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10/18/08

Anatomy of a Canadian Stock Promotion (part 7)

Here we go with part seven of the series (the other parts are linked at the bottom). This part is quite a short one and might be subtitled "why you should care about vesting dates". To keep things straightforward, this time I've made some notes on this chart.

Click to enlarge

Now for some further explanation:

Things were quiet between March 2008 and mid July at Dorato. Spring saw the company raise a little over $10m via its seeding placement of 17m shares at $0.60 (insiders taking a lage proportion of those shares). The importance of that placement is to note when the stock vests, i.e. becomes available to sell on the open market. In the case of the DRI.v placement, around 8.5m shares vested on August 19th.

On July 18th, DRI.v announced its deal with big gold mining company Franco Dorada, which may explain why the stock traded at such low levels away from the public gaze. It certainly wasn't the right time to start drawing attention to DRI.v's stock price of $1.60 and above. The deal brought DRI.v extra working capital in exchange for a royalty agreement with Franco Nevada and (remember this one in the future, people) gave Franco Nevada the right of refusal in any future stock placement (on a pro rata basis).

With the deal done with Franco Nevada, it was time to announce to a wide audience the benefits of the Dorato projects, and on July 30th the company released this PR announcing high grade gold returns at the El Tambo property. This would not have been a surprise to anyone that had done a little research on the property, as Anglo had already mapped and sampled plenty of high grade veins there in previous years. This was not news, but it was presented as a material change in the company (see SEDAR filings) .

Curiously, the announcement of these good gold grades was met with a strong selloff, despite the efforts of newsletter writers who had bought into the 60c placement to draw attention to the company (see here). This was because the vesting was drawing closer. So when August 19th came, so did the volume. Sellers of the placement didn't get the $1.60+ returns they might have expected just a month previously, but all the same plenty ran for the door and took prices of between 70c and 90c quite happily. It should be noted that insiders have not (according to official filings at least) sold any stock recently.

Since then, of course, the broader markets have not been favourable to stocks in general and mining stocks in particular. But a look at the DRI.v performance as related to GLD (as a gold price proxy) shows the importance of that vesting period quite clearly. It also brings into question exactly why Dorato decided to release its positive assessment of the El Tambo property at the moment it did.


Related Posts
Anatomy of a Canadian Stock Promotion (part one)
Anatomy of a Canadian Stock Promotion (part two)
Anatomy of a Canadian Stock Promotion (part three)
Anatomy of a Canadian Stock Promotion (part four)
Anatomy of a Canadian Stock Promotion (part five)
Anatomy of a Canadian Stock Promotion (part six)



Disclosure: I would like to remind you that at no point will I make any sort of recommendation to buy or sell any DRI.v securities. I would also like to make it clear that to the best of my knowledge the promotion techniques used and to be used by Dorato are totally legal. Finally, I would like to make it clear that I am not passing any moral judgement on Dorato Resources, and will try to avoid any insinuation of judgement in future posts in this series. The aim is to educate readers about some of the ways promotion campaigns are used and the company structures behind them.