Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Oilsands Quest was little changed at 24.5c on Tuesday after announcing it had entered into a 2-year $12 million securities purchase agreement with Socius Capital. Oilsands Quest says the financing ensures it’s near-term liquidity while it attempts to sell off assets and advance its flagship Axe Lake pilot project.
The deal throws a lifeline to the company under threat of delisting from AMEX after a $60 million rights offer flopped in September and a year-long quest to find a buyer or strategic partner came up empty handed. Investors in the firm have been on a bumpy ride. The stock is down some 70% from its January highs of 64c and gained 63% in a single day after Saskatchewan granted the company 15-year oil sands leases, the first in the province. But recent investors can feel smug about the fact that they did not buy into the junior during the frothy 2006 market – the counter hit a peak of $7.76 in March that year.
Under the agreement, Oilsands Quest has the right over a term of two years, subject to certain conditions, to require Socius to purchase up to $12 million of redeemable preferred shares, payable in tranches at the election of Oilsands Quest. The Preferred Shares bear interest at an annual rate of 10%. With each purchase, Socius will receive warrants to purchase shares of the Oilsands Quest’s common stock valued at 35% of the Preferred Stock amount.
The exercise price of the warrants will equal the closing bid price of the Oilsands Quest’s common stock on the preceding day. In addition, Socius will be obligated to exercise an additional investment right to purchase common stock valued at 100 per cent of the amount of the Preferred Stock, at a per share price equal to the exercise price of the warrants associated with the sale of Preferred Stock. Both the warrant and additional investment right are exercised when the Oilsands Quest elects to sell a tranche of Preferred Stock.
Oilsands Quest is also working to finalize the definitive sale agreement for its Wallace Creek asset. The total sale price is $60 million, including $40 million of cash. In addition, if the purchaser either sells the acquired assets or develops them, and certain other conditions are met, a $20 million post-closing additional payment will be due. Completing that transaction is subject to a number of terms and conditions, including board approvals, due diligence, financing and approval by OQI shareholders. Oilsands Quest anticipates that a definitive sale agreement will be concluded by the end of October 2011, and now expects that the transaction will close by the end of January 2012.
The company also said in a statement that in response to a notice of non-compliance received by Oilsands Quest from the NYSE Amex, the Company has now submitted a plan explaining how OQI intends to return to full compliance with the Exchange’s listing requirements.
MINING.com argued in August that the Oilsands Quest saga is a prime example of the risks of trying to go it alone in the oil sands. Slack crude prices and a sluggish US economy force small players into mergers and reverse a slowdown in oil sands deals that have plunged 63% this year to $8.5 billion worth of transactions.
