Red Flags All Around Sanborn Resources Ltd (OTCBB:SANB)

The excitement around Sanborn Resources Ltd (OTCBB:SANB) is still going strong. After the impressive run on Monday the ticker registered another green session and while at around 1.1 million shares, the volume was not as high, the price increase amounted to nearly 18%. SANB closed the day at $0.51 which means that the market cap is now above $20 million.

While this figure is not as ridiculous as some of the values we’ve seen from other penny stock ventures, it is still quite a lot for a company that we know very little about. Until April 2013, SANB went under the name Universal Tech Corp and while the name wouldn’t suggest it, they were dealing with the retail sale of art. Then, an acquisition took place and SANB bought a total of seven mineral claims in Peru that are supposedly full of gold. A new management team was appointed, there was a 100 for 1 stock split and the number of authorized shares was increased to 1 billion. If you have been around penny stocks for long enough, you will probably know that these are classic actions taken up when a company is being set up for a promotional campaign. Sure enough, the pump itself came around on Sunday (that’s what the publishing date says, anyway) and it was in the form of an article on a website called Financier Times (FT).

Don’t be fooled by the name and the fancy design work, this “media” has nothing to do with the real Financial Times. We first came across it when we were covering the pump for Northumberland Resources Inc (OTCMKTS:NHUR). There was a similarly optimistic article for them and it was even written by the same person but, more importantly, it was aimed at nothing more than creating some artificial hype around NHUR. As you might have guessed, the effort was not done for free and the same can be said about the campaign on SANB. The small print located under the comments says that the total promotional budget amounts to no less than $3 million.

We’ve seen what such expensive promotions usually do to the share price and we also talked about what happened to NHUR, but let’s take a closer look at SANB and see if they will manage to fare any better.

The pumpers are very excited about the newly acquired Peruvian mining claims, but having in mind that the company itself has never been in the business of digging precious metals out of the ground, we’re not so sure. Some of you will probably argue at this point that there is now a new management team in place, and as the FT article would suggest the new CEO, Mr. James Dale Davidson has years and years of experience with small cap mining ventures.

As we mentioned yesterday, that is correct, he has worked at mineral exploration companies traded on the OTC Markets. Two of the most prominent ones are Valor Gold Corp (OTCBB:VGLD) and California Gold Corp (OTCMKTS:CLGL) and we decided to see how many tons of gold Mr. Davidson has managed to dig out with these enterprises. To find out, we opened their financial statements only to see that neither VGLD, nor CLGL have managed to generate even a dime in revenue since inception. Frankly, we were a bit disappointed to see that but when we did a bit more research, we got downright scared.

There is so much information about Mr. Davidson on the Internet that it’s really hard to get your head around it. Our findings include a quick review of his 1990’s political prognoses (which are not very accurate), some RipoffReports and even a page with systematized information about him. All the links are worth reading and they all paint a picture of a man who is surrounded by controversy. Of course, we can’t say for sure if all the information is 100% accurate, but even if it’s not, a lot of research and due diligence are absolutely crucial before making any investment decisions. Not least because of the expensive pump currently running for SANB, and if you don’t know how risky promoted penny stocks could be, you might want to have a look at the charts for NHUR and iTalk Inc (OTCBB:TALK) on the right.