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By John Helmer, Moscow

Not even the epitome of Canadian accountability and compliance, Dudley Do-Right, can remember a case when a man who has just defaulted on bank obligations of almost $75 million been allowed to sell promissory notes on his next adventure on the Toronto Stock Exchange. If Dudley is mistaken, and if Maxim Finsky succeeds in launching the Intergeo initial public offering, the market magic spellbinder who will deserve the credit is Corey Copeland (image).

That’s not a dunce’s hat on his head. With degrees from the University of Toronto and Harvard University, Copeland has been the spokesman for large metal and mining companies in the past, like Alcan, Rio Tinto, and Billiton. As reported here, Copeland is the front man for the Intergeo preliminary prospectus issued to the Toronto market on May 14. Company documents say that for his expertise, Intergeo is paying Copeland salary and perks this year of C$522,189. That includes a bonus for his good works last year of C$94,000. If the Intergeo shares make it to market in a few days’ time, he will also be entitled to share options at the IPO price for 0.15% of the total share issue.

It’s Copeland’s assignment to represent the owner of Intergeo, Mikhail Prokhorov, and its controlling executive, Maxim Finsky, to the market. Prokhorov and Finsky, who are based in Moscow, have advertised their plans for Intergeo in the press before. A year ago, when he was visiting Toronto, Finsky claimed the Intergeo assets would fetch “definitely over C$1 billion, not over C$5 billion.”

A week ago, in a May 17 report from Bloomberg and Canada’s Financial Post, he was claiming he would sell “ a stake as large as 10 percent and may raise $100 million to $500 million, said a person familiar with the situation who declined to be identified because the details haven’t been made public.” The source also conceded: “The IPO isn’t certain to proceed because of market volatility, the person said.” That source may have been Copeland.

A week later, on May 25, White Tiger Gold (WTG), the Canadian goldminer Finsky owns and has already listed on the Toronto exchange, issued this announcement that it is defaulting on a loan from Deutsche Bank because it cannot mine and sell enough gold. Rather than meet the repayment terms, Finsky told Deutsche Bank it can take the two goldmines in Peru and Canada which are the collateral for the loan contract. But Finsky also claimed he isn’t quite walking away. The Russian gold deposits, which are also part of the WTG portfolio, won’t be surrendered. In point of fact, Finsky has already mortgaged them to the Russian state lender, VTB.

Here’s the WTG announcement of its default. Note that you can’t find anything to tell you how much money Finsky’s WTG owes the bank.

There is also guarded reference to the fact that Deutsche Bank has declined the option to convert the repayment balance into shares in WTG. The reason is simple arithmetic. WTG’s share price collapsed on the default disclosure to just 7.5 Canadian cents, for a total market capitalization of C$25 million. That is roughly one-third of the value of WTG’s current obligations to Deutsche Bank.

According to the company’s financial reporting, the loan originated in December of 2009 with an advance of C$34.4 million. After several renegotiations and amendments, the bank terms required Finsky’s mining company to deliver 13,310 ounces of gold this year, and a total of 47,510 oz by the end of 2014. At the current spot price of US$1,573 per ounce, that represents cash value of US$75 million. The loan agreement allowed Deutsche Bank to mark the gold deliveries down at a substantial discount, and if the gold price held above $900/oz, pocket a substantial margin when it sold the gold for its own account.

According to Finsky’s default announcement, “going forward, White Tiger intends to focus on the continued development of its Savkino and Nasedkino projects in Eastern Russia. The Savkino mine continues to be on target to meet its expected production of 20,000 ounces of gold in 2012, and White Tiger is currently developing Phase 2 of the expansion plan at the Savkino mine with the objective of increasing gold production to approximately 50,000 ounces in 2013.”

Minority shareholders in WTG have described Finsky’s default as “ethically bankrupt”.

If Deutsche Bank had done its due diligence and decided it didn’t want to revise its loan terms and secure repayment from such promising Russian mines, why should Canadian investors now believe Finsky enough to buy shares in several other, non-producing mine deposits in Russia, which Intergeo claimed in the May 14 prospectus to be worth up to $5 billion?

Copeland was asked questions like that, but by the time this story was published on
May 22
, he had refused to reply. Two days later, he became very talkative. He emailed Business Insider in New York; describing the story as “ riddled with factual errors, some of which are so basic (e.g. confusing thousands with millions) that it’s a little hard to know where to start. Would you have a moment for a quick call to discuss it?” In a second message, he added: “if you have a minute I’d certainly be happy to review the piece with you.”

When it was recommended that Copeland make direct contact with the author, instead of the editor, Copeland replied: “Normally I would be in touch with the writer as step one, but the difficulty in this case is twofold: 1) The piece is so erroneous and/or misconstrued as to require a virtual re-write; and 2) We are in our quiet period (as a result of having filed our prospectus last week) and my ability to engage in a dialogue of the kind required is highly constrained.”

This doesn’t quite explain why chatting with Business Insider’s editor isn’t a breach of the “quiet period”, but communicating with me is. Copeland pressed home his advantage, however, with this dossier of errors: “By way of illustration, the following errors appear on page one:

- The name of the chairman is incorrect;
- The name of the CEO is incorrect;
- The name and title of the SVP and General Director, Russia are incorrect;
- The ownership of the company is incorrect;
- The equity compensation of the CEO is incorrect;
- The financial data for each of 2009, 2010 and 2011 are incorrect (by orders of magnitude).”

These points are ambiguous; some of the errors were not. The first name of one of Intergeo’s Russian executives had been mistakenly reported; it was corrected. The confusion of magnitudes in Intergeo’s financial reports in the prospectus was also fixed. The complicated arrangements between British Virgin Island-registered vehicles through which Prokhorov and Finsky control Intergeo and are selling shares has also been clarified.

To remove ambiguity in what Intergeo claimed was a report “riddled with factual errors” Copeland was asked to elaborate on his points. He was also asked: “For several weeks now I have attempted to have Mr Finsky, Mr Prokhorov and more recently you, clarify the record demonstrated in the Canadian market by Mr Finsky’s control of White Tiger Gold (WTG). Not a single report of several I’ve published on that company has been disputed for correction of detail or clarification of interpretation to date, so let’s assume them to be roughly accurate. How then to explain this claim from the Intergeo prospectus when referring to the loss-making, near-insolvent WTG, after its share price decline has removed more than $2 billion in market cap: ‘Mikhail Prokhorov and Maxim Finskiy, the Company’s beneficial shareholders, have long and successful records of developing and operating large nickel and gold mining operations… Mr. Finskiy is the Executive Chairman of White Tiger Gold Ltd.” Are you and your colleagues claiming WTG is part of the ‘long and successful record’?”

Copeland did not reply immediately. And so this fresh question was despatched yesterday; “I also request that you read the attachment, issued on Friday, indicating that Mr Finsky’s WTG has defaulted on a major bank loan. Kindly inform whether this change of material circumstance on the part of one of the control shareholders and promoters of Intergeo, will be reported by Intergeo to the market.”

The reply from Intergeo’s office assistant in Toronto, Oksana Ermolenko, is: “Mr. Copeland is not responding to media inquiries during quiet period; for information, please refer to our company’s Prospectus on SEDAR at: www.sedar.com.”

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