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,
"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
September 30, 2012
Cash and Cash Equivalents1
Other current assets
Loan receivable from associate
Consolidated investment in:3
OEOG (defined below)
One Earth Farms
Fair value investment in:
WestFire (defined below)4
Guide (defined below)5
Union Agriculture Group6
Potash Ridge (defined below)7
Equity investment in:
ICD9 (defined below)
Less: Current Liabilities10
Less: Non-Current Liabilities
Total equity attributable to shareholders (NAV)
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
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
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
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
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
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
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
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
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