Enigmatic Imperial metals spinning off gold assets

Last year even the president of Imperial Metals admitted his company was “somewhat of an enigma,” arguing in the process that it wasn’t as difficult to understand on a “sector- by-sector basis.” Since that time Pierre Lebel has taken steps to ensure that investors will understand one important sector of Imperial’s activities even more clearly — precious metals. The company has formed a “gold dedicated vehicle” called Cathedral Gold Corp. which will hold Imperial’s precious metals properties including the producing Sterling mine in Nevada.

A prospectus is being filed for Cathedral which should close in early September and Mr Lebel says Imperial’s gold prospects are being “rolled into Cathedral at engineering value.” Cathedral will buy the assets at a discount for shares, approximately 4.4 million of which will be outstanding on the issue date and 4.9 million fully diluted, he notes.

Mr Lebel concedes these assets were simply not recognized in Imperial and he believes their consolidation into a single entity will be “very positive for Imperial.” Also, he doesn’t rule out a similar vehicle for Imperial’s base metal assets including the Blue Moon project (copper-zinc-gold) in California and a similar situation in Wales called Parys Mountain.

Both properties are at advanced stages of exploration. There are no plans to spin off the company’s energy portfolio (uranium, oil and gas) because the “cash flow is so good.” Oil and gas revenues for the fiscal year ended March 31, totalled $1.6 million.

Forming a separate company will benefit Imperial in a number of ways, Mr Lebel predicts. For one thing, the company will now be able to finance its gold properties through a second party. In the past, Imperial was reluctant to finance on an equity basis because of its deflated share price which now hovers around $1.05. Also, Imperial was unable to raise flow-through funding because it is taxable.

Management fees, including West German drilling funds, represent the largest part of Imperial’s revenues and these fees totalled $1.2 million in the latest fiscal year. The company manages more than $125 million for its various entities and it projects Cathedral will have a cash flow of 27 cents per share in 1988 and about 19 cents in earnings. Cathedral will be “totally debt free” and Imperial “almost debt free,” Mr Lebel adds.

Gold production from the Sterling mine this calendar year should be about 7,000 oz but their objective is to increase production to 30,000 oz in the next few years. With the exception of Sterling and the Pellaire property in B.C., all Cathedral’s properties will be 100% owned.

Of the five advanced stage properties in Cathedral, the Addington in northeastern Ontario and the Takla Rainbow west of Manson Creek, B.C., hold the largest production potential. What appears to be a widespread altered gold-bearing horizon has been discovered on the Addington which will be the subject of a $614,000 exploration program in 1987. Another $880,000 will be spent on the Takla where a 2,000-ft mineralized zone has been outlined. Two-thirds of the holes drilled to date have averaged more than 0.3 oz gold, says Imperial.

The Cathedral offering will be done at $3 per share and the Imperial Group will receive about 3.2 million shares for the properties. Another 1.2 million shares will be issued for cash, 300,000 to promoters at 50 cents each, 400,000 to the public at $3 per share and 500,000 shares at $4.50 each to mvp Capital Corp. which is headed by Ian McAvity who also publishes the investment newsletter, Deliberations. Mr McAvity will also join the board of Cathedral. Shares under option include 40,000 for the underwriter and 467,000 for directors, officers and promoters, bringing the total to 4,895,533 outstanding.