From: MicroCap.com
As if the mortgage and crisis mess wasn't enough in the U.S., now we get to watch tens of millions wiped from microcap investor portfolios in one fell swoop. Monday morning, high flying Goldsource (GXS.V $6.10) released results of their FIRST (important word there. - First) drill hole. This was the followup hole to the accidental discovery hole in April. To make the long story short, they were looking for diamonds and intersected coal. As a result, and through the use of some magical potion combined with insanity, the stock was pushed from $0.20 to $19 !!
So you have ONE accidental drill hole and it justified an increase in market cap of almost $400 million - from about $3 million. Along with it went dozens of microcap companies promoting their stocks like lunatics - typically on millions and millions of shares as they tried to create area plays in NE Saskatchewan by applying for millions of acres in coal permits.
I commented in the midst of all this craziness that even IF they did find coal there, where did they plan on selling it ? The closest market would be Ontario and they are trying to shut down their entire network of coal fired generating stations. Sherritt already has excess capacity at the coal mines in Saskatchewan and Alberta and if it was higher grade met coal, they would never compete with the likes of Fording in the Rocky Mountains. The whole concept to begin with made no sense.
So what happens this morning ? Goldsource announces that this first followup hole did not even come close to hitting what everyone hoped. In fact, it appears to be an outright failure on a scale of being economical. So as the stock is collapsing (dramatically) ALL the area players are going right along with them. As GXS is now below $6 (remember it was at $19 a month ago after going vertical), reality is finally starting to set in.
It is not only astonishing that ALL these stocks were pushed to huge gains on ONE hole, but GXS even managed to raise $18 million at $11.75 this past month ! What the heck were people thinking ?
Anyone that bought into these coal plays early and managed to sell is laughing all the way to the bank. The sad part is, thousands were the ones buying into all this hype and nonsense. As a result, that group of investors have now lost millions and millions of dollars. And all at a time when most should be sitting on the sidelines waiting for this whole credit mess to settle out.
Its called the Greater Fool Theory. And believe me, when it comes to microcaps and penny stocks, it definitely exists. Its what all these promoters and brokerage firms use to fleece unexperienced investors... and its a real shame. |
