It hasn't exactly been the best of times for investors in Tanzanian Royalty Exploration Corp. (TSX: T.TNX, Stock Forum) and (AMEX: TRX, Stock Forum), a Surrey, British Columbia company with exploration properties in East Africa.
Earlier this month, at the request of the British Columbia Securities Commission, the company announced that it had agreed to clarify and retract certain statements that appeared in a number of recent company news releases.
For example, it amended a statement which appeared in an April 15, 2011 news release relating to its flagship Buckreef gold project in Tanzania, where the company has outlined an NI 43-101 compliant measured, indicated and inferred resource of more than 2 million ounces gold.
In the April news release, the company made reference to a "well defined gravel resource on the Buckreef project that could provide an early source of cash flow at a relatively minimal capital expenditure."
In the amended statement, the company said it was simply stating the potential existence of such a deposit on one of the principal zones on the Buckreef project.
The clarifications came on the heels of a posting on the Seeking Alpha website which implied that the stock was "ridiculously overpriced" for a company with less than $50 million in assets.
When the article was posted on June 10, shares of Tanzanian Royalty were trading at around $6.90 on AMEX, giving it a market cap of $650 million, based on 94 million shares outstanding.
The company fired back by threatening to take legal action and saying that the posting was part of a coordinated attempt with a major short seller to depress the company's share price and harm the company and its shareholders.
Tanzanian Royalty President James E. Sinclair went on to attack the author James Emerson saying the "the Seeking Alpha pulp piece is rife with gross inaccuracies that are unbecoming of a CFA who describes himself as a former hedge fund trader and analyst specializing in REIT, hotel, home building, real estate, financial and consumer discretionary stocks."
In other words Sinclair appears to imply that Emerson has no background in mining.
Still, when Tanzanian issued the rebuttal, the stock was trading at around $7. It has since slipped back to trade as low as $5.39 this week, giving the company a market cap of $534.5 million.
It closed at $5.72 on Friday and Emerson says the stock has further to fall.
"While I don't really have an opinion about the ultimate level of the price of gold, I think that the speculative bubble in exploration stocks will burst and this stock will be headed to $0," he said in the article.
Tanzanian Royalty has been a focused on mineral exploration in East Africa since 1989, where it is involved in Tanzania in a joint venture with the State Mining Corp. of Tanzania (STAMICO) in the Buckreef Gold Re-development project.
The company has no production or revenue to speak of.
In the quarter ended May 31, 2011, Tanzanian Royalty posted a loss of $1.5 million or 1 cent per share, up from a year ago loss of $934,445 or 1 cent.
Emerson noted that $5.70 price level for the USA-traded stock is a key level because it was the price that underwriter Casimir Capital Ltd. paid when the company announced on July 11, 2011 that it was raising $30 million by issuing 5.3 million units in a bought deal offering, priced at $5.70 per unit.
The company said it planned to use part of the proceeds to fund an economic assessment and possibly a feasibility study at the Buckreef.
Recent purchasers are now significantly under water, Emerson noted. They include buyers of a $4 million private placement that was completed in early February and was comprised of 690,150 common shares priced at $5.87 per share, and 172,538 warrants exercisable at $6.90 a share.
The price of the share component represented the 5-day weighted average trading price of the common shares for the period ended December 21, 2010, less a 15% discount.
"The next key level is the $5.30s, which is my estimate of the entry price for the largest shareholder, Geier International Strategies Fund," Emerson said.
"Look for the downtrend to continue and accelerate if the stock breaks below $5.30."
For more on Tanzania, please read articles by writers Thom Calandra and Peter Kennedy on Stockhouse.com.