EDITOR: | April 22nd, 2015 | 35 Comments

Lifton on Great Western and on ‘Lawyer-Speak’

| April 22, 2015 | 35 Comments

Press releases by public companies are reviewed by lawyers to make sure that any and all disclosures are in compliance with the securities laws as they govern public disclosures of information that could impact the market value of the company.

But lawyers are not trying to inform anyone other than themselves and the judges who may enter or allow the entry of the press releases into evidence, for example, at the trial of an action brought by shareholders against the company for misrepresentation or fraud in enticing the shareholders to invest in the company’s stock.

Using lawyer-speak insures lawyers of clients. The only way to be certain that a company’s public statements, such as press releases, have misrepresented the company’s true position or financial state is to ask a lawyer what the press releases and public utterances mean legally. It’s a great system for lawyers.

I’m not a lawyer, but I did study law for three years at the University of Detroit School of Law. Full disclosure: I did not finish due to my father’s death making it necessary for me to assume control of his business.

I am going to therefore give you my non-lawyerly opinion of the Great Western announcement yesterday (click here to access).

The company last raised a lot of money to go forward in its development by issuing bonds, secured (collateralized), I think by some primary then unencumbered assets of the company-perhaps the property, plant, and equipment of a subsidiary, such as LCM in the UK. The bond holders were surely given a first right of access to some assets of the company. This means that the bond holders can seize and sell those assets to recover the principal and interest owed to them in the event of a default.

This means that the ordinary shareholders can only get what’s left over after the holders of the senior debt get theirs. This means that the equity holders are, technically, SOL (“s*** out of luck”). This is why GWMG shares are now selling for $0.00-$0.01. They are or will shortly be worthless unless the bond holders give the company a reprieve. Note carefully that the market-capitalization of GWMG is now less than the amount due, and defaulted upon, for the first interest payment on the bonds.

GWMG has failed to meet an interest payment and failed to satisfy the payment during the two week grace period.

The company has some $3.5 million in cash, but since it did not meet the terms of the bond interest payments all of the bonds are due and owing immediately, so no matter how the lawyers couch it in their arcane mealy-mouthed BS GWMG is insolvent. This means B-R-O-K-E.

Note that I think that the company probably should not even pay its employees with what it has in the bank, because that money is now technically no longer theirs.

It is always possible that some new lender will come to their aid, but that lender will have to satisfy the defaulted bonds before any cash it might wish to lend or “invest’ can be used to continue the company’s operations.

Also, as with another major player in this sector, which is rapidly advancing towards the same end, even if a new lender comes along it is very unlikely that the current management, which got the companies into this dilemma, will be asked to stay on and try again.

In this situation suppliers seek cash on delivery and customers seek alternate vendors.

Lawyer-speak is usually at that point replaced by the language of gastroenterology and the standard phrase “He/She left to pursue other opportunities.”

If anyone wants to buy LCM I would suggest making an approach to the senior bond holders of the respective owners right now.

Its a real shame. GWMG was I thought a pretty good idea.


Jack Lifton is the CEO of Jack Lifton, LLC and is a consultant, author, and lecturer on the market fundamentals of technology metals. “Technology metals” ... <Read more about Jack Lifton>

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  • bearcat

    Ominous news release. My bet is that someone in Saskatoon already is writing the company’s obituary. Some permutation of the company may eventual emerge but current shareholders probably will have no claim to any part of that entity. The most difficult part of all of this is trying to imagine an ree universe without the strange and even fanatical GWG supporters.

    April 22, 2015 - 12:38 PM

  • Mr. kean

    I thought it would of been a take over target at this low sp price.too bad for your loss jack

    April 22, 2015 - 12:54 PM

  • hackenzac

    You should put that ox cart photo back up.

    April 22, 2015 - 1:04 PM

  • Jack Lifton

    Mr kean,

    I took my losses already.


    April 22, 2015 - 1:33 PM

  • JOE O

    Who buys LCM?

    April 22, 2015 - 1:53 PM

  • Mr. kean

    Star minerals would be a good fit for LCM. Managed seems well put together and sound

    April 22, 2015 - 2:07 PM

  • Jack Lifton

    Joe O,

    I think that whoever buys LCM needs to be more market-savvy than GWMG’s current management and board. LCM seems to have just one product line, a customer specified NdFeB alloy. It seems to have all of that customer’s demand. This uses at best 20% of LCM’s capacity. The next owner must have better access to raw materials and will need to aggressively market the companies capabilities and capacities.

    LCM has a top notch management and technical management led by Dr Ian Higgins. If someone acquires LCM with the intent of expanding its sales and markets they absolutely must retain its, LCM’s, current management.

    April 22, 2015 - 2:17 PM

  • bearcat

    Mr.kean: Insightful–Star Minerals acquiring LCM for a song and a dance, wouldn’t that be just too cute! Seems those folks probably know a little bit about that operation and it would complete the circle just perfectly. Shareholders? What are those?

    April 22, 2015 - 2:36 PM

  • Pennie

    Veritas Bob, this is ‘Lifton-speak’ – good luck with the translation.

    April 22, 2015 - 8:32 PM

  • bearcat

    Jack: It seems we are into the thinning out process so long anticipated in the ROW ree herd. I believe mortally wounded Great Western fits into that scenario. Even the two lumbering giants in the herd probably are beyond resuscitation. And yet, you have stated that this is the best time ever to invest in ree miners. How is that? My rare earth investment is exclusively in REE and my hope is that it will be one of the herd’s survivors. I like its ore, geography and business model. Was anticipating your comments on that company after your recent visit with them.

    April 22, 2015 - 9:07 PM

  • Joe o

    My assumption is jack is looking towards companies like ucore and Trer that may use next generation separation tech and have better ree profiles than mcp and lynas.

    April 23, 2015 - 12:11 AM

  • Jack Lifton

    Bearcat and Bear

    RER is completing work that will be announced shortly, and I have decided to wait for that, before I do an updated profile of the company.

    However I do want to state again that I believe that RER has the best overall total rare earths profile, by volumes, of ANY rare earths junior or senior in the USA. I believe that if economics events continue to unfold as they are doing then RER will be the USA’s principal source of competitively priced Nd and Pr later in this decade.

    April 23, 2015 - 7:18 AM

  • charles.1

    GWG – a great call by Jon Hykawy. I hope investors have long memories

    April 23, 2015 - 7:57 AM

  • hackenzac

    Speaking of Jon Hykawy, we haven’t seen him around here in a while, does anybody know the back story around Byron Capital’s demise? My dot connecting has him ID’d as the analyst that got Byron in trouble with regulators and it was specifically concerning GWMG pumping but I don’t have details. Anybody?

    April 23, 2015 - 10:23 AM

  • alvarita

    Is that Jack the expert speaking or Jack the marketing rep speaking? I do declare sometimes it’s so hard to differentiate.

    April 23, 2015 - 3:48 PM

  • bearcat

    That lawyer-speak really is its own lingo. Sounds like when GWG goes south officially, the big boys can say that shareholders were clearly warned. And, yet, today (Thursday) the 2.6 million shares of GWG traded at .01 cent (representing a mere $26,000) has their board convinced that good news is on the way and some even are buying more shares. To me it sounds like more of a TD head fake, If you have shares to sell, it is best to bump up the sp before selling. Probably not the last head fake as the death process continues. Hope and faith can be really powerful. Why not just buy REE shares and be done with it!

    April 23, 2015 - 4:54 PM

  • motherearth

    Jack are you saying Marc leaving the company will be the next shoe to drop at GWG?

    April 23, 2015 - 9:38 PM

  • Mr. kean

    That CEO. Does not communicate with the shareholders. He has been gone from that company for a while. Shareholders ? What is that.

    April 23, 2015 - 11:24 PM

  • Jack Lifton

    I have never met Mr LaVier, nor have I spoken with him.

    April 24, 2015 - 8:32 AM

  • Fatfretter

    Speaking of levier, it keeps crossing my mind back in August or so of 2014 in a conference call, he was asked by a caller, “given the cash burn rate and the cash the company currently has, the company looks to be out of cash in March of 2015.”
    All he had to say was, I don’t agree with your math, next question.

    April 24, 2015 - 8:44 AM

  • Fatfretter

    Good point Bob!
    Well at least Levier got a feasealility study completed for the company. I suppose he can put that in his resume.

    April 24, 2015 - 12:18 PM

  • Fatfretter

    I wonder if shareholders did file a class action suit if it would tie up assets from being liquidated to payoff the bondholders? That would be a shame!!

    April 24, 2015 - 12:23 PM

  • bearcat

    Don’t worry about the CEO, he will come out of this just fine. The last bailing out by the CEO of this then already crashing and underfunded venture wasn’t even using a golden parachute, it was by Lear Jet. The company’s leadership never seemed to understand that it takes continuous and real money in the bank to keep progress moving forward. Even the world’s highest grade ree ore (Steen) is worthless unless some way can be developed to dig it up. There are examples of how to successfully move a junior miner forward. Just today Rare Element Resources announced a $3.4 million, 5.2 million share direct offering to a single institutional investor. That doesn’t even add that many shares to the already existing 48 float. It provides the essential cash infusion to carefully, prudently and sequentially (something GWMG leadership never seemed to comprehend) move this ree miner toward production.

    April 24, 2015 - 1:21 PM

  • alvarita

    How much progress do you think $3.4 million is going to support?
    ” It provides the essential cash infusion to carefully, prudently and sequentially (something GWMG leadership never seemed to comprehend) move this ree miner toward production.”
    How can you tell that it will be careful, prudent, or sequential? Sure it’s only 5.2 million shares added to the float…because it’s only $3.4 million bucks. Duh! According to the company’s news release, that money is spread across quite a few tasks.
    “Proceeds from the offering will be used for pre-development of the Bear Lodge Rare Earth Element Project, including for progression of permitting, continued test work on rare earth element separation, engineering and optimization studies, and progression of a feasibility study, as well as for working capital and other general corporate purposes.”
    Pre-development and progression being the obvious nebulous keywords. Progress is defined by tasks proven to be completed…anything else is nothing more than speculation.

    April 25, 2015 - 5:33 AM

  • bearcat

    alvarita: What can $3.4 million do? How about you ask Great Western and its shareholders right now? And this isn’t their only cash. Re. the future wise use of money, I only can go by their past behavior, especially the sequential and carefully planned development of their project. By doing so they have shown their plan to be fundamentally different than GWMG’s slipshod approach, which has cost investors many millions of dollars. GWMG has received cash infusion and used it to buy furnaces and expand their existing alloy factory rather than develop Steen. Duh, maybe you need to read up more on Rare Element Resources. Perhaps it is time to give up on your now deceased GWMG, scab up and move back into the real world. One more thing, Duh–that is your word!

    April 25, 2015 - 6:16 PM

  • alvarita

    bearcat: You continue to make my point but somehow fail to see it. A careful and/or sequential plan does not equate to progress. Where is a mine? Where are the permits? Where is additional funding? Where is the proof of commercially viable MRT or any other process? Don’t tell us that there’s an Alaskan “guaranteed” loan because there isn’t any guarantee despite the press releases and various articles that have suggested otherwise. I’ve never suggested that GWM was anything other than a poorly run company that has blown through 90 million plus dollars with little to show for it. If you think that I’m a GWM groupie you’re sadly mistaken as usual. I would suggest that you scab up and base your comments on proven progress rather than baseless speculation or opinion.

    April 27, 2015 - 8:30 AM

  • alvarita

    By the way…if it seems as though I’m drawing a parallel between REE and UCU(and others in the sector), I am. Real and tangible progress is progress, no matter the company. I would also hope that someone who has been bashing GWM in practically every post won’t suggest that I’m bashing. Just calling a spade a spade, and reality…well…reality.

    April 27, 2015 - 9:27 AM

  • bearcat

    Oh my go! Are you kidding me! You don’t even know who Rare Element Resources is! I have no idea why you think it has anything to do with an “Alaskan ‘guaranteed’ loan” because you might be surprised to know their mine is in WYOMING! And what is it with this MRT business? It has nothing to do with Rare Element Resources. YOU are talking about Ucore! Duh! Duh! Duh! Bye. I have not intention of wasting any more time communicating with you since, obviously, you don’t have the slightest knowledge of the ree junior miners.

    April 27, 2015 - 12:56 PM

  • hackenzac

    Alvarita is a well known Ucore basher who needs to get her digs in even if she’s oblivious.in doing so.

    April 27, 2015 - 3:16 PM

  • alvarita

    And hackenzac is a well known Ucore pumper who by his own admission holds over 300,000 shares of seriously underwater stock, who Tracy has warned in the past about making personal comments, and who was recently tossed from Stockhouse for bashing and making racist as well as threatening comments to other posters. I assume Tracy will delete both of our posts which is fine with me, but he’s not going to get away with his “I’m the good and innocent guy” ploy. I’m well aware of REE and the other players and their real progress to date, at least as put forth publically. I said I was drawing comparisons…perhaps comparisons are too complex for the average reader. Sorry.

    April 27, 2015 - 4:11 PM

  • hackenzac

    LOL You are so predictable Goober. I’ve never seen anybody so aggressively pointless.

    April 27, 2015 - 4:22 PM

  • bearcat

    hackenzac: You, evidently, know this poster. LOL, do you believe
    (s)he was “drawing parallels”? Of course not, nobody does as that wasn’t even suggested and Ucore never even was mentioned in her/his posts–the company supposedly with which parallels were being drawn! I hope the comments aren’t taken down because his/her posts relate directly to credibility, which readers need to weigh. I am new here and just assumed posters would be at least a little knowledgeable.

    April 27, 2015 - 4:29 PM

  • marpal

    Re: Disclosures. Even profitable companies caution in disclosures.
    A good news release always followed by a cautionary disclosure.
    Typical company news releases: We are moving forward quickly wohoo!
    Typical company disclosures: But we are not liable if we fail hehehe!
    Jack, you confuse me. You speak of Star as you once spoke of GWG. So if it’s not old management that turned your interests away from GWG then what or who was it? I want to respect your expert opinions however, like GWG management (past and present), you do not disclose many facts. Old mgmt seems to have silenced everyone, including our new CEO.
    What I want to know is how much money has GWG received.
    Monies from shareholders (since first going public), plus monies from any government, plus bondholders monies, plus the sale of any assets, plus the revenues from LCM plus any other monies received to date. Then I’d like a breakdown of what it was all spent on. Do you know?
    Gary and Bill pumped us up into believing, then with no true explanation, walked away. Close to the same time, you Jack, also with no true explanation, changed your tune about GWG. In comes Marc who reiterated much of Bill’s hype, then went silent as well. The silence, we were once told was to keep THE BIG PLAN a secret from competitors. So what’s the excuse for the same deafening silence even up to today?
    Are the big boys getting a kick out of watching shareholders grovel, lose sleep and spend endless hours on message boards hoping to find comfort and assurance from each other that all their family money is not lost? Of course, you don’t have the answer to this but pass it along to Bill and Gary if you run into them.
    I hope this story has a happy ending for shareholders.
    Jack, credit is due to you for taking the time to address us. Although many times it went in circles, you still made yourself available. Good deeds come back ten-fold!

    April 27, 2015 - 8:02 PM

  • alvarita

    Funny hackenzac…I’ve never seen anyone so brilliant who’s so aggressively broke.

    April 27, 2015 - 8:26 PM

  • marpal

    Correction: In my post above, where I refer to Bill, it should be Jim. (used part of Gary’s last name in error)

    April 28, 2015 - 6:32 AM

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