A Stock Only a Trading Robot Could Love


Citron introduces Great Northern Iron. (NYSE:GNI).

You absolutely won’t believe this:  A stock that is going to die, for certain.   100% guaranteed — a veritable ghost ship of a stock. No fraud, no deception, no fad.  Simply a huge oversight by the market.

Why is this stock different from every other stock? One simple fact: In exactly 4 years and 3 months, it goes away. Period.

GNI is an iron ore mining trust set up by a railroad baron primarily to provide a legacy for generations of heirs. Twenty years following the death of the last living heir (they are all explicitly named) in the trust, the cash is divvied up, and the property reverts, in this case to Conoco Phillips, that has acquired the holding. That’s it. End of story. No mystery. Its all right in the 10-K, where it’s been printed every year for decades.

The devil is in the details.


The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last survivor of eighteen persons named in the Trust Agreement. The last survivor of these eighteen persons died on April 6, 1995. Accordingly, the Trust terminates twenty years from April 6, 1995, that being April 6, 2015.

At the end of the Trust on April 6, 2015, the certificates of beneficial interest (shares) in the Trust will cease to trade on the New York Stock Exchange and thereafter will represent only the right to receive certain distributions payable to the certificate holders of record at the time of the termination of the Trust. Upon termination, the Trust is obligated to distribute ratably to these certificate holders the net monies remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust), plus the balance in the Principal Charges account (this account is explained in the Trust’s Annual Report sent to all certificate holders every year). All other Trust property (most notably the Trust’s mineral properties and the active leases) must be conveyed and transferred to the reversioner (currently Glacier Park Company, a wholly owned subsidiary of ConocoPhillips) under the terms of the Trust Agreement.

Check Please!

How do you value a company that is going away, and surrendering its productive assets as it goes into the sunset ? Runoff calculations take the present value of future payment streams: 17 quarterly distributions plus about 8.53 in cash per share when the trust is liquidated in April 2015.

So what does it earn? The last 3 calendar years, it has earned 7.63 to 11.75 per share. The most profitable quarter in its history was the September 2010 quarter, in which it earned 3.50 per share.

So calculating the net present value of 18 quarters of earnings from $3.00 to $5.00 per quarter, against a discount rate of 2%, 4% or 6%, with a liquidating payment thrown in, we see a range of present values from $54.00, to at most (if the most favorable discount rate is thrown at a quarterly earning 50% higher than the company has ever earned in its history) of ….. drum roll……$94.00. Realistically, with execution and commodity pricing risk rolled in, any value above $75.00 requires a huge leap of faith.

Shares Outstanding

Annuals 2009 2008 2007
Net earnings 11,449 17,632 14,452
Net EPS 7.63 11.75 9.63
Current Year 9/30/2010 6/30/2010 3/31/2010
TTM by quarters 5,243 4,444 2,321
Net EPS per qtr 3.50 2.96 1.55
Discount rates
Estimated Quarterly 2% 4% 6%
3.00 ($51.52) ($49.19) ($47.02)
3.50 ($60.10) ($57.39) ($54.85)
4.00 ($68.69) ($65.59) ($62.69)
4.50 ($77.28) ($73.79) ($70.53)
5.00 ($85.86) ($81.99) ($78.36)
Liquidation est
8.53 ($7.97) ($7.48) ($7.05)

So what is this stock doing north of $150 a share? How Can This Be Possible ?

In a world where single-stock picking is rapidly becoming extinct, drowned by the massive waves of quant funds and computer generated trading, the above detail – that this company is soon to become extinct – has been entirely forgotten.

Don’t take our word for it: look how many times GNI has been mentioned in these articles titled “Best Yielding Stocks”, “Top Net Cash Flow Stocks”….etc., where it is compared to other stocks that …… well ….. won’t cease to exist on April 2015. So the computers go about their merry way,

Crazy Premise: 8% yield : (7/22/2009)


Crazy Premise: 10.6% yield : (12/3/2010)


Crazy Premise: Top 10 Microcaps for yield: (12/3/2010)


Great Northern Iron Ore Properties (NYSE:GNI) has the 7th highest dividend yield in this segment of the market. Its current dividend yield is 10.57%. Its dividend payout ratio was 111.30% for the last 12 months.”

Crazy Premise: Enterprise value ratio mumbo jumbo (12/2/2010)


Crazy Premise: Top ten cash flow: (12/2/2010)


Great Northern Iron Ore (GNI) has a price to free cash flow ratio of 6.6x based on a current price of $138.62 and a free cash flow per share of $20.85.

Crazy Premise: Impressive Operating Results: (10/25/2010)


Crazy Premise: Top 10 dividend yields: (10/22/2010)


Every single one of these articles ignores the fatal flaw in its investment premise — that this company has ongoing enterprise value, which it simply does not … it is going away — with date certainty in 2015 — for an estimated liquidation value of $8.53.


The art and science of stock picking — which begins by reading the filings — is apparently Not Dead Yet.  If you’re concerned about a possible run-up in the price of iron ore negating the profit of this trade, we suggest hedging with Mesabi Trust (NYSE:MSB)

Cautious Investing to All!

Citron reports on Horiyoshi Worldwide (OTCBB: HHWW)


Not only is this promotion a scam — it is not even a good scam

Just when you thought old school stock promotion was dead, along comes Horiyoshi Worldwide. An intensely promoted bulletin board shell hits the street, generating millions in volume as promoters roll a shell deal into a near-bankrupt Japanese clothing outfit with virtually no business record, yet it has a market cap of more than $190 million

Before we get into the promotion, we will just present the numbers from their most recent 8-K which are completely ludicrous that this would even be a public company.

“We had nominal revenues of $30,633 for the year ended December 31, 2009 and revenues of $153,087 for the six months ended June 30, 2010. As at June 30, 2010 we had incurred a cumulative net loss of $376,306, had cash of $233,462, and a working capital deficit of $3,690”

“As of June 30, 2010, our total assets were $624,650 and our total liabilities were $1,000,182 and we had a working capital deficit of $35,532. Our financial statements report a net loss of $135,242 for the six month period ended June 30, 2010.”

C’mon promoters, if you are going to sucker the public, at least make it a decent story.  To show the extent of the promotion we look at this disclaimer.


“A third party has spent $2 million on this stock promotion.” 

That is more than the company’s entire budget for next year.

As  pulled from the 8-K:

Over the next 12 months we anticipate that we will incur the following operating expenses:

Design and Production Expenses


Marketing and Sales Expenses


General and Administrative Expenses (includes administrative and professional fees)


Total $1,350,000


Most recently, the company has disclosed that they have “raised money” from a Milan investment firm named Zyndy Trade Corp.  Yet, much like the promotion, which is being funded by unnamed third parties, a simple Google search shows us nothing on this investment firm and they do not disclose any names behind it.


So who is in charge here?

The CFO and Secretary of HHWW is Ray Catroppa.  Who is he?  The bio in the filings states he is a CFA and has a background with well-known wall IB firms on the street.

“Mr. Catroppa has an extensive background in capital markets and financial analysis that comes from the 25 years he spent with top Wall Street firms in New York City, including Credit Suisse First Boston (CSFB), First Manhattan Corporation and Neuberger Berman. For the past 6 years, Mr. Catroppa has worked as an independent consultant and advisor to numerous public companies listed on the NYSE and AMEX. In 2002, he received the designation of Chartered Financial Analyst (CFA) from the CFA Institute. He holds a B.A. in Economics from Stony Brook University and an M.B.A. from Fordham University in New York City.”

Why doesn’t it state that he is an investor relations guy with Cameron & Associates?


His main client, with over 20 PR’s in the last two years, is a 15c oil and gas deal traded on Canadian exchanges.


Promotion and spam everywhere

And what would you expect from a CFO who is an investor relations guy, except a MASSIVE stock promotion that has blitzed the internet?  Here is just a sampling of the nonsense:


(Breakaway Stocks)  Disclaimer:  CFM has received and managed a total production budget of $2 million for this advertising effort….







Halt material

Are these guys even aware this statement alone is Halt Material?

“Horiyoshi Worldwide (HHWW) shares could soar 4,538% or more before the New Year!

Of all the bizarre things the SEC tolerates, unfounded profit projections are at the bottom of the list.  If this statement were true at current prices, this worthless company would have to have a market cap of over $8.7 billion! Hello?


Just when you thought old school stock promo was dead…here you go.  The claims made in these promotional pieces are nothing short of fraudulent.  Does this SEC get to this stock sooner or later?

For everyone who buys based on email spams, it is most important to use SEC filings, that is why they are there.  Caveat Emptor!

Cautious Investing to All

Citron Research Updates Uranium Energy (AMEX:UEC)


Banned Stock Promoters, Secret Offshore Accounts, and Foreign Management with a history of frauds and failures …Yellowcake Anyone??

In 2007, Citron introduced the wild tale of Uranium Energy, while it traded on the OTCBB under the symbols URME with a series of articles.



The stock subsequently went from $7 to under .30 cents.  Yet, recently with uranium back in the spotlight as investors look at the increase China demand, even the “sketchiest” of uranium stocks seemed to have caught a bid…with that we re- introduce Uranium Energy.  (AMEX:UEC)

As mentioned in the previous articles, management is associated with a history of companies that have promised the sky and delivered …. nothing!

Who is Behind This Uranium “Deal”?

Alan Lindsay – Chairman of the Board.  Mr Lindsay is a career “deal guy” who has left behind nothing but companies that have promised high hopes and left investors with empty pockets.  Mr. Lindsay’s ties extend to some of the more notorious stock promoters in Vancouver.  A most noteworthy association was Genemax – the supposed cancer vaccine stock, and its CEO James Dale Davidson.

In recent SEC filings, Alan Lindsay is involved with the following companies:

Company Ticker Recent


Annual Revenues
Strategic American Oil SGCA .15 Director, member audit, governance and nominating and compensation committees.

Son Jonathan is Secy, CFO, director and CAO (07/2010 10-K)

Phyto-medical PYTO .02 Director, recent reverse merger with “Standard Gold”, at least 6 family members in the deal  (10/28/2010 8-K) 0
Tap-immune TPIV .20 Major shareholder / Director (04/2010 10-K) 0

Or, our favorite is MIV Therapeutics in which Mr. Lindsay just resigned as President, CEO, and Chairman in March of this year.  For years the company billed itself as “a leading developer of next-generation biocompatible coatings and advanced drug delivery systems”.  Now the company is on the pink sheets with a skull and crossbones warning for either unethical promotional activity or fraud.


So who is really running The Show?

What makes MIV interesting is much like UEC, it is dual listed on the Frankfurt Exchange. Why would a Texas Uranium company need to be listed in Frankfurt?  More disturbing is why was the investor contact in Frankfurt “International Market Trend” which belongs to none other than G Brent Pierce a man who was a consultant to UEC who holds the unique distinction of being one of the few people fined and sanctioned by securities regulators in both Canada and the United States.


Notice Grant Atkins, Brent Pierce’s sidekick on the above link.  He was also a founder, CFO and director of UEC.

Then we have Amir Adnani, age 32, running the company as CEO and the mouthpiece.  He is board chairman Alan Lindsay’s son-in-law.  His credentials for running this firm are:  … he once ran a Vancouver based investor relations firm called Blender Media- that is it.

Obviously a team of Canadian stock promoters cannot make a real business mining uranium in Texas.  While they might be the ultimate decision makers, the man on the ground is Harry Anthony.  Mr. Anthony is the face of the company to Texans.  While we do not discredit Mr. Anthony’s expertise in uranium and do not believe he personally was responsible for any wrongdoing, we just simply pull up his resume to see if he is capable of being at the helm of a $400 million company.

The last projects in which we see his involvement are from 1988-1990, over 20 years ago:  both turned out to be “environmentally challenged” and never turned any revenue or profits for the company.  This is not to say that Mr. Anthony is a “bad man”, it is just saying…where is his track record of success?

Bending the Truth for Fun and Profit

The company is still indulging in misleading PR’s to promote its stock.  Most recently, it issued this piece, boasting a “Major Advance” in its 3 ½ year battle to get permits approved to mine uranium in Goliad County, South Texas.


Soon after the company released this promotional piece, they raised $27.5 mil in a private placement.  But is this release even accurate?

The stock was about $3 on September 30th, and rose all through October, when the company issued a dilutive $27.5 million private placement at $3.40 per unit, including a share of stock and a half a warrant exercisable at $3.95.

The problem is, this PR is materially misleading.  Read the judge’s own words from the conclusion (p. 148), of his ruling, in which he clearly states that the applications for mining be remanded for further evidence, or

“[i]f the Commission determines that such remand is not feasible or desirable then the [Judge] recommends that the [Applications] be denied.”

The Judge also makes clear that the applicant failed to satisfy its burden of proof on multiple issues:  F, G, H, R and T.   For example, the Judge states (p. 49 of PFD) that:

“[t]he Commission’s action on the application should not be completed until these questions are resolved within the record.”

Apparently, the analysts knew there were potential problems.  Even RBC admitted as much in their November 17 note, where they put an underperform on the stock with the caveat “Additionally, we believe Uranium Energy could encounter permitting issues at its Goliad Project which, in turn, could delay initial production beyond 2011.”

(Sorry we can’t reprint the note for copyright reasons)

The other analyst who covers this issue, CIBC, sees an eventual favorable ruling for the Goliad project but still has a price target of $4.75, and that is assuming management executes on all cylinders.

So what does the future look like for UEC????

Without Goliad- it is a quick death.  With Goliad it can be a slow bleed — you decide.

In recent PR’s UEC proudly touts how it has begun production at its Palangana site, and concentration operations at its Hobson Processing plant.  Note there are no financial figures published with these announcements.  The reason is the revenue from this tiny operation is inconsequential – a bus token relative to UEC’s $400 million market cap.  UEC’s Goliad property, which has over 3 times more estimated uranium than Palangana and represents over half of UEC’s purported resource, has been tied up in legal and environmental objections to permitting for the last 3 ½ years.  (SEC regulations do not allow these types of resources to be claimed as “reserves”.)

Both analyst firms that cover UEC disclose intent to perform investment banking for the company, so they have no incentive to be pessimistic.   Nevertheless, they maintain twelve month $4.75 and $5.00 price targets.  Neither project has any possibility of meaningful revenues before 2012.   The most realistic way to estimate valuation is to use a factor of $6 to $8 per lb of in-ground resource.  This would yield a market valuation for UEC of around $96 million, or around $1.50 per share. You could add back 40c per share of cash to a round $2 per share valuation estimate.  The difference between that value and the company’s current $400 million + market cap is stuff that nuclear dreams are made of.

For investors wanting to speculate on uranium resources, compare UEC to URRE – which controls a purported 100 million pounds of uranium resource — over 8 times UEC’s uranium resources, yet trades for $100 million less market cap than UEC!

The only analyst positive on this stock, Haywood Securities, is located in Vancouver and doesn’t even have an office in the US.  What do you think?

Keep in mind though, that there is no pending or expected shortage of uranium.  It is mined using a variety of methods in dozens of countries all over the world, with Australia, Kazakhstan and Canada sourcing 60% of the world’s supply.



And just today, Russia announces establishing a new, heavily stocked uranium fuel bank with 120 tons of fuel-grade stockpiles.   This further offsets the likelihood of a squeeze in uranium.


Despite speculation in various commodity markets, there is simply no evidence for a supply shortage in uranium…that is, unless you talk with a stock promoter with lots of shares of a uranium story stock to move.

Something to ponder- A Thought from Citron

The case of UEC is troubling for shareholders and should be more troubling for citizens of Texas for the following reason.  As we learned a lesson this year from the recent BP drilling disaster, it is never a problem until it is a problem. The consultants and engineers have been compensated with stock, to pave the way for a US municipality to put its groundwater at risk.  When potentially serious environmental consequences arise, the responsibility will lie in the hands of Canadian citizens with a serious history of stock promotion. When doing resource drilling of this nature, management is at risk of being caught in the crosshairs of doing the right thing for the environment vs doing the right thing for insiders.  When this issue ripens for UEC – which is inevitable  – will this self-promotional team, with its offshore accounts and 40c per share cash in the company, be accountable ?  How far would BP have gotten with $24 million to face its environmental responsibilities ?




Like everything else about this deal, the 3 ½ year battle for permitting in Goliad has been paid for …. with stock.

“Bennett admitted he was not present when the wells were drilled, did not personally inspect the wells, or participate in any sampling of the wells. Nor did he perform his own subsurface examination of the site. Instead, he said he “assumed” the reports he relied on from fellow UEC consultant Craig Holmes were a “professional product.”

Holmes testified on Tuesday was invested in UEC stock until he divested himself last week.”

The Hype Machine

If anything signals a top to this stock, it has to be this week’s newsletter piece promising “Huge Returns in Uranium Stocks” which hit the Nasdaq site.


The article was written by one Ian Wyatt.   While we don’t doubt Ian’s intentions, we simply would like to call attention to three other battleground stocks between Citron and Ian.  Citron Research points out the following stocks were previously covered by Citron and promoted by Ian:

YPNT at 4.95 – Stock crashed to pennies, CEO criminally indicted and convicted. (was at one time Ian’s favorite recommendation)

IIG — Stock and business model imploded

AMED – Federal investigation of billing practices, stock halved.

See you around!


This recycled stock promotion is what it always was – a heavily overhyped story stock that fell into a commodity bubble — with no real prospects of “growing into” its valuation.  It is the opinion of Citron that at the end of the day when you look past all the well written pr’s you will nothing more than another hype company in the dossier of Alan Lindsay.

Cautious Investing to All

Dude! Where’s My Auditor?? The Curious Case of Frazer Frost


As the most recent measure of just how crazy the China reverse/merger Nasdaq stock story has become, check out the drama with one of the space’s most prolific auditing firms:  Frazer Frost.  F/F was the auditing firm of the now notorious RINO, which has been halted since last week … but now the auditing firm does not exist?

This firm was formed just a year ago with the announcement of Moore Stephens Wurth Frazer and Torbet LLP plans to merge with Frost PLLC as of the beginning of the year (2010).


The article goes on to detail a “relationship stretching back decades”, with each contributing about $30 million in revenues, it seemed like a marriage made in heaven, right ?.

However less than one year in, we learn the marriage must have been just “friends with benefits”.


Guess the “decades long relationship” was only good enough to justify a “trial period” … a fact left out of the original release.   Well, you know things are bad when you get dropped by your auditor but what happens when your auditor drops himself?

If you call Frost today in Arkansas, they answer “Frost & Co” and say they’re no longer associated with Frazer.  Citron spoke to managing partner Dan Peregrin and twice he told us that the two firms have gone their own way. ….but if you call Frazer, they answer “Frazer Frost” and in a brief conversation with Susan Woo, the RINO auditor, she told Citron that Frazer Frost is still an operating entity.

Really?  If you go to the Frazer Frost website, you see a homepage with no content in the about us section.


This is in contrast to a full description of the firm displayed a short time ago, as you can see in their old website which is still cached on Google.


Why does this matter?

Today we saw an “equity partner” in the purported Harbin takeover (NASDAAQ:HRBN) take a backseat in the deal.  How can anyone rely on any numbers audited by Frazer Frost if they don’t even believe in themselves?  How can anyone take a company private or for that matter be an investor in a China “black box” without confidence in the auditor?

Barrons wrote skeptically about Frazer Frost in its August piece on the China reverse merger space,


It is the opinion of Citron that if RINO was an isolated incident, it would not cause a whole auditing firm to break up.  Instead, this is just a precursor for more to come, we believe not just in Frazer Frost stocks, but the whole space.

The quality of the work of Frazer/Frost makes it impossible to rely on the financials of HRBN, SCOK, and CVVT .  This small cap China space seems to get stranger every day.   These companies should immediately put out 8-K’s and inform the public as to who their auditor really is.  Either that or it is time to call Scooby Doo and the Mystery Machine for the case of the missing auditor.

Cautious Investing To All

China New Borun (BORN) — You are Cold Busted: Now it is Time to Come Clean. The Smoking Gun


Last month Citron exposed potential disclosure problems with China New Borun Corporation (NASDAQ:BORN), a corn alcohol manufacturer, whose reports of tremendous profits boast far-above- average margins in a heavily commoditized and competitive industry.  The company justifies these results with the claim it operates an “advanced” manufacturing process based on their unique proprietary technology.   Citron ‘s first problem with this company was its filed R&D expense over the past three years, which is minuscule, while its main manufacturing facility was on the brink of bankruptcy in 2009.   

The research was than furthered by Alfred Little, who wrote in some depth documenting that not only is BORN using an antiquated and largely unprofitable manufacturing process (“semi-wet”), but they have been in the process of updating their factories’ manufacturing to an industry-standard competing (“semi-dry”) process, as their “advanced and proprietary” (“semi-wet”) process was nothing more than old technology that needed to be replaced.  Worse, Little suggests that the company has an undisclosed debt of $270 mil RMB, as reflected in tax filings that predate its May IPO.  Below is a “reported” copy of the tax documents in Chinese that would corroborate the theory that the company is sitting on undisclosed debt.

BORN Pre IPO Financials (PDF)

It was presented that BORN is hiding RMB 270 million in undisclosed debt, a liability which offsets nearly all of its claimed retained earnings.  If they have to acknowledge that liability, they simply don’t have the assets generated by those retained earnings, the amount of which is claimed to be RMB 288 million accumulated through 12/31/09.

Neither the company nor its analysts have yet responded directly to the debt questions.  We are left to believe that silence is a form of complicity.  Worse, since these revelations have come to surface we have seen defections from the Board of Directors.   Whereas the debt issue would make this stock another Refco, and it MUST be addressed by management, we will now PROVE that the company is operating antiquated plant technology and further is trying to cover up their lie in an attempt to conceal it.


The company and the analyst were quick to respond with a link from the Henan Sheng Wantongtong Machine Manufacture Corp. that there is never and was never a contract with BORN and going as far to say that any mention of a contract was pure fabrication.


This quick website cover-up states that the following full length contract was nothing more than a fabrication by short sellers to damage the company.  Really?  This whole contract is false? 

The contracts BORN wants you to believe do not exist:
Borun Production Technology upgrade contract ENGLISH (PDF)
Borun Production Technology upgrade contract CHINESE (PDF)

Citron has a cached version of their website (before they changed their story), that shows the contract has indeed existed.

Click here to view »

Attention management:  you cannot simply rewrite history by changing a website.

Piper Jaffray

Let us now see whether Piper Jaffray will address this issue, or bury its head in the sand.  This is not the first time that Citron has been at odds with Piper about reality.  Just two years ago Citron exposed a billing scandal at Arthrocare while Piper defended the medical device company and tried to discredit Citron, claiming its own internal review found no wrongdoing.  http://citronresearch.com/index.php/2008/02/14/citron-research-updates-on-arthrocare-artc/

Sure enough, only months later the company got investigated by the US Attorneys Office over the billing scandal and the stock fell apart with massive corporate resignations – but no apology from Piper Jaffray.  Let’s see if Piper will redeem themselves or continue to live in denial.

Questions for Conference Call.

Tomorrow, BORN releases earnings, which we anticipate to be a complete fabrication regardless of the numbers they post.  Their past profits cannot possibly have been generated with an antiquated manufacturing process, much less higher commodity prices for corn.  Management credibility appears to be gone on this issue.  Here are a few questions that can be asked on the conference call:

  1. Are you willing to undergo an independent forensic audit by a credible international accounting firm that specifically addresses the question of undisclosed debt as filed on your corporate tax filings ?
  2. How do you expect shareholders to trust management after such a blatant attempt to cover up your contract to update your factory to an industry-standard manufacturing process?
  3. How soon is the company going to have to raise money?  Why so soon after IPO?

It is the opinion of Citron that BORN is committing fraud on the marketplace.  How can shareholders trust anything that management has said or will say in the future?  Worse, the analysts covering the name are looking for the easy way out instead of actually analyzing the company.  The facts speak for themselves.
Cautious Investing To All