Mining speculators lost half a billion Canadian dollars on paper last week when first exploration results did not show proof of a major mineral discovery. Speculators bet on a visual analysis of some rock by geologists and on a company news release that touted the find.
The gamble proved costly.
Shares of Cartaway Resources Corp. fell from $23 (Canadian; US$16.69) to $2 on the Alberta Stock Exchange last week, as the value of the company dropped more than $500 million in one day. The company has a property in Labrador, 40 miles from the discovery at Voisey Bay, where prospectors found the world's richest nickel deposit.
"My initial reaction was probably the same as shareholders," says the president of Cartaway, John Ivany. "There's a tendency for your chin to droop down to your boots."
Investors were hoping for a repeat of the spectacular run-up in the share price of Diamond Fields Resources, which sold the Voisey Bay discovery to Inco Ltd. for $4.3 billion.
They were also dreaming of the performance of Bre-X Mining, whose shares rose from 75 cents to $220 before splitting 10 for 1 this month. Bre-X has a gold property in Indonesia.
Some specialty mutual funds also were hit heavily by the collapse of Cartaway stock.
"There will be 10 times more money made by promoters promising they own a property next door to Voisey Bay than was ever made by the original discovery," says one Toronto broker. "There weren't too many [promoters] who bought their shares at 12 cents still around" when shares hit $23.