Sprott Resource Corp. Announces 2012 Annual Results

TORONTO, March 28, 2013 /CNW/ - (TSX: SCP) - Sprott Resource Corp. ("SRC" or the "Company") today announced financial results for the twelve-months ended December 31, 2012.

"Throughout 2012, we continued to support the growth and development of our investee companies," said Kevin Bambrough, Chief Executive Officer of SRC. "During the year, we completed the successful disposition of one business and made new investments in the energy services and agricultural nutrients sectors. In keeping with our commitment to providing our shareholders with an attractive total return and increased liquidity, we also continued to buy back stock through our normal course issuer bid and, in December, we implemented a monthly dividend that will pay approximately 10% of SRC's average annual total equity attributable to shareholders."

"In November, we completed the disposition of our investment in Waseca Energy Ltd. ("Waseca") for gross proceeds of $111.7 million compared to an investment of $44.2 million," added Paul Dimitriadis, SRC's Chief Operating Officer. "We continue to have a positive view of the energy sector and look forward to working with management teams to build value in our oil and gas investments in 2013."

"We are pleased with the progress of one of our newer investments, Independence Contract Drilling Inc. ("ICD"), as management executes on its three-year strategic plan. ICD's strategy is to continue to build and contract its leading edge technology rigs for the drilling operations of global E&P companies," said Arthur Einav, SRC's General Counsel and Managing Director.

"Our agricultural investments continued to make progress in 2012," said Steve Yuzpe, Chief Financial Officer of SRC. "Most notably, One Earth Farms Corp. ("One Earth Farms" or "OEF") completed the acquisition of Beretta Farms Inc. ("Beretta Farms"), a purveyor of hormone free and antibiotic free natural and organic branded meat products in Ontario and British Columbia. This transaction is an important milestone in One Earth Farms' strategy of vertical integration and branded food products to meet the needs of retailers and consumers, while generating increased margins from an integrated supply chain."

"In 2012, SRC marked five years in operation and, since inception to December 31, 2012, has delivered a 27%1 internal rate of return ("IRR") on our investments," added Mr. Bambrough.  "We are very proud of this achievement, which places us near the top of all comparable resource-focused private equity strategies over the same time period. We believe that our investment process is proven, disciplined and repeatable and look forward to continuing to create value for our shareholders in the years ahead."

SRC 2012 Equity attributable to shareholders to the date hereof

The following table outlines SRC's equity attributable to shareholders as at December 31, 2012 and reflects the value at which individual items are carried on SRC's balance sheet.

  As at
(in thousands) December 31, 2012
Cash and Cash Equivalents1 $ 5,405
Gold Bullion2 123,284
Other current assets 1,470
Loan receivable from associate 4,500
Consolidated investment in:3  
OEOG (defined below) 7,228
One Earth Farms 42,416
Fair value investment in:  
       Long Run (defined below)4 173,282
       Union Agriculture Group5 38,729
       Virginia Energy (defined below)6 3,228
       Anthem Resources (defined below)7 263
       Potash Ridge (defined below)8 14,667
Other investments 5,188
Equity investment in:  
       Stonegate Agricom Ltd.9 15,332
       ICD10 47,908
Liabilities  
       Less: Current Liabilities (10,712 )
Less: Non-Current Liabilities (12,316 )
Total equity attributable to shareholders (NAV) $ 459,872
   
  1. Cash held at SRC and SRP (defined below) and does not include cash held by subsidiaries of SRC or investee companies.
  2. As at December 31, 2012, SRC held 73,971 thousand ounces of gold bullion valued at $1,666.66 per ounce.
  3. One Earth Oil and Gas Inc. ("OEOG") and One Earth Farms are controlled subsidiaries of SRC and are carried at their book value.
  4. As at December 31, 2012, SRC owned 35.7 million shares of Long Run Exploration Ltd. ("Long Run") (common shares and non-voting preferred shares) valued at 4.86 per share.
  5. As at December 31, 2012, SRC owned 3.4 million common shares of Union Agriculture Group valued at $11.44 per share, which is the price that the Company has recorded as fair value.
  6. As at December 31, 2012, SRC owned 6.6 million common shares of Virginia Energy Resources Inc. ("Virginia Energy") valued at $0.49 per common share.
  7. As at December 31, 2012, SRC owned 2.0 million common shares of Anthem Resources Inc. ("Anthem Resources") valued at $0.13 per share.
  8. As at December 31, 2012, SRC owned 21.2 million shares of Potash Ridge Corporation ("Potash Ridge") (common shares and non-voting preferred shares) valued at $0.65 per share.  Also included in the balance is $0.9 million of warrants.
  9. As at December 31, 2012, SRC owned 46.9 million common shares of Stonegate Agricom Ltd. ("Stonegate Agricom"), valued at its book value of $0.33 per share. The December 31, 2012 publicly traded price of these shares was $0.59 per common share.
  10. As at December 31, 2012, SRC owned 2.5 million common shares of ICD.  ICD is not publicly listed and the Company equity accounts for this investment.

Financial Highlights for the twelve-months ended December 31, 2012

  • For the twelve-months ended December 31, 2012, the Company reported a net loss attributable to the shareholders of the Company of $57.1 million ($0.53 loss per basic and diluted share respectively), compared to a net income attributable to shareholders of $101.6 million ($0.89 earnings per basic and diluted share respectively), reported in the same period of 2011. The net loss for the twelve-months ended December 31, 2012 was primarily the result of the impairment of certain AFS investments ($112.8 million), which was partially offset by the gain on the sale of Waseca ($54.2 million, net of tax), while the net income for the twelve-months ended December 31, 2011 was primarily the result of the sale of Orion Oil and Gas Corporation ($77.3 million, net of tax).
  • For the twelve-months ended December 31, 2012, the Company has purchased and canceled 5.2 million common shares under the 2011 NCIB at an average cost of $3.63 per share for a total cost of $18.9 million and purchased and canceled 5.0 million common shares under the 2012 NCIB at an average cost of $3.98 per share for an aggregate cost of $20.0 million. Subsequent to year end and as at the date hereof, the Company has purchased and canceled an additional 1.1 million common shares under the 2012 NCIB at an average cost of $4.41 per share for a total cost of $4.8 million.  During the twelve-months ended December 31, 2011, 490 thousand common shares were repurchased under the 2011 NCIB Plan.
  • Net assets (defined as total assets less total liabilities and non-controlling interest) attributable to the shareholders of the Company decreased to $459.9 million as at December 31, 2012 from $511.5 million as at December 31, 2011.
  • For the twelve-months ended December 31, 2012, the Company recorded a fair value increase of $5.7 million in its physical gold bullion holdings. As at December 31, 2012, the Company's gold bullion had a fair market value of $123.3 million (December 31, 2011: $117.6 million) compared to a cost of $75.4 million.

Achievements by SRC Subsidiaries and Investees for the twelve-months ended December 31, 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. As at December 31, 2012, the Company has calculated an IRR of approximately 27%1 since inception.   SCLP will update this calculation at each year-end.

Institutes and maintains dividend policy and introduces dividend reinvestment plan

  • As previously announced, SRC's Board of Directors approved a policy (the "Dividend Policy") pursuant to which SRC intends to pay a monthly dividend at least equal to 0.833% of SRC's total equity attributable to shareholders ("SRC's Book Value") based on the most recently filed financial statements of SRC at the time the dividend is declared. As such, SRC's Board of Directors intends to pay a dividend in respect of the month of April 2013 in the amount of $0.038 per common share, which is based on SRC's Book Value for the year ended December 31, 2012.
  • On February 25, 2013, SRC announced the introduction of the dividend reinvestment plan (the "DRIP") for Canadian resident shareholders of common shares of SRC.  The DRIP provides a convenient and cost-effective method for eligible holders in Canada to maximize their investment in SRC by reinvesting their monthly cash dividends to acquire additional SRC common shares. A discount in the purchase price of up to 5% may apply on dividend reinvestment shares purchased from SRC.  Any applicable discounts on dividend reinvestment share purchases are announced at the time SRC declares a dividend.

Waseca

  • On November 1, 2012, the sale of SRC's subsidiary Waseca to Twin Butte Energy Ltd. was completed (the "Twin Butte Arrangement"). The consideration received by SRC upon the sale was comprised of approximately $47.8 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 $104.4 million for the sale of Waseca.  In addition to the cash and share proceeds, the Company received a special dividend of $7.3 million from Waseca before selling the Waseca shares for total gross proceeds of $111.7 million.  SRC had invested approximately $44.2 million into Waseca in two investment tranches. Proceeds from the Twin Butte Arrangement were partially used to repay the full margin account balance owing by the Company at that time in its entirety.

One Earth Farms

  • On February 19, 2013, SRC announced that its subsidiary OEF acquired Toronto based Beretta Farms, a purveyor of hormone free and antibiotic free natural and organic branded meat products in Ontario and British Columbia. This transaction is the first instance of OEF's strategy of vertical integration and branded food products, which will allow OEF to meet the needs of retailers and consumers, while generating increased margins from an integrated supply chain. After giving effect to the consideration of cash and common shares in OEF paid to the vendors of Beretta Farms, SRC's basic ownership in OEF decreased to approximately 54.3%.

OEOG

  • On January 14, 2013, SRC announced that OEOG had entered into a joint venture agreement with Gift Energy Limited ("Gift Energy"), an entity established by the Gift Lake Metis Settlement ("Gift Lake"), to explore and develop Gift Lake lands for heavy oil.
  • Gift Lake is located in the Peace River region of Northwest Alberta, an area of existing heavy oil production. The Gift Lake lands are situated southeast of major Bluesky oilsands production fields in the Seal and Cliffdale regions currently operated by several established Canadian energy producers. An oilsands lease for 12 sections (7,680 acres) of land has now been finalized with the Alberta government. As a precursor to further development activity, OEOG and Gift Energy completed an initial 3D seismic and initiated a drilling program in March of 2013. OEOG management expects the Gift Lake heavy oil project to produce under cold flow primary technologies. An option on a further 12 sections is also available to the parties, subject to standard lease and permitting requirements.  As at the date hereof, OEOG has drilled three vertical wells and has begun drilling a horizontal leg from the first vertical well.

Stonegate Agricom

  • SRC recorded an equity loss of $1.7 million for the twelve-months ended December 31, 2012 on its investment in Stonegate Agricom, primarily due to general and administrative expenses.

ICD

  • At the date hereof, ICD has four rigs fully contracted and a fifth rig under construction.
  • SRC recorded an equity loss of $1.9 million for the twelve-months ended December 31, 2012 on its investment in ICD, primarily due to general and administrative expenses, depreciation and amortization, manufacturing expenses and overhead.

The merger of WestFire Energy Ltd. and Guide Exploration Ltd. to form Long Run

  • On October 29, 2012 the Company announced that it has acquired ownership of 20.1 million common shares of 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 Company also owned 15.5 million non-listed, non-voting convertible common shares of WestFire Energy Ltd., which continue to represent non-listed, non-voting convertible common shares of Long Run (the "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.  SRC is restricted from owning greater than 19.9% of the Long Run Shares. However, if the Long Run Non-Voting Shares were converted into Long Run Shares, SRC would have a combined ownership of approximately 28.4% based on information contained in documents publicly filed by Long Run.

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 contains certain forward-looking information and statements (collectively referred to herein as "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) SRC's future strategies, outlook, investment opportunities and anticipated events or results; (ii) the creation of value for SRC shareholders in the future; (iii) SRC's Dividend Policy, future dividend payments and DRIP (including any applicable discounts in the purchase price); (iv) the building of value in the Company's oil and gas investments in 2013; (v) One Earth Farms' strategy of vertical integration and branded food products and the expectation that it will allow OEF to meet the needs of retailers and consumers, while generating increased margins from an integrated supply chain; and (vi) the anticipated production of Gift Lake heavy oil project.  Forward-Looking Statements are based on a number of expectations or assumptions which have been used to develop such information and statements but which may prove to be incorrect, including, but not limited to: (i) the benefits of investments; (ii) expected sales and margins of Beretta Farms; (iii) oil and gas reserves; (iv) expected oil and gas production results from future drilling by OEOG; and (v) expected rates of production by OEOG.  Although SRC believes the expectations and assumptions reflected in such Forward-Looking Statements are reasonable, undue reliance should not be placed on Forward-Looking Statements because SRC can give no assurance that such expectations and assumptions will prove to be correct. The Forward-Looking Statements included in this new release are not guarantees of future performance and should not be unduly relied upon.  Such information and statements, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors, which may cause actual results or events to differ materially from those anticipated in such Forward-Looking Statements, including, without limitation: (i) general economic, market and business conditions; (ii) market volatility that would affect the ability to enter or exit investments; (iii) risks associated with the farming industry in general (e.g., weather risks, operational risks in production; the uncertainty of estimates and projections related to crop and cattle); (iv) risks associated with the food product and retail business (e.g. food safety risks and fluctuations in the price of inputs and sales volumes); (v) 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); (vi) commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures; (vii) mining risks; (viii) the uncertainty of mineral reserves and resources; (ix) changes in environmental and other regulations; and * those listed under the heading "Risk Factors" in SRC's annual information form dated March 28, 2013. In addition, the payment of dividends is not guaranteed and the amount and timing of any dividends payable by SRC will be at the discretion of the Board of Directors and will be established on the basis of SRC's earnings, the satisfaction of solvency tests imposed by applicable corporate law for the declaration and payment of dividends, and other relevant factors. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the Forward-Looking Statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the Forward-Looking Statements contained in this news release. The Forward-Looking Statements contained in this news release speak only as of the date of this news release, and SRC does not assume any obligation to publicly update or revise any of the included Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

Non-IFRS Financial Measures

(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.

 

 

 

SOURCE: Sprott Resource Corp.

For further information:

Stephen Yuzpe
Chief Financial Officer
Tel: (416) 977-7333
Fax: (416) 977-9555

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Sprott Resource Corp.

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