Exposed to all shades of Spectrum

By Rod Oram

Between the lines


Spectrum Resources is an excellent example of the good, the bad and the ugly in the feverish market for New Zealand e-anything shares.

Until late last year Spectrum was a no-hope mining company, so broke the NZSE had suspended its listing because it didn't have enough money to produce an annual report.

Along came Momentum Investments which appears to be led by John Carr. A kiwi, Carr floated Carr Business on the NZSE in the mid-1980s, a company that had a short and ignominious life. For some years now, Carr has been US-based.

Momentum, aided by broker DF Mainland, offered Spectrum a rescue deal approved by shareholders on Friday, December 17. Its minuscule Vietnamese mining assets were flicked off in a free issue to Spectrum holders of shares in a new company.

Thus, Spectrum was a shell with no purpose, or at least no purpose articulated by Momentum to the market. The following Monday, Tuesday and Wednesday, Spectrum's shares dropped sharply in heavy trading. On Thursday, December 23, Momentum announced Spectrum would invest in e-businesses and had placed 17 million shares at 11c.

The placement price was 90 per cent of the average of the preceding five days trading. But the price had fallen sharply because the market thought Spectrum was a shell and because Momentum sold 4,133,745 of its Spectrum shares, 11 per cent of its stake. DF Mainland did the lion's share of trading.

So, come December 23 some highly favoured investors got into Spectrum at 11c a share. Last night, five weeks later, Spectrum's shares closed at 38c.

That series of events is really ugly and warrants an explanation from Momentum and its advisers. The Business Herald's question to the New Zealand Stock Exchange's Market Surveillance Panel is: what do you think?

Now for the good side of Spectrum. This week it bought WEL Technology, a rarity among New Zealand software companies. It is a small but real business with a proven product in electricity industry metering. Moreover, WEL and now Spectrum has John O'Hara as chief executive, the founder of Voyager, the kiwi internet service provider.

So, unlike many of the vapour-ware e-businesses bring touted in New Zealand, Spectrum has a business with concrete potential and a chief executive with a track record. And it is making its current round of financing a deeply discounted rights issue available to all shareholders.

Given the deep discount, the rights are worth more than 11c a share. The market should watch like a hawk to see whether Momentum makes a quick buck by selling some of its rights or whether it takes up its full entitlement of new shares.

And the bad? That a potentially good company made such a shonky start five weeks ago to the benefit of initial investors.