GM,
An article in the Northern Miner i think you will find interesting.
It is somewhat of a wake-up call for investors not to be "sucked" into pump and dump stocks.
Regards
John
The Northern Miner Vol. 84 No. 45 January 4-10, 1999
The Year of the Rampaging Bear -- 1998 characterized by retribution, rebuilding
By Vivian Danielson
If 1997 was a year of scandals and promotional excesses that the mining industry would prefer to forget, 1998 will go down as the year of retribution, rebuilding and retrenchment -- a year when even the biggest and best mining companies had trouble escaping the wrath of the Rampaging Bear.
Mining companies across the board were pummeled by low metal prices, the Asian crisis, investor apathy, and the growing perception that numerous high-profile foreign projects carried far more risk than reward. Even senior producers had their share prices clipped as investors moved on to more fashionable commodities with better fundamentals and growth prospects.
Bay Street brokers spent most of their time drawing up lists of acquisitors and acquisitees, knowing full well that the mergers and acquisitions game was the only bright spot in an otherwise depressed mining sector. Howe Street brokers mostly twiddled their thumbs and prayed for one of their juniors to find the next Big One.
Adding to those woes was fallout from the mining scandals of the previous year, as investors sought retribution through the courts and made it known that they would generally not be back in the game until some housecleaning was done. But with the sinners basking on the beach, the task of rebuilding was left mostly to the straight arrows who had not caused the problems in the first place.
After concluding that too few standards were in place for the conduct of work programs and the reporting of results, a task force struck by the Toronto Stock Exchange (TSE) and the Ontario Securities Commission (OSC) drafted a series of recommendations intended to raise the bar on field practices and disclosure (T.N.M.,Dec.7/98). The final recommendations, to be released in early 1999, are expected to define the role of the "Qualified Person" in Canadian mining, establish exploration and field best practices, set higher standards for exploration and mining companies, and advocate better enforcement of existing regulations..
All that was too little too late for disgruntled shareholders of Bre-X Minerals, who continued their lawsuits against the disgraced company and its officers and directors, the engineering firm involved in calculating reserves and resources, and many of the brokerage firms whose analysts recommended the stock. As more information came to light, it became evident that the Busang project, in addition to being a scientifically executed fraud, was a technical failure and a black eye for the industry and its regulators. Colin Jones, formerly of Freeport-McMoRan Copper & Gold (FCX-N), made that much clear in an April 1998 paper on Freeport's due diligence review of the project.
"Database verification, assay variance work, and the site technical audit work highlighted serious discrepancies and concerns from the start," wrote Jones. Later, the results of Freeport's own sampling filtered in from the laboratories, showing that "almost no gold occurred in the core."
By year-end, the legal case against Bre-X was only just getting under way, and a key player, founder David Walsh, had passed away. Meanwhile, Canadian police authorities are continuing a criminal investigation into the matter, while regulators continued to examine possible action on their front.
TSE and OSC officials, in concert with the Alberta and British Columbia Securities Commissions, also took action against a number of brokers and their managers in the egregious Cartaway Resources affair. This garbage-container-manufacturer-turned-Labrador-nickel-explorer was caught in
a classic pump-and-dump scheme that took place in 1996, at the height of an exploration boom in the Voisey's Bay region.
In the summer of 1994, a group of First Marathon employees bought a large number of the company's shares at 10 cents each. By October of that year, the employees held 45.5% of Cartaway's shares -- a volume later boosted to 66% through subsequent financings and private placements (also at low prices).
In the spring of 1996, when the shares were trading just above $3, the junior released and promoted bullish projections about the mineral content of drill core from the property, based on visual estimates. The stock shot up to $26, but dropped to $2 days later when the poor assay results were
released. Securities regulators began an immediate investigation and filed a notice of hearing when they realized that the brokers had promoted the company without disclosing their obvious conflict of interest. First Marathon was nailed with penalties and costs totalling more than $4 million "for failure to supervise", and some of the firm's insiders were cited for various failures related to the firm's operation and involvement in Cartaway.
Desert-dirt Naxos Resources (NAXOF-OTC) also came under the regulatory spotlight this past year, facing allegations made by Alberta regulators that it had failed to disclose negative reports and assay results from its Franklin Lake "gold" (and sometimes platinum) project in California. The company had already been drummed off the Alberta exchange for similar activities in 1996 and 1997. Meanwhile, down in Arizona, International Precious Metals self-destructed after failing to prove it had anything other than black magic at its Black Rock "gold" (and sometimes platinum) project. The company was delisted from the Nasdaq SmallCap market earlier this year after Nasdaq staff raised questions regarding "the adequacy of certain press releases" over an 18-month period.
Disgruntled shareholders of Delgratia Mining agreed to settle their class-action lawsuits against the company and some of its principals. The former high-flyer once claimed to have 5 million oz. gold at a Nevada gravel pit. However, the assay results were later found to be fraudulent. The company agreed to pay no more than $500,000 and issue 2.5 million shares in order to survive and continue work at other projects.
In New York, a lawsuit was filed against Crystallex International (KRY-T) alleging violations of U.S. securities laws "by the dissemination of false and misleading statements" concerning the Cristinas 4 and 6 concessions in Venezuela.
The junior's shares had soared to beyond $11 based on claims that it had filed a lawsuit to enforce "rights" to most of the Las Cristinas gold mine being developed by Placer Dome and its Venezuelan partner. Internet chat lines touted the company's chances of successes as a near-certainty and several newsletter writers weighed in on the company's side. The stock plunged to $1 after a Venezuelan court ruled that the company's subsidiary did not have legal standing to sue the government and that, even if it did, it had no grounds because it never held title to anything in the first place.
The combination of skeptical investors and vigilant regulators prompted most companies to improve their disclosure during 1998, in advance of the new guidelines expected in 1999. Across the board, press releases contained more and better information, less promotion and hype, and never-before-seen details on check programs, assaying and quality control -- a trend that bodes well for 1999. |
