Bottom-Fish Comment - July 17, 2012: Bottom-Fish Strategy for Bridgeport Ventures Inc
Bridgeport Ventures Inc was recommended as a medium priority bottom-fish buy in the $0.30-$0.49 range on July 13, 2012 because this cash rich junior headed by an old-timer management team that has sunk a lot of personal dough into this company, but which seemed at a loss over how to deal with a grinding resource sector bear market, on June 28, 2012 has decided to merge with the royalty subsidiary of Ewan Downie's Premier Gold Mines Ltd. The merger terms appear to be 1:1 such that Premier Gold will end up with 60% of Bridgeport. This was not what I expected when I first flagged Bridgeport as a bottom-fish, but Ewan Downie and Abraham Dorst are members of the rising new guard in the junior resource sector who will have the endurance to survive a grinding bear market if that is what lies ahead. Bridgeport was launched in late 2009 through a cheap IPO with a token Ontario gold prospect that very quickly morphed into a Toronto power play that first raised $13 million at $1 in November 2009 for a Chilean copper play, and a year later in October 2010 acquired the non-core Nevada property portfolio of Fronteer Gold Inc for 4.5 million shares. Repeating a pattern, Bridgeport raised another $15 million at $1 in November 2010 with the plan to mount a 30,000 m drill program on the Nevada portfolio. What I found intriguing about Bridgeport was that Wayne Beach and Hugh Snyder put up at least $1 million each in these private placements, supplementing earlier cheaper priced positions. Snyder became CEO but stepped aside to become chairman in late 2010 to allow Shastri Ramnath, formerly of FNX, to become CEO. The stock chart shows that Bridgeport has brought little joy to anybody who bought post IPO, including management, which may explain why in mid 2011 Bridgeport dropped the Chilean projects with their looming option payments, citing insufficient tonnage footprint potential, and then in October 2011 suspended exploration work on the Nevada portfolio after a string of bad to mediocre drill results. As one can tell from the corporate presentation, Bridgeport was technically qualified, but seemed to lack visionary drive. Management became alarmed by the resource sector downtrend, and decided to stop spending money on early stage exploration, and instead look to acquire an advanced copper-gold prospect located in the Americas while seeking farmout partners for the Nevada prospects. Trading volume has been light since Bridgeport suspended work and the last SEDI filings were made, suggesting that the insider structure that existed at the end of 2010 remains intact. Full dilution prior to the royalty merger is 83,912,100 shares, but of that 22,250,000 consists of warrants exercisable at $1.00-$1.40 expiring in December 2012. There remain 6,575,000 warrants at $0.50 until Oct 7, 2014, but these were part of the $0.20 IPO unit and are likely in strong hands. Bridgeport may require patience, but it has the earmarks of eventually turning into a big bottom-fish winner, and the risk that tired management may waste the treasury bouncing from this deal to the next is gone.