Sprott Resources plans monthly dividend betting it can continue to make regular profits in early stage resource sector

Author: Kip Keen
Posted: Thursday , 13 Dec 2012

SEATTLE, WA (MINEWEB) -

One doesn’t tend to associate the early stage resource sector with dividend bearing stock. Firstly, the obvious: explorers and junior developers don’t usually generate revenue from which to derive a profit and concomitant dividend. The riches in juniors tend to be made - if they are to be made - in showing an asset can generate revenues and then either building it without diluting shareholders to smithereens or by attracting a premium takeover. Indeed junior explorers and developer are the antithesis to revenue generation. They need cash. They don’t usually make it. There are exceptions, such as when juniors retain royalties on deposits that go into production, but that - the inability to make dividends - is generally the rule.

This is what makes Sprott Resource an anomaly. Its like a junior in that it invests in and helps advance both public and private explorers and developers in the resource sector. Yet it now intends to make regular dividends. The news was out today in a press release on Wednesday that got quick response response. Sprott Resources said it intended to maintain a monthly dividend policy starting with C$0.038 per common share and continuing thereafter based on about 0.8 percent of its book value. Its shares flew, up 11 percent at market close to C$3.88.

Regularity, profit and junior markets, are not words that tend to belong in the same sentence. Once in awhile you see a junior issue a special dividend after the sale of an asset, but rarely do you see what Sprott Resource is promising. Investments in junior explorers and developers are considered highly speculative, gambling even, because so many projects fail. Hard to promise regular returns in a market like that. Of course the outsized successes still draw speculators to place their bets in explorers and developers, sometimes with phenomenal returns and often with disappointing losses.

But Sprott Resource's dividend policy is to say they believe they can, in this massively risky resource market, derive regular profit and return it to shareholders. Clearly, given the response to the dividend policy - heavy volumes, climbing shares - investors want in, perhaps as much hungry to get some real returns in a depressing resource market as wowed by Sprott Resource's past success and the prospect of more to come.

Certainly Sprott Resource can claim to have made money in the half decade since launching. As its promotional material makes clear, its shareprice is up about 165 percent since 2007 and its assets now include over a C$100 million in gold bullion and stakes in numerous resource companies, mostly in fossil fuels (58 percent enery per its figures), but with a good measure in precious metals (bullion, but notably not juniors) and agriculture (e.g. fertilizers), which make up 16 and 25 percent of its holdings respectively. Its greatest success so far was the sale of stock in PBS Coals, getting it some C$241 million within a year of its initial $55 million investment. More recently it sold Waseca, an energy company, getting back just over double a C$44 million investment.

As for what the future holds, Sprott Resource obviously hopes to continue to draw success from energy. Recently it made a moves into oil and gas services, buying into an oil and gas driller with a focus on shales - a burgeoning sector in the U.S. Yet it also placed bets on potash, recently buying a 20-percent stake in junior Potash Ridge, which owns an advanced potash project in Utah. Then there is its gold bullion. Some Mineweb readers may hold that has some potential too.

But the big question now is: can Sprott Resource keep up its track record with the added pressure of distributing cash to shareholders in the form of a dividend? If it does, it will stand as one of the rarer instances of repeat success in the resource sector.

http://www.mineweb.com/mineweb/content/en/mineweb-canada?oid=166515&sn=Detail