Cline Mining – The Insiders are Buying, and so am I

At the suggestion of some posters on this blog, I am providing my detailed thoughts on CMK.TO – Cline Mining Corp.

According to the company, “Cline Mining Corporation is a mine development company focused on the exploration and development of uranium and iron-ore in Madagascar, gold in Canada and metallurgical coal in Canada for the international seaborne coal trade market.”

Why the interest in Cline? Simple: one of it’s shareholders is PNP.TO – Pinetree Capital Corp. According to the Pinetree Web Site as of September 30, 2006 Pinetree owned 9.5% of Cline, which gives Pinetree 5.8 million shares out of the almost 61 million shares outstanding. (As of today, according to Cline’s Web Site, there are 63 million shares outstanding, plus another 6 million warrants and 3.5 million options). According to the SEDI Insider Trading Reports, Pinetree has made the following recent purchases of Cline shares:

• November 8 – 700,000 shares at 45 cents
• December 20 – 307,500 shares at 29 cents
• December 20 – 100,000 shares at 29.5 cents
• December 21 – 100,000 shares at 35 cents

These numbers make sense. On November 8 there was a volume spike; 782,300 shares were traded, and obviously 700,000 of them were purchased by Pinetree.

This means that Pinetree now owns, according to SEDI, 7,007,600 shares as of December 21, 2006, or 11% of the total shares outstanding, so they now own more than 10% of the shares outstanding, which for reporting purposes is a very significant number.

Why are we talking about Cline now? Because for the last three months the average volume traded on Cline was 211,000 shares traded per day. On Friday December 29 the volume spiked to 4.5 million shares, or around 7% of the outstanding shares.

Why the big spike in volume? I’m not sure. I do know that Cline Mining Corp. completed its reverse take-over transaction of UMC Energy PLC on December 22, giving it a 40 per cent in that company, in exchange for its 80 per cent stake in a company that owns the Morondava uranium property in Madagascar. But that is old news, and would not account for a spike a week later.

There are only two logical explanations for this spike. The first explanation is that Pinetree was doing a lot of buying on Friday. A review of the trading activity on Friday reveals that the first trade of the day apears to have been for over 200,000 shares at 38 cents, and they kept buying for most of the morning at prices up to 55 cents around 10:30 in the morning. By the afternoon volume had dropped to normal levels, so presumably Pinetree had finished their buying for the day.

The second explanation is that somebody else was doing a lot of buying. Perhaps Mr. Dines? We know that Dines is very tight with Pinetree management, and we know that Dines has recommended many of the companies that Pinetree owns (such as CHX.V – Cash Minerals Ltd., Continental Precious Minerals, MGA.TO – Mega Uranium Ltd., TVC.V – Tournigan Gold Corp., and URE.TO – Ur-Energy, Inc.).

Obviously Mr. Dines has no hesitation in picking up the phone and talking to management of the companies he invests in, and obviously he is capable of reading the same insider trading reports that all of the rest of us can access on the SEDI Insider Trading Report Web Site. Dines, or someone else, may be buying in anticipation of further buying by Pinetree.

Of course this is pure speculation on my part; I have no insider information; I have never met Mr. Dines; I have never met anyone who works at Pinetree; I have never met anyone in the uranium industry.

I should also point out that I am not saying any of this is illegal, or even wrong. Dines probably has the ear of Pinetree management, and vice versa, but they are also required to disclose all insider trading activity, which they do. You can see a list of all investments that Pinetree holds valued at more than $500,000, or totalling more than 10% of the subsidiary’s outstanding stock, on the Pinetree Web Site. And you can hunt around and find a list of insider transactions with Pinetree on the SEDI Insider Trading Report Web Site, so most of the information is there if you choose to look for it. I suspect because Dines keeps track of this stuff, he knows about it first.

(Of course a pessimist would say that given the December 4 press release where Pinetree announced that it had been advised by the Ontario Securities Commission that it and Sheldon Inwentash (its Chairman and Chief Executive Officer) are the subjects of investigations involving manipulative trading in securities of Treat Systems Inc. and Brownstone Ventures Inc., allegations of insider trading are nothing new for Pinetree, but I digress).

So, what does all of this mean? Canadian securities regulations require all insiders to file an insider trading report within 10 days of the trade, so if this volume spike was insider buying we will know about it shortly.

My guess? Where there’s smoke there is fire. Somebody’s buying, and the basic laws of supply and demand mean that this stock is headed higher. If it’s Mr. Dines doing the buying, when The Dines Letter gets around to recommending it, the stock will soar, exactly as happened with SAN.V – Santoy Resources Ltd. and MAW.V – Mawson Resources Ltd. If Pinetree is the buyer, when they file their further insider reports later this week that may also cause a big uptick.

Upticks are good, so I’m buying, but since this is pure speculation on my part, and since Cline already had a big run on Friday, I’m only putting a small amount of money in Cline, for now.

I’m interested in our readers thoughts on my thought process, so please post your comments on the Cline Message Board on the Buy Now Sell Higher Forum.