This is a complete transcription of the interview. 

Tom Wallace: Ladies and gents, welcome to Joining me today on the sidelines of the 2017 Sprott Natural Resource Symposium, is Brad Farquhar, the Director, Executive Vice President, and Chief Financial Officer of Input Capital Corp. Before founding Input, he was one of the founders of Assiniboia Farmland, which was eventually sold to the Canadian Pension Plan Investment Board, and delivered a stunning 19% internal rate of return from 2005 to 2013.

He's a trained financial planner, and has a Masters in Public Administration in Electoral Governance from Griffiths University in Australia. Brad is also a Director of Mongolia Growth Group, Greenfields Carbon Offsetters, and Chair of the Board of Directors of SIM Canada. Today he's going to talk to us about how Input Capital has applied the streaming model to agriculture, specifically Canola, and how the company is positioning itself for explosive growth within the Canola market.

So, sit back, relax, and enjoy the interview.

Tom Wallace: Brad, thanks for joining me.

Brad Farquhar: Good to see you.

Tom Wallace: When it comes to publicly listed agricultural companies, and the range of investment options that investors have available to them, especially in the small to mid caps, there's not really that many, and especially when it comes to directly participating in Canola, I'm not sure any investor would know how to do that.

I think that, that's where your company has positioned itself to take advantage of the Canola market. Can you talk about the supply and demand of the Canola market? Why should investors care about Canola?

Brad Farquhar: Sure, that's a great question. I often talk to investors and tell them, or ask them if they've been staying awake at night, trying to think how to get Canola in their portfolio, and most aren't, but and certainly the vegetable oil business, if I said "Hi, my name is Brad, and I'm in the vegetable oil business" that doesn't seem like a very exciting place to be, but there are some really great fundamentals in behind in the industry that people should know about, and it's really a combination of both supply and demand characteristics.

I'll start with demand. In China, China is our most rapidly growing customer for Canadian Canola, and what I think investors need to know is that Canada supplies 70% of the globally exported Canola, so we're like the Saudi Arabia of Canola in the world. If you need Canola, and you don't grow it or you don't grow enough of it, you have to come to Canada to get it. That's what the Chinese have been doing.

So, over the last decade, the Canola Council of Canada has really expanded, has made a foothold in China that's really grown. So, we had been talking about China, and how demand is really growing there, and that's driven by a growing middle class that's interested in quality food. They trust Canadian products, and there have been food scandals in China that lead people to not really trust their own domestic supplies, and that leads them to go to other trusted markets.

The other place where we're seeing a lot of growth is in the US, and it's in a way it's regulatory driven. The Food and Drug Administration is working to ban trans fats in American food, and there are a lot of processed foods that are made with trans fatty oils, it's one of those things on the list of ingredients that not a lot of people pay attention to, but they really want to get them out of the food supply.

So, they have effectively endorsed Canola as the go-to replacement oil for healthy oil, to replace those trans fatty oils, so Canola is making really significant in-roads in the US as companies convert from whatever oil they were using before, to Canola oil.

So, we've seen that first in the deep fryers of McDonalds, Arby's, KFC, they've converted to Canola oil, and now we see it at the ingredient level where it's working its way into the processed food space. So, that's a reason why Canadian crushers, who, if you go back probably more than five years ago, perhaps only 20% of Canadian production was crushed, and today 50% of it is crushed domestically and shipped to the US, with the other 50% being shipped to China as seed where they will crush it themselves, and distribute it among, across the country.

Other key markets are Japan and Mexico, and those are good stable long term customers for Canada. On the supply side, farmers have reached the point where there aren't really more acres that can be dedicated to Canola. For rotational reasons, and agronomic reasons, we're kind of at the max, and so for yields to grow, it has to be done through better science and better agronomy, rather than just growing more acres, and that takes capital. It's applying science to your farm, is capital intensive. It means more intensive agriculture, and that's a cost that not a lot of farmers are well set up to deal with today.

It will have its rewards, because it will result in higher yields, but if you have limited resources, that sounds like a nice idea until you can find a way to get the money together. So, what Input has to offer fits into this market. We are an aggregator of Canola, and we regularly have, especially foreign buyers of Canola, calling on us to say "How do we get closer to the farmer, and go around some of these middle men?" What we're doing is we're aggregating supply from farmers with a direct connection at the farm gate level, in multiple year contracts.

So, we will build up what we can Canola reserves to the point where we think we can extract additional value in the market place on behalf of other types of buyers, or strategic buyers, maybe global commodity trading houses that are interested in entering those sorts of relationships. At this stage, we're still a small company. We're a fraction of a percent of market share, but as we grow, there will be some really good reasons why others will want to take a good look at us.

Tom Wallace: Yeah, can you tell us all about how Input came about? How you had the idea for the streaming model for the company.

Brad Farquhar: Yeah, sure. So, a little history. In 2005, Doug Emsley, who's the CEO and myself, started Farmland Investment Fund. Gord Nystuen, who's our third co-founder, was involved as a consultant at that stage, and he was a former Deputy Minister of Agriculture in Saskatchewan, and grew up on a very large farm. So, it was very, had a, really a lot of experience in the policy, and the production end of the business. So, we worked together to create the largest Farmland Investment fund in Canada. We started very small but grew it over a number of years to own 120 000 acres of farmland in Saskatchewan, and we sold that in 2014 to the Canada Pension Plan.

As a result of owning all that land and renting it to farmers, we developed relationships with those farmers, and we saw that they were under a lot of pressure, financially, because of the rising cost of farming, and working capital was a hard thing for them to finance. It was easy to finance farmland, it was easy to finance equipment purchases, but it was very difficult to finance working capital.

Cropping the field, or cropping the bin, didn't have a lot of value as security with the bank, and we saw a potential opportunity to raise capital, because we were well known on Bay Street in Toronto, where we'd raised money for farmland, we knew we could raise the capital, and we were wondering how could we put, how could we develop a way to invest in farmers and get a return, make it fit both the legal constraints of what public companies can do in agriculture, and especially when that comes to farmland ownership and that kind of thing.

Most family farms aren't looking for outside equity investors, so that wasn't really an option, and so we tried a number of things for a couple of years, and realised that what we were trying to do is a whole lot like a streaming company. I had become an investor in a company called Silver Wheaton, which is now called Wheaton Precious Metals, and I liked the model, and I came to realise that what we were trying to do was very, very similar, and that sent us back to the drawing board to say "Okay, what would it look like if we made an agriculture streaming company? Could it be done?"

We took the basic elements of that metal streaming business, and applied it to Canola farming, and found that farmers were interested, and that it worked. So, we've built a business on the strength of that over the last five years.

Tom Wallace: You know, you just covered my next question which was, I was going to ask you, you have the very interesting streaming model for the business, but you've managed to accumulate quite a few streams in not that much time. You're now up to 303. Can you talk about how you achieved that so quickly, and is that rate of growth sustainable over the long term? How much market penetration have you got, verses how much is out, how much ability do you have to grab more?

Brad Farquhar: Sure, that's a great question. You know, we have, as you said, we have 303 revenue producing streams today. That's an interesting data point. Actually, here at this conference, a number of streamers are presenting, and one thing I've noticed is that Input Capital has more revenue producing streams than any of the publicly traded streaming companies that are out there, in any sector. That speaks a little bit to our model, because there are some similarities, and there are some differences between how our business works, and how a metal streaming business works.

So, we've gone from zero streams five years ago, to 303 today. It's really started with a lot of leg work, and a lot of, Gord in particular, who's our, the face of our company to farmers, putting in a lot of time driving around Western Canada, meeting with farmers, and putting deals together, and we've learned a lot along the way, and one of the things that we've learned is that it's important not to stream too great a percentage of a farmers production.

The farmer might want a big up front payment, but that could mean he would need to commit too great a percentage of his production, and things will go fine for a couple of years, but it might deteriorate after that. So, the alignment of interests is very, very important, and the metal streamers have found the same thing. It's important not to stream too much of a mine's production.

So, we've made some tweaks to the business along the way, and we've also built up a track record of selling Canola at prices that are significantly better than what the farmer can do by themselves, and that led us to create a new kind of stream this last January that we call a marketing stream, and that marketing stream allows a farmer to essentially piggy back on our Canola marketing efforts, and get a better net price for his Canola, even after Input gets it's share of the marketing dollars.

So, that's a very exciting development for us, and that's led to an acceleration in our client acquisition. We've added over 160 streams in the last six months as a result of those marketing streams.

Tom Wallace: Yeah, can you talk about the revenue and the cash flow?

Brad Farquhar: Yes, well, revenue is highly correlated obviously to Canola volume, and in the, it's, this is the kind of company, as farming is, that you really don't look at on a quarter to quarter basis. You look at it on an annual basis, and so we will sell this year somewhere between 62 and 65 thousand tonnes of Canola. That's up a little bit from the previous 12 month period.

So, let's just take 60 thousand tonnes at about $500, so the math will work out, and that gets close to 30 million dollars in revenue on a 12 month basis. So, that's roughly where we are today in terms of revenue. A lot of that sticks to Input as cash flow, and so we'll end up doing a cash flow somewhere in the high teens, maybe close to 20 million dollars on the year, which is getting us into the 20, 21, 22 cents per share range.

So, we, while the important thing is about our business, is that with an agriculture stream, every stream generates revenue for Input in the first year of that business, and in attending some of these other sessions here today, I've seen, I was aware of this data, but it was reinforced by some of the comments that, a lot of these metal streams take 2, 3, 4, sometimes 6 or 7 years, to generate revenue, and so there are a lot of things that can happen between making that investment, and actually seeing any cash flow.

The cash flow will be quite strong once it comes on, but there are a lot of risks that, maybe that mine will never open, and lots of things that can happen. So, we really like the predictability that comes with that. We're able to under write at significant rates of return based on a conservative set of commodity price assumptions, and so that means we can really compound our growth very quickly, and that we, my estimate, conservatively, is that we should be able to grow at about 20% a year, for as long as we want to, and do that with internally generated resources.

So, rather than being a mining speculation where random holes are being punched in the ground, when we do a deal we're never going to see revenue. We'll have a payback period in less than three and a half years, and we'll have a strong return from that. And then if Canola prices go up, because we've talked about supply and demand, that accrues to Input as well.

So, that's the optionality that we have in our business from this long term book of contracts, is that if Canola prices rise, Input benefits significantly, and all of those extra dollars fall straight to the bottom line.

Tom Wallace: How much cash have you guys currently got?

Brad Farquhar: Yeah, so at the end of the last quarter that we reported, so that was March, we'll report another quarter here in the next couple of weeks, the June quarter, we had 17 million dollars in cash. We also have a revolving line of credit from HSBC bank, that had about 23 mill- It's a 25 million dollar instrument, and as of the end of March, we'd only drawn a couple of million dollars from that, and so we've got significant resources available for deployment in two new streams, and we're coming now so we're sitting here at the end of July, we're about, let's say six weeks away from harvest, and it's harvest time when our revenue really starts to flood in.

So, in that September, October through December period, and then some into the new year, we'll end up doing between 30 and 40 million dollars in revenue. So, when we add the cash flow from operations, our existing cash, and our revolver, we're well financed to carry out our deployment plans for the foreseeable future.

Tom Wallace: Yeah, Input started paying in dividend. Can you give us the details about that?

Brad Farquhar: Yeah, so last December we announced the dividend. We pay one cent per quarter, so four cents per year. Our stock trades in at around the two dollar range, so it's about a two percent yield. Our, going back to the beginning of the company, our philosophy has always been that at some point the company would reach a stage where we could fulfil our business plan, and pay a dividend, and that we would not plan to just stack up cash needlessly if there wasn't a deployment plan for it.

Ultimately shareholders are, it's shareholders money, and we believe shareholders are better allocators of excess capital than companies. Often that makes executives go off hunting for crazy projects, and we want to stay disciplined on the business that we're in, and we think that helps impose a discipline on us as- We're also large shareholders, so we don't mind a dividend because we, one a combined, as insiders we own 27% of the business, so our interests are nicely aligned with shareholders in that respect, and we can continue to pay the dividend, and grow the company without one infringing on the other.

Tom Wallace: Yeah, in regards to shareholders, what about institutional ownership?

Brad Farquhar: Yeah, so institutional ownership has ebbed and flowed over the years. It really started to pick up two years ago. We did have a couple of contracts go bad in November of 2015, and that sent quite a few institutions to the side lines for a while, to wait and see what would happen. We've always, almost from the beginning, had an institutional shareholder called XL Catlin, they've been in the last few months, because of what I understand to be a change in their investment mandate, reducing their position, and so they own about 10% of the business, and other identified institutions that we know of own a few more percentage points.

We're probably at the low end of the institutional ownership end, maybe 15 or 20%. Then, of course, insiders own 25, 27%, and that leaves a significant portion in retail investors hands. When we raised our first 25 million dollars to start the company, that entire 25 million came from institution- Or from retail shareholders, sort of high net worth retail, and we know from conversations with many of those shareholders and their advisors, that many of them continue to be shareholders today, and have never sold a share.

So, we're very encouraged by the loyalty that we've had from our shareholders. We are always working to attract more institutional holders, because obviously they're orders, or their buying tickets, are for larger volumes, and gradually that should help to increase demand for our stock and rising demand is always good for share price.

Tom Wallace: Yeah, you got a pretty heavy hitting management team. Can you talk about the members of the management team? Their experience, what they bring to the table?

Brad Farquhar: Sure. So, there are three co founders on our, that you see in our presentation decks. Doug Emsley, our CEO, used to be in the oil and gas business, and has built and sold a number of companies, in security, and oil and gas. He was a member of the board of the Bank of Canada, which would be the equivalent of the US Fed here in Canada, and is a well respected member of the Regina business community. Our bonafide use in agriculture came from our farmland investment business that we sold to the Canada Pension Plan, and Gord Nystuen, I talked a bit about him. He was the former Deputy Minister of Agriculture and Chairman of Saskatchewan Crop Insurance, which gives some really deep understanding of farming and how that works at the grassroots level, as well as the policy level.

On our board, when we were preparing to go public, we knew that it would be important to build out a really solid board that investors could place their confidence in, because we may be well known in our local area, but we're not necessarily, we don't have national profile as management. So, we recruited some really top notch, blue chip board members, and I'll just give you a couple of highlights.

David Laidley is the Chairman of Emeritus, so the retired Chairman of Deloitte Canada. One of the top accountants in Canada. Also was Lead Director of the Bank of Canada Board for a number of years, and sits on a number of boards. Another David, David Brown, is the former Chairman of the Ontario Securities Commission. He's a lawyer, a corporate lawyer, well known in the capital markets, and just brings a lot of wisdom and governance experience to our board, and we knew that would be important as well.

We have the former Minister of Agriculture and Finance from Saskatchewan, he was Minister in the 1980s, he's a veterinarian and a farmer in his own right, and heavily involved in the agriculture industry for his entire career, Lorne Hepworth is his name, and then John Budreski from right here in Vancouver, is sort of colloquially known as Mister Streaming in Canada. He's on the board of Sandstorm Gold, one of the metal streamers, and also on the board of Alaris Royalty, and CEO of a little company called Morien Resources, which he's gradually turning into essentially coal royalty business.

John is a former investment banker, and so brings a lot of good investment banking and market experience and advice to our board. So, it's a nicely well rounded team and combination of finance backgrounds, and accounting, auditing, governance, and investment banking, and then agriculture, and it's worked really well. We have a great team, and I think its been part of the key to our success.

At the less visible level, we've, working in behind the scenes, we've got our really great crew of leaders now in the company who lead their own departments. Whether that's in our corporate development department, or our green marketing logistics, and finance and accounting, they'll be the next generation of leaders at Input Capital, and we've go the a good team there that really keeps a good handle on the business at the operational level, and really pleased to see how things have built themselves out.

So, now we have about, what are we, 17 employees in the office, and 10 sales people in the field, and it's a nicely built out team that now we can grow from without adding more people. So, I think we can be 3, 4, 5 times our size, without really adding more than another clerical position or two, which means we get enormous leverage to the structure that we've put in place today as we grow.

Tom Wallace: Brad, where can investors find out more about Input Capital?

Brad Farquhar: Yes, well we have a website, as every company does, You can get there a little faster to our investor website at There are corporate presentations there, and profiles of who we are and what we do, our financials, and the transcripts and audio files from our conference calls, and so on. We pride ourselves on our relationship with shareholders, and so a lot of that falls to me as CFO, and I'm very open to getting phone calls, emails from investors, and we always make sure those get answered quickly, and we try to be as transparent and open as we can within the constraints of being a public company, and public disclosure requirements.

So, I do invite investors to be in touch. We always like to hear from our shareholders.

Tom Wallace: No worries. Well, thanks for taking the time there man.

Brad Farquhar: Well, thank you very much.

Tom Wallace: Cheers.

Brad Farquhar: Appreciate the opportunity.

Tom Wallace: Ladies and gents, you can find all the links for today's interview in the description box below. I'd highly encourage you to visit and familiarise yourself with the agricultural streaming model, as I guarantee you that the company will start to attract serious institutional interests as they continue to add more Canola streams. Don't forget to head over to, and register to become an insider, and if you enjoyed this interview, and would like to see more of them, be sure to subscribe to this channel. I'll speak to you all soon. 


Tom Wallace