Is this Exploration Boom about Investment or Speculation?

http://www.bcbusinessmagazine.com/bcb/top-stories/2006/09/01/rock-stars


If you look into any one of the 400 or so juniors that call Vancouver home, chances are you’ll find a credible geologist at the heart of the business and a number of serious projects aimed at bringing a mineral-producing mine to life.

That’s not to say the scam factor has been eliminated completely. A new exploration company typically goes public with a share price well below a dollar, and anywhere you find stocks whose value can jump 40 or 50 per cent with a swing in price of a dime or a quarter, you’ll find unsophisticated investors dreaming of instant riches. Close on their heels will be unscrupulous promoters eager to relieve them of their money.

Vancouver Sun columnist David Baines has made a career of exposing fraud in Vancouver’s junior public companies and he’s convinced that swindles didn’t disappear with the death of the VSE.

“If anyone thinks this market has changed its character to one where the process has changed from speculation to investment, they’re crazy, they’re delusional,” Baines says. He points to the example of De Beira Goldfields, a company founded by a Vancouver longshoreman and headed by two Australians with a history of online pornography and gambling. De Beira was grounded by the B.C. Securities Exchange in June after its market capitalization had soared from zero to more then US$600 million in 35 trading days, following extensive promotion in newsletters and online chat forums.

However, Baines concedes that there is a key difference between De Beira and the hundreds of legitimate Vancouver exploration companies: its shares traded only on the largely unregulated Over The Counter Bulletin Board in the U.S. and the equally fast and loose Frankfurt Exchange.

When asked if a TSX or TSX-Venture listing reduces the likelihood of similar scams, Baines replies, “Yes, I think so,” adding that if an OTCBB company is co-listed on the TSX -Venture Exchange, “that’s fine, because they always have to adhere to the highest standards. The bulletin board may have virtually no standards, but the TSX does.” Several dozen of B.C.’s approximately 400 exploration companies trade exclusively on the OTCBB.

Will it all come crashing down again? Maybe. Certainly no one will argue that metal prices will remain at their current peak indefinitely. And whenever people start saying it’s different this time around, the smart money heads for the hills. But for now, the new crop of Vancouver juniors has no time to look in the rearview mirror. As Fronteer’s Mark O’Dea puts it, “We’re cashed up and we’re going to do what we’re supposed to do: go out and find big deposits.”

Death and resurrection of Vancouver’s junior scene
Vancouver saw its last mining boom in the mid 1990s, when promoters went into overdrive as news of a massive gold find in Indonesia fanned the flames of speculation on the VSE. But following the NDP government’s expropriation of the Windy Craggy mine in 1993, a string of disasters converged in what seemed certain to spell the end of Vancouver’s reign as an internation hub of mineral exploration

1988- The VSE at its best
Local geologist Ron Netolitzky and partners team up with Murray Pezim to raise exploration capital on the VSE. Gold discoveries at the Snip and Eskay Creek properties in northwest B.C. spark a frenzy of trading, pushing share prices into the stratosphere. By the early ’90s, investors, geologists and promoters have cashed in their chips as discoveries move from exploration to production.

1993- Omen of doom
In an unprecedented move, the NDP government expropriates the site of the planned Windy Craggy mine from Royal Oak Mines and turns it into the Tatshenshini-Alsek Provincial Park. Royal Oak kick-starts the mining industry’s exodus from B.C. by picking up stakes and moving its head office from Vancouver to Kirkland, Washington.

1997 The Bre-X debacle
The biggest gold discovery in decades – 200 million ounces in Busang, Indonesia – turns out to be a fraud. When the Calgary company, trading on the ASE, began
hyping its find in 1991, the VSE erupted in a frenzy of speculation and penny investors propelled junior mining stocks to the stratosphere. It comes crashing down in 1997 when independent analyses confirm a massive fraud.

1999 Death of the VSE
Some blame it on Bre-X. Some attribute it to the death of Murray Pezim in 1998. But on the eve of the 21st century, it is clear that the VSE is an anachronism. The VSE hooks up with the Alberta Stock Exchange to become the Canadian Venture Exchange, housed in Calgary. Within two years, it is swallowed by the Toronto Stock Exchange to become the TSX-Venture Exchange.

2006 The return of the juniors
More than 400 junior exploration companies call B.C. home, and they’re raising money like never before. The previous year, 41 B.C.-based juniors went public on the TSX and TSX-Venture Exchanges. In June 2006 one company, Fronteer Development Group, raises $38.4 million.