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Milwaukee company mines rich vein of Internet gold
Lowly stock soars after announcement of venture
By Douglas Armstrong and Kathleen Gallagher
of the Journal Sentinel staff
January 30, 1999
They haven't mined much gold in El Salvador. So why not tap the mother lode on the Internet?
There's a virtual fortune to be made.
Which may be just what Milwaukee-based Commerce Group Inc. needs. Consider the following little nuggets:
Stock in the gold mining company has sunk steadily lower into the decimal point range in the last three months, closing Thursday at 32.8 cents a share, as prospects in the gold business have dimmed.
As a result, Commerce Group stock is in danger of being delisted by the Nasdaq national market, a setback that could exacerbate the downward spiral in shareholder value.
On Friday, Commerce Group stock vaulted 414%, to $1.6875, a share when it announced that a subsidiary would develop an Internet portal (Yahoo!, you might say), the likes of which have skyrocketed the stock of other companies with no earnings on Wall Street.
Among Internet stocks, losing 66 cents a share for the first six months of the fiscal year, as Commerce Group has, is considered performance worth speculating on.
Commerce Group jumped as high as $2 a share Friday as the Internet gold rush set in and 2.1 million shares traded. Average volume in the stock is less than 25,000 shares a day.
"There are a lot of people out there who want Internet stocks, and there's not enough supply for the demand," said Michael P. Moakley Jr., an owner of LaSalle Street Trading-Milwaukee, a day trading office in the Third Ward.
"That's why they're running up to these high valuations."
Now Internet stock prospectors have one more option, a company that also produces 500 ounces of gold a month in El Salvador. Only this Internet portal is more virtual than its competition, such as Excite, Lycos, Go2Net and Infoseek.
It's not on the Internet yet. But it may be within 30 days.
After the market closed Friday, Nasdaq halted trading in Commerce Group stock until the company provides additional information about its announcement.
Asked Friday for details about the Internet portal plan, Edward L. Machulak, president of Commerce Group, said an inactive subsidiary, Piccadilly Advertising Agency, would change its name to Ecomm and become partners with an Irvine, Calif., company, Interactive Business Channel Inc.
"I think the area that we're going into appears to be very exciting, and I'm fascinated by it," Machulak said. He won't have any involvement in Ecomm's day-to-day operations, but he will oversee the subsidiary, he said.
Matthew Marcus, president of Interactive Business Channel, said Friday that a domain name had been secured for the portal and would be announced within a few days.
It will be a general portal, he said, with a full range of typical services, such as free Web-based e-mail, free personal Web pages, chat rooms, auctions, instant messaging, personalized start page and more. A portal is a first stop for people exploring the Internet.
Interactive Business has its own Web portal. It also provides consulting services to companies that want to develop e-commerce strategies but have no expertise or experience on the Net.
Interactive Business will own a 49% stake in the new Ecomm subsidiary. Commerce Group will own 51%. In addition, Ecomm plans to become partners with other Internet sites that want to go public by selling a majority or minority stake to Ecomm in exchange for being linked to Ecomm's proposed Web portal.
"Web sites can go public immediately," Marcus said.
At the moment, however, Ecomm remains a virtual name. Commerce Group has reserved it, according to Machulak, but has yet to file with the state to make it official.
Piccadilly has been a Commerce subsidiary since July 1974 and has been "dormant for a few years," Machulak said.
Most of the trading in Commerce Corp. on Friday was done by individual investors, Nasdaq traders said. They thought much of it was probably coming from online traders who were at home reacting to news and executing trades on their computers.
To stay listed on Nasdaq, the company had to get its share bid price above $1 before Feb. 10, according to documents it filed with the Securities and Exchange Commission last month. It now must have a closing bid price above $1 a share on 10 consecutive trading days.
At the company's annual meeting in October, management discussed the possibility of doing a reverse stock split to bring the price up to Nasdaq requirements. A 1-for-4 reverse split, for example, would increase the price of a 50-cent stock to $2.
Commerce Group has had a long and bumpy history, including a bankruptcy filing and numerous problems at its mine in San Sebastian, El Salvador.
Commerce Group was Commerce Capital before it filed for bankruptcy protection in September 1977 under Chapters 10 and 11 of federal bankruptcy statutes. At that time, the company owed the U.S. Small Business Administration $15 million.
Civil war forced Commerce to close the El Salvador mine in 1978. By January 1980, within two years of the closing, the price of gold peaked at more than $800 an ounce.
By the time operations resumed in 1987, the gold bubble had burst.
Commerce said in February 1998 that it had hired a Charleston, S.C., investment banking firm to help find a buyer for the gold mining company. Apparently nothing has come of that.
Instead, the company is seeking its fortune where investors have been finding one lately.
Asked how Commerce Group and Interactive Business Channel became linked, Marcus said that he thought Commerce Group had found them on the Internet.
Interactive Business' Web portal: www.ibchannel.com |
