TRAV: You know his guy Shea? He's with the SEC in Denver-
search.usatoday.com.
If you don't, you probably will very soon. AG. BTW, you make this stock too?
7/2/98 USA Today:Investors sift prospects from dreams
DENVER - Golden Eagle International has no corporate offices or
full-time employees. It's being sued by federal regulators and trading in
its stock has been suspended until Tuesday.
Although it lists a Denver address, CEO Terry Turner works mostly
from his Salt Lake City home. Sabrina Martinez, head of investor
relations, fields calls on her cellular phone or at her suburban Denver art
shop, the Cricket Thicket.
A portrait of a fly-by-the-seat-of-your-pants start-up firm? Perhaps.
But Golden Eagle could be sitting on a $46.5 billion pot of gold.
Many investors are ignoring Golden Eagle's regulatory problems and
skeletal corporate framework. Instead, they're banking on the fortune
hunter's story the company reported May 22 - a world-class gold find
in the remote Bolivian jungle. The story is part Romancing the Stone
and part Indiana Jones, captivating both for its romantic allure and
potential windfall - roughly the value of gold mined during the California
gold rush of the late 1840s to 1850s.
Golden Eagle's site is far more remote than Sutter's Mill, however. It's
accessible primarily by 9-hour drive on a winding, dirt road 75 miles
north of La Paz in the storied Tipuani River Valley. Gold has been
mined there for 1,000 years, and musket balls from warring Spanish
and Portuguese conquistadores still litter the area. If the discovery pans
out, it could be a speculator's delight, pushing an obscure penny stock
into the investment stratosphere.
The Securities and Exchange Commission, skeptical that Golden
Eagle's claims might be fool's gold, put a 10-day halt on stock trades.
Regulators question the accuracy and authenticity of Golden Eagle's
reported find - 6.4 million ounces of proven reserves and possibly up to
157 million ounces. Based on current spot gold prices of about $296
an ounce, that would value the find at $2 billion to $46.5 billion.
"We pounced very quickly," says Dan Shea, director of the SEC's
Denver office. "Investor interest in gold stocks hasn't stopped, despite a
big drop in gold prices."
In the post-Bre-X mining world, the SEC is wary of start-up
companies reporting vast precious metal deposits. For good reason:
Hundred of individual investors and professional money managers were
burned in 1997 after Vancouver, British-Columbia-based Bre-X
reported a huge gold find in the jungle in Indonesia. That sent Bre-X
shares from about 20 cents to more than $200 before crashing when
the discovery turned hoax.
"We're very careful to see that another Bre-X doesn't happen," Shea
says. "In Golden Eagle's case it doesn't mean that there aren't those
assets there. Our hope for investors is that all that glitters is gold."
While the SEC isn't commenting directly, the trading suspension came
after investigators and an SEC geologist questioned Turner and mining
engineer/geologist Guido Paravicini for three days. They're trying to
determine whether Golden Eagle is playing fast-and-loose with
geological reports or committing mining fraud, or has a viable claim.
Turner, who has repeatedly cautioned investors in news releases and
the company's Web site www.goldeneagle-mine.com that Paravicini's
findings are not conclusive and that Golden Eagle doesn't have the
capital to mine the site, says he supports the trading halt.
"Although it casts all kinds of negatives on the company, we welcome
the scrutiny by the SEC," he says. "This isn't a Bre-X situation. This is a
mining district where 32 million ounces have been produced by miners
since pre-Inca times."
Word of Golden Eagle's find propelled its shares from 13.5 cents to
32 cents May 22, a one-day gain of 137%. Had it not been for the
fallout from Bre-X, Turner says Golden Eagle might have raced to
$100.
Legal woes
Such a run-up is conceivable despite Golden Eagle's checkered past.
The company was incorporated in 1988 as Beneficial Capital Financial
Services, which provided seed money to emerging growth companies.
According to company filings, the efforts generated less than $25,000
in revenue. The SEC says Beneficial, essentially a shell corporation,
was acquired in November 1994 for $75,000 by a wealthy Colorado
couple, Mary Erickson and her husband, Ronald Knittle, who became
CEO. They renamed it Golden Eagle in February 1995 and focused
on mining.
Erickson declined comment, and Knittle could not be reached. The
bulk of the $3 million the company has invested in the Bolivian mine site
has come from Erickson's family trust, according to company filings.
Bad timing?
Golden Eagle reported the Bolivian gold discovery just two weeks
after the SEC filed a lawsuit against the company, Erickson, Knittle and
other former insiders. The federal lawsuit alleges that from 1994
through mid-1996, insiders fraudulently hyped Golden Eagle stock,
lied about the value of mining interests in Arizona and California, and
reaped about $662,000 from the sale of unregistered stock.
Turner says the prime reason Golden Eagle issued word of the
Bolivian find in May was to squelch speculators and gossip on Internet
chat lines and Web sites such as the Silicon Investor.
"The timing was coincidental to the lawsuit. We were between a rock
and a hard place," he says.
"There were reports about the find 10 days before we issued a
statement. We felt there was a breach of security," says Turner, who
has helped bring some notoriety to the stock by twice appearing on
Morton Downey Jr.'s syndicated television show, Invest America.
"If we'd had a negative report, we would have been criticized of holding
that back, too. We didn't think we could have hung on to the
information we had. We tried to act responsibly," he says.
Turner, who joined the company in 1997, says none of the defendants
named in the lawsuit, except Erickson, is still with the company and
notes that some of the allegations raised by the SEC are nearly 4 years
old. He's confident the lawsuit will soon be settled.
Yet the SEC suggests Golden Eagle still appears to be flirting with
security law violations. The lawsuit charged the company with falsifying
corporate filings and failing to file timely reports. As of Wednesday,
Golden Eagle hadn't filed its 1997 10K annual report nor its
first-quarter 1998 report. Turner blames the filing delays on Bolivian
accounting methods. Golden Eagle reported operating losses of $2
million in 1996 and $815,000 in 1995.
Internet rumormongering
Hundreds of e-mail messages regarding Golden Eagle were exchanged
on Silicon Investor's bulletin board weeks before the company's May
announcement. Turner calls the exchanges a "feeding frenzy and
distorted reports of this being the largest find on the planet." Hundreds
more followed after the June 23 stock-trading halt. All told, more than
7,100 messages have been exchanged. Many people remain bullish on
the company, taking bets on how high the stock will go once trading
resumes.
Paravicini, whose career spans 35 years, including 19 as chief geologist
for National Bolivian Mining, a gold and tin explorer, is perplexed at the
backlash generated by his findings on the 4,810-acre mining site.
"I've never been questioned like this before," he says. "I suppose these
discoveries are hard to accept, even to Bolivians." Most of the gold
mining in the region has been rudimentary and, at best, just 20% to
50% of the gold has been recovered, he says. More than 100 samples
were taken from the site, he says. Using high-technology methods such
as cyanide leaching, Paravicini says the site could profitably produce a
world-class deposit.
Paravicini is an independent mining engineer and geologist hired by
Golden Eagle for his standard $4,500 to $6,000 a month. He says he
has no stock or options in Golden Eagle.
Turner says Paravicini's findings are backed by Albert Trites, another
independent geologist hired by Golden Eagle more than a year before
Paravicini. Trites determined the site held about 5 million ounces of
gold. He refused comment.
Don Hausen, who retired as chief of mineralogy for Newmont Mining in
1990 and now is one of three technical advisers paid unspecified
consulting fees by Golden Eagle, visited the site last September. "It's a
unique and unusual deposit," Hausen says. "An experienced company
wouldn't have trouble recovering it."
But Borden Putnam, a geologist with securities firm Robertson
Stephens, says there hasn't been enough site exploration to validate the
gold find. "There's not enough data to support this kind of claim and
classify it as proven," he says. "You would have had to spend $10
million to $15 million and drill 5,000 to 10,000 holes."
In an effort to assuage regulators, investors and potential joint-venture
partners, Golden Eagle will soon hire an independent mining firm to
examine Paravicini's findings and perform feasibility studies. "In the
post-Bre-X world, we've made every effort to get this right. We've
tried to put sufficient warning caveats out. And we've tried to act
responsibly," Turner says.
Investors seem willing to accept the risks.
"I'm convinced there's gold down there," says Mark Strodtman, a
Greeley, Colo., businessman who owns about 1 million shares. "I've
met Guido. He has integrity and family values. That means a lot."
Among other true believers is Doug Lapp, a Niagara Falls, N.Y.,
electrician who owns 406,000 shares. "Basically, all this is a crap
shoot," he says. "But I think they're trustworthy. I believe they've found
gold."
By Gary Strauss, USA TODAY
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