Net Miners Head Back To Their Picks
Sydney Morning Herald
Monday May 14, 2001
The miners that rushed into dot com mania are going back to their holes.
It must be over: the miners have started digging again. Impress Technologies, a dot com incubator once known as Merritt Mining, last week launched a million-dollar capital raising - to drill for gas near Perth.
Last month L-Tel, once known as Indian Mining Company, announced a ``renewed focus on its mining activities" after a US court put an end to its Colorado Internet telephony business.
My Casino - previously Abador Gold - recently decided to shut its Internet casino. It hasn't yet decided what to do with its remaining $4.4 million cash.
More than 40 listed mining and exploration companies many no more than shells transformed into dot coms during the Internet mania months.
A few profited from the move, such as Golden Hills Mining (which became networking provider Davnet) and Western Minerals (which mutated into sex toy retailer Adultshop.com).
But they are exceptions. Kilkenny Gold, which became Access1, is now changing hands at 6.1c a share compared to 23.5c before its transformation. Walhalla Mining, which became Kidz.net (and soon Investika), is down to 3.8c way below its pre-dot com value of 8.1c.
Even e-tailing pioneer Wine Planet recently bought out at 35c a share by Foster's in unusual circumstances is down on Mogul Mining's pre-dot-com days' low of 37.5c.
Mogul's former chairman, mining identity Mr Norm Seckold, found himself in charge of a dot com in late 1999, after 30 years in the resources game.
``Backdoor `miracle' as mine turns into wine," smirked a newspaper headline when the then 52-year-old's gold exploring vehicle bought ewines, the owner of the Wine Planet site.
Low commodity prices and even lower investor sentiment towards the mining sector had prompted Mogul to switch from mining to onlining.
Ramin Marzbani, Australia's most widely quoted Internet analyst, told Business Review Weekly in June 1999: ``Internet companies and goldminers have more in common than you could possibly imagine. In terms of attitude, it is the most natural transition in the world."
More headlines followed: ``Miners strike gold on the Net", ``Next generation of explorers tap treasures of cyberspace"; ``Backdoor dot.com lures gold diggers seeking new El Dorado".
The story was even picked up by America's Wired Magazine, which ran an article headed: ``Aussies Mine Net Gold".
``Gold is a very cyclical business, while e-commerce is here to stay," Mr Seckold told Wired.
``At the time, we had an advanced gold project in Mexico," Mr Seckold said on Friday. ``That was our expertise. It was a nice project and will one day be a mine. But the market didn't give a rat's arse about it and it was impossible to raise funds."
Compared to other dot com converts, Mogul Mining was lucky. It almost broke even on the deal but not through any particular success in e-commerce.
Early in 1997, as a gold explorer, Mogul's share price rose as high as $2 (adjusted for a subsequent 1-for-5 consolidation). However, its Mexican Ocampo gold project was slow to yield results and over the next 18 months Mogul's share price drifted downwards, hitting 37.5c on February 19, 1999, after a half-year loss of $327,000.
Unable to raise cash, Mogul decided to sell its share of Ocampo and get into the tech boom that was then spreading from the Nasdaq to the ASX.
``We probably looked at 50 or 60 tech plays," Mr Seckold said. ``I basically rang up everyone I could think of who might have their foot on something or had heard a few stories around the traps. I knew the Macquarie guys pretty well [Wine Planet co-founder Mark Mezrani was a former gold bullion trader at Macquarie Bank] and was aware of Wine Planet in its embryonic days. It also seemed to be the least technical of the things we looked at, with the best chance of succeeding."
Word got around and by the time Mr Seckold announced the $1.75 million purchase of Wine Planet on March 23, Mogul's share price was back up to 67.5c. It climbed to $1.03 before Mogul was suspended ahead of its transformation. After announcing a $12 million capital raising in September, the shares broke through $1.20.
``It got ahead of itself and the Mogul shareholders probably thought all their Christmases had come at once," Mr Seckold said. But it got better. In February 2000 Foster's bought in, pushing the shares through $2, validating the move into e-commerce.
They topped $2.50 on February 18 after Foster's agreed to buy a quarter of the loss-making Web site for $50 million. If the deal had been delayed for two months, it would never have been struck. As it was, the investment was a costly mistake for Foster's, dampening its online aspirations and harming its relationship with traditional, offline distributors.
In mid-April the Tech Wreck hit Australia, hammering Wine Planet shares back below $1. Left to rely on its cash flows, the Web site struggled and over the next year, like other dot coms, was forced to cut costs and retrench staff. It still could not reach profit.
Wine Planet shares hit a low of 18c in March this year, as the company hobbled to a $1.6 million deficit for the first three months of 2001.
Wine Planet still had $40 million but last month Foster's agreed to acquire it for 35c a share and reportedly plans to strip its technology and shut it down.
While he is disappointed at the outcome, the 35c offer was ``for most of Mogul's shareholders, a pretty satisfactory result", Mr Seckold said.
``It's not hard to be cynical," Mr Seckold said of the cyber gold rush. ``Corporate finance banks were actively courting these shells, saying `your current share price is 4c, the market doesn't want to know about you and if you're prepared to hand over control of the company, you're going to be 30c'. Those junior companies had deals shoved under their noses and guaranteed funding."
Paul Davis, fund manager of dot com investor TechInvest, believes the ``rush" in the gold rush was partly responsible for the problems now facing the Australian tech sector. ``I think that a lot of the smaller tech companies were actually disadvantaged listing too early. They needed more time to build their services before they had the attention."
A financial analyst, who preferred not to be named, is more blunt: ``It is [mining] companies and entrepreneurs like these which have really tarnished the Internet sector as their intentions seem to have been about making a quick buck and `getting something for nothing' instead of being about building a credible and sustainable businesses."
Allan Aaron, of Technology Venture Partners, says the lack of success among
miners ``was probably more attributable to the poor business models and
management".
HOW THEY RATE
MINERS THAT BECAME ONLINERS
Old name New name Friday's Price before
High point after
price dotcom dotcom
announcement announcement
Mogul Mining Wine Planet 35c** 37.5c $2.50
Golden Hills Mining Davnet 23.5c 2.5c $5.90
Western Minerals Adultshop.com 22c 5.7c $1.70
Ramsgate Resources Internet Solutions 10.5c 36c 64.5c
Aust.
Kilkenny Gold Access1 6.1c 23.5c $1.91
Min-Tech 8 Min-Tech 8 5.1c 8c 24c
Rhodes Mining Pulsat 4.5c* 37c $1.45
Golden Tiger ISP 4c* 21.5c 82c
Walhalla Mining Kidz.net 3.8c 8.1c 77c
Prices adjusted for share splits **Acquired *Suspended
Source: Bloomberg
© 2001 Sydney Morning Herald
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