Example of a company not to invest in.
From today's Baines column in the Vancouver Sun.
http://www.vancouversun.com/business/Inspirat...z2NRfeAKKt
Just because a company is fully reporting doesn't automatically make it a good investment (although a non-reporting company is always a bad investment for public stock investors). But because they file with regulators, an investor has the information they need to conduct real and honest DD. And if investors had done that here, I doubt they would have invested with this company recently. A good example of a mineral exploration company using shareholder money for purposes other than exploration - always a huge red flag and a good reason to avoid investing in similar companies.
Inspiration Mining generates lots of losses, not much inspiration
CEO Randy Miller has been collecting hefty compensation while his company drifts into penny dreadful territory
Inspiration Mining Corp. is not a very inspiring company, as the name might imply. "Depressing" would be a better word.
The Toronto Stock Exchange-listed company is based in Toronto, but has many Vancouver connections, starting with its president, David Randall (Randy) Miller.
Miller was working as a broker at Yorkton Securities, Pacific International Securities and Canaccord Capital in 1993 and 1994 when a Vancouver Stock Exchange company called International Hi-Tech Industries Inc. soared to $10.50 and became the most highly capitalized company on the exchange.
The stock hike was rather curious because the company had produced nothing but puffy news releases and hefty losses.
On closer inspection, it became clear that somebody was high-closing the stock - an illegal manipulative technique designed to ensure the stock closes the daily trading session on a high note.
That "somebody," it turned out, was Miller, who was trading the stock on behalf of a Lebanese national who was living in Beirut in a house owned by International Hi-Tech's president.
The exchange commenced a disciplinary action and in August 2000, Miller admitted his sins and agreed to a three-year suspension of his broker's licence and to pay $30,000 in fines and costs.
By this time, Miller had become president and a director of Inspiration Mining, which was exploring some mineral claims on Vancouver Island.
In 2005, the company began to focus on a prospective nickel property it had acquired near Timmins, Ont. (the Langmuir claims).
It produced some promising drill results and nickel prices were soaring. The company also spent heavily on investor relations activities. During 2007, IR expenses totalled $2.17 million, up from $170,753 the previous year. In April 2007, the company obtained a listing on the Toronto Stock Exchange, which gave it additional credibility. The following month, the stock peaked at $7.69, enabling the company to raise large amounts of equity capital. During 2007 alone, it raised more than $40 million.
Meanwhile, the company became embroiled in an ownership dispute with the vendor of the Langmuir claims. To settle the matter, it agreed to pay $465,000 plus $50,000 US per year in advance royalties. Legal costs added another $70,931.
Miller had a personal interest in the Langmuir property. If it ever went into production, the company would have to pay him a one-per-cent net smelter royalty. In 2007, the company acquired this interest from him for a total of $687,738.
Miller was also making a handsome salary. In 2005, his compensation package jumped from $36,000 to $212,175. By 2007, it had reached $240,000.
In August 2007, he purchased a house at 4659 Woodgreen Dr. in West Vancouver for $1,625,000 (the property is registered in his wife's name) and began an extensive renovation project. In 2011, he advertised it for sale for $4.2 million but has since taken it off the market. The property has remained vacant since he bought it (He and his wife continue to reside in Newmarket, Ont.).
In 2008, the company's fortunes reversed. Nickel prices plummeted and equity markets began to dry up. By July 2009, Inspiration's stock price had plunged to 60 cents.
Then the company did a very odd thing: rather than conserving capital, it agreed to lend up to $6 million to an unidentified Luxembourg company to buy European mutual funds.
The loan was initially payable on demand, but later converted to a term loan with repayment due in July 2014. Interest was initially payable at prime plus four per cent, then reduced to a straight four per cent.
Miller refused to tell shareholders who he loaned the money to, and why. He also refused to tell Luke van der Horst, a retired Vancouver lawyer who had joined the board in April 2010.
"When I asked who the borrower was, Mr. Miller became quite agitated and refused to tell me," van der Horst told me this week.
Van der Horst felt he was entitled to an answer, especially since he was a member of the company's audit committee. He said that, due to the lack of information, he quit after only four months. (When he left, Miller issued a release saying van der Horst had resigned "to pursue personal projects.")
By September 2010, Inspiration had advanced the full $6 million to the mystery Luxembourg company. By the end of the following year, the amount owing had ballooned to $6.5 million with accrued interest.
Security was said to be a first charge over the borrower's assets, including the mutual funds, but the value of those funds rapidly declined.
By September 2012, the company had written down the amount owing by $2.65 million to $4.1 million (which was said to be the value of the mutual funds).
By Dec. 31, the reported value of those funds had further declined to $3.5 million. That's a $3.25-million writedown on account of Lord-knows-what.
Despite the dramatic reversal in the company's fortunes, Miller's compensation kept rising. In 2010, it peaked at $884,500, consisting of $382,500 cash and $502,000 in option-based awards.
During the year ending September 2012 - the company's last reporting period - he collected $498,000 cash. That consisted of $30,000 per month for consulting fees, a car allowance of $1,500 per month (at last report, he was driving a Porsche Panamera), and $10,000 per month for office space that he rents to the company.
Miller has also negotiated rich severance provisions. In the event of death, retirement or disability, he is entitled to two times his average salary and bonus.
If he resigns "for good reason" he is entitled to his prorated salary for that year, plus six times his annual salary. ("Good reason" includes any change in his title, responsibilities or compensation as a result of a change of control.)
As events unfolded, the Langmuir property never went into production, so all the money paid to Miller for his net smelter royalty was for naught. The company is reviewing options for the property, which include selling it. Cumulative losses now exceed $36 million.
The company is now shifting its focus to potash. Last June, it paid $2 million for a 20-percent interest in Potash Dragon Inc., a private company domiciled in Barbados. It has a potash project in Chile.
The market, apparently, could care less. The company's stock price closed Tuesday at eight cents, about one-hundredth of is peak price. Investors are obviously looking for inspiration elsewhere.
dbaines@vancouversun.com
© Copyright (c) The Vancouver Sun
Read more: http://www.vancouversun.com/business/Inspirat...z2NRk7zQ7v Example of a company not to invest in.
From today's Baines column in the Vancouver Sun.
http://www.vancouversun.com/business/Inspirat...z2NRfeAKKt
Just because a company is fully reporting doesn't automatically make it a good investment (although a non-reporting company is always a bad investment for public stock investors). But because they file with regulators, an investor has the information they need to conduct real and honest DD. And if investors had done that here, I doubt they would have invested with this company recently. A good example of a mineral exploration company using shareholder money for purposes other than exploration - always a huge red flag and a good reason to avoid investing in similar companies.
Inspiration Mining generates lots of losses, not much inspiration
CEO Randy Miller has been collecting hefty compensation while his company drifts into penny dreadful territory
Inspiration Mining Corp. is not a very inspiring company, as the name might imply. "Depressing" would be a better word.
The Toronto Stock Exchange-listed company is based in Toronto, but has many Vancouver connections, starting with its president, David Randall (Randy) Miller.
Miller was working as a broker at Yorkton Securities, Pacific International Securities and Canaccord Capital in 1993 and 1994 when a Vancouver Stock Exchange company called International Hi-Tech Industries Inc. soared to $10.50 and became the most highly capitalized company on the exchange.
The stock hike was rather curious because the company had produced nothing but puffy news releases and hefty losses.
On closer inspection, it became clear that somebody was high-closing the stock - an illegal manipulative technique designed to ensure the stock closes the daily trading session on a high note.
That "somebody," it turned out, was Miller, who was trading the stock on behalf of a Lebanese national who was living in Beirut in a house owned by International Hi-Tech's president.
The exchange commenced a disciplinary action and in August 2000, Miller admitted his sins and agreed to a three-year suspension of his broker's licence and to pay $30,000 in fines and costs.
By this time, Miller had become president and a director of Inspiration Mining, which was exploring some mineral claims on Vancouver Island.
In 2005, the company began to focus on a prospective nickel property it had acquired near Timmins, Ont. (the Langmuir claims).
It produced some promising drill results and nickel prices were soaring. The company also spent heavily on investor relations activities. During 2007, IR expenses totalled $2.17 million, up from $170,753 the previous year. In April 2007, the company obtained a listing on the Toronto Stock Exchange, which gave it additional credibility. The following month, the stock peaked at $7.69, enabling the company to raise large amounts of equity capital. During 2007 alone, it raised more than $40 million.
Meanwhile, the company became embroiled in an ownership dispute with the vendor of the Langmuir claims. To settle the matter, it agreed to pay $465,000 plus $50,000 US per year in advance royalties. Legal costs added another $70,931.
Miller had a personal interest in the Langmuir property. If it ever went into production, the company would have to pay him a one-per-cent net smelter royalty. In 2007, the company acquired this interest from him for a total of $687,738.
Miller was also making a handsome salary. In 2005, his compensation package jumped from $36,000 to $212,175. By 2007, it had reached $240,000.
In August 2007, he purchased a house at 4659 Woodgreen Dr. in West Vancouver for $1,625,000 (the property is registered in his wife's name) and began an extensive renovation project. In 2011, he advertised it for sale for $4.2 million but has since taken it off the market. The property has remained vacant since he bought it (He and his wife continue to reside in Newmarket, Ont.).
In 2008, the company's fortunes reversed. Nickel prices plummeted and equity markets began to dry up. By July 2009, Inspiration's stock price had plunged to 60 cents.
Then the company did a very odd thing: rather than conserving capital, it agreed to lend up to $6 million to an unidentified Luxembourg company to buy European mutual funds.
The loan was initially payable on demand, but later converted to a term loan with repayment due in July 2014. Interest was initially payable at prime plus four per cent, then reduced to a straight four per cent.
Miller refused to tell shareholders who he loaned the money to, and why. He also refused to tell Luke van der Horst, a retired Vancouver lawyer who had joined the board in April 2010.
"When I asked who the borrower was, Mr. Miller became quite agitated and refused to tell me," van der Horst told me this week.
Van der Horst felt he was entitled to an answer, especially since he was a member of the company's audit committee. He said that, due to the lack of information, he quit after only four months. (When he left, Miller issued a release saying van der Horst had resigned "to pursue personal projects.")
By September 2010, Inspiration had advanced the full $6 million to the mystery Luxembourg company. By the end of the following year, the amount owing had ballooned to $6.5 million with accrued interest.
Security was said to be a first charge over the borrower's assets, including the mutual funds, but the value of those funds rapidly declined.
By September 2012, the company had written down the amount owing by $2.65 million to $4.1 million (which was said to be the value of the mutual funds).
By Dec. 31, the reported value of those funds had further declined to $3.5 million. That's a $3.25-million writedown on account of Lord-knows-what.
Despite the dramatic reversal in the company's fortunes, Miller's compensation kept rising. In 2010, it peaked at $884,500, consisting of $382,500 cash and $502,000 in option-based awards.
During the year ending September 2012 - the company's last reporting period - he collected $498,000 cash. That consisted of $30,000 per month for consulting fees, a car allowance of $1,500 per month (at last report, he was driving a Porsche Panamera), and $10,000 per month for office space that he rents to the company.
Miller has also negotiated rich severance provisions. In the event of death, retirement or disability, he is entitled to two times his average salary and bonus.
If he resigns "for good reason" he is entitled to his prorated salary for that year, plus six times his annual salary. ("Good reason" includes any change in his title, responsibilities or compensation as a result of a change of control.)
As events unfolded, the Langmuir property never went into production, so all the money paid to Miller for his net smelter royalty was for naught. The company is reviewing options for the property, which include selling it. Cumulative losses now exceed $36 million.
The company is now shifting its focus to potash. Last June, it paid $2 million for a 20-percent interest in Potash Dragon Inc., a private company domiciled in Barbados. It has a potash project in Chile.
The market, apparently, could care less. The company's stock price closed Tuesday at eight cents, about one-hundredth of is peak price. Investors are obviously looking for inspiration elsewhere.
dbaines@vancouversun.com
© Copyright (c) The Vancouver Sun
