American Bonanza Gold Corp ABGFF

RE: BZA

[18tee20]

I took the liberty to post Mr. Sinclair's article on this board since he suggested that we pass it along to the management of Junior gold companies. You never know, maybe it is just the advice that could save BZA from a very costly error. I also sent a copy to Mr. Marsden's email address. Thursday, June 16, 2005, 3:33:00 PM EST The Short End of a Big Stick Author: Jim Sinclair Dear CIGA: You might like to pass this information along to the management of your junior gold company be that a junior producer or an exploration and development entity. We all know that there has been a huge, successful short position assumed both legally and illegally in almost every such company over the past year. When you consider this situation, you must conclude that the owners of these short positions are non-registered international hedge funds or a singularly large hedge fund. We know there is no question that computer-based stock transfer systems for shares of all these companies can easily disguise the short positions and actually make delivery. Such a position is almost always FREE to the short seller. Legislation has been put in place to prevent illegal short selling of just this kind but so far this legislation has not translated into junior shares and certainly not to unlisted junior shares. It appears that these profit-rich shorts feel they have maximized the downside potential of their ability to sell - without upticks and without money behind the transactions - unlimited amounts of junior gold producers or exploration and development companies by pounding bids and bidders into severely price-depressed long positions. I know of that which I speak because I have had just such a contact from such an entity asking if my company would be interested in a significant private placement predicated on the receipt of promptly registered and saleable shares after due diligence. This entity identified itself as an unregistered international hedge fund out of the Grand Cayman Islands and gave specific people as their reference. They will tell the company that they have to do their due diligence, while requesting information common to such a transaction. It is information a shareholder can receive but rarely asks for even though he's entitled to it. The fact they did not research me or my company was evident because I have been around the block for a long time, personally knowing some of the people they gave as active fund partners - even the long time dead one. My advice to any company in the junior precious metals sector who has in place a means of financing their operations is to judiciously avoid uninvited and unknown private means of financing. The probability is that this unknown entity is in fact the reason why their share prices have been so overtly impacted beyond fundamental reason and in proper relationship with the price of gold. In a sense, I admire the courage but not the cunning of what is I believe a small group - or possibly a singularly large unregulated hedge fund - covertly hiding its real identity by operating out of tax sheltered, crime ridden international banking centers. I am not suggesting that these people expect an immediate roaring bull market to occur in this group but they do sense that they have maximized the downside of the situation under their attacks and now wish to cover covertly. Back in the 1960s, when I made my living as a market maker in securities, it was not uncommon for some to attempt the same scheme but in a different mode. A short seller, having broken the back of a situation, knows which brokerage house has taken for their own account or their client's account the major percentage of the short seller's line. The short seller would then use an agent to contact the hammered brokerage house, expressing a possible interest in the significantly depressed company that had its price broken. They would of course request due diligence and take their time reviewing everything. Generally the company or the broker would be eager to have this entity take a positive interest. Upon completion of its review, the agent then would say yes either to a private placement or to take a large piece of the broker's position, saying that they will buy the balance in the marketplace thereby acting to assist the price of the company's shares pleasing the broker in the process. The end result was generally a private placement or purchase of a large block of the highly depressed company. Then the buyer disappears and has no further interest in the company's shares as the cover had been made at a singular price in one transaction. Here comes the short seller's singular price and singular transaction cover again slightly modernized from the 1960s style. The lesson here, I believe, is that the bottom has been achieved in the precious metal juniors with the courage to avoid private placements as long as they can survive without it until 2006 when gold and gold shares will start on second major bull leg of a three major generational gold bull market.