Sprott Resource Corp. Announces Q2 2012 ResultsCanada Newswire
TORONTO, Aug. 9, 2012 /CNW/ - (TSX: SCP) - Sprott Resource Corp. ("SRC" or the "Company") today announced financial results for the three and six-months ended June30, 2012.
"We have made significant investments in agriculture and agricultural nutrients because we have long believed that we are entering a prolonged period of food price inflation, driven by persistent droughts caused by climate change, increased demand from emerging markets, outbreaks of geopolitical turmoil and inevitable supply shocks," said Kevin Bambrough, President and CEO of Sprott Resource Corp. "With issues of food scarcity on the rise, and severe drought conditions in the U.S. and Russia devastating crops and pushing corn, wheat and canola prices to record highs, we are beginning to see our thesis validated."
"During the second quarter, One Earth Farms ("OEF") completed seeding operations in Alberta and Saskatchewan," commented Steve Yuzpe, Chief Financial Officer of the Company. "We have enjoyed favourable growing conditions for wheat and canola this summer and recently began harvest operation in Southern Alberta, with the expectation that we will complete the harvest in October. We are also pleased with the success that we have had marketing into the natural beef marketplace."
"However, the global economic slowdown has put pressure on energy prices, negatively impacting the current value of some of our oil and gas investments. We believe that energy businesses are currently undervalued relative to their historical multiples and expect to see valuations recover significantly as markets normalize," added Mr. Bambrough.
"We continued to build business value in our energy subsidiaries during the second quarter," said Paul Dimitriadis, Chief Operating Officer, Sprott Resource Corp. "Waseca Energy Inc. ("Waseca") continues to advance its drilling program with 28 wells drilled so far this year. The company also improved its exit rate of production to 4,106 barrels of oil per day ("boe/d") from 3,746 boe/d at December 31, 2011 and expects to reach between 4,600 and 5,000 boe/d by December 31, 2012."
SRC Q2 2012 Net Asset Value
The following table outlines SRC's net asset value as at June30, 2012 and reflects the value at which individual items are carried on SRC's balance sheet.As at(in thousands)June 30, 2012Cash and Cash Equivalents1$2,994Gold Bullion2120,383Other current assets1,783Consolidated investment in:3Waseca46,193OEOG (defined below)8,939One Earth Farms46,696Fair value investment in:WestFire (defined below)4116,961Guide (defined below)526,999Union Agriculture Group645,491Potash Ridge (defined below)79,900VA Uranium Holdings, Inc.3,639Other investments6,646Equity investment in:Stonegate Agricom (defined below)816,362ICD9 (defined below)48,843LiabilitiesLess: Current Liabilities10(64,831)Less: Non-Current Liabilities(5,607)$431,391Cash held at SRC or Sprott Resource Limited Partnership and does not include cash held by subsidiaries of SRC or investee companies.As at June30, 2012 SRC held 73,971 ounces of gold bullion valued at $1,658 per ounce.Waseca, One Earth Oil and Gas Inc. ("OEOG") and One Earth Farms are controlled subsidiaries of SRC and are carried at their adjusted book value.As at June30, 2012, SRC owned 28.7 million shares of WestFire Energy Ltd. ("WestFire") (common and non-voting convertible) valued at $4.08 per share.As at June30, 2012, SRC owned 16.8 million common shares of Guide Exploration Ltd. ("Guide") valued at $1.61 per share.As at June30, 2012, SRC owned 3.4 million common shares of Union Agriculture Group valued at $13.44 per share, which is the price at which Union Agriculture Group completed its last financing.As at June30, 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 June30, 2012, SRC owned 46.9 million common shares of Stonegate Agricom Ltd. ("Stonegate Agricom"), valued at its book value of $0.34 per share. The June30, 2012 publicly traded price of these shares was $0.42 per share.As at June30, 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 to fund the ICD investment. As at June30, 2012, the outstanding balance of the loan was $63.2 million.
Financial Highlights for the Three-Months Ended June 30, 2012SRC reported a net loss of $33.5 million for the three-months ended June30, 2012 compared to net income of $70.3 million for the same period in 2011. The net loss for the quarter was largely attributable to an impairment charge of $32.6 million that the Company recorded in relation to certain investments that have exhibited a significant decline relative to their original investment costs basis.For the three-months ended June30, 2012, the Company purchased and cancelled 3.1 million common shares under its normal course issuer bid at an average cost of $3.98 per share for a total cost of $12.5 million. Subsequent to quarter end and to the date hereof, the Company purchased and cancelled 1.0 million common shares under the normal course issuer bid at an average cost of $3.98 per share for a total cost of $4.0 million.Net assets (defined as total assets less total liabilities and non-controlling interest) attributable to the shareholders of the Company decreased to $431.4 million as at June30, 2012 from $511.5 million as at December31, 2011.The Company recorded a fair value decrease of $2.3 million in its physical gold bullion holdings during the second quarter compared to a increase of $3.9 million in the second quarter of 2011. As at June30, 2012, the gold bullion had a fair market value of $120.4 million.
Achievements by SRC Subsidiaries and Investees for the Three-Months Ended June 30, 2012 (and to the date hereof):
WasecaDuring the three-months ended June30, 2012, Waseca drilled 8 wells (8 net) and increased average production and the Exit Rate of Production to 4,007 boe/d and 4,106 boe/d respectively from 1,543 boe/d and 2,042 boe/d respectively in the second quarter of 2011. Waseca's eight drilled wells during the second quarter resulted in six oil wells put on production, one developmental dry hole and one exploratory dry hole.Waseca generated an operating netback of $27.72 per boe in the second quarter of 2012, compared to $36.76 per boe in the same period of 2011. Operating netback as presented does not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and, therefore, may not be comparable with the calculation of a similar measure presented by other entities. Please refer to the Non-IFRS Financial Measures section of this press release.
OEOGFor the three-months ended June 30, 2012, OEOG recorded $516 thousand in net oil, liquids and natural gas sales ($592 thousand in gross revenue and $76 thousand in royalties) on production of 1,737 mcf/d of natural gas, 15 barrels of natural gas liquids per day and 28 barrels of oil per day for a combined average rate of production of 332 boe/d.OEOG received a price of $1.93 per mcf for the natural gas, $66.96 per barrel for the natural gas liquids and $77.79 per barrel for the oil produced and sold for an average of $19.61 per boe. OEOG's hydrocarbon sales generated a netback of $8.14 per boe for the three-months ended June 30, 2012.
One Earth FarmsFor the three-months ended June30, 2012, OEF recorded net income of $759 thousand compared to a net loss of $4.3 million for the same period in 2011During the quarter OEF completed seeding on 87,605 acres of cropland and 2,759 of greenfeed acres to be utilized by the cattle division.
Stonegate AgricomSRC recorded an equity loss of $489 thousand for the three-months ended June30, 2012 on its investment in Stonegate Agricom, primarily due to general and administrative expenses.
ICDSRC recorded an equity loss of $1.3 millionfor the three-months ended June30, 2012 on its investment in ICD, primarily due to general and administrative expenses, depreciation and amortization and manufacturing expenses and overhead.During the second quarter of 2012, ICD continued to develop its business with one of its ShaleDriller rigs drilling under contract. As at the date hereof, ICD has two rigs drilling under contract with construction on a third rig due to be completed by mid-August.
WestFire and GuideOn August 9, 2012, the Company announced that it has entered into support agreements in respect of the recently announced acquisition of WestFire by Guide, pursuant to which it has agreed to vote its shares in WestFire and Guide in favour of and to support the acquisition (the "Transaction"). The newly formed company will be named Long Run Exploration Ltd. ("Long Run"). Pursuant to the Transaction, Guide shareholders will receive an exchange ratio equal to 0.4167 of a WestFire common share for each Guide common share. SRC owns 13,153,936 common shares of WestFire and 15,512,858 common non-voting shares of WestFire and 16,769,477 common shares of Guide. Upon closing of the Transaction, SRC will own approximately 28% of Long Run's voting and non-voting shares. Completion of the Transaction is subject to the satisfaction of a number of conditions, including the approval of the shareholders of each of WestFire and Guide.
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 Waseca's 2012 production targets and 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: expected oil and gas production results from future drilling by Waseca and 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; fluctuations in oil and gas prices; the results of exploration and development drilling and related activities; changes in environmental and other regulations; risks associated with oil and gas operations; 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.
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.