Adrian Day on Sprott Resource Corp

AD: One of my favorites in the general resource area would be Sprott Resource Corp. (TSX:SCP). If you buy Sprott, which is quite a liquid company, you’re getting it at a discount to net asset value (NAV). NAV is about $5.20; the stock’s been trading at about $4.35. You’re also getting great management—Kevin Bambrough and company—and a great balance sheet.

Sprott has direct and indirect investments in different resource areas, buying whole companies, sponsoring companies or growing them. The four main areas it’s in now are: 1) gold, primarily gold bullion; 2) oil and gas; 3) agriculture; and 4) fertilizer. When the companies reach a certain level, ideally it will spin off a certain amount of the shareholding in a public company. Sprott is extremely disciplined and has done this a few times already—with Orion Oil & Gas Corp. (TSX:OIP), for example, which started trading on the Toronto Stock Exchange almost a year ago.

Sprott also has JVs, including one in phosphates with Altius, and owns shares in Lara Exploration Ltd. (TSX.V:LRA). The agriculture play is very interesting—One Earth Farms Corp.—a JV with First Nations, which owns more than a million acres of farmland. It’s going to be a big business, one of the largest commercial farms in North America. It’s really quite staggering. It’s still a private company, but it’s selling some shares in a secondary offering, raising $40M–$80M. If it brings in the maximum, it will take Sprott’s stake down to 24%. In a year or two, it’ll IPO. That’s what it’s trying to do—take a direct investment, build up the company and IPO it.

via The Energy Report – Adrian Day: Long on Gas, Longer on Oil.

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2 thoughts on “Adrian Day on Sprott Resource Corp

  1. Hello Adrian,
    You seem to follow Sprott Resource corp quite a bit. Can you explain what the main benefits to SCP shareholders if they do spin off the companies like One Earth Farms , the Potash company in peru etc. I would expect that as a share holder of SCP, i would get shares in the spin off ,but this is not always the case. This is why i am concerned about investing in SCP and not get much upside other than the perception of SCP being a great holding company (holding onto various assets). Thanks;Rock

  2. hi rock, i’m not Adrian, just an investor who posted his comments on my blog. but i can answer your question. there are two ways Bambrough could deal with an investment that has matured (a) spin-off shares, which means actually distribute the shares to SCP shareholders in proportion to the shares you hold, or (b) sell the shares and retain the proceeds within SCP. he just did the latter with Stonegate shares (and had previously done that with the private company PBS Coals) and i suspect that is what he will do going forward with OIP and OEF, etc. he has successfully increased the net asset value of SCP from $300m to $700m in just the last two years (post PBS), and the stock price has more-or-less followed. it gets a little more complicated because of taxes and the 20% performance fees, but basically we are all better off with Kevin managing the timing and price, IMO.

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