4. MEDSITE.COM (http://www.medsite.com/):
Jordex has made an early $1.5 million pre-IPO investment in Medsite.com.
With current revenues of ~$14-18 million for the present fiscal year and an estimated $50 million in revenues for next year, Medsite.com is not your standard Medical website. Medsite.com is a private company that has already received coverage by Forbes, Bloomberg, CNBC, and numerous other industry publications. It also has been previously picked by CNN as one of the three top medical Internet sites. They currently have over 300,000 regular medical professional users, and receive well over 50,000 hits a day with these numbers growing daily.
Unlike most other Online Medical Sites, Medsite.com does not receive the majority of its revenue from advertising dollars. Medsite.com is firmly entrenched in business-to-business Internet sector and has a wide range of products and services. Unlike many other start up companies, Medsite.com has a relatively long and successful track record.
From a recent CBS MarketWatch article (November 2 1999-
It is out belief that "the business-to-business sector is one of the hottest places to be in e-health right now"….."Medsite is the leading destination -- really a physician portal -- for medical professionals. The company has a solid business model with multiple revenue streams and real revenue."https://www.siliconinvestor.com/readmsg.aspx?msgid=11786993)
The products and services offered by Medsite.com include:
Medsite Supplies: Currently offers an electronic catalogue of over 2000 medical instruments and replacement parts from nearly 100 suppliers. It is important to understand just how big this market is. There is over $140 billion spent world wide by hospitals and medical centers on everything from tongue depressors to multi-million dollar imaging devices! What is most exciting is that Medsite.com is a market leader for these online medical sales. (http://www.medsupplies.com/)
MedBook: Offers over 90,000 medical books. TechWeb recently called them "the medical industry's Amazon.com". (http://www.techweb.com/wire/story/TWB19990331S0018)
Medsite Software: Currently carries thousands of medical software titles.
MedMoney: Offers a wide range of financial services for the medical community. This includes medical equipment leasing, practice management content, financial planning and a Medsite.com credit card.
Medsite University: Offers accredited online Continuing Medical Education. There is currently a $6 billion health care education market and this service will make engaging, affordable education a reality to over 5 million medical professionals.
Medsite Journal Tracker: A powerful service that delivers abstracts and table of contents from the choice of the world's leading medical journals directly to the clients e-mail account for a fee.
Coming Soon:
Med-Filer - The first comprehensive, secure, online insurance application,
Medsite Filer saves the user countless hours of documentation time. It allows the user to complete an online application only once, and their smart technology will adapt it to the requirements of individual payers.
Medsite Journals: Will allow electronic subscriptions to leading medical journals. Issues will be e-mailed to subscribers for a fee.
To help secure their dominance in the sales arena they offer an affiliate program (http://www.medsite.com/affiliate.cfm?FirstLevel=affiliate).
With this program, other online medical sites can offer Medsite.com's products and services under their own medical site name. Medsite.com takes care of all the infrastructure tasks such as processing all the orders, shipping, customer service, etc. For this referral service, the partner site receives 5% of the sale of books, software and journal tracking, and 1% of supply sales. For example, the book icon on the popular online Medical site Medscape.com is actually a direct link to Medsite.com's bookstore. (http://medscape.medbookstore.com/index/index16.cfm?CFID=13331&CFTOKEN=32374585&si=234&chan_id=1)
The American Medical Association recently announced a for-profit web site (http://www.medem.com/) which is destined to become one of the most popular online medical sites. Although this site is under construction they have just announced that "Consumers / Patients will be provided the opportunity to easily access and purchase various medical and pharmaceutical products, including books and educational materials created by participating medical societies, and also made available through, various partnerships established with e-commerce vendors." As the AMA has been a partner of Medsite.com since November 3, 1998 (http://www.medsite.com/company/index.cfm?page=ama), and it currently offers MedBookStore.com on their current website, then it can be assumed that it is very likely that the AMA will be offering Medsite.com products on their new site as well. This behind the scenes "supplier" form of partnership significantly adds to the bottomline of Medsite.com. In real terms, it extends their product distribution reach far beyond what they could under their own brand name. They will have the best of both worlds as they will be offering these products on their own site, while at the same time be acting as a wholesaler to their perceived competitors / partners.
The company has developed strategic partnerships and alliances with industry-leading hospitals, medical schools, associations, and health care companies from more than 60 countries. Medsite's customers include: physicians, residents, nurses, medical students, physician assistants and pharmaceutical companies. The list of strategic business partners reads like a who's who in the Medical field: America's Health Network, Medcast, Medscape, Physicians Online, WebMD, QD Online, HealthGate Data Corp, etc. Just as impressive is the list of Medical Associations that Medsite.com has partnered with: American Medical Association, American Medical Student Association, Southern Medical Association, International Federation of Medical Student Associations, European Medical Student Association, American Preventative Medicine Association.
Medsite.com has also been able to attract some impressive people to their company. Most recently is the announcement that Gregory W. Scott, the former CFO of Prudential HealthCare, joined the company as Chief Financial Officer (http://www.medsite.com/company/index.cfm?page=91499). Mr. Scott was the person behind the sale of Prudential HealthCare to Aetna for approximately $1 billion on August 6, 1999.
As mentioned earlier, in June 1999, Jordex announced a $1.5 million investment in Medsite.com (http://www.jordex.com/news9906.html). This investment is convertible into shares of Medsite.com at a price significantly below any IPO opening price. The exact number of shares that Jordex owns of Medsite.com will not be publicly released until Medsite.com releases their SEC S1 filing. It is expected that this will occur shortly.
The current market capitalization of online Medical companies (comparable to Medsite.com) who have already gone public can best be described as staggering:
Drugstore.com (DSCM) - $1.5 Billion (peaked $3 Billion)
Healtheon Corporation (HLTH) - $2.5 Billion (peaked $10 Billion)
By any reasonable estimate, Jordex should make several multiples of their initial investment on this deal. However, I believe that it is the quality of their first financing deal that speaks volumes about the future of Jordex.
IPO DATE: In a recent article in Silicon India, Mr. Bhan (the president of Medsite.com) stated that he "is confidently looking forward to an IPO in the fourth quarter of 1999".
(http://www.medsite.com/company/index.cfm?page=siliconindia). However in recent talks with the company it appears that the IPO may be delayed until January as a result of a deal they are in the process of closing. Since the first quarter is historically one of the best periods for a new IPO, I would expect Medsite.com to wait until this date before taking their company public.
5. INSIDER HOLDINGS:
In Canada, insider-trading reports are put out from the TSE. However, in order to obtain insider-trading reports as soon as they are released, I subscribe to Carlson Online.
According to the latest insider report, these are the insider holdings for Jordex Resources.
Brian Hinchcliff: 2,274,771 shares (Co-CEO)
William Staudt: 1,300,000 shares (President, Co-CEO)
Note: 800,000 owned by Hamilton Group LLC (President -William Staudt)
Carlo Civelli: 1,731,666 shares (Director)
Note: 1,441,666 owned by Clarion Finanz AG (Beneficial Owner - Mr. Civelli)
During the past year the insiders have been aggressively purchasing shares. They have purchased ~3 million shares during this period. In addition, during the past 12 months no current insiders of the company have sold shares.
The insider purchases include:
-A private placement of 800,000 shares to Mr. Staudt
jordex.com
-A private placement of 500,000 shares to Mr. Civelli
jordex.com
As mentioned before, this aggressive buying speaks volumes about the confidence the management of JDX has in their company's future. In addition to the insiders, groups identified as "friendly hands" have also been accumulating the stock during the past year (see details below)
FRIENDLY HANDS:
Along with insider purchases, there are two groups currently holding shares of JDX, which I refer to as "friendly hands".
HAYWOOD SECURITIES INC (http://www.haywood.com/)
In Canada, it is possible to identify which brokerage houses have bought or sold shares in a Canadian held security. I have spent considerable time going back through all of the trading records since last June 1998. As a result of my investigations, I have found that Haywood Securities has been accumulating shares of the company since last October 1998.
According to these records, it shows that a group at Haywood Securities has net purchased ~3 million shares during the past year. These purchases have included several major crosses involving Haywood Securities at last years lows:
11/03/98 - 172,000
11/03/98 - 280,000
11/03/98 - 179,000
12/07/98 - 208,500
12/07/98 - 478,500
In the past 8 weeks alone (since September 1, 1999), Haywood Securities has net purchased an additional 270,000 shares. In addition, on 10/29/99 Haywood performed another cross of 70,000 shares. It can be argued that a single broker house accumulating a large position in a company might not be of great significance. However in this case, I believe that the accumulation is of great significance as the head of Haywood Securities is a Mr. John Tognetti. I have been able to determine that that Mr. Civelli and Mr. Tognett have had a long business relationship and have been involved in several large promotions together in the past. For example, a joint Haywood/Civelli promotion - Novadigm (NVDM) proved to be very successful for both groups. (http://www.haywood.com/corporatefinance/novadigm.html)
I find it hard to discount as just a coincidence that Haywood Securities held a large position in NIR (TSE) before it went on its amazing 2500% run last year. I can unreservedly state that given their past track record, it gives me a great deal of confidence in the future of this company when I see Haywood Securities, along with the insiders of Jordex, continually accumulating large amounts of JDX shares.
EUROPEAN HOLDINGS
In talks with the company, they mentioned that several large European investors were holding ~6 million shares in European holding houses. I went hunting to see if I could find the origin of those shares.
-Back in 1991, Yorkton Securities placed a total of $5.75 million US of European investors' money into 7.5% three-year convertible debentures in Jordex.
-The debenture was first priced at $3.15. In 1994, it was renegotiated for .92 US with a longer maturity date.
-In June 1997, this debenture was converted into 6,414,651 shares of JDX at ~$1.30 a share.
-When the shares where converted in June 1997, the price of JDX was $1.20. Since that time the shares have not traded above $1.20.
-During the same period that the financing was being negotiated in 1991, Mr. Civelli was involved with the company. Since he is very well known for setting up financing with Europeans it stands to reason that he was most likely the one behind this financing.
So, what does this lead me to surmise? Well, I believe that we now have several very large shareholders - likely connected to Mr. Civelli - who have been holding a significant number of shares for almost 9 years. After this length of time, investors with this size of holding would understandably expect to see a very large return on their investments. I also don't see it as just a coincidence that Mr. Civelli recently joined the board and purchased a large number of shares for himself.
6. FINACIALS:
SHARES OUTSTANDING: 30,374,357, fully diluted 34.4 million
OPTIONS: According to the latest Sedar/TSE reports there are presently ~4 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 there are currently 0 (zero) shorts declared on JDX. Information source -
From the latest quarterly financial report (June 30/99) posted to Sedar on August 10/99
ASSETS:
Cash - $18,940,000
Investment in Medsite.com - $1,500,000 (see details below)
Loma de Niquel - $1,020,000 (see details below)
Accounts Receivable and Capital Assets - $58,000
Total Liabilities - $55,000
TOTAL ASSETS = $21,517,939
Note: Cash holdings are comprised of high grade primarily US denominated bonds.
Here is a total of their expenses for the past 6 months:
Depreciation = $15,000
General Administration = $200,000
Investor Relations = $60,000
Professional Fees = $55,000
Project Evaluation = $200,000
This demonstrates that they controlled their expenses so that they are at a very reasonable burn rate of $87,000/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: all above figure are in Canadian fund ($1 Can. = ~0.67 U.S.)
7. 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 plan on changing the name of the company in the near future to a name that better reflects their new business strategy. In order to change the name of a company it is necessary to get a shareholder vote. Since a mass mailing to shareholders is necessary to get this vote, Jordex likely decided to wait until after the new business strategy is announced so they can inform shareholders about their plans and mail out a ballot in the same mailing. I expect to see an announcement of a name change in the near future.
8. U.S. 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.”
9. 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.
In the past five years, the company has been followed by several professional newsletter writers including Paul Sarnoff, Jay Taylor, Neil Maedel, Brian Fagan, and Chris Bunka. However most of these are newsletters are exclusively precious metal oriented newsletters and as such, they do not currently follow the company.
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 widely followed "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 latest bi-monthly release put out on Oct 5, 1999, John Kaiser upgraded the company to a top priority buy and stated it is a "must have" for portfolios.
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"
As the company has not yet announced their master plan, nor have they announced any other deals other than Medsite.com, it is not surprising that a significant number of brokerage houses or newsletter writers do not currently follow the company. I fully expect as soon as the company unveils their full strategic plans, and as the news begins to flow out about their respective investments, we will then start to see numerous stock brokerage houses or newsletter writers putting out positive recommendations on the company. .
10. TECHNICAL ANALYSIS
As the chart of the company is constantly changing, I have created a web site that examines both the short and long-term chart technicals. This web site is updated on a daily basis.
www3.mb.sympatico.ca
11. LOMA DE NIQUEL
Although JDX has been completely out of the mining business for over a year it 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%.
Loma de Niquel is a laterite nickel deposit in Venezuela. Production is estimated at 35-40 million lbs of nickel annually over 27 year. Based on numbers published in Paul Sarnoff's Gold Stocks Advisory, the 1% stake in the mine would result in a yearly cash flow of ~$1 million/year. However Jordex has stated that their stake in Loma de Niquel is up for sale.
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 done a dramatic turn around and more than have doubled in price.
From a recent Wall Street Journal Article
"Nickel is the jewel in the metals crown," says Jim Lennon, London metals analyst and longtime 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)
Although Nickel prices have risen dramatically Jordex has not reflected this in the value given to Loma de Niquel in their most recent quarterly results likely for tax reasons. It stands to reason that Loma de Niquel should be worth several multiples of the current book price with the recent strength in Nickel. The sale of Loma de Niquel will provide Jordex with additional capital to perform deals.
12. WHY ISN'T THE STOCK HIGHER?
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"? I think I have identified two reasons why the company is still selling near cash breakup value. These are: A) Lack of promotion and B) Metal Based Mutual fund selling
A. LACK OF PROMOTION:
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 said that the company does not plan on starting a full promotion campaign until the company has announced their new business strategy and the subsequent deal(s) which support this strategy. This helps explain the current share price. Once the deals are announced, 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.
B. MUTUAL FUND SELLING
Up until a year ago, the company has always been considered a gold/metals company. There are numerous mutual funds that are mandated to only buy and hold gold/metals companies. When a company held by one of those mutual funds changes their business model to effectively remove themselves from the gold/metal sector (e.g. Jordex), the mutual fund will dump their holdings of that company. This selling will occur, no matter how much potential the new company might have in their new business ventures. These funds have promised investors that the fund will only contain gold companies so they are forced to dump their shares.
According to SEC filings only two U.S gold/metal mutual funds held the company during the past year (http://www.10kwizard.com/)
According to these records, the Scudder mutual fund, which is a gold only mutual fund, have sold their entire 275,000 share holding in the company during the past year.
In addition, and according to the SEC records, as of June 30, 1999 the Midas fund quarterly report showed that they were still holding 400,000 shares of Jordex. The Midas fund is a well-known gold only mutual fund and has a policy of selling any companies not related to the gold industry. I was able to find that in July 1999 Oldum Securities (a brokerage house that had not bought or sold any shares of the company in the past two years) started dumping shares and driving the price down. Over the next 3 months this firm sold shares continuously without a single buy.
July - sold 50000
August - sold 298000
Sept. - sold 50000
This adds up to a grand total of 398,000 shares. As soon as they hit this mark the selling stopped cold and we haven't seen a single sale from Oldum Securities since Sept. 15/99. I assume that this selling was Oldum winding down the Midas fund holdings.
If I am correct, then the selling by these two U.S gold only mutual funds during the past year represent a total of 675,000 shares. These sales and sales from other metal-based mutual funds that are not U.S based may have artificially suppressing the price of Jordex during the past 6-9 months. The good news is that the volume in the past 9 months should have also provided these funds with more than enough opportunity to unwind their positions and remove any overhang from the stock. The recent price rise in Jordex suggests that the selling pressure has dried up.
13.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 well positioned for substantial growth. They have taken their time, protected their cash assets, and have brought in new management with both a depth of experience and connections. Their stated area of focus is one that is at the heart of the revolution that is now taking place. In recent talks with management I have got the impression that they are very close to announcing their investment strategy and plans going forward.
I believe in what they are doing. I like what I see, and I want to share my information with others. This way, we will all stand to profit in the future.
Thank you for reading this!
Keith Massey
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