EDITOR: | December 21st, 2014 | 7 Comments

Junior Resource F-Factor eludes Vultures just in time for a Santa Claus Rally?

| December 21, 2014 | 7 Comments

SantaRallyFlashback to Tuesday evening where I had a meeting with two directors of a couple of junior resource companies on Bay St. It was during a second beer when one disclosed, “I haven’t paid myself since 2012.” The other responded with, “well, I haven’t paid myself for the last year.” Insert a tweet I received on Thursday from @tonyalfidi in response to the market trending sideways commentary I made last week and where’s the M&A action and he wrote: “Many large miners seem to be waiting for juniors to go bankrupt, so they can buy projects and not companies.”

Well it’s a little hard to go bankrupt it seems when your burn rate doesn’t exist. In fact, I have no idea what’s going on here, but heck working for free may explain why the forecasted 80% of the TSX Venture companies we were told were running out of cash over a year ago, (most) are still standing.

Shot an email to one friend in London this afternoon with the hope that he could explain how this works. He basically reminded me why no one is quitting. It starts with “O”, he started — and “it’s called options, and no one wants to lose them.” So if a Director on one of these companies quits, they not only lose the cash they are owed, they lose their options. So I guess the premise is, keep your role as a CEO or Director and say nothing because if you quit, then the recovery of anything becomes nothing. This said, my friend did send an addendum that most of these option packages needed to be renegotiated or indeed, they are worthless.

This morning, I upset a friend in Asia when I asked him “is anyone really paying you right now?” Yes, I asked the unforgiveable question but I was on quest to understand why companies with virtually no cash are still alive, and why M&A numbers are not where one would imagine they should be given many of their sub-nominal cash positions. The catalyst for this line of questioning was raised when he referenced one of his Board positions. Just happened to have had a conversation with this IR professional in January at the Cambridge House Show when he disclosed that he had not been paid for months – and that was almost 12 months ago. “Honestly Trace, I am working for free.” he said, “and I just don’t know how much longer I can take this.” For the record, he managed somehow – as he is still there….working for free. My friend in Asia, on the other hand — strongly asserted on his end of the conversation, “I will get paid…when the money comes in”.

Wow, as a former investment banker, I can assure you that this is one helluva a high risk proposition, and it seems to be one that I am hearing more and more of. Had a glass of wine with another friend on Thursday night and she also revealed, that several members of their office group were also subscribing to the “give it away for free” formula or the F-factor as I have been calling it…

Have we lost our mind? Or are we betting we are at the bottom of the market or are we on some hippie groove train set to nowhere? Seriously, what do you really call this? Call it good old fashioned ingenuity, but the capitalists and analysts along the way seemingly forgot the survival of the fittest variable in their anticipation of a collapse and a vulture feeding frenzy – and the F-Factor, if our friends like Jeff Phillips who predicted the Santa Claus Rally that we literally just posted from our friends at Rivkin seems to be occurring based on market action are right: their efforts may not be for naught.

Here’s to Alessandro Bruno’s piece we are publishing in the AM on how the downward pressure on oil & gas will drive manufacturing north, and in turn – impact the demand on industrial minerals. Another sign that 2015 may be the turnaround year that too many people literally bet their homes on…and yes, a turnaround is my wish for Santa this holiday season…

Wishing all of our readers, a very special holiday season. Note: InvestorIntel pays all of our columnists, and we would like to thank our members as they make this possible.


Tracy Weslosky is the founder and CEO for InvestorIntel Corp. (2001-Present), a leading online source of investor information that since 2001 has provided public market ... <Read more about Tracy Weslosky>

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  • Tony Simon

    The number of zombie* companies on the TSXV is shocking.

    *Zombie = negative working capital as of the latest Sedar report. The average size of the ‘negative’ is scary.

    The total negative working capital will be eaten as losses by those who have let accounts payable ride. Nobody will be funding these companies.

    Incidentally, according to its Policy Manual 2.5, heading 2.1 and 3, the TSXV should have sent warning letters to all companies with less than $50,000 working capital, but has chosen not to. Only rational explanation is wanting to collect another round of listing fees before reality strikes.

    December 21, 2014 - 8:02 PM

    • Tracy Weslosky

      Thank you kindly Tony. Lately they have been using “zombie” to describe companies that are also, alive only due to the grace of government grant monies…equally perilous. We need more data to properly assess, and I have a couple of researchers that I have placed on this task. I prefer to have facts and figures versus what I am currently experiencing, which is real genuine concern from the volume of people confessing to me what their bottom-lines actually are. At least with knowing how real the challenge is, remedies can be developed towards a real solution. The public markets are supposed to offer the advantage of transparency, and both management and directors should be paid for their time, expertise and risk…again — a turnaround is in everyone’s best interest.

      Thank you again for your feedback, you are most appreciated.

      December 21, 2014 - 8:11 PM

  • Anthony Alfidi

    Thanks for the quote, Tracy. I frequently write about about the mining sector on my blog: http://alfidicapitalblog.blogspot.com

    December 22, 2014 - 1:59 AM

  • Santa Clause

    I think it is important to remember that solutions can appear in the most unexpected places. Take for example there was one Christmas where it was so foggy that I may of had to cancel my Christmas delivery, as it turns out this new reindeer had this shining red nose and guided our sleigh to delivery all the Christmas joy. Completely unexpected but it did save christmas

    December 22, 2014 - 11:23 AM

  • InvestWatch

    Thanks for letting me know what site is hanging out on less than 72 hrs to global delivery time…

    As for miracles, we are going to need one as one of my brokers kicked off our day with — ” GOLD SILVER CRUDE TO GET HAMMERED”….

    I wanted to delete him from inbox immediately, but then I though “ah ha”….now I know who the Grinch really is…

    December 22, 2014 - 11:29 AM

  • Mr.Jimmy

    Excellent article Tracy, just noticed it now. I was wondering if there was any word on the rumored resource tax of 35 % on heavy rare earths and 22% on light rare earths being considered by China? Also, will there be an interview in the new year with GeoMegA’s CEO Simon?

    Thank you and all the best in the new year !!


    December 27, 2014 - 8:53 PM

    • Tracy Weslosky

      Thank you Mr. Jimmy for the compliment. With regards to the heavy rare earth tax, I am literally translating a document as I speak that should have the answer in the next couple of hours. Now GeoMegA — and it is indeed impressive that you spell their name correctly, ah yes….we are filming in January. And indeed, we will be doing a thorough update in the New Year. Believe me, I have not forgotten!

      December 28, 2014 - 1:15 PM

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