globeandmail.com

Mining financier turns to oil sands

Tuesday, April 20, 2010

NATHAN VANDERKLIPPE

CALGARY -- Vancouver financier Frank Giustra, who made his name on mining deals, has set his sights on a different area of resource riches: the oil sands.

Mr. Giustra is among a group of investors who have agreed to pour up to $20-million into Excelsior Energy Ltd., a small oil sands company that is nurturing an innovative method of using underground fires to extract bitumen.

Peninsula Merchant Syndications Corp. and Jeff Scott are the other two investors involved in the non-brokered private placement, disclosed yesterday. Excelsior, a junior exchange-listed company that has struggled to arrange financing, plans to use the proceeds to further explore its 15,000 acres of oil sands.

Having Mr. Giustra on board "is an important part of the deal," said Excelsior chief executive officer David Winter, who has yet to meet the West Coast financier. "The deal is bringing in very significant investors with financial muscle and the market credibility which can help us with future financing. So I think it mitigates our financing risk."

It's the first time Mr. Giustra has put money into the oil sands, Mr. Winter said.

The complicated transaction provides the trio of investors with a combination of shares, flow-through shares and share-purchase warrants, but does not change control of the company.

Excelsior shares closed up a penny, or 3.5 per cent, to 29 cents yesterday.

Mr. Giustra has amassed a fortune in part through his knack for corporate transactions in the mining world, where he has been active in uranium and silver companies. He recently began investing in sawmills in Ontario and Quebec. But he has also grown more active in oil and gas of late, helping with the financial engineering of companies such as Pacific Rubiales Energy Corp., Petroamerica Oil Corp., Petromanas Energy Inc. and Alange Energy Corp.

A spokesman for Mr. Giustra did not respond to requests for comment. Adam Waterous, global head of investment banking with Scotia Capital Inc., said the investment speaks to the renewed appetite for oil sands.

"I'm sure he's partially taking advantage of that or reflecting that," said Mr. Waterous, who also pointed out that the oil sands have been fertile ground for growing money.

"There have been some really fantastic companies built in this country in the oil sands business," he said. "If you looked in Canada and said in the 2000s how many companies have started from scratch and have an enterprise value north of $1-billion, it's amazing how many of them would be oil sands companies."

Mr. Giustra is not the first prominent mining financier to leap into the oil sands.

Robert Friedland currently serves as president and chief executive officer of Ivanhoe Energy Inc., which plans to file later this year for regulatory permission to start building a 50,000 barrel-per-day oil sands project.

Though valuations among small oil sands players have been propped up by the strong Athabasca Oil Sands IPO earlier this year, the past 24 months have been filled with trouble for companies like Excelsior, which have had difficulty raising money to build a test plant for its bitumen extraction technology.

"At one point our share price was down to four cents," Mr. Winter said.

"A lot of stocks are undervalued because of perceived financing risk. We were trading at 15 cents a barrel [of contingent resources] roughly, where if you look at the recent metrics on the Athabasca IPO, that was around 67 cents a barrel. So there's quite a big discrepancy."