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Investigative Reports

July 23 2004

There seems to be no shortage of entities bearing the Casavant name, and no end to their intramural transactions. CMKM Diamonds, Inc. (Pink Sheets: CMKX), was known as Casavant Mining Kimberlite International, Inc. until March 2004. Casavant Mining Kimberlite International, Inc. had operated as a private entity until its shareholders secured control of a public company by virtue of a reverse-merger with Cybermark International Corporation in January 2003.

The President and CEO of CMKM is Urban Casavant.

On July 19, 2004, CMKM announced that it had agreed to invest $1 million in a company called Casavant International Mining (CIM) – that Casavant name again. CMKM stated that, in return for its investment, it would receive “a 10% lifetime royalty on all mineral claims of CIM, specifically including the George Lake Zinc Deposit.” According to the press release, in addition to the royalty, CMKM will receive 40 billion shares of CIM stock, which will be distributed to CMKM shareholders.

The July 19th press release leaves several critical questions unanswered. Does CMKM actually have $1 million in cash, and if not, how does it plan to raise the funds? As we noted in our initial article on CMKM, the Company no longer files regular reports with the Securities and Exchange Commission, so its financial condition is a mystery. See CMKM Diamonds, Inc. - A Familiar Drill.

Equally mysterious is the number of outstanding CMKM shares. The Company is authorized to issue 500 billion shares but, here again, the absence of public filings leaves investors guessing how many shares have actually been issued. Update: CMKM Diamonds, Inc. - Less and More. In any event, billions of CMKM shares have been traded virtually every day since at least March 2004.

The number of outstanding shares is significant since it will dictate how many of those 40 billion CIM shares each CMKM stockholder will receive. On the other hand, it may ultimately make little difference; CMI is a private company and consequently there is no liquid market for those shares – and no assurance that CIM, like CMKM, will not simply issue more shares and dilute its shareholders.

Investors may also be curious about the relationship between CMKM and CIM. The July 19th press release certainly implies that CMKM and CIM are separate entities – that CMKM does not already own CIM. After all, CMKM would not have to acquire a 10% interest in CIM royalties if it already controlled those rights.

So what relationship does exist between CMKM and CIM? According to the press release, the President of CIM is Ron Casavant and the Treasurer/Secretary is Dave Desormeau. While Mr. Desormeau does not share the Casavant name, both he and Ron Casavant have had prior relationships with CMKM. A Schedule 14c Information Statement filed with the SEC at the time of the reverse-merger (before the Company ceased to file reports) disclosed that Ron Casavant owned 30 million shares of CMKI common stock (the Casavant family, including Urban Casavant, owned a total of 770 million shares at that time – which was before the Company expanded its treasury to 500 billion shares); and that Dave Desormeau had been elected as a director of CMKM.

Again, absent more recent public filings, there is no public information indicating whether Mr. Desormeau remains a director of CMKM, or how many shares of CMKM are now owned by Ron Casavant and all of the other Casavants (23 of them were listed as CMKM shareholders in that Form 14c).

On the other hand, we were able to learn some information about Casavant International Mining from Nevada’s corporate records. Those files reveal that Casavant International Mining Corporation was formed in January 2003, and that its President is Urban Casavant. Those records also indicate that the corporate secretary is Carolyn Casavant and the treasurer is Emmerson Koch.

So which Casavant really does run Casavant International Mining – and does it really matter?

And then there is this – a disquieting sense of déjà vu for those who have been following events at CMKM.

On December 8, 2003, CMKM announced

the spin-out of corporate zinc deposits at George Lake, Saskatchewan, its wholly owned subsidiary Casavant Mining International, Inc. (CMI). CMKM shareholders received a dividend of one share of CMI stock on October 3, 2003.

While the language is somewhat confusing, it suggests that (i) CMI was a wholly owned subsidiary of CMKM; and (ii) CMKM shareholders will receive CMI stock.

The December 8, 2003 press release also stated that CMI was a private company that would become public within two weeks. Apparently, CMKM intended to merge CMI with another Pink Sheet company, Mirador Corporation. That transaction, however, was later aborted.

We have found no indication that CMI ever became a public company.

Sounds confusing – Casavant Mining International and Casavant International Mining – both mining for zinc in the same vicinity. Aren’t all of these Casavants tripping over one another?

So what, if anything, is the relationship between CIM and CMI – aside from their obvious relationships with some or all of the Casavants? Based upon the Company’s announcements it would seem that both CIM and CMI are involved in the search for zinc deposits in the same area - Lake George, Saskatchewan. Why were two different companies created – and where was CMI incorporated? Is it possible that each company controls different zinc deposits at the same location? If those zinc deposits were owned and controlled by CMI, a wholly-owned subsidiary of CMKM, how were they transferred to CIM?

CMKM shareholders should be interested in the status of CMI and its zinc deposits. After all, they received CMI shares in late 2003, didn’t they?

What ever happened to CMI?

More Shares to Spare

Interestingly enough, CMKM has promised its shareholders another dividend as well – this time in shares of one of its joint venture partners. On July 18, 2004, CMKM issued a press release to announce that U.S. Canadian Minerals, Inc. (OTCBB: UCAD) had agreed to purchase 5% of CMKM’s mineral claims in exchange for 7.5 million shares of U.S. Canadian stock.

In recent days, U.S. Canadian stock has been trading at about $4.80 a share, meaning that the 7.5 million shares would be valued at more than $36 million - assuming there is a market for the stock when it eventually can be sold. It is difficult to conceive how 5% of CMKM’s royalties could possibly be worth that kingly sum. In the absence of audited financial information about CMKM, investors may be understandably skeptical about any of these valuations.

Here, again, CMKM says it plans to distribute those shares to its stockholders as a dividend. Once again, the number of outstanding CMKM shares will be critical since it will determine how many U.S. Canadian shares each CMKM investor will receive. For example, if CMKM has issued all 500 billion shares, the owner of 1 million CMKM shares would receive 15 U.S. Canadian shares.

There is a catch, however. The shares will not be registered, and the agreement between CMKM and U.S. Canadian suggests that there are impediments to their future sale. Here is what the agreement provides:

Purchase Price. Seller will sell 5% of all current and future claim holdings and mineral interests in exchange for 7.5 million shares of common stock of U. S. Canadian. The shares exchanged hereunder shall be newly issued restricted shares under Rule 144 with a holding period of at least one year from the date of their issuance by UCAD and shall not have the holding period thereunder shortened by means of a dividend. Such shares may be distributed by means of a dividend but shall not take the holding or tacking periods of the underlying shares. By this agreement between both parties, in the event such transfer is initiated, the shares shall be deemed cancelled and void and this Agreement is deemed authorizated (sic) by both parties for such cancellation (sic).

These sale restrictions are vague and somewhat confusing. At what point can the shares be cancelled, and how will that affect the CMKM shareholders who receive the dividend?

The agreement also gives U.S. Canadian a one year option to acquire an additional 10% of CMKM’s mineral claims for $15 million in cash.

While all of these numbers sound impressive, it is difficult to understand the valuations afforded to either company. Unlike CMKM, U.S. Canadian does file regular reports with the SEC – and its financial statements do not paint a pretty or promising picture. As of March 31, 2004, U.S. Canadian had $408 in cash. It claims to have an additional 6.9 million in assets based upon the value of stock it contributed to a joint venture.

As of March 31st, U.S. Canadian had issued approximately 7.6 million shares – making the Company worth more than $35 million on paper based upon the current share price. That also means that CMKM will be acquiring 50% of U.S. Canadian.

The current price of U.S. Canada shares defies logic. U.S. Canadian had no revenues for the first three months of 2004. The Company has incurred cumulative net losses of more than $18 million since its inception in December 2000.

With $408 in the bank, and no revenues, it is difficult to see how U.S. Canadian will be able to pay $15 million to CMKM within the next year. It appears unlikely that the money will come from one joint venture already being pursued by the two companies – the Carolyn Pipe. So far, that project has produced two microscopic diamond particles weighing a total of .000005 carats.

In the end, investors can only wonder why CMKM is suddenly on a binge – issuing illiquid shares of other companies as dividends. Who knows? Maybe they ran out of their own.


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