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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: Mr Metals who wrote (186)	6/21/1998 2:03:00 AM
From: Adrian du Plessis	Read Replies (3) \| Respond to of 314

CANADA: A controversial magnet for small investors Despite being alerted to doubts about YBM claims, the Ontario Securities Commission approved a C$53m share issue, writes Edward Alden For Canadian investors who pumped the stock of the once-obscure, now suspended, magnet maker YBM Magnex International this year, the wait will be agonising. From early 1996 to early this year the stock rose from less than C$5 (US$3.40) to more than C$20, giving the company a market value of close to C$1bn (US$680m). Now, Deloitte & Touche, the auditors, expect to spend about two months scrutinising an 83-page report and boxes full of appendices on the company's operations. Their conclusions will largely determine whether YBM is reinstated or permanently barred from the Toronto Stock Exchange. About 45 per cent of the shares, heavily promoted by major Toronto brokerage houses, are in the hands of small Canadian investors through mutual funds. The list of questions about YBM may take months to answer but investors are wondering why concerns about the company's business did not cause Ontario securities regulators, already burned by the spectacular collapse of Bre-X Minerals last year, to act much earlier. YBM rocketed from obscurity as a junior shell company on the Alberta Stock Exchange to a listing on the TSE's blue-chip 300 index in less than three years. It said it had tapped into a booming market for permanent magnets in eastern Europe and the Ukraine. But last month the Ontario Securities Commission (OSC) suspended trading in the company, the same day the US Federal Bureau of Investigation seized documents from YBM's Pennsylvania headquarters as part of a criminal investigation. One large shareholder, Semion Mogilevitch, a Ukrainian-born financier, was barred from the UK after a police investigation into alleged money laundering. The OSC has scheduled hearings to start on August 10. In its prospectus for a 1997 Toronto exchange issue of 3.2m common shares worth C$53m, YBM said it was selling high energy neodymium magnets throughout North America, Europe, the Middle East and Asia. Permanent magnets are used primarily in the car and computer industries. OSC regulators, as part of a due diligence investigation, examined these statements last autumn, according to sources familiar with the investigation. What they were told was that virtually all the company's sales were to distributors in eastern Europe, a market no other magnet manufacturer had tapped. Deloitte & Touche, which re-audited YBM's 1996 financial statements at the request of securities regulators, found YBM's claims to have made 14 per cent of its sales in North America and 4 per cent in the Middle East were false. Some 98 per cent of its 1996 sales were in Europe, about 80 per cent of that in eastern Europe. Ontario regulators were warned by industry experts that the company's assertion it had earned US$20m in 1996 from using neodymium powder to remove sulphur from Ukrainian crude oil could not be substantiated. While some rare earth materials have a small application in oil refining, no commercial use of neodymium to desulphurise oil has ever been developed, say experts in rare earth materials applications. The experts include Fred Jones, a 35-year consultant to the permanent magnet industry; John Creighton, development specialist with Grace-Davidson, a large US commercial supplier of rare earth materials to the oil industry; Tom Halford, director of process and technology for Petro-Canada's refining division; John Giesman, gas project manager for Universal Oil Products, the world's largest seller of licensed technology to oil refineries; and Barry Kilborn, formerly of the rare earth producer Molycorp, who is regarded as the world's foremost expert on uses for rare earth materials. Despite being alerted to doubts about YBM's claims, the Ontario Securities Commission approved the C$53m share issue. One reason the OSC may have been reassured is that YBM was backed by many of Toronto's most prestigious brokerage houses. The five underwriters for the 1997 share offering had agreed to purchase all 3.2m shares. Subsequently First Marathon Securities, the lead underwriter, issued strong buy recommendations until the stock ceased trading in April, as did Griffiths, McBurney and Canaccord Capital, two of the other underwriters. Owen Mitchell, a vice-president at First Marathon, sits on YBM's board of directors along with David Peterson, a former Ontario premier. The company says all outstanding questions about its business are answered in the 83-page independent forensic investigation requested by Deloitte & Touche and commissioned by YBM. According to a summary released by YBM last week, the investigation by Pinkerton Investigation Services found no evidence of criminal activities by the company and no evidence of bogus transactions. That report has yet to be approved by Deloitte & Touche, which has refused to validate the company's 1997 financial statements. The Financial Times (London) June 19 1998