Imperial Metals Corp T.III

A POORLY CONSTRUCTED RIGHTS ISSUE

[faraway1]

Imperial Metals has resorted to raising money through the issuance of rights on several accasions. I felt strongly that the last year's issue was weak inasmuch as it left the door open for further issues as the money raised was not sufficient to get them through the reopening of Mount Polley. In that issue, they could have used up to a one for four ratio to raise significant additional funds. 

But here we are now in the midst of another issue which, again, may not provide sufficient funds to avoid further dilution in the future.. When I was in the business and orchastrated rights issues, I would insist on the full participation of insiders and generally would want a backstop so as to guarantee the complete success of the issue.I also would want to raise sufficient funds such that it would be unlikely that additional funds would be required in the forseeable future. In this case, there is an indication that there is an informal committment that some of the insiders and management will exercise but there is no guarantee nor is there a backstop. Furthermore, it is probable the additional funds wil be required over the intermediate term.

So where does that leave us? I suggest that it is likely that Edco, Edwards, Moeller and Kynoch will exercise, representing a little over 46% of the shares outstanding. But what about Fairholme which owns about 18% of the shares outstanding. Fairholme has many pockets and has a history of selling from time to time. So they are a big question mark. Also, in view of the uncertainty surrounding the ultimate success of the issue, there may be many smaller investors who will stand aside.

It is certainly possible that Edco, Edwards, Moeller, or some new, unidentified, investor will step in to make the issue successful. But if that does not happen, the result would be very negative from a share price perspective.

Please don't get me wrong. I believe that Imperial has solid assets and that the stock could be a marvellous performer over the intermediate term. But to float an issue with this much uncertainty is an unfortunate mistake.

[temeraire]

Before passing judgement I think an independent observer (or Board Member) would look to actual events.  When the stock was trading at ~$5 we did a Rights Offering at $4.75 that took the the sp to just below $4 and now Brian & Team have done another that took us to ~$3 which coincidentally is at the latest Rights price.  All the while CU and every single copper company on the TMX has

[faraway1]

Bang on! Here we have a company with two good assets and 30% of a potentially superb asset. Plus a bunch of developing assets that may or may not be junk. Furthermore, the NAV is $5.30 per share. I am not sure how meaningful this is, but I am an asset guy and a high NAV relative to SP does give me some comfort. Normally under such circumstances, I would say a rights deal is the route to go as

[miningfundi]

Thanks faraway1, very interesting analysis. A couple of thoughts: Imperial raises just enough funds to qualify as a "going concern". I suggest that management always believes that the next financing will be at a higher price because of strong corporate progress e.g. at Red Chris, Mt Polley and even Huckleberry. But I agree that the pricing is disappointing - 35% below the

[faraway1]

Thanks for your constructive comments. To clarify, I have no influence over any of the insiders. I and family have relative large holdings and in the case of the last rights issue, we did exercise most of our rights. Stupid us! As to the current issue, I am not sure that I will exercise unless we get some indication that the amount raised will get us comfortably through the reopening of Mount

[impe]

ME and crew are probably looking at percentage of ownership, not share price. Their ownership has been slowly increasing, and this will probably increase it further with an oversubscription. On the positive, they are testing out the MP mill now, and have mined a large stockpile of ore. Reserve calculations for East Ridge should also come out in the forseeable future. But the criticisms are valid.

[egss]

When do rights go in account? I'm exercising copper in demand. Wish I was younger...