Oceanic Iron Ore CEO Steven Dean has done the right thing by allowing existing investors to participate in a massively dilutive financing.

Oceanic Iron Ore CEO Steven Dean (pictured) has done the right thing by allowing existing investors to participate in a significantly dilutive financing.

Long suffering shareholders of Oceanic Iron Ore Corp. (FEO.v) have a new financing to consider today, the company’s first equity issuance in 20 months, and after a 10:1 share consolidation earlier this summer.

Oceanic aims to raise $3.5 million from existing shareholders by selling $0.25 units consisting of a common share and a full warrant with a $0.30 exercise price.

The last two financings by the company were done at $0.16, or $1.60 pre the 10:1 roll-back.

Cognizant of the fact that existing shareholders are getting massively diluted on this round, $1 million of the financing is open to all existing shareholders as of Aug 26, 2014. Investors in Oceanic wishing to participate must submit a subscription form within 7 days, which they can request from the company. The remaining $2.5 million will go to existing major shareholders.

I bought into Oceanic in fall 2012 in anticipation of plenty of newsflow coming from the Hopes Advance iron ore project in Canada’s Labrador Trough. I thought it was the next Alderon Iron Ore , a nearby company which was able to attract a strategic partner to develop its iron ore project, and had a significantly larger market cap by comparison to Oceanic’s.

The team at Oceanic are quite impressive, with Steven Dean, the former President of Teck Resources, Chairman and CEO of the company. Alan Gorman, an experienced Northern Canada mine developer, is the company’s president. Irfan Sharif, an articulate, professional financier, is the company’s CFO.

I bought in to the company based on their ability to attract a joint venture partner for the Hopes Advance project, but that hasn’t materialized.

I don’t blame them; the iron ore price has been under a lot of pressure, while the broad market for junior resource equities has also tanked.

Fast forward two years and Oceanic shares are down almost 90%, easily my worst performing junior mining gamble ever. Looking back to the interview with management I produced in 2013, it’s hard not to #facepalm.

Now the company’s about to be diluted by roughly 70%, with 19.6 million shares currently outstanding, and 14 million shares and 14 million warrants about to be issued.

Oceanic is absolutely doing the right thing by allowing existing investors to participate.

This morning I am considering my own participation, which I very likely will do, albeit with mixed feelings.

The team and the project are top notch but I believe management could do more to align their interests with shareholders.

According to the March 31, 2014 year end Management Discussion and Analysis, the top three executives at Oceanic plus their share of office space set the company back roughly $1.291 million last year (incls. salary, benefits, management fees, and share based compensation). This is quite significant considering Oceanic’s market cap currently is only roughly $4.5 million.

I would like to see these figures reduced by a third or more. I’d also like to see some big incentives put in place for certain milestones, such as the signing of a joint venture partner, so management can get really motivated about doing a deal with a Chinese or Korean steel producer, which would create a lot of momentum behind the company.

Less overhead, more performance incentive, and I think Oceanic can grow in value by 10-100x over the next 5-6 years.

The question, as it always is with pre-revenue stocks, is what will be the cost of dilution?

Shareholders in Oceanic as of yesterday wishing to participate should contact the following:

  • Alan Gorman, president and chief operating officer, 1-514-289-1183 (Montreal);
  • Stephen Roberts, vice-president, investor relations, 1-604-349-9644 (Vancouver).

Here is the news release: Oceanic Announces Non-Brokered Private Placement Financing of $3.5 Million

And the interview we taped with management in Jan 2013:

I know nothing of your personal situation and am not qualified to provide individual advice to you on whether you should participate. These are my opinions alone. Always do your own due diligence. Thank you.