How to Detect a Mining Stock Scam

Mining is a thoroughly respectable business, but lurking in the shadows are silver-tongued scoundrels and pseudo-scientists who profit from dishonest promotions and deceitful scams. They were around in Mark Twain’s time and they are still around today. The infamous BreX Minerals salting scam was among the most boldly executed swindles in mining history.

Most swindles involve gold, which has a mystique and allure that attracts not only charlatans, but enthusiastic investors anxious to believe that riches are at hand. The scams range from stock manipulation and misleading announcements to fraudulent assays and sample-salting.

The classic stock manipulation is the “pump the dump”. An obscure stock, usually trading at only pennies per share, is suddenly the subject of favorable information, brokers’ recommendations and street talk that fuels demand and drives up price, The company’s management, and sometimes other shareholders, take advantage of this hype to sell large amounts of stock acquired earlier at a lower price. The news then dries up, the price collapses and small investors who bought on the favorable news are left with shares acquired at the high end of the market.

In some cases, the pump and dump is often done in collusion with a securities firm that holds enough stock to act as a market-maker in the company’s shares,

There are other manipulative techniques, such as “high-closing,” in which two holders make a trade at a higher price near the closing bell of the market, creating the illusion of price movement. Large block trades between company insiders or market-making securities firms can likewise serve to create the illusion of trading volume.

In other schemes, devious promoters sometimes show investors spectacular samples from old gold mines containing visible gold. Be wary of high-grade assays from narrow quartz veins. While some veins can be economically exploited, many are uneconomic because they are too narrow to be mined using modern techniques. Remember, a few high-grade results do not a mine make.