Author Topic: SRHI.to - Sprott Resource Holdings  (Read 1292 times)

sculpin

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SRHI.to - Sprott Resource Holdings
« on: November 15, 2018, 01:52:09 PM »
Sprott Resource Holdings (SRHI - TSX - $1.35). Now trading at a $0.03/share discount to the value of the net liquid assets shown below. Insiders made a very large investment at $5 in 2017. Warrants/options are outstanding at $6.60. There are about 34 million shares outstanding. I have been buying recently sub $1.50. Tangible book value per share is $3.80.

Cash & loan receivable -- $0.76/share
Corsa shares ------------- $0.38/share
Inplay shares ------------ $0.24/share

Total cash & liquid assets $1.38/share

http://www.sprott.com/media/2182/srhi-conference-call-q3-2018.pdf

So the rest of the portfolio is free including what could/should be an outstanding investment in a Chilean copper mine....

"The technical studies confirm that MTV should almost triple current levels of production, achieving a run rate of approximately 18,000 tonnes per annum of copper cathodes," added Mr. Yuzpe. "Based on a long-term copper price of $2.75 (U.S.) per pound, the preliminary economic assessment which looked at the total available mineral resources on the project indicates that MTV could generate $34-million (U.S.) in project cash flow in 2020, peaking at $45-million (U.S.) in 2022."

Other investments are non core and include:

16% of Virginia Energy
40% of Lac Otenyk - a large very pure iron ore deposit in northern Quebec
15% of RII North America
50% of Beretta Farms - listed as for sale

In sum at $1.35 a share, SRHI gives you cash & major investments in coking coal (Corsa) & light oil (Inplay) trading close to all time or multi year lows just below the current SRHI share price. The 70% investment in a cash flowing copper mine that Vale had previously spent $242 million US developing & other investments are currently free at this purchase price.

Inplay (IPO - TSX - $1.15) research...

InPlay Oil (IPO-T; Rating: Buy – Target: $3.25) Strong Cash Flow Driven By Higher Oil Weighting  (Sales Commentary)

Ø  InPlay reported production of 4,773, which was inline with our estimate.  Cash flow of $0.15 beat our estimate by a penny.

Ø  Current field production is estimated at 5,350 boe/d (72% liquids), with the liquids weighting rising from the 69% in the Q3 numbers thanks to recent drill results in the Cardium and the small disposition of gas weighted production (250 boe/d).

Ø  Results from two new Cardium 1.5 mile wells continue to show results well ahead of the companies type curve, averaging 520 boe/d (87% liquids) since coming onstream early last month and cleaning up to current production of 652 boe/d (82% liquids).

Ø  Like many other producers, IPO has elected to defer bringing on two of its planned ERH wells into early 2019 because of current differentials.  Given the current production levels, and with plans to bring on two already drilled wells in Q4, we don’t see risk to our 5,100 boe/d estimate for Q4.

Ø  IPO is trading at only 2.1x our 2019 EV/EBITDA and forecast to exit next year at 0.8x D/CF.  For those looking for oil exposure and willing to move down cap, the company has shown great execution and is the cheapest name in our universe.

Corsa (CSO - TSX - $0.80) research...

Investment Thesis

 Corsa Coal Corp. is one of the few North American survivors in the coal
industry after the precipitous decline in pricing and volumes over the past five years. Corsa
emerged from the downturn with two operating divisions intact and although it has since sold its
CAPP division, its NAPP met coal division holds the potential to expand production from the
current run rate of 1.6M tons to 3M tons with minimal capital requirements. With the plan to push
more of its production into the seaborne market in 2018 to capture the current high prices,
EBITDA should improve meaningfully.

Event

Corsa Coal reported Q3/18 financial and operating results. As we expected, Q3
showed significant improvement over the disappointing results delivered in Q2.
Continued strong coal prices, along with improved operating metrics, put the company
back on track to meet annual guidance.

Highlights

 Financial Results | Corsa reported Q3 financial results as follows:
o Adjusted EBITDA was $8.5M versus our expectation of $8M and $4.3M in Q2
and $12.6M last year.
o Operating cash flows were $6.5M, below our expectation of $11.8M for the
quarter versus $0.1M in Q2 and $10M last year — higher amortization and
reclamation costs were the main reasons for the miss.
o Net income attributable to shareholders was -$2.2M (-0.02/sh), which fell below
our estimate of $6.7M ($0.07/sh), versus -$4.6M (-0.05/sh) in Q2 and $1.3M
($0.01/sh) last year.
o Average sales prices were $106.99, compared to our estimate of $115/t versus
$116/t in Q2 and $112/t last year. The company saw actual realized prices of
$151–$157 versus our estimate of $160–$166/t on an FOB vessel basis. The
sales mix for the quarter was 60% international and 40% domestic customers.
 Q3/18 Production Results | Total met coal sales increased to 455.5Kt, compared
to 392Kt in Q2 and 488Kt last year. The growth came despite supply chain
disruptions to export terminals and rail service throughout the quarter. Although
they were an improvement, sales fell short of our estimated 550Kt. The company
lowered it guidance to 1.9M tons from 2.2M tons, as purchased coal volumes have
been reduced.
 Operating Costs | Average cash production costs per ton sold saw major
improvement as a result of recent investment in equipment at the Casselman
mine; costs were reported at $77.94/t for Q3, decreasing $15.52/t from $93 in Q2.
CSO is back on track to meet annual guidance of $82–$84/t for all sales.
 Looking Ahead | Corsa saw the benefit of strong coal pricing in Q3 as a result of
global supply disruptions and a positive demand outlook and is expecting to see
continued improvements through Q4. Management also stated that it is expecting
mining permits later this year for the Keyser project, a new underground mine,
which suggests further expansion for 2019.

Valuation & Conclusion

Q3 was the strong operating quarter that Corsa needed and was in line with our
expectations that H2/18 would be significantly stronger, with the majority of the issues
in H1 now in the past. We value CSO based on a 5x 2019e EV/EBITDA multiple,
consistent with junior coal mining companies. We maintain our C$2.50 target and Buy
recommendation.


doc75

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Re: SRHI.to - Sprott Resource Holdings
« Reply #1 on: November 16, 2018, 10:42:52 AM »
Sculpin:   I took a brief glance at the Q3 financials.  Looks like $16M of cash + $4.4M of a loan outstanding.  How do you get to your $0.76 per share cash figure, with 34M shares outstanding?  What am I missing?

sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #2 on: November 16, 2018, 11:20:41 AM »
Sculpin:   I took a brief glance at the Q3 financials.  Looks like $16M of cash + $4.4M of a loan outstanding.  How do you get to your $0.76 per share cash figure, with 34M shares outstanding?  What am I missing?

Hi Doc - the Company's financials are in US dollars. So $20.4US becomes $26.5 Cdn or $26.5/34.1shares = $0.77/share cash & loan

doc75

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Re: SRHI.to - Sprott Resource Holdings
« Reply #3 on: November 16, 2018, 11:30:06 AM »
Thanks Sculpin - That just dawned upon me and I was coming back on here to see if I could edit my post before my ignorance was acknowledged.  You beat me to it! :)

This looks like a very interesting opportunity.

sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #4 on: December 12, 2018, 02:31:11 PM »
“Longer term, and this is key, rising electric-vehicle production will shift the entire demand curve since EV's require multiple times the copper content of internal-combustion engines.”

To make these cars and trucks, manufacturers will require an additional 1.7 million metric tons of copper each year by 2027, according to the International Copper Association. Battery-powered EVs use an average of 183 pounds of the metal versus between 18 and 49 pounds for conventional cars, according to data from the Copper Development Association. The difference is even starker for buses. A bus running with a hybrid electric and diesel engine needs 196 pounds of copper, but a fully electric-powered bus requires 814 pounds. Charging ports for electric cars also need copper.

Even without EVs, the market isn’t producing enough newly mined copper to keep up. Global mined production totaled 20 million tons last year, versus demand of 23.8 million tons, according to data from the International Copper Study Group. The deficit typically gets filled through recycled metal or a drawdown of inventories. Moreover, auto-related demand hasn’t yet peaked, and major increases in mined supply can take years to develop.

Still, the shift from fossil-fuel-powered vehicles to electric-powered ones looks set to be a secular, long-term trend from which mining company shares should benefit. During the 2008 recession, usage of refined copper fell by less than 1%, or 148,000 tons, according to ICSG. However, usage of copper in EVs and associated hybrid vehicles is expected to add more than 200,000 tons to demand this year, which will rise steadily for the next decade, according to a 2017 study commissioned by the International Copper Association.

https://www.barrons.com/articles/as-e-cars-surge-some-major-copper-mining-stocks-should-rise-1541173787

sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #5 on: December 29, 2018, 01:53:23 PM »
So the insiders put quite a lot of money in and they had institutions follow them in for $30 million back in 2017 (pre share consolidation of 1 for 20 at $0.25) at a price of $5.00 per share! Now the shares have been trading from $1 to $1.20 for most of December and there have been no insider buys or a move to repurchase even though they have $26 million in cash sitting on the balance sheet. Crazy. Are they waiting for it to go back up 5 times before they begin buying again??? Buying back 20% of the stock at these levels would be ridiculously accretive to the remaining shareholders.


TORONTO, April 20, 2017 (GLOBE NEWSWIRE) -- Sprott Resource Holdings Inc. (“SRHI”) (TSX: SRHI) is pleased to announce that it has closed its previously announced “best efforts” marketed offering (the “Offering”) of units (the “Offered Units”) made pursuant to an agency agreement dated April 3, 2017 between SRHI and a syndicate of agents led by Sprott Capital Partners, a division of Sprott Private Wealth LP, and including Haywood Securities Inc.

Pursuant to the Offering, SRHI sold 120,000,000 Offered Units at a price of $0.25 per Offered Unit for gross proceeds of $30,000,000. Each Offered Unit consisted of one class “A” common share in the capital of SRHI (a “Common Share”) and one Common Share purchase warrant (a “Warrant”). The Warrants expire on February 9, 2022, and have an exercise price of $0.333 per Common Share.


That was quite the sweetener in the warrant they got back in April 2017 - only $5.50 out of the money now! Trading at $0.01 but you need 20 of them to get a share at $6.60. If the copper investment goes to plan I would think it could work but it's amazing how fast 3 years can go by....
« Last Edit: December 29, 2018, 01:55:13 PM by sculpin »