Snatching Defeat From the Jaws of Victory
In an era where it is almost impossible to raise money for junior resource companies, CBM Asia President Alan Charuk has found an interesting and new scheme for snatching defeat from the very jaws of victory: spend your way into a deep hole.
I've covered CBM Asia for years. Even though the company somehow quadrupled the number of shares they had outstanding in two short years, somehow they managed a sub $15 million dollar market cap after raising and squandering almost $40 million over the last 5 years. Charuk has taken dollars and turned them into pennies. It was amazing to watch as every placement seemed to take place at an even lower price than the one before it.
I think he's finally buried the company. The latest financial numbers from the company would gag a maggot.
Gas exploration (i.e., money in the ground) decreased over 90% from $4.6 million to $437,508 over the nine months ended Sept 30, 2013 compared to the nine months ending Sept 30, 2012. OK, I can understand wanting to hoard money when times get tough.
But wait, consulting fees almost doubled from $587,412 to $1,041,294. If the company wasn't putting money into the ground, what the hell were they doing doubling consulting fees? But it gets worse. Executive and board compensation went up some 33% as actual work on the ground went down over 90%. What's up with that? Salaries and employee benefits went up by 75% from $554,015 to $985,949. I suppose that if you aren't going to put money into the ground and actually accomplish something, you really owe it to yourself to get paid more for doing less.
The company now has more debt than assets. There is a name for that.
I've followed the company for five years. It was by far my biggest investment. After all, the company has an asset worth $500 million based on any reasonable metric. How could anyone be so stupid as to screw that up? It's been hard work for Alan Charuk but he has indeed screwed the pooch.
The comedy of errors started with their first drill hole. It didn't occur to Charuk to send a geologist to supervise the drill crew. After all, this was one of the first CBM wells drilled in the country. What could possibly go wrong?
Well, if you tell drillers to drill, they will drill. But if you actually want to measure the gas in the core of coal for Coal Bed Methane, you had better bag it. Nobody told the drillers to bag it so they didn't.
Now at that point, a mistake in judgment could have easily been cured. All they had to do is twin the hole and toss the first core. It would cost money but better to admit error than to continue with abject stupidity. Instead, CBM Asia sent off the core for assay. Like what the hell did they expect the results to show? If you don't bag the core, the gas goes to CBM heaven. That particular bit of stupidity is still causing problems.
I've had a lot of conversations with Charuk about communications. Basically he seems to believe that from a management point of view you should treat shareholders like idiots too stupid to realize that you have screwed up again and again. Pretend you didn't make mistake after mistake and they won't notice.
Then a year or so later without much in the way of news, as the share prices drifted gently south, Charuk figured out he should get a resource calculation done to support his grandiose claims of how much gas CBM Asia controlled. He told me the 51-101 calculation would take 6 weeks. He never told me it would be late even as delays went into the 6-month range. He simply figured that once he made the promise of a resource, shareholders could go pound sand, he had done his part.
But since he had sent off the original core to be assayed for gas, those results had to be factored into the 51-101 resource even if they were zero. So the resource came back and it was pitiful so Alan just delayed the release and delayed the release and finally, six months after telling shareholders the resource would take 6 weeks, it took 6 months and was frankly, pitiful. The shares tanked.
The Internet is the most wonderful communications device ever invented. Billions of people worldwide can now access the Internet. But it only works as a communications device if you use it.
Charuk would be the first to claim he used it to communicate. He hired the dumbest promoter in Vancouver to tout the stock. And tout the stock he did. The guy actually would pre-announce all of the press releases on chat boards, pretending that he was simply a well-informed investor.
The hell he was, he was party to inside information and he kept releasing it anonymously. That happens to be totally illegal and if the TSX had glommed on to it, someone would have been in deep trouble. I kept telling Charuk to put a cork in the guy but he wouldn't. The promoter actually accomplished exactly the opposite of what he should have been doing. Instead of priming investors to buy on good news, he was pumping and dumping and priming them to sell based on inside information when news came out.
I think the cream on the cake began this last March 6th. The company announces that they were going to increase the shares another 50% with a placement at $.21. And it was anticipated that it would close about the 29th of March.
Let me fill you in on a little secret. If a company announces a placement with no warrant and it's going to close about 3 weeks later, it's in the bag. Except when you are dealing with Mr. Communication, Alan Charuk.
Two days after the first anticipated closing, on April 1st, the company announces they need a few more weeks to study all the offers they are getting. The stock is still hanging in there at $.19. Five weeks later on May 9th, they make another announcement. They have determined that they really, really, really intend to move forward with the $15 million dollar placement. They just need to do a little more study of the terms. By now the shareholders are getting a little nervous and the share price has dropped to $.15 a share.
The rest of May passes without any communication about the $15 million placement. All of June passes without any communication at all about anything, much less some fictional placement. By now the stock has tumbled by 50% since early March.
Finally on July 26th the company realizes they have to say something or they will look exceptionally stupid. So the $15 million dollar placement originally envisioned to take place in March at $.21 is now a $5 million dollar placement at $.10 and for certain will close by August 2nd. If it doesn't rain or isn't sunny.
Near the end of August, on the 26th, the company gets around to announcing the $15 million dollar placement at $.21 that turned into a $5 million dollar placement at $.10 and was going to close around August 2nd is now a $860,000 first tranche. The 2nd tranche is anticipated to take place in either the 1st or 2nd week of September. And wonder of wonders, now management is going to step up to the plate for over 5 million of those shares. And you thought they were going to waste all that salary and bonuses on wine and women.
The first week of September passes, then the 2nd, then October passes, and finally we arrive in November where Charuk announces on November 25th that the long anticipated 2nd tranche has taken place at $.10 but it's for $1.2 million not $5 million.
I actually believed for the longest time that somehow Alan Charuk would wake up and learn to communicate. That he would look at the price of the shares and realize that investors don't think much of his management style. The asset is worth $500 million. The market values his "leadership" at a nice round $14.4 million based on today's price.
The "Hail Mary Pass" was always going to be the deal with Exxon where CBM Asia finances several wells and Exxon brings them in as an equal basis under the theory that a small and efficient company can drill wells a lot cheaper than a giant Major Oil Company. Well, when you spend more money than you can raise and your stock makes new lows day after day, the market is telling you that management is led by a blithering idiot totally incapable of communication. I really don't see Exxon ever doing a deal with CBM Asia and by some remote act of God, I am firmly convinced that Alan Charuk would have issued so many shares that an investor couldn't make a dime anyway.
I've not seen a company in a long time that begged so hard for a new president. It's not totally impossible that CBM Asia recover some day. It is just totally impossible if Alan Charuk works there. He should be issued a sign that hangs over his back that says, "FIRE ME."
CBM Asia used to be an advertiser. They didn't bother telling me this year if they were or weren't so I left them up for 10 months before I finally figured I was dealing with a bunch of dingbats. I own a bunch of shares that I wish I didn't own. But 50 million shares are sitting on the list to be sold ahead of me. I'll dump them someday.
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March 30th, 2017
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