DD Support Board and Research Team

[1manband]

Has anyone else done research on LBSR?

I don’t think much of LBSR. To me at this point, it looks like much more of a vehicle to enrich the insiders, especially the CEO, at the expense of the shareholders.

Most junior mineral exploration companies pay their officers either no salary, or a very small one. LBSR’s CEO not only receives $120,000 in annual salary, he also receives a massive amount of cheap options. In the fiscal year ended January 2011, he received 52.5 MILLION cheap options (exercisable at 0.0265) which bumps his total compensation last year to a whopping $1.5 MILLION. He receives other benefits, too. The company rents office space $2,280 per month, but they also pay the CEO $522 per month, plus a share of taxes and maintenance, to rent an office in his home. The Company’s office and his home are only 1.35 miles apart. Why do they need both? Can’t he get from home to the office? Actually, we know he can, as the Company also bought the CEO’s old vehicle from him for $11K and bought a new vehicle for $25,787. I guess the $1.5 million wasn’t enough to buy a new car, so the shareholders kicked in for that, too. He also received other benefits which are unheard of for mineral exploration companies. A company this size with a dedicated CFO requires, on average, about 10 hours per week of actual management work from the CEO. Even if you give them the benefit of the doubt, it is no more than 20 hours a week. Yet, the CEO not only receives under his contract vacation time, but he was too busy to take it in Fiscal 2010, so the company paid him $11,754 extra for the unused days off! Absolutely amazing. Also note that the company is not actually paying much of his salary, but is instead accruing it. Quite often when you see that the company usually ends up issuing cheap discounted stock to settle the debt, which further enriches the recipient.

The Company currently has 602 million shares outstanding, but the CEO in fiscal 2011 received 52.5 million options, and insiders as a whole received 95 million options. Not only did they all vest immediately, but the company filed an S-8 to register them all for immediate resale, which could happen at any time as they are very much in the money. What has he and the board done to deserve the issuance of that many discounted options? That is over 15% of the current issued and outstanding shares. Most junior mineral companies limit their total option grants to 10% or less, all of which are at prices well above the current trading price (after all, they are “incentive” options whose stated purpose is to give incentive to management to get the stock price up which rewards them AND shareholders), and they usually vest over an extended period of time – up to several years.

Thanks to the huge salaries and perks, this company constantly needs cash. Their total losses since inception are a massive $59 million. Several years ago, they signed some ugly funding agreements with 3 funds, 2 of which are offshore in locations known to be highly questionable – British Virgin Islands and Liechtenstein. What makes these deals absolutely stomach churning is they there were “Death Spiral” convertibles. These funds received a 20% discount on shares. Any CEO that sells death spirals is 1 of 3 things; Dumb as a rock, crooked, or desperate for cash. In any case, there is absolutely NO excuse for selling death spiral convertibles under any circumstances. NONE. And, if management of a company ever does sell them, NEVER under any circumstances should investors buy those shares because that management is definitely 1 of the 3 things I named above, all of which makes them incompetent and immediately disqualifies that stock as a worthwhile investment.

Friday’s news was also quite stunning, and not in a good way. In a Form 8-K (which was late, by the way – it was due last week), they signed an “advisory” deal which guarantees a banker $20K per MONTH. That is about a quarter of a million a year! In addition, only ½ of that amount is required to be in cash. The rest can be settled in shares at a 25% discount to the market. An exploration stage company with no known reserves engaging a banker at a guaranteed rate without requiring them to actually raise any money? Unheard of. If you read through the agreement, it screams “desperate for cash”.

One more thing about this company which raises a red flag. They are incorporated in Nevada, which allows officer and director indemnity. Sure enough, LBSR has it, which is never good for shareholders.

I also don’t think much of the properties. At this point, the only properties that really hold promise are the Alaska properties, but they are just wide-open moose pasture at this stage and hold little real value since they have nothing but a wide area geophysical survey on them. They are also already fully encumbered. Yes, they have a deal with Northern Dynasty, but Dynasty's mnagement is very experienced, among the best in the business, and should not be underestimated. They didn’t get to where there are today by going out of their way to enrich other company’s shareholders. Instead, they put their shareholders first, and will likely do so again here. LBSR already coughed up a big portion of their Alaska landholdings to get out from under ¼ of the convertible debenture, and I would not be surprised if they end up turning any other portion they want to them for the remainder. Especially considering the huge holding costs of the properties.

Anything can happen to a stock, especially a junior stock, in the short-term. In the longer term, taken all together, there are numerous other junior exploration companies that are less concerned with enriching management and more concerned with building shareholder value that I find more worthy than this one.