Others have bad news but then Friday the TSX produces two junior takeovers with 55% and 140% gains
Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
Rough week for junior resource investors but then a ray of light emerges Friday. Also a lengthy commentary (tongue lashing) for Barkerville.
The negative news is below but thanks to a couple acquisitions Friday morning in the junior resource space, we have further proof how dramatically oversold many exploration companies are on the TSX and TSX.V. Last week I noted Calvalley Petroleum in Africa gaining 70% on takeover news and Friday we have one in gold and another in heavy minerals:
1) A wealthy family from Egypt through Weather Investments II is buying La Mancha (TSX: T.LMA, Stock Forum) for a 55% gain to Thursday’s closing price – gold related
2) Opta (TSX: T.OPM, Stock Forum) announced they will be buying heavy mineral producer WG.T for a 140% gain to Thursday’s closing price. Both subject to shareholder and exchange approval.
Old school promotional tactics, illegal strike, threat of mine seizure, a coal mine closure, and a cancelled financing – all in a week’s work for resource investors
While Barkerville (TSX: V.BGM, Stock Forum; 85 cents) succeeded in wiping out a tonne of money for speculators after orchestrating “what appears” to be a classic old school VSE stock promotion, the following also hit the junior exploration sector hard this week (in case it wasn’t depressed enough).
1) Excellon (TSX: T.EXN, Stock Forum; 58 cents) faced an illegal strike at its mine in Mexico. This is reminiscent of what we’re seeing across South America and disturbing to now see it in Mexico, which was previously thought to be relatively stable for foreign mining companies.
2) PetroFrontier (TSX: V.PFC, Stock Forum; 61 cents) was notified by Macquarie Capital that the $15-million “bought deal” financing they arranged, was being cancelled – with little explanation. This was highly unusual as typically a bought deal financing is a done deal.
3) South American Silver (TSX: T.SAC, Stock Forum; 47 cents) collapsed not only because they had employees kidnapped in Bolivia, but Sunday the President of Bolivia tells media he will consider nationalizing SAC’s silver property.
This news could be found in foreign media early Monday morning and if you were a shareholder you could have sold a pile of paper near 70 cents that day. This wasn’t addressed as a news release by SAC until Wednesday and by then the stock had lost half its value. I would avoid this country (and several others like the DRC) like the plague.
If you don’t use it already, take a serious look at Google News – it is a tremendous tool and in this case could have saved some investors a huge amount of money.
4) Cline Mining (TSX: T.CMK, Stock Forum) drove a nail into the junior coal sector this week by announcing they would temporarily close their metallurgical coal mine in Colorado. This one caught me personally off guard and resulted in one of my biggest personal losses in years (40%). Just recently the company said they were taking on debt to ramp up for production and sales in the latter half of 2012 – then they close the mine and lay off hundreds of people?? Nice.
I can imagine the flaming that will occur this week in the comments section after this opinion on Barkerville – but I really do not care. While I suspect a lot of people closely associated with Barkerville made a lot of money (by accumulating stock in early and mid June), a LOT of people lost a lot of money on tactics that were employed by this company.
Those directly responsible would have been Frank Callaghan (President & CEO), consulting geologist Peter T. George, and Barkerville chief geologist Jim Yin.
Long story short, while almost every other junior mining stock was doing poorly, BGM starts a dramatic cleanup (gaining 100%) in the two weeks prior to a resource estimate being announced on June 29. The news comes out and the company makes incredible estimates of having 10.6 million ounces of gold on their property in British Colombia AND something they called “Geological Potential” – for this they estimated a further 65 million to 90 million ounces of gold!
That last statement alone should have NEVER been included in a news release. In fact, when that news release came out, the regulators should have shut trading down until the details were clarified. Instead the following week alone saw $33 million worth of paper change hands as high as $1.68 – 300% higher than only a couple weeks earlier.
Finally, on July 12, the company issued a news release saying they needed to clarify details in that June 29 news release. By this time over $50 million worth of paper changed hands. Once that July 12, news hit the wire, the stock collapsed as low as 62 cents. It has since cleaned up a bit but nowhere close to what people paid the week following the June 29 news release.
The idea that a company is able to publish a news release with such wild numbers and not be held accountable for weeks, should be an embarrassment to the exchange. Even now many are wondering if “anyone” will be accountable for such wild forecasts.
When that news release was issued, thousands of investors depended upon its accuracy and assumed the numbers must be realistic or the stock would have been halted for clarification. In the past I have seen halts for all kinds of odd reasons or 43-101 resource reports that could not be published because they were cleansed to death. Yet now Barkerville was allowed to estimate 10 million ounces PLUS potential of another 90 million ounces?!
Most reputable CEO’s or geologists would have never signed off on such a news release in the first place. Unless of course you had the blood of VSE stock promoters running through your veins from the 1990’s. This type of nonsense is what made the junior exploration stocks in Canada the laughing stock of the investment world. It took the TMX Group years to clean up that reputation and now they are one of the most respected exchanges in the world. So why was this allowed to occur?
On my Twitter.com/TSXAlerts page I posted an Alert July 2nd while BGM was at $1.21 and said there was a play on BGM (If) the BCSC didn’t find major report flaws. July 3rd the stock had gained 20% more (to $1.60) but I referenced people to our Stockhouse board where (July 2nd) I had provided reasons to be very cautious of Barkerville.
Red flags surfaced months ago
Following the spring mining show in Toronto (PDAC), a good friend asked me to look at Barkerville. A few days later I called and spoke with President Frank Callaghan. He definitely had thick promoter blood running through his veins and told a good story. He suggested I call their office and get further info. Upon doing that, their senior management contradicted almost everything that Mr. Callaghan told me.
I left the conversation thinking the left hand didn’t know what the right hand was doing. A month later a director resigned, the CEO resigned, and Frank Callaghan became the new CEO. Six weeks later another director resigned.
I called my friend and told him I would not only avoid buying the stock (then in the 0.70’s) but would never write it up as it screamed of risk.
This hurts investors and all the junior exploration companies
Investors this past year have lost a tremendous amount of money (and faith) in the junior exploration stocks. The last thing we need is this.
It is no wonder the regulators have clamped down on 43-101 reports and removed a huge element of the speculation associated with junior exploration. It is because promoters and geologists like this still exist and they think they can over-step the guidelines put in place to protect investors.
This system doesn’t work in its current form - the company is allowed to issue what appears to be a grossly inflated resource estimate - gain over 100% in a matter of days – and then collapse leaving millions in losses. So what if the company was forced to issue a clarification on July 12th – the damage was already done. This is as useless as Canada’s Young Offender Program. If there is no accountability or repercussions for your actions, then nothing prevents it from happening again.
This is so typical of the old VSE (Vancouver Stock Exchange) days it’s terrible. To see BGM revert to this type of “old school” promotional tactics is very disappointing and should not be left unpunished. It damages the credibility of the exchange and has resulted in dramatic financial losses for hundreds of investors - while it is obvious a select few benefited from the news well before-hand.
What is the real valuation and resource estimate
This is about principal and being accountable to investors when you are playing with other people’s money.
Something is definitely lacking in the ethics arena when any senior executive of a public company (or a geologist) would make such wild estimates knowing full well what the impact will be on their share price.
When the smoke clears maybe Barkerville will have the 10 million + gold ounces they claim. Seems very doubtful, but I guess it’s possible. The problem is, they should never have been allowed to make such glorious forecasts in the first place and the stock then allowed to trade for so long without some type of detailed review or immediate clarification.
Whatever gold Barkerville “does” have, is definitely worth something. However right now they have serious credibility (and accountability) issues to deal with. If I was a major shareholder and knew they had a large gold deposit, there would be some major changes with respect to management and geologists.
The going rate at the moment for junior golds is approx. $35 per ounce
Numbers can be higher under various circumstances but also much lower as we are seeing across the board right now. Being generous we could say BGM’s gold is worth $35 if in the measured and indicated category.
The company has approx. 108 million shares outstanding so at 85 cents has a market cap of $92 million. Their cash and debt are a wash so we would assign the full $92 million to a gold reserve estimate. At $35 per ounce, that equates to 2.6 million ounces.
So in theory, BGM currently trades as if it has a 2.6 million ounce gold deposit in the measured and indicated category. Likely this is a realistic valuation until such time as their 43-101 resource report has been digested with a fine tooth comb - and by independent geologists.
That being said, this shouldn’t take away from the manner in which this was handled and promoted in the first place. A lot of people lost a lot of money since June 29th and if management is left unaccountable, it does nothing but damage the reputation of the sector and the stock exchange.
It would also be completely unfair to hundreds of other junior exploration companies who are continually under the forensic microscope of the Provincial regulators (whenever they want to release a resource estimate).
In addition to this weekend column and the bottom fishing research sent to paid Ticker Trax subscribers on Monday, I also provide free MicroCap alerts throughout the week. These are based upon News or Abnormal Price/Volume Activity on the several hundred stocks we track from our own research, brokerage analysts, or third-party newsletter writers.