Quest Oil prices $8 million convertible debentures; natural resources dominate PIPE market

By Sheri Kasprzak

New York, Sept. 8 - Quest Oil Corp. led private placement news Thursday, announcing its plans to raise up to $8 million from a convertible debenture deal.

The Arlington, Texas-based oil exploration company intends to sell series B convertible debentures, each with a stated value of $200,000.

The two-year debentures bear interest at 8% annually and are convertible into common shares at the volume weighted average price for 10 trading days before the closing date.

Quest had 39,282,069 outstanding common shares as of Aug. 18.

Investors of the offering will receive three series of warrants. The series A warrants allow for the purchase of 100% of the common shares issuable upon conversion, exercisable at a price equal to 170% of the conversion price for two years. The series B warrants allow for the purchase of half of the shares issuable upon conversion at 115% of the conversion price for one year, and the series C warrants allow for half of the shares issuable upon conversion at 140% of the conversion price for five years.

Darren Hayes, a spokesman for Quest, did not return calls for comment on the offering by press time Thursday night.

After the offering was announced Thursday afternoon, Quest's stock sank 16%, or $0.08, to close at $0.42.

The company's net losses have increased substantially since the company changed its business to oil exploration from a gaming software concern in October 2004. Quest sustained net losses of $972,436 for the period from Oct. 1, 2004 through June 30, 2005. For the quarter ended June 30, the company reported net losses of $411,006, compared to net losses of $69,360 for the second quarter of 2004.

In the broader PIPE market, natural resources made up the majority of the deals either priced or closed Thursday, in no small part because of last week's surge in oil.

Oil prices made meager gains on Thursday after sliding significantly for two straight sessions. Oil gained $0.12 to end at $64.49.

One sell-sider in the United States said last week's record-high oil has been enough to push energy stocks and to impact mineral companies as well.

"Oil goes up, minerals go up too, most of the time," he said. "If you're looking for what companies are coming out with stuff now, minerals, oil and maybe biotech are the ones. Other than that, I think [issuers] are scared off."

That market source noted that some issuers may wait until the economic impact of Hurricane Katrina becomes a little clearer, or may choose some other financing option, like a convertible, to protect their shareholders.

Another source said he feels stocks have little to do with issuance right now. He claims the window for investments in some of the key sectors in the PIPE market has already closed or will be closing soon.

"It makes more sense to me that it has less to do with the issuers and more to do with the investors," he said. "Stocks play a role, but when you get down to it, investor interest wanes after a while. It will come back and maybe [volume] won't be so bad, but I think investor interest is drifting slightly."

Stocks on Thursday sank with the Dow Jones Industrial Average losing 37.57 to end at 10,595.93; the Nasdaq composite index dropped 6 to close at 2,166.03, and the Standard & Poor's 500 composite index slipped 4.69 to close at 1,231.67.

Searchlight closes two deals

Among those natural resources offerings Thursday were two deals closed by Henderson, Nev.-based Searchlight Minerals Corp.

Searchlight raised $1,597,500 from a unit offering made to Canadian investors.

The company sold 3,195,000 units at $0.50 each. The units included one share and one half-share warrant. The whole warrants are exercisable at $1.25 each for nine months and come with one-tenth of a share at no additional cost.

Dominick & Dominick Securities Inc. was the placement agent.

In a separate offering, Searchlight raised $1.35 million by selling 2.7 million units to European investors.

The units were sold at $0.50 each and were comprised of one share and one half-share warrant. The full warrants were exercisable at $1.25 each for nine months.

Clarion Finanz AG was the placement agent for that offering.

Proceeds from both of the deals will be used for development on its mineral claims and for the acquisition of the Clarkdale Slag project. The remainder will be used for general corporate purposes.

Searchlight is a mineral exploration company.

The company's stock gained $0.05, or 5.56%, to close at $0.95 on Thursday.

New Millennium arranges PIPE

Heading up Canada's natural resource offerings Thursday was news from New Millennium Capital Corp. that it plans to raise up to C$7 million in a deal comprised of both units and flow-through shares.

The Calgary, Alta.-based iron ore development company plans to sell both the units and shares at C$0.50 each. There is a C$4 million limit on the flow-through share portion of the deal. The company will raise at least C$3.5 million from the entire deal, according to a statement released Thursday afternoon.

The units include one share and one half-share warrant. The whole warrants allow for the purchase of another share at C$0.75 each for two years.

Raymond James Ltd. and Investpro Securities Inc. are the placement agents.

The proceeds will be used for drilling and bulk sampling at the LabMag iron ore project. The rest will be used for working capital.

New Millennium's stock jumped 10% after the offering was announced, closing up C$0.05 at C$0.55.

Smith & Wesson stock up 1.2%

After announcing its plans to raise $26 million from a private placement of stock, firearms maker Smith & Wesson Holding Corp.'s stock made slight gains Thursday.

The company's stock rose $0.06, or 1.21%, to end at $5.01.

When its private placement was announced Wednesday, the company's stock sank $0.36, or 6.78%, to end at $4.95.

The Springfield, Mass., company plans to sell roughly 6 million shares at $4.33 each to a slate of institutional investors.

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