My favorite current investment opportunity. I have a moderate position and am hoping to add at even better prices.
I'll keep this short and sweet as I think this one is a pretty obvious opportunity.
The company is run by Sprott Asset Management which is perhaps Canada's best known hedge fund management group. They formed Sprott Resource Corp (SCPZF.PK) to take advantage of Sprott's deal flow. So far they have done a masterful job with a couple of great opportunistic investments.
I'll write more later, but for now I'd just like to get to the current valuation which is really quite simple and appealing.
Here is what Sprott Resource Corp currently owns:
One Earth Farms - $27.5mil (at amount invested)
Orion Oil and Gas - $233mil (publicly traded shares x share price)
Stonegate Agricom - $75mil (publicly traded, Sprott just took public)
Waseca Energy - $44.3mil (at amount invested)
Gov't Treasury Bills - $81mil
Gold and silver - $75mil
Portfolio investments - $41mil
Total value investments - $578mil
Shares outstanding - 99million
Value per share - $5.85
Current share price - $4.20
Upside from share price to value per share = 39.2%
A pretty obvious value when you consider that we are using either publicly traded security prices, cash, and gold/silver to determine most of the asset value. Pretty objective calculation really.
It gets even more interesting when you consider that the private investments that we have valued at cost (One Earth and Waseca) are both likely worth much more than cost. And when you consider that Orion is also likely quite undervalued.
Also, consideration should be given to the fact that Sprott will find a useful place for all of the cash and gold/silver they are sitting on. Consider that they invested $100mil in Orion in the fall of 09 and it is now worth $233mil. They hit a similar homerun with PBS coals in 2008 into which they invested $55mil and sold it later for $200mil.
Bottom line. These guys are excellent investors. The stock is cheap. It is safe with loads of cash and no debt. And there is plenty of upside in the value of their other private investments.
I will follow up on this with more detail about each investment and a more detailed valuation.
Disclosure: Long Sprott Resource Corp