Portage Resources: Selling Fool's Gold with a Smile?

by Janice Shell - 7/14/2011 9:57:54 AM

With the help of a powerful stock-promotion campaign, Portage Resources (OTCQB: POTG.PK) – a cash-poor company ignored by investors for years – has magically transformed itself into a valuable Peruvian miner, sporting an incredible market capitalization of almost $600 million, in a metaphorical blink of the eye. 

On June 14, records show, POTG closed at a modest 11 cents a share on a quiet (if somewhat typical) trading session in which no company stock changed hands at all. When POTG reported that the company itself had changed hands the following day, however, the stock suddenly exploded – almost tripling in price on massive volume of 34 million shares – and kept soaring all the way past the $1 mark, peaking near $1.15 earlier this week, even though the dirt-poor company has no more gold or silver than it did when that breathless rally first began.

Under the leadership of its new majority owner, Paul Luna Belfiore (identified in a corporate filing as “Mr. Belfiore” and elsewhere as simply “Paul Luna” instead), POTG kicked things off with a couple of press releases – hardly earth-shaking in nature -- that seemed to miraculously revive its near-comatose stock. The first announcement simply revealed that Luna, portrayed as a mining engineer with decades of experience in Peru, had taken over as CEO and president of the company. The second, issued the same day, followed up by trumpeting the company’s plans to focus its mining activities on potentially lucrative opportunities in the South American country of Peru.

Armed with a $250,000 publicity budget, Capital Financial Media – the backer of massive promotion campaigns for such ill-fated penny stocks as Clicker (OTC: CLKZ.PK) and Horiyoshi Worldwide (OTC: HHWW.OB) – began to work its notorious market-moving powers. For the token sum of $1,000, or about double the cash in POTG’s barren bank account, CFM hired newcomer “Penny Stock Pillager” to quickly issue a bullish report predicting that POTG could rapidly surge to $3.32 a share and deliver early investors short-term gains of more than 1,100 percent in the process.

“My advice?” the Penny Stock Pillager remarked. “Stop reading this now, and consider calling your broker or logging on to your online trading account and grabbing as many shares as you’re comfortable with. You don’t want to find yourself on the outside looking in on this one.”

By then, POTG had almost tripled to 29 cents a share in the hours before the company even issued its first two press releases over the newswires. With a share count of 637 million (following a 10:1 split earlier this year), POTG boasted a $185 million market value – which would essentially explode past $2 billion under the rosy scenario above – at that point, despite the company’s lack of mining results or even a fraction of the resources needed to produce them. Luna himself had paid just $20,000 for 480 million of those shares in late May, records show, but his big stake was suddenly worth close to $140 million – representing a paper gain of roughly 700,000% -- by the time he officially introduced himself and his reinvented company to the market barely two weeks later.

POTG would go on to peak above $1.10 a share less than a month later, giving the company a temporary market value of $700 million, before suddenly plunging on heavy selling pressure earlier this week. The stock shed more than a third of its value in a single day, sinking from a high of $1.14 to a low of 72 cents on Tuesday, but started to recover some of that lost ground – clawing its way back to 93 cents a share – after promoters blamed the plunge on irrational panic that created a fresh buying opportunity for investors with cooler heads.

“Look at Warren Buffet, for instance,” reasoned one tout sheet, which disclosed a six-figure payment from an unidentified third party for its services in an emailed version of the report fielded by TheStreetSweeper. “If he panicked and sold every time there was a market crisis, he wouldn’t be one of the wealthiest men on earth today.”

Neither Buffet nor his wildly successful firm Berkshire Hathaway shows up among the major holders of POTG stock, of course. In fact, records indicate, no institutions appear to own stock in the company at all. Luna himself controls three-quarters of the company’s stock, records show, with retail investors – some of them likely prompted by paid promotionsfeverishly trading most of the rest.

Unsolved Mysteries 

For most of his career, company records suggest, Luna worked on projects that were at least located on the same continent where POTG plans to operate. But a few years ago, a Peruvian news report shows, he seemed to surface as “the director” of a Canadian outfit called Alto Petroleum-Eboroil Udmurtia as well. Curiously, outside of that brief news article, TheStreetSweeper could find no evidence that Alto Petroleum – absent from Luna's official corporate biography – has ever existed at all.

Meanwhile, POTG itself has announced a deal with a suspicious firm as well. Just days after introducing its new leader and refocused mining strategy, POTG declared that it had signed a letter of intent to acquire the Wukakuy properties – supposedly owned by Albroock Gold Peru SA and Airon Peru SAC – if an “N43-101” report on the assets looked promising. TheStreetSweeper found no sign that Albroock Gold Peru SA exists, either, and the firm had vanished from even POTG’s broader version of the universe by the time the company finalized that deal. The N43-101 report itself seems rather mystifying, too, since POTG never identified the party that authored – or even the mining company that originally received – that important document.

POTG and its leader hardly dwelled on those pesky little details, however. While POTG had allotted Luna more than two full months to study the NI 43-101 report on the Wukakuy properties, his review apparently proved so fruitful that he decided to consummate the deal less than two weeks later instead. Luna had by then swiftly concluded that the mining concessions (located in the Putina District of southeastern Peru) could yield a whopping $2 billion fortune, records show, based on a silver price of $35 an ounce.

POTG promptly signed a contract that listed Airon Peru SAC as the sole seller (the mysterious Albroock Gold Peru SA now gone), records show, and further revealed that Airon had simply signed over its rights in a “joint venture to invest on [sic] exploration with the owner of the mining concession called Wuakakuy [sic].” 

In other words, despite the impression left by its cheerful press releases, that agreement clearly indicates that POTG does not own the land constituting the Wakakuy properties and will not have rights to all of the silver extracted from the land if the company in fact ever mines any silver there at all. At the same time, POTG glossed over some crucial matters altogether. It never identified the actual owner of the land, just for starters; nor did it reveal the percentage of any potential profits that Airon was – and POTG now is – entitled to receive as the joint-venture partner in this mystifying deal.

Indeed, POTG disclosed few specific details beyond the fact that it would issue Airon 20 million shares of restricted stock and pay the firm $2,000 a month for consulting services after gaining control of its joint-venture stake in the Wakakuy properties. POTG did reveal one potential deal-breaker: The company must spend $150,000 (or about $149,500 more than its last reported bank balance) exploring those properties over the next 18 months or return the assets that it just purchased with a big chunk of company stock – worth more than $21 million at its recent peak – back to Airon if it fails to deliver on its promises.

Even so, stock promoters have painted a remarkably pretty picture of that deal and the others that would soon follow.

“Everyone knows what POTG is sitting on,” the PennyStockGains newsletter blithely declared earlier this week. “Why is it trading under a dollar yet again then? We don’t know, and honestly we believe that this is going to be a golden opportunity to buy up shares one last time under a buck …

“Our pick is up nearly 900% since it began announcing back-to-back fantastic news a few short weeks ago, and it could still jump another 1,000% as it keeps impressing Wall Street … $10 could be a real possibility with POTG.”

Headline News

In less than a month, POTG has flooded the newswires with at least 16 different press releases announcing big plans for the company.

Before POTG even closed its Wakakuy “acquisition,” records show, the company had already reported a new letter of intent to purchase another asset – this one known as the “Linderos #4 property” – in faraway Peru. Once again, POTG gave Luna until August to perform some speedy due diligence on the property that would ultimately determine whether the company actually closed on the deal. This time, records indicate, Luna studied documents filed in the library of the Geological Institute of Peru – with a report compiled back in 1986 likely serving as his primary source – before boldly concluding that Linderos, located near the Ecuadoran border in northern Peru, could yield some 500,000 proven ounces of gold (worth more than $750 million based on current market prices) going forward.

Less than a week after POTG announced that letter of intent, Luna’s library research now complete, the company signed a definitive purchase agreement to acquire the Linderos #4 property. POTG then followed up with an even more exciting press release about its new asset, this one proclaiming that the property could yield 1 million ounces of gold (double the recent estimate) “immediately near the surface” and deliver “many times this amount” after some extra drilling as well.

That day, before POTG even released that after-market news, the company’s stock had jumped more than 25% to 95 cents – fast approaching the $1 mark – on massive volume of roughly 43 million shares. 

But a Latin America-based securities analyst, who has nicknamed himself “Otto Rock” and specializes in research on mining companies, has raised serious questions about whether POTG can even launch that particular project. He told TheStreetSweeper that local tribes in northern Peru, where the Linderos #4 property is located, often balk at mining projects in their region and fiercely resist those trying to pursue them. Although POTG claims that it has already consulted with community leaders on its own project, with plans to appoint an expert who can help smooth the way, the company could still face some of the same challenges that have daunted other miners in that region in the past.

Meanwhile, Rock suggested, the company’s CEO has already started dumping some of his pricey stock in advance. 

“Yesterday, Paul Luna decided to cash in a few of his multimillion shares and run away with your cash,” Rock wrote after watching the stock suddenly plunge earlier this week. “It’s up to you to decide if you’ll let him do it again. After all, it’s your money and you can do with it what you want – including donating it to a thief.”

Rock concluded by urging the public to perform real due diligence before considering an investment in the company’s stock. By then, records indicate, Rock had already managed to catch the attention of regulators after portraying POTG as an outright scam. The U.S. Securities and Exchange Commission, which has launched a tough campaign to crack down on suspected penny-stock fraud, paid a visit to Rock’s website – specifically accessing his POTG report – just days after he first began sounding alarms about the company.

Fantasy Island

Even so, POTG kept on boldly calling attention to itself.

Three days after buying its new claim in northern Peru, POTG announced yet another letter of intent for a nearby asset known as the “Linderos #5 property.” POTG once again worked quickly, ratifying a contract to purchase that second Linderos claim less than one week later. 

POTG identified the seller of its new Peruvian assets as Nilam Resources (OTCQB: NILA.PK), a microcap company that – like POTG under its previous ownersbarely trades for less than a quarter a share. POTG and NILA share another common trait as well: Both have forged relationships with Luna, the first counting him as its top executive (and largest shareholder by far) and the second listing him as an expert advisor to the company. 

This time, records show, POTG paid for its new assets with 18 million shares of stock – worth $16.7 million even after the recent fall – that can be freely sold six months down the road. NILA itself issued 20 million shares of its own stock for those concessions back in early 2009, records show, with its stock stuck at 36 cents (pegging the value of the assets at $7.2 million) on a day that the shares failed to even trade at all. By the following year, however, NILA had concluded that it was “unable to allocate any economic values beyond the proven and probable reserves” to the properties, that it had “no intention of pursuing the development” of the asset and that the properties were “considered to be impaired and, accordingly, (had) been written off” as a result. 

For its part, records show, NILA has never even filed an 8-K reporting that it received all that valuable POTG stock for its Linderos claims – essentially declared worthless by the company last year – despite the seemingly material nature of that multimillion-dollar deal.

TheStreetSweeper tried to contact both parties in an effort to secure more details about that transaction. Financial Insights, recently tapped to serve as POTG’s new investor relations firm, said that it had forwarded TheStreetSweeper’s questions to POTG and that the company would reply “if it wants to.” Evidently, it did not. TheStreetSweeper never actually managed to reach NILA, however, since no corporate-sponsored website seems to exist and NILA’s voicemail service – where TheStreetSweeper left an unreturned message on a generic recording machine -- may not be operated by the company any more, either.

POTG clearly prefers to drum up its own publicity, with paid promoters – in Rumpelstiltskin-like fashion – spinning that news into the equivalent of paper gold. This week, the company announced plans to acquire another claim in Peru and then followed up the very next day by reporting a new letter of intent for its first mining property here in the U.S. If POTG continues to follow its familiar pattern, records indicate, the company will buy both of those claims – once again using its rich stock as currency – over the course of the next week.

Bullish promoters, always hungry for fresh material, have already begun touting those new deals in the meantime.

“Those who did not have enough trust in POTG in the past due to doing business in a remote area like Peru will definitely start believing in it today,” PennyStockGains declared upon learning of the pending deal here at home, “as the company plans on acquiring local properties here in the United States … (And) who knows what this new property holds in store for our monster pick!”

Horror Show

Based on the dark history of other heavily promoted penny stocks, POTG investors should probably bank on fool’s gold and feel lucky if the company ever finds even trace amounts of the real stuff at all. 

Just look at CLKZ and HHWW – two other microcap companies promoted with funds supplied by Capital Financial Media – and see how well they fared. The first soared toward $1.40 last summer, when paid promoters touted the company as the next Craigslist, but now trades for a fraction of a penny a share. The second rocketed all the way past $3 later that same year, when promoters embraced the tiny retailer as their new favorite, but soon weathered a painful plunge – taking the stock all the way down to its current level around 25 cents a share – as well.

POTG itself suffered a bruising hit of its own this week, diving within minutes as sellers rushed to dump big chunks of their richly valued shares, but staged a decent rebound as promoters hurried back to the scene. But two of the year’s biggest highfliers in the penny-stock arena -- fueled by seven-figure publicity campaigns – enjoyed similar comebacks, too, before ultimately losing most of those temporary gains. 

After crashing all the way from $10.65 to $3.50 in a single day, Lithium Exploration (OTC: LEXG.OB) clawed its way back toward $7 but soon faded to its current price well below $2 a share. Jammin Java (OTC: JAMN.OB) followed a similar path as well, bouncing back somewhat after its stock plunged from a high of $6.35 to a low of 92 cents in less that a week, but it now struggles to stay comfortably above the $1 mark at this point.

Meanwhile, from the start, Rock has clearly indicated that POTG could soon leave behind an ugly stock chart of its own.

“The only people that know when a pump’n’dump scam changes from pump mode to dump mode are the scumball criminals running the show,” he cautioned just this week. “The rest of you are playing doubledogdare with your own money. You make money and it’s dumb luck, nothing else.

“In fact, it’s more than dumb to be playing around with these shows in the first place. The very best thing to do is avoid (them) – by a few nautical miles – and go find a decent company to work with.”

* Important Disclosure: TheStreetSweeper, through its members, began establishing a short position in POTG on July 6 and has now shorted a total of 104,500 shares of the company’s stock at an average price of 80 cents a share. It expects to profit on future declines in the stock by covering its short position at a lower price and will fully disclose the details of its transactions as they occur.

Update: TheStreetSweeper covered 90,000 shares of POTG on July 27 at 47 cents a share. It covered the remaining 14,500 shares of POTG that it shorted on July 28 at 36 cents a share and no longer has a position in the company's stock.

As a matter of policy, TheStreetSweeper prohibits members of its editorial staff from taking financial positions in the companies that they cover. To contact Janice Shell, the author of this story, please send an email to editor@thestreetsweeper.org or directly to janiceshell@hotmail.com.


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