PRIMEVEST CAPITAL CORP. COMMENTARIES June 30, 2021 Commentary The major theme this quarter and particularly over the last few weeks is whether current increases in inflation are transitory or persistent. The data have been showing general prices rising including for commodities and consumer items like used cars. The debate focuses on whether the price rises are due to the “base effect” from lower prices at the start of Covid and whether they will continue. The other change in rhetoric from the first quarter was in the focus on inflation instead of reflation. The reflation trade fueled the Value over Growth rotation, which included commodity prices, and the inflation trade put a quick two-day stop to any allocation of capital to the long side, and then the Fed’s convicted transitory comments fueled the Growth over Value allocation. Going forward, wage inflation will be the prominent factor in that debate (items like used cars can only go so high, as the limiting factor are new car prices). In addition, the Chinese government also successfully orchestrated a correction in runaway commodity prices for base metals. While this has worked for the short term (also complemented by a strengthening US dollar in June), we strongly believe there is a mid-term secular opportunity in base metals, as outlined in previous commentaries, that will be durable for some time. We identified this secular opportunity in the copper space several years ago and determined that the best prospects lie in the copper development area. In fact, I believe we can justify that these investment profiles have potentially the most attractive reward-to-risk ratios of any potential investments across sectors. Our view is that there are just a few companies who own assets that are likely to become viable copper mines, and these companies will command premium values due to scarcity. One of them that we owned was bought out even before the cycle started. Below is a case study on one of our current top holdings. In January 2018, I accompanied what most investors would regard as Mining Royalty to South America to conduct a site visit on a few copper development assets. These assets were identified by the head of the family about twenty years earlier through a mapping exercise that pointed to major geographic gaps in world-class copper mines that were likely hidden due to the inaccessibility of potential sites. The trailblazing mining family who hosted us had jumped on horseback with a couple of geologists to investigate and, sure enough, found examples of copper minerals staining the outcropping rocks. Very rarely would you see this type of visual anywhere in the world, as they would have been mined by the first to see it. During my visit, it was obvious to me that this asset was something very special, but it would take time to realize value because it confronted certain challenges, including elevation in the Atacama Desert, remoteness, and the need to find the right type of market to garner the appropriate interest. We agreed to participate in a financing priced at $2.60 and understand the Fund was one of the larger investors outside of the Family (they typically write a check up to 50% of any financing they announce). Even though modest progress was made over the years due these short-term challenges, the stock really never saw the high of the financing price over the next three years. With all the ingredients primed and catalysts that occurred this quarter, the stock shot from below our cost to double digits over a six-week period (you can never forecast timing!). I believe that this will likely be one the most memorable companies of this copper cycle when all is said and done. This is a classic case where preparation meets opportunity albeit with the requisite patience to build a company and an asset base. This quarter also saw another takeover in one of our portfolio holdings which is now averaging one a quarter. This is all before the world is fully opened for more aggressive M&A. At the end of the quarter, the Fund holds 1% cash and 12% in short positions. March 31, 2021 Commentary Our last commentary outlined the recent tactical portfolio shift encompassing the allocation to modest positions of smaller companies that would benefit from the current distinctive fund flow environment. This strategy has paid off, contributing to one of the highest historical monthly returns in the Fund this quarter. While some of these investments have been monetized, others have not since they still have large upside potential, though they will of course be exposed to quick and capricious changes in market sentiment due to their less liquid nature. The environment and climate change are major themes that are resonating with market participants (especially as the Biden Administration heavily promotes its “The Green New Deal”). While Electric Vehicles are a central focus of this theme, ancillary areas in battery storage, infrastructure, and other energy generation and distribution are creating a secular opportunity. Understanding battery chemistry is an important filter to determine where the best prospects lie. Several years ago, I spent some time with the Materials Engineers at Tesla’s facility in Freemont, California. They presented their impressive technology roadmap followed by a detailed discussion about evolving battery chemistries. Importantly, the likely substitutability of various minerals in those chemistries highlighted the potential upstream mineral acquisition opportunities. Our networks and long experience as investors in the mineral extraction sector are creating unique and sometime exclusive opportunities to expose the Fund to some of these upstream trends. This quarter presented a good example as one of our long-term holdings related to this theme received a 70% takeover bid premium. The Fund maintains a 30% holding in gold, a sector that continued to struggle this quarter. A few years ago, when cryptocurrencies and particularly Bitcoin arrived on the scene, there were suggestions that they may be substitutes for gold. While I felt that was implausible at the time, today we are seeing inaugural allocations to Bitcoin by large capital allocators, generally at the expense of gold allocations. While it is not a true substitute for gold, fund flows’ obvious bucket to re-allocate to Bitcoin has come from gold. The major factor influencing gold price is the real yield and there is a strong correlation to the fluctuations in real yields. What then happens to gold and gold equities? My view is that gold prices will remain at reasonably elevated levels, around the levels they are today with potential spikes either way. The equities are in an interesting position, as the large producers have become good, sustainable, and accountable businesses. Some of these producers are now paying compelling dividends and will garner interest from longer term investors as the sustainability of these business models prove out. This strategy will be at the demise of exploration budgets for these producers. This will then, potentially create an analog like the old Oil and Gas Income Trust model that existed in Canada. This is where the Income Trusts would distribute a predictable income yield at the expense of a declining reserve base, then acquire smaller Exploration and Production companies to maintain or expand reserves. The most lucrative part of that model was for the entrepreneurs and associated investors that repeatedly started new E&P companies from scratch and built up to a production base of 5-10,000 barrels/day that would fit nicely into the mold of various Income Trusts. In that case, the gold exploration companies transitioning into developers then producers will similarly be the most lucrative part of the curve for the new realm of the gold sector, although the cycles will be a little longer for the mining companies by the very nature of the development process. We hold a few high-quality companies like these in the portfolio. M&A has selectively been occurring, including our first meaningful takeover in the portfolio in some time. The environment is ripe for transactions to occur and as Covid restrictions start to loosen, we believe we will see a wave of consolidation occur in the mining sector with some of our portfolio investments as likely candidates. At the end of the quarter, the Fund holds 0% cash and 12% in short positions. December 31, 2020 Commentary As a result of the prevailing market conditions and the forecast of a major cyclical opportunity, the Fund has implemented its first significant tactical change in about a decade. That is, historically, the Fund has always had a highly concentrated portfolio including at times, the top five holdings representing almost half the Fund (which of course explains the higher volatility of the returns). Today, the implemented program has seen the top five drop to about a third of the portfolio (still highly concentrated relative to most other funds), in favour of taking a portfolio approach of more modest allocations to smaller companies with prospects of multi-bag potential over the forecasted period. The fund flows expected to come into the commodities sector will have a large impact on stock prices as it is a relatively small sector. As we are seeing initial early positioning of this trend, additional evidence of this theme is being voiced by giant investment banks like Goldman Sachs which suggested last month that we are in the “very early stages of a commodity super cycle that will last for years”. Whether it be the reflation argument or the shift to Value over Growth, our continuous informal survey of market participants is confirming the case. Part of the above tactical shift has seen the portfolio allocation of gold equities drop from its historical high of above 60% to just above 40% during the quarter.