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Terra Nova Reports First Quarter Results for 2010


NEW YORK, May 17 /PRNewswire-FirstCall/ -- Terra Nova Royalty Corporation (NYSE: TTT) (formerly KHD Humboldt Wedag International Ltd) today announced results for the three months ended March 31, 2010.  Unless otherwise noted, all figures are in US dollars.

It is important to note that as the plan of arrangement (the "Arrangement") was completed on March 30, 2010, that the results of operations of our former industrial plant engineering and equipment supply business were included in the results for the quarter ended March 31, 2010 but are not reflected in our March 31, 2010 balance sheet. Further, this industrial business is deconsolidated from March 31, 2010 and its results from March 31, 2010 will not be included in our consolidated results for future reporting periods.

For the three months ended March 31, 2010, Terra Nova Royalty Corporation ("Terra Nova") reported consolidated revenues of $101.6 million from industrial operations with a net loss of $18.5 million, or $0.61 per share on a diluted basis.

Excluding former industrial operations, for the three months ended March 31, 2010, Terra Nova reported income from its interest in a resource property of $3.8 million with a net loss from continuing operations of $0.3 million, or $0.01 loss per share on a diluted basis, which does not include a net loss from our former industrial operations, net of tax, of $18.2 million, or $0.60 loss per share on a diluted basis, which was primarily resulting from the income tax charge of $10.3 million which was recognized in connection with the disposition of the 26 percent interest in, and the deconsolidation of, KHD Humboldt Wedag International AG ("KID"). The tax expense was offset by losses carried forward and was non-cash.

Terra Nova's liquidity and capital resources (less its entire investment in KID, except for the 19% to remain with Terra Nova) remains strong. As of March 31, 2010, its cash and securities were $108.4 million; working capital was $102.9 million; and shareholders' equity, excluding the KID shares other than the 19 percent retained by Terra Nova, was $164.3 million (being a book value per share of $5.42) and its current ratio was 6.17.

The first quarter had high G&A expenses due primarily to the costs relating to the restructuring and ongoing expenses. We will continue to work to reduce our expense in the future. We will report details of existing and going forward expenses in the future.

Chairman Michael Smith commented, "In early 2010 we announced that we intended to restructure into two distinct legal entities (1) a mineral royalty company, Terra Nova and (2) an industrial plant technology, equipment and service company, KID.  On March 29, 2010 our shareholders approved the Arrangement and the first tranche distribution of 26 percent of the KID shares to our shareholders.  This was the first step in our restructuring into two distinct legal entities. On March 31, 2010, Terra Nova started trading under their new trading symbol TTT on the New York Stock Exchange."

This will result in two independent entities going forward which we believe are well positioned to create further value for shareholders. Now Terra Nova can focus on its core business comprising:

  • the acquisition of existing mineral royalties;
  • providing capital for the exploration, development and construction of iron ore and other metals mines in exchange for royalties;
  • monetizing metal by-product streams from either operating mines or projects under development;
  • engaging qualified individuals with a focus on individuals with a strong background  in Asia;
  • providing acquisition financing to establish operating companies in return for a royalty on acquired properties;
  • otherwise opportunistically acquiring interests in promising mineral assets; and
  • focusing on opportunities in the Asian market.

MAJOR ACCOUNTING CHANGES: The KID ownership will be considered as a deconsolidated entity and these undistributed shares are treated as a long-term asset. We will no longer consolidate revenues and costs relating to the KID operations from March 31, 2010.

As of January 1, 2011 Terra Nova intends to change its Financial Reporting Standards from Canadian GAAP to International Financial Reporting Standards. Pursuant to IAS.16, Property, Plant and Equipment, we expect to increase the value of the royalty asset to its fair value. If this were implemented as of December 31, 2009, based upon our current valuation including current royalty rates and forecasted demand, we estimate it would result in a value for the existing royalty of $200 million and we estimate the effect on such an increase would be as follows:

All amounts in U.S. Dollars in Thousands, Except per Share Data

Carrying value Dec. 31, 2009

$    27,150

Valuation increase


Revised book value*


Long-term income tax provision


Increase in Shareholders' equity


Shares outstanding (000's)


Increase in shareholders' equity per share


* note: the increase in the value has been calculated using a 8% discount rate

FUTURE DISTRIBUTION OF KID SHARES: We currently expect to distribute the second tranche of KID shares to our shareholders of record on June 30, 2010 with the record date of June 27, 2010 (subject to New York Stock Exchange and other regulatory approvals).

This distribution will be for 7,571,228 KID shares (approximately 23 percent of total issued) and you will receive one KID share for every 4 shares of Terra Nova held on the record date.

The tax on the distribution will be neutral for Terra Nova but it will be subject to withholding for shareholders.  An example would be if you are a United States tax payer you would expect to pay 15 percent, which will be withheld by Terra Nova and paid to the Canadian taxation authority. Shareholders can claim this amount as a credit on their United States tax return.   While this is not the optimal scenario from a tax perspective, we believe that the distribution of this tranche is in our shareholders' best interest.

We currently expect to distribute the third tranche on August 30, 2010 and it will be for 9,383,728 KID shares (approximately 29 percent of the total issued) and you will receive one KID share for every 4 shares of Terra Nova held on the record date of August 27, 2010.

The tax treatment for this tranche will depend on, among other things, our paid up capital ("PUC") for tax calculations. If we have enough PUC, it will be without any withholding tax for our shareholders. It will be tax neutral for Terra Nova.

Further details of the above distributions will be provided in due course.

The balance of the KID shares, representing approximately 19 percent of KID's outstanding shares, will be retained by Terra Nova until the bank guarantees issued by Terra Nova (prior to the spin-off) on behalf of KID expire in the normal course of business.

Such balance of the KID shares will be treated as a long-term asset and will be priced market to market as to our holding value.

RIGHTS ISSUE: In the next month we intend to undertake a rights issue where our existing shareholders may purchase additional shares at a discount to market.  We believe that there are significant opportunities to expand our business through opportunistic acquisitions.  Because of the inherent risks associated with the mineral business, we believe any acquisitions should be conservatively financed.  The additional capital we believe can be successfully deployed. The major features of the issue will be as follows:

  • Number of shares issuable: 7,250,000 common shares, representing approximately 24 percent of Terra Nova's issued and outstanding common shares
  • All shares will be free trading
  • We will have the right of over allotment
  • The Rights will be transferable and will be quoted
  • The pricing will be at a discount to market and will be determined at time of issue

Further details will be provided in due course

EXISTING ROYALTY: The following is selected summary information respecting Terra Nova's existing royalty interest.  It is not complete and is qualified in its entirety by the more detailed information in our public filings with the SEC and Canadian securities regulators, including the risk factors Terra Nova discloses in such filings.


Wabush Mine, Wabush, Labrador, Canada

Owner / operator

Cliffs Natural Resources Inc. ("Cliffs")

Current royalty rate

CDN$5.16 per ton (pellets), as of first quarter 2010

Royalty escalation rate provision

The royalty due consists of a base rate per ton of pellets shipped, which is then increased by three escalators related to iron content, pellet prices and the U.S. PPI (Iron & Steel Sub Group)

Stated reserves

75 million tons*

* Based upon Cliffs public statements and as of 12-31-08

Historical royalty                           All amounts in Canadian Dollars, Except Tonnage Data









$ 10,120,310

$  2.52





















* note: gross amounts and average price per ton do not include price adjustments by Cliffs for prior years, sales of chips and concentrate

The following is Terra Nova's forecast for royalty revenues from the Wabush mine for 2010 based upon current market, pricing and outlook and historical production levels. Although management believe it is reasonable, there can be no assurance that such forecast will be achieved and actual results may be materially different than those set forth herein.

Annual production                                 4 to 5 million tons*

*note: our forward looking internal projection is based solely upon management's current forecasts and expectations. It is not a forecast or projection of Cliffs and actual production may vary materially from such forecast.

Projected royalty income 2010

Scenario A

Scenario B

-- Tonnage

5, 000,000

5, 000,000

-- Royalty rate

$              5.16

$              7.50

-- Gross royalties

$   25,800,000

$   37,500,000

Pricing variable

Both Scenario A & B are based on the assumption that due to the recent acquisition of a 100% interest in the Wabush Mine by the operator, as well as increases in price and demand for iron ore, production at the mine will return to 2007 levels.

Scenario A follows a conservative assumption that no benchmark prices will be established and published for iron ore during 2010, and prices will be determined on an individual proprietary basis between producers and customers. Therefore, the royalty rate paid will remain unchanged from the CDN$5.16 per ton received in Q1 2010 which is based on the 2009 published benchmark prices.

Scenario B assumes that benchmark prices for iron ore will be re-established at 2008 levels and published during Q2 2010. Therefore, the royalty rate paid will increase from the $5.16 per ton received in Q1 2010 to $8.00 per ton for Q2 through Q4.


The Wabush royalty is paid quarterly, and is based on the tonnage of iron ore pellets shipped by the mine operator. One of the major components in the calculation of the Wabush royalty rate payable is based on the most recent published prices for iron ore pellets. Historically, benchmark prices have been determined in the first quarter of the fiscal year through negotiations between the major producers and their most significant customers, and these are then adopted by the other suppliers when published.

The significant increase in benchmark prices from 2007 to 2008 was resisted by the major Chinese steel mills in particular, who also refused to accept the lowered benchmark pricing offered in 2009. This led suppliers to announce a potential move to quarterly benchmark pricing for 2010 but to date, no such prices have yet been published. As a result, the related royalty rate component is currently based on 2009 prices.

Historical iron ore pricing

(63 percent Fe)

All amounts in U.S. Dollars















April  2010


Mineral tax


Arbitration with Cliffs

In December, 2005, we commenced an action against Wabush Iron Co. Limited, Dofasco Inc., Stelco Inc. and Cliffs, claiming that such parties breached their duties by inaccurately reporting and substantially underpaying the royalties due under the sub-lease.

We have been expecting the arbitration panel ruling now for several months.  We have been informed that it will happen very shortly.  Because of the inherent uncertainties of litigation we are cautious but optimistic.  This amount of Terra Nova's claim for additional past royalties is in excess of CND$22 million.  

CORPORATE TAX: We only pay a minimal amount of income tax in cash due to the use of existing non-capital loss carry forwards. We expect the same in 2010

DIVIDEND: It is our Board of Directors intention to establish an annual dividend policy.

Mr. Smith concluded. "We were encouraged to see Wabush pellet shipments increased in the first quarter. Wabush shipped (tonnage of pallets) 874,174 tons in the first quarter of 2010 versus 402,494 tons in the first quarter of 2009. We believe that we are well positioned to grow Terra Nova, as we have the capital, no debt, good cash flow and a market where return and growth can occur. Terra Nova will look to grow through acquisitions. We will continually review the effectiveness of our strategy as it relates to our commitment to enhancing shareholder value."

Shareholders are encouraged to read the entire Form 6-K, which has been filed with the SEC, for a greater understanding of Terra Nova Royalty Corporation.

About Terra Nova Royalty Corporation

Terra Nova Royalty Corporation is active in the royalty and mineral industry.

Disclaimer for Forward-Looking Information

Certain statements in this news release are forward-looking statements, which reflect our management's expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits we will obtain from them. These forward-looking statements reflect management's current views and are based on certain assumptions and speak only as of the date hereof. These assumptions, which include management's current expectations, estimates and assumptions about our business and the markets we operate in, the global economic environment, interest rates, exchange rates and our ability to manage our assets and operating costs, may prove to be incorrect. A number of risks and uncertainties could cause our actual results to differ materially from those expressed or implied by the forward-looking statements, including: (i) changes in iron ore and other commodities prices; (ii) the performance of the properties underlying our interests; (iii) decisions and activities of the operator of our royalty properties and other interests; (iv) unanticipated grade, geological, metallurgical, processing or other problems experienced by the operators of our royalty properties and other interests; (v) economic and market conditions; and (vi) the availability of royalties for acquisition or other acquisition opportunities and the availability of debt or equity financing necessary to complete such acquisitions. There is a significant risk that our forecasts and other forward-looking statements will not prove to be accurate. Investors are cautioned not to place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future results. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information about these and other assumptions, risks and uncertainties are set out in our MD&A filed with Canadian securities regulators and filed on Form 6-K with the SEC and our Form 20-F for the year ended December 31, 2009.




Terra Nova Royalty Corp

Allen & Caron Inc.

Allen & Caron Inc.

Rene Randall

Joseph Allen

Len Hall

1 (604) 683-8286 ex 224

1 (212) 691-8087

1 (949) 474 4300

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