September 29, 2022 | 16:00 ET~  

  
Base Carbon
 
BCBN-NEO Carbon Innovation
  Rating
Outperform(S)
Price: Sep-28
$0.43
Target
$1.25
Total Rtn
191%
Rachel Walsh, CFA Analyst
  rachel.walsh@bmo.com (403) 515-1517
Legal Entity: BMO Nesbitt Burns Inc.
Initiating Coverage With an Outperform  
 
(Speculative) Rating 0.90
2YR Price Volume Chart

0.80
 Bottom Line: 0.70

Base Carbon remains one of the few ways to invest in the voluntary carbon market 0.60 6

(VCM) through public equity which we believe is slated for impressive growth. Investors 0.50 4

should be aware of unique market risk factors laid out in our deep dive. We initiate 0.40 2

coverage of Base Carbon with an Outperform (Speculative) rating and a C$1.25 0.30
Sep
0

target price. LHS: Price (C$) / RHS: Volume (mm) Source: FactSet

  Company Data in C$
Key Points
Yield 0.0% Shares O/S (mm) 127.7
 
VCM exposure through a layer of due diligence. Given the opaque nature of the EV (mm) $12 Market Cap (mm) $55
market, challenges with liquidity, and nuances involved in carbon credit quality Net Debt (mm) $(31)
analysis, direct investment is likely unpalatable for the average investor. However,
BMO Estimates in $
investors can gain exposure to potential market growth and price appreciation through
(FY-Dec.) 2021A 2022E 2023E
investments in royalty and streaming vehicles, which have built-in market expertise.
We see potential growth for the VCM reaching 6.5x by 2030 and 17.4x by 2050, relative EPS $(0.04) $(0.05) $0.12
to 2020 VCM volumes. CFPS $(0.04) $(0.03) $0.13
Upcoming catalysts. With cash on the balance sheet, we believe Base Carbon will EBITDA $(0) $(4) $16
announce additional upcoming stream agreements, which we expect should have a ND/EBITDA (15.5)x 8.1x (2.5)x
positive impact on the stock. The company has telegraphed that it is working on a
Consensus Estimates
reforestation stream that we would view positively, as we consider this to be one of
2021A 2022E 2023E
the highest quality project types within nature-based carbon solutions.
EPS $0.03 $0.03
Valuation inexpensive. Base Carbon trades well below its NAV on our estimates at
0.4x and below its royalty and streaming peers at 1.1x. The NPV of the company’s two Valuation

existing stream agreements are in excess of its current share price, ignoring its ~US$40 2021A 2022E 2023E
million net cash position. EV/EBITDA NM NM 0.7x
Investment risks. We believe sources of investment risk include carbon credit delivery QTR. CFPS Q1 Q2 Q3 Q4
risk, carbon credit marketing risk, and liquidity risk in the stock. We discuss these risk 2021A $0.00 $(0.01) $(0.00) $(0.03)
factors in depth throughout the report.
2022E $(0.00)a $(0.01)a $(0.01) $(0.01)
2023E $(0.01) $(0.01) $0.13 $0.02

Notes : All information in USD, excluding target price and current

price which are in CAD

Our Thesis
Base Carbon remains one of the few ways to gain
exposure to potential growth and price appreciation
in the voluntary carbon market. With its inexpensive
valuation, relatively low-cost structure, built-in expertise
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not
in the carbon space, and strategic partnerships, we
registered as a research analyst(s) under FINRA rules.
For disclosure statements, including the Analyst Certification, please refer to page(s) 20 to 23. believe it is positioned well in the space.
 

Base Carbon - Block Summary Model

Income Statement 2021A 2022E 2023E

Revenue $0 $0 $21
Operating Expenses 0 0 0 Valuation
Gross Margin 0 0 21 Given the early-stage nature of the company, our target
price is based entirely on our NAV estimate of C$1.25 per
EBITDA $(0) $(4) $16
share.
Net Income (0) (7) 15
Adjusted Net Income (0) (7) 15 Upside Scenario $2.00
Our upside scenario assumes that Base adds additional
EPS (diluted) (0.04) (0.05) 0.12
streams to its portfolio, increasing our NAV to C$2.00 per
Adjusted EPS (diluted) $(0.04) $(0.05) $0.12 share.

Cash Flow Statement 2021A 2022E 2023E

Downside Scenario $0.25
Cash Flow from Ops (before ∆ WC) (0) (4) 16 Our downside scenario assumes that Base streams
Change in Working Capital 0 (6) 0 underperform and that delivered credits become
challenging to market.
Cash Flow From Operations (0) (10) 16 in CAD
Cash Flow From Investments 0 (10) (8)
-42% +191% +365%
Cash Provided From Financing 0 5 0
Change in Cash 0 (16) 8
Downside Current Target Upside
Cash at Beginning of Period 0 47 30 Scenario Price Price Scenario
0.25 0.43 1.25 2.00
Cash at End of Period 0 30 38
Balance Sheet 2021A 2022E 2023E Key Catalysts
Total Current Assets 0 32 39 Key catalysts include the announcement of future stream
agreements including a potential reforestation stream that
Total Assets 0 54 70 was telegraphed before year-end.
Total Current Liabilities 0 0 0
Company Description
Total Liabilities 0 0 0
Base Carbon, Inc. provides financing solutions and
Share Capital 0 55 55 development expertise to the global voluntary carbon
Retained Earnings (0) (2) 12 market. It seeks to utilize technologies within the evolving
carbon industry to enhance efficiencies, commercial
Total Shareholders' Equity (0) 54 70 credibility, and trading transparency.
Total Liabilities and Share Equity 0 54 70
Source: BMO Capital Markets, Company Reports

BCBN-NEO Glossary Company

Research   Models

 
Base Carbon | Page 2 September 29, 2022
 Initiating Coverage With an Outperform (Speculative) Rating

Given the company’s Base Carbon Inc. was developed to be a preferred partner for carbon projects, providing capital and
inexpensive valuation, development resources to projects involved in the voluntary carbon market (VCM) and broader ESG
relatively low cost economy. The company remains one of the few ways to invest through public equity in the VCM, which
structure, expertise in the we believe is slated for impressive growth; however, investors should be aware of the unique risk
carbon space, and factors that exist in this complex market as laid out in our deep dive, The Voluntary Carbon Market:
strategic partnerships, we International Market of Mystery.
view this name Base Carbon is currently trading well below its NAV on our estimates, which we feel are conservative.
favourably in the carbon
We initiate coverage of Base Carbon with an Outperform (Speculative) rating and a C$1.25 target price.
streaming and royalty
Given the company’s inexpensive valuation, relatively low cost structure, expertise in the carbon space,
space.
and strategic partnerships, we view this name favourably in the carbon streaming and royalty space.

Investment Attributes

 VCM exposure through a layer of due diligence. Given the opaque nature of the market, challenges
with liquidity, and nuances involved in carbon credit quality analysis, direct investment is likely
unpalatable for the average investor. However, investors can gain exposure to potential market
growth and price appreciation through investments in royalty and streaming vehicles, which have
built-in market expertise. We see potential growth for the VCM reaching 6.5x by 2030 and 17.4x by
2050, relative to 2020 VCM volumes.

 Upcoming catalysts. With cash on the balance sheet, we believe Base Carbon will announce
additional upcoming agreements which we expect should have a positive impact on the stock. The
company has telegraphed that it is working on a reforestation agreement, which we would view
positively, as we consider this to be one of the highest quality project types within nature-based
carbon solutions.

 Valuation inexpensive. Base Carbon trades well below its NAV on our estimates at 0.4x and below
its royalty and streaming peers at 1.1x. The NPV of the company’s two existing stream agreements
are in excess of its current share price, ignoring its ~US$40 million net cash position.

Investment Risks

 Delivery risk. Credit delivery from project developers is not guaranteed and can be affected by
multiple factors, including delayed issuance and project performance, limiting or delaying volumes.
However, we believe that Base Carbon is currently partnered with high-quality project developers
with expertise in their specific project categories along with the project validation processes. We
have high confidence in our estimates with Base Carbon’s projects currently ahead of schedule.

 Marketing risk. Base Carbon will be responsible for marketing credits to end buyers for retirement.
Any inability to market credits, including delays, will impact Base Carbon’s revenues. Given the
company’s current terms of agreement, especially regarding its Vietnam agreement, and strategic
partnerships, we believe the company is actively mitigating this risk. We believe a portfolio of high-
quality credits (removals, SDG benefits, etc.) should be easier to monetize, on a relative basis.

 Liquidity. Base Carbon currently has inside ownership of 36.2% (including Abaxx) with institutional
holders owning an additional 27.7%. Given the relatively small market cap (C$60 million), we
believe liquidity could be a challenge.

Base Carbon | Page 3 September 29, 2022

 Valuation: Plenty of Upside Potential

NAV of C$1.29/share

We provide our estimate of Base Carbon’s NAV in Exhibit 1. With ~US$40 million cash on the balance
sheet, we expect the company to add further carbon credit agreements near term. Current project
agreements alone represent US$0.61/share or C$0.83/share of the company’s net assets, which is
above the current share price. When including cash on the balance sheet and equity investments, we
estimate the net asset value of the company at C$1.29 per diluted share. Given the early-stage nature
of the company, our target price is based entirely on net asset value. Base Carbon is currently trading at
0.35x NAV on our estimates, which we believe are conservative. Details on our assumptions can be
viewed below in our asset overview summary.

Exhibit 1: Base Carbon NAV Breakdown

Base Carbon
Project Type Ownership Credits (mm) PV (US$mm) US$/sh
Vietnam Household Devices Cookstoves 89% 26.6 $56.9 $0.45
Rwanda Cookstoves Cookstoves 89% 7.5 $21.3 $0.17

Total Stream PV (AT) $78.3 $0.61

Equity Investments $12.7 $0.10

Royalty ($6.9) ($0.05)
Net Debt $37.8 $0.30
Options Proceeds $0.0 $0.00

Net Asset Value $121.8 $0.96

C$164.7 C$1.29
P/NAV 0.35x

Source: BMO Capital Markets

Royalty and Streaming Peer Comparables

NAV well below peers. As shown in Exhibit 2, Base Carbon currently trades at 0.4x NAV, below its royalty
Base Carbon currently and streaming peers at 1.1x. Notably, the company’s net cash position will exceed its current market
trades at 0.4x NAV, below cap on our estimates in 2024 and 2025, leading to a negative EV/EBITDA multiple in both years as
its royalty and streaming shown in Exhibits 3 and 4. We estimate that EBITDA will be US$20 million in 2024 and US$14 million in
peers at 1.1x. 2025.

Base Carbon | Page 4 September 29, 2022

 Exhibit 2: P/NAV trading below the group

2.5x
Median

2.0x

1.5x

P/NAV
1.0x

0.5x

0.0x

BCBN

RGLD
GROY

FNV
TFPM

OR
MTA

MMX

WPM
NETZ

SAND
Source: BMO Capital Markets
Note: BMO Capital Markets is Restricted on SAND

Exhibit 3: 2024E EV/EBITDA

>30.0x

>30.0x
35.0x
Median
30.0x

25.0x
2024E EV/EBITDA

20.0x

15.0x

10.0x

5.0x

0.0x

-5.0x
PSK

RGLD
BCBN

GROY
TPZ

FNV
MMX

TFPM

OR

MTA
FRU

SAND

NETZ

WPM
Source: BMO Capital Markets

Exhibit 4: 2025E EV/EBITDA

25.0x
Median
20.0x
2025E EV/EBITDA

15.0x

10.0x

5.0x

0.0x

-5.0x
PSK

RGLD
BCBN

GROY
TPZ
MMX

FNV
TFPM

OR
MTA
FRU

NETZ

WPM
SAND

Source: BMO Capital Markets

Base Carbon | Page 5 September 29, 2022

 Asset Overview
Base Carbon’s current asset portfolio consists of two agreements, whereby Base Carbon will provide
upfront capital to a project developer for a long-term offtake of carbon credits. Upon delivery, Base
Carbon will be responsible for marketing and selling those credits to end buyers (see Exhibit 5). In
addition to credit marketing, the company will also provide operational expertise for project
development along with integration of a suite of infrastructure tools that could be utilized for
monitoring, among other things.

Exhibit 5: Agreement Structure

1. Upfront payment

4. Sale of credit 2. Project

to end buyer Project development
Base Carbon
Partner

3. Delivery of
credit

Profit Sharing

Source: Company Reports, BMO Capital Markets

Delivery risk of carbon credits from the project developer should be well understood by investors. Partial
delivery or untimely delivery are possible and could be caused by delayed issuance, project
underperformance, and government interference. Delayed issuances are becoming increasingly frequent
in the space with growing demand for project validation/verification combined with the shortage of
human capital at the registries and validation/verification bodies; however, Base Carbon’s current
projects are on track or ahead of schedule. In addition, the Rwandan project is an extension of an
existing registered project, making the validation and verification process more streamlined. While we
see marketing risk as a primary risk factor, Base Carbon has structured its largest offtake agreement to
include an end buyer (Citigroup), which we feel is prudent (see more details below). Base Carbon also
has the opportunity to monetize credits through its partnership with Abaxx, depending on pricing. We
believe that higher-quality credits will be easier to market, especially as sophistication in the space
grows. We believe that Base Carbon’s ability to find high-quality projects will be critical to its success.

Base Carbon | Page 6 September 29, 2022

 HCBL and Base Joint Venture, BCCPC

Exhibit 6: Current Carbon Credit Streams

Base Carbon Inc. (formerly

1287411 B.C. Ltd.)
(Ontario)

100%

Hardwick Climate Business

Base Carbon Corp. 49.9% Limited
(Ontario)
(England and Wales)

78% 22%

Base Carbon Capital Partners Corp.

(Barbados)

Source: Company Reports, BMO Capital Markets

Base Carbon has purchased a 49.9% equity stake in Hardwick Climate Business Ltd. (HCBL) through a
phased acquisition in order to add carbon market expertise to the business. To date, two phases have
been completed. The third and final phase, where all remaining shares of HCBL will be purchased, will
be contingent on certain undisclosed conditions being met. HCBL has a long history in the carbon
markets and has expertise in both voluntary and compliance markets as an advisor to sovereign entities,
multinational corporations, and institutional investment firms. The company’s Chief Operating Officer,
Philip Hardwick, is the Chief Executive Officer of HCBL. Together both Base Carbon and HCBL own the
joint venture Base Carbon Capital Partners Corp. (BCCPC), which will act as the vehicle that the company
will invest in carbon projects. Base Carbon owns a 78% equity interest in BCCPC while HCBL owns the
remaining 22%. Including its indirect ownership, Base Carbon has an 89% equity stake in BCCPC. Once
the third phase of the acquisition is complete, Base Carbon will own 100% of BCCPC.

Exhibit 7: Current Carbon Credit Development Projects

Source: Company Reports, BMO Capital Markets

Base Carbon | Page 7 September 29, 2022

 Base Carbon currently has two agreements for projects under development in Vietnam and Rwanda,
both representing household device projects. The Vietnam project includes credits produced from both
high efficiency cookstoves and water purifying devices while the Rwandan project consists of credit from
cookstoves. The company has suggested that it is working towards an agreement for a reforestation
project by the end of this year. We view this potential agreement as significant as it would add a
removal project to Base Carbon’s project portfolio, improving its portfolio from a quality perspective, in
our view (see our thematic for more details).

Exhibit 8: Credit Category

Removals

Nature-Based Tech-Based
-1.5
Rwanda
Cookstoves

Vietnam
Household
Devices
-1.5
Avoidance/Reductions
Note: Bubble size indicates volume
Source: Company Reports, BMO Capital Markets

While we view household device projects as high quality relative to other avoidance/reduction projects,
given the SDG benefits, we see a degree concentration risk within one project type and look forward to
Base Carbon diversifying its portfolio. That said, household device credits have seen strong interest over
the past few years and we expect that to remain over the investment term. We feel that the
concentration risk in this project category is largely mitigated given the short-term paybacks and
existing forward agreements with an arranged buyer.

These cookstove and water filtration projects reduce emissions by providing individuals in impoverished
communities with cleaner burning, more efficient technologies. In addition to reducing emissions, these
technologies require less fuel, creating cost savings for users. Air quality within households also
improves substantially as a result of these technologies, having a profound impact on the health of
these communities. While these projects have clear social benefits, there is performance risk if uptake
and adoption are lacking. Projects need to be implemented with incentives to help encourage use. We
believe this project type will continue to have robust demand given the compounding benefits provided
to the communities in which they are deployed.

Base Carbon | Page 8 September 29, 2022

 Exhibit 9: Cash Flow From Current Carbon Credit Agreements

$30
Vietnam Household Devices
Rwanda Cookstoves

Cash Flow (US$mm)

$20

$10

$0

2024E

2025E

2026E

2029E

2030E
2022E

2023E

2027E

2028E

2031E

2032E
Note: Cash flow to BCCPC
Source: Company Reports, BMO Capital Markets

The Vietnam stream is the most impactful from both a volume and cash flow perspective. Based on our
estimates, Base Carbon will be free cash flow positive by 2023 with a growing cash position thereafter.
With both projects progressing ahead of schedule, cash flows could be brought forward assuming
issuance occurs in a timely manner. We are confident that the revenue timing for the initial tranche of
the Vietnam stream will meet our conservative expectations given the details of the arrangement (see
below).

Exhibit 10: Portfolio Free Cash Flow Positive in 2023

$20
$15
Free Cash Flow (US$mm)

$10
$5
$0
-$5
-$10
-$15
-$20
2022E

2023E

2024E

2028E

2029E

2030E
2025E

2026E

2027E

2031E

2032E

Note: Net to BCBN after royalty, cash G&A, and marketing expenses
Source: Company Reports, BMO Capital Markets

Base Carbon | Page 9 September 29, 2022

 Vietnam Household Devices

On May 27, 2022, the company entered into an agreement, through BCCPC, with Sustainability
We believe this forward Investment Promotion and Development Joint Stock Company (SIPCO) for a household device project in
offtake agreement is Vietnam. The project is expected to generate 26.6 million credits over a 10-year period in exchange for a
prudent and essentially US$20.8 million investment by BCCPC. The project will manufacture and distribute 850,000 cookstoves
locks in payback on the and 364,000 water purifiers and cover certain costs related to distribution and monitoring. The project is
project, eliminating a currently registered under Verra and is undergoing validation.
large portion of
marketing risk. Notably, the first 7.4 million credits issued have a contractual offtake agreement between Citigroup
Global Markets Limited and SIPCO, where SIPCO will purchase the credits for offtake to Citigroup. The
remaining 19.2 million credits may also be sold to SIPCO through an option agreement or through the
VCM (or both). We believe this forward offtake agreement is prudent and essentially locks in payback on
the project, eliminating a large portion of marketing risk. Based on a credit price of US$10/T, the
company anticipates an IRR of 66% on the project, though the transaction price may vary (we believe
this scenario is likely conservative). We assume an initial credit price of US$10/T in our base case
leaving room for further upside. The drop in cash flow in 2025 is associated with the immediate
monetization from the initial tranche, followed by a 6- to 12-month marketing assumption for credits
delivered thereafter, which is likely overly conservative.

Exhibit 11: Vietnam Household Devices Summary

$24 4

Credit Volume Received (mm)

3
Cash Flow (US$mm)

$16

$8
1

$0 0
2022E

2023E

2024E

2025E

2026E

2027E

2028E

2029E

2030E

2031E

2032E
2022E

2024E

2025E

2026E

2027E

2029E

2031E

2032E
2023E

2028E

2030E

2033E

Note: After-tax cash flow to BCCPC, price escalation factor varies by quality of project type
Source: Company Reports, BMO Capital Markets

Rwandan Cookstoves

On January 25, 2022, the company entered into an agreement with developer DelAgua Group for
US$8.75 million, through BCCPC, to help fund the manufacturing, distribution, and monitoring of 250,000
fuel-efficient cookstoves in rural Rwanda. The project will be registered under Verra through VCS
methodology VMR0006 and Base Carbon is expecting the project to generate 7.5 million carbon credits
over the 10-year life. DelAgua has been active in Rwanda since 2012 and has deployed cookstoves to
over 600,000 households to date. Uptake and continued use of these devices are essential when
determining project performance and DelAgua has an impressive use rate of 99% after two years
though education and continued support.

Base Carbon has invested over US$4 million to date in the Rwandan project, with the balance being paid
upon project milestones. Approximately 54,000 cookstoves have been distributed so far with the rest
expected to be distributed by the end of 2022. Notably, this is an extension of an existing project,
somewhat de-risking the timing and complexity of issuance with the company expecting delivery of

Base Carbon | Page 10 September 29, 2022

 initial credits by mid-2023. We estimate a 6- to 12-month window for monetization following delivery
which is likely conservative.

Exhibit 12: Rwandan Cookstove Summary

3
$16

Credit Volume Received (mm)

$12 2
Cash Flow (US$mm)

$8

1
$4

$0 0
2022E

2024E

2025E

2026E

2027E

2029E

2031E

2032E
2023E

2028E

2030E

2033E

2022E

2023E

2024E

2025E

2026E

2027E

2028E

2029E

2030E

2031E

2032E
Note: After-tax cash flow to BCCPC, price escalation factor varies by quality of project type
Source: Company Reports, BMO Capital Markets

Strategic Partners

Base Carbon made a minor investment in AirCarbon Pte. Ltd (private) for US$1.1 million in 2021,
resulting in a 5% equity voting stake at the time for US$0.74/share. AirCarbon has since completed a
private financing round resulting in an updated valuation of US$0.87/share. As a result, Base Carbon
realized a US$0.2 million gain on the investment at fair value at the end of 1Q22. While the investment
is relatively minor, AirCarbon is an emerging company developing trading infrastructure for the
securitization of carbon credits, which we highlight in our thematic report. While we have listed the
investment at fair value in our NAV, we believe there could be additional upside as this aspect of market
matures.

Base Carbon has a strategic partnership with Abaxx Technologies, whereby the company has a right to
use Abaxx’s technologies and tools in exchange for a 2.5% royalty on gross revenue. The technology will
allow Base Carbon to develop a complete integration of carbon supply chain to exchange traded digital
assets, including measurement, reporting, and verification (MRV) tools to help provide real-time audits
of carbon activities. Abaxx owns 15.1% of Base Carbon allowing the two to be strategically aligned. The
advancement of Abaxx’s commodity exchange platform could drive demand for credits supplied by Base
Carbon as Abaxx users offset their cargo’s emissions footprint. This strategic partnership could eliminate
a substantial portion of marketing risk as a result.

Outlook: Significant Growth Ahead

Our forecasts. Our five-year financial summary for Base Carbon is provided in Exhibit 13. We expect that
revenue will be highly dependent on timing of delivered credits and the company’s ability to efficiently
market them. We estimate that credit sales will grow to 6 million by 2024. On our estimates, we expect
the company to start generating cash flow in 2023.

Base Carbon | Page 11 September 29, 2022

 Exhibit13: BMO Forecasts

2021 2022E 2023E 2024E 2025E

EPS (Diluted Continuing) (0.04) (0.05) 0.12 0.15 0.10
CFPS (Diluted) (0.04) (0.03) 0.13 0.16 0.11
DACFPS (Diluted) ($0.08) ($0.03) $0.13 $0.16 $0.11
EBITDA ($mm) ($0) ($4) $16 $20 $14
ROCE (%) nm -26% 24% 24% 13%
D/CF nm nm nm -2.5x -4.7x
Credits Sold (mm) - - 5 6 4

Source: BMO Capital Markets

Base Carbon | Page 12 September 29, 2022

 Management & Directors

Management

Michael Costa, Chief Executive Officer & Director – Mr. Costa has successfully built and overseen multiple
principal investment platforms as well as sourced, structured, and executed numerous public and private
debt and equity principal investments. He previously served as an Executive and Head Portfolio Manager
at CMP Funds (Dundee Corporation), UBS Canada Principal Investing, and Goldman Sachs Canada Special
Situation Group.

Wes Fulford, Chief Financial Officer – Mr. Fulford has 15 years of experience in investment banking and
asset management, most recently leading the Fintech and Financial Institutions investment banking
practice for Desjardins Capital Markets. During his career as an investment banker, Mr. Fulford has been
directly involved in financing and merger and acquisition transactions valued at over $7.2 billion.

Philip Hardwick, Chief Operating Officer – Mr. Hardwick has expertise in carbon markets having
participated in environmental markets’ growth over 20 years of investment banking and financial
experience in the field of energy and climate change. He previously held roles at J.P. Morgan and
Barclays as a Director. Currently, Mr. Hardwick serves as CEO of Hardwick Climate Business Ltd (HCBL), an
advisor to governments in Europe, Asia, and Latin America on matters of green finance, carbon markets,
and environmental economics.

Ryan Hornby, Chief Legal Officer – Mr. Hornby has extensive experience as both in-house and external
counsel advising on international joint venture, M&A, and corporate finance transactions as well as with
respect to various matters relating to corporate governance. Prior to joining Base Carbon, he was a
partner of Cassels Brock & Blackwell LLP.

Andrew Fedak, Chief Strategy Officer & Director – Mr. Fedak has successfully launched projects and
scaled companies in software, emission capture technology, natural resources, and environmental
impact. In addition to his role at Base Carbon, he is a founder and serves as Chief Strategy Officer (CSO)
at Abaxx Technologies and was a founder and executive at NoMoVo Emission Capture, Coffee Cherry Co,
Fiji Kava Co, Onvia, Avolo, and SunCommerce.

Svenja Telle, Director of Origination – Ms. Telle previously served as a Director at a Direct Air Capture
start-up and analyst at PitchBook, where she contributed to extensive financial research covering carbon
value chains, carbon utilization, and ESG. She further holds a doctoral research fellowship at the Gund
Institute for Environment and served as a climate policy advisor at the United Nations HQ where she
gained deep insight into carbon markets and regulatory processes.

Directors

Michael Costa, Director – CEO

Andrew Fedak, Director – CSO

Bruce Tozer, Director – Former Managing Director and Global Head of Environmental Markets at J.P.
Morgan

Margot Naudie, Director – Former Senior Portfolio Manager at TD Asset Management, Marret Asset
Management, and CPP Investment Board as well as co-founder of Abaxx Technologies Inc.

Catherine Flax, Director – Former Managing Director and Head of Commodity Derivatives, Foreign
Exchange and Local Markets, Americas at BNP Paribas and Chief Marketing Officer for J.P. Morgan

Base Carbon | Page 13 September 29, 2022

 Maryam Ayati, Director – Current CEO and co-founder of NEO Holdings and former Executive at Royal
Dutch Shell

Ownership

Base Carbon has a relatively large presence of insiders along with Abaxx Technology’s ownership.
Notably, billionaire mining mogul Robert Friedland has a 6% stake in the company.

Exhibit 14: Base Carbon Common Share Ownership, Basic

Abaxx Tech.
Insiders 15%
12%

Other Institutional
25%
Other
39%

Sentry Investments
Robert Friedland 3%
6%

Source: FactSet, Company Reports, BMO Capital Markets

Base Carbon | Page 14 September 29, 2022

 Conclusion: Initiating at Outperform (Speculative)
Base Carbon Inc. was developed to be a preferred partner for carbon projects, providing capital and
development resources to projects involved in the voluntary carbon market and broader ESG economy.
The company remains one of the few ways to invest in the VCM through public equity which we believe
is slated for impressive growth; however, investors should be aware of the unique risk factors that exist
in this complex market, as laid out in our deep dive. Base Carbon is currently trading well below its NAV
on our estimates, which we feel are conservative. We initiate coverage of Base Carbon with an
Outperform (Speculative) rating and a C$1.25 target price.

Base Carbon | Page 15 September 29, 2022

 Base Carbon Speculative Outperform Target Price C$1.25
Financial 2021 2022E 2023E 2024E 2025E Valuation 2021 2022E 2023E 2024E 2025E
EPS ($0.04) ($0.05) $0.12 $0.15 $0.10 P/E nm nm 2.9x 2.3x 3.4x
First Call consensus ($0.05) $0.03 nm P/CF nm nm 2.7x 2.1x 3.1x
CFPS ($0.04) ($0.03) $0.13 $0.16 $0.11 D/CF -0.8x 9.5x -2.5x -2.5x -4.7x
First Call consensus nm nm nm D/EBITDA -15.5x 8.1x -2.5x -2.5x -4.7x
EBITDAPS ($0.00) ($0.03) $0.13 $0.16 $0.11 EV/EBITDA -183.5x -3.0x 0.2x -0.4x -1.6x
DPS $0.00 $0.00 $0.00 $0.00 $0.00 EV/DACF -183.5x -3.0x 0.2x -0.4x -1.6x
ROCE (%) 239% -26% 24% 24% 13%
Long-term Liabilities (%) 17761% -138% -128% -133% -169% Dividend Yield (%) 0.0% 0.0% 0.0% 0.0% 0.0%
Earnings Payout Ratio (%) 0% 0% 0% 0% 0%

Income Statement ($mm) 2021 2022E 2023E 2024E 2025E Cash Flow Analysis ($mm) 2021 2022E 2023E 2024E 2025E
Attributable Revenue $0.0 $0.0 $21.4 $26.0 $19.1 Cash Flow from Ops ($0.1) ($3.3) $16.0 $20.3 $13.8
Marketing $0.0 $0.0 $0.0 $0.0 $0.0 Capex $0 ($10) ($8) ($8) $0
Op. Revenue $0.0 $0.0 $21.4 $26.0 $19.1 Dividends, net of DRIP $0 $0 $0 $0 $0
Free Cash Flow ($0) ($13) $8 $12 $14
G&A ($0.0) ($3.9) ($4.2) ($4.2) ($4.2)
Interest $0.0 $0.2 $0.0 $0.0 $0.0 EBITDA ($0.0) ($3.9) $16.0 $20.3 $13.8
Other ($0.1) $0.4 ($1.2) ($1.4) ($1.1) Debt Adjusted Cash Flow ($0) ($3) $16 $20 $14
Cash Taxes $0.0 $0.0 $0.0 $0.0 $0.0
Cash Flow from Ops ($0.06) ($3.29) $15.96 $20.28 $13.80 Basic Payout Ratio (%) 0% 0% 0% 0% 0%
All-in Payout Ratio (%) 0% 0% 0% 0% 0%
DD&A $0.0 ($0.1) ($0.0) ($0.0) ($0.0)
Unit-Based Comp $0.0 ($1.3) ($1.3) ($1.3) ($1.3)
Other $0.0 ($2.3) $0.0 $0.0 $0.0
Earnings ($0.1) ($7.0) $14.7 $19.0 $12.5

Balance Sheet ($mm) 2021 2022E 2023E 2024E 2025E NAV BMO
Current Assets $0 $32 $39 $52 $66 NAV (C$/sh) $1.29
Other $0 $13 $13 $13 $13 P/ NAV 0.4x
Strategic Assets $0 $10 $18 $26 $26
Total Assets $0 $54 $70 $90 $104
Current Liabilities $0 $0 $0 $0 $0
Other $0 $0 $0 $0 $0
Long-term & Convertible Debt $0 $0 $0 $0 $0
Total Liabilities $0 $0 $0 $0 $0
Shareholder Equity $0 $54 $70 $90 $104
Total Liabilities and Equity $0 $54 $70 $90 $104

Net Debt ($mm) $0 -$31 -$39 -$52 -$65

Shares Outstanding (mm) 1 127 127 127 127
Diluted W.A Shares (mm) 2 127 127 127 127

Notes: All figures USD unless noted

Annual per share figures are calculated using a weighted average share count for the period. Source: BMO Capital Markets, Company Reports, Bloomberg

Base Carbon | Page 16 September 29, 2022

 Base Carbon - ESG Tear Sheet
Bottom Line

Base Carbon was designed to deploy capital to project developers involved in reducing GHG emissions or
removing carbon dioxide from the atmosphere in exchange for a stream of carbon credits. In addition,
the company is committed to investing in projects that have co-benefits for the communities in which
they are deployed, which has been evident through the company's initial agreements. We view Base
Carbon positively from an ESG perspective as a result.

Exhibit 1: ESG Themes & Initiatives

Energy Climate Stakeholder ESG

Management Change Engagement Governance

Key Initiatives Key Initiatives Key Initiatives Key Initiatives

 The company currently  The company is currently  While Base Carbon does  Base Carbon does not
does not have disclosure invested in two projects not directly engage with currently have a dedicated
on this topic that reduce emissions in stakeholders, its project board committee to
impoverished communities partners are in constant oversee ESG progress
through the distribution of communication with them
fuel-efficient cookstoves from the onset ensuring
and water filtration that the project is mutually
devices beneficial and has
community support

Our Take Our Take Our Take Our Take

 We would not be surprised  Base Carbon accelerates  When implemented  As the company matures
to see Base Carbon utilize capital to projects that correctly, carbon projects we believe oversight will
offsets or market-based improve emissions can have immense co- become clearly defined
instruments to reduce its outcomes benefits
net emissions impact on
this front
Source: BMO Capital Markets

Exhibit 2: ESG Disclosure Analysis1,2

% of Peers % of Peers % of Peers

That Do That Do That Do
Sustainability report?  Disclosures in line with SASB?  Energy consumption? 
Audited sustainability report?  Disclosures in line with TCFD?  Scope 1 and 2 GHG emissions? 
Reporting to CDP?  Workforce breakdown by gender?  Scope 3 GHG emissions? 
Disclosures in line with GRI?  Workforce breakdown by BIPOC?  Emission reduction targets? 
Source: BMO Capital Markets

Base Carbon | Page 17 September 29, 2022

 Analyst Commentary

Given the early-stage nature of Base Carbon, we are not surprised that the company is currently lacking
ESG disclosures. We look forward to the inclusion of disclosures as the company moves forward and view
it positively from an ESG perspective given the nature of the business.

Exhibit 3: ESG Performance Summary

2020 2021 2022 2-Year Trend

GHG INTENSITY (MTCO2E/MILLION

ND ND ND N/A
CAD)

SCOPE 1 GHG EMISSIONS ND ND N/A

ND
(MMTCO2E)

SCOPE 2 GHG EMISSIONS

ND ND ND N/A
(MMTCO2E)

WATER INTENSITY (CUBIC ND ND ND N/A

METERS/MILLION CAD)

BOARD % INDEPENDENT ND ND 66% N/A

MANAGEMENT % OWNERSHIP ND ND 8% N/A

% WOMEN ON THE BOARD ND ND 50% N/A

% WOMEN IN EXECUTIVE
MANAGEMENT ND ND 0% N/A

Source: BMO Capital Markets Note: ND refers to No Disclosure or Not Yet Available

Base Carbon | Page 18 September 29, 2022

 Links to Reports

Notes
1. Peer comparisons based on Carbon Innovation companies in the BMO Equity Research coverage universe
2. Audited sustainability report refers to a report that includes a statement of assurance from independent auditor or verifier.
3. Two-year trend analysis captures the desired direction of the underlying numbers, not necessarily the absolute direction (e.g.,
an increase in energy intensity receives a “down” arrow).

Base Carbon | Page 19 September 29, 2022

 Base Carbon Rating History as of 09/28/2022
C$0.90

C$0.80

C$0.70

C$0.60

C$0.50

C$0.40
Oct 2019 Jan 2020 Apr 2020 Jul 2020 Oct 2020 Jan 2021 Apr 2021 Jul 2021 Oct 2021 Jan 2022 Apr 2022 Jul 2022

Closing Price Target Price

Outperform (OP); Market Perform (Mkt); Underperform (Und); Speculative (S); Suspended (Spd); Not Rated (NR); Restricted (R)
Source: FactSet, BMO Capital Markets

IMPORTANT DISCLOSURES
Analyst's Certification
I, Rachel Walsh, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or
issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views
expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and
their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in
generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service
to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These
analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on
communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures

Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to Base Carbon within the past 12 months.
Disclosure 2: BMO Capital Markets has provided investment banking services for remuneration with respect to Base Carbon within the past 12
months.

Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to Base Carbon within the past 12
months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Base Carbon within the past
12 months.
Disclosure 6A: Base Carbon is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or
an affiliate within the past 12 months: A) Investment Banking Services
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Base Carbon.
Disclosure 18: A redacted draft of this report was previously shown to Base Carbon (for fact checking purposes) and changes were made to
the report before publication.

Methodology and Risks to Target Price/Valuation for Base Carbon (BCBN-NEO)

Methodology: Given the early-stage nature of the company, we base our target price methodology entirely on net asset value.

Risks: Current risks include delivery risk, both in timing and total volume, and marketing risk of carbon credits.
Distribution of Ratings (September 28, 2022)

Rating category BMOCM US BMOCM US IB BMOCM US IB BMOCM BMOCM IB StarMine

BMO rating
Universe* Clients** Clients*** Universe**** Clients***** Universe~
Buy Outperform 54.0 % 18.4 % 52.6 % 56.7 % 58.0 % 57.7%
Hold Market Perform 44.4 % 18.4 % 43.2 % 42.1 % 39.4 % 37.5%
Sell Underperform 1.6 % 50.0 % 4.2 % 1.1 % 2.5 % 4.8%

Base Carbon | Page 20 September 29, 2022

* Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts.
** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services
as percentage within ratings category.
*** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking
services as percentage of Investment Banking clients.
**** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts.
***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services
as percentage of Investment Banking clients.
~ As of April 1, 2019.
Ratings Key (as of October 2016)
We use the following ratings system definitions:
OP = Outperform - Forecast to outperform the analyst’s coverage universe on a total return basis;
Mkt = Market Perform - Forecast to perform roughly in line with the analyst’s coverage universe on a total return basis;
Und = Underperform - Forecast to underperform the analyst’s coverage universe on a total return basis;
(S) = Speculative investment;
Spd = Suspended - Coverage and rating suspended until coverage is reinstated;
NR = No Rated - No rating at this time; and
R = Restricted - Dissemination of research is currently restricted.
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Income, CDN Quant, and US Quant have replaced the Top Pick rating).
Prior BMO Capital Markets Rating System
(April 2013 - October 2016)
http://researchglobal.bmocapitalmarkets.com/documents/2013/rating_key_2013_to_2016.pdf
(January 2010 - April 2013)
http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf
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Base Carbon | Page 21 September 29, 2022

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Base Carbon | Page 22 September 29, 2022

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Base Carbon | Page 23 September 29, 2022