Imperial finds diversification a mixed blessing

Like a good many companies with a broadly diversified asset base, Imperial Metals (TSE) has found that diversity is indeed a two edged sword.

President Pierre Lebel told shareholders during the recent annual meeting that while it provides a good defence to the cyclical nature of the resource business, the resulting complexity can make it difficult for investors to evaluate the company. And, as many such companies and mining mutual funds have discovered, this usually translates into a substantial share discount to asset value.

“We’ve heard the message loud and clear and responded by rationalizing our asset base through the creation of pure play entities which have a single line of business.” As Lebel explained, it’s all part of a long term strategy to become established in the 1990s as a resource management and finance house with international operations.

Imperial launched Cathedral Gold Corp. (TSE), as a precious metals company a year ago, followed in June of 1988 by Anglesey Mining PLC, a London listed base metals company. Lebel said the benefits of these moves to Imperial have been “dramatic,” as the companies (along with Colony-Pacific Mining in which Imperial holds a 19.2% interest) raised just under $20 million to further explore and develop a number of projects.

In addition to avoiding dilution, another benefit to Imperial was an increase in cash flow and profits from its resource management activities, enabling the debt-free company to continue its unbroken 4-year record of profits. Imperial reported net income of $1.8 million (11 cents a share) for the fiscal year ended March 31.

“Looking ahead, we see the creation of an Imperial-controlled oil and gas company, and possibly a uranium company,” Lebel adds. Although these moves will await more favorable market conditions, Lebel said Imperial will continue to invest in both areas so as to enhance the value of asset packages which will one day form the nucleus of new companies. A recent example was the acquisition of near-production uranium properties in Western Nebraska believed to be amenable to in situ leaching methods.

Meanwhile, Cathedral Gold reported production of 5,906 oz of gold during the first six months of 1988 from its 52%-owned Sterling Mine, a high grade underground and open pit, heap leach operation near Las Vegas, Nev. The company also has a 50% interest or better in a number of advanced gold projects, among them the 100%-owned Porcher Island property southwest of Prince Rupert, B.C. A former producer (73,000 tons at a recovered ore grade averaging 0.29 oz), this property is being investigated for its potential to host a bulk tonnage, open pit operation.

Work is also continuing on the 51%-owned Takla Rainbow property near Smithers, B.C., where previous work had delineated three gold-bearing zones which are still open along strike and at depth. Geological reserves stand at 150,720 oz gold contained within 471,000 tons of ore grading 0.32 oz. About $1 million will be spent this season, with the hope results will warrant underground exploration later this year. Earlier this summer, Imperial sold its 25% interest in the Bralorne gold property in B.C. to Cathedral in exchange for shares and share options, thereby increasing its holding in Cathedral to 40%. More recently, Cathedral acquired two properties in the Iskut River area of B.C.

Anglesey Mining (owned 37.8% by Imperial) is developing a unique polymetallic project off the coast of Wales which has a history of metal production going back to times when Roman legions ruled. During the height of the Industrial Revolution, the Parys Mountain project was an important copper producer.

The property was acquired as a result of efforts by Imperial chairman, Hugh C. Morris, who had spent time on the isle during the war years. Imperial Metals began an exploration program in 1985, with zinc being the major attraction. The project now has a mineable ore reserve of 5,284,000 tons grading 1.49% copper, 3.03% lead, 6.04% zinc, 2.02 oz silver and 0.013 oz gold. Development plans call for commercial production to begin by 1992, at a proposed rate of 1,150 tons per day.