Sprott Molybdenum Participation Corporation is announcing its results for the three and nine months ended September 30, 2008.
The third quarter was a very difficult one for the global financial environment as the systemic financial meltdown ravaged the markets. The problems stemming from loose lending policies and lax government regulation have led to failures of numerous financial institutions and massive government intervention.
Unfortunately, our portfolio has not been exempt from the selloff. The decrease in net assets from operations after taxes of the Corporation in the three and nine months ending September 30, 2008 was $2.62 and $2.61, respectively, to $3.49 per common share. For the nine months ended September 30, 2008, Portfolio Investments provided a return of -48.33%, the net asset value per common share depreciated by 42.41% and the value of the common stock declined by 44.91%.
We believe that our portfolio investments are trading at very low valuations. Our top holdings Thompson Creek Metals Company Inc., Quadra Mining Ltd. and Mercator Minerals Ltd. are all valued at one or two times next year's earnings and have growing production profiles. When confidence returns to the market, we will look for these companies to outperform their peers in the mining sector. Furthermore, at this time, there is more leverage to the molybdenum price in the equities rather than physical metal. We therefore sold all of the approximately 600,000 lbs of molybdenum that we held in molybdenum oxide. We recorded a profit on this sale in the quarter; however, since the contract involves provisional pricing and the price of molybdenum oxide declined subsequent to quarter end, the fourth quarter will reflect an adjustment to amounts of unrealized gains recorded, likely creating a loss(1).
At quarter end, the Corporation's assets of $141.2 million consisted of the following: $92.4 million or 65.47% in Portfolio Investments and $47.6 million or 33.71% in cash and short term money market securities. Other assets included prepaid expenses and a future tax asset.
As at September 30, 2008, the Corporation recorded a valuation allowance against future tax assets created by unrealized losses on securities and share issue costs. The valuation allowance decreased net asset value at quarter end by approximately $0.30 per share. If the fair market value of certain portfolio investments increases above their cost to produce potential future taxable income, the valuation allowance will be adjusted accordingly.
Liabilities amounted to $1.8 million, of which $0.8 million was payable to a broker in connection with the purchase of shares pursuant to the normal course issuer bid, $0.6 million was an income tax payable and $0.2 million related to management fees payable.
The most significant expense of the Corporation for the three and nine months ended September 30, 2008 was a management fee of $0.8 and $3.1 million, respectively. The management fee is calculated pursuant to the management services agreement dated April 3, 2007(2). Management fees comprised 79.93% of the Corporation's total expenses for the quarter and 76.47% of total expenses year to date.
The net asset value of the Corporation as at September 30, 2008 was $139.4 million or $3.49 per common share.
The outlook for the global economy and commodities deteriorated markedly over the last several months. However, we remain confident that in the long run our investment thesis will prove itself. We are well aware of the discount the Corporation's stock price is suffering in the market and have continued to purchase common shares in the normal course issuer bid that we instituted last year. We renewed the bid in August and have repurchased and cancelled 4,555,400 million shares to September 30, 2008 (1,144,900 in 2007 and 3,410,500 to-date in 2008). -- www.cnxmarketlink.com
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