Bottom-Fish Comment - July 17, 2012: Bottom-Fish Strategy for Romulus Resources Ltd
Romulus Resources Ltd was recommended as a low priority bottom-fish buy in the $0.20-$0.29 range on July 13, 2012 because this old-fashioned shell disguised as a resource exploration junior gives me nostalgia for the Vancouver Stock Exchange before Alberta's plague of capital pools infested the exchange with formally structured rig jobs, over 1,100 of which Canada's less than illustrious brokers have shoveled onto the market since 2000. Romulus listed on the TSXV on April 7, 2008 after issuing seed stock of 20 million shares at $0.08 and then completing a redundant IPO of 2.5 million shares at $0.15. The prospectus property was the recycled Vera claim in southern British Columbia next to the Okanagan First Nations Reserve that surrounds the northern part of Okangan Lake, an erratic high grade quartz vein play that drove the old-timers nuts, about which Romulus has never issued a press release, but in which it vested for 100% by spending over $300,000 on target generation, an astounding one third of which consisted of linecutting. This was such a worthless exploration prospect that by the end of 2008 Romulus management decided not to drill in order to preserve capital while it waited for the three years required for the full release of the insiders' chunk of cheap seed stock which the TSXV had escrowed. Nevertheless, it dutifully issued all of the 200,000 property shares to vest for 100%. During this 5 year period of pretending to be an exploration junior, Romulus pissed away over $1 million on overhead, all the time maintaining an illiquid expensive market for its stock. Now this is the model for quite a few Canadian shell packagers who are suddenly facing a crisis where nobody needs such a shell because the future portends plenty of brutally rolled back shells trading below a dime whose owners will be begging for somebody to take the keys. Romulus still has about $850,000 working capital, so it can get away with doing nothing for quite a few more years while being on the verge of drilling the Octagon vein on its Vera prospect in case the TSXV threatens to banish the stock to the dreaded H-Box. So what makes Romulus interesting as a bottom-fish? The answer lies in its pedigree. The IPO CEO was Dubai based Riaz Shariff, owner of 8 million shares only in his early thirties who I suspect is the son of Aziz Shariff, a pivotal player in Ross Beaty's network, and who was backed by a board of experienced administrators. David Strang, a Beaty associate who was instrumental in the hugely successful Lumina et al copper cycle and is now involved with Beaty's Anfield Nickel, a pretty successful but initially impossible to buy bottom-fish from the 2009 Bottom-Fish Edition, joined the board in 2009. But before you start thinking this is a super-shell destined to be adopted by Casey Explorer League hall-of-famer Ross Beaty in the style of what I think will happen to Highbury Projects Inc, also a 2009 Bottom-Fish Edition member which is no longer so interesting now that Rick Rule has sold all his positions to Eric Sprott who does not need intricate structures to make things happen, consider that in 2010 Gianni Kovacevic joined the board as chairman, and David Strang resigned. Kovacevic is a young, articulate and consummate networker who is the ultimate Beaty fan, and a good buddy of fellow Croatian Marin Katusa, the workaholic, over-optimizing newsletter writer from Casey Research who also is a manager of KCR Funds LLC, the Casey Research fund also managed and/or advised by David Galland, Doug Casey, Joseph Hung, Olivier Garrett, Marc Bustin and Rick Rule. A couple months later a Swiss entity called KCR LLC, managed by Ernst Pernet which has been active in junior private placements since the eighties, disclosed it had acquired 4 million Romulus shares at $0.20 in an off market transaction while the stock was parked in the $0.70-$0.80 range (doesn't that remind you of the good old VSE?). KCR LLC, despite the alphabetization of Ca-Sey Research that is intentional in KCR Funds LLC, seems to predate David Galland's hookup with Casey, so it was interesting that in the 2011 AGM circular it was KCR Funds LLC that showed up as an insider owning 4 million shares. Whatever booboo may have been behind this, KCR vanished in the 2012 AGM circularas an insider, but the tantalizing connection lingers. So what we have here is not a super-shell destined as the vehicle for Ross Beaty's next big idea, but rather a shell "controlled" by a new generation of Young Turks, not all of them Silver Spooners, which the old guard is grooming as it weans itself of the perpetual adrenalin rush associated with helping create the members of the Explorer League Hall of Fame. Romulus is ranked only low priority because I am not sure the young network behind it quite knows how to run a machine play, especially in what may be a difficult market ahead of us where advanced ounce or pound in the ground plays are shunned in an atmosphere of perpetually imminent metal price declines that favors discovery plays which the machine is powerless to create in this post-retail resource sector. Romulus is worth owning a bit of for a ringside seat, just beware of the entire box becoming available in the market, a sign that this old-fashioned bottom-fish is turning into just another futureless TSXV junior.