Clifton Star flickers in cease-trade limbo

2011-12-16 13:04 ET - Street Wire

by Stockwatch Business Reporter

Twinkle, twinkle Clifton Star, how we wonder where you are.

Clifton Star Resources Inc.'s chief financial officer, Ian Beardmore, says the company's cease trade order will be lifted in about 10 days, but Robert Holland, chief mining adviser of corporate finance at the B.C. Securities Commission, says that seems optimistic. The stock, which last traded on July 22 at $2.90, has remained under the BCSC's cease trade order ever since.

Cease-trade

The BCSC issued its cease trade order against the gold explorer for failing to file National Instrument 43-101-compliant technical reports for three properties -- Beattie, Donchester and Duquesne -- at its Duparquet project in Quebec, after issuing press releases disclosing changes to mineral resource estimates. The press release about changes to Duquesne arrived on Oct. 28, 2010, and the press releases about changes to Beattie and Donchester were issued June 13, 2011. As well as not filing the 43-101 reports, the company also failed to file material change reports and one of three accompanying news releases to the commission. According to regulatory disclosure requirements, companies must file a material change report and a news release within 10 days of a material change. The company attempted to file one report, but it was deficient. The BCSC comments in its cease trade order, "On or about July 18, 2011, Clifton Star filed a technical report that was not in the required form and did not support Clifton Star's disclosure of the change to the Beattie mineral resource."

According to Mr. Beardmore, Clifton has now filed all the necessary documents with the BCSC, and should be clear to trade this month. Mr. Holland of the BCSC confirmed that Clifton recently provided a draft technical report for Donchester, which the BCSC is reviewing and expects to complete shortly -- but that is not the end. After the commission provides comments on the report and resolves any outstanding issues, Clifton will have to file a final report, which, according to Mr. Holland, can take a significant amount of time to prepare, depending on the availability of the author and the complexity of the subject matter. When asked about 10 days ago if the company might resume trading in 10 days, Mr. Holland said, "Based on my experience, it appears optimistic, considering they have not got our comments on the technical report, have not filed the report, and have not made application for revocation."

Osisko departs

Some of the delay in preparing the reports may stem from the departure of Clifton's high-profile joint venture partner, Osisko Mining Corp., which terminated its agreement to option a 50-per-cent interest in the Duparquet project in June. Osisko spent $15-million on exploration at Duparquet in 2010. It had planned to spend $16.6-million in 2011, but after reviewing the geological data and initial metallurgical results from 2010, it instead chose to cancel all Duparquet plans. Osisko recorded a write-off of $10,896,000 in its financials for the period ended June 30, 2011, to eliminate capitalized costs for the project.

With Osisko out of the picture, it took until Oct. 28, 2011, for Clifton Star to file the company's first acceptable filings. These comprised two reports, one for the Beattie property and the other for Duquesne, but still missing was the report for Donchester. Maxime Dupere, a geologist at SGS Geostat and the qualified person for the technical report of the Beattie property, consented to a public filing of his report on July 25, a full three months before it was filed. Nicole Rioux, a geologist at Genivar and the qualified person for the technical report of the Dequesne gold property, consented to a public filing of her report on July 26.

Osisko had previously negotiated a 50-per-cent interest in the Duparquet project by agreeing to spend $70-million on exploration by Jan. 1, 2013. It had also agreed to advance about $30-million in low-interest loans so Clifton could afford option payments to acquire the project. Currently, Clifton only owns a 10-per-cent interest in Duparquet. It holds an option to acquire the remaining 90 per cent by paying $22-million on Dec. 1, 2012, and $30-million on Dec. 1, 2017.

New management

Reports aside, the company is going through plenty of changes. Even its website is down. Last week, at Clifton's AGM, shareholders approved moving the company's registered office to Quebec from B.C. The move will accommodate Clifton's new president, Michel Bouchard, a Quebecer who does not yet own any Clifton stock. He took over one month ago, following the resignation of Harry Miller, who remains with the company, handling investor relations.

Ross Glanville, the company's chairman, who also does not own any shares, is the only director left from Vancouver. The company's other director from Vancouver, former president and founder, Nick Segounis, did not stand for re-election after 19 years on the board. Last year Mr. Segounis held 1,034,500 Clifton shares and he has not filed any insider reports since. When asked why he resigned after 19 years with the company, Mr. Segounis replied, "I don't talk to strangers over the phone." The company has been equally tight-lipped about the departure of its founder. Clifton did not issue a press release to report Mr. Segounis's resignation or to thank him for his years of service. Mr. Segounis appears to have shifted his energies back to shell-making, an occupation he knows well. Lately, his focus has been on Vanity Capital Corp., a shell he listed in 2009 that recently completed its qualifying transaction and became a gold explorer with a property in Ontario. Clifton is also hunting for Fred Archibald's replacement. He resigned as vice-president of exploration and as a director after the cease trade order. He held 172,500 shares when he resigned.

The future

According to Clifton's press release on June 17, 2011, the company technically still has access to a $22.5-million unsecured loan from Osisko, but Mr. Beardmore said Clifton will not take the loan. He also says Clifton is not searching for a new joint venture partner and will develop the project in house, which may explain recent departures. The company has about $15-million in its treasury, but that amount will only keep the company afloat until the end of next year when a $22-million payment is due. Mr. Beardmore says Clifton plans to raise money after it resumes trading.

One constant during Clifton's changes this year has been the support of its least frustrated and largest shareholder, Passport Capital LLC, an investment firm in San Francisco managed by John Burbank III. After Osisko terminated its agreement with Clifton, Passport continued to show support. In July, Passport acquired over 980,000 shares, increasing its ownership to 7,025,800 shares of Clifton's 35,654,390 outstanding. Mr. Beardmore says Clifton has Passport's full support to develop the project alone.