The curious case of Liberty Silver

Liberty Silver: no word if she’s a shareholder

Liberty Silver, the singer, performed a duet with Loverboy’s Mike Reno in 1985 for Tears Are Not Enough, a Canadian charity single recorded to help Ethiopian famine victims.

Liberty Silver, the company, has some blue-chip executives on its board of directors and is working toward earning an interest in a Nevada silver project.

Liberty Silver, the stock, has had quite a ride on the TSX. On no apparent news, shares surged from the 55-cent level in May to $1.58 on Oct. 4, giving the company a market cap of about $126 million – far higher than many companies with more advanced projects.

The next day, at 10 a.m., the Ontario Securities Commission slapped Liberty’s TSX shares with a cease-trade order, half an hour after the SEC had suspended trading of Liberty shares on the OTC bulletin board citing “questions concerning publicly available information about Liberty Silver, the control of its stock, its market price and trading in the stock.” In that 30-minute window, Liberty’s TSX shares plunged from $1.58 to 97 cents.

Regulatory smackdown in the rear-view mirror, Liberty Silver shares are once again on the march. While Venture stocks continue to grapple with gravity, Liberty’s TSX-listed shares appear to be infused with helium.

The stock rose steadily after the cease-trade order expired and closed Monday at $1.39, up 6%. A news release followed in which the company declared it “is not aware of any material undisclosed development or other reason that would account for recent appreciation in the trading price of the Company’s shares.” The stock is now trading at $1.25 (all share prices based on Thursday’s close).

One of the longest paragraphs in Liberty Silver’s Oct. 19 news release announcing the end of the cease-trade order featured the company distancing itself from one Robert (Bobby) Genovese, a promoter whose plays have a pattern of spiking before crashing. The company said it “has no contractual or other relationship with Mr. Robert Genovese, BG Capital Group or any other company owned or controlled by Mr. Genovese (the “Genovese Companies”) other than a subscription to a private placement in November 2011 by a company controlled by Mr. Genovese.”

Furthermore, the company “has never provided any form of compensation to a newsletter writer or anyone else for investment research or to recommend investment in the Company’s shares.”

Investors who perform their own due diligence (with Google’s help) can find some interesting background, including this fascinating article that describes Genovese as “one of the biggest shareholders of Liberty Silver” — a claim at odds with regulatory filings and company claims.

On the face of it, Liberty Silver has some good things going.

Management: Geoffrey Brown and Paul Haggis are experienced executives with business cred. Browne, the chairman and CEO, was head of private equity at Merrill Lynch Canada, as well as a senior executive at CIBC and Wood Gundy. Haggis is chairman of the Alberta Enterprise Corp. and one of U.S. hedge fund manager Bill Ackman’s handpicked directors at CP Rail, which Ackman’s Pershing Square Capital Management took control of earlier this year. Haggis is also a former chairman and CEO of OMERS, one of Canada’s largest pension funds.

Silver: The metal has interesting supply/demand dynamics. It’s a precious metal in a long-term PM bull market, but also has dozens of practical uses in everything from electronics and clothing to bandages and health applications. And increasing resource nationalism in South America, where much of it is mined, is bound to constrain supply. This infographic from Visual Capitalist is a great primer.

But there are red flags flapping, plenty of them, both on the company’s home page (the company logo is a Statue of Liberty-inspired torch) and when you dig a little deeper. What you won’t find on the website is a September corporate presentation that has since disappeared. More on that later.

Liberty Silver started its life on the U.S. OTC bulletin board, where companies often issue tens of millions of shares at fractions of a penny. That’s why questions about ownership and control of company shares arose now that it has a listing on Canada’s premier stock market. The SEC has yet to permit Liberty shares to trade on the OTCBB.

The company has three news releases listed on its website for all of 2011:

1. Feb. 28: An updated 43-101 resource estimate for the Trinity project that included only inferred silver ounces.

2. June 28: Private placement announced and the first mention of a possible TSX listing.

3. Dec. 21: Private placement (for $4.6 million) closes. News release includes this line: “In conjunction with the Funding, the Company has received conditional approval from the Toronto Stock Exchange (the “TSX”) to list its shares for trading under the symbol “LSL”. The Company‘s shares are expected to begin trading on December 22, 2011.”

Many have wondered how Liberty Silver qualified for listing on the TSX. Listing requirements for mining exploration companies, outlined here, include this one:

i) an Advanced Property, detailed in a report prepared by an independent qualified person. The Exchange will generally consider a property to be sufficiently advanced if continuity of mineralization is demonstrated in three dimensions at economically interesting grades;

Can a project be considered “advanced” if its resource estimate includes only inferred ounces? According to the disclaimer at the bottom of Liberty Silver’s press releases, “Inferred Mineral Resources must be excluded from estimates forming the basis of feasibility or other economic studies.”

Liberty Silver is earning-in to a joint venture with Renaissance Gold, whose chairman is Haywood Capital Markets chairman John Tognetti. Liberty Silver must spend $5 million to earn 70% ownership of the Trinity silver project from Renaissance. According to an Oct. 16 Liberty Silver news release, the company has fulfilled more than 85% of the required $5 million to earn 70%.

On July 16, 2012, Liberty Silver made a splash with a hostile all-share takeover bid for Sennen Resources, a cash-rich microcap. The news release announcing the bid touted Liberty’s “more liquid” common shares “listed on the TSX main board.”

“We have a very good resource there,” CEO Geoff Browne told Andrew Bell in a July 17, 2012 BNN interview, during which Browne also tried to portray the bid as a friendly one (and was challenged on it by Bell).

Sennen responded to the takeover attempt in scathing fashion, with CEO Ian Rozier describing the offer in a news release as a “clear case of the management and promoters of an OTC shell company with very little money and questionable assets trying to back their ludicrously overvalued paper into an established company with tangible assets-in this case Sennen and its treasury.” Sennen’s salvoes in response to Liberty’s hostile bid make for interesting reading.

To recap:

1. Liberty Silver has not yet fulfilled the necessary obligations to earn a 70% interest in the Trinity project.

2. The Trinity deposit is not economic — its 43-101 includes only inferred ounces, and no feasibility study, prefeasibility study or preliminary economic assessment has been performed on the property.

3. Liberty’s attempt to take over another junior using only its shares was rejected in ferocious fashion.

4. According to its latest quarterly report, Liberty Silver had $874,564 in cash and cash equivalents as of Sept. 30.

An investor would get a very different impression from reading a September 2012 corporate presentation that has subsequently disappeared from the Liberty Silver website:

- It described the Trinity project as an “advanced exploration play in Nevada with potential opportunity to quickly become a low cost, open pit operation.” The word advanced is underlined.

- On the “Risk Mitigation” page, one of the bullet points was “Proven mineability of the property.”

- One page was entitled “Fast Track to Production — Hi Ho.” Hi Ho is a reference to a 100-acre land package on the site, which Liberty purchased using mostly shares. The phrase “fast track to production” was repeated on the “Summary” page.

For purposes of comparison, let’s look at a couple of other publicly listed companies in the silver space.

Impact Silver (IPT), a Venture-listed company, operates 3 silver mines in Mexico and is building 2 more. For 2011, Impact generated $7.6 million in net earnings on revenue of $23 million. The company currently has about $23 million in cash and no debt.

Silver Bull Resources (SVB), listed on the TSX and NYSE, is advancing its Sierra Mojada silver project in Mexico. Sierra Mojada has an NI 43-101 compliant resource of 72 million ounces, measured and indicated, as well as almost 1 billion pounds of zinc in the measured and indicated categories. The company has completed more than 55,000 metres of drilling as it expands the 43-101 resource.

IMPACT SILVER market cap: $90 million
SILVER BULL market cap: $68 million
LIBERTY SILVER market cap: $102 million

Disclosure: I do not own shares in any of the companies mentioned. This is not investment advice and all investors should do their own due diligence. Please read my disclaimer.

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