MINING MARKETS & INVESTMENT NEWS — QUERY — Casmyn digs itself into a deep hole

I am a shareholder of Casmyn, a company traded on the Nasdaq Bulletin Board. The shares of the stock went from around US$4 to a few cents in a couple of months. The company issued a statement in February claiming that it was on the point of breaking even after reaching a positive gross profit.

In the present market for gold companies, it is impossible that a company loses 90% of its value when it is one of the few operating with a positive cash flow. What happened?

.BGiuliano Gatta

Casmyn had a producing gold mine, the Turk mine, in Zimbabwe. It also had exploration properties in Zimbabwe, and was looking at gold exploration projects in the countries of the former Soviet Union. But the company saw its share price fall drastically in late 1997, and subsequently launched attempts to restructure the debt attached to preferred shares it had issued.

On May 20 of this year, the company announced that it had received approval from holders of its preferred shares for a restructuring under which preferred shares would be converted to common at a price of US4 cents per share. The proposal the shareholders agreed to also specified that two of the present directors would resign, to be replaced by three directors designated by the preferred shareholders.

The proposal still has to be approved by the holders of common shares, who will also be asked to approve a stock consolidation.

The consolidation is being proposed because the National Association of Securities Dealers delisted the company from the Nasdaq Small-Cap market, effective May 25. Nasdaq judged that Casmyn’s previous share issues and proposed future share issues were excessive, and enforced two requirements: first, that companies must keep a bid price of US$1 to remain on the Small-Cap market, and second, that each company must be traded by a minimum of two market makers.

Although Casmyn is appealing the delisting, a number of factors are working against it. The company’s shares are in the 3 cents range, and to maintain a US$1 bid price, Casmyn would have to consolidate at a ratio of about 30 to 1.

A 30-to-1 consolidation would bring Casmyn’s oustanding float down to 465,000 shares, at least some of which are held by insiders. But Nasdaq also requires that a public float of at least 500,000 shares not held by insiders be maintained on the market. Casmyn would also have to find two market makers on Nasdaq. Our current information from the National Association of Securities Dealers is that the company has none. Nasdaq would also oblige Casmyn to appoint two independent directors.

According to its most recent financial statements, which cover the six months ended March 31, Casmyn had net working capital of US$7.9 million, and lost US$10.6 million (or 48 cents per share) on revenue of $2.2 million. The significant item on its statement of loss was a charge of US$4.9 million for a loss on a loan guarantee and “other expenses.”

A subsidiary company, Waterpur, which sold water purification technology, was spun off in an issue to shareholders in October 1997. At the time, Waterpur owed Casmyn US$4.35 million.

Casmyn’s chairman, Amin Dahya, has not been idle, however. He recently published a book entitled Reflections from the Origin, As Revealed to Amin Dahya.