IKN

Here’s one of the segments in IKN353 out last Sunday evening. It got a bit ranty

A rant on and from the First Mining Finance (FF.v) Clifton Star (CFO.v)
deal

On the blog
on Monday I published (23) a quick line on sourced intel about Keith Neumeyer;

He’s looking
to run a equity placement in First Mining (FF.v) to raise cash. In the very
near future. So now you know.

In the end
I was only half-right, or maybe three-quarters right, because come Friday the
imminent deal became fact and First Mining Finance (FF.v) announced its latest
deal (24) to
buy Clifton Star (CFO.v) for 48.2m in shares. And yes, of course I had a
personal comment on the deal on the blog that day, too (25). Let’s be clear as we
possibly can, CFO’s development assets are plain awful. For sure it can talk up
its projects and point to the fact it has over 900k ounces of gold (all
categories, including inferred) under 43-101 compliance. But these are the type
of BS moose pasture calculations that got the industry, especially the Canadian
industry into trouble. I have no adjective strong enough, plus we know that
nearby Osisko has already picked over their projects carefully and handed them
back, but the definitive word on the “quality” of CFO and its exploration stage
projects came from an e-mail pal (who will remain nameless and, on hearing of
the deal, remarked, “Clifton Star, you’ve
got to be joking! It’s an arsenic mine with a refractory gold by-product.”.
When that popped into my inbox I was in a taxi. I had to explain to the taxi
driver why I had burst out laughing so hard.

The
“assets” are not that, they’re liabilities. They’ll never be taken seriously by
any mining company worth its salt, the ounces will never be mined (unless, as
my friend noted, somebody finds an amazing new use for arsenic and the market
price for that element skyrockets), they will cost the holder of those
concessions far more than they’ll ever make.

Which
brings us to the real reason FF.v bought out CFO.v, as a different mailpal “K”
noted:

This acquisition is for
the Agnico and Yamana shares that CFO obtained after suing Osisko in the
twilight hours of the Acquisition of Canadian Malartic Saga. Long story short,
Osisko had promised a loan to CFO.V under certain conditions. Osisko
respectfully disagreed as they were being acquired and didn’t care. Yamana,
afraid of damaging their new asset with lawsuits, wanted Canadian Malartic
cleaned up and convinced its dance partner to issue some shares to settle
everything up.

$11M (was over $14M only
12 months ago!) in very liquid shares is like cash in these markets.

Easy as pie.

So yes easy
as pie K, but at what cost? Paying 48.2m in shares for fixed assets worth zero
zip squat nada, but a company with C$11m in cash, means FF.v is getting a tad
under 23c in cash for each of those shares it’s emitting. When your share price
is 41c and 44c and you’re willing to do such a deal, you’re sending a clear
message to people who know that CFO’s projects are worthless (i.e. the serious
end of the investment community, not the people FF.v is trying to rope in). That’s
seriously dilutive and surely it would have been better to go the route I’d
heard about on Monday and simply run a equity placement to raise cash at, let’s
say, 35c or 40c?

Which
brings us to the way in which FF.v has been operating this last year,
aggressively buying up fixed assets of very dubious quality (aside from the
Coastal Gold acquisition, which it snatched from under the nose of Stan Bharti
and comes with a deposit that has a shot at becoming a real mine). To give an
idea of the changes in less than one calendar year, consider these datapoints:

• On April 2^nd 2015,
  when FF.v started trading as a public company, it had 73.767m shares out
  and a closing day market cap of C$36.14m.

• Today, less than a year later,
  FF.v has lost 19.4% in share price, but these days (if we go pro-forma on
  this CFO.v acquisition) has 356.1m shares out and a market cap of C$140.64m.

• And as this chart shows unless
  you were willing to trade in and out of the stock (notice the spikes,
  caused by paid promotional pumping via the contract FF.v has with stock
  promoter Daniel Ameduri at “Future Money Trends”), a started holder of
  FF.v is now 19.4% in the red on his position, despite having watched his
  charge almost quadruple its market cap.

Or are
supposed to change, because I have serious doubts that optionality of the type
being marketed to us by FF.v, a Mineral Bank full of subprime, is going to work
this time around. It looks to me as though it’s an old man’s strategy, looks
tired and won’t be able to contend with the growing sophistication of the
investment community. I would agree there’s plenty of space to pick up decent
quality assets at cheap prices and hey, that’s exactly what I’m trying to do as
I sniff around Almaden’s Ixtaca property for my idea of a great entry price.
But the FF.v type of optionality, the Greater Fool variety, is an error and
it’s already showing up as the market bifurcates. We’re already seeing the good
stuff rising and the bad stuff failing to catch a bid, being completely left
behind. When the market turned, was it better to be holding a company with a
portfolio of marginal properties, or better to be holding a company with world
class assets that produces gold at an operating profit? Here’s a hint to help
answer that question:

Wasn’t that
the idea behind FF.v, that you the shareholder would benefit from the renewed
interest in metals mining assets? Instead, your share price fails to budge and
you get further diluted by “value” deals.

We live in
an age in which information is far more freely available, which means known moose
pasture properties with no chance at all of ever becoming mines will be known
as such by more and more people. Not only that, but the peddlers of this tripe
have already picked up reputations for being scammy operators and these days,
just mentioning Name X as being associated with a company, a trade or a
promotion is enough to scare people away. Add in the far greater choice of
investment vehicles for (just as our small sector example) mining, such as
triple-leveraged gold ETF tickers that give you all the gambler’s trade-rush
you can handle (and if not, play the call and put options on those things
instead). I contend that the playing field is changing rapidly but people stuck
in the past with models that used to work (so they think they still will) such
as Neumeyer are making a serious mistake with their money. I just hope you
don’t let them make that mistake with your money as well, let them regress to
the mean all by themselves.