Investors should always be cautious when they start to see stock promoters pumping companies that have no cash on hand, have generated zero revenue since inception, and have acknowledged that their own management has failed to ensure the reliability of financial reporting and the preparation of the company financial statements for external purposes; the kind of external purposes that an investor may actually base their investment decisions on. Well that about describes the current promotion going on for Viking Minerals Inc. (OTCBB: VKML), a developmental company that says they are engaged in the acquisition and development of near-term producing copper, gold and silver properties in the United States and Canada.
When it comes to investing in these developmental companies that are being promoted it’s always a good idea to start with their most recent quarterly filing. By doing this an investor will know whether the company is actually capable of delivering on lofty expectations they discuss in press releases, unfortunately for VKML it doesn’t appear likely.
While VKML has used the last two days to tell investors about the progress on their drill program on the Dolly Varden Claims in Elko County, Nevada, the financial condition of the company and the internal problems within management continue to make future operations doubtful.
VKML has no cash on hand, they have generated no revenue since inception in 2006, and in their most recent quarterly filing they acknowledge that:
“As of June 30, 2011 management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.”
These internal controls and procedures problems weren’t minor matters, the company listed them as:
(1)lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes.”
Obviously these issues can’t just be ignored because VKML distributes a press release on Tuesday in which Company President Charles Irizarry states “After a physical review of the new drill core we can say with some certainty that our geological model is proving up nicely, we are finding mineralisation where it is supposed to be and the grades seem to be there as well.” Really what VKML is trying to do, or at least what the promoters are trying to do, is promote the fact that the copper mining area of Elko County, Nevada counts Robinson Mine and the Bingham Canyon Mine as evidence of the area’s mineral wealth.
This approach doesn’t really hold much weight when you begin to compare VKML and their efforts with the two success stories. As is often the case VKML has taken the same approach as other development stage companies saying they are “well positioned to be North America’s next great mining company” but just because you say it doesn’t make it real.
It’s impossible to ignore the fact that VKML has no money and cannot proceed with operations unless they can raise proceeds through, what else, equity financing. If this fails then there’s debt financing but of course this will be difficult to secure given the condition of the company. Existing shareholders already know that equity financing will simply dilute their position so there really is no winner in the scenario other than those who manage to get in low and then jump out during this run of promotions. The time to get out may have already passed as shares climbed to a high of 0.036 on Tuesday but have sunk back down to around 0.022 and could continue to fall down below their 52-week low of 0.015 from two months ago. Trading volume has been high, surpassing the 3.5 million mark, well above their average, but that too should slow when the pumpers are done with the company.
VKML was a company that was trading at 0.30 back in late June but the internal mess and the failure to generate any revenue has left them in disarray. While they point to copper demand in China and recommendations from Goldman Sachs to “open long positions in copper as well as zinc” as evidence that they are heading in the right direction there really is no reason to believe those points have any beneficial use for a struggling company like Viking.