Mining fear, not gold

This year securities commissions across North America estimate that tens of thousands of Canadians and Americans will lose in excess of $250 million in stock and investment swindles related to gold shares and gold mining schemes.

Investors, intimidated by fear and insecurity created by the Great Crash of October 1987 are proving more susceptible than ever to frauds and the new sophistication of the boiler room operators.

The investors are seduced through boiler room sales promotions. Groups of 30-50 sales personnel work out of rooms filled with banks of phones operating on WATTS lines. Each “salesperson” has a list of potentials, a specially designed sales pitch book to overcome sales objections.

The pitch is the sale of gold mining shares to first time investors who are told that gold is the best long term option for the inexperienced investor now the ever more commonplace “aggregate ore” sale.

The investor is told that it is better to own actual ore containing substantial recoverable gold content than big paper stocks. In this way the investor can buy gold for as “little as $250 an ounce instead of $400.”

The follow-up “Kit” includes very professional quality assay reports, guarantees of the volume of gold to be recovered and even a personal guarantee from the promoter.

What the investor actually gets is a deed to plain old dirt with the same gold content as dirt to be found in your backyard.

There are a few basic rules to follow in any gold related investment. 1. Remember do not let greed blind you — you can always hang up. 2. If you have never heard of the “broker” hang up. Treat any high pressure sales pitch in the same way. 3. Remember there is no such thing as a guaranteed mining deal. 4. Even if the deal is in writing make sure your lawyer or accountant read it first, before you sign. 5. Gold and silver can be found in the same ore but never gold and platinum. 6. Never accept deals with delayed delivery dates. If the vendor can’t deliver it probably doesn’t exist. 7. If the pitch includes a claim for new recovery technology, be cautious. 8. If they send someone or a courier for the cheque they just want the money before you can change your mind. 9. There is no such thing as gold bargains. 10. Remember, boiler rooms and bucket shops want only one thing your wallet. Jerry White is a professor for the Faculty of Management at the University of Toronto and is Business editor at CHFI FM 98 in Toronto.