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Gold/Mining/Energy : YBM Magnex Intl Sees Revenue Growth 30-35%/Yr In MagnetOp -- Ignore unavailable to you. Want to Upgrade?

To: Adrian du Plessis who wrote (48)	5/12/1998 2:37:00 PM
From: Adrian du Plessis	Read Replies (1) \| Respond to of 314

Securities industry due diligence in a post-Bre-X market (Part I in a series) The first thing that alarmed me about YBM Magnex was a cluster of Canadian brokerage analysts' reports touting the company's stock. While visiting offices in the Vancouver Stock Exchange tower I'd initially come across four reports - two published by Nesbitt Burns, and one put out by each of First Marathon Securities and Griffiths McBurney & Partners. All contained positive buy recommendations. The analysts - Peter Sklar at Nesbitt, Mike Middleton at Griffiths McBurney and Kaan Oran at First Marathon - uniformly projected significantly higher share prices for YBM Magnex based upon their stated analysis of the company and its prospects. In this case, (as is standard), not one of the brokerage firms, at the same time it promotes an issuer's stock, stands behind the claims of their in-house analysts. Each YBM Magnex report included detailed disclaimers, noting such pertinent points as: "Neither First Marathon Securities Limited nor any of its affiliates accepts any liability whatsoever for any loss arising from the use of this report or its contents"; Nesbitt Burns "takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents"; and "The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not guaranteed, nor in providing it does Griffiths McBurney & Partners assume any responsibility or liability whatsoever." What public value is there in a broker's "buy" recommendation for which the brokerage firm will not accept "any responsibility or liability whatsoever"? Such reports are routinely fed to financial news agencies which dutifully regurgitate the analysts' views and hype. In general practice, the press, even more dutifully, removes the legal disclaimers in its recycling motions. Further complementing this form of stock market circle jerk, YBM Magnex distributed the Nesbitt Burns, First Marathon, and Griffiths McBurney analysts' buy recommendations to the media with an official disclaimer of its own prominently stamped onto the front page of each report: "Please be advised that we have not independently reviewed or verified the assumptions upon which this analyst's report is based and accordingly assume no responsibility for the accuracy thereof." Having spent more than six months during 1997 researching the Bre-X Minerals swindle, I was acutely aware of the terrible job done by Canadian brokerage house analysts in their coverage of that company. It's an accepted truth of the junior stock markets that the track record and history of the principals and asset(s) of a venture represent material information upon which investment decisions can be based. Knowing something about the people behind a stock deal, and how the public company has travelled from Point A to B to C and so on in its life, can be helpful - even critical. In the case of Bre-X, during that stock's promotion, many analysts failed to inform their clients, (and, by extension, through their comments to the press, the broader public), that Bre-X's David Walsh had a history of exaggerating and misrepresenting the affairs of his public companies. These analysts failed to note the history of regulatory violations and stock scandals associated with several other, lower-profile, Bre-X group principals. As well, these analysts failed to adequately detail the history of the Busang property and the backgrounds of those parties involved with the group in such places as Indonesia and Australia. Without such background information being provided, the public lacks an appropriate context in which to place and consider a company's current claims. Whether the company is a scam or fraud, like Bre-X Minerals, or a legitimate speculation, such as Dia Met Minerals (soon to begin production at its Ekati diamond mine in the Northwest Territories), the history of the people and entities involved represents fundamental knowledge. After reading and rereading the 15 pages of YBM Magnex "analysis" churned out by three of Canada's senior brokerage firms I was left with many unanswered questions. For example, the reports told me nothing useful about the company's principals or founders, "whatsoever". Not a single member of management, not one principal, not one founder of any of the company's operating entities was named or described in the reports. These buy recommendations also contained little or no information that would tell a reader how the company began and had progressed to its present status - reportedly a highly successful venture with geometrically increasing sales and profit figures, the shares of which were going up and up in price on the Toronto Stock Exchange (TSE). Wonderful companies - and dreadful ones, for that matter - all start somewhere. Somebody has a product or a vision and works to develop it. That's usually an interesting story. That it didn't interest the Bay Street brokerage analysts to make the origins of YBM Magnex publicly known prompted me to begin my own, independent, due diligence. My objective? To start to fill in some of the holes apparent in the Magnex coverage put out by the brokerage analysts. And to be prepared, unlike them, to accept responsibility for the results. End of Part I For more on this story, and other stock market news and analysis, visit the Investigative Research & Analysis web-site at imagen.net