Wednesday 29 November 2017

Vogogo says no material undisclosed information - seems legit

I usually keep an eye on streaming news headlines when at my desk.  One of the releases that caught my eye today was from Vogogo (TSXV:VGO) confirming no material undisclosed information.  Does the company really not have an explanation for the 20% move up in the stock today and fourfold increase in the past five weeks?  I call BS and decided to dig a little.

The company website suggests a dormant company with the contact person listed as (link).  News releases provide the following description of the company: "Vogogo has provided payment processing and related transaction risk services and continues to own certain rights and software with respect to such services."  Looking back, it appears that Vogogo had set up a Canadian bitcoin exchange that failed in mid-2016 (link), roughly a year after raising $12.5M through a brokered financing.

As of Sep. 30, the company still had $6.9M in cash and the MD&A indicates that: "In the latter half of 2016 and into 2017, the Board has been focused on identifying a vend-in opportunity for Vogogo with the over-arching goal of leveraging the Corporation’s cash in an operating business to create shareholder value."  Somehow, Vogogo raised $6M on Nov. 1 by issuing 60 million units priced at $0.10/unit, of which the insiders took down 7.1M units.  The stock was already trading at $0.38/share by that time, having suddenly started a sharp move up on increasing volume starting on Oct. 23.  VGO closed today at $0.61 with 1.3M shares traded and the company has the balls to claim that there is no material undisclosed information?  The stock chart tells me that some investors have been given more information than has been provided publicly, especially since this company has given the public absolutely zero information.  IIROC may want to dig a little deeper on this one rather than taking the company's response at face value.

Beginning of the end of the Bitcoin bubble?

Us mining professionals have been getting sick of cryptocurrencies because they have been sucking investment dollars out of the junior mining space.  We are also sick of watching others make money while junior mining stocks are, at best, lackluster.

But, wait, what is the Bitcoin bubble about to pop?  Bitcoin and its cryptocurrency brethren have been going exponential recently, which is typically the last and most violent move up when something is in a bubble.  Go check out the nice graphic by Visual Capitalist earlier this week on Bitcoin's rise to $10,000 (link).  As per their table below, Bitcoin moved from $9,000 to $10,000 in a mere two days.
Today, Bitcoin's rapid rise came to a screeching halt at around 9am.  It hit $11,300, then fell 20% to $9,000 by 2:30pm before rebounding to $10,000.  Something that can move this much this quickly does not have fundamental underpinnings.  It is a bubble and it will pop.  Why do I care?  Cryptocurrencies are going to make junior mining investment look tame and I'm hoping dollars flow out of cryptocurrencies and back into boring old silver and gold.  The gold chart looks good and sooner or later I think gold prices will pop.  Bitcoin will also pop, but in a different way.

Monday 27 November 2017

Cryptocurrencies - creating value out of thin air (and electricity)

In junior mining, we often see companies seeded with cheap capital, followed by a pre-IPO round at a higher valuation and then an IPO at a higher valuation.  That is very similar to something I saw this morning relating to cryptocurrencies.  NetCents (CSE:NC) is creating a new cryptocurrency called NetCents coins. They are pre-selling the first batch of 5 million for $2/coin and plan to release a second batch of 5 million at $4/coin.  The coin exchange will then go live next month and coins will be valued based on demand.  Very similar to junior mining, right?  Well, there is that one difference, which is that a mining company needs to have a real asset.  With cryptocurrencies, there is no underlying asset and money can only be made based on the greater fool theory.  Bubblelicious!

Cryptocurrency talk is going mainstream, so the top probably isn't that far off but things are likely to get even crazier before the bubble implodes, as it always does.  Sadly, electricity consumption related to Bitcoin now exceeds the power consumption of 159 countries (link).  That should be good for thermal coal consumption, since most of the electricity usage for Bitcoin is in China.

The thing that will ultimately kill Bitcoin and other cryptocurrencies is that barriers to entry are very low, as evidenced by NetCents.  Apparently there are now over 1,100 cryptocurrencies, so the whole argument about finite supply is completely moot.  Paper money can be printed by central banks, leading to hyperinflation.  Cryptocurrencies can be created by anybody, which will also lead to hyperinflation.  Ultimately, the trading price will revert to the fundamental underlying value.  Zero.

Follow up on prior posts (WHY, GGI, GQM, LA, IBAT, MXL)

How time flies.  This blog has now been up and running for almost two months, so I thought I'd take a look back at the posts and see how some of the stocks mentioned have been doing.

West High Yield (TSXV:WHY) - Let's start with everyone's favourite train wreck.  WHY is trading again and the stock continues to highlight how gullible and dumb some retail investors are.  The US$750M takeover deal was clearly a scam, yet there seem to be no repercussions on the perpetrators.  The situation could have been a lot worse if the ASC had not halted trading shortly after the "deal" announcement was made, although it should have never opened for trading in the first place.  My guess is that somebody somewhere, whether inside the company or outside, was getting ready to sell shares to the suckers who believed WHY was worth US$750M.  Interestingly, a number of insider transactions dating back to 2006 have suddenly been filed on SEDI by Frank Marasco and his holding companies.  Who are the idiots that would back this guy in light of the circumstances?  This stock should be trading an order of magnitude lower and the guys involved in the bogus deal should be fined and banned.  Drain the swamp!

Garibaldi Resources (TSXV:GGI) - It was a wild week for GGI last week.  It briefly traded at $5.05 on Monday morning, when the company finally released the assays for the hole it has been talking about for seven weeks.  Despite the lengthy wait for assays, the news release came across like a rushed hatchet job with terrible disclosure.  Brent Cook from Exploration Insights, one of the few newsletters I have a lot of respect for (which is why subscribers pay for it), even chimed in on  (Note that in my previous GGI post that I attributed the life cycle of a junior miner chart to Brent Cook, but it was actually created by Pierre Lassonde and popularized by Brent)
Despite some arm waving in the news release - hey, don't worry about the assays released here, we've drilled an even better hole - investors lost interest and the stock sold off sharply.  It touched a low of $1.71 before catching some bids and moving back up above $3.00.  In other words, these investors are happy to value the company as high as $500M on rampant speculation, then dump the shares when the news wasn't extraordinary.  There is a saying that "bulls win, bears win, pigs get slaughtered."  I guess by pigs they mean the idiots willing to value Garibaldi at hundreds of millions.

Frankly, I was ecstatic to see GGI (and its neighbour Metallis Resources - TSXV:MTS) sell off because the success of this promotion was setting a dangerous precedent in the junior mining market.  The IKN blog described the market approach GGI had taken, in its typically colorful and entertaining language, and highlighted how New Nadina Explorations (TSXV:NNA) was following this recipe for how to suck in naive investors who invest based on greed rather than fundamentals (link).  Investors are clearly hungry for new discoveries, but they are likely to get burned if they invest based on hype and speculation rather than actual information and some comprehension of the probabilities of success in the junior mining space.  A few drill holes should not be extrapolated to suggest that this is a world class discovery.  It is a discovery, but only time and drilling will tell how big it really is...which sounds a lot like the Novo Resources (TSXV:NVO) situation, doesn't it?

Golden Queen Mining (TSX:GQM) - I used to work as an analyst/trader on a proprietary trading desk.  We'd call the GQM situation "catching a falling knife."  GQM's share price dropped 28% in early October without any news.  Apparently a newsletter writer put a sell on the stock.  Sometimes, an unexplained drop can be tempting as a buying opportunity.  More often than not, however, market action can be more informative than company information.  Since the newsletter sell recommendation, the stock has been halved again, the company has announced that it is planning a US$25M rights offering (backstopped by the Clay family), and the interest rate on the US$31M loan agreement (with the Clay family) is going from 8% to 10%.  Catching a falling knife is dangerous!

Los Andes Copper (TSXV:LA) - I mentioned this stock when it was $0.40 and it has been bouncing around in the 30s since.  I think the company is more hype than substance and they rely on paid newsletter writers to promote the stock.  Paid promotion tends to have a short-term impact or it puts lipstick on a pig.  Investors should be reticent to follow newsletter writers that are paid by their company clients.  They are biased and their disclaimers often spell that out, but few investors read those.  The Angry Geologist, who is much more technically proficient than me and posts his insightful work for free, also does not like LA.  Check out his post here.

International Battery (CSE:IBAT) - this stock demonstrated the influence that paid promotion can have.  The paid fluff piece by took the stock from about $0.32 to as high as $1.38.  It has since pulled back to $0.64, which is still double where it was prior to the promote.  The company did manage to raise $1.14M at $0.65/unit.  Hopefully that money isn't just spent on more promotion.  You see, promotion can be addictive.  Once you do it and see what it can do, you want to do it again or your shareholder base pressures you to do it.  But, you need to find a new batch of suckers newsletter subscribers every time.

MX Gold (TSXV:MXL) - Last, but not least, we have a mining company that jumped on the cryptocurrency bandwagon to "mine" bitcoin.  The company cancelled a proposed acquisition, but has ordered Bitcoin "mining" equipment.  The stock is down 40%, so these guys can't even make money in a sector that makes junior mining look tame.

Monday 20 November 2017

After 7 weeks, reality bites and Garibaldi investors sell the news

First, my apologies for how quiet this blog has been for the past two weeks.  Most things in mining land have seemed very tame lately when compared to the rubber-necking we did on the horrific car crash that was West High Yield (TSXV:WHY).  My travel schedule has also been jam packed lately thanks to the stellar mineral resource estimate issued by Tinka Resources (TSXV:TK) and starting work for AbraPlata Resource (TSXV:ABRA), which has a ridiculously low valuation in the silver-gold sector because few people have ever hear of it (Disclaimer: I work for TK and ABRA plus I am long those stocks, so consider me biased on these companies and do your own due diligence).

Let's turn our attention today to Garibaldi Resources (TSXV:GGI), which finally released some assay results (link) from its E&L project at Nickel Mountain.  This company is likely giving us a real life demonstration of the life cycle of a mining stock, which as I'm sure you all know suggests that mining company stocks often hit their zenith during the exploration phase.  Pierre Lassonde came up with the conceptual life cycle of a mining company many years ago and Brent Cook has done a great job using it to explain stock behavior, but investors don't seem to learn.  The thrill of the lottery keeps them coming back, as evidenced right now by GGI (not to mention Novo Resources), and things usually don't pan out in the long run.  Based on my personal experience, I would say that most junior exploration companies fail to transition from exploration to mining.  As a result, the second hump in the Lassonde curve fails to ever materialize for most junior explorers.  
Credit - Created by Pierre Lassonde, graphic from Brent Cook and Exploration Insights

After waiting a mere seven weeks from the date the new discovery was announced (link), Garibaldi provided a piss poor news release that I would have thought would raise some questions from IIROC.  There are no assay tables and no drill hole collar info.  Instead, there is some good old fashioned grade smearing on hole EL17-04 and summing of intervals on hole EL17-01.  Best of all, there is a whole lot of arm waving about a drill hole EL17-14.  More on that later.

The highlight of the actual assay results in the GGI release was hole EL17-04, which hit 4.8m grading 7.2% Ni, 3.4% Cu, 0.82g/t Pt and 0.78g/t Pd.  These are excellent grades associated with a massive sulphide zone where minerals have concentrated.  Most companies would be very pleased with this intercept, but GGI has led investors to believe that this is the second coming of Voisey's Bay and it will take a lot more than an intercept 4.8m thick to define a world class nickel deposit (>100Mt of 1% Ni).  So, GGI did what any good, promotional mining company would do and highlighted a broader interval of 48.2m grading 1.1% Ni, 0.69% Cu, 0.38g/t Pt and 0.23g/t Pd.  That looks like a respectable interval, but the very helpful Drill Hole Interval Calculator at reveals that the 43.2m interval above the massive sulphide lens only grades 0.425% Ni, 0.39% Cu, 0.33g/t Pt and 0.17g/t Pd (link).  That is low grade disseminated sulphide material worth less than US$100/t that is only likely to be economic if the project has sufficient scale and if metallurgical recoveries are high enough.

I suspect GGI management figured that the 4.8m massive sulphide interval in EL17-04 wasn't going to live up to the hype, so the news release highlighted hole EL17-14 because it intersected 16.7m of massive sulphides.  Yup, it took seven weeks go get assay results for the first four holes and yet the company is already trying to put the focus on a drill hole 10 holes ahead, the assays for which are likely two months away.  Good disclosure practices mean nothing to this company and shareholders are culpable for fueling this behaviour.  GGI shares have sold off hard this morning, dropping as much as 30%, as investors sell the news.  When you over promote or over promise, this is what tends to happen.  The company tried to keep the excitement going by talking about hole EL17-14, but clearly investors aren't falling for that based on today's selling.

While I don't like the games associated with over promotion, GGI demonstrates why this is so prevalent in the junior mining space.  The company certainly has attracted a lot of attention, early investors/speculators have made great returns even with today's share price pullback, and GGI has raised $16M without releasing a single drill hole.  In the long run, however, these plays tend to fizzle out; the reason they call discoveries like Voisey's Bay world class discoveries is that there are so few of them.  Nonetheless, GGI has shown us that it a very profitable trade can be to buy on initial discovery news, even in the absence of assays, and then to sell before or on the news.  Hit me up if you spot the next discovery...I'll buy stock and then criticize as I'm making money.

Friday 3 November 2017


TGIF!  West High Yield (TSXV:WHY) issued a news release today after the close.  In a nutshell, here is what it said:

  • The buyer, Gryphon Enertprises, LLC was formed for the purpose of acquiring assets.  They have no assets and it isn't worth suing them if they screw us over.  The buyer has hired an "arranger" to raise the USD $750 million, but there are no firm commitments or arrangements to fund the transaction.
  • Listing Baker Mackenzie as the buyer's law firm was an error.  What kind of clown show is this?  Lawyers play a pretty key role in any real deal, so how does a law firm get listed in error?
  • WHY has not yet received the USD $500,000 deposit.  Don't bother checking the bank account over the weekend Frank, as you've already told us that Gryphon doesn't have any assets.
  • They have no clue how a take or pay commitment would work.  Guys, that should be the least of your concerns.  This deal is similar to me selling my house to a homeless guy for $500 million.  The money is not there and your not going to get it.
  • WHY hopes to have its shares trading again soon.  Maybe some suckers will still think the deal is real.
This whole thing has been very entertaining!  In the process, we have likely identified the worst negotiator in the world: Mr. Stephen D. Cumming, managing partner of Gryphon Enterprises, LLC.  Dude, you have no cash and yet you offered USD$750M for a company trading for $21M.  Did you mean thousand instead of million???  Maybe it was just an error, like the Baker Mackenzie thing.

Washington Post picks up the West High Yield story as the deposit deadline looms

It has almost been a month since West High Yield (TSXV:WHY) announced its ridiculous deal to sell its mining assets for $750 million USD (link).  The first and most obvious thing that didn't add up on this deal was the astronomical valuation, USD$750M for a CAD$21M market cap company by a Maryland corporation with no apparent business or history.  Digging a little deeper, the purchase and sale agreement made no sense and was impossible to execute and the purchaser's law firm, Baker Mackenzie, has no knowledge of the deal.  While the WHY news release refers to the sale of the Record Ridge South and O.K. Mineral Assets, the purchase and sale agreement requires WHY to deliver 100% of the corporation's shares, which is impossible for a publicly traded company.  The purchase and sale agreement also requires take or pay agreements to be put in place before the closing date, although it doesn't specify what or how much.  Minor detail, I guess!

The size of the deal and the dubious aspects of it have drawn attention from Bloomberg and now the Washington Post has run a new story with Bloomberg that also questions the likelihood of a deal this size in the magnesium space (link).  This whole thing is like a bad movie plot unfolding.  It's so bad that you should stop watching, but then its SOOO bad that you have to watch it to see what happens next and how it ends.  The other enlightening sideshow is how there continue to be gullible posters on stock boards who believe this deal is real despite all the evidence to the contrary.

The thing I'm still trying to figure out is what the hell were these guys thinking when they announced such a preposterous deal.  Was WHY's CEO, Frank Marasco, naive enough to believe he had a legitimate transaction or is he in on it?  Profit is always the motive in scams, so the only motivation that I can think of is that somebody was hoping to unload a lot of shares into the market on the back of this deal announcement.  The stock was halted by the ASC shortly after the transaction was announced with no news from the company, so that plan, if it was the case, was foiled by the regulators.  Maybe if they had claimed that the deal was for $75M and not $750M they would have got away with it.

According to the purchase and sale agreement, a USD$500,000 non-refundable deposit is due 30 days after the date of the purchase agreement, which is dated October 5, 2017.  Will WHY receive the deposit this weekend?  I'd say the odds are about as good as me winning the lottery...and I didn't buy a ticket!

Trying to Build a 10-Bagger

Evolve or Die This blog started as an experiment when I was toying with the idea of starting a mining newsletter.  I figured that if I was r...