Funds diverted from St. Gen-managed accounts – St. Genevieve, KWG file for protection from creditors

Reykjavik-based junior Icelandic Gold (ICEG-C) has revealed that at least $400,000 has been diverted without authorization from bank accounts administered on its behalf by Montreal-based St. Genevieve Resources (SGY-T).

The discovery of the misappropriation, along with two cases of unauthorized borrowings involving St. Genevieve Group members Emerging Africa Gold (EAGI-C) and Genoil (GNOL-C) induced St. Genevieve and its 19%-owned affiliate, KWG Resources (KWG-T), to file for protection from creditors on Nov. 27.

St. Genevieve provided some of the early seed capital for Icelandic in return for certain rights, subscribing for $1-million worth of Icelandic shares (a 10.6% interest) in a private placement immediately prior to Icelandic’s flotation this past August.

Lyn Carroll, a London-based director of Icelandic Gold, says it was Peter Miller, the recently resigned president of St. Genevieve, who first showed interest in Icelandic’s exploration projects in Iceland.

“He went to St. Genevieve and recommended them to us, like a good big brother or someone who was going to be avuncular and look after us,” says Carroll. “He encouraged them to invest in us, and they did.” Icelandic felt they needed a Canadian-based administration; it already had three directors in Iceland, one in Sweden, one in Australia and Carroll in Britain. Thus the decision was taken to appoint three St. Genevieve directors — Peter Miller, Pierre Gauthier and Andrew Etcovitch — to the Icelandic board.

Two more St. Genevieve officers signed on as executive officers of Icelandic: Alain Taillefer as vice-president of finance and Luce St. Pierre as secretary.

By late summer, it had become St. Genevieve’s role to manage, as trustee, Icelandic’s administration and investor relations.

“They established a bank account in trust for us, and then things went wrong,” says Carroll, who spent part of the last week of November in St.

Genevieve’s Montreal offices. “All I can say is that we don’t know what happened and we have to get the documents before we can find out what happened. When we do know, clearly we will take steps to retrieve the money.

“As sympathetic as we are for Genoil and Emerging Africa Gold (EAG), we’re a bit different; we’re not family. This is what makes it so outrageous.” Carroll says it was Miller who discovered the outstanding Icelandic funds in early November when he was in Montreal trying to obtain funding for Icelandic’s upcoming exploration program.

The discovery apparently prompted Miller’s immediate resignation as president, chief executive officer and director of St. Genevieve. Miller also resigned from his other posts within the St. Genevieve Group — namely, chairman and director of Genoil; chairman and director of diamond explorer Spider Resources (spq-a); and director of EAG, a junior with projects in Africa and far eastern Russia. Miller’s resignations were made public Nov.

25.

In addition to the $400,000 that Icelandic says remains outstanding from its accounts is a sum not expected to exceed $125,000, which represents the interest and costs of recovery of this “loan.” Carroll says there are also some outstanding debts that St. Genevieve is required to pay Icelandic, debts mainly deriving from a time prior to the August flotation.

Carroll says Icelandic has terminated its administrative arrangements with St. Genevieve and has verbally stated that it expects the resignation of the St. Genevieve Group members from Icelandic.

In a release, Icelandic says it is examining all possible remedies, including claims against St. Genevieve, other members of the St. Genevieve Group, and their respective officers and directors, and is taking advice from its legal counsel, Borden & Elliot of Toronto, regarding other possible action.

“We’ve had to curtail a drilling program that was due to start this month,” says Carroll. “It’s very disappointing to us at this point to find we haven’t got the budget we hoped we’d have.

“But we are putting together an alternative,” she adds. “We still have $750,000 in cash and we’ve got an excellent prospect.”

In the Nov. 27 announcement about seeking protection from its creditors, St.

Genevieve stated that management was reviewing “unauthorized borrowings” by one or more members of the St. Genevieve Group of companies. In total, $14.9 million was borrowed from 36%-owned EAG, and US$5 million was borrowed from 36%-owned Genoil (an oil and gas explorer with projects in Cuba).

St. Genevieve says the money was apparently diverted to KWG to fund its Ametistovoe open-pit gold-silver project in Kamchatka in far eastern Russia (T.N.M., May 26/97).

St. Genevieve and KWG stated that they were filing preliminary restructuring plans providing for the downsizing of their operations and investments, with new KWG Chairman Richard Faucher heading the reorganization team.

Faucher served as president of Princeton Mining (PMC-T) for less than a year, beginning in the spring of 1996. Before that, he was president of Falconbridge Dominicana in the Dominican Republic.

Mary Peschka, a spokesperson for KWG, says that as part of the company’s restructuring, the KWG office in London is closing and that employees are being laid off. She adds that John Webster, who is in London, is still KWG’s president.

KWG also announced that it was terminating its option to acquire a half interest in the US$300-million Cupey nickel project in Moa Bay, Cuba (T.N.M., July 21/97).

Also on Nov. 27 came the announcement that Alain Taillefer had resigned as vice-president of finance for both St. Genevieve and KWG, as well as director of St. Genevieve.

Taillefer remains president of Strex (SIG.A-M), a St.-Genevieve-Group junior that holds mineral prospects on Quebec’s North Shore, and is spokesman for Spider Resources (SPQ-A).

On paper, the three common threads between the various companies are Pierre Gauthier, Alain Taillefer and Luce St. Pierre. Gauthier is chairman and a director of St. Genevieve, a director of KWG, president and a director of EAG, chairman and a director of Genoil, and a director of Icelandic Gold.

Alain Taillefer served as vice-president of finance for St. Genevieve, KWG, EAG, Genoil and Icelandic. Luce St. Pierre has been serving as secretary for the five aforementioned companies. Gauthier, Taillefer, Faucher and Etcovitch were all unavailable for comment.

Also resigning as St. Genevieve directors were: Marcel Aubut (who also resigned his KWG directorship), Harpal Randhawa, Hubert Marleau and Stephen Sharpe.

EAG chairman and former Quebec mines and revenue minister Raymond Savoie resigned his post and EAG directorship, but has remained on the St.

Genevieve board. Sory Kande also resigned as EAG director.

Effective before the opening of trading on Dec. 4, KWG was replaced on the TSE 300 and 200 indices by the telephone-utilities company Telesystem International Wireless. A stock on the TSE 300 index becomes subject to review should it be halted or suspended from trading for five consecutive days.

Back in Iceland, Icelandic Gold remains the only junior exploration company active on the island, with Carroll personally negotiating a special permit with the government.

Icelandic, through a 50%-owned subsidiary named Melmi, holds several gold exploration permits, mostly in the Reykjavik area in southeastern Iceland and along the eastern coast. The remaining interest in Melmi is held by the Icelandic company Malmis, which in turn is held 80% by the Icelandic diatomite-miner Kisilidjan and 20% by government-owned Icetec.

Icelandic Gold President Hallgrimur Jonasson also serves as director of Icetec.

In search of epithermal gold mineralization, Melmi completed a major stream sediment survey this fall in southeastern Iceland over a 1,500-sq.-km area, with the samples being processed at the Geological Survey of Finland’s laboratory.

Icelandic says that anomalies of gold and pathfinder elements bismuth, antimony, selenium and tellurium are clustered in a number of northerly trending structural or metallogenic corridors through the area, as well as being associated with
caldera margins and high-level granitic intrusives.

Melmi has completed three other major stream sediment surveys in Iceland (near Reykjavik; north of Akureyri in the north; and near Djupivogur in the east) and has conducted three soil surveys.

“There are not too many parts of the world where you get gold exploration over spreading ocean centres,” says John Karajas, Icelandic’s vice-president of exploration,

One of Icelandic’s main gold prospects is at Thormodsdalur, situated a few kilometres east of Reykjavik. The Thormodsdalur vein system, which extends over 700 metres in length and 450 metres in depth, was drilled and trenched in 1996 by a forerunner of Icelandic Gold named Oravil Private.

The US$350,000 drilling program collared 1,400 metres in nine holes, intersecting several gold mineralized zones at depths of about 50 metres.

The average trench grade over 270 metres was 4.77 grams gold per tonne over an average width of 1.56 metres.