The story of Cartaway has all the baggage typical of a typical micro-cap venture company. It also has a human side that shows us how the business of raising high risk venture capital worked during one of the halcyon periods of mining exploration in Canada.
It seems as though major discoveries of mineral deposits happen about once every ten years,. Periods of great excitement followed by busts and recriminations for all the wrongs committed by those chasing the dream of untold riches. One such period started in the early 1990’s when a small company, Diamond Fields, promoted and financed by Robert Freidland made the discovery of the huge Voissey Bay Nickel deposit in Labrador.
Typical to the norm in the speculative exploration business both company and promoter had recently been resurrected from the dead. Following his public and nasty scrap with the Environmental Protection Agency in the United States over the Summitville Heap Leech Gold Mine, Robert had moved to Singapore and recommenced his magic. He acquired control of Diamond Fields, a defunct Arkansas company, that had fallen on hard times. Diamonds were ‘hot’ at the time but ,as luck would have it, discovered a major Nickel deposit instead.
Mining promoters are strange beasts and good ones are rare indeed. Masonic is one way of describing Robert, who has to be one of the greatest promoters ever to appear on the mining scene. With absolutely no background or training in the science of finding mineral deposits he took to the business like a duck to water. He also had the innate good sense to hire very qualified people who could explain to him what was going on and help him raise the millions required to keep chasing the dream. It is often forgotten that his first and disastrous attempt at the mining business, a small company apply named Galactic had been supported and financed by international engineering giant Bechtel and the Bank of America.
The best friends a mining promoter has are the legions of stock sales people who toil in the second echelon of Mine Finance, the folks who raise the high risk capital required to go hunting for mineral elephants, and get very rich in the process. It is very much a two way street where a good promoter can make a big difference in the outcome.
Once such group of super salesman came in the form of an upstart Security Dealer by the name of First Marathon. No dummies, these guys had figured out a new business model to serve the Mineral Exploration Industry. Rather than simply sell shares in exploration companies to individuals, they would own a piece of (or control) the company raising the money. In a further stroke of genius they would also own captive mutual funds to gobble up the sales product. If this idea worked, and it did beyond their wildest dreams, they would control the demand and supply side of the equation, a sure recipe for nirvana.
Cartaway, as the name might imply, was a micro-cap company with shares listed on the Alberta Stock Exchange that had started life leasing garbage containers to the good citizens of Kamaloops BC. Apparently the garbage business did not go according to plan and the company had ended up with a share listing but no business, a prime target for the young lions at First Marathon.
A group of brokers in the Calgary and Vancouver offices acquired forty six percent of the issued shares of Cartaway from the founders for ten cents a share. Before the ink was dry they then sold another trench of treasury shares to family and friends at a price of twelve cents a share with the proceeds from the sale to launch the company into the mineral exploration business in a big way.
The Young Lions then, as if by magic, acquired mining claims very close to Voissey Bay controlled by their confident Robert Freidland and started work in preparation for a drill program the following summer. To this point the operation was under control and making a paper profit for the syndicate. With tight control of the ‘Box’ the number of shares issued, every single announcement resulted in further price appreciation and so everyone was happy. But the company lacked a head liar, a leader who could add luster, and bring in the investment dollars needed to fund the exploratory drilling.
The choice for such a leader was John Ivany, a seasoned mining professional with an excellent reputation. John may have known mining as practiced by large companies, but he was totally unprepared for the rough and tumble world of the ‘juniors’. A world wherein the lofty expectations of stock pushers ruled the day and where a chance remark could result in a surge of trading as nervous punters traded on speculation alone. It was very likely just such a remark to the effect that the drill core contained high concentrations of sulfides associated with the Voissey Bay deposit that started the trading frenzy that would bring the house of cards down.
The resulting stock Market action took everyone by surprise. The limited ‘float’ as designed by the young lions suddenly became a liability as the price of the Cartaway Shares soared out of c control attracting the unwanted attention of regulators. It scared the members of the Calgary Office enough so they broke rank and dumped their shares, all of this before the assay results from the drill core were known. The Jeannie was now out of the bottle and the best laid plans of the perpetrators went up in smoke.
When the assay results became available they confirmed what professionals suspected, that the Voissey Bay Formation, hyped by the best mining promoter on the planet, was not present under the Cartaway Claims. And so the stock price crashed back to earth and the game was over.
Unfortunately for those directly involved the story did not end well. Embarrassed regulators levied heavy fines and in some cases lifetime trading suspensions on the control group of brokers. The heaviest penalty was that paid by First Marathon, that never recovered its luster an ended up being saved by a Canadian Chartered Bank.
But there were others, lets just call them associates who did very well and got to keep their profits and their livelihoods. These were the followers or listeners, who were privy to the game going on at Cartaway, and who controlled small listed mining companies that could play along without breaking the eleventh commandment and getting caught. One or two of these companies staked claims near those owned by Cartaway and enjoyed huge increases in share values as the charade played out. It was like having someone out front to do the heavy lifting without all the risk and expense of actually exploring. Maybe these were the smart ones who knew how the game was played and lived to do it ll again when the next great discovery comes along, as it surely will.