Prior to investing in any publicly traded company, it is always a good idea to check the background of people who are running the firm, said British Columbia Securities Commission spokesman Ken Gracey.
This advice was offered on February 7, a day when Sterling Group Ventures Inc. (OTC:BB: SGGV, Stock Forum) saw its share price jump by 40% to 36 cents for no apparent reason.
After tumbling to 30 cents on Wednesday, the Vancouver-based junior has a market cap of $11.4 million, based on 44 million shares outstanding. The stock trades in a 52-week range of 39 cents and 0.01 cent.
Saying it holds a 90% stake in a Chinese phosphate mine, Sterling Group is headed by 60-year-old Chairman and chief executive Raoul Tsakok.
He indirectly owns about 34% of the company, regulatory filings show.
A cursory glance through the BCSC’s disciplined person’s list indicates that in addition to working in investment management for over 30 years, Tsakok was sanctioned by the BCSC in 2006 for taking unnecessary risks with investors’ money.
In a June 2006 settlement agreement with the BCSC, Tsakok admitted that because of certain practices, outlined in the settlement, he and his company Sagit Investment Management Ltd. failed to manage the company’s 16 mutual funds with a degree of care, diligence and skill that a reasonable person would exercise in the circumstances.
Tsakok was fined $45,000 and banned for life in B.C. from acting as an advising or trading officer.
The ban was imposed after he admitted that between 1994 and 2003 he contravened securities rules by serving as an officer, director and principal shareholder of a company that traded on the TSX Venture Exchange at the same time he was registered as a mutual fund manager.
From 1994 to 2003, Tsakok was an officer, director and principal shareholder of TSX Venture Exchange-listed Richco Investors Inc.
A compliance review by BCSC staff in 2002 found that Sagit’s policies and procedures were incomplete, out of date, and otherwise inadequate in respect of the business of mutual fund management.
Tsakok could not be reached for comment this week.
No stranger to the mining industry
The BCSC says the sanctions were handed down after he and Sagit co-operated fully with the commission during its review of the case.
The sanctions outlined above do not prevent him from acting in his current role as a senior executive with a U.S. OTC Bulletin Board-listed junior.
In any case, he is no stranger to the mining industry.
In the mid 1990s during an exploration boom that led to the Voisey’s Bay nickel discovery in Labrador, Sagit Investment Management bought about 700,000 shares and 500,000 warrants for its mutual funds in Cartaway Resources Corp. a stock that soared to $23 on the basis of visual inspections of the drill core from three holes.
The stock plunged to $2.78 on May 22, 1996 when the company released disappointing drill results from the same drill holes.
During an interview with the Toronto Globe and Mail newspaper on May 14 (1996) Tsakok said he planned to hold onto his Cartaway shares.
Eight years later, Tsakok has switched to the unregulated U.S. OTC market, turning his attention to phosphate, a hot commodity that is a key ingredient in fertilizer, feed and industrial products.
Under the terms of agreements announced last October with a private Chinese company and its shareholders, Sterling says it is committed to putting a phosphate project in southeastern China into production.
Chenxi County Hongyu Mining Co. Ltd., has a permit to produce 100,000 tonnes of phosphate on the Gaoping property in Hunan Province It holds 58.16 million tonnes of phosphate resources with a grade of 19.8% P205, making it worth $8.14 billion at a world price of $140 per tonne, Sterling said.
Sterling’s website is long on details about phosphate. It predicts, for example, that much of the growth in global demand is expected to come from East Asia.
Dilution for shareholders
However, there is no information about when the mine will be in production and how much the related processing facilities will cost to build. Even if government approval is secured, it is also unclear that the junior has the financial wherewithal to secure the mine and put it into production.
Financial statements reveal that Sterling is generating zero revenues and posted a net loss of $34,335 or 0.00 cents a share in the three months ended November 30, 2010, compared to a loss of $29,182 or 0.00 a year earlier. As of November, the company had $144,383 in cash
The company said it recently arranged a private placement of up to 15 million 10 cent units and plans to use the $1.5 million proceeds to fulfill its obligations to Hongyu and develop the mine. It has the option under the private placement to issue another five million units on the same terms, potentially adding another $500,000 to the proceeds.
However this type of financing inevitably means a long and potentially dilutive road for existing shareholders, many of whom may not be aware of Tsakok’s previous track record and the sanctions imposed by the BCSC.
“People should do their due diligence,’’ Gracey said.
Sterling said an investment firm has been set up in Hong Kong to inject capital and (subject to government approval) put the Gaoping mine into production.
Sterling Castle Investments, the Hong Kong investing company (owned 80% by Sterling Group and 20% by Hongyu shareholders) has acquired 90% of Hongyu Mining. The remaining 10% has been transferred to nominees of Sterling, the company has disclosed.
Sterling says it has agreed to pay RMB 2 million Yuan ($301,500 Canadian) to Hongyu shareholders and retains the right to ask them to sell their 20% interest in Sterling Castle to the Vancouver firm in return for ten million common shares of Sterling.