Jordex applies mining money to the Internet
Jordex Resources Inc
JDX
Shares issued 30,374,357
1999-10-21 close $0.83
Thursday Oct 21 1999
FROM MINING TO MEDICINE
by Will Purcell
As the recession afflicting the resource sector drags into its third year, many
exploration juniors are changing their focus from mining to the Internet and
technology sector. One of the many is Jordex Resources Ltd., which has recently
acquired an interest in a company providing on-line access to information for the
medical profession, and continues to seek new investment opportunities in the
technology sector.
Jordex signed its first mining deal in 1987, acquiring an option on the Keddy Bay
property located near Uranium City, Sask., from Colchis Resources Ltd.
Although the project yielded disappointing results, future mining plays would
create a much brighter future for the company. During the summer of 1990,
Jordex experienced a change in control, as Brian Hinchcliffe took the helm. The
new board chased new plays, and soon took Jordex to the southern hemisphere in
its quest for mineral riches, and a series of deals were signed with Bolivian and
Venezuelan concerns. One of these deals was to ultimately pay future dividends
for Jordex investors.
Early in 1991, the company formed a joint venture with Corporation Federales de
Minas of Venezuela, one of the largest landholders in that country. Cofeminas, the
newly minted, equally owned joint venture company, held a 100-per-cent interest
in the Loma de Hierro lateritic nickel deposit which was believed capable of
producing 60 million pounds of nickel annually, at $1.30 (U.S.) per pound. The
property had originally been explored by Inco Ltd. during the 1940s, and later by
the Venezuelan government, but had surprisingly lain dormant for 16 years prior to
the acquisition by Cofeminas. A reserve estimate, completed in the 1960s, had
estimated 42 tonnes of ore were present, grading 1.55 per cent nickel, and nearly
26 per cent iron. A revised estimate, conducted by Cofeminas, estimated that 23
million tonnes of ore were present, an amount sufficient to provide production for
20 years.
The Cofeminas joint venture had little intention of developing a mine on their own,
and after a year of negotiations, a deal was signed with Anglo American Corp. of
South America (AMSA) during 1993. Under the terms of the agreement, AMSA
was given the option to purchase a 70-per-cent stake in Cofeminas following the
completion of a full feasibility study. The study carried an estimated cost of
$6.7-million (U.S.) and was to be financed by AMSA. The proposed purchase
price for the 70-per-cent interest was to be in the neighbourhood of $30-million
(U.S.), and Jordex's South American mining foray was beginning to provide a
payoff.
AMSA promptly commenced the feasibility study, and the results were available
in May of 1995. Geological reserves were estimated at nearly 40 million tonnes of
ore, grading 1.5 per cent nickel and 18.3 per cent iron. Gross revenues were
estimated to be in the neighbourhood of $200-million (U.S.) annually. The capital
cost to develop the mine was considerable however, estimated at $400-million
(U.S.), and the partners would require several years to recoup the cash outlay. On
the whole, it was a favourable result nevertheless, and AMSA subsequently
agreed to acquire an 85-per-cent interest in the Loma de Hierro joint venture
company, for $33-million (U.S.). Following this purchase, Jordex would retain a
7.5-per-cent participating interest in the project, which was expected to generate
an average of $4.5-million annually for the company.
Financing for the project was arranged by AMSA during the summer of 1997, but
as the year drew to a close, Jordex announced it would not be contributing its
share of the required funds, citing increases in projected capital costs and changes
in the financing parameters. Jordex would retain only a nominal interest in the
property as a result of this decision. Jordex vice-president, Jim Graham,
reaffirmed the decision, stating that the company believed that commodity prices
were so low at that time, and the costs had escalated to a point that it no longer
appeared to be a good use of the company resources. Mr. Graham said that
Jordex retained a 1-per-cent stake in the project, and this interest would ultimately
provide an income stream after the joint venture debt was paid off, but this event
was several years away. He said that Jordex would consider offers on the
remaining interest.
With its treasury inflated to over $20-million, as a result of the sale of the majority
interest in the project, Jordex began to search for a new direction. The company
had gained a higher profile through its involvement in Loma de Niquel, and the
company used the cash from the original AMSA buy in, and from subsequent
private placements to acquire several mineral properties in North and South
America. Jordex was actively involved in Bolivia, holding interests in a number of
properties, including the San Javier group, on which Barrick Gold Corp. held an
option on for a time. After Barrick dropped the option, Jordex ultimately found
another joint venture partner in Gold Fields Ltd. When Gold Fields announced it
was terminating the agreement last year, the writing was on the wall. Jordex
announced it was dropping the property, and indeed was closing its Bolivian office
early in 1999.
The company also held interest in the Expo property on Vancouver Island, the
Table Mountain property in Nevada, and a number of prospects in Brazil. A few
of these plays produced interesting and encouraging early results, but ultimately all
were deemed to be uneconomic based on the work to date.
It was clear by late 1998 that Jordex was carefully examining other options, and
that few of those options involved the resource sector. The company had
experienced reasonable success as an explorer, but the downturn in the resource
markets had a devastating effect on the shares of most junior resource companies.
Jordex had commenced trading in June of 1989 at 50 cents, and the share price
had appreciated to $3.50 by the summer of 1991 as the Venezuelan nickel play
took shape. From a high of $3.75 in June of 1996, Jordex shares had declined in
value to a surprising low of 31 cents by August of 1998. At that level, a company
with $20-million cash in the bank was carrying a market value of a mere
$9-million.
As 1999 began, the company began to unveil its new course. Late in January, Mr.
Hinchcliffe announced that Jordex had retained Hamilton Group LLC, of White
Plains New York, to assist in the identification of new opportunities. Under the
terms of the deal, Hamilton was to acquire 800,000 shares of Jordex for
$384,000 and a Hamilton principal, William Staudt, was appointed to the Jordex
board of directors.
The Jordex board of directors saw additional changes. Long-term director, Paul
Kostuik, was replaced by secretive Swiss financier, Carlo Civelli, in March, when
Mr. Civelli's Clarion Finanz AG acquired 500,000 shares by way of a private
placement. Mr. Hinchcliffe continued in his role as chairman, but now shares the
role of chief executive officer with Mr. Staudt, who was appointed to the position
recently.
Mr. Staudt brings intriguing credentials to the position. Trained as a lawyer and
investment banker, he has been actively engaged in the merchant banking and
buyout business for over two decades. As a principal with Hamilton Capital
Partners, which he helped found in 1990, he was actively engaged in leveraged
buyouts. In 1992 he sponsored the acquisition of a company for an estimated
$15-million (U.S.) through a financing deal. The company was sold three years
later for approximately $240-million (U.S.). Jordex shareholders hope Mr. Staudt
can work similar magic at the helm of their company.
In these days of Internet hoopla, anything is possible. In mid-June, Jordex
acquired an interest in Medsite.com, the leading Internet provider of services to
the medical industry, for $1-million (U.S.). Mr. Graham said that Jordex was
allowed to participate in the Medsite financing due to a personal relationship that
Mr. Staudt held with the fund arranging the financing. While Medsite is believed to
have raised $25-million (U.S.) to date, Mr. Graham could not say what share of
the company is owned by Jordex, but he indicated that the percentage was
already set. He said that the information would become available late this year or
early next year, about two months prior to the initial public offering planned by
Medsite. Under the terms of the investment, Jordex holds an 8 per cent
subordinated exchangeable note that gives the company the right to convert its
investment to either convertible preferred stock, or common stock of Medsite.
Jordex must announce its conversion choice by the end of November.
Medsite is based in New York City, and offers a number of services to
physicians, including an on-line medical book store, a wide array of software
tailored to the medical profession, delivery of the abstracts of medical journals
through E-mail, and an on-line medical supply store. The site carries the latest
medical news for the practicing physician, and financial news for those with a
penchant for investing. Medsite now claims that its Web site has in excess of
250,000 regular users, and draws over 50,000 visitors per day. As well, Mr.
Graham said that Medsite has acquired a number of strategic partners that are
expected to aid further growth. He said that the company went to a number of
pharmaceutical companies, who traditionally contact physicians directly to
promote their products. Medsite proposed to act as an intermediate step in the
process, whereby the company would offer a more efficient means of contacting
the physicians. The alliance appears to be a success, currently accounting for 40
per cent of Medsite's revenues.
Providing on-line services to physicians appears to be a growth industry, and
Medsite faces several competitors offering at least some overlapping services,
such as the WebMD site of Healtheon Corp. Medsite believes the sector will see
consolidation over the next year, and is actively adding additional strategic
partners as a result.
One such partnership has been struck with Health Stream, whereby Medsite will
launch MedUniversity.com, a service designed to meet the continuing education
needs of healthcare professionals. Health Stream will provide the on-line content
and the proprietary software required to manage the on-line university. A
partnership agreement was reached with ePhysician, an on-line provider of
services to healthcare workers, which allows ePhysician clients ready access to
Medsite's on-line book store. The company also partnered with MNBA America
Bank, in an agreement that will see the Medsite Platinum Mastercard offered to its
customers.
Medsite recently appointed Gregory Scott as chief financial officer. Mr. Scott was
previously the chief financinal officer with Prudential HealthCare, and is expected
to further Medsite's planned growth. That growth appears well under way, as the
company hopes for annual revenues of approximately $50-million next year.
Meanwhile, Jordex continues its quest for new investment opportunities. Mr.
Graham said that the company had looked at a few companies, but has yet to
make a further acquisition. He said that it was likely that future investments would
be in the Internet or telecommunications sectors. Mr. Graham said that many
shareholders were asking if the company would be making one large investment,
or taking a series of smaller stakes in suitable companies. He was unable to
answer that question, but did indicate that Jordex was actively looking at both
options. He stated that, based on the "investment opportunities we've seen, we're
more likely to do a Medsite type of deal," and added, "With the kind of cash we
have, we could distribute that very nicely." Jordex appears to be concentrating its
efforts on identifying companies that have yet to complete an initial public offering,
and performing due diligence on the better opportunities.
The market has responded favourably to the new direction taken by Jordex. From
its 31-cent low last summer, the company's shares rallied to a high of $1.12 by
mid-April. In the absence of further news of new acquisitions, Jordex shares
declined in value to an end of September low of 65 cents. Jordex closed
Wednesday at 80 cents, up two cents on the day, as the market awaits the next
acquisition with anticipation. That anticipation is shared by Mr. Graham, who said,
"We believe the growth potential in the technology sector is going to last for a long
time, and we would like to be part of that growth."
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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