As an investor, I don’t want to be on the wrong end of fraud. But I thought it would be interesting to look at things from a different perspective: what is the best way to commit fraud? What is the best way to fleece investors?
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mining
Canada Lithium update: the end may be near
I’ve previously thought that Canada Lithium’s mine would be extremely uneconomic. It looks like the thesis is playing out. The company is desperately raising capital to shore up its working capital. It hasn’t been able to generate cash flow from the mine yet, which raises doubt about the company as a going concern. I’ve quoted the company’s financial statements below and added my own emphasis:
The Company has secured off – take partners in major Asian markets, but has not generated revenue or cash flows from its operations. The Company has limited financial resources and no current source of recurring revenue and continues to rely on the issuance of shares, debt or other sources of financing to generate the funds required to develop the Québec Lithium Project, for corporate expenditures, and to satisfy debt obligations as they fall due.
My investing mistakes and lessons that I’ve learned
This is a list of the most important things that I’ve discovered. Sometimes I have learned these things the hard way. Continue reading
Pretium update: Graham Farquharson speaks out
Those interested in Pretium should definitely check out this Financial Post article on the company. In the article, Graham Farquharson (president of Strathcona) comments on what’s happening and criticizes Pretium’s management.
Pretium: Strathcona says that there is no gold
See Pretium’s press release for yourself. The stock is currently down around 26%. Here’s one juicy tidbit from the press release:
Strathcona withdrew from the Program on October 8, 2013 before any results from the processing of the bulk sample were available. In withdrawing from the Program, Strathcona advised Pretivm that “…there are no valid gold mineral resources for the VOK Zone, and without mineral resources there can be no mineral reserves, and without mineral reserves there can be no basis for a Feasibility Study.” They also advised that “…statements included in all recent press releases [by Pretivm] about probable mineral reserves and future gold production [from the Valley of the Kings zone] over a 22-year mine life are erroneous and misleading.”
Strathcona is saying that there is no gold (“no valid gold mineral resources”).
Shorting VIC (ValueInvestorsClub.com), PRXI, PVG
Occasionally, I find myself shorting long ideas that are written up on VIC (ValueInvestorsClub.com). VIC is an exclusive website where a mix of professional money managers and non-Wall Streeters post investment ideas. Non-members like myself can sign up for a guest account and see ideas with a 45-day delay.
Here are situations where I have taken the opposite side of their trades.
Pretium Resources (PVG) – Massive red flags
Strathcona has was hired to oversee Pretium’s bulk sample program. The purpose of these programs is to get a better idea of the amount of gold contained in a deposit since the gold distribution may be erratic and drilling samples very little of a deposit.
Strathcona has inexplicably resigned from the project. This is a massive red flag for me. In my opinion, Strathcona has a very good reputation as Graham Farquharson’s work is famous for uncovering the Bre-X fraud. He has also continued to attack John Felderhof over his involvement in the fraud. (Felderhof remains a free man, his children are reported to be millionaires, and has never been convicted. I agree with Farquharson’s assessment.) His company strikes me as having high integrity. I was surprised that Strathcona would work with Pretium in the first place since Pretium’s quality control checks were consistent with fraud (see my previous post). It wouldn’t make sense for Pretium to hire Strathcona if fraud was occurring because Strathcona’s engineers are smart and have integrity. Now I’m less confused and strongly believe that the red flags are too big to ignore.
Here is Pretium’s press release:
Strathcona Mineral Services Ltd. (“Strathcona”), which had been engaged as the independent Qualified Person to oversee and report on the 10,000-tonne bulk sample for the Program, has resigned from the Project.
