This Deal is BrilliantMy Hat's off to Management... They've pulled a rabbit out of an orifice on their body where rabbits don't normally see the sun.
Fundamentally this is a "laddering" up agreement. It builds trustbetween both parties over time and leads them towards a marriage.
Here's why I like it:
1. OX finishes its most recently announced private placement, at a slightly lower price than previously announced. This gives OX the money to start the drills turning even while OSK does all its Due Diligence and the legal documents are hammered out. Assay results start to flow soon. All the folks who expected to participate in the placement are still rewarded, and there is no repricing risk/market penalty because everyone is looking at OSK and salivating.
2. OX gets a commitment of another $13MM in funds over the next 4 years. This is more money than the recent report recommended was required for the drilling program, bulk sample and prefeasibility study. As others have pointed out they don't have to do another PP again, so we probably have a maximum dilution established. This should remove all the risk premium that was being factored into the share price. Instead of the current value of $15/oz for the gold in the ground, we're looking at something like OSK's in-ground valuation since all the unknowns and risk around the financing and management expertise have been removed. Academically this "lack of perceived risk" is what should move the price higher tomorrow but realistically a lot of investors who have never heard of OX until now will be "chasing" the price up. I make no predictions other than UP.
3. OSK brings all the management and expertise to the property to finish exploration. Things are going to move and fast now - within two months.
4. OSK's ownership grows over time, but no up-front price for the shares has been indicated. There is just a stated intent to allow OSK to buy 50-60% of OX shares (aka a friendly pre-agreed acquisition). I think this means while the outstanding OX shares grows, as the OSK funds are coming in, the market gets to set the price for OX shares, and OSK will have to pay that price to complete the purchase (unless of course something material like that is planned in the final version) Presumably the money we are spending is to proove out a resource, so we have a growing resource and growing share price while OSK is doing the work. As I've pointed out before, there is a multiplier in that exploration money. We could raise $1MM to find 1MM oz, or we might raise 1MM to find 5MM oz, we will actually come out with a higher valuation even with more outstanding share capital.
5. When OSK buys out 60% of the company, OX has a pile of cash to either distribute or reinvest. My bet is that OX goes off and explores or buys a lot of NS gold properties, the many of which are not publicly traded and are held by small unsophisticated holders and which will be able to be bought for a song. OX has a 40% right to any profits from those properties. Assuming OSK doesn't eventually buy out OSK, there is even more upside as more properties are brought into OX.
6. Management and insiders are not off the hook. OSK can still walk away at any time before they've actually bought the shares, this means the insiders cannot just sell and run, they're on the hook until OSK cuts them a cheque, and even after that probably. This means they'd better be absolutely certain there is gold there or OSK will walk.
7. Its in OSK interest to move fast to proove the resource, because the faster they can spend the money the quicker they can own 60% of it and the market will be slower to react to drive up prices.
It strikes me that OX is getting someone else to do the work forthem... kinda like how my 8 year old manages to get his mother to "help" him with his homework, and she just gets so frustrated she nearly does it for him yet he always gets the smiley happy face sticker from the teacher.
I remain very long with 500k@$0.06. Hats off to the folks who got in 20 years ago and lived the nightmare.