GMD, LMX trading halted pending VSE investigation

GMD Resources (GMD-V) is under investigation for having made $3 million worth of unsecured, non-arm’s-length loans to two companies without the approval of the Vancouver Stock Exchange.

The first loan totalled $2.1 million and was advanced to LMX Resources (LMX-V) to help finance oil interests in Newfoundland.

The second loan, worth $918,762, was made to Farrell Financial, a private company held by GMD President Donald Farrell. An additional $300,000 was re-loaned to LMX from Farrell’s company.

The two companies share four directors: Farrell (who is also president of LMX); Garvin McMinn; Visco Jutronich; and Paul Brownlee. The oil projects in which LMX has interests are managed by Ingelwood Resources, whose managing director, Gil Dalton, also sits on GMD’s board.

All the loans were made prior to Dec. 31, 1997, yet shareholders were not notified until Jan. 12. According to the VSE, that does not represent timely disclosure. Both companies stated that the loans were disclosed in their year-end (to Aug. 31) audited financial statements, which were mailed to shareholders during the week of Jan. 12, 1998.

Trading of GMD and LMX shares was halted on Jan. 23, pending a VSE investigation into the company’s affairs.

“It was an inappropriate loan to begin with,” states Angela Huxham, the VSE’s surveillance chief, who points out that even if the loan were acceptable, the agreement should have been announced once it was signed.

“That the loans were disclosed in the financial statements is irrelevant.” The VSE has ordered Farrell, McMinn, Jutronich and Brownlee to resign until the investigation has been completed. Currently, David Webb is acting as president of GMD and Brian Weir as secretary.

According to a GMD press release, LMX will repay half of its debt to GMD by exercising warrants and monies received from projected income from its Mexican concession as well as from land rentals on one of its Newfoundland oil projects. The debt is supposed to be repaid by year-end at an interest rate of prime plus 2%.

The monies loaned to Farrell Financial are to be repaid by June 30, 1998, at a rate of 7.5% per annum. Minimum monthly payments of $25,000 are scheduled to begin on Feb. 15. Farrell Financial’s management fees of $5,000 per month are also being applied to the repayment of the loan.

GMD is a Vancouver-based resource company; its chief asset is the Discovery gold mine in the Northwest Territories.