Winspear responds as shares under pressure
Winspear Resources Ltd WSP
Shares issued 33,721,333 Jan 14 close $3.40
Thu 14 Jan 99 Street Wire
THE COMPANY RESPONDS
by Stockwatch Business Reporter
It is one thing when brokerage house analysts start waving a red flag at
market expectations and raising their eyebrows over the enthusiastic
predictions of newsletter writers. Yorkton Securities' analyst Art
Ettlinger's comments, reported in the Globe and Mail on January 7,
regarding "huge wild-assed estimates" about Winspear's Snap Lake project
and his characterization of newsletter writer John Kaiser's $20 price
prediction as "highly premature," have certainly drawn some investors'
attention. But brokerage house analysts, even mining analysts covering
junior exploration companies, still are not considered aggressive enough by
many of the more adventurous speculative investors who frequently let such
comments pass without much notice. It is another thing altogether, however,
when a newsletter writer who has championed the company begins using his
pen as a broadsword and starts slashing at what he terms "The Winspear
Dream Bubble". That is what John Kaiser did in his Bottom-Fish Tracker
issued January 9; and after Mr. Kaiser's unkind cuts, speculators started
thinking seriously about their assets.
Mr. Kaiser delivered several robust, two-handed swipes, particularly at
Winspear's management. In the synopsis thoughtfully prefacing the lengthy,
wide-ranging Tracker report, Mr. Kaiser declares that Winspear "is on the
threshold of developing a dangerous speculative bubble over the next six
months that could take the stock into the $10-$15 range and finish with a
catastrophic crash akin to the Tli Kwi Cho bust of August 1994 if
management does not soon come clean about the value distribution of the
Snap Lake mini bulk sample diamond parcel." Mr. Kaiser states that he has
"reason to believe that the three largest stones represent at least 75% of
the parcel's value." That raises a concern over whether the 199.7 tonne
sample is representative of the diamond value distribution of the Snap Lake
kimberlite system. Mr. Kaiser claims that "it is highly irresponsible of
Winspear and Aber management to keep investors in the dark about the
flimsiness of the foundation upon which their Winspear dream rests."
In addition to cutting up management for "non-disclosure," what he
perceives as their "paranoia and contempt for the public's intelligence,"
and the company's apparent lack of interest in educating its investors, Mr.
Kaiser is at pains to lay bare the flimsiness of "the Winspear dream".
Reflecting on the results of the 199.7 tonne sample, Mr. Kaiser notes that
the market was astonished "that the parcel of a thousand or so stones
contained 21 diamonds with a weight of one carat or more, including three
gem quality stones weighing 10.87, 8.43 and 6.03 carats." He writes, "That
such a small sample could contain this distribution of large stones shocked
the diamond industry." Mr. Kaiser subsequently considers whether the US$343
rock value yielded by the bulk sample is representative of the Snap Lake
system. After reviewing various data and scenarios, he states:
"Consequently, it makes more sense to speculate that these three stones
either don't belong in the parcel or are present by virtue of pure luck
alone, than to speculate that their presence reflects the Snap Lake
kimberlite's value distribution curve." That in turn, raises concerns about
expectations for the upcoming 6,000 tonne sample.
Mr. Kaiser also seems to give short shrift to "Dr. Bob's" cone sheet
theory. He begins by writing: "Dr Robert Folinsbee is a former head of the
geology department at the University of Alberta who has become the
self-appointed promoter of the Winspear Dream. Actually, he has been nudged
into this role with the help of Dave Pescod, an Edmonton-based cowboy with
Levesque Securities whose fax machine aspires to Applefax status." Dr.
Folinsbee has proposed the theory that the ascending magma dispersed
radially over a large area, resulting in a 2 metre thick 80 million tonne
kimberlite source. What seems to follow from Dr. Folinsbee's theory is an
"unheard of scenario with unlimited potential." Mr. Kaiser characterizes
Dr. Folinsbee's model as an unnecessary "fantasy". ("Applefax" is a
reference to promoter Bert Applegath's penchant for spewing his windy faxes
hither, thither and yon.)
After flirting with the issue several times, Mr. Kaiser confronts the
possibility that the Winspear bulk sample was salted. Given the seriousness
of even considering such as notion, Mr. Kaiser again works through various
scenarios, always raising convincing obstacles to the possibility that the
sample might have been tampered with. In the end, he discounts the
suggestion of salting as improbable, despite his comment about them not
belonging in the parcel. Mr. Kaiser acknowledges that his report will
probably have a negative impact on Winspear's share price but places
himself on both sides of the fence with, "I believe that the Snap Lake play
has sufficiently strong fundamentals that it can mount a comeback that will
be much more powerful once unburdened by management's paranoid
non-disclosure policies."
Ironically, Mr. Kaiser's efforts to critically examine Winspear seem to
move him closer to another newsletter writer, Eric Charters, a prolific
Internet poster who has been the target of unflattering comments from Mr.
Kaiser. In a July 29, 1998 Bottom-Tracker, Mr. Kaiser reacted to Mr.
Charters perceived allegation of salting by writing: "Charters comes across
as somebody gone stark raving mad." In his most recent issue, he takes
another stab at Mr. Charters: "The salting rumour first surfaced in late
June when Eric Charters posted a comment to the Winspear thread on Silicon
Investor that Angolan diamonds had been salted into the parcel and that the
RCMP had arrested the culprits. This was a case of a maverick just mouthing
off." Mr. Charters denies alleging that the Winspear sample was in fact
salted. He claims that many of his comments were "tongue-in-cheek remarks"
that were misinterpreted by over-enthusiastic posters on Silicon Investor
(SI) where he was involved in several heated arguments. Mr. Charters says:
"The arguments on SI had really nothing to do with Winspear. They had to do
with sleazy promoters who try to run you off the threads if you offer a
negative opinion."
In a marathon 'interview' that soon took on the character of a
comprehensive dissertation on the state of mining in Canada, Winspear's
Snap Lake project, and a few fantastic conspiracy theories thrown in for
good measure, Mr. Charters was not surprised by John Kaiser's
recommendation to his readers to sell 25 per cent of their holdings or his
sudden cooling on Winspear. "It's not surprising...bad news always comes by
slow freight," Mr. Charters said. As for Mr. Kaiser's advice, Mr. Charters
commented: "Twenty-five per cent? More like 125 per cent. That's John's
characteristic way of following things. He's hot on it, hot on it, and then
he gets right out." According to Mr. Charters, in raising so many red flags
and then telling his subscribers to sell only a portion of their shares,
Mr. Kaiser has done an admirable job of fence-sitting. If Winspear goes
sour, nobody can say that Mr. Kaiser didn't raise some serious concerns. If
the dream unfolds as some believe it will, he hasn't chased his subscribers
out prematurely.
Unlike Mr. Kaiser, Eric Charters does lay claim to being a geologist. He
studied at the Haileybury School of Mines, at Lakehead University, and at
the University of Toronto. He has been writing the Canadian Mining
Newsletter for three years. According to him, he has twenty-two years
experience in the field, has been involved in three diamond projects, and
has catalogued and read more than 3,000 papers on diamonds.
Mr. Charters claims that Winspear is not providing enough information to
its investors. He suggests that the reason for Winspear's apparent
reluctance to divulge information may be that they really don't know what
they're doing. "They're operating at a man-in-the-street level," says Mr.
Charters. "People are finally beginning to see some of the eccentricity of
their program." Mr. Charters doesn't buy "Dr. Bob's cone sheet theory"
either. "It's a fissure vein. That's what it's known as world-wide and
that's what it is." He is convinced, and apparently willing to tell anyone
who will listen, that Winspear's exploration approach is wrong.
Mr. Charters doesn't think much of Winspear's sampling methodology and
accountability either. According to him, the bulk sample was gathered from
two different areas, processed together, and there is no way of telling
which of those areas, if either, the stones came from. With respect to the
three large diamonds, Mr. Charters suggests that the probability is that a
10,000 tonne sample might yield three diamonds of that calibre. "There
isn't enough accountability," he says. While proclaiming that his comments
about the possibility of salting were tongue-in-cheek, Mr. Charters doesn't
share Mr. Kaiser's opinion regarding the difficulty of salting a sample. In
fact, he thinks it would have been possible at numerous stages and some
opportunities appear to be little more complicated than child's play.
"Anyone could toss a few stones into the DMS tank," he says. "If you ask me
to prove that Winspear is a scam, I can't, but investors are being asked to
believe," he says. Lack of proof didn't prevent Mr. Charters from posting a
list of thirty 'scams' to Silicon Investor on July 14, 1998. Winspear was
third on the list, which he now claims was another tongue-in-cheek
offering. While Mr. Charters contends that many of his posts are
facetiously tendered, he is clearly in earnest when he suggests that
investors' faith in Winspear may be misplaced, particularly in light of
"the price rise obviously orchestrated on SI."
Mr. Charters believes that Winspear should be providing investors with
information regarding the chemistry of the samples and other pertinent
facts. That they have not, he remarks, raises some very troubling
questions. He suggests that there are ways of presenting data, including
graphically, that would make it easy for the average investor to grasp the
information necessary to make their investment decisions.
For investors who prefer to wait for at least an outline of the picture,
newsletter writer Robert Bishop was among the first to put a brush to the
canvas. Writing in the Dec. 15, 1998 edition of his Gold Mining Stock
Report, Mr. Bishop suggested that the value of the three largest stones
from 199.7 tonne bulk sample may represent at least half of the total value
of that sample. According to Mr. Bishop, he originally made his cautionary
statements in a Nov. 1, 1998 Hotline, and that he urged his subscribers to
sell into Winspear news. That was more than two months in advance of Mr.
Kaiser's revelation that he had reason to believe that the three stones
comprised 75 per cent of the sample's value. Mr. Bishop went on to note:
"While some are describing the Snap Lake discovery as 'the diamond find of
the century,' another way to look at it is as follows: three big stones in
a sample of this size is unprecedented in the history of diamond
exploration." Like Mr. Kaiser after him, Mr. Bishop was concerned that
failure to duplicate those type of results with the 6,000 tonne sample will
prove disappointing.
Having just returned home January 14 "on a red-eye flight from somewhere,"
Mr. Bishop offered his perspective on recent coverage of Winspear,
beginning with the Globe and Mail article of January 7 written by Peter
Kennedy. "Peter kind of sets things up, if you will. It's a little unfair
to John Kaiser. John did mention the possibility of a $20 price but only if
a number of things occurred. Peter didn't include all of John's caveats."
Commenting on Yorkton analyst, Art Ettlinger, Mr. Bishop said, "Art has
been properly cautious and has raised rather appropriate concerns over the
market's expectations." With respect to Mr. Kaiser's Tracker report, Mr.
Bishop said: "I think John is doing his job. He has raised a number of
concerns and has done his subscribers a service."
Mr. Bishop observed that there are many sceptics with serious doubts about
the bulk sample result that "you won't get anybody to talk about in
public." Mr. Bishop went on: "Winspear isn't my stock. I'm making these
comments as a market observer. There is a big spread between Aber's
approach and Winspear's. I'm much more comfortable with Aber. When you have
a sample from a 'unique' deposit that yields results unprecedented in
diamond exploration, caution is advised, not promotion. Winspear leans
toward the promotion end." Mr. Bishop pointed out that Aber is much more
cautious and that their future "isn't dependent upon the duplication or
repeatability of the bulk sample results."
Winspear president, Randy Turner, was presented with Mr. Kaiser's Tracker
report upon his return from Yellowknife a few days ago. "I've been busy and
I have to tell you that I haven't read it in depth," he said on January 13.
He had read enough, however, to understand the thrust of Mr. Kaiser's
report, as well as recent media coverage of the company. Mr. Turner seemed
more puzzled than upset by Mr. Kaiser's sudden cooling.
When questioned as to whether the three large stones did, in fact, make up
75 per cent of the bulk sample's value, Mr. Turner responded: "Our comment
would have to be that in a sample like this the value is always in the
largest stones." Mr. Turner went on to suggest an analogy: "If you go into
Birks and look at a 1 carat diamond, a 2 carat diamond, and a 5 carat
diamond, the value increases. It makes sense that the larger stones would
represent most of the value." That, of course, raised the question of the
unusual occurrence of such large stones in a sample of that size.
Commenting on the fact that the presence of the large stones invited
speculation that the stones were either salted or were the result of
extreme luck, Mr. Turner clearly didn't think the salting suggestion
warranted a response. He accounted for what Mr. Bishop described as the
"unprecedented" occurrence of the three stones as follows: "This is a
unique dyke. It appears to be a cone sheet. Any time you are dealing with a
unique deposit you will see some unique features. We will be the first to
say it." Mr. Turner spoke highly of Dr. Folinsbee, advocate of the cone
sheet theory, remarking that he has decades of experience, is respected in
the mining industry, and is very well regarded by students who studied
under him during his tenure at the University of Alberta. Questioned
regarding the suggestion that such a cone sheet has not been discovered in
diamond exploration, Mr. Turner responded: "There is a cone sheet reported
in the literature in 1924 in Tanganyika. More recently there seems to be a
similar type deposit reported from Greenland. It was brought to our
attention about a week ago but I haven't seen the literature yet."
Mr. Turner takes exception to Mr. Kaiser's claim that Winspear holds the
public's intelligence in contempt and the suggestion that the company is
doing little to educate its investors. He points to the information
available on the company's web site and goes on to state: "Diamond mining
is new to Canada but in the past six years Canadians have done very well in
gaining an understanding of the industry. Up until recently, the investing
public has been educated on pipes. Winspear has a unique dyke. It is
relatively consistent and appears to be a homogeneous kimberlite. We're
still on a learning curve, though the bar has been raised considerably
regarding reporting and understanding information. It is very complex. It
isn't what the average investor is familiar with--ounces per tonne, for
example. But we have been doing a great deal to educate the public. John is
trying to learn himself."
Winspear's president had little to say about Eric Charters, noting that he
has received fax copies of some of Mr. Charters' wild claims. Mr. Turner
leaves little doubt that he considers Eric Charters an Internet phenomenon
with little more substance than the medium he so often uses. "Apart from
you, I don't even know anyone who has ever spoken to Charters," Mr. Turner
told a Stockwatch reporter. "Eric Charters apparently claimed to have
worked for a company that both John McDonald (Winspear's vice-president of
exploration) and I worked for. We've never heard of him and neither have
any of the people there that we keep in touch with." Mr. Turner pointed out
that Eric Charters' comments regarding the 199.7 tonne bulk sample were
contrary to fact: "The samples from the two pits totalling the 199.7 tonnes
were processed separately. There is no significant difference in the
diamond population of the two samples. That was reported in the June 12
news release."
Mr. Turner is proud of Winspear's expertise: "As a junior company, this
company's team has one of the highest years of experience. We have about
twenty people, all with a background of between five and thirty years of
mineral exploration. We have a very strong technical background." He is
also proud of the company's endurance: "Winspear has been active since 1992
when there were about two hundred and fifty companies in the Northwest
Territories. There are about eight of us left."
Mr. Turner stressed Winspear's commitment to the project: "This is a unique
deposit that will require an extensive, aggressive program. Our partner,
Aber Resources, and ourselves are committed to a $12 million program. That
says something."
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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