it's all or nothing ?
10.3 miljoen oz/gold, 215 milj. oz/silver ?
Stockhouse Short Report:
Leaving Lone Star alone
Despite an obvious lack of resources, a paid promotion campaign is keeping New Mexico-based Lone Star Gold in the spotlight.
8/16/2011
Dear Stockhouse Member,
At the age of only 29, U.K-based public relations guy Dan Ferris has emerged as a potential beneficiary of a paid promotion campaign that has seen shares of Lone Star Gold Inc. (OTC:BB: LSTG, Stock Forum) trading at close to a $1 this week. At a market cap of over $100 million dollars the rise in price has creating a $13 million dollar windfall for the 29 year old. This in a company with a grand total of $12,633 in cash. That’s right $12,633.
Ferris is the sole director, CEO, President and chief financial officer of Lone Star, an Albuquerque, New Mexico company that is being heavily promoted by U.S. and Canadian tout sheets and is supposedly sitting on $22.7 billion worth of gold and silver in Mexico. This projection is based on a company press release which says La Candelaria contains potential reserves of 10.3 million ounces of gold and 215.7 million ounces of silver. This statement would never be allowed in a press release reviewed by any stock exchange or registered expert geologist without millions of dollars in drilling having been completed. It is almost the equivalent of a startup technology company claiming the potential to have the traffic of Google (NASDAQ: GOOG, Stock Forum).
He and Lone Star’s biggest shareholder John Rhoden together own 52% of the company’s outstanding shares, according to regulatory filings. (Rhoden has 39%. Ferris has 13%).
That puts them in pole position to profit from current stock market valuations which seem overblown in light of the fact that Lone Star is a virtual startup with very meager financial resources.
After rising 20% to 96 cents on Monday, the company has a market cap of $111 million, based on the 115 million shares outstanding.
On August 11, Lone Star issued a vague statement disclosing that “it has signed a definitive agreement in a joint venture option to purchase a 70% working interest in 800 hectares of ground in Mexico known as the La Candelaria project in Chihuahua State.”
By forming a strategic alliance with Metales HBG Sa de C.v., as well as the Bustillos-Gonzalez family, Lone Star said it is able to advance toward its goal of production in the Sierra Madre Occidental (SMO) gold and silver belt.
Lone Star said it has agreed to a US$240,000 cash payment, 250,000 company shares and a work commitment of over $450,000 in the first three years. The agreement also includes a NSE (net smelter royalty) of 2% of which 1% can be purchased for $1 million at any time, it said.
However, it isn’t clear how Lone Star plans to fund its commitments since the junior had only $12,633 in cash at the close of the quarter ended March 31, and owed $83,708, regulatory filings show.
The fact that Ferris lives in London, England, occupies multiple roles at Lone Star, and does not appear to have any hands on mining experience doesn’t exactly inspire confidence.
According to regulatory filings, Ferris is 29, and spent his career in public relations before he became President of Lone Star at the end of March.
He purportedly acquired a 12% stake in the company from the junior’s former President Allvaro Vollmers.
None of this is mentioned in a August 14 PennyStockAlerts.com report in which writer Penny Psycho boasts about Lone Star’s “awesome potential,’’ and said the total value of Lone Star’s La Candelaria property is projected to be over $26 billion (based on current metal prices).
These rosy estimates appear to be highly premature since there is no mention of how much drilling (if any) was done to support the suggestion that the Mexican property contains billions of dollars worth of gold and silver.
In a disclaimer at the end of its report, PennyStockAlerts.com said it was paid $30,000 for two days of investor relations marketing by a third party, Winning Media, which also paid $20,000 to Montreal-based Video Penny Stocks for “promotional and advertising services.”
“All of this compensation is a major conflict of interest in our ability to be unbiased. Therefore, this newsletter should be viewed as a commercial advertisement only,’’ PennyStockAlerts.com said in the disclaimer at the end of its report.
Lone Star was previously called Keyser Resources Inc., a company that was incorporated in Nevada in November 2007, and had a mining property near Merritt, B.C. until it forfeited its option on the property last September 2010.
In January, 2011, Keyser struck a deal to merge with another Vollmers company American Liberty Petroleum Corp. (OTC: BB: OREO, Stock Forum), and its wholly-owned subsidiary True American Energy Corp. However, the deal to merge was terminated in March after the various parties failed to satisfy all of the conditions of the agreement, regulatory filings say.
While Vollmers remains President and a sole director of American Liberty, Lone Star is being promoted after gaining regulatory approval in June to proceed with a 20:1 forward stock split and change its name from Keyser Resources. The company said the stock split was scheduled to take effect in May, but was delayed because of the need to complete regulatory approvals.
Meanwhile, it has been speculated that Vollmers may be working behind the scenes to raise money for American Liberty.
That speculation is based on the supposition that it would be highly unusual for a mining company with over $20 billion in potential assets in Mexico and a head office in Albuquerque, New Mexico to be run by a public relations executive who lives on the other side of the world and remains the sole director and officer of the company.
Gold may be trading near all-time highs. But for those reasons alone, it may be wise to leave Lone Star alone for the time being.