So Many Mining Companies Changing Hands for Pennies - Why?

If you read the Reverse Merger Wire, you know that quite a number of public “mining companies,” many if not almost all based in Canada, have suddenly had a change in control for very small dollars. These companies, almost all of which are being marketed as shells and most if not all of which have many of the troublesome features described in the infamous footnote 32 of the SEC’s 2005 reverse merger rulemaking release, all claim to be start-up or very early stage mining companies.

In the last few years, these shells have been sold for between $500,000 and $800,000 cash, plus equity as well, in connection with reverse mergers. Suddenly, in the last few months many of them have been the subject of a sale of substantial control blocks for anywhere from $3,000 to about $30,000. How can this be if they are able to be sold in transactions for so much more?

I had been scratching my head about this for awhile. I have since, I believe, uncovered the possible culprit, but we are doing more research to be sure. We believe it has to do with new regulations in British Columbia that restrict the transfers of more than 20% of the stock of a company whose operations are based there, if it is public. In those cases, it appears shareholder approval is needed, much like on the larger US exchanges such as the New York Stock Exchange and American Stock Exchange (this is not true on the OTC Bulletin Board or OTC Pink Sheets).

Again, do not take this as for sure, as we have not even finished looking over the regulations and hope to soon. So if this 20% restriction exists, why these sudden cheap changes in control? I think, but again not sure, that the promoters who set these companies up generally do not own any stock initially. They usually appear at the time of a reverse merger, acquire shares from the “founders” of the “mining company” who put some money in and now are bought out by the promoter at a nice profit (but well below the value of the shares at closing of the reverse merger) and therefore always stay below 5% and never have to publicly disclose their ownership. If they were to show themselves while the company was still a shell, and they were seen doing it over and over, the risk of being caught as having set up numerous companies in just the manner described in footnote 32 was too high.

So again, why these changes in control? Well, it is possible that the promoters, seeing the inability to acquire the shares they desire at the time of the reverse merger because of the new 20% transfer limitation, are either directly or indirectly beginning to show themselves now in the shells they have already taken public. So maybe, just maybe, this might help us determine who is behind the creation of these troublesome shells. And maybe, just maybe, they will see less benefit in creating them as in the past if they cannot hide as before. At least not in British Columbia.

Kudos to the BC regulators for helping stamp out something that the SEC has yet, frankly, to do anything about beyond a small footnote and a four year old small fine in an enforcement case. More on this soon.

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