9/02/97 - Canadian Firm Claims Big Gold Deposit in California
Desert
Aug. 31 (Omaha World-Herald/KRTBN)--Nebraska businessman Fred Arkoosh Jr. is a top executive and major shareholder of a Canadian mining company that he thinks is sitting on top of the biggest pot of gold in the world.
Canadian regulators, however, think that the company, Naxos Resources
Ltd., misled investors about its claims of gold contained in deposits in the California desert, hiding negative information, and has not proven that there's gold in the 30,000 acres of mineral rights Naxos holds.
Geologists and mining experts doubt that there's gold in the deposits.
Naxos' testing methods are unproven, they say.
Maybe it's the possibility of finding $30 billion worth of gold in Naxos' dry lake bed 60 miles west of Las Vegas that causes people to act, well, a little differently. Examples:
- Despite the regulators' allegations and the geologists' doubts,
investors in the United States have more than quintupled the price of
Naxos stock since July 22 to $5.37 1/2 a share. The shares trade on an
unregulated over-the-counter bulletin board.
- The Internet has been humming for months with information and
speculation about the gold possibilities, part of a lively discussion
about "desert dirt" investments such as Naxos.
- The president of the Alberta Stock Exchange, which had halted trading in Naxos stock, called in the Royal Canadian Mounted Police after a man claiming ties to organized crime made an apparent threat in a telephone call.
- Arkoosh has invested more than $3.5 million in Naxos, which is as
different a company as possible from his main business: Wilkinson
Manufacturing of Fort Calhoun, Neb., which makes plastic containers for deli food and microwave dinners, plus aluminum containers.
All this stems from the belief that gold is locked inside the soil at
Franklin Lake, Calif., a dry lake bed near Death Valley, and that Naxos can get it out.
Naxos has published an initial estimate that its land contains 100 million ounces of gold, which would be one of the world's largest deposits. Arkoosh and other Naxos believers say further testing might show even more gold. But some experienced geologists and mining securities experts say the lack of standard, verifiable test results raises questions about whether Franklin Lake will ever produce gold.
"It's hard to make money, and it's easy to lose it," said Norm Duncan, a mining analyst and broker with C.M. Oliver & Co. in Vancouver, British Columbia, where Naxos has its home office. "I would say this is extraordinarily speculative. If it works, these guys will turn out to be absolute geniuses. The problem I've got is that it's very difficult to compare (Naxos) to anything else, because the comparison doesn't exist....
"But it's the visionaries that prove the new rules. You have to be careful when you laugh at someone with a new idea, because sometimes they're correct. It's just extraordinarily rare."
It's that "but" that keeps investors interested and that attracted Arkoosh to Naxos eight years ago.
"I'm a risk-taker," he said, adding that flying sailplanes is one of his hobbies. A slender, high-energy 52-year-old, Arkoosh talked about Naxos in his office at Wilkinson Manufacturing, but wouldn't let himself be photographed. Too many people get interested when there's big money -- and gold -- involved.
Fred Arkoosh Sr. started Wilkinson in 1947 and soon the company was making aluminum trays for Swanson's innovative frozen TV dinners, growing over 50 years in the aluminum and plastic container business.
Fred Jr. attended Creighton Prep in Omaha and majored in chemistry at
Rockhurst College in Kansas City, Mo., intending to go to medical school. Instead, his father invited him to join Wilkinson, and he later received a master's degree in business administration from Creighton University.
He has been the top executive at the firm since 1980. His father died last year.
He also made some investments, and in 1989 acquaintances introduced him to Jimmy John, Naxos' chairman, president, chief executive officer and biggest shareholder. The company needed investors to raise operating cash.
"I know just enough chemistry to get me in trouble," Arkoosh said with a grin. Over the years he has purchased 5 percent of the company's stock. He agrees that Naxos is risky but thinks that it's worth the chance because of the possibilities.
He served on the board of directors for a time and last year became the company's chief operating officer without a salary -- and moved from Omaha to Vancouver to help resolve difficulties with Canadian regulators.
The Alberta Stock Exchange had stopped trading in Naxos stock, saying the company wasn't issuing proper public reports on its ore testing and wasn't using approved testing methods.
For such "junior mining" companies, ore tests are the key to proving
whether mineral claims are valid and whether the companies have value. The Alberta Exchange and most experts accept results from a standard ore test known as a "fire assay." The Alberta Exchange also will accept a company's specially developed test if it approves it.
Tom Cumming, president of the Alberta Stock Exchange in Calgary, said
Naxos had not reported fire assay results and had not sought approval for its own test method. The company wouldn't communicate until Arkoosh arrived and "made a real effort," Cumming said. "He took the time to call and arranged to come up and see us."
Arkoosh helped set up a process to get Naxos' test methods approved.
But Cumming said that when consultants from the exchange observed the
testing process, Naxos was unable to reproduce the results it had reported from earlier tests. The testing process was unclear, Cumming said.
When the exchange rejected the test, Naxos filed a $200 million lawsuit, claiming that the exchange was damaging shareholders by preventing trading. Cumming said the company kept publishing test results in violation of the exchange's rules.
"We reached a blank wall," he said. "The company refused to communicate with us constructively."
Cumming said Naxos' violation of the exchange's disclosure rules was
serious because investors should know the test results. He said the
company's unwillingness to comply with the rules was unusual, even among some 200 similar "junior mining" companies that trade on the exchange.
An apparently orchestrated telephone campaign against the exchange brought a dozen or more calls a day protesting the suspension of trading, he said. One call came from a "Joe Greeno" whose comments appeared to threaten some type of retribution from two families associated with organized crime in the United States.
"I told him we're not going to be intimidated by this," Cumming said. "I didn't know whether to laugh or cry or what the reaction should be. I didn't know if it was real. I didn't know whether to start looking under my desk or under my car."
He took the call seriously enough to report it to the Mounties.
Cumming said the exchange wanted Naxos to either follow the rules or be removed from the exchange.
Five minutes before a hearing on the issues was to begin, Naxos officials agreed to remove the stock from the exchange. The company dropped its lawsuit and agreed to the exchange's finding that five of the firm's press releases had violated the exchange's rules, while the exchange dropped other allegations.
But settling the dispute with the Alberta Exchange didn't resolve
allegations made by the Alberta Securities Commission, the province's
equivalent of the U.S. Securities and Exchange Commission, which regulates public stock markets. (The U.S. commission has published no findings or statements regarding Naxos.)
David Linder, a spokesman for the Alberta commission, said a hearing is set for January. The commission could bar trading of the stock in the province, and other Canadian provinces might recognize such a ban. A ruling in Canada wouldn't affect trading in the United States.
The commission alleges that Naxos failed to disclose unfavorable news
about its assay results, published only favorable news, failed to correct false or misleading claims in previous press releases and made misleading disclosures designed to influence its stock price.
The commission also alleged that the officers, including John and Arkoosh, failed to file proper reports of stock trades they had made as company insiders. The company also did not report important changes in its affairs as required, the commission alleged, and some of the officers not Arkoosh -- bought or sold stock in the company while knowing about the important changes that had not been disclosed publicly.
Linder said such reporting violations are serious because they might
indicate an intent to mislead investors about the value of a company.
Naxos sees the situation in Alberta differently. Arkoosh said the Alberta Exchange was biased against Naxos, and the commission is following the exchange's lead by making many of the same allegations. Naxos also said it was caught between Canadian regulations which prohibited releasing some results and U.S. regulations, which
required reporting the results.
Arkoosh said the commission has no jurisdiction over Naxos since the
company voluntarily delisted from the exchange as part of the settlement.
Arkoosh said he tried to work with the exchange, but no other companies were required to follow, in detail, the same reporting rules. Arkoosh said the tests with representatives of the Alberta Exchange did confirm Naxos' findings but the exchange "didn't want to believe it."
"We got some very high numbers on gold and silver which substantiated our previous news releases," he said.
When the Alberta exchange rejected those findings, Arkoosh said, "I
realized we were dealing with a biased and prejudiced group of people." The lawsuit followed.
Naxos' Canadian attorneys said the commission's allegations would "fade away" since the commission has no jurisdiction over Naxos because the stock is no longer traded in Canada, Arkoosh said.
He said the National Association of Securities Dealers would not have
accepted Naxos for trading if there had been any important issues from the Canadian exchanges.
Mike Shokouhi, a spokesman for the securities dealers association, said the group has no information about and makes no endorsements of companies traded on the over-the-counter bulletin board, which is intended only as a way for market-makers to exchange information and prices.
While Cumming said Naxos "folded its tent" just before the administrative hearing on the alleged rule violations, Arkoosh said the Alberta Exchange settled the matter when it realized it would lose the lawsuit.
Even without looking at Naxos' test results, there are reasons that such discoveries would be unusual.
Arkoosh, who calls the lake bed deposits "an anomaly," said there are
various theories that explain why Franklin Lake gold shows in Naxos' tests but hasn't been discovered by someone else.
One theory, he said, is that the gold is within a compound of silica, a noncrystal state different from most gold deposits. "No one knows exactly why this takes place. But we know it's there because we can measure it and substantiate its presence."
Arkoosh, who moved back to Omaha this summer, said the lake bed is dammed by the Eagle Mountain range to the south. Seven separate sources of water flowed into the lake, he said, and over 20 million years, waters washed into and out of the basin, evaporated and deposited soil and minerals.
The result, he said, is a "very complex ore body" in which the gold was combined chemically with other substances. Arkoosh said Naxos is able to test and recover the gold at a low cost.
University of Nebraska-Lincoln geologist Richard M. Kettler, who has
studied ores and precious minerals, said he doesn't know specifically
about Naxos' claim or Franklin Lake.
But Kettler said it would be unusual for gold to be deposited in a dry
lake bed.
Naxos' claim, Kettler said, "is in the right part of the world, but that doesn't mean there's anything there." Based on Naxos' public statements, he said, "my curiosity hasn't been significantly piqued that I'm going to look into it."
An answer to Naxos' ore claims may be on the way. Naxos arranged for Ledoux & Co. of Teaneck, N.J., and Behre Dolbear, an engineering firm from Denver, to take samples from five test holes drilled in early July. The samples are being prepared for testing, with results to be reported in coming weeks.
(The results of the Ledoux test were negative- E. Charters)
Cumming, the Alberta Exchange official, said the two companies are
reputable and that favorable findings of the independent tests would add credibility to Naxos' earlier tests.
Independent testing is vital to exploration companies. When independent tests failed to confirm claims by another Canadian mining company, Bre-X Minerals Ltd., a company geologist leaped to his death from a helicopter.
The company collapsed.
Earlier this month an independent report said gold found in tests from a third Canadian company, Golden Rule Resources Ltd., appeared to be the result of tampering. Arkoosh says Naxos isn't making false claims.
For some, a gold exploration company can be profitable if the gold is
never found. If you had bought Naxos stock July 22 and sold it Friday, you might have made a 426 percent profit.
Yet Friday's price varied widely, between $4.75 and $7 a share. The
company issued new reports Friday on test results, and Arkoosh said more will follow in coming weeks.
Duncan, the Vancouver broker and former geologist, said he wouldn't
recommend buying Naxos stock. A mining geologist for 15 years before
becoming a broker, Duncan said his training and experience taught him to look at the results of recognized testing methods, not special tests developed by individual companies.
"If you have to use unusual techniques, there's something potentially that could happen to those numbers that I'm not comfortable with," Duncan said.
The Naxos recovery method and ore discovery apparently would be
"completely new," he said. "I think it's interesting, but I haven't been convinced today that I want to put a little money into it. It's a pricey piece of paper for a speculative investment. You have to be careful."
Naxos' statement that it has the potential of finding 100 million ounces of gold "scares me," Duncan said.
Naxos has no proven reserves, he said.
"The stock is worth the dream factor -- whatever people believe they can find," he said "Some people call it 'greed.' I call it 'dream.'"
c)1997, Omaha World-Herald, Neb. Distributed by
Knight-Ridder/Tribune
Business News.
By Steve Jordon |
