Welcome To The Sprott Resources Corp HUB On AGORACOM

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Message: 2010

Here is a fundamental analysis that supports TA

" Strong Assets Boost Sprott Resource (SCP)

"Despite more than doubling since we first recommended it just shy of two years ago, Sprott Resources (SCP), a Toronto-listed resource company, remains a strong buy, selling at a discount to a reasonable asset value," says Adrian Day.

The money manager and editor of The Global Analyst explains, "Sprott makes direct and indirect investments in the resource sector, frequently with new businesses which it subsequently takes public after nurturing them.

"One such is Orion Oil & Gas, of which Sprott still owns 78%, and remains undervalued. After more possible acquisitions, Orion could increase in value and more shares be spun off.

"A raising of private equity from the public for One Earth Farms foreshadows a future IPO (though up to two years away).

"At present, Sprott's investments are primarily in oil and gas; gold (mostly bullion); agriculture; and fertilizers. A new venture, buying 19.9% of Virginia Energy, adds uranium to the mix.

"Its assets on the balance sheet are stated at $447 million (net assets of $344 million), against a market cap. of $433 million, but this is a conservative valuation.

"Most obviously, the bullion is valued at cost (so add another $25 million for current value). It has cash of $51 million, with another $54 million to come if all its warrants are exercised by the end of the year. So the company is well capitalized.

"Sprott believes itself undervalued, announcing a plan to buy back shares, up to 7 million. Add the nearly 3 million re-purchased over the past year, and that's virtually 10% of the shares outstanding.

"Why are the shares undervalued? First, any holding company, with investments in multiple companies in different sectors, can confuse investors, not attract much analyst coverage, and consequently trade at a discount.

"In addition, Sprott does not do much investor relations; a quarterly analyst call would help. Further, the shares are held back because of a large warrant issue, marginally in the money, that expires December 31st.

"So Sprott is an excellent buy right now; it has great management, a solid balance sheet, strong assets and its shares are undervalued. And this undervaluation may not last long.""


Given that the warrant exercise is out of the way, the risk of seeing SCP back below 4.50 is now very small.

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