Soaring mining firm grounded by BCSC
David Baines, Vancouver Sun
Published: Saturday, June 24, 2006
STOCKS I The B.C. Securities Commission has issued a cease-trade order
against De Beira Goldfields Inc., a Vancouver company that soared to
stratospheric heights after it began trading in the United States and
Germany.
The commission issued the order late Friday after the company\\'s share
price closed on the OTC Bulletin Board in the United States at $5.05 US,
well down from its peak price of $14.67 on June 14. The shares also trade
on the Frankfurt Exchange in Germany.
The regulatory action follows a Vancouver Sun column last Saturday which
raised questions about the process by which De Beira went public and
soared from a market capitalization of zero to more than $600 million US
in 35 trading days.
"The issues identified in the column are exactly the sort of issues that
caught our eye," Insp. George Pemberton, head of the Vancouver RCMP
Integrated Market Enforcement Team, said in an interview Friday.
"The run-up in price, the track record -- or lack thereof -- of the
management who created the shell, the enormous unexplained market
capitalization, and the obvious lack of a public float. That\\'s very
typical of bulletin board deals."
RCMP referred the matter to the securities commission, which issued a
cease-trade order on the basis of the company\\'s failure to make proper
disclosure of its mineral interests.
BCSC director of corporate finance Martin Eady declined to confirm or deny
whether the commission is investigating other aspects of the company\\'s
affairs.
The BCSC order applies only to trading within the province. Unless
reciprocal orders are issued in the United States and Germany, which is
highly unlikely, the BCSC order may not have any significant impact on
overall trading.
Eady said "there has been significant trading through B.C.," but exactly
how much is not clear. The stock has been a big trader on both exchanges.
On Friday, it traded 157,741 through the U.S. bulletin board, and another
1.62 million shares on the Frankfurt exchange.
The company was created last year by Vancouver longshoreman Mike Fronzo,
ostensibly as a junior exploration company, although it had negligible
mineral assets.
Fronzo sold seed stock at prices ranging from one tenth of a cent to five
cents to 35 Vancouver and Burnaby residents. (To meet shareholder
distribution requirements, there must be at least 30 shareholders).
Shareholders contacted by The Sun said they had sold their stock before
the company went public. Why they would do this is not clear, if they were
truly arm\\'s-length investors. They were vague about the circumstances
under which they bought and sold their stock.
In April, Fronzo arranged to take the company public on the OTC Bulletin
Board and transferred control to Australian promoters Reginald Gillard,
who became president, and Klaus Eckhof, who became chairman.
Gillard was billed as the chairman of Moto Goldmines, a money-losing
mining company that trades on the Toronto Stock Exchange, and Eckhof was
identified as its president and chief executive officer.
According to Australian news archives, the two were formerly directors of
an Australia public company called AdultShop.com, a purveyor of
pornographic films, and My Casino, an online gaming company licensed in
the notorious offshore tax haven of Vanuatu. Both ventures ended badly for
investors.
On May 9, Gillard announced that De Beira had acquired an option to earn a
70-per-cent interest in a Colombian copper-gold project by spending $20
million US. The company said the property had a "drill indicated resource"
of seven million ounces of gold. The share price pyramided up, lifting the
company\\'s total stock market value to $600 million US on June 14.
The Sun has since learned that De Beira, along with Moto Goldmines and a
cadre of other stocks, have been heavily promoted in Germany by newsletter
writers and investor relations services. On four of its last trading
sessions, volume has exceeded four million shares on the Frankfurt
exchange.
On June 16, the company announced a letter of intent to acquire an
80-per-cent interest in an Ecuadorian property with an "existing resource
base in excess of four million ounces." Purchase price would be $30
million in shares, which were by now grossly inflated in value, and only
$400,000 cash.
Eady said these announcements did not accord with disclosure rules for
junior exploration companies like De Beira. He said the cease-trade order
will remain in effect until the company provides proper disclosure.
Neither Gillard nor Eckhof, who reside in Australia, could be reached for
comment.