9. FINANCIALS:
SHARES OUTSTANDING: 30,374,357, fully diluted 34.4 million
OPTIONS: There are presently 4.1 million options outstanding. The large majority of these options are out of the money with prices ranging from .49 to over $2.50. During the past decade, management has never re-priced outstanding options. There are currently no outstanding warrants on JDX. If all of the outstanding options were cashed it would inject well over $3 million into the treasury.
SHORTS: According to the latest TSE short report (Dec 1/99) there are currently 0 (zero) shorts declared on JDX.
From the latest quarterly financial report (September 30/99) posted to Sedar on November 16/99
ASSETS:
Cash - $18,945,000
Investment in Medsite.com - $1,500,000 (see details below)
Loma de Niquel - $1,020,000 (see details below)
Accounts Receivable and Capital Assets - $50,000
Total Liabilities - $8,000
TOTAL ASSETS - LIABILITIES= $21,506,000
Note: Cash holdings are comprised of high grade primarily US denominated bonds.
Total of their expenses for the past 9 months:
Depreciation = $14,500
General Administration = $259,000
Investor Relations = $84,000
Professional Fees = $58,000
Project Evaluation = $320,000
This demonstrates that they controlled their expenses so that they are at a very reasonable burn rate of $81,000 / month. The company is presently receiving interest on their bond holdings. This interest payment provides them with a cash flow which more than offsets the current burn rate. As a result, JDX is currently in a positive cash flow situation.
NOTE: Since this September 30/99 filing the company has announced a $2.2 million investment in a new venture capital fund headed by MF Private Capital. In addition, the letter of intent for the purchase of Enviromation calls for a small amount to be paid at closing. Once both of these deals close the company will still have over $16 million in cash available for further investment. Enviromation has positive earnings and is expanding ($480,000 for the past 9 months) which should provide the company with a significant cash flow in the future. The Medsite.com IPO and sale of Loma de Niquel (see below) could both provide large injections of cash to the company in the near future. The company also has a line of credit that can be utilized if necessary.
FINANCING
Although the current cash holding will allow the company to participate in numerous deals (~11 deals the same size as Medsite.com) it seem likely that the company will perform a financing to raise more capital in order assist the company in going through an aggressive growth phase. Management has stated that the do not intend to cause any large share dilution if any financing is performed and any financing would more than likely be performed at a far higher price. The recent cash only deal with Enviromation demonstrates that the company does not want to issue shares at this price.
10. NAME CHANGE:
The current name of the company, Jordex Resources Inc. implies that the company is in the resource sector. Management has stated that they have a new name for the company that better reflects their new business strategy. In recent talks with management I have been given the impression that they are very close to announcing this new name.
11. US LISTING
From the February 19, 1999 letter to shareholders (http://www.jordex.com/letter98.html)
"Jordex shares currently trade on the TSE, however we have committed to take the appropriate steps that will lead to a US registration filing this year, which will be the first step in providing greater visibility for your Company."
12. NEWSLETTERS/ADVISORS
To my knowledge, there are no brokerage firms actively covering the company. However, in the near future I believe that this is very likely to change as the company starts announcing deals and more investment advisors get wind of the story. Up until this time, only Canaccord Capital (http://www.canaccord.com/) has given the company a little positive press. They made mention of it a couple of times during the last year in their Canaccord Coffee News.
During the past month several subscription based (paid) newsletter services have began to take notice of the company's emerging story and have written up the company for their subscribers.
WhisperStocks is a widely followed paid newsletter ($800 / year), which normally follows larger US based stocks. In an early November edition the company was written up for the first time and given a positive review. The author of the article stated that according to his source, Jordex could soon become one of the hottest junior companies listed on the Toronto Stock Exchange. (http://www.marketdigestonline.com).
The Investment Reporter, a well respected newsletter known for consistently beating the TSE 300 index announced in the December 1999 online edition that they “recommend purchases of Jordex shares for long-term capital appreciation” and discussed the large growth potential of the Enviromation purchase.
The Outsider's Overture, written by Chris Bunka, is a paid newsletter service ($180-$1500 / year), which recently covered the company, in a November 26, 1999 special E-mail alert to subscribers. In this alert Mr. Bunka explains how the recently announced strategic alliances will allow the company greater access to participate in pre-IPO deals and states that the company "is likely to involve itself in some high-profile deals in the future". He went on to explain that the company is by no means the first company to try and become a smaller version of CMGI but that "JDX may succeed where others have not". In closing he states that "JDX has every likelihood of heading higher in the months ahead".
(http://www.canspecresearch.com/s/Bunka/Default.asp)
The Kaiser Bottom Fisher Report, put out by John Kaiser, has continued to closely follow the company for several years now. This newsletter is a "subscription based" newsletter that is both mailed in hard copy form and published to the web 6 times a year. (http://www.canspecresearch.com/s/Home.asp)
In the May 1999 issue, John Kaiser stated something to the effect that management plans on doing deals that will take the stock past $10. He stated that they will do this - not just on promotion, but on substance. He also stated that he feels that the company is looking for projects "that will not fall apart if market sentiment toward the Internet sector turns sour". In the latest review, released December 1, 1999, Kaiser reviewed the strategic alliances and Enviromation deal and stated that "this looks very much like chess pieces being moved into position for a game plan that only management at this stage understands. I have seen this sort of shuffling before in plays controlled by high powered players, and it is usually followed by something much bigger and better".
As the company has just announced their business strategy, and has not announced any other deals other than Medsite.com and Enviromation, it is not surprising that a significant number of brokerage houses or newsletter writers do not currently follow the company. I fully expect that as soon as the company begins to announce deals (made possible through their new strategic alliances) we will then start to see numerous stock brokerage houses or newsletter writers putting out positive recommendations on the company.
13. TECHNICAL ANALYSIS
As the chart of the company is constantly changing, I have created a web site, which examines both the short and long-term chart technicals. This web site is updated on a daily basis.
geocities.com
14. LOMA DE NIQUEL
Although JDX has been completely out of the mining business for over a year the company still holds an interest in one mining asset. In August 1991, JDX, through its joint venture company Cofeminas, received the exploration and mining rights to Loma de Niquel. In March 1996, the company sold a 37.5% joint venture interest in the Loma de Niquel property for gross proceeds of $22,473,429 and retained a 7.5% direct participation interest. In December 1997, JDX announced that it would refrain from further financing of the project citing increases in projected capital costs and changes in the financing parameters. This decision resulted in Jordex's interest being reduced to 1.6%.
Loma de Niquel is a laterite nickel deposit in Venezuela. The world's largest mining company, Anglo American, is expected to produced its first load of Venezuelan nickel from the mine in mid-2000. The mine is being brought into production at a cost of $452,000,000 (US) and is estimated to produce 35-40 million lbs. of nickel annually over 27 year (http://www.conapri.org/Spec062199.html).
From the 1998 annual report:
"Also in the fourth quarter of 1998, given the continuing uncertainty of long-term nickel markets, the Company wrote-down to $1,020,000 the recorded amount of the investment in Loma de Nickel."
When the company wrote-down Loma de Niquel, Nickel prices were at historical lows. Since the fourth quarter of 1998 Nickel prices have undergone a dramatic turn around. Prices for Nickel have more than doubled in price since the 1998 lows. From a recent Wall Street Journal Article:
"Nickel is the jewel in the metals crown," says Jim Lennon, London metals analyst and long time nickel specialist at Macquarie Bank of Australia. He has been optimistic about the metal for more than a year and is "even more bullish about prospects in 2000." Annual average prices of nickel will be $8,000 a metric ton next year, Mr. Lennon believes (https://www.siliconinvestor.com/readmsg.aspx?msgid=11812937)
Based on data published in Paul Sarnoff's Gold Stocks Advisory, the 1.6% stake in the mine would result in a yearly cash flow of $1-2 million / year over the life of the mine (27 years) based on the current price of nickel.
Although Nickel prices have risen dramatically, in their most recent quarterly results Jordex has not reflected this in the value ascribed to Loma de Niquel. This omission is likely being done for tax purposes. Given the recent strength in Nickel, it stands to reason that Loma de Niquel should be worth several multiples of the current book price. The management has recently stated that Loma de Niquel is being put up for sale. The sale of Loma de Niquel will provide Jordex with additional capital to perform deals.
15. RRSP INVESTMENT (Canadians only)
Jordex's new business strategy will result in the majority of their core holdings being comprised of US based technology and Internet companies. It is important to note that although Canadians are currently limited to holding only 20% of their Registered Retirement Savings (RRSP) investment portfolios in stock from foreign companies - Jordex is a Canadian based company. As a result, despite their heavy investments in the exciting US technology and Internet sectors, Canadian investors in JDX are not bound by the 20% foreign content limit.
This means that Canadian Investors, thorough Jordex, will now have direct access to private placements in the pre IPO market in the United States through their RRSP accounts. As the news of this special situation spreads, and this fact becomes more widely known to the Canadian investment community it is easy to see how this will generate additional demand for the stock. Astute Canadian investors will use JDX as the route into the US market for their RRSP accounts.
16. LACK OF PROMOTION:
After looking over all the information that I have presented, I believe that a prudent investor would ask themselves "why isn't the stock selling at a higher price"? As mentioned above, in order to get a company's share price to high levels, it is necessary for the company to ensure that the investment community knows about, and understands, the tremendous potential of their company. I think we have all followed companies with enormous potential and great management selling at low prices and thought to ourselves "why isn't the price higher". It often comes down to one word - PROMOTION. Without the company doing an effective job of bringing the stock to the attention of millions of investors and fund managers, the company often gets overlooked and the share price suffers.
During this past year, Jordex has not made a significant effort to promote their stock. Jim Graham, investor relations for the company, has recently said that the company does not plan on starting a full promotion campaign until after all the recently announced deals have been formally closed. Since Enviromation will close on or before December 31, 1999 and the two strategic alliances have likely already been finalized I would expect the promotion campaign to start in the very near future. It only seems logical that the company would also announce several new financing deals before doing a road show – they do need something to talk about on the road.
This helps explain the current share price. Once the deals are finalized, the company plans on coordinating a large promotional blitz to get the story out to a wide audience. I think Mr. Civelli has already proven through his past dealings that he knows how to promote a company.
17. FINAL THOUGHTS
I have gleaned this information from long of hours of research. Due to this research, and through conversations with other investors, I truly believe that this company is extremely focused and superbly positioned for substantial growth. They have taken their time, protected their cash assets, and they have brought in new management who strengthen the company with their tremendous knowledge, skills, and powerful connections. They have built strong and strategic alliances which will allow them ready access to deals that are rarely, if ever, available to smaller companies. Their stated area of focus is one that is at the heart of the revolution that is now taking place.
It is my hope that with this document, I have helped to communicate their story, and therefore helped other investors better understand the company and the tremendous opportunities it presents.
Sincerely
Keith Massey
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