The Empire strikes back Tuesday, January 15, 2008 It's a fresh start for 2008 with $50,000 to play with - our first pick is a penny-special the big end of town is paying keen attention to. Imperial corporation Ltd (ASX code: IMP) is a long-shot "roughie" with a much-chequered history stretching back nearly two decades. In that time it has showered the market with paper. At last count issued capital stood at 1.64bn shares. Yet, at 1.3c a share, the company carries a market capitalisation of just $21.33m. More than half of that is covered by IMP's 4.9% holding in the successful listed heavy minerals miner Bemax Resources (BMX); a holding with a market value of about $11m. That doesn't leave much value on IMP's 75% holding in its American subsidiary, Empire Energy USA, or the subsidiary's impressive $100m financing deal confirmed just before Christmas with Macquarie Bank. As background … In 2006, IMP joined with US interests to acquire productive tenements on the Appalachian basin in Pennsylvania. IMP's annual report for the year to June 30, 2007, confirmed that in the last half of 2006 it participated in 15 successful gas wells. In December of that year it subscribed $US9.35m ($10.46m) to its newly formed subsidiary Empire Energy USA and assigned its joint venture interests in Pennsylvania to that company, in which it now has 75%.
The annual report showed that:
• Empire Energy (75% IMP) had 134 producing gas wells, 3.4bn cubic feet of proven reserves plus 7bn cubic feet of undeveloped reserves, with a net present value (NPV) of $US20m, and
• IMP's Carrolltown joint venture (75% owned but being transferred to Empire) had 20 producing wells, 3.7bn cubic feet net proved reserves and a NPV of $US7.6m.
The company's September quarterly report revealed that 15m cubic feet of gas a month (about three-quarters of current production) had been hedged at $US8.45/1000 cubic feet from September, 2007, through to August, 2009.
In the week preceding Christmas, with the bonhomie of the season distracting many, who noticed IMP's announcement of December 18? It confirmed that IMP and its subsidiary Empire Energy USA had entered "into a committed letter of offer" with Macquarie Bank for up to $US100m in credit facilities to fast-track their energy aggregation strategy in the Appalachian basin.
IMP has a medium-term plan to list Empire on a North American exchange and, as part of the deal, Macquarie will get free warrants equivalent to 10% of Empire Energy capital ahead of any float, merger or trade sale.
Heady stuff for a minnow, but perhaps this deal will give IMP a much needed re-rating. IMP retains its long-standing board: executive chairman Bruce McLeod (a sometime banker and stockbroker and also a director of Bemax), engineer Kevin Torpey and stockbroker David Sutton (a director of Martin Place Securities). They have been joined since last August by Mark Maloney, a previous head of equities for J.P. Morgan Australia.
IMP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
