Abaxx Technologies Inc. (ABXXF) Earnings Call Transcript & Summary

Hello, everyone. I am Vince Sorace, Executive Chairman of MineHub and I would like to thank you all for attending the special investor webinar featuring our two esteemed CEOs; Josh Crumb, Founder of Abaxx Technologies; and our very own Andrea Aranguren from MineHub. Please be familiar with our standard disclosures and forward-looking statements.

So before we get into any specific discussion around this digital title initiative, why don't we start with Josh. Tell us a little about Abaxx, what you have built and what is your vision for the company?

Thanks, Vince, and thanks for having us here today. When you think about Abaxx, maybe just a very quick background on myself for some of your shareholders and clients that may or may not be familiar with us. So I'm a mining engineer by background. I started my career in working at a gold mine and eventually working in corporate development with the Lundin Group and really on the upstream side of the business. So quite familiar with the logistics and sales and trading of physical commodities, particularly copper and base metals and gold, which was the industry I was involved in. I then went over to Goldman Sachs, where I was the Head of Metals Research and Strategy out of London and really focused on really the pure trading side of the business. Our clients were big merchants and traders of physical commodities that would use the futures markets and use the financial markets to access financing and arbitrage and investing in commodities. And really founding Abaxx, really, there were 2 areas that we were focused on. And one is after really decades of consolidation in the futures market, the financial side of hedging and risk management for commodity producers. Our feeling is that the big exchange groups were perhaps getting overly financialized. More and more, particularly in the growth commodities, you saw indexation and cash-settled futures rather than the traditional market methodology where the physical market converges with the futures market when you go into delivery and you make and take physical delivery. So our view is that benchmarks and risk management really serves the markets best when futures are physical and really match to the physical industry. So when we built Abaxx, we saw a number of growth commodities, particularly energy transition related, but really just the constant shift in global supply chains and raw materials. Liquefied natural gas being the big one, but also the battery raw materials that are needed and growing, including copper and aluminum for the increasing electrification in the world. And so we focused on building a new venue that really focused on that convergence of using the latest technology to meet the physical industry's needs. There's also sort of a second part of our thesis beyond the sort of back to physical and building physical benchmarks. And that's really the just ongoing digitization of the commodity supply chain. And this is where we obviously share a lot of DNA and a lot of vision with MineHub. Our view is that full digitization, the software is eating the world is coming from every industry. But there's a lot of complexity in international physical trade, just the overlapping legal jurisdictions and moving a title around the world as well as just the trading strategies of firms that really need absolute privacy. Their business is arbitrage. And so privacy is really paramount. So we saw that there was a number of technologies that were going to be needed to increase this path to digitization. And so we built an entire suite of products around privacy, around digital title, around digital identity, so that we could really solve the big trust problems in digital trade. So those are really the two anchors of Abaxx. And I'm sure as we go through this call, we can see how that very much plays into -- almost a triangle with what MineHub is doing. And again, we both share a very similar view of the world of the inevitable path of digitization. But the hard challenges of market structure to actually get there in a very paper-based physical world in commodities.

Thank you, Josh. Andrea, over to you, give our audience a little background on MineHub and what we do.

Sure. And I'll also just give a brief introduction on me for any Abaxx shareholders that may not be familiar with me, but I also have spent most of my career in the physical commodities market, primarily on the operations and logistics side. I spent some time in a variety of markets in oil and gas, environmental commodities and then in base metals as well. And also spent some time. I'm a Goldman alum as well. I was the VP of Operations at Goldman for several years. I spent a lot of time with different startups, helping them with supply chain optimization and digitization, co-founded Waybridge in 2019. We set out with a mission to digitize the physical commodity supply chain with many of the goals that Josh mentioned. And as we grew, we were competing more and more with MineHub. So we combined with MineHub in 2023. So that's a little bit about me and how it came to be here. And MineHub is really the only post-trade administration platform that is purpose-built for the metals industry. So what does that mean? Every single day, you have mining companies, traders, manufacturers managing a multitude of orders and trades across many different counterparties. You have a huge amount of physical cargo that's being moved all around the world in very complex supply chains, and it's practically impossible to keep up in real time with that tremendous amount of data. And so MineHub automates all of that order data, all the shipment data, inventory data and centralize it into one secure platform so that when our customers log into MineHub, they get a source of truth on their supply chain. And because we are integrated with AIS satellite data and GPS data, we provide real-time tracking on all that cargo. So whether any of the metals are on a truck or a railcar or even on the ocean, we can tell our customers exactly where they are and when they're expected to arrive.

Thank you. So Josh, many people have been reading the news about your private digital title initiative. What do you mean by digital title and digital collateral? How can you explain this in layman's terms?

Yes, sure. So I would encourage if anyone really wants to get into the technical details to look at our last Abaxx investor call from mid-August. I believe it's on our YouTube and on our investors site, where I really kind of get into the kind of the weeds of what we built to solve the 3 hard challenges of digital trust in digital identity, privacy and legal finality. So I won't start at that level today, getting into the sort of the abstract details of the engineering. But instead, I think it's probably best to start with an example. So back in 2022, after Russia's invasion of the Ukraine, I always like to say that the physical supply chain actually did a lot -- a better job responding to the energy crisis in Europe than the financial supply chain did. And what I mean by that is, particularly if you looked at LNG and obviously, we're Abaxx -- LNG is one of our flagship products on our exchange as we become the benchmark for the global LNG industry and futures markets. What happened at the time is a lot of LNG was being hedged in what's in our industry sort of jargon is known as a Texas hedge. You were hedging LNG against Dutch gas -- pipeline gas, which was not exactly LNG on water. And so you had this large volatility blowout because of the gas situation in Europe. And so you had this massive blowout in volatility on the Dutch TTF contract. And so theoretically, LNG prices, I think a cargo LNG went from, call it, $30 million to $40 standardized to $100 million or even $200 million in notional if you were trying to price it against TTF. So just extreme volatility. And so theoretically, if you're in the LNG business, you're sending that cargo to Europe immediately. But that's a theoretical exercise because almost nobody can finance that level of volatility, right? These are equity finance cargoes moving to Europe. And even some of the biggest energy traders in the world that were using TTF as a hedging instrument, we're getting $8 intraday margin calls to move U.S. dollars to try to meet that hedge. So why do I give all of that as background? Again, I believe that the physical industry actually did very well to figure out how to get those cargoes to Europe when it was needed, but we saw massive stress in the financial system because of that volatility. And so how does Abaxx's solutions solve this? Number one, of course, is providing a real hedging instrument for LNG, not a proxy in pipeline gas, but an actual price for physical delivery of LNG into Europe. But the second is, how do you actually -- instead of having to post margin and have a pure financial hedge, what if you could actually use? Well, there's 2 ways we could solve that with our digital title. One is what if you could actually use that long, your physical cargo bill of lading. What if you could pledge that to the clearinghouse and that becomes your offset in your margin? Or even if you didn't do that, how could you move U.S. dollars in real time even in Europe to satisfy a financing margin call like this. So those are the 2 types of problems we're trying to solve with digital title and really just create better efficiency for the commodity supply chain. So how do we do that? Like what are the problems? Most people would jump right to, okay, well, tokenization and blockchain solves this. Well, no, there's a couple of fundamental issues. And again, I encourage you to go into the details of our last investor conversation. But at a high level, number one is the actual legal title. So let's use stablecoins, for example. Everybody is talking about stablecoins. But in a crisis, ultimately, if you own something, particularly if you're pledging it as collateral in a clearinghouse or pledging it as collateral in any financial transaction, even if it's bilateral and over the counter, you need to be -- obviously have absolute rights of what you're actually pledging. And today, blockchain and just generalized wallet addresses do not solve that problem. I just have a general claim, and there's a lot of legal uncertainty of what actually I own if I have some sort of tokenized U.S. dollar or tokenized commodity sitting in an Ethereum or Solana wallet. I actually don't have a legal document of what I actually own as rights. And so that's sort of problem number one. Problem number two is just the identity, right? I've got a pseudo-anonymous wallet. I'm hoping the issuer of the stablecoin or the issuer of the tokenized commodity or whatever that means. I'm hoping that I've got legal titles to that but or -- but the issuer is trying to manage against a pseudo-anonymous wallet address to say who owns what or some sort of white listing system. So my wallet is not in my name. It's just a public key on a blockchain. So the identity becomes a real problem. And particularly when you're talking about multimillion dollar cargoes, this is a real problem, particularly with money laundering risk and everything else, if you don't know exactly who owns what and who your counterparty is. And then number three is privacy. Privacy is also a major issue. Commodity traders, and this is actually something we really like about MineHub. Is MineHub's building the central source of truth, but they absolutely focus on their clients' needs for privacy. This is not a data selling platform. This is not a data sharing platform. This is a platform that really respects a commodity traders right and need for privacy. This is -- again, this business is all about arbitrage and that information is the business model of these businesses. And so if you look at something like blockchain, you do not have the privacy that's needed in our industry. And so why do I go through all of that? And why am I using blockchain or tokenization? Because ultimately, the goals are the same. It's moving things in real time. It's opening up a broader world of, call it, decentralized financing or a lending club for cargoes, right? So this is the ultimate goal is for our clients is to provide more utility. And ultimately, again, if I'm shipping that cargo of LNG to Europe, or any raw material, I want my client to be able to hedge that out in the best way possible. So they have the best loan to value. They have the least risk in their financial management. And so all of these goals of blockchain are the same goals as ours, but we've solved it in a very different way. And I'm sure we can talk about it more later. But I guess the final point I'll make here is really our system is sort of separate, equal, and I would argue better than blockchain as a whole. It's not a new form of blockchain. It's actually a new way to move real-time digital title. And we would argue is as big or bigger than blockchain because we're solving issues for the real industry. We allow a title to be moved in real time, whether that's a money market fund being pledged for collateral in real time rather than a multi-day settlement cycle or again, being able in a repo transaction or an asset-backed lending to be able to provide a real bill of title from a bill of lading or a warehouse receipt and being able to use that as a financial instrument. So we started with the problems and also doing it very privately. So that's what our technology is all about. And I'm sure we can talk about it more as the webinar continues.

So Josh, tell us a little bit about expanding this private digital title to in-transit metals. Why is MineHub a unique partner or the unique partner that makes this possible?

Well, look, and this goes all the way back to our investment in our collaboration with MineHub. We think MineHub is doing the hard, hard work of building those network effects and building that real last mile or first mile detail of digitizing supply chains and the amount of metadata. And like this is -- again, this is a very hard problem. It is not easy to build the details of this level of digitization in a very tough industry. Again, this is not a closed one country's laws, securities market or legal framework, but you're often moving commodities through multiple legal jurisdictions. And this is -- this takes a lot of documentation, takes a lot of legal work. It takes a lot of trust building with counterparties. And MineHub is doing that very hard work in the details of the supply chain and building those network effects to be the first mover, particularly in the metals industry, to be the first mover of that post-trade process and digitization. So you have all of that infrastructure, that client network effect [ that's ] building. And look, this is -- again, this is the third pilot we've announced. Number one was moving gold as collateral in our exchange in a somewhat closed ecosystem between Abaxx spot where people hold physical gold and being able to pledge that into -- eventually into Abaxx clearing as margin for a futures trade, a basis trade. Number two is the movement of money market funds. Of course, that's your alternative to stablecoins for institutions. That's moving U.S. dollars in real time. And now number three is working with the platform and the customers and the data you already have at MineHub and being able to allow your clients to have much more financing flexibility and efficiency by using our digital title in the data and platform you've already built. And that will open up efficiencies, as I mentioned before, for financing and having lower equity in the movement of commodities.

Thank you. Andrea, we understand that you're still in the exploratory phase of this initiative. But what technical integration do you expect to be required? How much investment will be required on your end for this?

So for people who are not familiar, our team -- our technical teams have been in contact with the Abaxx technical teams for the last year or so. So our teams have been in close collaboration and the Abaxx team has been sort of diligently listening to MineHub's feedback and requirements on the ID++ framework and technologies. You'll even hear Josh say that the deployment of some of their capabilities were actually delayed because they took into account MineHub's feedback because Abaxx is really focused on ensuring that the implementation of their technologies and the console applications are incredibly lightweight and easy to implement. And they certainly took MineHub's feedback into account in all of their development. The teams are super closely aligned. And so thankfully, we're not expecting a large investment either from a capital or resource perspective given that Abaxx built all their capabilities to be super lightweight and easy to deploy.

Thank you. Back to Josh. Around this initiative, do you or who you see as competition? And what you see as your competitive advantage? How big is this opportunity for Abaxx?

Yes. So thanks, Vince. Actually, just to follow up a little bit on Andrea's point before we move on to this question. I think it's super important. And again, this is what we valued so much in the feedback because remember, we've got this sort of inside-out strategy at Abaxx overall. Again, we're not building technology for technology's sake, but we're solving industry needs in sort of an internal way. First, the industry needs of the clearinghouse and the exchange market participants and now the needs of a lot of the same overlapping customers in financing their supply chain and their movement of goods. And so this was always intentional with the way -- the way we built our strategy and hence, the partnership and investment in MineHub. And so we actually did learn a lot. Now look, at the end of the day, identity is the key to all of our infrastructure. It's key to our digital title. It's key to our integration. But we also realize that, again, one of the big blockers of digitization in this industry is just the complexity and the lack of trust in centralized platforms, right? So what we built, we spent 5 years building all of this sort of the iceberg, the under the hood, how do we solve the industry's intense need for privacy. And we really built protocols and infrastructure that are really one of one. And then only at the very top is the SaaS layer, the application layer for how people work with our privacy technology and our digital title technology. And so by nature, our applications become thin applications and identity is the key piece of onboarding. So this was really -- we really figured this out when we were working with MineHub that we wanted a very simple single sign-on solution. We don't want to make people do anything new. Most clients are already working with like a Microsoft, the former Active Directory or Entrada or they're working with some other single sign-on like -- like Okta, yes, exactly. And so we wanted that to be the single point of integration. It's something that customers are already doing in an enterprise environment, and that's the only new thing that they have to do. So we spent a lot of time on that, and those requirements were really made clear by MineHub. So anyways, I just want to reiterate, this is a very important point is that we don't have 6 or 12 months of integration. It's a very single point of integration that opens all of our tools to the MineHub platform and clients.

And that's another huge difference to blockchain, Josh. You're talking about some of the differences with blockchain. One of the biggest challenges there is really interoperability and finding a way to interact with the blockchain. And so that's a huge difference from the Abaxx structure as well.

Absolutely. Yes. And as we've seen now, blockchains are spreading almost by the day exponentially. And there's no centralized efficiency anymore when you've got 42 different blockchains to have to figure out how to integrate. And so again, we kept it simple. Let's integrate at the identity and single sign-on layer like which is already being done, but let's provide this whole iceberg of privacy and new technology under the hood that comes from that simple integration. So that was quite key. And so anyways, to move on to your next question, Vince. Yes, this is very important. There's obviously a lot of efforts. And I don't -- I know you're not supposed to do this, but I don't mind saying ICE is out there with digital trade docs or ICE Digital Trade, I think they call it now. And look, I've actually admired Jeff Sprecher and his move to digitization across a lot of things. But I think we've got a very different point of differentiation, and that's the absolute privacy side of what we've built and the sort of protocol layer approach that we're taking to building network effects for our clients. So look, I think there's going to be a lot of collaboration with a lot of these ecosystems down the road. But I think the 2 most important things is we've got highly differentiated deep tech -- technology that's really one of one. And then number two is we're building network effects just like MineHub and Andrea are that are really, really hard to beat, particularly when you're solving the detailed levels of needs of a very specific industry and everyone acts a little bit different. So there are other blockchain and supply chain initiatives out there, but I don't think anybody has the what we call the commodity 360 view that we've taken from logistics to in-transit financing to hedging, just the whole upstream to downstream and everything in the middle, we've really -- between Abaxx and MineHub, we've got a very unique way to do this.

So Andrea, same question to you. How big is this opportunity for MineHub? How do you think about TAM? Why should investors be encouraged about this news?

When we think about TAM, and Josh, we were talking about this yesterday, we really see the entire $12 trillion physical commodity supply chain as the opportunity. That's really the value of the cargo that is locked up in inefficient markets that could be transformed into digital collateral and sort of seamless and truly efficient capital markets. So the opportunity is massive. For MineHub, naturally, it's a really exciting evolution sort of beyond the logistics space into the much higher value sort of trade finance or financing ecosystem. And so in partnership with Abaxx, we play the role, not just this critical role as sort of SaaS provider and source of truth for the supply chain and the industry, but also the critical infrastructure for the actual financing of the commodities over time. And so it's a really important evolution in the role of MineHub and the TAM for MineHub as a whole.

How do you -- or what do you see as the response or expect as a response from our customers about this new initiative?

Well, our customers are definitely going to really appreciate the great lengths that Abaxx went to preserve data privacy and identity. They share -- Abaxx shares are sort of obsessive focused on data privacy and confidentiality. So that's really positive. MineHub has traditionally been focused on copper and aluminum markets. But in the last 3 to 6 months, we've actually done a pretty large push to expand to other metals markets, and we've done a lot more engagement with companies that we don't usually talk to. And I've been really surprised that a lot of the feedback that we've heard in these conversations is actually really focused on finding ways to leverage digital tools to unlock this greater efficiency for financing. We're seeing this, especially in iron ore markets. We've had a number of customers sort of inquiring how they could leverage our platform to improve financing capabilities and sharing of data and really speeding up a lot of these paper-based manual processes that stifle the real efficiency of the financing structure. And so overall, we're definitely expecting quite a positive response from all of our customers.

Thank you. Josh, what can investors expect to see in the short term and then in the longer term with respect to this?

Yes. And again, I just want to echo Andrea's points around just sort of the obsessive customer focus that we have. Both companies are commodity nerds through and through. We really think and obsess about how to improve our industries as stakeholders in the industry. And I would echo that it's similar for Abaxx in the things that MineHub is doing. And even going back to the investment last summer, it was sort of perfect synergy in that copper and aluminum and some of the iron ore, some of the industries you're focused on, we have not been focused on, but we can also bring things like voluntary carbon markets and LNG and some of the battery raw materials to the MineHub platform. And so again, there's -- I think -- and even as an example, we are actually the first clearinghouse that's ever taken a voluntary carbon future all the way through delivery and the private and secure transfer of a registry account from buyer to seller with the clearing members and the guarantee of the trade all the way through. So our competitors at the other exchanges have never done that before. And look, even our clearing members, everyone always sort of assumes they know how to do it. But then it's always way more complex than you think to actually do all of that paperwork, again, crossing jurisdictions and legal views and everything else. And again, that's the hard work that MineHub does in the documentation and tracking and tracing. And right now, to be perfectly frank, the clearing -- going to a physical delivery in our clearinghouse is still a lot of e-mails and spreadsheets just like everything else. So we're all very excited about creating modules out of the MineHub platform for all of our delivery and working with our clearing members and working with the buyers and sellers in our platform. So again, we also echo Andrea's statements that we're solving big problems for the industry. And I think the things that you've done on your platform are going to solve a lot of problems for our platform as well. So yes, sorry, I wanted to follow up on that question as well. But Vince, sorry, what was the next question?

What can investors expect to see in the short term and then in the longer term with respect to this initiative?

Yes. Go ahead.

I'll just add one more thing that's really important is that philosophically, Abaxx and MineHub are both extremely customer focused. So when we're trying to solve problems, we're listening to the problems in the industry, which are changing and evolving constantly. And that singular customer focus is also really driving a lot of alignment in how we move forward with our strategy. So I just wanted to really highlight how important that customer focus does. And for MineHub, one of the most exciting parts of this initiative is just being able to expand the value that we deliver to customers and being able to better service the metals industry. So I just wanted to add that, Josh.

Absolutely.

Go ahead.

Yes. So Vince, on the -- what is the next few months and quarters? Again, I think we -- we've rolled out a series of these pilots. The movement of gold as collateral in a clearinghouse, the movement of U.S. dollars, money markets. And by the way, that's not just for collateral, that can be for delivery versus payment. There's likely things down the road to do with MineHub there to add almost a whole quotational period and payment aspect to what MineHub is doing. And then three is, of course, working with the MineHub clients on some use cases likely for in-transit inventory finance, maybe through a logistics hub and so forth. So we're working on that. Again, back to Andrea's point about customer. We're not going to do this in a theoretical vacuum. It's bringing the customers into the loop, starting with probably sharing things like this webinar and some materials we're putting together. And this is actually something that's the same in our other 2 pilots is a lot of times, we're coming up with new legal frameworks and new technology frameworks. And every time I've got to kind of pound the table, no, no, no. Commercial drives everything. The legal and the technological fits the commercial transaction to the commercial reality. So it's always -- because particularly when you're doing new things, it's sometimes hard to figure out which 1 of the 3 is in the lead. And so the next few months are really about making sure that we've got the customers fully engaged of what is something that you're doing today that you don't really have to do different, but we're adding leverage, we're adding technology, we're adding some legal standardization, how do we do that? So we're going to be working with MineHub customers and putting together this pilot to make sure we're solving their needs and not in a theoretical vacuum.

Thank you. Well, I think what you have both made clear and the takeaway from this is that this is a very unique, one could say, groundbreaking opportunity with an extremely large addressable market, and it's an exciting road ahead. I think I'll just pass it over to each of you for any closing remarks.

Yes. Maybe just -- yes, just maybe back into the details of the road map ahead because then what does this mean commercially, right? So we're really focused on Q4, the single sign-on, continue to work on that integration and that scoping because even beyond the pilots, that's going to be key to the go-to-market. And so that's really kind of through the end of the year, making sure we've got that -- those technicals and obviously, the security sort of locked down on how all that works. And that's going to be really happening in parallel to the actual pilots and the commercial use case nailing that down. But of course, during that whole time, we're also working on the financial feasibility. What are the -- what is the lowest hanging fruit because we really do believe together, we can be first movers in some very, very big market opportunities. So it's really -- it's nailing down all your go-to-market. Obviously, your pricing, your first users, both focusing on short-term revenue, but also more importantly, how you win the market, what are the network effects and what are those key pieces? What are the key hubs and edges of the network effects. That's really where we're focused so that when we are going to market in the first half of next year, that we are on a path to getting so far ahead of anybody else that they can't catch us. So that's the goal over the next 3 to 6 quarters -- or 3 to 6 months, 2 quarters.

And not surprisingly, our goals are very similar. I really like how you said, Josh, focused on short-term revenue, but also focusing on how you can win the market in the long term. And I think that summarizes our focus really well. So obviously, we have a very mature platform. We have some of the largest leaders in the industry using and relying on our platform every single day. So we are focused on ensuring that customers are happy that we can expand the value that we deliver to our existing customers. We are really aggressively pushing expansion into new metals, so deploying the MineHub platform into adjacent commodities, whether it be iron ore or scrap or other metals. In addition to really focusing on collaborating with Abaxx on this pilot and really seeing how over time we can win the market, getting customer engagement and really finalizing the scope of the pilot so we can be on a path to commercialization.

And again, I want to absolutely reiterate our tech is one of one. There's nobody else. Again, we feel like the world went down this path the last 10 years of trying to reconcile ledgers. We're reconciling legal claims in real time. And I like to say, when the asset like Bitcoin or Ethereum or Solana, when the asset lives in the ledger, ledger finality matters. When the asset lives in the law, legal finality matters. And we're really the only one that's taken this approach from digital identity all the way through. And so it's both the network effects is combined with the one of one to get so far ahead that nobody can catch us. And that's our goal. It's very ambitious, and we're going to achieve it.

That's a winning combo.

Listen, thank both of you. This has been fantastic. Josh, a very special thanks to you taking time out of your busy schedule to join us in this webinar. And for the rest, we won't be taking any questions following today's webinar, but please feel free to reach out via e-mail or phone to each of the respective parties, and we will be happy to answer any questions you may have. So once again, thank you all for attending.

Thanks, everybody.

Thanks.