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(B)(N) SPC Sprott Resources Corporation

January 10, 2013

Deal Book. Sprott Resources Corporation invests shareholder and private funds in real assets in energy, agriculture and precious metals and tends to take an ownership or substantial interest in its investments that appear to be guided by a long view of what will continue to be valuable and valued in the future. Moreover, in the context of societal innovation and enterprise in investment management, the company has implemented a number of programmes that are oriented towards providing its shareholders and stakeholders the trifecta, so to speak, of capital safety, liquidity and the promise (or hope) of real returns that are likely to exceed the ordinary or expected rate of inflation (CNW, December 19, 2012, Sprott Resource Corp. Announces Variation of the Trading Parameters Set out in the Company’s Automatic Repurchase Plan).

In their own words, “Sprott Resources Corporation (SRC) is a Canadian-based company, the primary purpose of which is to invest and operate in natural resources.  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 Limited Partnership (SCLP), of which Sprott Inc. is the sole limited partner.”

The company has never paid a dividend but has recently instituted a remarkable dividend policy of $0.038 per share paid monthly or effectively $47 million per year and a current yield in excess of 10% per year. In addition, the company has implemented a policy of share re-purchases in the open market as long as the share price remains below $4.60  – it’s currently $4.37 and up from $3.50 last year – and a policy of automatic re-investment of shareholder dividends in the purchase of additional shares in the company should the investor so choose and the latter may be purchased in the open market or issued from the company treasury stock in what could be called a “win-win” initiative.

The company currently has a market value of about $440 million, total assets of $590 million and shareholders equity of $430 million, most of which seems to have been earned from a much smaller capital of less than $100 million ten years ago and reports approximately $365 million of realized and unrealized capital gains, a current cash position of about $10 million and gold bullion of about $125 million (73,971 ounces at C$1,671/ounce).

Exhibit 1: (B)(N) SPC Sprott Resources Corporation – Risk Price Chart

(B)(N) SPC Sprott Resource Corporation

Sprott Resources Corporation invests and operates, through its subsidiaries, in the natural resource sector. The Company has three reportable segments: the energy segment; the agriculture segment; and the corporate and other segment.

(Please Click on the Chart to make it larger if required.)

One doesn’t want to linger too much on the past but our estimate of the downside that might be expected due to volatility is about minus ($0.25) per share and the July 2013 put options at $4 per share cost about $0.25 per share today but are too lightly traded to protect a large position such as $10 million or so. Moreover, since inception in 1996, the stock has traded between $125 and $0.40 to close at $4.40 today and one needs to ask what happened to the original $10 billion to $13 billion invested in the company’s stock.

Exhibit 2: SCP Sprott Resources Corporation – Stock Price

SCP Sprott Resource Corporation - Stock Price

(Please Click on the Chart to make it larger if required.)

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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