Sprott Global Resource Investments Private Equity. Real Assets.
 

Press Release

Sprott Resource Corp. Announces 2013 Second Quarter Results

TORONTO, Aug. 14, 2013 /CNW/ - (TSX: SCP) - Sprott Resource Corp. ("SRC" or the "Company") today announced financial results for the three and six-months ended June 30, 2013.

"The second quarter was a challenging period for the Company as the sharp sell off in precious metals had a significant negative impact on the value of our physical gold bullion holdings," said Kevin Bambrough, Chief Executive Officer of SRC. "As a result, our Board of Directors has elected to cancel our dividend policy and dividend reinvestment plan and to cease paying monthly dividends in order to preserve capital and protect our ability to continue effectively executing our business plan. This was a difficult decision but we believe that the long-term interests of our shareholders will be best served by SRC maintaining sufficient financial flexibility to acquire and dispose of assets at the optimal times in the commodities cycle."

"We are bullish on gold over the long term, but recognize that if the resource markets continue to decline in the short term, SRC may elect to sell the gold bullion as a source of liquidity. SRC remains committed to the practice of enhancing shareholder value when management believes that the market price does not reflect the underlying asset value of the business," said Mr. Bambrough.

SRC intends to apply in September 2013 to the Toronto Stock Exchange (the "TSX") to commence a normal course issuer bid (the "New Bid") to repurchase and cancel additional Shares.  Purchases under the New Bid will be made for cancellation through the facilities of the TSX or other Canadian market places at the prevailing market price of the Shares.

"We continue to be pleased with the progress of our investee companies and believe the portfolio is well-positioned in sectors that are poised for significant recoveries over the long term," continued Mr. Bambrough. "The outlook for natural gas, in particular, is positive and we have positioned ourselves well to benefit from its recovery through investments in businesses like Independence Contract Drilling, Inc. ("ICD") and Long Run Exploration Ltd. ("Long Run"), which has significant oil and natural gas assets in Alberta."

SRC Equity attributable to shareholders as at June 30, 2013 and to the date hereof

The following table outlines SRC's equity attributable to shareholders as at June 30, 2013 and reflects the value at which individual items are carried on SRC's balance sheet.

  As at
(in thousands) June 30, 2013
Cash and Cash Equivalents1   $ 2,171 
Gold Bullion2     92,741
Other Current Assets     2,171
Consolidated investment in:3      
  OEOG (defined below)     16,517
One Earth Farms (defined below)     36,820
Fair value investment in:      
  Long Run4     134,061
  Union Agriculture Group5     36,849
  Virginia Energy (defined below)6     2,125
  Potash Ridge (defined below)7     9,340
Other investments     4,265
Equity investment in:      
  Stonegate Agricom8     22,870
  ICD9     49,640
Liabilities      
  Less: Current Liabilities     (62,368)
Less: Non-Current Liabilities     (384)
Total equity attributable to shareholders (NAV)   $ 346,818 
       
  1. Cash held at SRC and does not include cash held by subsidiaries of SRC or investee companies.
  2. As at June 30, 2013, SRC held 73,971 ounces of gold bullion valued at $1,253.75 per ounce.
  3. One Earth Oil & Gas Inc. ("OEOG") and One Earth Farms Corp. ("One Earth Farms") are controlled subsidiaries of SRC and are carried at their book value.
  4. As at June 30, 2013, SRC owned 35.7 million shares of Long Run (common shares and non-voting preferred shares) valued at 3.76 per share.
  5. As at June 30, 2013, SRC owned 3.4 million common shares of Union Agriculture Group valued at $10.89 per share, which is the price that the Company has recorded as fair value.
  6. As at June 30, 2013, SRC owned 9.4 million common shares of Virginia Energy Resources Inc. ("Virginia Energy") valued at $0.23 per common share.
  7. As at June 30, 2013, SRC owned 21.2 million shares of Potash Ridge Corporation ("Potash Ridge") (common shares and non-voting preferred shares) valued at $0.40 per share. Also included in the balance is $0.8 million of warrants.
  8. As at June 30, 2013, SRC owned 58.5 million common shares of Stonegate Agricom, valued at its book value of $0.39 per share. The June 30, 2013 publicly traded price of these shares was $0.33 per common share.
  9. As at June 30, 2013, 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 three-months ended June 30, 2013

  • For the three-months ended June 30, 2013, the Company reported a net loss attributable to the shareholders of the Company of $43.4 million ($0.43 loss per basic and diluted share respectively), compared to a net loss attributable to shareholders of the Company of $34.8 million ($0.32 earnings per basic and diluted share respectively), reported in the same period of 2012. The net loss for the three-months ended June 30, 2013 was primarily the result of the impairment of certain AFS investments ($16.5 million) and a decrease in the fair market value of gold bullion ($27.3 million).

    For the three-months ended June 30, 2013, the Company has purchased and canceled 1.2 million common shares under the Company's normal course issuer bid ("2012 NCIB") at an average cost of $4.11 per share for an aggregate cost of $4.6 million. Subsequent to quarter end, and as at the date hereof, the Company has purchased and canceled an additional 0.5 million common shares under the 2012 NCIB at an average cost of $3.64 per share for a total cost of $1.8 million. As at the date hereof, the Company has repurchased and canceled the maximum 8.0 million common shares under the 2012 NCIB at an average price of $3.81 per common share.
  • Equity attributable to the shareholders of the Company decreased to $346.8 million as at June 30, 2013 from $459.9 million as at December 31, 2012. The $113.1 million decrease in equity attributable to the shareholders of the Company was primarily the result of a decrease in the fair market values of investments during the period of $49.5 million, dividends paid and payable of $29.7 million, a $30.5 million decrease in the value of the physical gold bullion, the repurchase and cancellation of $9.8 million of shares purchased under the 2012 NCIB and operating losses incurred by the Company, OEF, OEOG, Stonegate Agricom and ICD.

  • For the three-months ended June 30, 2013, the Company recorded a fair value decrease of $27.3 million in its physical gold bullion holdings. As at June 30, 2013, the Company's gold bullion had a fair market value of $92.7 million (December 31, 2012: $123.3 million) compared to a cost of $75.4 million.

  • A dividend will be paid on August 15, 2013 to shareholders of record at the close of business on July 31, 2013. The dividend is based on SRC's Book Value as at March 31, 2013.  This will be the final dividend payment under SRC's current dividend policy which was established on December 12, 2012.

Achievements by SRC Subsidiaries and Investees for the three-months ended June 30, 2013 and to the date hereof:

Stonegate Agricom Issues Common Shares to SRC

  • On May 1, 2013, Stonegate Agricom acquired SRC's fully drawn loan facility for 11.5 million common shares of Stonegate Agricom ("Stonegate Shares"). After giving effect to the transaction, SRC owns 58.5 million Stonegate Shares, which based on information contained in documents publically filed by Stonegate Agricom, represented approximately 37.5% of the total issued and outstanding Stonegate Shares.

  • On July 24, 2013, Stonegate Agricom completed their previously announced short form prospectus offering (the "Stonegate Offering") of units (the "Units") of Stonegate Agricom.  SRC acquired beneficial ownership of 12.5 million Units for a purchase price of $0.30 per Unit (the "Stonegate Offering Price") pursuant to the Stonegate Offering. Each Unit consists of one Share and one Share purchase warrant (a "Stonegate Warrant"). Each Stonegate Warrant will entitle the holder thereof to purchase one Stonegate Share at an exercise price of $0.40 per Stonegate Share for a period of 24 months following the closing of the Stonegate Offering. On August 8, 2013, the agents exercised their over-allotment option in full, resulting in the sale of an additional 5 million Units at a price of $0.30 per Unit for additional aggregate gross proceeds of $1.5 million.

  • Prior to this acquisition, SRC beneficially owned 58.5 million Stonegate Shares. Following completion of the Stonegate Offering, SRC beneficially owns 71.0 million  Stonegate Shares, which based on information contained in documents publically filed by Stonegate Agricom, represents approximately 36.5% of the issued and outstanding Stonegate Shares.  SRC acquired 12.5 million Stonegate Warrants, which based on information contained in documents publically filed by Stonegate Agricom, represents approximately 32.6% of the issued and outstanding Stonegate Warrants.

  • As at the date hereof, SRC filed an amended and restated technical report entitled "Amended and Restated NI 43-101 Technical Report Paris Hills Phosphate Project Bloomington, Idaho, USA" effectively dated January 18, 2013 and amended and restated as of July 8, 2013 (the "Amended Technical Report").  The Amended Technical Report was filed solely to ensure that a "Qualified Person" (as that term is defined in National Instrument 43-101 - Standards of Disclosure for Mineral Projects) had taken responsibility for each section of the previously filed technical report.  A copy of the Amended Technical Report is available on SEDAR at www.sedar.com under SRC's profile.  The Paris Hills Phosphate Project is being developed by Stonegate Agricom Ltd. ("Stonegate Agricom").

One Earth Farms

  • During the second quarter of 2013, Michael Beretta was appointed Chief Executive Officer of One Earth Farms.

  • In July 2013, One Earth Farms acquired Sweet Pea Baby Foods Ltd. a company that markets frozen organic meal options for babies and toddlers across Canada.

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) potential future normal course issuer bids; (iii) SRC's dividend policy and dividend reinvestment plan; (iv) potential for a rebound in the energy sector; and (v) the future outlook for natural gas and the Company's position to benefit from its recovery through the Company's investments.  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 the future outlook for the energy sector and, in particular, natural gas as well as required regulatory approvals.  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 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) 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; (v) risks associated with rig construction projects (e.g., delays, cost overruns, start-up complications, operational problems); (vi) the ability of the Corporation to repurchase its securities will be limited by applicable corporate law; and (vii) those listed under the heading "Risk Factors" in SRC's annual information form dated March 28, 2013.  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.

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.

 

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