BEKEM METALS INC company history: the story so far

History

A shell company turned Kazakh nickel explorer won its licence fights and sold one asset, then took a small convertible loan and ended SEC reporting in December 2010.

2005-2006: From separator technology to Kazakh nickel

The company, then called EMPS Research Corporation, began 2005 with an eddy-current separator technology business. On January 28, 2005 it bought Condesa Pacific S.A. for 35,000,000 new shares. Condesa's main asset, held through its subsidiary Kaznickel, was a contract to explore for and produce nickel, cobalt and other minerals in the 616-hectare Gornostayevskoye field in eastern Kazakhstan. The seven Condesa shareholders ended up with about 90% of the company, so existing shareholders were heavily diluted, and the company said it first had to obtain funding for exploration.

On October 24, 2005, now named Bekem, it agreed to buy Kazakh Metals, Inc. for 61,200,000 new shares. That brought in Kyzyl Kain Mamyt LLP (KKM), which held nickel, cobalt and Mamyt brown coal licences in northwestern Kazakhstan, including the Kempirsai deposit. Shares outstanding rose to 100,088,888, and entities tied to Hsuih Chi Hun held 51.5%. KKM had sold about 62,000 tons of ore for roughly $280,000 in 2004, had no current reserve report, and the roughly $69 million valuation the company relied on had not been audited.

The funding came on July 14, 2006, when Bekem closed a private placement of 8,000,000 units at $3.50, raising $28,000,000. Each unit carried three shares and a $2.00 two-year warrant, creating 24,000,000 new shares and 8,000,000 warrants. Placement agent Aton Securities received a 5% fee ($1,400,000) and 2,400,000 warrants.

2008-2009: Restatement, licence fights and the Latimer loans

On February 5, 2008, after SEC staff comments, Bekem concluded its 2005 and 2006 annual accounts and quarterly accounts from March 2006 to September 2007 could not be relied on. It had presented itself as a production stage company, but because its Soviet-era reserve reports did not meet SEC standards it had to be treated as an exploration stage company. No restated figures were given.

A bigger threat followed. Kazakhstan's mining ministry had terminated KKM's Kempirsai and Mamyt contracts and licences by notices dated December 10, 2007, citing unspecified work-program failures. The Astana city court ruled the termination illegitimate on February 29, 2008, and the Supreme Court rejected the ministry's appeal on April 22, 2008. In February 2009 the General Prosecutor filed a protest to reopen the matter, but on March 30, 2009 the Supreme Court's supervisory board dismissed it, settling the dispute in the company's favour.

Meanwhile, in May and June 2008, Bekem lent Latimer Assets Inc. a total of $14,900,000, due March 1, 2009. The first $7,400,000 was interest-free; the loan later carried 2% interest, and the pledged consortium interest rose from 23% to 39%. The filings do not say why the loans were made, and the records so far do not report whether Latimer repaid.

2009: Selling Gornostayevskoye

On February 13, 2009 Bekem signed a non-binding memorandum for Ertis Ferronickel Works to buy Kaznickel. A definitive agreement followed on November 3, 2009, conditioned on Ertis providing $5,000,000 so Kaznickel could repay part of its $5,814,456 debt to Bekem. The sale was completed on December 21, 2009. The remaining $814,456 of debt was to be assigned to SAT & Company. Bekem no longer held the Gornostai concession, leaving KKM as its assets.

2010: A small loan and the end of reporting

The record is quiet for most of 2010. On December 15, 2010 Bekem agreed a $500,000 loan from Techgroup Finance Limited at 15% interest, maturing May 31, 2011, secured by a pledge of 65% of Kazakh Metals, Inc. stock, effective on Kazakh ministry consent. Techgroup could convert the debt into shares at $0.0029 each, which would give it about 57% of the company and a change in control. Bekem also promised to deregister its shares and stop SEC reporting within 120 days. On December 30, 2010 it deregistered its securities, ending its obligation to file reports with the SEC.

As of that date, Bekem held its KKM licences, had sold Gornostayevskoye, and had a Techgroup loan outstanding; whether the Latimer loan was repaid was not reported.

Written from the 15 story beats below (2005 to 30 Dec 2010), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2010

30 Dec
BEKEM METALS INC deregistered its securities, ending its obligation to file reports with the SEC.
listing compliance notice
17 Dec
On December 15, 2010 Bekem agreed a $500,000 loan from Techgroup Finance Limited at 15% interest, maturing May 31, 2011, secured by 65% of the stock of its subsidiary Kazakh Metals, Inc. (effective on Kazakh ministry consent). Techgroup can convert the debt into shares at $0.0029 each, which would give it about 57% of the company and a change in control, heavily diluting current holders. Bekem also promised to deregister its shares and stop reporting under the Exchange Act within 120 days, which would end public reporting. This loan is far smaller than the $28,000,000 raised in 2006; the filing does not state why it was needed.
capital raising announcement

2009

28 Dec
On December 21, 2009 Bekem received the rest of the $5,000,000 and transferred its interest in Kaznickel to Ertis, completing the sale. Bekem no longer holds the Gornostai concession it acquired in 2005, leaving KKM (Kempirsai and Mamyt) as the assets described in the filings so far.
asset acquisition disposition
5 Nov
On November 3, 2009 Bekem signed the definitive agreement to sell Kaznickel LLP (holder of the Gornostai nickel/cobalt concession) to Ertis Ferronickel Works for about $1,882, conditioned on Ertis providing $5,000,000 to Kaznickel to repay part of its $5,814,456 debt to Bekem. The $500,000 already paid counts toward this, with $4,500,000 due at closing within 20 business days; the remaining $814,456 of debt is to be assigned to SAT & Company, an owner of Ertis. This follows through on the February 2009 memorandum, and Bekem will have no interest in Gornostai after transfer.
asset acquisition disposition
3 Apr
On March 30, 2009 the Supreme Court's supervisory board dismissed the General Prosecutor's protest and affirmed the earlier decisions cancelling the termination of the KKM licenses and contracts. This resolves the licence dispute in the company's favor.
material agreement termination
24 Feb
On February 18, 2009 Kazakhstan's General Prosecutor filed a protest to the Supreme Court's supervisory board seeking to overturn the rulings that reinstated KKM's licenses, reopening the dispute the company had won in April 2008. The company plans to file a formal objection and expects a hearing in March 2009.
material agreement termination
17 Feb
On February 13, 2009 Bekem signed a non-binding memorandum for Ertis Ferronickel Works to buy 100% of Kaznickel LLP, the subsidiary holding the Gornostayevskoye deposit acquired in 2005, for about $630 plus repayment of $5,000,000 of loans Kaznickel owes Bekem. A definitive agreement still needs negotiation, due diligence and ministry approval; $500,000 is due within five days of signing.
material agreement

2008

25 June
On June 19, 2008 Bekem agreed to lend Latimer a further $7,500,000, bringing the loan to $14,900,000, still due March 1, 2009. The loan now carries 2% annual interest from when it was provided (it was interest-free before), and the pledged consortium interest rises from 23% to 39%. This expands the exposure to Latimer opened in the May 2008 loan.
material agreement
5 June
On May 30, 2008 Bekem lent $7,400,000 interest-free to Latimer Assets Inc., repayable by March 1, 2009. The loan is secured by a pledge of a 23% interest in a consortium between its subsidiary KKM, GRK Koitas and Asia-Invest; Latimer reportedly owns substantial interests in GRK and AI. The filing does not say why the loan was made.
material agreement
25 Apr
On April 22, 2008 Kazakhstan's Supreme Court rejected the ministry's appeal and upheld the ruling cancelling the termination of the KKM Kempirsai contracts and licenses. This continues the licence dispute in the company's favor, though the text here mentions reinstatement of Kempirsai rights specifically in its opening paragraph.
material agreement termination
7 Mar
This amendment reports that Kazakhstan's mining ministry (MEMR) terminated KKM's Kempirsai nickel/cobalt and Mamyt brown coal contracts and licenses by notices dated December 10, 2007, citing unspecified failures in work programs. On February 29, 2008 the Astana city court ruled the termination illegitimate and reinstated the licenses; the ministry had until March 15, 2008 to appeal. The termination threatened the core KKM assets acquired in 2005, and the first-instance ruling in the company's favor is not yet final.
material agreement termination
11 Feb
On February 5, 2008 Bekem concluded that its 2005 and 2006 annual accounts and its quarterly accounts from March 2006 to September 2007 can no longer be relied on, after SEC staff comments. The company had presented itself as a production stage company, but under SEC Industry Guide 7 it must be treated as an exploration stage company because its Soviet-era reserve reports do not meet SEC standards. Restated statements will expense stripping costs, reclassify revenues and costs, and correct deferred compensation and the 2006 weighted-average share count. This resolves the earlier open point that there was no current reserve report, by confirming the company is exploration stage; no restated figures are given in the text.
financial restatement

2006

18 July
On July 14, 2006 Bekem closed a private placement of 8,000,000 units at $3.50 each to two non-U.S. investors, raising $28,000,000. Each unit is three restricted shares plus a warrant at $2.00 for two years, so 24,000,000 new shares and 8,000,000 warrants are issued, diluting existing holders; the filing says there is no change in control. Placement agent Aton Securities gets a 5% cash fee ($1,400,000) and 2,400,000 warrants at $1.17 exercisable for eighteen months. This follows the earlier need for exploration funding.
capital raising announcement

2005

28 Oct
On October 24, 2005 Bekem agreed to buy Kazakh Metals, Inc. for 61,200,000 new shares, giving it Kyzyl Kain Mamyt LLP (KKM), which holds nickel, cobalt and Mamyt brown coal licenses in northwestern Kazakhstan, including the Kempirsai deposit. Shares outstanding rise to 100,088,888, diluting existing holders, and entities tied to Mr. Hsuih Chi Hun hold 51.5%. The filing says there is no change in control. KKM sold about 62,000 tons of ore for roughly $280,000 in 2004, has no current reserve report, and the roughly $69 million valuation it relied on has not been audited.
asset acquisition disposition
2 Feb
On January 28, 2005 the company (then EMPS Research) bought Condesa Pacific S.A. for 35,000,000 new shares. Condesa's main asset is a contract, held through its subsidiary Kaznickel, to explore for and produce nickel, cobalt and other minerals in the 616-hectare Gornostayevskoye field in eastern Kazakhstan. The seven Condesa shareholders now hold about 90% of the company, so existing shareholders were heavily diluted. The company's business shifts from its eddy-current separator technology to Kazakhstan minerals, and it says it must first obtain funding for exploration.
asset acquisition disposition