A team of Vancouver executives is scrambling to return value to its shareholders after a series of bungles in the Indonesian jungle.
Last week, East Asia Minerals (TSX-V:EAS) quietly suspended exploration at its flagship Miwah gold project, citing a need for the project to be reclassified in order to permit open-pit mining in a forested area of the island nation.
The company’s stock tumbled nearly 17% to $1.35 per share after the news was announced.
John Ing, a gold analyst at Maison Placements Canada, said the decision to step back from Miwah is the latest evidence of an executive team that has mismanaged a strong exploration play.
“I think that they’ve mishandled Miwah, but by jumping ship from the main asset they themselves have condemned it, contaminated it,” Ing told Business in Vancouver.
East Asia didn’t respond to requests for an interview, but its downward trend is a peculiar about-face for a company that just eight months ago enjoyed a share value of $8.55.
For a time, the company was one of the darlings of the Canadian junior mining scene. It was named to the TSX Venture 50 in 2010 after its share price skyrocketed 2,478% between December 31, 2008, and December 31, 2009.
The company’s precious metal prospects even caught the attention of billionaire Canadian investor Eric Sprott, who told Seeking Alpha in 2010 that East Asia was his “highest conviction” stock.
But the buzz around the company had more to do with strong drill results at Miwah than how much gold was in the ground.
When East Asia published its first resource estimate for the project on May 9 its stock dropped 17%.
The problem, said Ing, was that the early drill results the company published caused many investors to hope Miwah contained between five and 10 million ounces of gold, but the resource estimate showed only slightly more than three.
However, the downward spiral for shareholders started months earlier when, in February, founding director John Gingerich and colleague Robert Parsons resigned from the board. Weeks later, the company announced a plan to spin out three of its projects into separate companies to generate new value for investors.
“With the continuing development of the large Miwah gold deposit, the significant value of our other assets has not been recognized,” then-president and CEO Michael Hawkins said at the time. “These transactions will allow our other assets … to create their own market.”
Then, in early May, just prior to the Miwah resource estimate release, founding director Darren Pylot jumped ship to “focus on other business objectives.”
In July, as East Asia’s shares continued to bleed value, the company announced a near-complete overhaul of its executive team.
Two days later, East Asia announced a complete review of its assets “with the aim of providing an update to investors within the next few weeks that will detail the strategy for the company going forward.”
Three weeks later, exploration at Miwah was shut down.
In addition to management instability, Ing said the company made a number of mistakes along Miwah’s development path. One of them, he said, revolved around permitting issues in the Indonesian jungle, where a law had been enacted in 1999 to prohibit open-pit mining in protected areas.
According to its website, East Asia claimed there are “precedents” for allowing open-pit mining in “so-called protected forests.”
Ing said the forestry issue could also be a “red herring,” diverting attention away from the more serious issue of problems at the executive level. “These fellows have become the gang that can’t shoot straight,” said Ing.
A recent company report reveals East Asia’s costs increased significantly in the first nine months of fiscal 2011 compared with the same period in 2010. The company’s consulting fees more than doubled to $1.08 million, mostly due to the spinout transactions. Management fees increased 115% to $1.3 million, office and administration expenses were up 141% to $1.3 million and professional fees soared a whopping 805% to $1.2 million. Still, management continued to sink money into the ground, spending $6.9 million at Miwah in the first nine months of 2011 compared with $3.1 million during the same period in 2010. The company also managed to raise $10 million to continue funding operations.
Despite the downturn, Ing believes there’s still hope for the company if it can invent a new strategy in Indonesia. “They’re going to need a new direction, and I hope that they do because … there’s a lot of potential, but, as I’ve said, they’ve contaminated the deposit themselves.”
At press time, East Asia’s shares were valued at $1.27.