West High Yield Dives 83% After $750 Million Deal Vaporizes

(Bloomberg) -- A Canadian penny stock plunged 83 percent in the first day of trading after its $750 million mining deal collapsed, bringing an end to a wild ride that saw its shares surge almost 1,000 percent in a single day.

West High Yield (W.H.Y.) Resources Ltd. dropped to 34 Canadian cents at 10:20 a.m. in Toronto after resuming trading for the first time since Oct. 5. That was the day the tiny Calgary-based explorer announced what would have been one of the year’s biggest mining deals -- the sale of its main magnesium assets to an obscure buyer, Gryphon Enterprises LLC.

The deal fell through after Gryphon failed to come up with a deposit of less than 1 percent of the transaction value, or $500,000, by a Nov. 6 deadline. The collapse of the deal spelled the end of the brief but extraordinary rally that had propelled a company with no revenue to a market value of C$114 million ($90 million). Trading under the ticker WHY, its stock jumped to as high as C$3.80, from just 36 cents the previous day, and ended the session at C$2, sparking a review by regulators in Alberta.

From the beginning, however, there were questions about the deal. It wasn’t clear why Gryphon, which doesn’t have a website, was prepared to pay $750 million for West High Yield’s assets in British Columbia, when the whole company was worth only $16 million. According to the purchase and sale agreement, Gryphon’s chief executive officer used an AOL email address and the firm was based at a residential house built in 1992 in Swanton, Maryland.

West High Yield had continued to trade on Oct. 5 as more red flags appeared and volume soared. That sparked criticism from some that the regulators should have stepped in earlier to take control of the situation. Trading was halted on Oct. 6.

The Investment Industry Regulatory Organization of Canada has said it won’t reverse trades from that day because the announcement “did not contain information which was either misstated or inaccurate.” The Alberta Securities Commission has declined to comment on whether it’s still reviewing the company and the deal.

--With assistance from Danielle Bochove

To contact the reporters on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net, Natalie Obiko Pearson in Vancouver at npearson7@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe, Steven Frank

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