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Gold/Mining/Energy : AMBREX..AMBX OTC

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To: Gabe Heti who wrote (94)12/6/1997 12:16:00 PM
From: Don   of 196
TO ALL NEWS: SGV to sell AMBX....... comments or predictions welcome.

KWG Resources Inc -

Icelandic funds paid to St Genevieve creditor;
financial position explained

KWG Resources Inc
Shares issued 22180479
1997-11-26 close $0.37
Friday Dec 5 1997
See St Genevieve Resources Ltd (SGV) News Release
Mr Lyn Carroll of Icelandic Gold reports Icelandic has been informed that some of its funds have been paid to an arm's
length creditor of St Genevieve Resources. Icelandic is continuing to examine the nature and ultimate destination of such payment. As previously reported, an investigation of Icelandic's finances disclosed that some of its funds had been diverted without authorization from bank accounts administered by St Genevieve,
and recovery of approximately $400,000 and other current financial obligations of St Genevieve to Icelandic not exceeding $125,000 were thrown into question by St Genevieve's filing last week of a plan of arrangement under the Companies' Creditors Arrangement Act.
After reassessing its ability to continue with its current exploration programs in Iceland, Icelandic has decided to continue the consolidation and evaluation of the considerable geochemical data acquired through the summer field season, but will defer drilling three separate prospects for the foreseeable future. Icelandic will
seek further financing (including recovery of diverted funds) or a joint venture partner to pursue further exploration plans.
Icelandic has accepted the resignations of Peter Miller, chairman, Alain Taillefer, vice-president, finance and treasurer and Luce Saint-Pierre, secretary. Peter Miller had been re-appointed as chairman. At its meeting today, Icelandic's board of directors requested, but did not receive, the resignations of Pierre R. Gauthier and Andrew S. Etcovitch. The board will write to such directors to formally request such resignations. Mr Jacques Rossignol reports St Genevieve Resources and KWG Resources wish to explain the events that led up to the current financial difficulties experienced by the companies and explain the course of action which is intended to be taken in order to ensure the future survival of the companies. Ametistovoe Gold Deposit The Ametistovoe gold deposit in the Russian Federation is the primary source of the financial difficulties currently being experienced by the companies. Initially, the
deposit was indirectly held by Far East Gold, a company resulting from an amalgamation in the form of a reverse takeover. FEG was initially capitalized by way of an $8.8 million private placement. The deposit has demonstrated reserves which indicate that it is a property of merit which is ready to enter the production
phase. In January 1997, SGV raised a total of $25 million through a special warrant offering, with $21 million of the proceeds being used to finance the development of the deposit and the remaining $4 million being retained by SGV in order to pay commissions and provide SGV with working capital. Contemporaneously with such financing, KWG concluded a share exchange bid for all of the shares of FEG, with the result that FEG ultimately became a wholly owned subsidiary of KWG.
Following the closing of the financing referred to above, the companies prepared a business plan in order to seek debt financing to replace the equity financing already in place. This business plan was ultimately concluded on March 15 1997 and indicated that the current capitalization of FEG was insufficient to allow for the proper development of the deposit and that an additional US$18 million of
financing was required. Shortly after this realization, a royalty financing company with which the companies were negotiating announced to the companies that it had decided not to move forward with its earlier proposal of a $5 million financing on which the companies were up to that point relying. In the financing company's opinion, the deposit was not sufficiently advanced for its nature of financing.
As a result of these developments, the companies engaged two agents in order to assist them in raising the required capital. At that time, the price of gold was approximately US$350 per ounce. Given this market price and the perceived quality of the deposit, the companies were assured by these agents that they should not encounter any difficulties in receiving the necessary financing. However,
shortly thereafter, the price of gold began a gradual and steady descent to its current level of below US$300 per ounce. This descent had real consequences for the companies. Every time that a financing appeared ready to close, the market price of gold would suffer another decrease and the closing would be postponed as a result. A further complicating factor was the entire Bre-X affairs which served to erode confidence in the mining sector and further hinder the ability of mining companies in general to raise capital.
Against this backdrop of a scarcity of financing, KWG was facing a further problem in connection with the preservation of the licence in respect of the deposit. Under the terms of the licence, the holder was required to have on site, by no later than December 31 1997, sufficient mining equipment in order to be able to mine a total of 200,000 tons per year, failing which the licence could be revoked. At that time, a total of approximately $29.8 million had been invested in
the deposit ($8.8 million of initial capitalization of FEG and $21 million from the SGV special warrant financing) and an additional $72 million had been invested by KWG though its share exchange bid referred to above; therefore, losing the licence would have caused KWG extreme prejudice. As a result, faced with this prospect of losing the licence and its investment, and unable to then raise the required financing from outside sources given the declining price of gold and
difficult mining conditions faced by the mining Industry, SGV turned to the other members of its group of companies which had positive cash balances in order to purchase and deliver to the Russian Federation the required equipment and maintain the licence. Specifically, between the months of July and August 1997, three boat loads of equipment were delivered to the Russian Federation at a total cost of approximately US$4 million, US$3 million and US$3 million, respectively, US$4.6 million of which was borrowed from the treasury of Genoil Inc, and
US$3 million of which was borrowed from the treasury of Emerging Africa Gold (EAG). At the time that these borrowings were made, they were intended merely as a bridge loan facility which would enable KWG to preserve its valuable licence until such time as the market dynamics reversed themselves and the companies once again became able to raise the required financing. In early fall, it became apparent to the companies that the market conditions were not turning around and that it would be more difficult to obtain the required financing than originally expected. In fact, a preliminary prospectus filed by FEG in
September 1997 for a high yield debt offering had to be abandoned by FEG due to market conditions and other proposed private placements failed to close. As a result, KWG scaled down all of its operations in the Caribbean. At that point, the companies' only source of financing was through the sale by SGV of its portfolio of securities and through various loans arranged from various third parties.
In October 1997, the Russian government amended the licence by extending to December 31 1998 the deadline by which the production capacity was required to be in place. This amendment was obtained as a direct result of the mobilization of the equipment referred to above.
By November 1997, the companies' problems in raising capital became more acute. The fixed costs at the deposit were between US$500,000 and
US$750,000 per month. As a result, the companies' accounts payable were increasing. On November 26 1997, the board of directors of Genoil demanded immediate repayment of its inter-company loan and advised the companies that it was going to make a public disclosure to this effect. As a result of this demand for repayment, the companies applied to the Superior Court of Quebec for protection under the Companies' Creditors Arrangement Act. Working Capital Deficiency
The following set of circumstances further contributed to the financial difficulties experienced by the companies; specifically, by placing a further burden on their working capital. The Cuban government approached KWG with an offer to participate in the
development of a major nickel deposit on Cuban territory known as the Cupey project. The Cuban government sought the partnership of KWG because of its prior dealings with KWG and other members of the St Genevieve group, including Genoil, a company which explores for oil and gas in Cuba. KWG viewed this as a good opportunity to diversify itself away from gold given the failing market price of gold and ultimately signed a letter of intent with the Cuban government on July 5 1997. The letter of intent called for KWG to raise a total of US$350 million in order to finance the Cupey project in return for which it would earn a 50% interest in the project. In preparation of its public financing campaign, KWG conducted a full feasibility study of the Cupey project which took place from August through to
November 1997 at a total cost to KWG of $3.5 million. However, during the period beginning from the commencement of discussions with the Cuban government and ending on the completion of the feasibility study, the market price of nickel fell from approximately US$3.30 per pound to US$2.75 per pound. The conclusions of the feasibility study were therefore that the Cupey project in its then current state was not capable of being financed and, as a result, on November 25
1997, KWG abandoned the Cupey project. Throughout the events described above, while neither of the deposit nor the Cupey project were yet in an operating phase, the companies did not want to
downsize their staff out of a concern that if either of the two projects was suddenly ready to be proceeded upon (ie, the required financing was raised for the deposit or the feasibility study of the Cupey project proved to be positive), personnel would be required to be mobilized immediately. As a result, the combined fixed costs of the companies were approximately $2 million per month. Inter-Company Accounts As a result of the foregoing set of circumstances, indebtedness was created, without authorization of the relevant boards of directors, among the various members of the St Genevieve group of companies. The proceeds from these inter-company loans were used solely in the operations of the companies. Specifically, of these proceeds, $14.2 million was used in the development of the deposit and $3 million was used to effect investments in affiliates (principally,
Icelandic Gold Corp, Ambrex Mining Corp and Spider Resources Inc).
As at November 30 1997, the balances of these inter-company accounts were as follows:

SGV owes to Genoil $5.2 million
SGV owes to EAG $15.3 million
KWG owes to SGV $8.7 million
SGV owes to Icelandic $0.4 million

The companies shall request of their auditors, Price Waterhouse, to independently confirm the foregoing use of funds. A press release containing the results of this investigation is expected to be issued within the next ten days. Other Indebtedness In late September and early November 1997, with a view to generating working capital, SGV sold to various third parties shares of KWG which it held in its
portfolio of securities, thereby raising a total of $5.6 million. In connection with such sales, SGV undertook to repurchase the KWG shares between December 29 1997 and May 8 1998 for a total of $6.5 million. To date, SGV has not made any payments under these commitments.
Restructuring Plan
In filing for protection under the CCAA, the companies will put into place the following restructuring plan.
1. Sale of Non-Core Assets SGV will sell all of its non-core assets, being its interests in Ambrex Mining Corp (a gold and base metals exploration company), Spider Resources Inc (a diamond exploration company), Icelandic Gold Corp (a gold exploration company),
Strategic Exploration (STREX) Inc (a base metals exploration company) and possibly Genoil (an oil and gas exploration company), in order to focus on Its gold properties in the Russian Federation and the Caribbean.
2. Settlement of Trade Debts Through the proceeds generated by these sales, the companies intend to offer a settlement to their various consolidated trade creditors holding claims in the approximate total amount of $9.8 million.
3. Settlement of Inter-Company Debts
SGV is currently discussing with the board of directors of Genoil alternatives available in respect of the settlement of the $5.2 million indebtedness owing to Genoil.
As regards SGV's indebtedness toward Icelandic, similar discussions are taking place with its board of directors and SGV is confident that a mutually satisfactory arrangement will be arrived at.
With respect to the indebtedness owing toward EAG, it does not at present pose an immediate problem for EAG as the company remains in a strong financial position. SGV and EAG will work together toward a resolution of this matter and have begun to discuss several possible scenarios, including a possible merger. The indebtedness owing to KWG and its wholly owned subsidiary, FEG, is similarly being discussed and may also result in a merger.
4. Streamlining of Operations The proposed merging of the operations of SGV, KWG, EAG and possibly Genoil into one corporate entity, would have the result of reducing overhead and eliminating all remaining inter-company indebtedness. A new management team will be put into place to oversee this new company; however, it shall not be headed by Richard Faucher as originally contemplated, for Mr Faucher has resigned his post. A replacement is currently being sought. The companies are optimistic that such a merger would be approved by the relevant shareholders as the various companies in question have, for the most part, similar shareholders. The restructuring would also include the scaling down or closing of offices in Montreal, Toronto, London, Havana, Moscow and Haiti, the reduction of personnel and the reduction of the salaries of remaining senior management. The new merged entity would retain only those projects which are currently proven to be of merit. In operating these projects, the companies' philosophy shall be to enter into joint ventures with experienced third party operators who shall assume all of the associated operating risks. As a consequence, the companies are in the process of actively seeking a joint venture partner for the deposit along these lines.
5. Rights Offering
In order to generate additional capital, the companies may decide to proceed with a rights offering to their shareholders.
The companies are working diligently toward the implementation of this restructuring plan and will report on their progress as and when significant developments occur. Currently, the companies are scheduled to submit a formal plan to their creditors on or before January 23 1998 and to hold a meeting of creditors on or before February 26 1998.
(c) Copyright 1997 Canjex Publishing Ltd.

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