The tale of Canaco Resources (
TSX:V.CAN,
Stock Forum) was one of irrational bubble-riding exuberance. Nobody who saw it rise and rise and rise, then slam to the ground like a pro wrestler on a losing streak, will ever suggest that it was a good scene.
Canaco went from $0.02 to $5.59 in just over a year,
relishing in the promise of its Tanzanian gold prospect. Investment banks climbed aboard. Retail investors threw everything at it. Brokers sold the hell out of it. And the management team did what, frankly, they’re supposed to do: Threw fuel on the fire and returned value to shareholders. At least for a while, anyway.
Four years later, it all seems so stupid. After all, there was no resource estimate on the Canaco play at the time the financial world was stuffing it full of fireworks and gunpowder. People were investing in a theory.
And when the
resource estimate was finally done,
the end was swift and cutthroat. A billion dollar market cap all but dissolved, the sole saving grace being the sizable $140m war chest the company generated when it did a financing at $5.
To be sure, early drill results
looked a lot better than the estimate ultimately did, but the market was already killing Canaco before those results landed, as part of a general resources slump and in the wake of several other high profile blow-outs, such as Harp Sangha’s
Douglas Lake Minerals, which hyped itself in part due to its proximity to Canaco’s project.
When the dust settled, Canaco became Orca Gold (
TSX:V.ORG,
Stock Forum) and spun out East Africa Metals (
TSX:V.EAM,
Stock Forum) which enjoyed its own lineup of controversy that persists to this day, both of which enjoy a sizable cash position and, in EAM’s case at least, offers a sizable discount to cash.
It’s been hard for EAM to move forward and raise money from institutional investors given the legacy overhang from the Canaco days. And Stockhouse columnists like Danny Deadlock and Thom Calandra, to this day, continue to hold CEO Andrew Smith as the man to blame for the mess, insisting the company has an ethical issue to deal with and has yet to do so.
Deadlock, back in August 2012, in response to the company issuing a sizable options payment to management following a poor year of trading, said in
his column, “I personally will hold the stock for a couple quarters simply because of the big cash discount and hoping senior management is replaced by people more ethical and experienced, but otherwise would dump the paper and move onto something else.”
When I contacted Danny to see if his opinion has changed in the time since, he admitted the company is possibly an attractive option in purely cash-to-share price terms, considering what the V.EAM owns, but added, “It may all be fine and a good investment. I just hate being burned by people like that so I am bitter.”
Calandra, who still owns some Orca stock, told me, “about the only good thing that came out of the Tanzania and now Ethiopia mess (and I have been to the projects) is that Orca got some cash and looks interesting,” adding, “I am suspect of Andy [Smith].”
So we’ve heard the anti-EAM side of things. We’ve seen the historic record. But what was it like to be in the eye of the storm? What would EAM management have done differently if it had the Canaco days over again? How much is management to blame for a bubble that, at the time, saw six companies at PDAC with a billion dollar-plus valuation – and no resource estimate to back them?
We offered East Africa management a chance to go on the record and set their side of the story out there in the latest issue of the Stockhouse podcast - and it’s a long one. We track everything from the early Canaco days all the way forward through the bubble bursting, the BCSC investigations and Tanzanian lawsuits and answering the phone the day after the NI 43-101 came out.. it’s a beauty and, credit where it’s due, no question was dodged.
As a Moneyball guy, I like the idea of jumping into a company that has been so heavily discounted from an emotional standpoint that they could just call it quits, cash out to investors, and everyone enjoys a double. Have a listen, and make up your own mind.
What does it take for a company to find redemption? Is it time?
--Chris Parry
https://www.twitter.com/chrisparry
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