The following document is a summary of my due diligence efforts on a stock I have followed very closely over the past 10 months. JORDEX is listed on the Toronto Stock Exchange (TSE) under the symbol JDX. I am a private investor who is not compensated by the company in any way, however I am currently a shareholder and I have contributed regularly to both the Silicon Investor and Stockhouse Bullboard threads.
This document is a substantial one, as I have taken extreme effort to verify and cross-reference all of the facts listed in it.
SUMMARY (November 6, 1999)
-In the coming months management has stated its intentions to restructure the company. Based on my discussions with management it has become very apparent that they are planning on restructuring the company based on a organizational model similar to that being presently used by companies such as ICGE, CMGI, SFE, idealab!, or Softbank. However the company has stated that if the opportunity presented itself they may opt to use their finances to make a single large investment in one U.S Company.
-They hold $21.5 million in assets ($19 million cash) with no liabilities and presently have a positive cash flow.
-The company has stated that they are in the process of screening potential U.S acquisitions in the telecommunications and business-to-business e-commerce sectors.
-On June 21/99 they made a $1.5 million investment in Medsite.com, a much anticipated and potentially "HOT " Internet IPO coming out on the NASDAQ in the next quarter. The investment is convertible into shares of Medsite.com at a price significantly below their IPO price.
-Insiders have been aggressively buying shares during the past year, and my research shows that these same insiders have not sold a single share in the past year.
-Insiders and "friendly" hands currently own ~50% of the outstanding shares.
-Management has a long history of finding and closing big deals.
All questions can be forwarded to either Jim Graham (1-800-675-1749), investor relations for Jordex (jimgraham@jordex.com) or post them directly on the "JDX" thread on the Silicon Investor (https://www.siliconinvestor.com/subject.aspx?subjectid=12441). If you prefer, you can also send them to me at KeithMassey36@hotmail.com and I will attempt to provide you with an answer.
Quote: fin-info.com
Note: Price is quoted in Canadian funds ($1 Can. = ~0.67 U.S)
Discussion Topics:
1. Background
2. Business Strategy and Opportunity
3. Management History
4. Medsite.com
5. Insider holdings / Friendly hands
6. Financials
7. Name Change
8. US Listing
9. Newsletters/Advisors
10. Technical Analysis
11. Lome de Niquel
12. Why isn't the stock higher?
13. Final Thoughts
1. BACKGROUND:
Jordex was incorporated in 1987. They received their TSE listing in January 1989. For much of their past, they were in the mining industry. With new management changes, extensive industry contacts, and a substantial bank balance, they are now looking to make the best use of their experience and available cash.
In 1996, Brian Hinchcliff (Chairman and CEO) negotiated a deal whereby the company sold one of their mining properties at the peak of the mining bull run (Loma de Niquel - see below). This property was sold for $22 million (Can.) leaving the company with an inflated treasury. In a May 5, 1998 letter to shareholders the company stated that as a result of historically low metal prices the company considered leaving the mining industry. Earlier this year the company began unveiling its new business plan. Late in January, the company retained Hamilton Group LLC, of White Plains New York, to assist in the identification of new opportunities. Around that time, the president of the Hamilton Group, William Staudt, was appointed to the Jordex board of directors (http://www.jordex.com/news9901.html). In addition, well-known Swiss financier Carlo Civelli was also brought on as a director of the company (http://www.jordex.com/news9902.html). In June 1999, in a deal set up by William Staudt, the company made an investment in Medsite.com, a much anticipated (and potentially "HOT") IPO coming out on the NASDAQ in the next quarter (see detail below). On October 15, 1999 the company announced that William Staudt was appointed President and co-CEO of Jordex (http://www.jordex.com/news9907.html). The company has stated that they are actively seeking U.S acquisitions in the telecommunications or business-to-business e-commerce sectors. Although the company has stated that if the opportunity presented itself they may opt to use their finances to do one large deal, Jim Graham (Investor Relations) has recently stated in an interview that the company was far more likely to do several financing deals similar to Medsite.com. In numerous talks with the company, it has become very apparent that they are likely to structure the company similar to ICGE / CMGI / SFE / idealab! and Softbank.
2. BUSINESS STRATEGY AND OPPORTUNITY:
As a result of employing a similar business strategy, companies such as ICGE, CMGI, SFE, idealab! and Softbank have experienced tremendous growth in their share price. . In a nutshell, these companies are presented with, and subsequently analyze thousands of business plans a year. These plans are presented to them from primarily private companies near the start of their growth phase. After extensive due diligence they will generally end up only investing in a select few of the thousands of companies they screen each year. For the most part, once they invest in a company they become actively involved, assisting them with developing business strategies, operations, management teams, etc. Their main goal is to assist the company to become a publicly traded market leader. In addition, companies such as ICGE and CMGI integrate their partner companies into a collaborative network that leverages the collective knowledge of the companies to help accelerate their growth.
A good example of the potential growth for this type of business model is provided by performance of CMGI. A $1000 investment in CMGI's IPO less than six years ago would be worth ~ $500,000 at the recent highs (http://finance.yahoo.com/q?s=CMGI&d=my). This exponential growth was largely the result of a combination of exceptional management - who could recognize companies with the potential for large growth, and the opportunity to invest in those companies right near the bottom. For example, in 1995 CMGI paid $2 million for 80% of Lycos; CMGI's remaining 17% stake is now worth over $900 million. The recent strength of the Internet Capital Groups (ICGE) IPO also demonstrates the large potential investors see in this business model (http://finance.yahoo.com/q?s=ICGE&d=1y).
Businessweek Article on CMGI: OCTOBER 25, 1999
techstocks.com
Wall Street Journal Article on SFE: OCTOBER 18, 1999
Message 11672353
Businessweek Article on ICGE: NOVEMBER 1, 1999 ISSUE
Message 11702414
As each of the above companies continues to grow in size, it is clear that it will be more difficult for them to maintain the exponential growth rate they have enjoyed over the past few years. It can be argued that because they currently demand multi-billion dollar market capitals, they have already gone through their tremendous growth phase. My belief is that by using this type of business model, it will be the smaller companies, such as Jordex, possessing exceptional management, strong business connections and capital resources who have a greater likelihood of offering their shareholders the opportunity to realize a similar exponential growth of their investment. Jordex has already demonstrated through its first investment in Medsite.com that management is able to recognize, and invest in, companies with the potential for large growth.
3. MANAGEMENT HISTORY:
WILLIAM STAUDT (President, co-CEO)
Mr. Staudt was appointed President and co-CEO in October 1999. As their new president he brings some impressive credentials to the position.
Background - Mr. Staudt has been actively engaged in the merchant banking and buyout business for over 25 years. He is a graduate of both Yale University and the University of Michigan Law School. Earlier in his career, Mr. Staudt worked for A.G. Becker Inc., a merchant banking firm that was later taken over by Merrill Lynch. As a principal with Hamilton Capital Partners (located in White Plains, NY), which he helped found in 1990, he has been involved in numerous in leveraged buyouts throughout his career. Mr. Staudt's past business record is very impressive. An interesting excerpt from a recent CSW Streetwire report that illustrates this:
"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.)". His ability to secure an investment in a hot Internet IPO (Medsite.com) coming out in the next quarter demonstrates the powerful connections Mr. Staudt has in the business sector. (https://www.siliconinvestor.com/readmsg.aspx?msgid=11671281) -
During the past 12 months Mr. Staudt, through his private account and Hamilton Capital Partners, has purchased 1,300,000 shares and presently holds options to purchase another 1,000,000 shares. One of the first rules I follow when researching a company, and then taking a position in it, is make sure that insiders/directors have a large stake in the company and are buying shares. Mr. Staudt's current purchases have given me a strong sense of confidence and trust in the direction the company is heading.
BRIAN HINCHCLIFF (Chairman and co-CEO)
Mr. Hinchciff is the former president of the company and is presently Chairman and co-CEO. Mr. Hinchcliff has served as a director of Jordex since August 20, 1990. He also has an impressive history and has a wealth of experience upon which he can draw upon.
Background - Mr. Hinchcliff is a former Vice President at Goldman Sachs (J. Arron division). He has served as a director for numerous successful resource companies and was a co-founder of American Pacific and Mining Co. He is President of AMPAC Group, a private Florida company which, during the past decade, has purchased several large blocks of shares in JDX. Mr Hinchcliff demonstrated his business savvy by securing the sale of Loma de Niquel for $22 million at the peak on the mining boom in 1996.
Mr. Hinchcliff presently holds 2,274,771 shares, and according to the latest Sedar report he also holds 225,000 options. From information that I was able to obtain from the last 3-years of Sedar reports it appears that Mr. Hinchcliff, even as the company climbed to almost $4 in 1997, did not sell any of his shares in JDX. Nor did he sell any shares as it fell back to the present price. I believe that through both this climb and fall in share value, his confidence in the value of the stock demonstrates Mr. Hinchcliff's enormous confidence that he has in the company - and their ability to achieve significantly higher prices.
CARLO CIVELLI
In order to move 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 business plans and their ability to carry them out. To achieve this, it often requires well-planned and intense promotion to bring the stock to the attention of millions of investors and fund managers. Companies, their promoters, and a select few "very dedicated private investors" who are effective at doing this are generally successful at generating a large, and loyal following. Unfortunately, great potential and management, without good promotion behind it is often not enough to generate high share prices.
The individual who will likely be coordinating much of Jordex's promotion is a well known, and well connected Swiss financier - Carlo Civelli. Mr. Civelli was brought on as a director in JDX on Jan. 20, 1999 (http://www.jordex.com/news9902.html). He has been involved in some of the biggest promotions in Canada in the past 20 years, and he has been involved with several large U.S based promotions as well. Mr. Civelli is also very well known for his success in arranging large European based financing for companies he is involved with.
His first big mark was made in Vancouver in 1981-82, when he and Doug McRae helped to make Breakwater Resources (BWR) one of the market successes of the year. Over the many years that he has been involved with selected Canadian companies, the percentage of these companies whose share price increased dramatically is impressive (e.g. NMR, SLU, AHV, UP, RDL etc - all TSE and VSE companies). His involvement also includes several big U.S names (Novadigm - NVDM and International Cablecasting). What is most impressive is that many of these companies have gone up 500% or more in the year after Mr. Civelli purchased his shares.
The last big promotion I can connect Mr. Civelli to is NIR on the TSE. Prior to starting his promotion efforts, Mr Civelli held approximately 2.65 million shares, acquired at 15 to 21 cents. His holding in this stock included a large private placement at .20 which he took down several months before the promotion started (Source - CSW Streetwire report, June 1998). In a three month period, from March to May 1998, NIR's went on an amazing run hitting a high of $4.88 on May 6. At the peak of this run, Mr. Civelli's initial investment translated into a more than a 2500% gain.
This is not Mr. Civelli's first involvement with Jordex. In November 1990, Mr. Civelli, through Clarion Finanz AG, purchased 277,000 shares at .90 with attached warrants. Since Mr. Civelli was not a director of the company at the time it is unclear how many shares he may have purchased on the open market prior to, or after, the private placement. After Mr. Civelli's private placement, Jordex climbed over 350% over the next year. On July 1991, JDX arranged a $5.75 Million US financing with a group of European investors at a price of $3.15 (likely headed by Mr. Civelli).
(http://www.intelligentspeculator.com/charts/19991024/1200/civ2.gif). However, as a result of disappointing initial drill results the company was not able to remain at this new found high.
Through his private account and his Zurich-based financial company - Clarion Finanz AG, Mr. Civelli now owns 1,731,666 shares of Jordex Resources. 500,000 of these shares were purchased through a private placement on February 8, 1999 at .60 (http://www.jordex.com/news9904.html). At the time of this purchase Jordex was selling just below .60 so Mr. Civelli did not receive his shares at a discount to market value. In addition, Mr. Civelli holds options to buy an additional 600,000 shares.
After conducting my research, and following his record, I believe that Mr. Civelli's large holdings in the company speak volumes about where the share price is likely heading. Over the past few weeks, as I have placed my usual phone calls to JDX management to ask my questions, they sound more upbeat and confident in explaining where they are in there timing. I now believe that they must be close to being ready to announce their investment strategy and plans going forward. In the right hands, I am confident that their story would be a very easy to sell to the investment community. I find it encouraging knowing that the majority of shares held by Mr. Civelli have been purchased very near to the current share price. In addition, I also believe that one of the primary reasons Mr. Civelli was brought on board was to secure financing with European shareholders at far higher prices.
JOHN FAIRCHILD (Vice-President Finance)
John Fairchild joined Jordex in 1994. Mr. Fairchild holds degrees in Math & Economics, from Carleton University, Ottawa and is a Chartered Accountant. Mr. Fairchild was formerly a general practice partner (14 years) with Coopers & Lybrand (now Pricewaterhouse Coopers) in Vancouver, BC. Pricewaterhouse Coopers provides solutions and strategies to businesses, public and private, in numerous industries including communication
JAMES GRAHAM (Vice-President Investor Relations)
James Graham joined Jordex in 1995. Mr. Graham has spent over 14 years representing Canadian and U.S. public companies. Mr. Graham developed an independent franchise for the Shaklee Corporation and held management positions with American Airlines. Prior to his position at Jordex he was Vice-President of Investor Relations of Siskon Gold Corporation, a company trading on the NASDAQ stock exchange. During the period from 1988 to 1994, the company grew ~1400% with Mr. Graham at the helm. During this period, Mr. Graham was instrumental in securing a large financing deal for the company. Mr. Graham left Siskon Gold in 1995 while the company was still near its all time high to joined the management team at Jordex.
UNITED STATES CONNECTIONS
The company has stated that it is primarily seeking U.S based acquisitions. I believe that in order for any firm to be successful in the US mergers and acquisitions arena, they must first have spent considerable time developing and nurturing a wide network of US connections, and potential supporters.
Some investors may conclude that because Jordex is only a small Canadian company listed on the TSE, they will have a hard time breaking into the US market. If so, then I believe that these people will have come to the wrong conclusion. I will grant you that on the surface it is easy to make this assumption. People may assume that because they have a field office in Vancouver, British Columbia, they must just be a small Canadian based company. However, when you dig deeper, you will find that most of their management team - Mr. Staudt, Mr. Hinchcliff, Mr. Graham and Mr. Civelli all have set up a base of operations in New York City, NY. It is only John Fairchild who operates out of the Vancouver, B.C. office. The rest of the management team has maintained their residence (and more importantly their corporate connections) within the United States. What is more interesting is that the majority of Mr. Staudt's previous business activities have primarily involved dealings with U.S based companies. On top of this, I have found that Mr. Civelli has also had a great deal of experience with numerous U.S based companies as well. He has also held seats on the boards of many of these same companies. To add to this, I have found that Mr. Graham's depth and breadth of experience in previous Investor Relation positions have also been with U.S based companies. I believe that the extensive relationships and experience the management team has developed within the United States will serve them well as they unveil their plans in the near future.
In addition to U.S connections, Mr. Civelli is also very well known for his European connections and ability to secure large financing with European investors. Prior to coming to North America, Mr. Civelli severed as Vice President of a European NYSE brokerage firm for 7 years and also severed as Vice-President with New Province Securities in Zurich.
In summary, I believe that it is important to stress that this story will not just be targeted to a Canadian audience. I am confident that many US and European investors and investment firms will be eager to hear what their friends at Jordex have been up to.
NOTE - This is only half the document. The rest of the document is continued in the next post.
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