Newport Exploration Ltd V.NWX

RE:Red flags everywhere

[rivermoney]

RawDawg101 wrote: in Newport Exploration (TSX:V.NWX, Stock Forum) are angry in the wake of an article penned Wednesday by 321Gold publisher, Bob Moriarty, that alleged Newport and the executives behind it were ‘raping’ their investors by withholding information about a financial windfall while buying shares on the cheap and issuing cheap options.

Moriarty pulls few punches traditionally, but really went to town on Newport, saying:

"In 13 years running this website and visiting dozens of projects yearly I have run into every sort of charlatan, crack addict, drunk and all-round scam artists among the legions of fools who believe they can run a mining company successfully. In most cases, they have been lucky enough to collect absurd salaries long enough before the abused shareholders toss them out."

He added, "Write these names down and keep them handy. If you ever see them associated with any company you are considering buying, prepare yourself to be raped. Ian Rozier, President of Newport Exploration, Barbara Dunfield, CFO of Newport and David Cohen, Director of Newport. What they pulled on Newport Exploration wasn’t just your typical screwing shareholders that we all expect on a regular basis, they raped Newport shareholders on a continuing basis."
 
The article, which is extensive, alleges:
 
1.       Newport failed to report material information to shareholders when a company royalty went from 10% of the market cap in a quarter to over 100% of the market cap by 2nd quarter of 2013.
2.       Management bought shares on the open market in August of 2013, knowing the company had received $2.7 million dollars in income from an oil/gas royalty that was not publicly reported even on the annual report until November of 2013. With inside and undisclosed information, President, director and CEO Ian Rozier (among others) was buying shares for $.04 when the company had $.15 a share in cash.
3.       Insider holders of 5.45 million options refused to pay $.10 a share up to December 18 of 2013, knowing the company had twice that in cash, before CFO Barbara Dunfield agreed to reissue the options at $.05.
4.       Management and directors did a sweetheart deal with Reva Resources, a company they were financially involved with, in October 2013 effectively paying themselves 5.4 million Newport shares that they knew had three times higher in cash than the market price.
5.       On February 18th of 2014, Ian Rozier finally released enough information in a press release for investors to understand the company was bringing in over $1 million a month in revenue – if they did the math themselves.
6.       Six hours later Ian Rozier announced a private placement that would dilute the company by 65% at half of cash on hand to fund a ‘work program’ on a project barely mentioned on their website.
 
Devastating allegations, to be sure, so I contacted Newport’s office in an effort to get some background on the company and the situation regarding Moriarty allegations.
 
Upon connecting with Rozier, I asked for him to respond specifically to Moriarty’s claims, and he responded with, “I’m not going to comment on anything written by someone who is living in exile in the Cayman Islands. He does not deserve a comment from me.”
 
He then he shortened his response to “No comment.”
 
I pressed further and asked him if there was anything he would like to say about the company in general, to which he responded, “Stock’s up, everybody’s happy.”
 
That doesn’t seem to be the case, looking at the Stockhouse Bullboards.
 
When I followed up with Bob Moriarty in regards to Ian’s response, I was told by Bob that he had been contacted by a concerned investor aftera piece on the company’s recent royalty boom was posted on CEO.CA at the end of April. The investor gave Moriarty the lowdown on what the investor thought was unethical activity on behalf of the company and its directors, and Moriarty followed up by scouring every quarterly report Newport released since 2010 for evidence of said alleged behavior.
 
Rozier disputes that he’s done anything wrong, and says the royalty, which had been languishing for ten years, had suddenly become profitable, and that initial profits, based on legal advice, were immaterial as the company did not own the asset nor could it guarantee the amount or schedule of payments from the Australian operators, Beach Energy (OTO: BCHEY, Stock Forum) and Drillsearch (OTO:DRLLF, Stock Forum).
 
Rozier said Newport was not an operator in the PL-91 permit, and so it had no access to information until the Australian counterparts published it, but also stated that Newport, although it had apparently been publishing press releases on the permit since 2002, was NOT a news service for Beach or Drillsearch and could not be expected to post news every time it was made available by the operators of the aforementioned permit.
 
He reiterated there was no attempt to hide the information from investors.
 
Moriarty responded to Rozier’s statement thusly; “I printed out every single quarterly report back to 2010 and it's clear that they had buried production. If a company with a market cap of two million starts getting one million in profit a month as they did in August, a gnat could figure out that it was material information that any rational investor could and would have acted on, just as Ian did himself.”
 
Moriarty then followed up with, “If income of $3.7 million in a quarter was material in March of 2014, income of $3 million was material in August of 2013.”
 
Rozier claims his studying of the April drill reports left him feeling it was possible Newport wouldn’t be receiving as much royalty cash in future as it had earlier. Moriarty doesn’t accept that, telling Stockhouse, “The company is getting two and a half percent on 13,000 barrels a day and they will be adding three wells to the existing eight. For Ian to suggest production might go down is absurd.”
 
A clearly frustrated Rozier said his first thought on reading Moriarty’s article was that someone had probably shorted the company on the way up and was now bashing it to bring it down in order to cover losses. Moriarty says he hasn’t bashed the company, which is clearly making money, but pointed fingers at management, which he says have filled their pockets based on inside knowledge while investors were kept in the dark.
 
“I have no skin in the game in any way,” Moriarty says. “I don't own shares, I have not shorted the shares and I'm baffled as to how the article would make the shares go down.”
 
Rozier claims there was no insider trading during blackout periods and therefore any transactions on behalf of the directors and officers of the company were on the up and up and deserve no further scrutiny.
 
I asked Bob how he felt regarding the legality of the events he described, and once again, perhaps predictably, Moriarty wasn’t having it.
 
He responded, “The insiders went from ownership of eight million shares last year to control of fifty million shares today. That's at least near criminal, but I would be happy with a rollback of the financing and options.”
 
If nothing else, if Moriarty’s information is correct, Newport management has at least the appearance of a conflict of interest, with shareholders having seen their financial windfall heavily diluted while insiders stand to profit wildly. 
 
However, until the TSX and the BCSC step in to untangle the Gordian knot of allegations and rebuttals, Newport will continue to roll in royalties, shareholders will be told to be happy with what they have, and management will continue to suggest ‘nothing to see here.’