Sprott Resource Corp. Announces 2014 Second Quarter Results

TORONTO, Aug. 11, 2014 /CNW/ - (TSX: SCP) - Sprott Resource Corp. ("SRC" or the "Company") today announced its financial results for the three and six-months ended June 30, 2014. 

Q2 Highlights

  • Net Asset Value ("NAV") at June 30, 2014 of $376.9 million ($3.84 per share) compared to December 31, 2013 of $366.2 million ($3.71 per share).

  • For the three-months ended June 30, 2014, the Company recorded a net loss of $1.0 million ($0.01 loss per basic and diluted share) compared to a net loss of $72.6 million ($0.72 loss per basic and diluted share) for the three-months ended June 30, 2013.

  • In May 2014, SRC completed a sale of approximately one third of its holdings in Long Run Exploration, Ltd. ("Long Run") for net proceeds before tax of $64.3 million.

  • In June 2014, SRC invested $19.5 million in InPlay Oil Corp. ("InPlay"), a Calgary-based private exploration and development company focused on building a large, low decline, liquids-focused asset base in Alberta.

Subsequent Events

  • In July, SRC agreed to invest $36.2 million in Corsa Coal Corp. ("Corsa") to fund its strategic acquisition of PBS Coals Ltd. ("PBS Coals")

  • Portfolio company, Independence Contract Drilling ("ICD") completed its Initial Public Offering on the New York Stock Exchange

"We have been very active so far in 2014, executing a number of transactions to diversify and grow our investment portfolio while creating value for our shareholders," said Steve Yuzpe, President and Chief Executive Officer of Sprott Resource Corp. "In May, we completed the sale of approximately one third of our Long Run holdings for net proceeds before tax of $64.3 million. We continue to own 23 million shares of Long Run, a position that will generate more than $9.5 million in dividend income annually."

"In June, we invested $19.5 million in InPlay, a Calgary-based private exploration and development company focused on building a large, low decline, liquids-focused asset base in Alberta," continued Mr. Yuzpe. "InPlay is led by an experienced management team with excellent technical skills and is supported by strong capital partners including JOG Capital and other global funds."

"Our portfolio has returned 6.4% since the beginning of the year and 1.4% in the three-months ended June 30, 2014. Our net asset value per share  as of June 30, 2014 stood at $3.84 per share, an increase of $0.13 per share from the end of 2013," said Michael Staresinic, Chief Financial Officer of SRC.

"In July, we committed to invest $36.2 million in Corsa to fund that company's strategic acquisition of PBS Coals, a company in which SRC has invested in the past, with great results for our shareholders," said Arthur Einav, Managing Director of SRC and nominee Director of Corsa. "In 2008, SRC was part of a group that sold PBS Coals to OAO Severstal for US$877 million. Since that time, metallurgical coal prices have declined dramatically and, last month, Corsa agreed to acquire PBS Coals for US$60 million. Corsa has the support of strong financial partners including Quintana Capital, one of North America's largest coal investors, and the Lundin Group, a well-known and highly-respected name in the mining sector. We are very excited about this investment and believe Corsa is well positioned to benefit from both operational improvements and the eventual cyclical recovery in metallurgical coal prices."

"On August 8, 2014, ICD successfully completed its Initial Public Offering on the New York Stock Exchange. SRC participated in the offering and now owns approximately 19.8% of the company," said Mr. Einav, an ICD Director. "This offering provides ICD with significant capital to advance its rig building plan. We believe ICD has an exciting future ahead of it as a public company in the energy services segment."

SRC Net Asset Value as at June 30, 2014

The following table outlines SRC's equity attributable to shareholders as at June 30, 2014. Please see the Company's unaudited condensed interim consolidated financial statements and notes thereon, and management's discussion and analysis as at and for the three and six-months ended June 30, 2014 for additional information.


As at

(in thousands except share and per share amounts)

June 30, 2014



Cash and Cash Equivalents

$

58,138

Other Current Assets

2,126

Other Non-Current Assets

3,343

Investments, at fair value


       Long Run (note 1)

130,180

       OEOG (defined below, note 2)

26,963

       InPlay (note 3)

19,469

       ICD (note 4)

56,049

       Stonegate Agricom (defined below, note 5)

12,666

       Potash Ridge (defined below, note 6)

4,899

       Virginia Energy (defined below, note 7)

755

       OEF (defined below, note 2)

25,377

       Union Agriculture (note 8)

34,332

       Other investments

6,688



Liabilities


       Less: Current Liabilities

4,070

Total equity attributable to shareholders (NAV)

$

376,915




Number of common shares issued and outstanding as at June 30, 2014


98,134,103

NAV per share

$

3.84

 

1.

As at June 30, 2014, SRC owned 15.4% of Long Run, recorded at fair value of $5.66 per share. As at the date hereof, the Company's ownership is 11.9% after the close of the acquisition of Crocotta Energy Inc. on August 6, 2014.



2.

One Earth Oil & Gas Inc. ("OEOG") and One Earth Farms Corp. ("OEF").



3.

As at June 30, 2014, SRC owned 19.9% of InPlay, recorded at fair value.



4.

As at June 30, 2014, SRC owned 31.7% of ICD, recorded at fair value.



5.

As at June 30, 2014, SRC owned 36.5% of Stonegate Agricom Ltd. ("Stonegate Agricom"), recorded at fair value of $0.18 per share.



6.

As at June 30, 2014, SRC owned 24.4% of Potash Ridge Corporation ("Potash Ridge") (common shares and non-voting preferred shares), recorded at fair value of $0.23 per share.



7.

As at June 30, 2014, SRC owned 16.5% of Virginia Energy Resources Inc. ("Virginia Energy"), recorded at fair value of $0.08 per share.



8.

As at June 30, 2014, SRC owned 6.9% of Union Agriculture Group, recorded at fair value.

SRC corporate and portfolio company developments:

  • The Company reported investment income of $5.0 million for the three-months ended June 30, 2014 that was comprised of a net realized gain on investments of $12.7 million, a change in unrealized loss on investments of $10.5 million and dividend, royalty and interest income of $2.9 million. Included in the net gain on investments for the quarter is a realized gain of $12.8 million on a partial disposition of Long Run common shares which resulted in net proceeds of $64.3 million. Expenses for the three-months ended June 30, 2014 were $7.4 million including management fees of $2.2 million and transaction costs of $3.8 million.

  • The Company's discount to NAV narrowed from 35.3% as at March 31, 2014 to 17.7% as at June 30, 2014.

  • During the second quarter, OEF recorded net income and positive earnings per share for the first time in its history.

  • Subsequent to quarter end, the Company approved an investment of up to $8.3 million in OEOG with participation from OEOG management. The investment will be made in 3 tranches subject to milestones and will be used to advance development of the Gift Lake Project in Alberta, Canada.

  • As at June 30, 2014, the Company's cash position was $58.1 million. After the investment in Corsa is complete and SRC's participation in the ICD IPO, the Company's cash balance is expected to be approximately $13 million.

Conference Call Details

SRC will hold a conference call to discuss its 2014 second quarter results on August 11, 2014 at 10:00am ET. To participate in the call, please dial 647-427-7450 or 1-888-231-8191 ten minutes prior to the scheduled start of the call. A taped replay of the conference call will be available until Monday, August 18, 2014 by calling 416-849-0833 or 1-855-859-2056, reference number 81162288. The conference call will be webcast live at www.sprottresource.com and http://event.on24.com/r.htm?e=830574&s=1&k=74FAD194F1116C1BB2D148860747A1AC

About Sprott Resource Corp.

Sprott Resource Corp. (TSX: SCP) is a resource-focused private equity investor managed by one of Canada's leading teams of resource private equity specialists. The company currently has investments in oil and gas, mining, agriculture and agricultural nutrients. SRC takes an active involvement in the companies in which it invests. Management is dedicated to generating consistently superior returns on capital for its shareholders, while focusing on risk management and real wealth preservation. To learn more, please visit www.sprottresource.com.

Forward-Looking Information

Certain statements in this news release contain forward-looking information (collectively referred to herein as the "Forward-Looking Statements") within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify Forward-Looking Statements. In particular, but without limiting the forgoing, this news release contains Forward-Looking Statements pertaining to: (i) the annual income provided by Long Run's dividend; (ii) expectations with respect to Corsa benefiting from operational improvements and the eventual cyclical recovery in metallurgical coal prices; (iii) the recovery of metallurgical coal prices; (iv) the future of ICD as a public company; (v) SRC's further investment into OEOG and OEOG's use of the proceeds.  Although SRC believes that the Forward-Looking Statements are reasonable, they are not guarantees of future results, performance or achievements.  A number of factors or assumptions have been used to develop the Forward-Looking Statements, including: (i) metallurgical coal prices will improve; (ii) Long Run will maintain its dividend; (iii) the impact of increasing competition in each business in which the Company's subsidiaries operate will not materially change; (iv) conditions in general economic and financial markets will be consistent with the current environment; (v) the effects of regulation and tax laws of governmental agencies will not materially change; and (vi) future operating costs will be consistent with the current environment. Actual results, performance or achievements could vary materially from those expressed or implied by the Forward-Looking Statements should assumptions underlying the Forward-Looking Statements prove incorrect or should one or more risks or other factors materialize, including: (i) market volatility that would affect the ability to enter or exit investments; (ii) adverse market conditions; (iii) risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, costs and expenses, and health, safety and environmental risks); (iv) risks associated with the coal mining industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to reserves, production, costs and expenses, and health, safety and environmental risks); (v) those risks disclosed herein under the heading "Financial Instruments and Risk Management" in SRC's MD&A for the six months ended June 30, 2014; and (vi) those risks described under the heading "Risk Factors" in SRC's annual information form dated March 25, 2014.  The Forward-Looking Statements speak only as of the date hereof, unless otherwise specifically noted, and SRC does not assume any obligation to publicly update any Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable Canadian securities laws.

SOURCE Sprott Resource Corp.

For further information: Glen Williams, Director of Communications, T: (416) 943-4394, E: gwilliams@sprott.com