Sprott Resource Corp. Announces Q3 2012 Results
Marks 5-Year Anniversary with an Internal Rate of Return on Investments(1) of approximately 28%
TORONTO, Nov. 14, 2012 /CNW/ - (TSX: SCP) - Sprott Resource Corp. ("SRC" or the "Company") today announced financial results for the three and nine-months ended September 30, 2012.
"In September, Sprott Resource Corp. celebrated its five year anniversary. Since beginning operations in 2007, we have established a strong track- record of delivering returns," said Kevin Bambrough, Chief Executive Officer of SRC. "We recently completed the sale of our subsidiary, Waseca Energy Inc. ("Waseca"), to Twin Butte Energy Energy Ltd. ("Twin Butte") for total proceeds of approximately $111.7 million, a 29% IRR (defined below) on our investment of approximately $44.2 million. This transaction is the most recent in a series of successful dispositions, such as the sale of our positions in PBS Coals and Stonegate Agricom Ltd. ("Stonegate Agricom"), that have enabled us to generate a five-year IRR of approximately 28% and gross gains, excluding taxes and fees, of approximately $280 million."
"The value created over the duration of our investment in Waseca validates our strategy of partnering with proven management teams to navigate the complexities of the junior oil and gas capital markets in Canada. It is expected that the Waseca transaction will increase SRC's net asset value, net of estimated fees and taxes, by over $40 million in the fourth quarter of 2012." added Paul Dimitriadis, SRC's Chief Operating Officer. "We thank the Waseca management team for their efforts in building the company over the past four years."
"We are pleased with the progress of our portfolio of agricultural investments," said Steve Yuzpe, Chief Financial Officer of SRC. "One Earth Farms Corp. ("One Earth Farms") has now completed 97% of its harvest operations and has recorded a substantial improvement in the total crop value per acre compared to 2011. The company has also made significant progress against its 2012 objectives of improving operations and reducing controllable costs and, in the third quarter, hired a marketing and branding executive to lead the development and execution of One Earth Farms' value added business strategy."
"We are proud of our accomplishments over the past five years and look forward to continuing to build value in all of our existing investments while also pursuing new opportunities," continued Mr. Bambrough. "After the closing of the Waseca transaction this month we are again in a strong position of liquidity that includes $127.8 million of unencumbered physical gold bullion and over $30 million in cash. We have always been patient and selective in our investments and will continue to support shareholders with the share buyback program. This year alone we have repurchased and canceled over 5.5 million shares totaling approximately $22 million and over our five year history repurchased and canceled over 17 million shares totaling approximately $55 million. We remain confident in our strategy and believe that we are well positioned for the next five years."
SRC Q3 2012 Net Asset Value (NAV) and estimate to the date hereof
The following table outlines SRC's NAV as at September 30, 2012 and reflects the value at which individual items are carried on SRC's balance sheet.
|(in thousands)||September 30, 2012|
|Cash and Cash Equivalents1||$||1,527|
|Other current assets||1,895|
|Loan receivable from associate||2,000|
|Consolidated investment in:3|
|OEOG (defined below)||7,975|
|One Earth Farms||47,657|
|Fair value investment in:|
|WestFire (defined below)4||115,814|
|Guide (defined below)5||28,173|
|Union Agriculture Group6||38,274|
|Potash Ridge (defined below)7||9,900|
|Equity investment in:|
|ICD9 (defined below)||45,915|
|Less: Current Liabilities10||(76,669)|
|Less: Non-Current Liabilities||(3,605)|
|Total equity attributable to shareholders (NAV)||$||429,884|
- Cash held at SRC or Sprott Resource Partnership and does not include cash held by subsidiaries of SRC or investee companies.
- As at September 30, 2012 SRC held 73,971 ounces of gold bullion valued at $1,745.99 per ounce.
- Waseca, One Earth Oil and Gas Inc. ("OEOG") and One Earth Farms are controlled subsidiaries of SRC and are carried at their book value.
- As at September 30, 2012, SRC owned 28.7 million shares of WestFire Energy Ltd. ("WestFire") (common shares and non-voting convertible shares) valued at $4.04 per share.
- As at September 30, 2012, SRC owned 16.8 million common shares of Guide Exploration Ltd. ("Guide") valued at $1.68 per share.
- As at September 30, 2012, SRC owned 3.4 million common shares of Union Agriculture Group valued at $11.31 per share, which is the price that the Company has recorded as fair value.
- As at September 30, 2012, SRC owned 13.2 million common shares of Potash Ridge Corporation ("Potash Ridge") valued at $0.75 per share, which is the price at which Potash Ridge completed its last financing.
- As at September 30, 2012, SRC owned 46.9 million common shares of Stonegate Agricom, valued at its book value of $0.33 per share. The September 30, 2012 publicly traded price of these shares was $0.40 per share.
- As at September 30, 2012, SRC owned 2.5 million common shares of Independence Contract Drilling Inc. ("ICD"). ICD is not publicly listed and the Company equity accounts for this investment.
- Included in Current Liabilities is the Company's Margin Account (defined below), which was used in part to fund the ICD investment. As at September 30, 2012, the outstanding balance of the Margin Account was $75.0 million.
Financial Highlights for the three-months ended September 30, 2012
- SRC reported a net loss of $56.8 million for the three-months ended September 30, 2012 compared to net income of $20.0 million for the same period in 2011. The net loss for the quarter was largely attributable to an impairment charge of $80.2 million. The impairment is predominately a reversal of the accounting gain recorded on the WestFire and Orion Oil and Gas Corporation ("Orion") merger that occurred on June 30, 2011. The Company recorded a $77 million gain on June 30, 2011 as a result of the merger. The Company's current carrying value of WestFire is nominally higher than the original investment cost base of Orion.
- For the three-months ended September 30, 2012, the Company purchased and canceled 2.0 million common shares under its normal course issuer bid at an average cost of $3.98 per share for a total cost of $8.0 million. Subsequent to quarter end and to the date hereof, the Company purchased and canceled 536 thousand common shares under the normal course issuer bid at an average cost of $3.88 per share for a total cost of $2.1 million.
- Net assets (defined as total assets less total liabilities and non-controlling interest) attributable to the shareholders of the Company decreased to $429.9 million as at September 30, 2012 from $511.5 million as at December 31, 2011.
- The Company recorded a fair value increase of $8.8 million in its physical gold bullion holdings during the third quarter compared to an increase of $7.7 million in the third quarter of 2011. As at September 30, 2012, the gold bullion had a fair market value of $129.2 million.
Achievements by SRC Subsidiaries and Investees for the three-months ended September 30, 2012 (and to the date hereof):
SRC passes five-year anniversary and establishes performance track record
- On September 5, 2012, the Company passed its five-year anniversary under the management of SCLP. The Company has calculated an IRR of approximately 28% for the period from September 30, 2007 to September 30, 2012.
- On November 1, 2012, the Company announced that the previously announced sale of its subsidiary Waseca to Twin Butte was completed (the "Twin Butte Arrangement"). The consideration received by SRC upon the sale was comprised of approximately $55.1 million of cash and approximately 19.9 million common shares of Twin Butte (the "Twin Butte Shares"). Immediately subsequent to the completion of the Twin Butte Arrangement, SRC sold all of the Twin Butte Shares for approximately $56.6 million of cash, resulting in total cash consideration of approximately $111.7 million for the sale of Waseca. SRC invested approximately $44.2 million into Waseca in two investment tranches. Proceeds from the Twin Butte Arrangement were partially used to repay the Margin Account in its entirety.
- Due to the Twin Butte Transaction, Waseca meets the definition of a disposal group and a discontinued operation. As a result, Waseca's assets, liabilities and results of operations, have been separately presented on the interim consolidated statements of financial position, the interim consolidated statements of income (loss) and the interim consolidated statements of cash flows.
One Earth Farms
- The value of the crops grown by One Earth Farms is calculated by combining the revenues from crops harvested and sold, plus the fair value of the harvested crop inventory available for sale and the realized proceeds from crop insurance. In 2012 One Earth Farms expects to generate approximately $32.0 million on 88 thousand total acres planted, or $366 per acre compared to approximately $301 per acre in 2011.
- As at the date hereof, One Earth Farms harvested approximately 85 thousand acres, leaving approximately 3 thousand acres of the 88 thousand seeded acres to be harvested.
- For the three-months ended September 30, 2012, OEOG recorded $433 thousand in net oil, liquids and natural gas sales ($504 thousand in gross revenue and $71 thousand in royalties) on production of 1,367 mcf/d of natural gas, 18 barrels of natural gas liquids per day and 16 barrels of oil per day for a combined average rate of production of 262 boe/d.
- OEOG received a price of $2.39 per mcf for the natural gas, $60.12 per barrel for the natural gas liquids and $70.75 per barrel for the oil produced and sold for an average of $20.92 per boe. OEOG's hydrocarbon sales generated a netback of $6.42 per boe for the three-months ended September 30, 2012.
- SRC recorded an equity loss of $336 thousand for the three-months ended September 30, 2012 on its investment in Stonegate Agricom, primarily due to general and administrative expenses.
- SRC recorded an equity loss of $1.2 million for the three-months ended September 30, 2012 on its investment in ICD, primarily due to general and administrative expenses, depreciation and amortization, manufacturing expenses and overhead.
- During the third quarter of 2012, ICD had two rigs contracted throughout the quarter and a third rig was completed and began drilling operations in early September 2012. ICD is actively marketing its fourth rig, which is scheduled for completion in December 2012.
The merger of WestFire and Guide to form Long Run
- On October 29, 2012 the Company announced that it has acquired ownership of 20,141,777 common shares of Long Run Exploration Ltd. ("Long Run"), which based on information contained in documents publicly filed by Long Run, represents approximately 18.3% of the total issued and outstanding common shares of Long Run (the "Long Run Shares").
- The Long Run Shares were acquired pursuant to a previously announced plan of arrangement completed on October 23, 2012. Prior to the Arrangement, the Company owned 16,769,477 common shares of Guide and 13,153,936 common shares of WestFire which were exchanged for 20,141,777 common shares of Long Run. The Company also owned 15,512,858 non-listed, non-voting convertible common shares of WestFire, which continue to represent non-listed, non-voting convertible common shares of Long Run ("Long Run Non-Voting Shares") on a one-for-one basis, being approximately 100% of the outstanding Long Run Non-Voting Shares and convertible into approximately 12.4% of the then outstanding Long Run Shares. Upon conversion of the Long Run Non-Voting Shares into Long Run Shares, the Company will own approximately 28.4% of the then issued and outstanding Long Run Shares.
- SRP (defined below) acquired the Long Run Shares and Long Run Non-Voting Shares for investment purposes. SRP may purchase or sell securities of Long Run in the future on the open market, in private transactions or otherwise, depending on market conditions and other factors material to the investment decisions of SRC and SRP.
About Sprott Resource Corp.
SRC is a Canadian-based company, the primary purpose of which is to invest and operate in natural resources through its subsidiaries. Through acquisitions, joint ventures and other investments, SRC seeks to provide its shareholders with exposure to the natural resource sector for the purposes of capital appreciation and real wealth preservation. SRC is well positioned to draw upon the considerable experience and expertise of both its Board of Directors and Sprott Consulting LP (SCLP), of which Sprott Inc. is the sole limited partner. Pursuant to a management services agreement between SCLP and SRC, SCLP provides day-to-day business management for SRC as well as other management and administrative services. SRC invests and operates through Sprott Resource Partnership (SRP), a partnership between SRC and Sprott Resource Consulting Limited Partnership, an affiliate of SCLP which is the managing partner of SRP.
Forward Looking Statements
This news release includes forward-looking information relating to One Earth Farms' seeding and harvesting operations. Forward-looking information looks into the future and provides an opinion as the effect of certain events and trends on the business of SRC. The forward-looking information contained in this news release is based on current expectations and various estimates, factors and assumptions including, among others: the successful crop harvest by One Earth Farms.
These forward-looking statements involve known and unknown risks, including, but not limited to: general economic, market and business conditions; changes in environmental and other regulations; weather risk associated with farming operations; operational risk associated with farming; commodity price changes; and other risks, which are beyond the control of the Company or its subsidiaries.
SRC has attempted to identify important factors that could cause its results, performance and achievements to differ materially from those contained in the forward-looking information contained in this news release. However, there can be other factors that cause results, performance and achievements not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate or that management's expectations or estimates of future developments, circumstances or results will materialize. Accordingly, readers should not place undue reliance on the forward-looking information contained in this news release. SRC does not intend, and does not assume any obligation, to update these forward- looking information contained in this news release except as required by law. For a description of additional material factors that could cause the Company's actual results to differ materially from the forward-looking statements, please see the risks and uncertainties set out in the "Forward- Looking Statements" section and "Risk Factors" section in the Company's Annual Information Form for the year ended December 31, 2011.
Non-IFRS Financial Measures
Throughout this press release, the Company uses the term "netback". This term does not have any standardized meaning as prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures presented by other issuers. Netback is calculated on a per boe basis as oil and gas sales, less royalties and operating and transportation expenses. Netback is used by management to measure operating results on a per boe basis to better analyze performance against prior periods on a comparable basis.
(1) Internal rate of return is a rate of return measure often used in investment analysis to compare investment opportunities. The Company believes that providing an internal rate of return measure on a supplemental basis to our IFRS results is helpful to investors in assessing the overall performance of the Company over the past five years. Non-IFRS financial measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Past performance is not a reliable indicator of future results.
The internal rate of return calculation incorporated cash flows beginning on September 30, 2007 related to issuance of common shares, including through the exercise of warrants and stock options, the repurchase of common shares through normal course issuer bids and the payment of management fees and incentive fees and excludes income taxes paid. The calculation also includes management's estimate of the fair value of subsidiaries and entities over which the Company has significant influence, if different from the net asset value reflected in the Company's financial statements. The internal rate of return calculation does not correlate perfectly with the performance of the Company's quoted stock price from its listing on the listed on the Toronto Stock Exchange, or the compound annual growth rate of the net asset value due to the adjustments described above.
Information Regarding Disclosure on Oil and Gas Information
Where amounts are expressed in a barrel of oil equivalent ("boe"), or barrel of oil equivalent per day ("boe/d"), natural gas volumes have been converted to barrels of oil equivalent on the basis that 6 thousand cubic feet ("mcf") is equal to one barrel of oil. Use of the term boe may be misleading, particularly if used in isolation. This boe conversion ratio is based on an energy equivalence methodology, and does not represent a value equivalency. Indeed, the energy and value relationships may differ widely with market conditions. The conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.
The future net revenue estimates in this news release do not represent fair market value.
SOURCE: Sprott Resource Corp.For further information:
Chief Financial Officer
Tel: (416) 977-7333
Fax: (416) 977-9555