U.S. private placement volume stalls as stock dip; Capitol Energy plans C$50 million deal

By Sheri Kasprzak

Atlanta, Jan. 24 - With stocks continuing to dive as oil prices climb, private placement volume in the United States all but stalled Monday, sell-side source said.

"What's happening is that stocks are falling because oil prices are rising," said one sell-sider. "I think issuers are afraid to gets deals out there right now because they will definitely be able to price better once the [stock] market turns around."

The Dow Jones Industrial Average ended the day down 24.38 at 10,368.61; the Nasdaq composite closed 25.57 lower at 2,008.61 and the S&P 500 lost 4.12 to close at 1,163.75.

Some Canadian energy companies, however, took advantage of better oil prices, and therefore better energy stocks, to raise money.

"Oil is up, but there's some concern now about how long it will stay up," said one Canadian source. "Oil prices are rising because of the weather and, of course, the weather isn't a stable thing."

The Canadian market Monday was dominated by oil and natural resources companies.

Capitol Energy Inc. topped headlines with its C$50 million proposed offering.

The company plans to sell 90,909,091 subscription receipts at C$0.55. The receipts allow for one share upon the closing of Capitol's acquisition of a private Alberta oil and gas company.

The offering is being conducted through a syndicate of underwriters led by Sprott Securities Inc.

The proceeds from the offering will be used to acquire the shares from the private company. That transaction is expected to cost C$46.4 million.

"The market conditions for a deal like this are really good," said one market source. "I expect that it will go well. Oil companies are the darlings of the PIPE market right now, and the pricing of this deal seems pretty good."

Based in Calgary, Alta., Capitol is an oil and gas company. The proceeds from the private placement that are not used for the acquisition will be used for working capital.

On Monday, Capitol's stock closed down C$0.10 at C$0.70.

O2Diesel wraps $2 million deal

O2Diesel Corp. has closed a private placement for proceeds of $2 million.

The company issued to a foreign investment firm 2,857,143 shares at $0.70 each.

Two-year warrants for 1,428,571 shares at $0.70 each for the first year and $1.05 each for the second year will also be issued in the offering.

The deal is topped off with additional investment rights for up to $3 million in shares exercisable for six months. The shares sold under the AIRs are priced at a 10% discount to the market price at the time of purchase. The investment rights include warrants equal to 50% of the shares purchased at 100% of the purchase price

The warrants associated with this portion of the deal also expire in two years.

Based in Newark, Del., O2Diesel develops cleaner-burning diesel fuel alternatives.

O2Diesel's stock closed up $0.20 at $1.03 on Monday.

Galleon plans, upsizes deal

On the same day the deal was announced, Galleon Energy Inc. upsized a private placement to C$35 million.

The upsized offering includes 3,286,385 class A shares at C$10.65 each.

An underwriting syndicate led by GMP Securities Ltd. has an over-allotment option for up to 938,970 class A shares at C$10.65 each for an additional C$10 million.

The company first announced the deal Monday morning as a C$25 million offering of 2,347,418 class A shares at the same price. The over-allotment option was also increased from an original 469,484 shares.

"Another oil company," said one market source. "It's priced in line with the market and I think the company decided to upsize it just because they knew they could raise more. Their stock has been doing reasonably well; oil in general is strong. This deal looks pretty good for them."

Galleon, based in Calgary, Alta., is an oil and gas acquisition, exploration, exploitation and development company. The proceeds from the private placement will be used to fund a portion of its 2005 capital program.

On Monday, Galleon's stock closed unchanged at C$11.

Fronteer to raise C$10.5 million

Fronteer Development Group Inc. said it plans to head to the private placement market with a C$10.5 million offering.

The deal includes up to 6 million units at C$1.75 each. The units are comprised of one share and one half-share warrant.

The whole warrants allow for an additional share at C$2.75 each for two years.

Pacific International Securities Inc. is the placement agent in the deal and has an over-allotment option for up to 1.2 million additional units for an extra C$2.1 million.

Based in Vancouver, B.C., Fronteer is a mineral exploration company. The proceeds from the private placement will be used for exploration on its mineral properties in Canada and Turkey.

The company's stock closed down C$0.05 at C$1.70 on Monday.

Arizona Star raises C$5.12 million

Arizona Star Resource Corp. finished a private placement for C$5.12 million on Monday, the company said.

The company issued 800,000 shares at C$6.40 each to arm's length financial institutions.

Arizona Star is at the center of a takeover by Bema Gold Corp., according to a market source familiar with the company.

"All things considered, this isn't a bad deal for them," said the source. "It's priced at only a slight discount to market, about 5% or so."

Based in Toronto and Vancouver, B.C., Arizona Star is a gold exploration company. The proceeds will be used to fund cash calls in 2005 on the Cerro Casale joint venture. The proceeds will also be used for expenses related to Bema Gold Corp.'s proposed bid for Arizona Star shares and for general working capital.

On Monday, Arizona Star's stock closed down C$0.03 at C$6.85 on Monday.

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