Comprehensive Research put out a June 19 recommendation of Viva Gold [VAU: TSXV ~ target price .95!]. It was promoted to me via Facebook and unsolicited email.
First thing I did was look up ‘Comprehensive Research’ to see what it was all about. The self-description on the website sounds pretty lofty,
“Comprehensive Research is a leading, independent economic and financial research agency focused on providing non-biased information.
Why research independently? The potential problems researching through other formats can lead to a lopsided viewpoint, depending on who is paying for the research.
Independent research aims to educate a broader audience and holds a high ethical standard to ensure the integrity of the information presented.
Our core business has been to provide economic and financial research to educate and inform our clients, such as asset managers and institutional investors, to help optimize management decisions.
Whether you are an individual investor, company, or organization, we provide an in-depth analysis to better educate your investment decisions.”
but, of course, a questioning mind will be bringing up the challenging question of “then who pays for the research?”.
I wrote the following to Christoph at Comprehensive Research, with a copy to James Hesketh at Viva Gold:
“…seeing as you have “a powerful grip of the financials” (<– your description on your web site), I have some relevant questions about why you recommended VAU.
1) The company is a ‘zombie’, the name I use for companies that do not meet the Continued Listing Requirements of the TSXV per its Policy Manual 2.5 > 2 > 2.1, and is, therefore, subject to the immediate discipline of the TSXV per 2.5 > 3 > 3.2. Relying on the neglect of the TSXV to follow its own policies is no excuse for an ‘analyst’ not recognizing the precarious position the company is in.
2) It’s interesting to see that a company with little cash shows Receivables and Prepaids of $28k per the 31 Oct 18 audited financials and $248k on the interim financials three months later, with no explanatory note. Minor numbers compared to the Bridgemark scams still to be resolved by the regulators, but enough to generate attention. Did your analyst find a satisfactory explanation?
3) Does your analyst really believe that the company has ‘Exploration assets’ of $749k? A reading of the audited financials shows that per note 6, the ‘asset’ is made up of $100k cash for acquisition and royalty modification (both of which are highly subjective), $495k in shares for the royalty modification (what are those shares worth today if the holder hit all bids with 1,500,00 shares?), and $155k for a reclamation fund that has subsequently been reduced by approximately half due to conversion of cash backed reclamation bonds to reclamation surety bonds. This arrangement results in a monthly fee payable to the insurance company. Should the $76k cash realized be used to reduce the ‘exploration asset’?
What importance should your analyst have given to the notes to the financials, which include the following:
“Exploration and evaluation assets are tested for impairment if sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. An impairment loss is recognized if it is determined that the carrying value is not recoverable and exceeds fair value.”
Are there really any exploration assets at all?
4) Now that VAU has cut the price of its announced pp but used the same number of units, the $ amount of the pp is reduced by 20% ($350,000). Presumably, that reduction will directly impact the amount spent on exploration. Given the restricted amount to be spent on exploration, and that share price is normally driven by results, how does your analyst come up with an increase in market cap of +/-$18M (target price $0.95) based on approx $1M of exploration work? That ratio would normally be considered absolutely unattainable.
5) June 19, the day CR issued its recommendation, the stock has been trading for the past week at less than the announced unit price, and is currently bid .28, ask .30.
All of which brings me to my last question:
Did CR get paid for issuing this recommendation or the recommendation done in January?
Your disclaimer conveniently bypasses that possibility:
“Copyright © 2017 Comprehensive Research Corp., All Rights Reserved. The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. Comprehensive Research “CR” and its shareholders may or may not own any shares of the subject company, may or may not make a market or offer shares for sale of the subject company, and may or may not have any investment banking business with the subject company. The analyst does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, does not have any investment banking business with the subject company. Comprehensive Research expressly forbids its writers from owning or having an interest in any security that they recommend to their readers.
Reading through the Viva ‘analysis’, one can find the following, midway through the fine print:
“Fees were paid by the subject client to CR.”
They have had a week to answer, but no answers have been forthcoming.