By Matthew Allan , 23 November 2012
Stock promoters, particularly mining stock promoters, get a bad rap. So bad, in fact, they no longer even call themselves promoters. They prefer 'executives', 'financiers' or 'resource entrepreneurs' instead.
Yet there's nothing wrong with stock promotion itself. Providing he or she has the right intentions, a good promoter can get a company's story out to vast numbers of new investors, help the company raise money, create excitement about exploration results and ultimately lift a company's share price - surely all good things.
Take West African Minerals' (WAFM) Stephen Dattels. He holds the dual titles of chief executive and executive co-chairman, and also neatly fits the profile of a stock promoter, in our view.
Promotion under way
Mr Dattels helped set up West African Minerals last year as an iron ore explorer, selling the company early-stage assets in Cameroon via a complicated reverse takeover. Because his private company owned part of the licences, Mr Dattels received millions of shares in the transaction. He also bought many millions more at low prices. As last reported in early April, Mr Dattels holds 26.2m WAFM shares through a private company, plus some warrants, amounting to a 10.1 per cent interest.
With an exciting new prospect to explore, Mr Dattels and his team then set about marketing the company to investors. West African disseminated a glowing press release in April about the results of a new aeromagnetic survey on the property. The survey identified "…a number of large, demagnetised areas that are highly prospective for hematite DSO [direct shipping ore] ores". Mr Dattels was even quoted as saying the geophysical anomalies "…suggest the Company has the potential to be a significant iron ore producer in West Africa".
The stock began to move. West African's share price climbed from 25p before the announcement to 60p in May. But the company needed more money to carry out an initial drill program in Cameroon, and consequently raised £5.6m at 55p a share in a private placement in June.
With drilling imminent, the shares surged once more, reaching a high of 94p - valuing the company at a staggering £273m.
Buy the rumour, sell the fact?
But since drilling began in early August, things have gone quiet. West African has released just two press releases in the past three months: one stating director Guy Elliot has resigned "due to other commitments"; and another announcing the company won the "Best Performing Share Award" from the London Stock Exchange's Alternative Investment Market (Aim).
True, the assaying process can be slow in some West African countries so three or four months isn't an abnormally long time to wait for initial drill results. But the company is only drilling 50-meter-deep holes on its licences to test for near-surface, high-grade ore, so you'd think results would be out soon from the first group of holes. Not that they have to come all at once, of course. But promoters often like to release drill results in small batches when the numbers are good, and all at once when assays are lacklustre.
West African Minerals couldn't find the time to speak with Investors Chronicle before the publication of this article. Yet, whichever way exploration results go, investors should remember all that's come from the promotion so far.
Shareholders have had a chance to profit from wild trading; the brokerage industry has made arrangement fees and huge trading commissions; West African executives have got rich (at least on paper); and the LSE and Aim have enhanced their well-cultivated image as an attractive destination for junior mining companies.
If this story seems at all familiar, that's because it is. This is how risky junior mineral exploration often works. In fact, another early-stage iron ore explorer named West African Iron Ore listed on the Toronto's TSX Venture Exchange just last year. It had a big near-surface anomaly, too, and boasted a market capitalisation of over C$100m before drilling results came out. It's now worth C$7m.