Red Mile Capital Corp.
TSX VENTURE : RDM.P

November 21, 2008 14:57 ET

Red Mile Capital Corp.: Letter of Intent to Acquire Black Sea Oil & Gas Ltd. as a Qualifying Transaction

CALGARY, ALBERTA--(Marketwire - Nov. 21, 2008) - Red Mile Capital Corp. (TSX VENTURE:RDM.P) -

Red Mile Capital Corp. ("Red Mile") trading symbol RDM.P, trading on the TSX Venture Exchange (the "TSXV" or the "Exchange"), a capital pool company, is pleased to announce that it has entered into a letter of intent (the "LOI") dated November 13, 2008 with Black Sea Oil & Gas Ltd. ("Black Sea"), a private Alberta Corporation where under the parties have agreed to negotiate a definitive agreement related to a proposed acquisition pursuant to which Red Mile will acquire all the issued and outstanding securities of Black Sea (the "Acquisition") (the combined entity hereinafter referred to as the "Resulting Issuer"). The arm's length acquisition will constitute a "Qualifying Transaction" under the applicable policies of the TSXV, subject to the parties having agreed to the essential terms of the Acquisition.

If the Acquisition is completed, Red Mile will issue 22,222,223 common shares to Black Sea shareholders having a deemed value of $0.45 per share, which implies an entity value for Black Sea of approximately $10,000,000 (not including securities issued in connection with the Black Sea Private Placement as defined below). As such, if the Acquisition is completed, but assuming that the Black Sea Private Placement is not completed, it is expected the Resulting Issuer will have 28,422,223 common shares issued and outstanding (on a non-diluted basis). Assuming completion of the Black Sea Private Placement, and assuming all shares will be issued on a non-flow through basis, there will be 35,362,152 shares of the Resulting Issuer issued and outstanding.

About Black Sea

Black Sea is a private Alberta based oil and gas exploration and production company which is currently focused in the Worsley area of north west Alberta. Black Sea has three core business units:

- High impact deep Devonian Drill targets (Leduc and Winterburn)

- Oil Resource play (Montney & Gething)

- Oil treatment and water disposal facility

Black Sea's current land base is 16 sections or 10,240 acres (4608 net acres), all with 3D seismic data in place. Current production is approximately 50% gas and 50% oil from the Leduc, Montney and Gething zones and a 54 meter exploratory core was drilled for the Resource program. On the conventional side Black Sea has planned one re-entry Leduc well to be completed by the end of February 2009. Construction has also commenced on an oil treatment & water disposal facility on site which will become operational as soon as Energy Resources Conservation Board approvals are granted.

Summary of Acquisition

It is anticipated that Red Mile will acquire all of the Black Sea common shares for an aggregate purchase price of $10,000,000. The purchase price will be satisfied by Red Mile issuing an aggregate of 22,222,223 common shares to be shared pro rata among all of the existing holders of Black Sea common shares, at a deemed value of $0.45 per common share. This represents an exchange ratio of 1.0409895 Red Mile common shares for each Black Sea common share issued and outstanding (the "Exchange Ratio").

Black Sea is currently conducting a non-brokered equity offering on a private placement basis for proceeds of up to $3,000,000 (the "Black Sea Private Placement"). As part of the Black Sea Private Placement, Black Sea is offering common shares, on a non flow through basis, at a price equal to $0.45 per common share, and is also issuing common shares on a flow-through basis at a price equal to $0.60 per common share. Any Black Sea securities issued in connection with the Black Sea Private Placement will be acquired by Red Mile on the same Exchange Ratio as for the existing issued and outstanding Black Sea common shares. Both parties acknowledge that if the Acquisition proceeds, the proceeds of the Black Sea Private Placement are not immediately required for the business plan the Resulting Issuer; therefore, the closing of the Black Sea Private Placement is not a condition precedent to the closing of the Acquisition, and Black Sea is not required to complete a minimum offering amount under the Black Sea Private Placement.

As consideration for the acquisition of all of the Black Sea common shares pursuant to the Acquisition, Red Mile will issue 1.0409895 common shares for each one (1) Black Sea common share issued and outstanding immediately prior to the Acquisition. As there are currently 21,347,211 Black Sea common shares issued and outstanding (prior to the Black Sea Private Placement), the Black Sea shareholders will receive 22,222,223 Red Mile common shares. Thus, when combined with the 6,200,000 Red Mile common shares currently issued and outstanding, upon completion of the proposed Acquisition there will be an aggregate of 28,422,223 Red Mile common shares issued and outstanding, on a non-diluted basis. In addition, in the event that Black Sea common shares are issued pursuant to the Black Sea Private Placement, the Resulting Issuer will have an additional 1.0409895 common shares issued and outstanding for each one (1) Black Sea common share issued as part of that offering.

GFI Energy Management Inc., which is a company 50% owned by Greg Kuipers and 50% owned by Bill Duncan, is the only Black Sea shareholder that owns or controls more than 10% of the issued and outstanding Black Sea common shares (on a non-diluted basis). GFI Energy Management Inc. owns or controls an aggregate of 5,120,001 Black Sea common shares, representing approximately 23.98% of all issued and outstanding shares of Black Sea. The next largest Black Sea shareholder is Shane Ferster, who owns or controls 2,100,000 common shares, representing 9.84% of all issued and outstanding Black Sea common shares. Black Sea currently has 89 shareholders.

It is intended that upon completion of the Acquisition, Black Sea will be a wholly owned subsidiary of Red Mile.

It is anticipated that upon completion of the Proposed Acquisition, the Resulting Issuer will meet the Tier 2 listing requirements of the TSXV for an oil and gas issuer.

Financial and Reserve Information Concerning Black Sea

Black Sea is currently having a reserve report prepared on all of its oil and gas reserves in accordance with National Instrument 51-101 - Standard of Disclosure for Oil and Gas Activities. Black Sea is also having its annual financial statements audited. Red Mile will issue another press release at a later date once the Black Sea financial and reserves data is available.

Management

The board of directors of Red Mile currently consists of Larry Whitehead, Robert Matheson, Peter Tallman, John Pallot, and Kerry Sparkes. It is anticipated that following the Acquisition, Greg Kuipers and Shane Ferster, current directors and officers of Black Sea, will be appointed to the board of directors of the Resulting Issuer. Accordingly, after the completion of the Acquisition, it is expected that the board of directors of the Resulting Issuer will consist of Greg Kuipers, Shane Ferster, Larry Whitehead, Robert Matheson, Peter Tallman, John Pallot, and Kerry Sparkes. The board of directors of Black Sea will be identical to the board of directors of Red Mile.

Upon completion of the Acquisition, Greg Kuipers will be appointed the Chief Executive Officer of both Red Mile and Black Sea; Larry Whitehead will be appointed the President of both Red Mile and Black Sea; Robert Matheson will be appointed the Chief Financial Officer of both Red Mile and Black Sea; Shane Ferster will be appointed the Vice President of Finance of both Red Mile and Black Sea; Wade Jacobson will be appointed the Vice President of Operations of both Red Mile and Black Sea and William Duncan will be appointed the Vice President of Land and Acquisition of both Red Mile and Black Sea. The municipalities of residence and biographies of the Resulting Issuer's proposed directors and key officers are as follows:

Larry Whitehead - Proposed President and Director, Vancouver BC

Mr. Whitehead, as the Principal of Whitehead & Associates Ltd. (a private company), has been a self-employed consultant providing management, corporate finance and venture capital services to public and private companies since 1988. From July 2000 to October 2006, Mr. Whitehead was a founder, director and Chief Financial Officer of ESO Uranium Corp., an Exchange-listed company (symbol: ESO) involved in gold and uranium exploration. He also served as director of Samba Gold Inc., an Exchange-listed company (symbol: SAO), from February 2003 to April 2004 and as a director and Chief Financial Officer of Totally Hip Technologies Inc., an Exchange-listed company (symbol: THP) from March 2002 to March 2003. Mr. Whitehead was previously employed by Citibank Canada as a regional manager for Western Canada. He obtained a Masters in Business Administration degree from the University of Washington in 1992.

Robert Matheson - Proposed Chief Financial Officer and Director, Vancouver BC

Mr. Matheson received his Bachelor of Commerce from the University of British Columbia in 1980 and obtained his Chartered Accountant designation in 1983 while articling with an international accounting firm. In 1984, he founded a predecessor firm of Dale Matheson Carr-Hilton LaBonte LLP, Chartered Accountants, where he has been a principal since. Mr. Matheson is a leader in the firm's Private Enterprise Group. In addition, he has other business interests, including being a partner in four steakhouse franchises.

Greg Kuipers - Chief Executive Officer and Director, Calgary Alberta

Mr. Kuipers is the founder, President and CEO of Black Sea Oil & Gas Ltd as well as the Founder & President of GFI Energy Management Inc., an Oil and Gas consulting service. Mr. Kuipers started in the oil and gas industry in 1978 building leases in Southern Alberta and then progressed to drilling and completion operations throughout the 1980's. Mr. Kuipers started his first oil and gas service company in 1989 which was subsequently sold to Canadian Fracmaster in 1991. Mr. Kuipers was employed by Canadian Fracmaster until mid 1990's when he became a Consulting Engineer on drilling, completions and abandonment projects.

Shane Ferster - VP Finance and Director, Calgary Alberta

Mr. Ferster has approximately four years experience in oil and gas industry primarily in financial modeling. Mr. Ferester was employed by TransAlta from August 2004 to November 2007 on the trading floor as a market analyst. Mr. Ferster has worked with Black Sea since April 2007 as CFO. Mr. Ferster graduated from the University of Alberta in 2003 with a Bachelor of Commerce degree.

Wade Jacobson, VP Operations, Calgary, Alberta

Mr. Jacobson is the President of LZJ Energy Services and Razr Energy Services (both private Alberta companies). Mr. Jacobson learned the oil and gas business from the ground up. He started in the field in 1986 as a rig hand doing field work, and later began working in a variety of marketing, sales and management capacities. Over the last 2 years, Mr. Jacobson has been instrumental in drilling, completion and operations management for Black Sea Oil & Gas Ltd.

William Duncan, VP Land and Acquisitions, Calgary, Alberta

Mr. Duncan has served as an industry liaison individual acting for investors and corporations that have a requirement for capital. He has over 18 years' experience in marketing and business development. His clients have ranged from a variety of environmental equipment and product manufacturers, to oil and gas corporations and industry service companies. Currently, Mr. Duncan serves as VP Business Development for Black Sea Oil & Gas Ltd., joint President of GFI Energy Management Inc. and VP Acquisitions and Divestitures of Golden Spike Energy Inc., all private Alberta companies. Mr. Duncan has also helped set up and raise capital for Century Oilfield Services Inc., another private Alberta company.

Kerry Sparkes - Proposed Director, Vancouver BC

Mr. Sparkes, M.Sc, P.Geo is a Professional Geologist and has over 20 years experience in resource exploration, having worked for Noranda Exploration Co. Limited as Project Geologist for seven years prior to becoming Senior Geologist and Exploration Manager with Archean Resources. In 1997, he joined Voisey's Bay Nickel Company Ltd., a private company, as Senior Geologist in charge of advanced exploration at Voisey's Bay. In 1998, Mr. Sparkes formed his own consulting company and began consulting for several junior exploration companies. At present, Mr. Sparkes holds the position of Vice-President Exploration for Messina Minerals Inc. ("Messina"), a public company listed on the TSXV, and supervises the exploration and development of Messina's Boomerang sulphide deposit. Mr. Sparkes is also a director of Donner Metals Ltd. and Knight Resources Ltd., both Vancouver based junior exploration companies listed on the TSXV.

Peter Tallman - Proposed Director, Vancouver BC

Mr. Tallman is a geologist with over 25 years of mineral exploration experience gained from working on projects in Canada, Mexico, South America and Australia. He received his Bachelor of Science degree from the University of Western Ontario in 1984. Mr. Tallman spent three years as Vice-President, Exploration for Prime Equities International Corp., a private company focused mainly on Newfoundland and Labrador resource properties. He previously spent four years with Noranda Inc., a public company, and six years with BP-Selco Inc. working on gold and base metal resource properties in Newfoundland. At present, Mr. Tallman is President and Chief Executive Officer of Messina Minerals Inc. ("Messina"), a public company, focusing on base metal mineral deposits in central Newfoundland including Messina's newly discovered Boomerang sulphide deposit.

John Pallot - Proposed Director, Vancouver BC

Mr. Pallot has over 32 years experience in the telecommunications industry as a Business Field Supervisor for Telus. He has served as a Director of Messina Minerals Inc. and other public companies since 1993. These junior resource companies have been focused primarily on resource exploration throughout Canada and South America. Since 2002, Mr. Pallot has been the President and Chief Executive Officer of Windarra Minerals Ltd. and Westward Explorations Ltd., both mining issuers listed on the TSXV.

Conditions

Closing of the proposed Acquisition is subject to a number of conditions including, but not limited to, the following:

(a) approval by the board of directors of both Red Mile and Black Sea;

(b) if required by the TSXV and applicable corporate and securities laws, approval by the Red Mile and Black Sea shareholders;

(c) satisfactory due diligence by both Red Mile and Black Sea;

(d) Black Sea having an audit completed on the consolidated financial statements for the year ended December 31, 2007 and having a review completed on the unaudited interim financials for the period ending September 30, 2008 (or such other periods as required by the TSXV);

(e) Black Sea having a reserve report prepared on all of its oil and gas reserves in accordance with National Instrument 51-101 - Standard of Disclosure for Oil and Gas Activities, which report shall be acceptable to both Red Mile and the TSXV;

(f) no material adverse change having occurred to the assets or share capital of either Red Mile or Black Sea;

(g) Red Mile having not more than 7,220,000 common shares issued and outstanding as at the closing of the Acquisition, on a fully diluted basis;

(h) negotiation and execution of a definitive agreement; and

(i) obtaining any requisite regulatory approval.

Sponsorship

A general policy of the TSXV requires that a sponsor be retained to prepare a sponsor report in compliance with TSXV Policy 2.2. The Corporation intends to apply for an exemption from sponsorship requirements; however, there is no assurance that the Corporation will obtain this exemption.

Trading in the common shares of the Corporation will remain halted until certain required documents have been provided to the TSXV.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

Statements in this press release may contain forward-looking information including, operating costs, administrative costs, acquisitions and dispositions, capital spending, access to credit facilities, income taxes, regulatory changes, and other components of cash flow and earnings. Any statements that are contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "may", "should", "anticipate", "expects" and similar expressions. The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Red Mile. The reader is cautioned not to place undue reliance on any forward-looking information. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

The forward-looking statements contained in this press release are made as of the date of this press release, and Red Mile does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by securities law.

This press release, required by applicable Canadian laws, is not for distribution to U.S. news services or for dissemination in the United States, and does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States. These securities have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold in the United States or to U.S. persons unless registered or exempt therefrom.

This new release shall not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Red Mile Capital Corp.
    Larry Whitehead
    President, Chief Executive Officer and Director
    (604) 542-2223
    or
    Black Sea Oil & Gas Ltd.
    Greg Kuipers
    President, Chief Executive Officer and Director
    (403) 269-5432 Loc (227)