Hello Leonas
Have you talked to any GXM directors lately? I hope we'll get
some news soon.
Here is an essay you might be interested
While I have been involved with all kinds of speculative investments over a period of over 20 years, there is no question that my greatest successes have all been in one area, that of shell companies. Anybody still reading? Yes, I realize it is not for everyone. After all, how many people would be happy to buy shares in a company, then have their friends ask "what do they do?", and the answer is, "well, nothing". I will also add that I have no understanding of the rules/regulations
regarding shells in the U.S., and so nothing I am about to say applies in that jurisdiction. It is in Canada where I have come to know and understand this quirky area of the stock market.
Shell companies tend to be what is left over when a company has done a number of financings, carried on for several years attempting to build a valuable asset, and failed. At a certain point debt levels have grown, it becomes too hard to raise new capital, no one wants to finance a junior company that has too many shares out, and so the
company falls into a kind of "living dead" zone, otherwise known
as a shell. What tends to then happen is that the company goes through a reorganization, otherwise known as getting "cleaned up". What this normally involves is a share consolidation, a debt settlement, most often a shares for debt exchange, and a financing. Why do promoters bother going through this long and costly process, you might ask? The answer is simple: it is still cheaper, and faster, to reorganize an existing company, complete with a charter, a shareholder base, a stock exchange listing, etc., then to start a new company. Hence, what we end up with is a kind of a life cycle of a speculative company, the only real escape being success in a developing project, or a reverse takeover, wherein a private company will vend its assets into a shell (most often via a share exchange). Should the various costs, and rules, change towards making it easier
to start new companies, this "recycling" process will end. At this point, it seems unlikely. The real problem with investing in speculative companies is that investors fail to understand this process, and fall victim to the stories they are told be their
brokers. Many times, the stories being told are true, but they almost always
involve companies that are in the latter stages of the life cycle. What no one is
prepared to really talk about is the outcome if a particular drill program fails, or a
piece of software ends up a dud. My question is always the same, and I normally
have to answer it for myself: where is the company in the life cycle?
I invest much of my capital into speculative companies, with one over-riding rule:
the company must be in the earliest stages of development. That way, strange as
this may sound, providing I have lots of patience, I can't lose.
If you look up and down the lists of active stocks on any given day, chances are
that the stocks in the spotlite, those that everyone are talking about and investing
in, were shell companies a short time ago.
I'll give you two classic examples:
Diamondfields (DFR.T), a company which is currently being taken over by Inco in
a multi-billion dollar deal, was a shell company on the VSE three years ago
called Rutherford Ventures, until it was taken over by Robert Friedland.
Another one, Arequipa Resources (AQP.T), which is currently being taken over by
Barrick Gold for $30.00/share, was a little known company called Thumper
Resources on the VSE, trading like an orphan at $.08, this just a short 4 years
ago.
Yes, it's true, not all reorganized companies turn out with those kinds of
successes, but most, in not all, investments in a shell companies, can yield
returns in the order of several hundred percentage points over a 1-3 year time
frame.
Many of the companies being talked about on this very forum, were also
reorganized shells. Care for a few more examples? How about Cons. Silver Tusk
(CKS.V)? Did you know that the predecessor company was called Silver Tusk
Mines before it was consolidated and renamed in March of '94? The trading range
of the company for the years '91 through '94, BTW, was $.01-$.08. That's right,
you could have bought it for a penny, or $.05 post rollback. Or how about
Starpoint Goldfields (STS.V)? Just one year ago, this was Starpoint Systems, a
shell company trading for $.10, 2 million shares, no money, no project. As you
will recall, I made you aware of this company at the $.80 level just 2 months ago,
and indicated at the time that it was on the verge of securing a project in Angola.
It has been my feeling all along that it is not apropriate to discuss these
companies when they are strictly shells, for two reasons. Firstly, most investors
are simply not interested until a story and momentum have developed, and
secondly, because there are so few shares outstanding, that any mention of this
kind of company could cause ridiculous gap-ups in price if even just a small
number of investors were interested.
I mentioned that you can't lose. Well, okay, there is a catch, and that is that you
must develop the kind of patience that is normally evidenced by a person who is
either in a coma, or has moved to the South pole. For example, back at the
beginning of '94, I purchased 160,000 shares of Mekong Developments on the
VSE at $.04, knowing it was being consolidated on a 1 new for 8 old basis,
figuring my cost post-rollback would be $.24. Well, it seemed to take forever, and
in December of that year, I lost patience, and sold out for a small loss. It took
more than another year, but it was finally rolled, and came back as Everest
Mining (EVR.V), a company which was mentioned in your letter last night,
currently trading at $3.40.
I in no way intend this as a negative comment on investing in any of the
above-mentioned stocks today. The point is that for those who have that kind of
patience, there are incredible potential rewards.
My feeling now is that if you are interested, I am prepared to bring some of these
situations to your attention. I will do my utmost to pick situations that I feel don't
require an extremely long wait, and will limit myself to stocks which do at least
offer enough liquidity so that it won't be impossible to buy within a certain price
limit, and I will always always suggest an upper buy limit, so that gap-ups will
NOT occur. Furthermore, no excuses will be made for long periods of quiet flat
trading. It is understood that you accept that as the likely scenario. I will try and
make it a short wait, but won't always succeed.
LeRoy, I will await your comments on whether you feel that this is an appropriate
strategy to follow up on, and I will suggest that if you answer "yes", that you print
this note, and reread it any time you consider such an investment, and that it be
considered as an appropriate first read for any shell company that I bring to your
attention in future.
MZ
Reply: MZ, this is a brilliant strategy and one that I am very, very, very proud to
showcase. Not only do I accept this offer, I plan to put this note on our Web site
for all visitors to read and from all of us in this forum, we welcome the offer of your
specialty skill...LS
|
