European Shareholders a Boon for Resource Explorers

Source: Thom Calandra, Resource Investor  (11/10/11)

"Fresh shareholders from Germany, Austria, France and Switzerland are showing up in the rosters of Canada metals and potash explorers."


Fresh shareholders from Germany, Austria, France and Switzerland are showing up in the rosters of Canada metals and potash explorers.

"Our largest shareholder is from France, and more and more agricultural funds are popping up in western Europe," says John Costigan of Western Potash (TSX: T.WPX, Stock Forum), a Saskatchewan prospector of the fertilizer.

Western Potash is one of eight companies "on the bus", tracking its way through shareholder meetings across several European nations. The road trip was the idea of a longtime Vancouver dealmaker, David Hodge, whose Zimtu Capital (TSX: V.ZC, Stock Forum) is a tiny merchant bank and issuer with private and public holdings in a handful of exploration firms and property claims across British Columbia, Saskatchewan, Quebec, Ontario, and Nebraska, USA.

"We have gold, potash, coal in Mongolia, graphite, rare earth elements," says Paul Chow of Orocan Resource Corp. (TSX: V.OR, Stock Forum). Mr. Chow explained that Zimtu Monday granted Orocan an interest in three of its Ontario graphite properties. Orocan shares rose 35% by midday. (David Hodge of Zimtu, Matt Sroka of Equitas Resources and Joe Martin of conference organizer Cambridge House beside the bus in Europe—Thom Calandra photo.)

The colorful bus is drawing stares, winding its way through narrow streets and through lush autumn landscapes. Most passengers are investors, geologists, brokers and executives from Canada, the USA, Germany, Switzerland and the United Kingdom. On board, riders share stock tips and view property slide shows while listening to tunes from Mika and Angels & Airwaves.

At this past weekend's Munich Metals Show, the Zimtu bus transported attendees, many who did not know the tiny company or its portfolio companies, to an Olympic Village conference hall from two nearby hotels. "The good will factor pays dividends in this country," says Sven Olsson, a Zimtu Capital director and former German journalist.

Such a homegrown approach, says Walter Wimmer, a Linz, Austria, entrepreneur, helps reassure existing shareholders that the company intends to stay in touch with European investors. Mr. Wimmer, bringing his 11-year-old-son in a brand-new Tesla electic car, greeted the Zimtu group at a traditional Austrian restaurant in the countryside for Sunday lunch.

Mr. Wimmer runs a publicly-traded developer of a battery management system for cars and devices. Lion Mobility is listed in Frankfurt and other regional exchanges. So are all of the 120 Canada companies that attended the Munich metals show. Mr. Wimmer used to write a popular investment newsletter for the Austria and Germany audiences. He made a significant profit investing in a USA molybdenum developer.

The Germans put physical silver and gold first and second, respectively, and only recently have embraced prospector companies in the stock market. "They must be listed in Germany, even if the shares are available in Canada or London or New York," says Mr. Olsson, the German Zimtu director. "Once they buy into the concept, they tend to hold for long periods." (See: Munich coverage)

Osisko Mining (TSX: T.OSK, Stock Forum), backed by German investors several years ago, returns to Munich each year. So does Endeavour Silver (TSX: T.EDR, Stock Forum and NYSE: EXK), Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A), Zimtu-founded Commerce Resources Corp. (CCE:TSX.V; D7H:Fkft; CMRZF:OTCQX) and dozens of others. This year, a record 7,000 investors attended the two-day show.

Mr. Hodge, age 58, says the company's strategy is to provide seed capital to cash-hungry companies. In 2003, after a hardscrabble run as a technology company, Zimtu reinvented itself as an incubator of prospectors. In addition to tantalum developer Commerce Resources Corp. (CCE:TSX.V; D7H:Fkft; CMRZF:OTCQX), Mr. Hodge and his team helped to launch or fund a number of companies, including Western Potash, Lakeland Resources (TSX: V.LK, Stock Forum), Equitas Resources (TSX: V.EQT, Stock Forum) and Quantum Rare Earth Devlopment (TSX: V.QRE, Stock Forum).

Pitching the benefits of unprofitable, capital-consuming exploration companies is challenging in Europe. Investors here, when they venture away from physical metals, tend to seek stakes in more fully developed miners. The ones with cash flow and net income: Osisko, Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A), Endeavour Silver and so on.

Yet the notion of frumpy Europeans in their smoking jackets, carrying calculators and turning up noses at high-risk prospectors appears to be shifting.

John-Mark Staude, an Arizona founder of Riverside Resources (TSX: V.RRI, Stock Forum) and two other companies, was browsing the Munich aisles with his 11-year-old daughter. "It's my first time, and I keep hearing great things about the show and European shareholders," Mr. Staude says.

Keith Piggott, CEO of Mexico prospector Goldgroup (TSX: T.GGA, Stock Forum), says one London shareholder alone owns 9% of his company. "When you get that kind of backing, you have to be here regularly," says Mr. Piggott, a British trained doctor of geology.

All of this is not cheap. No-name Swiss hotel rooms for $400 a night, a plate of spaghetti and clams for $44. A cab from Zurich airport into town: $90. Leasing half of a Four Seasons or Park Hyatt floor in major and even lesser European cities can cost a presenting company well into five figures.

That's in euros, which remains stubbornly expensive against North America's dollar cousins.

Joe Martin, a Canada conference organizer for metals prospectors, says the expense of servicing European shareholders is justified by the rapid growth of the metals-seeking audience. Waves of fiscal fear are swamping European consumer and institutional sentiment. (Mr. Martin is keeping a written diary of the bus tour at http://roadtrip.zimtu.com.)

In Vienna, Mr. Hodge is presenting the Zimtu group of companies to about 140 people inside a historic banking hall. "We see a lot of orders here," he says. "Germans and Austrians and Swiss, the individual shareholders, have almost zero chance of participating in a private placement or a tightly-controlled exploration company. That is where we are getting a lot of interest." Zimtu employs the services of Canadian investor outreach firms with a specialty in filling European rooms with a healthy mix of individual and bank-related shareholders. In this case, Tydewell Consulting of Vancouver filled rooms in Geneva, Zurich, Hamburg, Munich and Vienna.

Mr. Olsson, in German, introduces one of those private opportunities to the banking hall audience. Its CEO, Toronto financier Howard Katz, tells the audience his Timmins camp-area company, Tamaka Gold, "will be the largest gold project in Canada real soon. It's private. We think we will be public by early next year. This is going to be very big."

Notes: I am a partner of investor outreach firm Torrey Hills Capital in Del Mar, near San Diego, California. Great Panther in the article above is a Torrey Hills client.

Stockhouse members—the service is free—can see my entire portfolio online. It is under the portfolio function and my user name, which is TCALANDRA. Aside from Central Fund of Canada (TSX: T.CEF.A, Stock Forum), there is little to nothing in my portfolio suitable for risk-averse investors. I am not a financial adviser or planner. In this article, I am a shareholder of Endeavour Silver and Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A).

Thom Calandra, a founder of CBS MarketWatch and FT MarketWatch, has to rank as one of the most talented financial newsletter writers in the business today. Thom's track record of identifying valuable investments early on has helped thousands of investors find high-return investments for nearly 30 years. This column first appeared on Stockhouse.com.