The Calandra Report: Shame on Barkerville and their dilutive ilk

Thom Calandra
17 Comments|February 28, 2014

[Part of this report is prepared during a Mongolia layover in Beijing -- which on this day, is sunny and clear for the first time in more than one week. The rest is filed from California in real time. All of it is actionable.]

 

Included: Barkerville Gold, Inovio Pharmaceuticals, West Africa Iron Ore, Bitterroot Resources, Colt Resources.]

 

BEIJING -- I just saw two (actually three) Mongolia coal mines, a coal-consuming Mongolia concrete plant and enough railroad track, (paved) frozen road and Russia border guards to make me a semi-aficionado of the thermal coal business.

 

Many folks duly warned me: the coal business, whether its thermal coal, met-coal or whatever-coal, hinges on transportation costs and quality levels (kcals/kg) for success.

 

"It will spin your head around more than any gold junior," says Bekzod Kazimov, Uzbekistan-born and Sweden-educated business development manager for Prophecy Coal (TSX:T.PCY, Stock Forum).

 

It's competitive, too. One British CEO of a private coal company, like Prophecy also north of the capital Ulan Bator, declined to share a Pepsi with me at the city's popular western sports bar, the Irish Pub.

 

"They're our opposition so I'd better not," Graham Chapman of  Sharyn Gol JSC and Hulaan Coal Corp., told me. Mr. Chapman reports in part to a hedge fund that owns a stake in the privately held mine, and he later agreed graciously to meet, but I was gone by then.

 

OK, I understand. At any rate, the only thing I can say right now is that I am sorting through my Prophecy notes. My mission in Mongolia is to understand the thermal coal business and what it takes for these battered companies (worldwide) to recover their equity standings.

 

More to come on the solid fossil hydrocarbon known as thermal coal ... and on Prophecy, which has had regulatory issues in Canada but which I am expecting will be resolved one way or another in the next several days.

 

If I am proven correct, the resolution of at least one British Columbia Securities Commission issue will clear up a technical reporting issue involving stated coal pricing from Prophecy.

 

Let me first say: anything that hints about scanning Prophecy Coal in the positive light of this country's rip-roaring economic growth (even sans, or ex, Rio Tinto and Turquoise Hill's politically loaded Oyu Tolgoi copper-gold mine,) will put me in the sites of those who dislike the style of its CEO, Taiwan-born John Lee.

 

John Lee is aggressive, and even -- I do not know the exact word -- regarded as a warrior and not to be crossed: by his own office staff and by the 100 or so workers at its producing mine at the Russia border, Ulan Ovoo. And more than half those workers are Mongolian, coal miners and office staff.

 

"He's a boss," says Chris Kravits, a Pennsylvania-bred coal geologist, age 61, who acts as operations manager for Prophecy. "I've been here three years, and whatever you say about John, I can say, 'He or someone like him who can crack the whip around here is needed.'  Did we go way over on costs in 2012 and 2013 at this mine? Yes. Is that going to stop? It already has."

 

We shall see. Prophecy raised more than $55 million a few years ago to get its Ulan Ovoo act together. "Costs got way out of line," Mr. Lee says.

 

Mr. Lee also is seen in the investment community as needy -- in the sense of his ambitious salary, about $400,000 yearly, half in PCY shares, since going to Ulan Bator full time in July 2013. There is also the matter of a large severance payment that John Lee received, only to continue later as CEO.

 

But that is nearly a half-million dollars worth of coal in the fire, I guess -- and is documented in proxies. Whilst not exactly humane to shareholders at the time, all of this appears to be disclosed.

 

I have no verdict yet on PCY shares. The latest article in the local Mongolian newspaper -- English language one -- describes the wreckage among all Mongolian companies traded publicly in Canada, the USA, Hong Kong and the United Kingdom. Most are down 80 percent in the past 2 1/2 years, and Prophecy is no different.

 

Turquoise Hill Resources (TSX:T.TRQ, Stock Forum) is negotiating with the liberal government about underground mining procedures, financing, cost overspends at Oyu Tolgoi and other issues. That hammered those shares. Oyu Tolgoi LLC, the Mongol subsidiary, at one time was responsible for more than two-thirds of Mongolia's emerging market GDP.

 

TRQ shares are on a two-week tear as executives in the capital and at home in Canada and elsewhere brighten up about those government negotiations whilst underground mining at OT is halted. Up to $4.17 from about $3.40 USA. Turquoise Hill owns about two-thirds of the copper-gold-silver mine in southern Mongolia. Turquoise Hill also holds a 56 percent interest in Mongolian coal miner SouthGobi Resources (TSX:T.SGQ, Stock Forum).

 

At any rate, I get nothing from Prophecy Coal, and I have yet to purchase the 9-cent shares. Yet the idea of a $25 million market cap company with cash flow in a crushed coal marketplace entices me. Ulan Ovoo is about 17 km from the Russia border, which we crossed briefly on foot, much to the distress of one border guard rough-riding on a motorbike across frozen dirt road.

 

Mr. Lee's plan for the past three years has been to sell 4,000 and 5,000 kcal coal into southern Russia concrete plants, boilers and municipalities, among other operations.

 

This is from Bloomberg News and its office in Ulan Bator: an interview with Mr. Lee from this week: https://www.youtube.com/watch?v=jETP0X_gdfg. It's in Mongol and English. The shares, PCY, could move on any clearance of that regulatory issue in early March. Please do not bombard me with angry notes about reckless CEOs. But please do bombard me if you see other coal producers trading publicly in the region and have cash flow. I await Prophecy's Q4 financials -- its production numbers for the quarter are up and already disclosed.

 

Shame on Barkerville Gold  (TSX:V.BGM, Stock Forum)-- Another senseless and dilutive equity placement -- 20 million shares, or about 20 percent of the common outstanding. With possible finders' fees? Fuhgeddaboutit. To be candid, I do not care if part of the discounted offering (at 50 cents a share) is going to relieve debt load. I do not care about the company's looming gold pour at its British Columbia property. (See Stockhouse article.)

 

What I see is this: Barkerville's paper manufacturing is among the best examples of the worst equity destruction in modern Canada-junior mining history. I see the company must extend its capital working requirement and agrees to give more gold to its main lender, essentially Eric Sprott's Ontario partnership. See: statement.

 

I wonder how the shares of J. Frank Callaghan's Barkerville are staying above 50 cents in the wake of the offering announcement Friday. They are down about 18 percent in the usual Vancouver PDAC manoeuvre: try to raise shares amidst the possible glory of the annual Prospectors gathering in Toronto (next week).

 

Shame. Shame. A thousand times shame. I do not own BGM shares.

 

Speaking of equity placements: Dr. Joseph Kim at Inovio Pharma  (NYSE:INO, Stock Forum) told me he had no plans to raise capital with the sale of equity at any time in at least the next 18 months. That came at a conference in December 2013. It is in my notebook. I published it!

 

Big deal, right? Look, Inovio Pharma's offering of 19 million shares at $2.90 each is getting respect from investors. The stock right now, as the offering is in motionis at $3.50. "No comment while the offering is going on," says a spokesman for Inovio. 

 

The point is that all CEOs and CFOs, or most of 'em, will promise to refrain from diluting their shareholders, then turn around and do it anyway when the stock roars.

 

In Inovio's case, the company's technology of developing and delivering vaccines and treatments for a wide range of cancers and infectious diseases is outstanding. And yes, I did write in early December 2013, the following: 


I quote TCR: Best prospects for catapult gains in a review of some 30 presenting companies: Coastal Contacts (COA in USA), albeit after some of the easiest money was made as the Canada eyeglass maker and seller approached consistent profitability this year;and Inovio Pharmaceuticals (INO in USA) -- still a half-step before its catapult moment as it awaits Phase II results (likely in mid-2014) for a human papilloma virus vaccine to treat cervical intraepithelial neoplasia.

 

At the time, I said Inovio's lab in San Diego, California, would provide enough research power to turn this company into the next Illumina, (NASDAQ:ILMN, Stock Forum) the genomic tools pioneer that quintupled and more my money over six or seven years, even with my (our family money) early eject of ILMN shares (in hindsight, naturally).

 

Look, I believe that still. About Illumina, which is now a $22 billion market-cap company. (We sold at perhaps $6 billion market cap after visiting the San Diego-area company's facilities in 2003, when it was perhaps a $400 million equity.)

 

I also believe the future looks promising about Inovio, branded as innovative but excessively promotional with individual shareholders, and Dr. Lee and staff having a shot at curing some types of cancer, for one. Or at least vaccinating against some formidable diseases. But I sold my shares on the way up from $1.80 in November/December or so to its current $3.50 (to purchase more BioCryst Pharma -- (NASDAQ:BCRX, Stock Forum)-- and more junior metals miners)

 

Call me Mr. Early -- I used to know a gal by that moniker. Call me Mr. Stoooopid. JUST please don't promise me you will withhold from financing at current shareholders' expense. Most CEOs and CFOs probably have a fiduciary responsibility to sell stock via S-1 or S-3 or whatever s-h-$-t filing they call it in the USA or Canada ... and keep the capital burning, like the thermal coal at that concrete plant that is supplied with Prophecy's Ulan Ovoo, Mongolia, coal. JUST WALK YOUR FINANCING BRAVADO TALK or keep your lips sealed when I ask the question, 'So, plans to finance?'

 

This from CEO Mike Carr on another financing from his Michigan prospector: "Bitterroot's major shareholders want me to drill our best Ni-Cu-PGM targets in Michigan asap, and they are prepared to put up the funds to help me do it." I own a lot of it. BITTERROOT RESOURCES. (TSX:V.BTT, Stock Forum)

 

The latest from Colt Resources: Pakistan related -- 
  

http://www.brecorder.com/top-news/108-pakistan-top-news/159988-pakistan-provides-immense-business-potential-for-international-investors-dar.htmlI hope to see Pakistan in May. Colt (TSX:V.GTP, Stock Forum) is one of the TCR 8.

 

Best TCR gainer this week: Pilot Gold (TSX:T.PLG, Stock Forum) after 6-gram-plus results from its Kinsley gold project in Nevada. The shares also are roaring, and I own it -- as I do all the TCR 8 companies.

 

Speculative action: Take a look at West Africa Iron Ore, Guy DuPort's company. (TSX:V.WAI, Stock Forum) in Canada. Crushed. Two-cent stock. Perhaps this is the time when many of these worthless equities become less worthless? I do NOT own the stock but might purchase some an hour or two after this goes to our TCR family Friday. I used to own WAI shares and sold at a loss in 2013.

 

Finally: Can't wait to see the new Liam Neeson film about the air marshall. Out of one plane and into another, thankfully this one is on a screen. ... Speaking of jets, I am not jetting to Toronto next week for PDAC. The idea here was first to get some acupuncture for my left hip after MRI and CT scans showed normal athletic wear and tear but came up with no reason for the extreme (9 out of 10) pain. (Except for 36 years of daily swimming, running and biking. I started at age 21 or so after wasted, literally, teen years.) I did that in Ulan Bator, electro-style -- 5 needles into the hip and connected to a conductive wire, which delivers electrical impulses that jolt the area of pelvis, femur and thigh. The pain disappeared for two days and is back now. (By the way, the electrical part is to cut costs in part -- as anyone who spends 45 minutes or more manipulating needles with hands, well, how do you scale up a business like that? Seriously, electro-acupuncture is interesting, and forceful in terms of the jolts to nerves, bones and body every two seconds or so. But is it better and more effective, more invigorating than organic acupuncture, which I got one year in Beijing whilst travelling with Robert Friedland? Absolutely not. I am scheduled early next week in California for the next clinical step: possibly cortisone injections, followed by more physical therapy; and/or orthopedic surgery of some type. All to get hip, I guess.

 

Your friendly.

 

THE CALANDRA REPORT: Subscribe*

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Thom Calandra  

@thomcalandra for Twitter

 


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Comments

bigbab
Accusing BGM of doing what exactly thom ? Something about the bagging process ....you're suggesting some selective sampling ? Care to elaborate ....
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March 3, 2014
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tcalandra
Another issue about Barkerville: The met-screen press release of one week ago lacked comparisons to the original assay results of 2011. Why? Has gold 'disappeared' from the core since the release of the original assay results? Or re-appeared? The company must expect the fresh met screen assays to be at least as good as the original assays. But without the comps inserted into the release, what can we deduce? Would not their presence in the release bolster the met-scre...
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March 1, 2014
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tcalandra
One other thing, pointed out to me: The Snowden twin holes -- there were two or three of the eight twins that were not completed, and once again, why? Perhaps they were mined-out stopes. Look I REALIZE IT is senseless to guess at all of this, but BGM has many twists and turns in its reporting over the years. Did a portion of the drill data that went into the resource come from mined-out stopes? This might be a problem as to integrity of data, as those stopes never were explicitly modeled in t...
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March 3, 2014
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tcalandra
Small correction here on TRQ.T Turquoise Hill: price quoted actually is Canadian dollars; shares trade in Canada and USA as TRQ -- thom
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March 2, 2014
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tcalandra
Regarding placements, I no longer participate in them. My last placement was in 2003. I have done three in my career. I routinely turn them down as they create conflicts. I do not know what other newsletter writers do. But I buy in the open market. I have turned down placements in every one of our TCR 8 preferred companies. Best, Thom
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March 1, 2014
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jrai
So Calandra, now your are doubting the assays. Go back to your GCM. I will be on side on the likes of Eric Sprott who is a large shareholder of BGM and maybe even larger depending if he is on board with the latest financing. No more comments for me. I will stick with the people behind the deal especially who have made billions following the right mining deals.
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March 1, 2014
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tcalandra
Mr. PruneFace, I am as disappointed in GCM as anyone, and crushed with the shares. Yet I think Segovia is one of the highest grade areas of veined gold and silver in the Americas. I think my point is that BGM has gone beyond what is acceptable in terms of dilution in the past decade. Best, Thom
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March 1, 2014
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tcalandra
Best of luck with BGM. All eyes on how it states the remainder of the met-screen assays with the full comps of 2011. -- thomcalandra.com
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March 1, 2014
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tcalandra
... This might be a problem as to integrity of data, as those stopes never were explicitly modeled in the resource. Best, Thom
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March 3, 2014
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bigbab
The new assays stand on there own...If they are better or even worse than the originals the grades and intercepts are awesome. The company has stated in each press release that when all assays are done they will release the comparisons in one final NR....not good enough for you? I love the triple slam from yourself , deadlock, and the great article the other day on how 'angry' barkerville shareholders are. Was one shareholder even contacted? I doubt it..... next to Deadlocks &qu...
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March 2, 2014
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