Commentary

The Dangers of Misinformation: BE Resources Releases Incorrect Results

July 26, 2011 by · Leave a Comment 

COMMENTARYProspectingJournal.com–It’s easy to get caught up in the classic investor trap of wishing for good results, hoping that an upcoming press release blows away expectations with high numbers and overwhelming “good” news. After all, it’s the arbitrary but somewhat functional nature of the digital stock age, where the typing and dissemination of a few results can mean the death or explosive success of an obscure junior or an established giant. The result of this waiting-for-a-digital-miracle approach is wishful thinking to the extreme; at times, you almost hope that whoever is releasing the information pulls a “Bre-X” and puts in bogus data just so you can cash out, walk (or run) away and retire to the beach. But what happens when the IR guy, geologist, or whoever else is in charge of the release of information screws up and the stock takes off?

This is exactly what happened to BE Resources Inc. (TSXV: BER) on Friday, July 22, when they issued a news release with “fantastic” assay results (to say the least) for their Warm Springs Beryllium & Rare Earth Project. Note the pleasant spike, as BER shares rocketed from 9.5 to 77 cents, closing at 75:

There were 10,663 trades of 49,324,463 shares in BER on Friday–all based off incorrect Total Rare Earth Oxide (TREO) numbers.

To give us an idea of just how far off the first press release was, BER quickly released another press release, with a comparison of the incorrect and (hopefully) correct results:

Drill Hole No. From
(ft)
To
(ft)
Interval
(ft)
LREO
%
HREO
TREO %
Previously Reported
 TREO %
CORRECTED
 DH1  765  778  23  82.50  40.86  8.85  0.69
 DH2  843  878  35  82.89  17.11  10.34  1.56
 DH3  620  678  58  81.84  18.16  9.12  0.91
 DH3  1157  1255  98  60.31  39.69  19.58  1.95
 DH3  1265  1297.5  32.5  67.14  32.86  1.89  1.89
 DH3  1306.5  1564  242  75.51  24.49  0.26  0.26
 DH3  1582  1736  154  75.22  24.78  7.80  0.78
 DH19  194  295  101  61.45  38.54  15.04  0.97
 DH19  468  474  6  76.67  23.33  1.2  0.09

 

Of course, it didn’t take long for the Investment Industry Regulatory Organization of Canada (IIROC), a national self-regulatory organization that oversees all investment dealers and trading activity on debt and equity marketplaces in Canada, to hear of the sudden “success” on Friday, check the figures and freeze trading. In a rare move, IIROC cancelled all trades in BER that occurred on Friday; so for those who threw a weekend party, let the lawsuits begin.

Trading has now resumed, BER has said it’s sorry, and everything is okay . . . Right? –No. All one has to do is head to one of the various investor boards to get the latest sentiment. Informed (and non-informed) opinions from these boards provide a wealth of information, reflecting the overall vibe among the in-the-know shareholders. Apparently, BER has likely made more reporting errors not yet picked up by IIROC, including drilling depths, everything, and etc. Some are calling for more cancellations, others for the destruction of BER.

It doesn’t really matter though as the damage is done. Whether BER recovers from this major ****-up is anyone’s guess, and whether this situation ignites a debate on the strength of our current regulatory systems, which have been set up mainly to prevent another Bre-X, remains to be seen. With an upcoming financing and an ongoing, massive backlash, I’m betting on a slow death for BER as assay results don’t come close to hitting the fantasy projections from July 22.

So what did we learn from this? In the words of Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it.”

Chris Devauld
Senior Writer
ProspectionJournal.com

Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc., which owns ProspectingJournal.com, may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article.

Related posts:

Canada's Hack-n-Slash Strategy, Once Bemoaned, Now Admired
Potash: The Edible Gold Attracts Big Players to Saskatchewan
Sprott’s Proposed Gold / Silver Bank: A Step in the Right Direction?

Comments are closed.

Prospecting Journal
Hide me
Sign up below to join our Newsletter
  Your Email Address:     First Name:     Last Name:     Phone:
Show me