But Schimmelbusch, Spector and Safeguard knew about Boisvert's promising R&D project when they made the loans to Timminco in exchange for stock in 2006 and 2007. In an interview in 2008, Spector explained that while Safeguard was aware at the time that Timminco was working on the solar project, it didn't know if it would win the contract with the solar cell maker.
"What is, is," Spector said.
For Safeguard, there was one more move to make regarding its stake in Timminco. On March 29, 2007, just two weeks after the "breakthrough" announcement, Safeguard transferred its Timminco holdings to an affiliate company, AMG Advanced Metallurgical Group NV.
In addition to Timminco, AMG controlled several other metals businesses. But none would generate the hype and headlines that Timminco would. In July of that year, with the help of investment bankers from Credit Suisse (a firm that owned a minority stake in Safeguard), AMG conducted an initial public offering on the Euronext exchange in Amsterdam. The IPO raised $433-million (U.S.), including almost $190-million (U.S.) for Safeguard and its investors. Whatever business reasons were behind this new corporate configuration, it also had the effect of allowing Schimmelbusch, Spector and any other investors in Safeguard to cash out of Timminco without ever directly selling any stock in Canada, which would risk depressing the company's share price.
Safeguard and its investors weren't the only ones changing their holdings in the company around the time Timminco announced its entree into the solar silicon sector in March, 2007. John Walsh bought a total of 152,000 Timminco shares in the weeks before the breakthrough was announced for $58,250. According to sources familiar with the matter, the Ontario Securities Commission investigated Walsh's trading but never made any allegations of illegal trading.
A former Timminco insider suggests that Walsh, despite being CEO, didn't know about the promising project in the pipeline. "While Walsh was the CEO, Schimmelbusch's executive chair was the executive chair. He ran the show. So I think Walsh's position was he didn't know. And in the context of Heinz and his managerial style, that's not so far-fetched," the former insider says.
Walsh stepped down as Timminco CEO in August, 2007, to run another division of the company. He was replaced by Schimmelbusch. On April 3, 2007, shortly after the Bécancour announcement, Walsh bought another 200,000 Timminco shares for an average price of about 90 cents each. He left Timminco altogether in April, 2008, and ceased to be an insider; thus there is no public information as to whether he ever sold his Timminco stock. (Walsh did not respond to requests for comment made through his Canadian lawyer.)
Of all the stocks that Sprott Asset Management backed in 2007 and early 2008, the biggest little winner of them all was Timminco: The stake accounted for about 25 per cent of all investment gains on the firm's assets during 2007. By the end of that year, Sprott's flagship Canadian Equity Fund's returns were at the top of the entire industry, recording an average annual gain of 28.1 per cent over the previous decade.
One man credited with helping Sprott rack up those big gains in 2007 was David Tomljenovic, who had joined Sprott from Clarus Securities in 2005, and brought the Timminco story to the attention of Eric Sprott and his firm. "Maybe once or twice in your career do you get to be involved with a stock that can potentially do what this one has," Tomljenovic said of Timminco in 2008. "It's the most exciting thing I've ever been involved with."
Sprott's firm began buying Timminco at about 40 cents, and as the share price rocketed higher, continued to build on its position until it had amassed 17 per cent of the stock or about one-third of the free float. The average price the firm paid for its Timminco stake was reportedly about $6 per share. Speaking on the condition of anonymity, a former Timminco executive conceded that once a firm like Sprott or Fidelity Investments decides to invest big in a small company, powerful market forces take over. "When these people get on a story, they know how to make money. And God help you if you're the vehicle they're using because you can't do anything about it...boy, people can run it. They can really run it."
As the believers held sway, it took a while for the doubters to pick up on the Timminco story. The first real sign of trouble came in April, 2008, a little more than a year after the breakthrough in Bécancour was bruited. Barron's, the U.S. financial industry's Sunday read, questioned the logic behind the stunning run-up in the company's shares–from under 30 cents to more than $22 in a year.
The article pointed out the contrast between Timminco's ambitions and the experience of far larger players, such as Elkem, then a unit of Norway's Orkla, which was spending over $700-million (U.S.) to build a solar-grade silicon plant that would use a different metallurgical process. Timminco, meanwhile, said the repurposing and expansion of its plant would cost less than $90-million. The piece also noted that Timminco was still generating losses and opined that its share price was "far ahead of reality." Senior editor Bill Alpert wrote, "so far, the evidence for Timminco's breakthrough appears in PowerPoint slides, not in financial reports."
Much of the Barron's piece dovetailed with research by Manuel Asensio, an eccentric and combative New York short seller. Although he had an MBA from Harvard, Asensio had never joined the ranks of Wall Street's top-tier trading houses. He preferred to work with a small team of researchers at his own firm, Mill Rock Investment Advisors, ferreting out companies whose claims seemed too good to be true.
Asensio insisted that science was not on Timminco's side. It was, he said, impossible on a commercial scale to remove enough boron and phosphorous impurities metallurgically from silicon to obtain a product pure enough to make solar cells. Others, he said, had tried the metallurgical method for years, and failed.
"[Timminco] produced some dirty stuff. And they figured out how to make the dirty stuff go to the edges. They cut off the dirty stuff and they kept doing it," Asensio said in an interview at his small Manhattan office. (Despite his dogged research skills and a strong track record, credibility has often been an issue for the Cuban-born American. During the course of the two-hour interview in June, Asensio continually steered discussion toward his battles with the American government. His six-pound chihuahua, Mia, sat curled up in his lap.)
"So at the end of the day, no matter how many times they did it, there was a physical limitation on the amount of boron and phosphorous they could remove from silicon," Asensio said. "And that's the way God did it. That's the way God invented it. That's the way God created it. God's laws are not going to change."