So what will it be? Does NorStar Group, Inc. (OTCBB: NSTG) plan to find gold, fight against HIV, or market a virtual reality device? Or is the Company on the brink of developing a product for use by the military? Any one of those ventures would seem to pose an ambitious undertaking, but NorStar has declared plans to pursue all three. Which seems pretty bold for a Company that had just $4,200 in cash at the end of September 2002, and conceded at the time that there was substantial doubt about its ability to continue as a going concern.
Those financial considerations have not deterred NorStar from promoting its latest project, the development of gold mine claims in Nevada. Previously, the Company has devoted its efforts – and its publicity machine – to other, seemingly unrelated projects, including a virtual reality device and the biotech industry. Should the Company’s diverse ambitions give investors reason to hope or cause for concern? We explore past promises and current proposals from NorStar Group.
Gold Diggers
Until recently, the news from NorStar centered on the Company’s much delayed effort to develop and market a virtual reality device. That all changed toward the end of 2002, when NorStar announced its entry into biotech, and declared its plan to resurrect a group of gold mine claims in Nevada. For the past month, NorStar has been trumpeting plans to profit from mining interests that have remained relatively dormant since 1992. The Company says that its mining claims are adjacent to an area known for its rich gold ore deposits. But close also can mean no cigar. Until actual operations are commenced, the value of this property remains speculative. In its most recent Form 10-Q financial statement for the period ended September 30, 2002, NorStar attributed no asset value to the gold mine claims.Indeed, as recently as November 14, 2002 (when NorStar filed its Form 10-Q for the quarter ended September 30, 2002), the Company maintained that “management does not expect mining operations to become one of the Company's core businesses.” Nevertheless, NorStar says it will seek a joint venture partner to help with development of its mining claims.
Mining may not be a core business for NorStar, but that has not deterred the Company from recent efforts to promote the prospects for those Nevada claims. On December 26, 2002, NorStar issued a press release announcing that it had activated its “Mining and Mineral Division,” which apparently consists of 17 unmined claims in Esmeralda County, Nevada that NorStar has held, and failed to develop, since 1992. The Company said that the claims have become “a valuable piece of real estate” in light of a recent rise in gold prices. In the absence of actual mining operations, however, the value of that asset remains unproven, and it is impossible to predict the actual market price of gold at some future date, if and when the claims may become operational and yield gold ore.
NorStar also claims that the threat of war has enhanced the value of its mining operations. The Company says it expects “heavy industrial demand for gold and silver as aerospace and other defense industries continue ramping up for war.” And NorStar’s Chief Executive Officer, Jay Sanet, notes that weapons stockpiles “will have to be replenished potentially resulting in pure gold wire being ferociously consumed by weapons manufacturers and other defense industries.” It seems unlikely, however, that the Company’s dormant mining operations, can become operational, and provide meaningful results, quickly enough to benefit from that demand. After all, the Company has yet to say how it would finance the project or identify its potential joint venture partner, although it claims it is “engaged in discussions with two candidates,” whom it does not identify.
The Company’s recent press releases do not dwell on such potential problems or explain the impediments to developing a profitable mining operation. Instead, the spin is singularly positive, with no mention of the material risks. For example, according to a December 30, 2002 press release, engineering reports indicate that recoverable gold and silver deposits on the Company’s claims could exceed $100 million. Still, the value of this asset seems up in the air, and could appears to be the operative word.
The Company did not disclose the source of those reports, or say when the engineers had conducted their study. And while the December 30th press release implied that the engineering reports constituted newly obtained information, the Company’s public filings suggest otherwise. NorStar has offered virtually identical estimates since its initial Form 10 SB filing with the Securities and Exchange Commission in December 1999. Those public reports indicate that these estimates have been made over the years by “several geologists and mining engineers,” including an individual identified only as Donald R. McGregor.
In any event, the mining interests remained on the back burner for years while the Company pursued other ventures (which we will review later). Now, however, the Company claims it wants to take advantage of the potential for higher gold prices that could result from international upheaval. It maintains that those higher gold prices have made the recovery of its ore “economically possible.”
But while gold prices have risen recently, it is not the first time they have reached these levels – or greater – since 1992, the year NorStar acquired the properties. In fact, gold prices exceeded current values for protracted periods. Between 1994 and 1996, for instance, gold generally traded in a range between $375 and $395 an ounce. If, as NorStar claims, its “long-term goal has always been to seek a joint venture partner when the price of gold reached present day levels,” why didn’t the Company exploit its mining claims when prices were consistently higher in the mid-1990s? The Company does not say, but accessibility could be an issue. NorStar concedes that most of its mining claims can only be reached by foot.
There is little “news” to be culled from the series of press releases announcing NorStar’s golden venture. Indeed, much of the information has been reiterated over the years in the Company’s public filings. So why issue three press releases between December 26, 2002 and January 6, 2003? Was the Company attempting to accelerate, or justify, higher stock prices? NorStar common stock closed at 1 cent a share on December 23, 2002, on volume of a mere 700 shares. On December 24th share prices increased 900% to 9 cents a share, and volume was a healthy 335,000 shares. Two days later, on December 26th (the day of the first gold venture press release), NorStar stock hit a high of 10 cents before closing at 6 cents a share. Volume on December 26th was over 1 million shares and has remained high ever since.
Could NorStar’s plan to activate its mining business have sparked such significant interest in the Company’s stock? A promoter calling itself The StockBroker.com, has been giving the Company constant exposure by issuing a series of “reports” and “news alerts” advising potential investors of NorStar’s latest ventures. For weeks now, The StockBroker.com has been sending e-mails to potential investors, urging them to buy NorStar shares. Why has The StockBroker.com become such a fan of a Company that has yet to perform on its promises? We can think of one significant reason. In October 2002 The StockBroker.com received 400,000 free trading shares of NorStar common stock from an unidentified “third party.”
NorStar may have golden dreams these days, but mining is not the only venture on the Company’s agenda. Just a few months ago the Company proclaimed its entry into the biotech world. And this week NorStar reiterated plans to carve a niche in the virtual reality business. How realistic are these ambitions for a Company with $4,200 in the bank? We will look at some of NorStar’s other plans – and its past performance – in Part II of this series.
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