For a company that has set an ambitious mine opening date of 2015, Rare Element Resources' (NYSEMKT:REE) management has a lot on its plate. Between them, Chief Executive Donald Ranta, Chief Financial Officer Mark Brown, and Corporate Secretary Winnie Wong divide their time either managing or acting as directors to 12 additional public or private companies.
According to a recent article in Barron’s (Stocks Stall, Ending a Long Streak, pg 2), Mark T. Brown, the CFO of Rare Element Resources
spends 75% of his time working for [REE], but he also serves as director, CFO, or CEO for 10 other companies. Rare Element's chief executive, Donald Ranta, is also a busy man, serving on a number of boards. Both he and Brown are directors of Animas Resources and Avrupa Minerals.
It is not uncommon for junior mining companies to operate at a deficit and use the proceeds of stock offerings to fund operations. However, the similarities between these companies use of capital from this type of funding is enough to make an investor question the intentions of Rare Element Resources' managers.
The interconnectedness of the companies can be traced to Pacific Opportunity Capital Ltd. which is owned and operated by Mark T. Brown and of which Winnie Wong is also a manager. According to Pacific Opportunity’s website, the company offers services in three main areas: Financing, Management assistance and mentorship, and Accounting and administration.
The company’s operations are conducted in a 600 sq. foot office in Vancouver, British Columbia, which also serves as the head-office for Animas Resources, Avrupa Minerals, Pitchstone Exploration, and Rare Element Resources. Among these companies and the five companies classified as “Resource Mining” that Rare Element Resources' management is involved with as either active officers or directors, not a single company has moved beyond the “exploration” phase of development and each company currently operates at a deficit (see the chart below).
Based on the most recent annual reports available, the companies cumulatively paid over $1,000,000 in management, rent, consulting, administrative, legal, and consulting fees to “related parties” of either an officer or director of the reporting company. This information is found in each company’s annual report under the section “Related Party Transactions”
- Rare Element Resources Annual Report (Page 22)
During the year ended June 30, 2010:
a) $Nil (2009 - $Nil; 2008 - $55,861) was charged for management fees by a private company controlled by the former president.
b) $185,936 (2009 - $103,456; 2008 - $69,017) was charged for management fees by an officer and director and bonus paid to an officer of the company. As at June 30, 2010, $Nil (2009 - $Nil) was owed to the officer.
c) $208,222 (2009 - $114,286; 2008 - $101,938) was charged by a private company controlled by a director and officer of the company for accounting,
- Portal Resources Annual Report (Page 15)
During the years ended June 30, 2010, 2009 and 2008
a) $8,685 (2009 - $42,374; 2008 - $35,939) was charged for rent to a public company with a director in common with the company. As at June 30, 2010, $Nil (2009 - $Nil; 2008 - $34) was receivable from this public company.
b) $57,861 (2009 - $18,832; 2008 - $27,060) was charged for administrative fees and expenses to a private company with a director in common with the company. As at June 30, 2010, $57,861 (2009 - $Nil; 2008 - $18) was receivable from this private company.
c) $1,050 (2009 - $3,124; 2008 - $Nil) was charged for rent to a private company with a director in common with the company. As at June 30, 2010, $Nil (2009 - $Nil; 2008 - $Nil) was receivable from this private company.
d) the company paid or accrued to pay a private company with a director in common with the company an aggregate of $11,755 (2009 - $9,707; 2008 - $5,674) for fees and expenses. As at June 30, 2010, the company owed this company and aggregate of $788 (2009 - $Nil; 2008 - $Nil).
e) the company paid to a private company with a director in common with the company and aggregate of $5,040 (2009 - $Nil; 2008 - $Nil) for consulting fees and expenses.
Because all of the companies are operating at a deficit and have no revenue, the fees were paid from funds generated by secondary stock offerings. The table below shows that all but one company issued over 1 million shares of stock in the past 4 months. In the instance of Mediterranean Resources Ltd., legal fees of $100,000 generated from the 15 million-share offering were paid to a firm that the Corporate Secretary is a partner.
In addition to issuing company stock to pay for business expenses, the management of each company pays their executives and directors through stock-based compensation issued annually in the form of warrants and options. An analysis of the companies’ latest annual reports shows that hundreds of thousands of dollars worth of stock were issued to executives and directors. For example, in the fiscal year ending 2010, the management of Rare Element Resources received over $500,000 worth of stock based compensation. In the same filing, the company reported a total “related party” expense of $450,000 that was paid to a private company controlled by a director and officer of Rare Element Resources (see example above).
Because the management of Rare Element Resources participates in the daily operations of multiple public and private companies and because they currently do not operate a profitable mine beyond the “exploration phase”, I believe they will never develop the Bear Lodge Mine. Their lack of disclosure to shareholders regarding the conflicts of interest that exist between these companies is unacceptable at a minimum, and fraudulent at most. The managers of the company have been paid hundreds of thousands of dollar in stock based compensation and they have used capital raised from shareholders to pay for over $1,000,000 in fees billed by companies in which they have a vested interest.
Please see the chart below for an overview of the connections and similarities that the companies share in regards to management, office addresses, accounting firms, and fees paid to “related parties” controlled by executives/directors. Further information regarding each company can be found on SEDAR as well as the websites listed below.
click to enlarge
Click each name below for a link to the company's website (note the similar layouts) and click SEDAR for most recent annual report.
- Animas Resources Ltd.
- SEDAR annual filing year ended Dec 31, 2009-Related Party Transactions Pg. 22
- Avrupa Minerals Ltd.SEDAR annual filing - Related Party Transactions Pg. 15
- Medallion Resources Ltd.
- SEDAR annual filing- Related Party Transactions Pg. 18
- Mediterranean Resources Ltd.
- SEDAR annual filing- Related Party Transactions Pg. 17
- Pitchstone Exploration Ltd.
- SEDAR annual filing - Related Party Transactions Pg. 18
- Portal Resources Ltd.
- SEDAR annual filing- Related Party Transactions Pg. 15
- Rare Element Resources Ltd.
- SEDAR annual filing – Related Party Transactions Pg. 20
- Rye Patch Gold Corp.
- SEDAR annual filing- Related Party Transactions Pg. 22
- Sutter Gold Mining Inc.
- SEDAR annual filing- Related Party Transactions Pg. 17
- Tarsis Resources Ltd.
- SEDAR annual filing- Related Party Transactions Pg. 27
- Pacific Opportunity Capital Ltd.
Disclosure: I am short REE.