* A new unavoidable danger was just recently discovered.
* Affects investors of all publicly traded precious metals miners.
* Investors should watch out for the red flags mentioned in this article.
The inherent nature of precious metals such as gold, silver and palladium, naturally make this asset class a risky investment. Aside from these risks, a new unavoidable danger was just recently discovered in which investors must take into account.
Since this new peril affects all major precious metal miners such as NEM, GOLD, FNV, NCMGF, WPM, AEM, KL, KGC, AU, GFI, RGLD, BTG, PAAS, AUY, SCEXF, SSRM, EDVMF, ZIJMF, AGI, CAGDF, HMY, BVN, FCX, SBSW, CDE, HL, as well as all junior miners, investors now have to be even more careful when conducting due diligence.
With the recent surge in price of these and other precious metals, greed is now on the rise. In a similar manner as with the advent of credit cards, how fraudsters quickly figured out how to manipulate systems to their advantage, corporate entities traded on the national exchanges, their directors, and associated funding sources have now discovered how to enrich themselves at the cost of shareholders.
Today, precious metal investors are not only placing capital in a high risk investment, but these investors may actually be exchanging hard earned capital for worthless shares, as part of a fraudulent preplanned transfer of assets from the hands of public shareholders to one or more public or private entities, outside the radar of the Securities and Exchange Commission and completely unbeknownst to shareholders.
This is accomplished behind the scenes by those pulling the strings who have methodically planned out every step of the process in order to bypass the standard red flags of the various enforcement authorities.
Here's how it works:
Step 1
The organization raises capital by issuing equity, claiming that funds will be used to develop the associated precious metals asset in which the organization runs. The funds are actually used for this purpose. Therefore, no red flags are thrown.
Step 2
The directors seek out and hire a new Chief Financial Officer who is ready and willing to carry out the needed tasks. Many tasks must be completed by the CFO and without this piece, the asset transfer would be impossible. The hired CFO may or may not be involved in the operation and may simply be taking orders.
Step 3
After the organization has issued all of the secondary offerings required to accomplish its goals, and has the new CFO in place, the company then takes on debt in a rather large amount. This is done on purpose in order to accomplish the tasks later mentioned in steps 7, 8, 9, and 10.
Step 4
Next, the CFO commences spending. This is gradually completed as time progresses in order to appear that the organization, after two or more quarterly SEC financial filings, would look as though it is struggling with cash reserves. However, since this happens over time, it does not raise a red flag. This piece may be confirmed by looking at the spending track record of the prior CFO, versus the spending by the newly hired CFO.
Some methods used to accomplish this spending:
A. The organization may use the capital on any current project. This will not raise a red flag because this is the normal course of the business and will consume a large amount of the funds.
B. The organization may purchase more than needed for initial capital requirements on it's prospective projects.
C. The organization may continue to spend on projects that are not priority or projects that have been suspended because these projects can consume a large portion of the public offerings.
D. The organization may deliberately destroy any remaining cash reserves by entering into risky agreements. For instance, Diesel and Currency Swaps.
E. The organization may refuse to hedge the precious metals it mines in order to both increase the rate at which the cash reserves are depleted, and if the price of the precious metal declines, to later claim exacerbated valuation impairments.
Step 5
Next, the organization may deliberately stop all incoming revenue. This is done to prevent cash reserves from being replenished, thereby speeding up the acceleration at which cash is depleted, effectively cutting off the arms and the legs of the company, so that it falls to the ground quickly.
Some methods used to accomplish this:
A. The organization may halt production of precious metals on purpose. This may be confirmed by watching for a change in production dates which cause production to suddenly end years earlier than previously stated in prior press releases.
B. The organization may use clever methods to cause other forms of incoming revenue to be halted.
Step 6
Now that the corporation has stopped all incoming revenue, and has caused the company cash reserves to run low, the corporation then begins to destroy stockholder equity on purpose.
There are several ways the company may achieve this:
A. The organization may write down large assets that are not actually impaired, making these assets look as though they are imparied, by using clever techniques that do not raise red flags.
The more write-downs of this type that can be accomplished the better for the beneficiaries of the fraud because these assets will remain even after shareholders are surgically removed in step 8.
B. The organization may make large noncash adjustments in one or more quarters which appear suddenly when prior quarters with similar metal prices never reflected these large write-downs.
C. The organization may sell its exploration properties to entities that may or may not also be involved in the fraud. This is done so that maximum stockholder equity can be destroyed. For example, selling a $100 million property for $20 million, destroys $80 million in stockholder equity instantly.
D. Now that production has been halted, the organization can now claim that it can write off precious metals that have yet to be processed. This part of the fraud can be confirmed if the organization chooses to impair its stock piles instead of having them processed at another company's plant for a fee.
This is a double destruction of stockholder equity:
1. This prevents income from being added to the balance sheet.
2. Instead of adding income, this act removes the potentially added income and then impairs the asset, making this write-off twice as destructive.
E. The organization may, for the first time in it's financial reporting, group one or more asset classes together that can not be written off with an asset class that can be written off, in order to attempt to make additional large impairments.
F. The company may fabricate one or more losses. This can be confirmed by investigating the source of the loss.
G. The company may greatly exaggerate impairments when all other variables remain constant leaving no logical reason for the significantly exaggerated write-offs.
Step 7
The company may attempt to destroy the stock price in preparation to appear that the organization is struggling in order to pave the way for the bankruptcy filing to soon follow. These moves are preplanned by those pulling the strings in order to provide a series of stair stepped price declines that do not raise red flags.
There are several ways the company may achieve this:
A. From the moment of the beginning of the fraud, to the end, those pulling the strings may short the stock, or encourage other parties to short the stock for them, since these individuals know without a doubt that the company will go bankrupt, seeing that this was by design.
B. The organization may announce one or more secondary public offerings just months prior to filing for bankruptcy, which may or may not be made to the public, and instead may be singled out to specific entities involved to cover large short positions used to profit from the fraud. These offerings are designed specifically to cause the stock price to plummet further the moment they are announced.
This can be confirmed by:
1. The company itself exposes who the offerings were issued to.
2. The fact that the entities who receive shares from the offering would have lost their entire investments but never complained or filed a lawsuit.
C. Announcements may be made about certain agreements between the company and bondholders that are designed to also instantly drop the stock price further. The debt offering in step three serves multiple purposes with this being one such purpose.
D. The organization may use any other clever devices that drop the stock price in a series of stair step declines in order to avoid red flags.
Step 8
The shareholders are then surgically removed from the equation.
Once all assets have been purchased, and a long enough period of time has passed so as not to cause suspicion, there is no longer a need for shareholders. At this point, all stockholder equity has been destroyed and accounted for, prior to announcing these impairments to the public.
In order to accomplish the surgical removal of shareholders, the large debt offering (not equity offering) in step three will be used in the bankruptcy in order to claim that bondholders need to receive relief before shareholders. Since all stockholder equity was accounted for, shareholders are left with nothing and the holders of the debt receive all assets paid for by the shareholders.
Step 9
The organization may or may not offer any form of relief to shareholders. This depends entirely on the level of the greed by those who are responsible for the operation. If the organization provides warrants, investors can rest assured that the warrants will ultimately be made worthless or have very little value as the goal of the fraud is to wipe out shareholders completely.
Even if the bankruptcy court documents preserve shareholders by allowing "non-dilutive warrants", it is likely that when the company restructures, and issues the strike price, the strike price will be far out-of-the-money, instantly causing the non-dilutive warrants to be diluted by 10,000%, i.e. worthless, effectively causing the asset transfer from shareholders to the fraudsters to be complete.
Step 10
The bondholders may then wait for a period of time to pass for the dust to settle, and then walk away keeping the entire company to themselves with all assets, latest mine developments, with the newly purchased and unused costly components, all paid for by the shareholders.
It is apparent that this type of fraud benefits at least three different parties:
1. Any party found to short the underlying stock
2. Any party who buys or sells stock options in the underlying stock
3. Bondholders
One such case of this type of fraud is found in the following 29 chapter book, just recently published and sent to the SEC on September 21, 2020, titled, "Management's Step By Step Plan To Take The Hycroft Mine From Shareholders".
The above mentioned book involves Hycroft Mining Holding Corp. HYMC, previously known as Allied Nevada Gold Corp. ANV, and connects the purchaser of Allied Nevada's exploration properties to Clover Nevada, a subsidiary of Waterton Global, to Barrick Gold, through a member of the Allied Nevada board of directors, who served as President at Barrick Gold.
The book reveals the complete details of the entire plan from start to finish, how it was carried out, and each party involved. Precious metal investors are encouraged to familiarize themselves with this case in order to quickly recognize these red flags. The chapter names listed in the table of contents provide a quick summary and can be downloaded at any one of the following 4 links:
Download Book - Server 1 | Download Book - Server 2
Download Book - Server 3 | Download Book - Server 4
Our recommendation on Hycroft Mining Holding Corp HYMC
According to the latest press release dated January 14, 2020, titled, "Mudrick Capital (MUDS) to Combine with Hycroft Mining", Hycroft Mining has an enterprise value of approximately $537 million. If Hycroft Mining Holding Corp is found to have violated one or more securities laws, the SEC could potentially file a lawsuit against HYMC which may result in the share price being greatly reduced in order to provide relief to the HYMCZ warrant holders for the mishandling of $608,985,000 in secondary public offerings while the company was under the name Allied Nevada Gold Corp.
Based on the information contained in this article, our recommendation for investing in Hycroft Mining Holding Corp HYMC is to remain cautious until sufficient time has passed to allow for the U. S. Securities and Exchange Commission to investigate the above mentioned matter.
In order to prevent this type of fraud from happening in the future, investors are called to share this article with their respective CFOs.
Investors of all publicly traded precious metal mining corporations are encouraged to forward this article to their respective CFOs, requesting that this article then be forwarded to the company decision makers. Knowing that this tactic has now been publicly exposed, this will deter similarly planned frauds from occurring.
Investors involved in the above mentioned case are also called to act.
If you are a former Allied Nevada Gold Corp ANV investor, or currently hold Hycroft Mining Holding Corp HYMCZ warrants, the warrants received from the bankruptcy proceedings, previously HYCTW, you are encouraged to:
Join the warrant holders email list to receive the latest updates regarding these warrants Other press releases and news regarding the above mentioned book:
Allied Nevada Gold Corp Investors May Be On Track To Soon Receive Relief From The SEC SEC Receives Complaints From 432 Investors Filed Against Hycroft Mining Holding Corp HYMC And Former CFO Stephen Jones Other news stations:
KTVN Channel 2 Reno Nevada News Channel Nebraska Channel 21 WFMJ Ohio Fox 40 WICZ TV New York Disclosure: I am/we are long HYCTW.
Additional disclosure: The author of this article was responsible for compiling and editing the above mentioned book and is one of the 447 individuals listed in Chapter 29.
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