Fraud artists target Canadian mineral explorers

A Toronto mining executive is warning Canadian juniors against a scheme in which companies are promised introductions to European investors eager to own mining shares.

William Burton, president of Toronto-based Magnesium Alloy (MGAC.U-C), says he was telephoned by a man claiming to represent Brederode, a Belgium-based financial house. The caller said the firm was opening a North American branch and asked if Magnesium Alloy would be interested in meeting with potential investors.

Brederode’s clients, the caller said, wanted to invest in undervalued stocks in depressed sectors of the market, including mining. Burton was referred to Brederode’s web site for more information about the company.

The caller was knowledgeable about Magnesium Alloy, says Burton. “They certainly knew a lot about our web site and the projects we’re working on,” he says.

The caller said the investors wanted to buy stock in the junior at prices higher than the market value. They also promised to support the stock over the next year through direct share purchases. In return, the caller requested that the “subsidiary” be paid an all-stock finder’s fee and that all travel expenses incurred by flying the investors to Canada to close the deal be shared. Burton agreed and deposited money, a few thousand dollars, in a western U.S. bank account. But the investors never arrived and he never heard from the caller again.

At least one other firm has been contacted by a person with a similar proposal. Neil Westoll, president of Rift Resources (RIF-V), says he realized the man with whom he spoke was an impostor after contacting the company’s head office.

“They obviously have a background in corporate finance,” says Burton of the con artists. “They were extremely knowledgeable about issues like hold periods and private placements and so on.”

Burton says the Royal Canadian Mounted Police have been called to investigate.