BENJ GALLANDER and BEN STADELMANN
Prior to the recession in 2007, Benj purchased a small "exploration stage company," Opawica Explorations, for 7.5 pennies a share. It had traded at far higher levels in the past, and the logic was that through hope, hype or exploration success, the enterprise would jump in price. An initial sell target of 14 cents was established.
A mere two months later, a one-for-ten stock consolidation was announced. Theoretically, after this happens, a company should trade around an equivalent value —in this case, 75 cents. However, except perhaps for a very brief period of time, this is rarely the case, as the vast majority of stocks trade down significantly after the reverse split.
Knowing this, Benj went to dump his position, knocking out 75 percent at six cents per share before the consolidation. He tried selling the rest at the same price, but there were no takers.
After that, the stock price had one very brief upward flurry. Benj called management and talked with the CEO, Dan Clark, who told him it appeared the company had a huge strike in Northern Ontario. So our intrepid investor decided to hold a bit longer, giving the results a chance to be disseminated so that the public could hop into the company.
Alas, the tantalizing find was an illusion, and the stock price quickly thudded. Currently, it trades at around a penny. Adding insult to injury, it tumbled from the major leagues of the TSX to the minor hunting grounds of the Venture Exchange.
Studying the financials leaves little reason for optimism unless the company has a complete makeover. Currently, there is about $415,000 in the kitty along with an $850,000 investment. While liabilities are nominal, there is no revenue. The loss last quarter was about $1 million and over the first nine months of this year it tallied $5.8 million.
Approximately $450,000 was management fees, salaries and benefits, which raises the question: "What have they been managing?" Accounting and legal fees chipped in $45,000 and travel and automobile costs $54,000.
The last news release that included drill results was in February of this year, on the Teck-Kirkland Property. It concluded, "No significant mineralization was encountered in the current drill program." That’s like coming home from a fishing trip empty-handed.
Perhaps the dismal results were a primary reason why Clark announced his resignation as chairman, CEO and director of this outfit last month. He will remain as a consultant until at least January 2014.
Alexander Bain will take his place, a gent who has been with the corporation since 2006. When Benj spoke with him, he said, "We'll just sit back, and hopefully the market will improve. Kind of have 18 months to put it all together. Not a lot of positives at the moment, but we’re remaining optimistic."
When Benj was speaking at the delightful, informative Resource Investors Forum in St. John’s last month, one mining expert mentioned how there are about 600 juniors in the mining sector with less than $250,000 in the kitty. About half the companies on the Venture trade under a dime, with approximately half of these under a nickel.
You can’t do much exploring without money, and raising funds in the current environment is exceptionally competitive. Under this scenario, Opawica will find it very difficult to survive. The penny trading price clearly indicates this.
Under normal circumstances, Benj would throw in the towel, take the loss, write it off against winners and move on. Unfortunately, this company is in his RRSP, so he cannot use it to offset gains. The cheerful view is that the stock price might have a bit of pop — for whatever reason — and then be chucked.
Luckily, in terms of the companies he owns, this flop is an anomaly, because too many outfits like this would push retirement further into the distance. That possibility is far more likely for Benj than Opawica striking something of value.