Interesting read, makes me wonder how long we'll be halted.
B
Financial Post
CALGARY - The Canadian Venture Exchange (CDNX) is
clamping down on exploration companies re-inventing themselves as
e-commerce firms, and making investment dealers more
accountable for such deals, amid concern the trend is motivated by
speculators seeking investor attention.
The changes follow a rash of reverse takeovers of dormant shells
and business changes pushed through in recent months. The
transformations are one of the engines behind the explosive increase
in trading on the CDNX since this year.
Gerry Romanzin, executive vice-president for the CDNX, said the
exchange is tightening the rules to ensure such transformations are
motivated by sound business practices.
"We want to make sure that any change of business is done for the
right reason, that there is a good business plan and that it's not
flavour of the week," he said.
The rush to transform into dot- com firms has been led by junior
mining companies, which have been out of favour with investors and
-- as a sector -- have a long history of stock promotion.
Some observers say the changes look suspicious and appear to be
motivated by speculators looking for investor attention without the
know-how to run successful high-tech businesses.
"The way we see it, it's the old mining promoters that happened to
catch a faster train," said one Calgary broker, who asked not to be
named. "Some of us see it as a promotional play. There is a
management team, a shell, and you just change the shingles. We're
buying and selling air."
Mr. Romanzin said the exchange is stepping up its due diligence,
and will make more detailed management checks and business plan
reviews.
From March 1, the exchange will make investment dealers more
accountable for the companies they sponsor.
For example, change-of-business transactions and reverse
take-overs will require the same onerous reviews as those currently
done for initial public offerings and capital pools, Mr. Romanzin
said.
In addition, the exchange will conduct unannounced audits on
dealers to ensure they have followed through.
Since January, 15 mining companies trading on the CDNX have
applied to change their business or do reverse takeovers of dormant
companies.
Last year, during the six months leading up to the merger of the
Alberta and Vancouver stock exchanges that resulted in the
CDNX, there were 15 reverse takeovers and 25
change-of-business transactions on the VSE.
At least 30 of these cases involved companies switching to
Internet-based or related technologies, said Don Gordon, director
of business development at the CDNX.
For instance: Bronx Minerals Inc. of Vancouver became Las Vegas
From Home.Com Entertainment Inc., focusing on gambling via the
Internet; William Resources Inc. acquired MagiCorp Inc., a private
Toronto company developing a chain of high-tech entertainment
centres; and Afrasia Mineral Fields Inc. took a stake in
BroadcastMusic.com Inc. to become a Web-based broadcasting
company.
Beng Lai, an investment banker with Jennings Capital Inc. who
specializes in high-tech companies, warned investors to be careful
with out-of-favour companies switching industry.
However, others say the rebirth of these companies is a cheaper
and faster way for a new technology company to become publicly
traded and the trend is creating a windfall for existing shareholders.
"Right now, there is a huge demand for these speculative junior
technology companies. The quickest way to supply that market is to
do these RTOs [reverse takeovers]," said Jeff Rath, a small cap
analyst at Canaccord Capital Corp. in Vancouver.
"It's not about hard selling. It's because the brokers, the
entrepreneurs in the financial community, see it as a way of suppling
the market with what it wants."
Dorothy Atkinson, a mining analyst with IPO Capital Ltd. in
Vancouver, said that, while some of the change-overs are
surprising, companies in the mining sector have always been quick
to change businesses in the past if faced with lack of investor
support.
"To get shareholders some value they look to other ways of
increasing their share price and at the moment there's no doubt that
that lays in the Internet and technology stocks." |
