000,000 (above or in excess any royalty already paid) to Abaxx. As of September 30, 2023, $215,510 has been accrued under the royalty agreement. The payment of the royalty is conditional on Base Carbon having a positive EBITDA (earnings before interest, taxes, depreciation, and amortization) and for the nine months ended September 30, 2023, Base Carbon had a positive EBITDA. Base Carbon continues to be classified as an associate and accounted for under the equity method of accounting as the Company retains significant influence over the financial and operating matters of the associated company. During the period ended September 30, 2023, the Company received an unsecured arm’s length loan from Base Carbon Corp., for $750,000 (September 30, 2022, $nil) and this loan was repayable by October 15, 2023, and it bears interest at 9% per annum. The Company applied the amount receivable from Base Carbon Corp., under the royalty agreement to pay down the loan balance to $561,715, (September 30, 2022, $nil).

3. The two assets mentioned above are iron ore mines the business acquired in its reverse takeover of New Millenium. One is called KeMag and the other is LabMag. While Abaxx does own them, they do not appear to have material value and the business does not have any plans to develop them as of the writing of this post.

Risks

The biggest and most obvious risk with Abaxx is that it’s seeking to do something new and unproven. I mentioned above that management believes the business has a first mover advantage, but that begs the question of why its competitors haven’t offered these products yet. If the products are in such demand from prospective customers, then why haven’t other exchanges seized the opportunity?

Other related risks are the products not reaching a critical mass of participants or being viewed as true standard benchmark contracts. Either scenario would spell doom for Abaxx.

The third risk goes back to not knowing how these contracts work. It’s difficult to get comfortable with an investment if I don’t understand how a central piece of the business functions. I can only hope that the details of the contracts are flushed out after the exchange starts operating. I’m not expecting a copy of an actual contract, but it would be nice to see a basic example of one.

Tailwinds

The business has recently raised money from well-known investors. These investments are no guarantee of success, but I do find it encouraging that the companies described below have enough faith in Abaxx to collectively invest tens of millions of dollars into the business.

A press release from November, linked here, stated that Abaxx Technologies (the parent company) raised CAD $30,698,480 from Canoe Financial, K2 Asset Management, and “multiple leading global institutional investors” including BlackRock and Wellington Management. Canoe Financial is a CAD$14 billion asset management firm. K2 is an Australian asset manager, but I was unable to find their AUM. BlackRock and Wellington are well known heavy hitters.

A second capital raise transpired in January, but it was for Abaxx Singapore which is the part of the company that runs the exchange and clearinghouse. This investment was not in the parent company. The January 10, 2024 press release, linked here, stated that the business raised $27,323,013 from the likes of CBOE, TLW Trading LLC, and Traxys Lithium Investments Limited. CBOE is one of the exchanges referenced in the introduction. TLW Trading is run by Tom L. Ward who is the founder of SandRidge Energy and co-founder of Chesapeake Energy. Traxys is an international and multibillion dollar commodity trader. Fortunately, this investment does not affect the equity of the parent company, but its ownership of the exchange will be somewhat diluted. I learned about this from the Green Investing YouTube channel referenced above, so shout out to him again for the information.

Abaxx Exchange welcomed StoneX as its first clearing and trading member in late January 2024. A link to the press release announcing this milestone can be found here. Per its Wikipeida page, StoneX is a Fortune 500 financial services company that operates in areas ranging from commercial hedging, global payments, securities, physical commodities, foreign exchange, and clearing and execution services.

Besides StoneX, Abaxx has received interest from plenty of market participants as evidenced from Slide 23 of the Q1 2024 Investor Presentation which is shown below.

The business issued a press release on January 29, 2024, linked here, stating that Abaxx Singapore had been approved for membership in to the Futures Industry Association (FIA). Per the press release, “the FIA is a global trade organization with a diverse membership base, including clearing firms, exchanges, clearing houses, and trading firms from over 48 countries, along with various professionals serving the industry with the mission to support open, transparent and competitive markets, protect and enhance the integrity of the financial system and promote high standards of professional conduct.”

In closing, the amount of money raised from institutional investors plus the approval of StoneX as its first clearing and trading member, and the additional amount of interest from market participants combined with their formal intentions to trade, and membership in to the FIA indicates that, at bare minimum, Abaxx has all of its ducks in a row, is doing the right thing, and is ready to start operating its business.

Q1 2024 Commentary

I delayed this post two extra days because I wanted to listen in to Abaxx’s Q1 2024 investor call. I signed up for it knowing I would be at my day job, but figured I could listen to it after I got back. Well, that didn’t happen. There was no link or transcript to the call after it happened, nor was there a way to listen to it on the Investor Relations website. Fortunately, Green Investing took some notes on the call and his post on X about them is shown below. I wish I had a better way to convey this information, but…

https://x.com/grn_investing/status/1754920879606399251?s=20

Conclusion

Is Abaxx a great business? Is it a compounder? Only time will tell. I do think that it’s an interesting one. It is perhaps the most interesting business I’ve come across in the last six months or so, but that doesn’t guarantee any kind of future success. It’s not investable as things currently stand. I think it’s too risky to bet on a business that hasn’t generated revenue from its core operations. With that being said, I think Abaxx has a lot of things going for it. I don’t think it will take long to see if its products will be accepted by market participants. They’ll either sign up to use and trade on the exchange in quick succession or they won’t. Hopefully things will go well, but the best strategy for now is to wait and see.

Thanks again as always for reading. If you liked this writeup, please feel free to share it and subscribe!

Please reach out to me at possiblevalueresearch@gmail.com, @PossibleValue on Twitter and @Heshy on MicroCapClub with any comments, concerns or questions. Lastly, don’t forget to tell someone that you love them.

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Disclosure: I do not own shares in Abaxx or Base Carbon.