Mining firm's trading
halted
Claim of huge gold find in Bolivia
questionable, investigators explain of
small Denver company
By Al Lewis
Rocky Mountain News Staff Writer
Securities regulators Friday ordered a
trading halt on stock of a little-known,
Denver-based mining company that has
been making extraordinary claims about
gold in Bolivia.
Golden Eagle International Inc., while under
investigation by the Securities and
Exchange Commission for possible stock
fraud, issued a press release on May 22
saying it had found as much as 157 million
ounces of gold on 4,810 acres it controls in
Cangalli, Bolivia.
In a statement released Friday evening, the
SEC said the claim is questionable. So
Golden Eagle stock, which trades for
pennies on the Over the Counter Bulletin
Board, is suspended from trading until July
6.
Golden Eagle's boast is about as large as
one made by Bre-X Minerals Ltd., a
Canadian venture that last year became
known as the largest gold fraud ever
perpetrated.
Bre-X claimed to have found between 70
million and 200 million ounces of gold in
Indonesia. Its stock ran to new highs until
the claim proved false. Shareholders lost
billions. And Bre-X's chief geologist
jumped or fell to his death from a helicopter
over the jungles of Borneo.
Golden Eagle's stock hasn't had near the
run-up. As news of its gold reserves
spread, its stock rocketed from 12 cents to
40 cents per share. That was nearly a 400
percent increase, but fell far shortof valuing
what the company called a proven reserve
of 6.43 million ounces and "inferred
resources" of 157.4 million ounces.
"If this is a hoax, they are all going straight
to jail," said Andr'e Nel, a Dallas investor
who has invested thousands in Golden
Eagle. "But I believe in the story, and I'm
very comfortable with the SEC being
involved."
Nel wonders why Golden Eagle executives
would make such astonishing claims while
under the intense scrutiny of the SEC.
Nel says the company's executives are
either insane, or they've truly hit a mother
lode. "Either way, it's going to be an
incredible story," he said.
SEC investigator Robert Fusfeld would not
comment on Golden Eagle's latest claim,
but he minced few words last month when
he announced civil stock fraud charges
against Golden Eagle, its executives and its
public relations firm.
"It's what we call a hype-and-dump," he
said May 11. "They issue false press
releases, get the market excited and sell a lot
of stock."
Golden Eagle's stock reached a high of
$6.50 per share in December 1994, then
plunged into penny stock territory. The
SEC alleges defendants made at least
$662,000 from the sale of stock, after
making false regulatory filings and
distributing misleading marketing materials
between 1994 and mid-1996.
Among the defendants are Golden Eagle's
former president Ronald A. Knittle, 45, and
his wife, Mary A. Erickson, 40, who serves
as corporate secretary and owns one of the
largest stakes in the company.
Knittle and Erickson, who founded Golden
Eagle, have been advised by their attorney
not to comment on the pending action. But
the company's president, Terry C. Turner,
and its Bolivian geologist, Guido
Paravacini, agreed to an interview with the
Rocky Mountain News on Thursday.
Paravacini, a well-credentialed geologist,
has no stake in Golden Eagle and serves as
an independent consultant. Turner, who
took over as president in February 1997, is
the only American licensed to practice law
in both Bolivia and the United States. He
too has no stake in the company's stock.
"These deposits have been well-known in
Bolivia for many years," Paravacini said.
"But up until now they have only been
mined using primitive means."
Stories of rich gold reserves around Golden
Eagle's land date back more than a
millennium to the Incas. Later, Spaniards
and then Portuguese mined the area. But
socialist economic structures and
cumbersome terrain have discouraged
sizable Western mining concerns from
exploiting the region.
"There was a void," explained Turner, "and
Golden Eagle filled the void before any of
these majors did."
Turner said his company decided to
disclose its gold reserves only because
online investors were badgering company
officials for information and circulating
distortions over the Internet.
"The company made a decision that it was
more important that the public had accurate
information than information that was
leaked or twisted," he said. "The company
is trying to be as transparent as it can be."
Turner said he is close to working out a
resolution with the SEC and that meanwhile,
no one in the company is taking fast profits.
"Officers and principal shareholders of the
company are not dumping the stock," he
said. "Everyone we're talking to is in this for
the long haul."
The company's Bolivian prospects and
Paravacini's study must now undergo the
scrutiny of independent auditors, Turner
said.
Aside from Golden Eagles' woes with the
SEC, its true prospects are difficult to
analyze in one of the worst economic
climates for the gold industry. Gold trades
for less than $300 per ounce and gold
stocks are generally in the tank.
No analysts follow Golden Eagle. And the
company has yet to file its 1997 and first
quarter 1998 financial statements with the
SEC. Turner said the company is working
out glitches between Bolivian and American
accounting standards and that the reports
will be filed soon.
Meanwhile, Turner said Golden Eagle's
balance sheets are laden with debts, and the
company cannot afford to exploit its
massive gold find without taking on a larger
partner. He said he even he would advise
investors to wait for more information
before buying a stake.
"It would not have been our preference to
have launched the information that our
independent geologist and geophysicist
were telling us," he said. "That immediately
puts us in the category of being scrutinized.
But we welcome this scrutiny and we are
actually glad the market is behaving
skeptically. In the post-Bre-X world, that's
a better scenario."
June 20, 1998 |
