November 16, 2010 - 5:25pm EST by
2010 2011
Price: 6.42 EPS $0.00 $0.00
Shares Out. (in M): 92 P/E 0.0x 0.0x
Market Cap (in $M): 610 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 610 TEV/EBIT 0.0x 0.0x
Borrow Cost: NA

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I really like shorting companies that take advantage of what's hot in the market to pump their stock and whose CEOs rail against the short sellers. As you can imagine, some of the shadier junior miners have caught my attention recently. I kind of figure that the real way to beat the shorts is through results - and this requires neither talking up your company nor fighting the shorts. After all, if you put up good results the shorts will need to buy the stock at some point and nothing causes that time to come sooner than a broken thesis. After listening to the webcast of the last annual meeting when the CEO complained at least a dozen times about short sellers, I almost shorted the stock on that alone. This would be a pretty boring write-up if that were the full extent of my diligence, so let's review the remainder of the thesis:

  • The company has no reserves
  • The CEO is a conspiracy theorist and believes that the shorts are out to "destroy" the company and that he will "protect" the shareholders
  • The company has burned through over $25-million in the past 5 years with nothing to show for it
  • The company claims that it produced multiple 43-101 reports, but a close reading of the reports shows that there are no resources that can be booked. Instead, the conclusions sections basically just say that the company needs to drill more
  • The company changes its target projects where it is going to explore every couple of quarters. For instance, the company claimed there were promising results in Luhala in 2005 but stopped putting out releases about that project in 2007 and we've heard basically nothing about it since
  • There are interminable delays. For instance, in early 2007, the company said it would commence work on its nickel holdings by Q2 of that year. I still haven't seen any actual nickel production, but 2-years later they claim to have an agreement with Songshan mining to develop this mine
  • The CEO finances the company through repeated private placements but he has been a net seller of stock each of the past two years
  • The number of shares outstanding increases every year. Shares outstanding are up 9x since 1993
  • The company has a $600mm market cap but has invested less than $30mm in PP&E since going public
  • The company makes outrageous claims such as that it will begin paying dividends in actual gold


Clearly, this company can claim to be anything it wants and rationality provides no boundaries. Accordingly, I strongly suggest limiting the size of your short and being prepared to lose money on a mark to market.


One stock sale too many.
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