CB Gold men make millions after drill results 2011-11-02 12:06 ET - Street Wire
By Stockwatch Business Reporter
 Two Vancouver-based stock promoters, Fabio Capponi and Giles Baynham, have turned their $100,000 investment in CB Gold Inc. into more than $30-million in a little over two years. It is their first promotion.
Last week, CB Gold revealed eye-popping drill results from its Las Vetas gold property in Colombia, sending the stock to $1.82 from 68 cents over five days on 23.38 million shares. One intersection in particular, a 115-metre interval at 7.57 grams per tonne gold and 1.48 grams per tonne silver, caught the market's attention, bringing instant fame to the company's two founders. Although over the past two days the company continued to be active, trading 6.24 million shares on Monday and 2.84 million shares on Tuesday, the stock has slipped 28 cents to $1.54.
Apprentices
Before starting CB Gold, Mr. Capponi and Mr. Baynham worked at Endeavour Financial Corp., an investment company in Vancouver advised by one of the city's best-known penny stock investors, Frank Giustra.
He was Endeavour's chairman until 2007. At Endeavour, Mr. Capponi and Mr. Baynham received a valuable education in structuring and promoting junior stocks. Mr. Capponi, CB Gold's chief executive officer, worked in the mergers and acquisitions department at Endeavour from February, 2006, until June, 2008. Mr. Baynham, an engineer and CB Gold's president, was director of debt finance at Endeavour from May, 2003, until June, 2008.
Shortly after their time at Endeavour, in May, 2009, the two incorporated CB Gold. The following month they spent a total of $100,000 buying 35,005,200 shares, which works out to a little over a quarter of a cent a share, or to be exact, 0.2857 of a cent. Cheap shares in hand, the two then went to work and secured exclusive rights to option gold properties in Colombia. CB Gold paid $290,000 (U.S.) and 900 million Colombian pesos for the rights.
By May, 2010, the company agreed to pay a total of $13-million (U.S.) and issue 11.5 million shares for the gold properties. Management had arranged multiple private placements to pay for them. The first came in June, 2009, three days after Mr. Capponi and Mr. Baynham bought their shares at a fraction of a cent. Brokerage Raymond James Ltd. sold a private placement to a group of buyers who acquired 11.1 million shares at the seed-stock price of five cents. Raymond James received 560,000 shares and $16,320 in fees for its services as middleman. When asked why the services of a broker were necessary to sell five-cent stock, often defined as a financing "for family and friends," Susan Rubin, CB Gold's chief financial officer, said, "The company reviewed its options and decided it was the best one." Ms. Rubin added that since the company completed the financing as a private company it does not have to reveal who purchased the shares, although she said management knows who the shareholders are. In October, 2009, the brokerage sold another 10,111,732 CB Gold shares to less favoured, but still important buyers at 30 cents. Raymond James received 410,300 shares and $31,318 in fees for this effort. The demand for the private company remained strong and four months later, on Feb. 24, 2010, it sold another 9,524,446 shares at 50 cents.
In May, 2010, after signing definitive agreements to option the properties, CB Gold planned one final financing before going public. A different brokerage, GMP Securities, agreed to sell up to 53.6 million subscription receipts at 75 cents, but that financing never happened. When the company went public in November, 2010, it was BMO Capital Markets that took care of the private placement, selling 59,234,086 receipts at 45 cents, a steep discount from the original 75-cent plan. Attached to the receipts were 29,617,043 warrants, exercisable at 70 cents for five years.
Going public
The company first revealed its plan to go public in February, 2010, when it agreed to amalgamate with Peter Smith's floundering junior explorer, First Source Resources Inc. By April, the two companies signed a definitive amalgamation agreement and in October the deal was done. First Source completed a 1:4 rollback of its 10,230,955 shares, giving First Source shareholders 2.55 million shares of the amalgamated company. CB Gold shareholders received 122.54 million shares of the amalgamated company, making a total of 125.09 million shares outstanding. Mr. Capponi disclosed an ownership of 10,602,700 shares and Mr. Baynham said he had 10,824,722 shares. At some point between incorporating the company and going public, 11.77 million shares that belonged to CB Gold's front men were transferred outside the realm of disclosure. Peter Barnes, a director of CB Gold, who was also CEO of Silver Wheaton Corp. (SLW: $34.47), held 3,766,666 CB Gold shares when it went public (he now owns 4,365,000), and Ana Vasquez, CB Gold's vice-president of business development and operations, held 3.08 million shares.
There was one other disclosure that arrived in December, 2010, revealing Goodman & Co. Investment Counsel Ltd. held 11,111,100 shares and 5,555,550 warrants, presumably from the 45-cent placement. (It has since decreased its holdings in CB Gold to 8,099,800 shares.)
That means when CB Gold listed, nearly 90 million shares belonged to unnamed shareholders, though the cheapest stock still belonged to the new promoters, Mr. Capponi and Mr. Baynham. It is likely two of the mystery shareholders are high-profile Colombian deal-makers, Serafino Iacono and Miguel de la Campa. They are listed as advisers on the company's website and an SEC filing reveals at one point they each held an option to buy 500,000 shares at 50 cents. The options expired on April 19, 2011. Mr. Iacono and Mr. de la Campa are the men behind Pacific Rubiales Energy Corp. (PRE: $23.70) and a slew of juniors. Mr. Capponi and Mr. Baynham would have met Mr. Iacono and Mr. de la Campa when the Colombians ran Coalcorp Mining Inc. and paid consulting fees to Endeavour.
CB Gold continues drilling. It has left some investors wondering about the size of the mineralized area at its Las Vetas gold property, because the company has not released drill-hole locations, citing "competition with a neighbouring explorer." The company continues to expand its promotional arsenal, having recently added Ross Beaty to its list of well-known investors. Last week Mr. Beaty's Lumina Capital LP acquired 10 million CB Gold units at $1.10 per unit.
With 125 million shares issued under $1, Vancouver's newest promoters will need lots of good news to absorb the selling.
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