- Print This Post Print This Post

By John Helmer, Moscow

The greatest of the great Canadians, Glenn Gould was, by his own admission, a lover of driving big, fast cars on the open road. When criticized for his rule-breaking, he acknowledged: “I know I’m at fault for driving through red lights occasionally. But look at the number of times I’ve stopped at the green, and never got credit for it.”

The Ontario Securities Commission (OSC) has just stopped at a green light, and deserves credit for it. Here’s the announcement, issued on July 5:

OSC Commences Emerging Market Issuers Regulatory Review

July 5, TORONTO – The Ontario Securities Commission (OSC) announced today it is conducting a targeted review of Ontario reporting issuers listed on Canadian exchanges and having significant business operations in emerging markets.

The review is designed to closely examine the disclosure of certain issuers from those markets and the vehicles through which these companies have accessed the Ontario market. OSC staff will also focus on the role of the auditors and underwriters in this process, who act as important gatekeepers with responsibilities under Ontario securities law.

“This targeted review is part of our ongoing effort to protect investors and strengthen market integrity,” said OSC Chair and Chief Executive Officer Howard Wetston, Q.C. “Issuers who access our market, and the advisors who support them, have important responsibilities to investors and we will take regulatory action as warranted to ensure these responsibilities are met.”

The review will be undertaken by OSC staff from several branches, including Corporate Finance, Market Regulation and the Office of the Chief Accountant. Enforcement will be involved as appropriate. The OSC has already contacted selected issuers and their advisors and will continue to do so over the coming weeks. In addition, the OSC will contact the exchanges and other organizations, including the Investment Industry Regulatory Organization of Canada and the Canadian Public Accountability Board for information where required.
Once the review is completed, the OSC will consider whether the findings have broader policy implications for the regulatory regime in Ontario, given the increasingly globalized marketplace.

Not a single member of the 4-person press office of the OSC was available to answer questions about the meaning of this notice, the targets of investigation, or the sanctions planned for findings of rule-breaking. A Canadian investor, who has been in correspondence with one of the OSC staff, believes the phrase “emerging market issuers” is code for Russians. He also believes the phrase “vehicles through which these companies have accessed the Ontario market”” is code for the reverse takeover scheme through which Maxim Finsky and Mikhail Prokhorov’s Moscow-based holding Intergeo consolidated their control of a handful of gold exploration assets, and reversed from Russia into a Canadian-listed shareholding company called SL Resources, then renamed White Tiger Gold. At the same time as the shares of the new company were listed on the Toronto Stock Exchange, without the normal disclosure and reporting rules applying to new listings, the registration of the company was removed from Canada and Russia, and established in the British Virgin Islands. Read how that was done last December here.

The scheme, apparently unchallenged at the time by OSC, required no disclosure to the market, no underwriter prospectus, and no due diligence by auditors. As a source close to WTG acknowledges, “SL Resources was a shell into which WTG reversed. SL had negligible assets. WTG was a private company, and we put its assets into SL Resources. Because it was a private placement, there was no prospectus.”

Finsky and a group of Canadian associates on the board of Century Mining, another Canadian listed goldminer, also under the supervision of the Ontario regulators, then arranged a no-cash, all-share takeover by the much smaller WTG. The value calculations of this deal appeared to depend on relatively high estimates for unmined Russian gold deposits which Finsky has issued though the press. Notwithstanding, WRG appeared to be ten times smaller than Century Mining (CMM).

In April, the Century Mining shareholders opposed to the transactions charged publicly that Finsky had been manipulating the asset valuations and share prices of both WTG and CMM to effect his takeover at the expense of the minorities’ equity value: “The Exchange Ratio appears to be driven by the trading price of White Tiger’s shares and not from a balance sheet or prospects perspective. As noted above, the Concerned Shareholders believe that there are serious questions in respect of the trading price of White Tiger’s shares. In fact, the joint press release of Century and White Tiger announcing the Business Combination on March 14, 2011 disclosed that the Century special committee believes the trading price of White Tiger’s shares on the TSX many not be indicative of the intrinsic value of such shares.”

The last straw came on June 30 in an announcement from CMM.

In essence, CMM is now claiming that, according to a new methodology of measurement by mining consultancy Micon, CMM’s Lamaque (Quebec) project in Canada, its biggest asset, is worth much less than had been thought. Proven and probable reserves were 59% less than the published data from 2009; measured and indicated resources were down 77%; and inferred resources were down 55%. This is CMM’s tabulation of its own down-sizing:

Comparison of the updated Resources and Reserves for Lamaque to previously reported Resources and Reserves

The Micon report also includes modest improvements in reserve and resource estimates for CMM’s San Juan goldmine in Peru; they are dwarfed by the asset shrinkage at Lamaque.

The share price of CMM, which has been plummeting since the WTG takeover was announced in March, fell another 2 Canadian cents to 28 cents (a drop of 7%) on the news.


While this form of asset stripping and share value dilution is unusual, and the minority shareholders are howling, CMM says “on the basis of the information provided by Century Mining to White Tiger Gold and White Tiger Gold’s special committee’s review and analysis thereof to date, it continues to unanimously support the proposed Business Combination.”

Since the same Micon consultancy is responsible for the expert analyses of WTG’s Russian gold deposits and reserve counts, it is unclear what a similar revision of Micon’s methodology and recount of WTG’s assets would do to its reserves and resources.

So Finsky and Prokhorov were asked these questions: have they been notified by the OSC that they are a target for the announced review? Do they believe that Russian issuers have been unfairly singled out for investigation by the OSC? Do they consider that the reverse listing method used in the WTG case in December without the standard forms of compliance was properly transparent to the market?

Spokemen for Finsky and Prokhorov confirmed receiving the questions. There have been no answers.

Leave a Reply