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Friday, November 28, 1997
KWG files for CCAA
Company is reviewing unauthorized borrowings from affiliates Genoil and Emerging Africa Gold after more than $20 million goes missing
By PETER KENNEDY
Vancouver Bureau The Financial Post
KWG Resources Inc. has filed for court protection against
creditors and said it is reviewing the circumstances surrounding
unauthorized borrowings from two of its affiliates. In a statement released shortly after stock markets closed yesterday, KWG, a Vancouver-based mining junior, said the review involves more than $20 million borrowed from Calgary-based Genoil Inc. and a second affiliate, Emerging Africa Gold Inc. KWG is part of Montreal promoter Pierre Gauthier's St.Genevieve Resources Ltd. mining group The money was used to fund a Russian gold project known as
Ametistovoe, said KWG. Company officials including Gauthier were unavailable to answer questions yesterday. But St. Genevieve raised $120 million last year from six financings and shareholders will be
interested to know where and how that was spent, an analyst said.
The announcement comes after the resignation of a number of senior executives, including St.Genevieve chief executive Peter Miller, and Alain Taillefer, KWG's vice-president of finance.Marcel Aubut, a director at St. Genevieve, which owns 22% of KWG, also resigned Nov. 11. Trading in KWG (kwg/tse) and St. Genevieve (sgb/me) was halted all day yesterday while the companies prepared a statement. On Wednesday, shares closed at 40› and 17›, respectively. KWG said its problems are due mainly to recent declines in the price of gold and base metals. But analysts said tumbling gold prices weren't the only problem.
"I stopped following these companies because I had no confidence in management,'' said Doug Leishman, a mining analyst at Yorton Securites Inc. in Vancouver. "It sounds like a problem of corporate structure.''
At the request of the Alberta Stock Exchange, another associated company, Spider Resources Ltd., said KWG's woes may help to explain its falling share price. After closing down 0.50› at 11›, Spider shares (SPQ/ASE) are trading well below the 52-week high of 66›. Gauthier is a former stockbroker whose connections in Montreal's well-heeled Outremont region made him a star salesman.
After previously focusing on diamond exploration, KWG raised eyebrows in July when it secured an option to acquire a 50% stake in a major Cuban nickel mine. The agreement gave KWG until this month to raise the US$300 million needed to complete construction of the mine and build a refinery in Eastern Canada. The company was also in the spotlight last year when Bryan Wilson, an analyst at CM Oliver & Co.
in Toronto, forecast that KWG's Gaspar gold project in Cuba could contain 20 million ounces of gold. Leishman said yesterday Gaspar is nothing more then a promising exploration project. KWG said it has filed a preliminary restructuring plan providing for a downsizing of its operations and investments with a view to retaining only those assets viewed by management as being "essential to the future viability of the enterprise.'' The reorganization will be led by Richard Faucher, a former president and chief operating officer at
Vancouver's Princeton Mining Corp. who recently joined the St. Genevieve group. For the second quarter ended June 30, KWG reported a loss of $1.5 million (4› a share),compared with a loss of $1.8 million(8›) in the same period a year earlier.
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