Sprott Resource Corp_Anomalous Investments_Research Update_April 2010_FINAL

8/7/2019 Sprott Resource Corp_Anomalous Investments_Research Update_April 2010_FINAL

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Independent Insight for Solving Information Asymmetries Matthew T. SchroederWebsite: www.anomalousinvestments.com E-Mail: [email protected]

Disclosures and Disclaimer located at end of the report

RESEARCH UPDATEAPRIL 9, 2010

Sprott Resource Corp.Analysis of FY 2009 Results & Meeting with CFO confirm Core Holding StatusA value investment in the natural resources industry; Trading at 0.84 NAV; Up 19% sinceprevious report in November 2009; Several value creating catalysts in 2010.(Canada: TSX: SCP, C$4.52; US: SCPZF, US$4.51)

Summary1. Net Asset Value per share increased 55% since last report (dated November 30, 2009).

- Updated Net Asset Value (NAV) calculation of C$ 5.35 per share (US$ 5.34 per share),or C$ 515 million (US$ 514 million). Previous NAV per share of C$ 3.46, with totalNAV of C$ 294.4 million. Orion Oil & Gas transaction was the primary value driver.

- Stock price up 19% from AIs previous research report.2. Meeting with Chief Financial Officer in Toronto confirms excellent business prospects.

- Several value creation opportunities in 2010.- SRC maintains extremely healthy & liquid balance sheet.

3. Upcoming Catalysts in 2010- Stonegate Agricom IPO: Preliminary prospectus filed March 16th to raise $ 50 million,

subject to market conditions. SRC carries Stonegate on its books at ~ C$ 14 million.

- One Earth Farms: Ramp up to 79,500 acres in 2010, and likely a significant financing(C$ 75 million C$ 100 million) before year-end to enable SRC to achieve 225,000acres in 2011.

4. Continued Management Commitment to Shareholder Value- Management & insiders own 10.7% of the shares. Eric Sprott, Chairman of the

Board, alone owns C$ 32 million in SRC shares. SRC also continues to maintain itsshare buyback program.

5. Valuation- Currently trading at 0.84 of NAV. At current valuation, SRC shareholders are

effectively getting One Earth Farms, Stonegate Agricom and Waseca Energy for free.

- Due to the embedded value within the company, the latent torque within itssubsidiaries & the potential future acquisitions, AI predicts that Sprott Resource Corpcould easily be trading north of C$ 10.00 by the end of 2011.

DASHBOARD

Company Name:

Sprott Resource Corp.

Symbol:

Canada: SCP

US: SCPZF

Current Price:

(Apr 8, 2010)

Canada: C$ 4.52

US: US$ 4.51

No. of Shares:

O/S: 96.2 Million

FD: 113.0 Million

Market Cap:

(Apr 8, 2010)

Canadian: C$ 435 Million

US: US$ 434 Million

Performance (1-Year):

Avg. Daily Volume:

TSX: 119,800 shares

Exch Rate (Apr 8, 2010):

C$ 1.00 = US$ 0.99857

Company Description:

Sprott Resource Corp is a

Canadian based company

whose primary purpose is to

invest, directly and indirectly,

in na tural resources.

Website:

www.sprottresource.com


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Sprott Resource Corp. Update: Analysis of FY 2009 Results & Meeting with CFO April 9, 2010

Anomalous Investments Limited 1 www.anomalousinvestments.comSpecial Situations for Sophisticated Investors Independent Insight for Solving Information Asymmetries

I. Executive SummarySince AIs research report entitled Sprott Resource Corp As Good As It Getson November30th, 2009, Sprott Resource Corps stock price has increased by 19%, rising from C$ 3.79 to C$4.52.

We met with Steve Yuzpe, the Chief Financial Officer (CFO) of Sprott Resource Corp, on March10th in Toronto, Canada. We came away from that meeting with the reconfirmation that SprottResource Corp is indeed a Special Situationcompany in the natural resources sector withenormous embedded value.

The significant ownership by management and insiders of 10.7% in the shares of the companygives us further confidence that there is an alignment of interests. It is noteworthy, and shouldgive existing shareholders additional comfort, that Eric Sprott, the Chairman of the Board,alone owns 7,018,100 shares, which amounts to ~C$ 32 million at current market values. Thecompanys continued share buyback program is also very shareholder friendly.

Based on AIs updated Net Asset Value (NAV) calculation, SRCs NAV per share is C$ 5.35 (US$5.34 per share), or a total of C$ 515 million (US$ 514 million). This represents a significant 55%increase from the previous report, which showed an NAV per share of C$ 3.46, with total NAV

of C$ 294.4 million. The major value driver was the Orion Oil & Gas transaction.Upcoming catalysts include a potential initial public offering (IPO) of Stonegate Agricom & theramp-up of One Earth Farms.

Stonegate Agricom filed a preliminary prospectus March 16th to raise ~C$ 50 million, subjectto market conditions. Since SRC carries Stonegate on its books at ~ C$ 14 million (as atDecember 31, 2009), a successful IPO could be a large win for the company.

Additionally, One Earth Farms 2010 business plan calls for a ramp-up to 79,500 acres in 2010,which would make it one of the largest farms in Canada. The company will also likely need todo a significant financing (C$ 75 million C$ 100 million) before year-end to enable SRC toachieve an amazing 225,000 acres in 2011.

In conclusion, Sprott Resource Corp has a demonstrated track record of creating shareholdervalue. Due to the fact that the Company is trading at 0.84 NAV, the significant embedded

value within the company, and the significant potential torque provided by the growth in OneEarth Farms, Orion Oil & Gas, Stonegate Agricom, and Waseca Energy, and the potential futureacquisitions, AI predicts that Sprott Resource Corp could easily be trading north of C$ 10.00 bythe end of 2011.


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II. Corporate Update & Summary of FY 2009 ResultsOn March 29, 2010, Sprott Resource Corp (SRC, the Company) filed with the Canadianregulators its Annual Information Form(AIF), Management Discussion and Analysis ofFinancial Position and Results of Operations(MD&A) and its Consolidated Financial

Statementsfor the year ended December 31st

, 2009.

A summary of the meaningful corporate changes is provided below. For more specific anddetailed information on SRCs individual subsidiaries, please refer to AIs November 30th reportentitled Sprott Resource Corp: As Good As It Gets.

A. Corporate Structure

Since AIs last report, SRC has moved forward on several corporate development initiativesincluding the public listing of Orion Oil & Gas, a strategic financing of One Earth Farms, andanother round of financing for Waseca Energy.

Sprott Resource Corp has four (4) major subsidiaries, namely: (1) One Earth Farms Corp; (2)Waseca Energy; (3) Stonegate Agricom Ltd.; and (4), Orion Oil & Gas, a public company.

The following graphic shows the intercorporate relationships among the Company and itssubsidiaries, as of December 31, 2009.

B. Capital Structure

Since AIs last report, which utilized share data as November 12th, 2009, Sprott Resource Corprepurchased & cancelled 570,800 common shares. The net result has been that the totalnumber of common shares decreased from 96,761,507 to 96,191,427 common shares as ofMarch 22, 2010.


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The Company also has 16,594,284 outstanding common share warrants and 250,000 stockoptions. The warrants were issued as part of the warrant incentive program completed in 2008,which are exercisable at C$ 4.25 per common share and expire on December 31, 2010.

The following table illustrates SRCs share structure as of March 22, 2010.

Typeof

Shares March

22,

2010

CommonSharesOutstanding 96,191,427

StockOptions(1) 250,000

SharePurchaseWarrants(2) 16,594,284

Shares(FullyDiluted) 113,035,711

SprottResourceCorp.

ShareStructure(March22,2010)

Source: SprottResourceCorp,AIFandMD&AdatedMarch29,2010.

(1) Exerciseprices fromC$1.75 C$3.32,withexpirationdatesthroughSept1,2014.

(2) ExercisepriceofC$4.25,expiringDecember31,2010.

C. Managem ent Ownership & Significant Shareholders

The management team & directors continue to be heavily invested in the Company. Theseinsiders control a total shareholding of 10,285,100 common shares, or 10.7% of the company.Anomalous Investments likes to see this strong vote of confidence, since it aligns the incentivesof management with that of the Companys shareholders.

It is also worthy of note that the Chairman of the Board, and namesake to the company, EricSprott, alone owns ~C$ 32 million in Sprott Resource shares. However, he is by no meansalone in his conviction on the value of the company, as the President & CEO, KevinBambrough, has a stake of over C$ 7 million, and another Director and Sprott AssetManagement Director, John Embry, has a stake of ~ C$ 6 million.

Lastly, adding further evidence to the investment merits of Sprott Resource Corp, AI discoveredthrough SEC filings that Royce & Associates, LLC (Royce Funds), a very distinguished small capmanager in the US, had accumulated 7,315,200 shares (7.6%) as of February 9, 2010.

The following table summarizes the shareholdings of management & insiders, as well as acouple highly-respected institutional managers.

Type Name Position/

Relationship

No.ofShares Shareholding

%(ProForma)

MarketValue

(C$)

ReportingDate

(No.ofShares)

EricSprott ChairmanofBo ard 7, 018, 100 7 .3% 31, 721, 812 March29,2010(AIF)

KevinBamb ro ug h C EO&P re si de nt 1, 562, 000 1.6% 7, 060, 240 March29,2010(AIF)

JohnEmbry Director 1,320,000 1.4% 5, 966, 400 March29,2010(AIF)

MichaelWinn Director 280,000 0.3% 1, 265, 600 March29,2010(AIF)

TerrenceLyons Director 50,000 0.1% 226,000 March29,2010(AIF)

A.MurraySinclair Director 45,000 0.0% 203,400 March29,2010(AIF)

SteveYuzpe CFO 10,000 0.0% 45,200 March29,2010(AIF)

Total 10,285,100 10 .7% 46,488,652 March29,2010(AIF)

TheRuleFamilyTrust StrategicI nv es to r 8, 717, 810 9 .1% 39, 404, 501 August11,2009

RoyceF unds Inst ituti onalInvestor 7,315,200 7 .6% 33, 064, 704 February9,2010

16,033,010 16 .7% 72,469,205

No.ofSharesIssued&Outstanding(March22,2010): 96,191,427

StockPrice

(C$,

April

8,

2010): 4.52

SprottResourceCorp.

MajorShareholders

Source: Annual InformationForm(AIF)and MD&AdatedMarch29,2010; SystemforElectronic DisclosurebyInsiders(SEDI); SEC.

Notes:

Total

Management

&Insiders

Institutions


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IV. One Earth FarmsA. Overview

One Earth Farms is a large grain and cattle farming business operating in the Prairie Provincesof Canada.

In its first year of operations, 2009, One Earth Farms farmed approximately 13,000 acres ofcultivated land. The crops produced in 2009 were canola (66%), wheat (24%) and barely (10%).All of the land farmed in 2009 was First Nations (aboriginal) reserve land, which One EarthFarms leased from 3 First Nations.

SRC believes that One Earth Farms represents a unique opportunity to change primary farmingin Canada. Management believes that once sufficient scale is realized, One Earth Farms will beable to achieve improved equipment utilization, input purchasing power and improved pricingfor final products, which management expects will generate greater operating margins andmore profitability than the average farm in the Canadian Prairie Provinces.

B. Recent Developments

In December 2009, One Earth Farms completed a $15 million strategic financing pursuant towhich it issued 15 million common shares for C$ 1.00 per common share. The participants inthis financing, which included prominent industry players, are listed in the table below.

Name Name Ticker Description

1. AgGrowthInternational TSX: AFN Aleadingmanufacturerofportable &stationarygrain

handling,storageandconditioningequipment.

2. AllianceGrainTradersTSX: AGT

Thelargestlentil&peasplittingcompanyintheworld.

3. CAPEFundLP A$50millionprivatesectorfundfoundedbyformer

CanadianPrimeMinister,PaulMartin,and21large

corporations&internationalfoundations,whichis

focusedonopportunitieswithastrongdegreeof

Aboriginalinvolvement.

B. MOU

(STRATEGICEQUIPMENT

ALLIANCEAGREEMENT)

4. CNHCanada,Ltd.

("Case IH")

CNHisaworldleaderintheagricultural andconstruction

equipmentindustrywith11,300dealersin170countries.

Thecompanyhadnetsalesof$18.5billionin2008.

OneEarthFarms

StrategicFinancing December2009

A. SUBSCRIBERS

SummaryofParticipants

This financing diluted SRCs ownership interest in One Earth Farms to 66.7% on an undilutedbasis, however brought in very sophisticated industry players. On a fully diluted basis, SRCsownership is 80.0%, arising from 30 million share purchase warrants at C$ 1.00 which do notexpire until March 3, 2014.

C. Outlook One Earth Farms

In 2010, One Earth Farms expects to farm approximately 65,000 acres of cultivated lands and14,500 acres of pasture land. The company is already in cropland lease negotiations with 25First Nations bands in the provinces of for the Saskatchewan, Manitoba and Alberta.

The company continues to expand its management team to support its growth strategy for thenext couple of years, and has implemented a strategy to select the optimum land parcels,including proximity to existing operations, potential profitability, prior use of the land and a setof rigorous agronomic standards developed to understand the opportunity of each section ofcultivated land.


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Based on AIs meeting with SRCs CFO, Steve Yuzpe, the outlook for One Earth Farms over thenext few years is indeed very exciting.

SRC is currently fully capitalized to meet its 2010 business plan. Additionally, the Companyfeels very comfortable that it will be able to ramp up to 225,000 acres in 2011, after it arrangesa large financing ($75 million - $100 million), which would likely be done in 2H 2010.

If One Earth Farms is able to achieve 225,000 acres in 2011, it will certainly be Canadas largestfarming operation, and as such, will receive a lot of investor attention.

From thereon, the Company has ambitious plans to continue to ramp-up the business to450,000 acres in 2012 and 850,000 acres in 2012, as is shown in the following chart.

In a world focused on food scarcity issues, One Earth Farms could achieve a significantvaluation at those farming levels.

13,00079,500

225,000

450,000

850,000

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2009 2010 2011 2012 2013

No.ofAcres

Year

OneEarthFarmsAcreageProjections


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V. Stonegate AgricomStonegate Agricom is engaged in the business of acquiring, exploring and developingagricultural nutrient projects, and is currently focused on the exploration and development ofthe Mantaro Phospate Project in Peru and the Paris Hills Project in Idaho, USA.

A. Recent Developments

Stonegate Agricom has been a pleasant surprise since AIs last report, issuing a positivetechnical report on the Mantaro Project, and proposing an IPO for this subsidiary.

1. Technical Report

On March 11th, Stonegate Agricom announced that it had completed & filed an NI 43-101(Canadian Regulatory compliant) Technical Report on its Mantaro Phosphate Deposit in Peru.

The Mantaro Phosphate Deposit is owned indirectly through SRCs subsidiary StonegateAgricom Ltd. ("Stonegate Agricom"). SRC owns 73% of the issued & outstanding common

shares of Stonegate Agricom on an undiluted basis and 62% on a fully-diluted basis.

A summary of salient points from the technical report are presented below.

Measured & Indicated Mineral Resources for the West zone of the Deposit wereestimated at 39.523 million tonnes grading 10.0% P2O5, and an Inferred MineralResource of 376.265 million tonnes grading 9.0% P2O5.

The projected phosphate concentrate grades are suitable for production of merchantgrade phosphate rock concentrate and production of concentrate for use inphosphate fertilizers such as single superphosphate (SSP) and potentially theammonium-based phosphate fertilizers DAP and MAP.

Importantly, the Report also indicates that there is significant potential to expand theresource base in the East and Far East Zones. Although much work needs to be done

on these two zones, based on certain assumptions, the potential mineral deposits areestimated to be 425-435 million tonnes grading 9% P2O5 in the East zone and 280-290 million tonnes grading 9% P2O5 in the Far East zone. Should such conceptualresources be confirmed by trenching & drilling, the deposit could rank as one of themost significant phosphate deposits in the world.

Immediately after announcing the positive technical report, SRC announced a proposed IPO ofStonegate Agricom.

B. Proposed IPO of Stonegate Agricom

On March 16th, Stonegate Agricom filed a preliminary prospectus with relevant securitiesregulatory authorities in Canada, in respect of an initial public offering (IPO) of units.

A review by AI of the preliminary prospectus shows that Stonegate Agricom is looking to raiseapproximately C$ 50 million, subject to market appetite and conditions. Stonegate Agricomintends to use the proceeds to explore & develop the Mantaro phosphate project and the ParisHills phosphate project in Idaho and for general corporate and working capital purposes.

The Offering is being made through a syndicate of underwriters led by GMP Securities L.P. andincluding BMO Capital Markets, Canaccord Financial Ltd., and other banks.

If the IPO is successful, this transaction will certainly be value accretive to SRC shareholders.


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VI. Waseca EnergyWaseca is an early-stage, private corporation engaged in the exploration and production of oil& gas in the Lloydminster area on the border of Saskatchewan and Alberta, in Canada.

Waseca, which is focused the exploration and production of heavy oil, currently has

approximately 500 barrels per day of production.

A. Recent Developments

In January 2010, Waseca completed a C$ 20 million financing by way of a rights offering toexisting shareholders. As part of the rights offering, SRC purchased 28.34 million commonshares of Waseca at $0.60 per common share for a total cost of $17 million.

As a result, SRC's ownership interest in Waseca has increased from 79.0% to 81.3% on anundiluted basis.

Waseca is in a strong financial position with a significant portion of i ts assets held in cash andcash equivalents.

B. Outlook Waseca

Waseca has amassed a significant land position, in which it has a 100% working interest, and iscurrently completing its Q1 2010 drilling program of 10 wells. Waseca also continues toacquire significant amounts of seismic data to facilitate future land sale participation.

For the year 2010, Wasecas board of directors has approved a 45 well drilling program, whichwill be made up of approximately 30 exploration wells and 15 development wells.

The goal of the program is to increase Wasecas heavy oil production to approximately 1,300 1,600 barrels/day by the end of 2010.

Waseca is also evaluating of upcoming crown land sales and potential production acquisitionopportunities.

Management believes that current conditions are favorable to prudently increase drilling plansin an effort to maximize shareholder value.

At the current Sprott Resource Corp stock price, no value is being placed on the WasecaEnergy business.


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VII. Financial SummaryA brief summary of Sprott Resource Corps FY 2009 financial results is provided below.

A. FY 2009 Financial Results

Amidst volatile market conditions, Sprott Resource Corp continued its methodical, andcautious, approach to creating shareholder value in FY 2009.

During the year, the Company focused on incubating and developing One Earth Farms, OrionOil & Gas, as well Waseca and Stonegate Agricom, while maintaining a very healthy liquidityposition for selective opportunities.

The table below provides selected financial information for the Company, on a consolidatedbasis, for each of the past 3 years.

(C$000s),

except

per

share

data 2009 2008 2007

OilRevenues(netofroyalty) 9,887 38

FarmingRevenues 2,720

NetIncome (loss) (2,981) 134,228 2,010

NetIncome (loss)pershare(basic) (0.03) 1.94 0.09

NetIncome (loss)pershare(fullydiluted) (0.03) 1.93 0.09

TotalCurrentAssets 197,963 268,137 34,266

TotalAssets 408,602 314,286 76,786

TotalLiabilities&NonControllingInterest 74,040 29,530 641

TotalNetAssets 334,562 284,756 76,145

FortheyearendedDecember31

SelectedConsolidatedAnnualInformation

Since Sprott Resource Corp is not an operating company, and because most of its subsidiariesare still in the early development phase, total revenues was low at C$ 12.6 million, and thecompany showed a small loss of C$ (0.03) per share. This loss was primarily related to the

overhead & development costs associated with building Orion Oil & Gas and One Earth Farms.

SRC grew its net assets (at book value) to C$ 334.6 million at the end of 2009 from C$ 284.8million at the end of 2008.

Importantly, the Company maintained a very healthy balance sheet with ~ C$ 198 million incurrent assets, with C$ 107 million in cash & cash equivalents and another C$ 75 million in gold& silver bullion. The following table shows the breakdown of SRCs current assets as ofDecember 31st, 2009.

(C$Millions) Dec.31,2009

Cash&CashEquivalents 107,085

Gold&

Silver

Bullion 75,392

AccountsReceivable 7,500

OtherCurrentAssets 7,986

TotalCurrentAssets 197,963

CurrentAssets

Lastly, and perhaps most importantly, as will be demonstrated in the following section on NetAsset Value, the FY 2009 financial results do not fully capture the value which was createdduring the year, because it does not reflect the significant value creation arising from the OrionOil & Gas transaction, since Orion is reflected on SRCs balance sheet at book value.


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VIII. ValuationBecause SRC invests and incubates early-stage (often private) natural resources companies, andbecause its subsidiaries do not yet generate material revenues, a Net Asset Value (NAV)calculation is the most appropriate valuation measure for Sprott Resource Corp. The following

section updates AIs NAV calculation for Sprott Resource Corp.

A. Net Asset Value Calculation

Based on SRCs FY 2009 results, AI conducted an in-depth balance sheet analysis, breaking thenumbers down to the subsidiary level, and then adjusting the value of Orion Oil & Gas (whichwent public in January 2010) from book value to market value.

Based on this analysis, AI calculates Sprott Resource Corps Net Asset Value (NAV) per shareto be C$ 5.35 (US$ 5.34). The following table shows a summary of the NAV calculation. Adetailed version of the NAV calculation is provided in the Appendices.

(C$Million) BookValueNetAssetValue

(NAV)(1)

Corporate(Cash,CashEquivalents&OtherAssets) 163.6 163.6

OrionOil&Gas 103.9 284.4

WasecaEnergy 28.3 28.3

OneEarthFarms 24.7 > 24.7

StonegateAgricom 14.1 14.1

Total 334.6 515.1

SharesOutstanding(millions) 96.2 96.2

PershareValue 3.48$ 5.35$

(2) TotalbookvaluereconciledtoFY2009financialstatements. Detailedbreakdownbysubsidiaryprovided in

Appendices.

Whereindividual

subsidiary

level

data

unavailable,

assumptions

utilized.

(1) NetAssetValue: OrionOil &Gas reflectedat"marketvalue"insteadof"bookvalue". SRCowns 229.334million

commonshares. Marketvalue,as ofApril8th,2010,is C$284.4million(229.334 shares o/s*C$1.24/share)

SprottResource

Corp.

NAVSummary

Based on Sprott Resource Corps current market capitalization of C$ 434.8 million (C$4.52/share) and an NAV of C$ 515.1 million (C$ 5.35/share), the Company is currently trading at0.84 NAV, as is shown in the following table.

CanadianDollars(C$) Amounts

PriceperShare ClosingPrice 4.52$

SharesOutstanding Million 96.2

MarketCapitalization Million 434.8

II. SRCNAV NetAssetValue Million 515.1

III. NAVMULTIPLE PricetoNAV 0.84

SprottResource Corp.

PricetoNAV

I. SRCMKTCAP

Said in another way, at the current market valuation, SRCs share price is onlyreflecting thevalue of the Corporate assets (cash, short-term investments and bullion), and Orion Oil & Gas,and incredibly, shareholders are effectively getting for freeOne Earth Farms, Waseca Energyand Stonegate Agricom.


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IX. Outlook & ConclusionBased on AIs analysis of Sprott Resource Corps FY 2009 financial results, and our meeting withthe Companys CFO, Steve Yuzpe, we conclude that Sprott Resource Corp is indeed a SpecialSituationin the natural resources industry, and one with enormous embedded value and

significant growth prospects.

Based on AIs updated Net Asset Value (NAV) calculation, SRCs NAV per share is C$ 5.35 (US$5.34 per share), or a total of C$ 515 million (US$ 514 million). This represents a significant 55%increase from the previous report, which showed an NAV per share of C$ 3.46, with total NAVof C$ 294.4 million. The Orion Oil & Gas transaction was the large value driver.

Management and insiders continue to have significant shareholdings in the Company, givingshareholders further confidence that there is an alignment of interests. The Companyscontinued share buyback program provides shareholders with further confidence.

Upcoming catalysts include a potential initial public offering (IPO) of Stonegate Agricom & theramp-up of One Earth Farms.

One Earth Farms is particularly exciting with its 2010 plan calling for a ramp-up to 79,500 acres.The Company will also be looking to do a significant financing (C$ 75 million C$ 100 million),

before year-end to enable SRC to achieve an astonishing 225,000 acres in 2011. At that size,One Earth Farms would be, by far, Canadas largest corporate farm.

In conclusion, Sprott Resource Corp has a demonstrated track record of creating shareholdervalue. Due to the embedded value within the company, and the significant potential torqueprovided by One Earth Farms, Orion Oil & Gas, Stonegate Agricom, Waseca and potentialfuture acquisitions, AI believes that Sprott Resource Corp represents a value investment in thenatural resource industry.

AI predicts that Sprott Resource Corp could easily be trading north of C$ 10.00 by the end of2011.


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X. AppendicesA. Financial Statements

Balance Sheet

Sprott Resource Corps balance sheet, as of December 31, 2009, is provided below.

SprottResourceCorp.

ConsolidatedBalanceSheets

FortheyearsendedDecember31,2009and2008

(expressedinCanadiandollars)

Dec.31,2009 Dec.31,2008

$000's $000's

Assets

CurrentAssets

Cashandcashequivalents 107,085 45,264

Goldandsilverbullion 75,392 61,930

Shortterminvestments 0 158,283

Accountsreceivable 7,500 0

Notereceivable 0 610

Prepaidandotherreceivables 5,520 2,050

Cropandlivestockinventory 1,256 0

Derivativefinancial instruments 1,210 0

TotalCurrentAssets 197,963 268,137

NonCurrentAssets

Investments 33,750 28,564

InvestmentinStonegateAgricomLtd. 14,069 11,731

Loansandpromissorynotesreceivable 150 150

Miningclaimsanddeferredexploration 0 305

PP&E(NetofDepletion,Dep&Amort) 148,589 5,399

Longtermlivestockassets 586 0

Futureincometaxassets 13,495

TotalNonCurrentAssets 210,639 46,149

TotalAssets 408,602 314,286

Liabilities

CurrentLiabilities

Accountspayableandaccruedliabilities 21,678 5,618

Incomeandcapitaltaxpayable 252 16,328

TotalCurrentLiabilities 21,930 21,946

OtherLiabilities

Longtermdebt 2,052 0

Assetretirementobligation 4,110 75

Futureincometaxliability 0 535

Total Liabilities 28,092 22,556

Noncontrolling interest 45,948 6,974

Shareholders'

EquityCapitalstock 213,747 163,217

Warrants 44,305 45,036

Contributedsurplus 3,357 400

261,409 208,653

Retainedearnings 72,896 80,623

Accumulatedothercomprehensiveincome(loss) 257 4,520

TotalShareholders'Equity 334,562 284,756

TotalLiabilities&Shareholders'Equity 408,602 314,286


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B. Income Statement

Sprott Resource Corps Income Statement for FY 2009 is provided below.

SprottResourceCorp.

ConsolidatedStatements

of

Operations

FortheyearsendedDecember31,2009and2008

(expressedinCanadiandollars)

2009 2008

$000's $000's

Revenue

Oil andgasrevenue 12,043 44

Oil andgasroyalties (2,156) (6)

Farmingrevenue 2,720

Total Revenue 12,607 38

Otherincomeandexpenses

Generalandadministrativeexpense (17,174) (3,903)

Management fees (5,945) (3,888)

Management incentive fees (35,698)

Oil andgasoperatingandexploration (9,128) (351)

Farmproductioncosts (3,139)

Intereston

long

term

debt (498)

Gainsondisposalofinvestments 6,531 5,320

GainsondisposalofPBSCoalsLimitedshares 166,785

Impairmentofinvestments (2,531)

Gainondisposalofsilverbullion 10,140

Gainondilutionfrominvestments 2,304 11,653

Foreignexchangegain(loss) (222) 143

Interestandotherincome 1,090 2,468

Realizedgainonderivative instruments 2,045

Unrealizedlossonderivatives instruments (1,926)

Unrealizedlossoninvestmentsheldfortrading (464)

Writedownofminingclaims&deferredexploration (467) (627)

(16,853) 139,371

Earnings(loss)beforeincometaxes (4,246) 139,409

Provisionforincometaxes

Currentincome

tax

recovery

(expense)

(16,122)

Futureincometaxrecovery 529 77

529 (16,045)

EquityearningsofPBSCoalsLimited 11,164

EquitylossofStonegateAgricomLtd. (1,427) (625)

Noncontrollinginterest 2,163 325

Netincome(loss)fortheperiod (2,981) 134,228


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C. Cash Flow Statement

Sprott Resource Corps Statement of Cash Flows for 2009 is provided below.

Sprott Resource Corp.

Consolidated Stateme nt of Cash FlowsFor the years ended Dece mber 31, 2009 and 2008

(expressed in Canadian dollars)

2009 2008

$000's $000's

Cash flows from (use d in) operating activities

Net income (loss) for the period (2,981) 134,228

Items not affecting cash

Gain on disposal of investments (6,531) (5,320)

Gain on disposal of silver bullion (10,140) -

Unrealized loss on derivative instruments 1,926 -

Unrealized losses on investments held for trading 464 -

Gain on dilution from PBS Coals Limited - (7,801)

Gain on disposal of PBS Coals Limited shares - (166,785)

Gain on dilution from investments (includes Stonegate) (2,304) (3,853)

Equity loss of Stonegate Agricom Ltd. 1,427 624

Equity earnings of PBS Coals Limited - (11,164)

Impairment of investments - 2,532

Depletion, depreciation and amortization 3,339 28

Asset retirement obligation accretion 64 -

Future income tax recovery (529) -

Non-controlling interest (2,163) (325)

Stock-based compensation 3,673 43

Write down of mining claims and deferred exploration 467 627

(13,288) (57,166)

Changes in non-cash operating working capital

Change in prepaids and other receivables (715) (1,252)

Change in crop and livestock inventory (1,256) -

Change in accounts receivable and note receivable (3,412) (609)

Change in account s payable and accrued liabilities (252) 4,557

Change in taxes payable (16,184) 16,328

(35,107) (38,142)

Cash flows from (used in) investing activities

Purchase of short-term investments (72,445) (158,283)

Proceeds of short-term investments matured/sold 230,728 -

Purchase of bullion (36,195) (61,930)

Proceeds on sale of bullion 32,873 -Promissory notes receivable - (150)

Deferred exploration expenditures - (882)

Purchase of investments (19,074) (76,809)

Proceeds on sale of investments 24,284 57,213

Purchase of PBS Coals Limited shares - (24,447)

Proceeds on sale of PBS Coals Limited shares - 240,685

Purchase of property, plant and equipment (17,797) (2,115)

Waseca acquisition (net of cash acquired) - 4,550

Investment in Stonegate Agricom Ltd. (1,806) (1,465)

Initial investment in Auriga & related transaction costs (2,406) -

Investment in biological assets (586) -

137,576 (23,633)

Cash flows from (used in) financing activities

Financing in One Earth Farms Corp. 14,584 -

Financing in Orion Oil & Gas 7,976 -

Change in long-term debt (60,448) -

Proceeds from exercise of options 117 -

Proceeds from issuance of capital stock - 92,641

Proceeds from exercise of warrants 8,332 -

Repurchase of capital stock (11,209) (19,685)

(40,648) 72,956

Change in cash and cash equivalents 61,821 11,181

Cash and cash equivalents Beginning of period 45,264 34,083

Cash and cash equivalents End of period 107,085 45,264


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B. Net Asset Value Calculation

The table below shows Sprott Resource Corps Book Value & AIs calculation of Net Asset Value(NAV) for the Company.

The total book value of the Company is reconciled to the total net assets (total assets totalliabilities) on SRCs FY 2009 balance sheet.

For the NAV calculation, net assets are broken down to the individual subsidiaries, based ondetails outlined in SRCs regulatory filings. Some assumptions are made where subsidiary-leveldata is unavailable. The value of Orion Oil & Gas is then adjusted from book value to marketvalue.

By reflecting Orion Oil & Gas at market value, SRCs NAV is calculated to be C$ 5.35 per share.

O RI ON W AS EC A ON EEARTHFARMS STONEGATE

Cashandcashequivalents 56.2 0.7 16.3 33.9 107.1

Goldandsilverbullion 75.4 75.4

Shortterminvestments 0.0 0.0

Accountsreceivable 1.8 5.7 7.5

Notereceivable 0.0 0.0

Prepaidand

other

receivables 2.8 2.7 5.5

Cropandlivestock inventory 1.3 1.3

Derivativefinancialinstruments 1.2 1.2

TotalCurrentAssets 136.2 10.3 16.3 35.2 0.0 198.0

Investments 33.8 33.8

Investment inStonegateAgricomLtd 14.1 14.1

Loansandpromissorynotesreceivable 0.2 0.2

Miningclaimsanddeferredexploration 0.0

PP&E 0.0 128.8 17.8 2.0 148.6

Longtermlivestock assets 0.6 0.6

Futureincometaxassets 0.0 13.5 13.5

TotalNonCurrentAssets 33.9 142.3 17.8 2.6 14.1 210.6

Total TotalAssets 170.1 152.6 34.1 37.7 14.1 408.6

Accountspayableandaccruedliabilities 6.3 15.4 21.7

Incomeandcapitaltaxpayable 0.3 0.3

TotalCurrentLiabilities 6.5 15.4 0.0 0.0 0.0 21.9

Longtermdebt 2.1 2.1

Assetretirement obligation 3.8 0.3 4.1

Futureincometaxliability 0.0 0.0

TotalNonCurrentLiabilities 0.0 5.8 0.3 0.0 0.0 6.2

Other Noncontrollinginterest 27.5 5.5 13.0 45.9

Total TotalLiabilities 6.5 48.7 5.8 13.0 0.0 74.0

C. NetAss ets To tal To talNetAssets 163.6 103.9 28.3 24.7 14.1 334.6

D. SharesO/S: Total TotalSharesO/S 96.2

E. NAV/Share Total NAV/Share 3.48

Cashand

cash

equivalents 56.2 16.3 33.9 0.0 106.4

Goldandsilverbullion 75.4 0.0 0.0 0.0 75.4

Shortterminvestments 0.0 0.0 0.0 0.0 0.0

Accountsreceivable 1.8 0.0 0.0 0.0 1.8

Notereceivable 0.0 0.0 0.0 0.0 0.0

Prepaidandotherreceivables 2.8 0.0 0.0 0.0 2.8

Cropandlivestock inventory 0.0 0.0 1.3 0.0 1.3

Derivativefinancialinstruments 0.0 0.0 0.0 0.0 0.0

TotalCurrentAssets 136.2 16.3 35.2 0.0 187.7

Investments 33.8 0.0 0.0 0.0 33.8

Investment inStonegateAgricomLtd 0.0 0.0 0.0 14.1 14.1

Loansandpromissorynotesreceivable 0.2 0.0 0.0 0.0 0.2

Miningclaimsanddeferredexploration 0.0 0.0 0.0 0.0 0.0

PP&E 0.0 17.8 2.0 0.0 19.8

Longtermlivestock assets 0.0 0.0 0.6 0.0 0.6

Futureincometaxassets 0.0 0.0 0.0 0.0 0.0

TotalNonCurrentAssets 33.9 17.8 2.6 14.1 68.4

Total TotalAssets 170.1 34.1 37.7 14.1 256.0

Accountspayableandaccruedliabilities 6.3 0.0 0.0 0.0 6.3

Incomeandcapitaltaxpayable 0.3 0.0 0.0 0.0 0.3

TotalCurrentLiabilities 6.5 0.0 0.0 0.0 6.5

Longtermdebt 0.0 0.0 0.0 0.0 0.0

Assetretirement obligation 0.0 0.3 0.0 0.0 0.3

Futureincometaxliability 0.0 0.0 0.0 0.0 0.0

TotalNonCurrentLiabilities 0.0 0.3 0.0 0.0 0 .3

Other Noncontrollinginterest 0.0 5.5 13.0 0.0 18.5

Total TotalLiabilities 6.5 5.8 13.0 0.0 25.4

C. Net Total TotalNet 163.6 284.4 28.3 24.7 14.1 515.1

D.

SharesO/S: Total Total

Shares

O/S 96.2

E. NAV/Share Total NAV/Share 5.35$

TOTALSPROTTRESOURCECORP(FY2009)

CORPORATEENERGY AGRICULTURE

BOOKVALUE&NETASSETVALUECALCULATIONS(C$MILLIONS)

I. BOOKV ALU E A . A ss et s C ur re nt

NonCurrent

B. Liabilities Current

NonCurrent

II.

NETASSET

VALUE

(incl.MarketValue

ofOrionOil&Gas)

A.

A ss et s C ur re nt

NonCurrent

B. Liabilities Current

NonCurrent


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XI. Disclaimer & Disclosures

A. Disclaimer

Anomalous Investments Limited (Anomalous Investments or AI) is not registered as aninvestment advisor, nor a broker-dealer, and the material in this report is not to be treated as asolicitation for the purchase of securities, an offer of securities, nor investment advice.

Anomalous Investments is neither licensed nor approved as an investment advisor in HongKong by the Securities and Futures Commission; in the United States, by the Securities &Exchange Commission, and is not a member of SPIC; in the United Kingdom, by the FinancialSecurities Agency; and in Canada, by any provincial Securities Commission.

This report, and Anomalous Investments research in general, are intended for informationalpurposes only, and targeted to professional & sophisticated investors, who are knowledgeableabout investments, finance and capital markets. It is recommended that readers consult theirfinancial advisors prior to purchasing or selling any security mentioned in this report.

The information in this document has been obtained from sources believed to be reliable, andwhile all efforts have been made to provide accurate and timely information, no guarantee canbe made as to the accuracy of data, information and charts provided.

Estimates and projections contained herein, whether or not our own, are based on assumptionswhich are believed to be reasonable.

Many of the companies and securities discussed by Anomalous Investments have small marketcapitalizations and may be illiquid in terms of trading volume. Due care and diligence shouldbe taken when purchasing and/or selling any such securities.

All responsibility for investment decisions lies completely with the individual or companymaking that decision.

Anomalous Investments prides itself on being an independent and objective informationsource. AI does not accept payment for stock recommendations from companies researched,nor does Anomalous Investments have any investment banking relationships.

Persons associated with Anomalous Investments may, at times, have positions in the securitiesdiscussed. AI will endeavor to disclose all such situations.

Anomalous Investments, and its author(s), reserve all rights. It is not permitted to forward,exchange or otherwise distribute this report without express written permission of AnomalousInvestments.

B. Disclosures

AI management own shares in Sprott Resource Corp.


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Anomalous Investments Limited 17 www.anomalousinvestments.comS i l Sit ti f S hi ti t d I t I d d t I i ht f S l i I f ti A t i

XII. Overview of Anomalous Investments

A. Company Profile

AI is a unique, independent, value-added research & consulting service focused on findingsmall, undiscovered Special Situationsin natural resources and commodities. AI is focusedprimarily on precious metals (gold & silver), oil & gas and agriculture.

AI, which is headquartered in Hong Kong, is a completely independent research service, and isnot affiliated with any banking or financial institutions and does not accept or receivecompensation from any companies.

AIs goal is simple - yet ambitious: Identify top centile (1%) investments, on a risk/reward basis,in the natural resources industry.

AI is focused on rigorous analysis, utilizing numerous analytic frameworks, including its own, inorder to analyze & synthesize data into knowledge and actionable intelligence, and distillattractive investment opportunities for its clients.

AI employs a value-oriented investment approach with a medium-to-long-term investmentperspective. Adherence to risk management principles are core to AI's approach.

AI is focused on uncovering small, under-researched companies in the natural resource sector.Due to the abundance ofinformation asymmetriesin the small capitalization space, AI focusesprimarily on small caps ($250 million - $ 1 Billion), micro caps ($50 million - $250 million), and inhighly selective cases, nano caps (less than $50 million).

AI is a premium service for sophisticated investors including money managers, hedge funds,institutional investors, analysts, investment advisors & high net worth individuals.

Because of the special situation nature of the companies covered, distribution of reports andthe dissemination of Anomalous Investments research is strictly limited.

AI is led by its President, Matthew Schroeder. Ivy-league educated, Mr. Schroedergraduated

with distinctionfrom Cornell University & earned his MBA from the University of California,Berkeley. Mr. Schroeder has over 15 years of experience in the finance industry & worked forCitigroup for 7 years in a variety of international postings prior to founding AnomalousInvestments. He has been researching and investing in the natural resources sector for almost adecade.

More information about Anomalous Investments can be found AIs website:www.anomalousinvestments.com

B. Contact Details

For more information about Anomalous Investments, please contact:

Matthew T. SchroederPresidentAnomalous Investments LimitedSuite 2207-2209, Tower 2, Lippo Centre89 Queensway, AdmiraltyHong KongPhone: (852) 2530-8116; Fax: (852) 2530-8100E-Mail: [email protected]

Documents

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