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Should you buy Liberty Coal?

April 5th, 2011 · No Comments

Most probably not.. Our new series looks at hyped stocks and tries to ascertain whether there is any substance to it.


Just an example of something that doesn’t pass the grade. These rousing newsletters promising outlandish returns, be wary, very wary. Here is an example of Liberty Coal (LBTG)

You’ll find statements like:

  • Liberty’s $7.27 Billion Worth of Wyoming Coal is a Just Too Tempting a Target for the Company Not to be Bought!
  • That works out to $98.50 a share!
  • It is in the heart of Wyoming’s most productive coal fields that an arrogant little startup by the name of Liberty Coal Energy has managed to acquire two strategic leases totaling some 1,932 acres and containing an estimated 123 million tons of low-sulfur coal.
  • Liberty’s South Powder River Coal Project Contains 73 Million Tons of Proven Coal!
  • Another 50 Million Tons at its North Ranchester Coal Project!
  • I Believe China Already Had Its Sights on Liberty Coal’s 123 Million Tons of Low-Sulfur Coal and Why It Won’t Flinch at Paying as Much as $45 a Share.
  • For the State Enterprise, China Power International Development – backed by China’s $3 trillion Sovereign Wealth Fund – $45 a share for as much as 123 million tons of low-sulfur coal is a bargain!

Hmm. That’s tempting, no? a $1 stock (today’s market close) that would be a sure $45 take-over for the Chinese and still a bargain as it’s “proven” coal reserves are supposedly worth $7.27B or $98.5 a share.

If you got newsletters like this, there are two sensible things to do. First, don’t open them. But if you, for whatever reason, must, be sure to read the latest SEC filings as well..

  • Our first project is the Sheridan County  Project.  On March 2, 2010, we entered into a letter of agreement  for the  acquisition  of private  mineral  leasehold rights to certain  coal mining  properties  in  Sheridan  County,  Wyoming  with Rocking Hard Investment,  LLC and Synfuel  Technology,  Inc. In consideration of for the  mineral  leasehold,  we paid  $50,000  and are  required to pay $25,000 within  90  days  of  the  next  three   anniversary  dates  of  the  agreement. Additionally,  we must spend  $2,750,000 on development  of the property  within three years of the date of the agreement. As part of the agreement, we have also agreed to enter into a royalty  agreement  with Rocking  Hard  pursuant to which Rocking Hard would  receive a royalty of $1.00 per ton of coal produced from the property and sold with a maximum of  $5,000,000.  The maximum  amount of royalty must be paid within 15 years of the date of the agreement.
  • The second project is the Campbell Project. On February 1, 2010, we entered intolease agreement with Miller and Associates,  LLC to acquire a 100% interest in the project by issuing  100,000  post-split  shares of common  stock,  an annual payment  of  $20,000  adjusted  annually  by the CPI  (consumer  price  index as published by the US  Government)  according  to this formula each year  previous payment times 1+ fractional CPI index.  For example,  if CPI is 3% the following payment will be $20,000 x 1.03 or $20,600. In addition,  we agreed to pay on the 25th day of each calendar month, for the right to mine all coal on the project a production  royalty  of 4% of the gross  sales  price of all coal mined and sold from the project.e are an exploration stage company with limited operations and no revenues from our business activities.

SEC, SEC, SEC, SEC…
In this case, some of the above “facts” become quite funny: From the SEC filing (latest quarterly report)

  • Our first project is the Sheridan County  Project.  On March 2, 2010, we entered into a letter of agreement  for the  acquisition  of private  mineral  leasehold rights to certain  coal mining  properties  in  Sheridan  County,  Wyoming  with Rocking Hard Investment,  LLC and Synfuel  Technology,  Inc. In consideration of for the  mineral  leasehold,  we paid  $50,000  and are  required to pay $25,000 within  90  days  of  the  next  three   anniversary  dates  of  the  agreement. Additionally,  we must spend  $2,750,000 on development  of the property  within three years of the date of the agreement. As part of the agreement, we have also agreed to enter into a royalty  agreement  with Rocking  Hard  pursuant to which Rocking Hard would  receive a royalty of $1.00 per ton of coal produced from the property and sold with a maximum of  $5,000,000.  The maximum  amount of royalty must be paid within 15 years of the date of the agreement.
  • The second project is the Campbell Project. On February 1, 2010, we entered into a lease agreement with Miller and Associates,  LLC to acquire a 100% interest in the project by issuing  100,000  post-split  shares of common  stock,  an annual payment  of  $20,000  adjusted  annually  by the CPI  (consumer  price  index as published by the US  Government)  according  to this formula each year  previous payment times 1+ fractional CPI index.  For example,  if CPI is 3% the following payment will be $20,000 x 1.03 or $20,600. In addition,  we agreed to pay on the 25th day of each calendar month, for the right to mine all coal on the project a production  royalty  of 4% of the gross  sales  price of all coal mined and sold from the project.
  • We are an exploration stage company with limited operations and no revenues from our business activities.

Indeed. So these licenses, acquired for small fry and sitting for $350,000 on the balance sheet, are somehow worth $7.27B.. We’re not even sure they are sure of the full rights:

  • Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s  title.  Such  properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Hmmm…

They had $26,000 in cash, so more equity will be needed if they’re going to drill..

But perhaps management is very competent and experienced. Well..

  • Liberty Coal Energy  Corp.  (the  “Company”)  was  incorporated  in the state of Nevada on August 31, 2007 to develop business  activities in teacher recruiting. The Company  changed its business focus in March,  2010 and now intends to enter the business of coal exploration,  development, and production.

They don’t seem entirely convinced themselves either:

  • Our registered  independent auditors included an explanatory  paragraph in their report on our financial  statements as of and for the years ended  September 30, 2010 and 2009,  regarding  concerns  about our  ability to  continue  as a going concern.Due to this doubt about our ability to continue as a going  concern,  managementis open to new business  opportunities,  which may prove more profitable to our shareholders.

Most damning though is the following [from the year-end report]

  • We need to complete a drilling program and obtain feasibility studies on the properties in which we have an interest in order to establish the existence of commercially viable coal deposits and proven and probable reserves on such properties.

What about those 123 million tons of proven coal? Well..

Conclusion
We have no idea whether the area for which they (seem to) have licenses contain any commercially winnable coal. It could be, but we certainly wouldn’t bank on it. We’ve seen no studies that indicate there is, and the previous license holders didn’t seem to think the prospect was all that great, considering the price at which they sold those licenses.

We would give this a miss.

Tags: Hype alert