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Terra Nova Royalty Corporation Announces Fourth KID Dividend, Reports 2010 Third Quarter Results and Corporate Update

11/15/2010

NEW YORK, Nov. 15, 2010 /PRNewswire-FirstCall/ -- Terra Nova Royalty Corporation ("Terra Nova") (NYSE: TTT) today announces its fourth distribution of shares of KHD Humboldt Wedag International AG ("KID"), reports 2010 third quarter results and gives corporate update. Unless otherwise noted, all dollar amounts are in United States dollars.

In 2010, we separated into two distinct owned and operated businesses: a mineral royalty and natural resources business conducted by Terra Nova Royalty Corporation; and an industrial plant technology, equipment and service business conducted by our former subsidiary, KID (the "Industrial Business"). As a result of the separation, as of March 31, 2010, we no longer consolidate the results of the Industrial Business.

KID Distributions

The separation was effected by a distribution of KID shares to our shareholders in tranches:

  • March 30th, we distributed to our shareholders, by way of a return of capital, 8.6 million shares of KID (being about 26% of the issued KID shares), effectively tax free for shareholders;
  • July 1st, we distributed to our shareholders 7.6 million shares of KID (being about 23% of the issued KID shares) for which there was Canadian withholding tax of 15% for U.S. residents;
  • September 23rd, we distributed to our shareholders, by way of a return of capital, 9.5 million KID shares (being about 29% of the issued KID shares) without any withholding taxes; and
  • we will distribute to shareholders on December 31, 2010, the record date, subject to regulatory approval, by way of a return of capital, the balance of the KID shares held by Terra Nova, which will be tax free to Terra Nova and without tax for our shareholders. Based on the number of Terra Nova common shares outstanding after the acquisition of Mass Financial Corp. ("Mass"), shareholders will receive one KID share for every ten common shares of Terra Nova held at the record date (no fractional shares will be issued and amounts will be rounded to the nearest whole number). This distribution will be conducted on a similar basis to the past distributions of KID shares. Further instructions and materials respecting the distribution will be disseminated shortly in a separate news release and will also be posted to Terra Nova's website. This is the final distribution of KID shares.

We wish to congratulate and wish KID success as an independent company. We remain very supportive of Jouni Salo and his excellent management team and will continue to assist them in every way we can in the future.

Results for the quarter ended September 30, 2010

For the three months ended September 30, 2010, Terra Nova reported total income from our resource property of $16.2 million and net income of $6.2 million, or $0.19 per share on a diluted basis. As at September 30, 2010, Terra Nova had cash and securities of $145.3 million and working capital was $155.3 million.

The following table sets out a summarized income statement for just our resource property segment and directly attributable direct costs, expenses and taxes:



Three Months Ended September 30, 2010


All amounts in thousands


Income from interest in resource property(1)

$ 4,940(2)


Arbitration award

11,219


Total income from resource property

16,159


General and administration expenses



Expenses

1,130


Amortization

303



1,433


Income before resource property revenue tax

14,726(3)


Resource property revenue tax

3,319


Net income from resource property

$ 11,407(3)






(1) Income from interest in resource property is subject to seasonal and cyclical fluctuations.


(2) Revenue in the second quarter of 2010 reflected an increased price for one of the five component pellets, which increased the royalty rate per ton from C$5.955 in the second quarter of 2010 to C$6.571 in the third quarter of 2010.


(3) It should be clearly noted that our overall income before tax and net income included additional costs, expenses and income taxes not directly related to our resource property business, which can be reconciled to GAAP as follows:






Income before taxes

Net income


From resource property business

$14,726

$11,407


Additional costs, expense and income taxes not directly relate to resource property business

7,290

5,181


Per GAAP

$ 7,436

$ 6,226







For the nine months ended September 30, 2010 (which include revenue and expenses of the Industrial Business for the first quarter of 2010), Terra Nova reported total income from our resource property of $24.9 million, revenues from our former Industrial Business of $101.6 million and a net loss to our shareholders of $12.6 million, or a net loss of $0.41 per share on a diluted basis. Since we have deconsolidated the Industrial Business during the period, we do not believe that the results relating to it are indicative of our financial results on a going-forward basis.

Wabush Royalty - Recent Developments

There were five key developments relating to our royalty interest in the Wabush iron ore mine:

  • we received a favorable decision from the arbitration panel relating to our claims against the mine owners and received an award for damages for an aggregate royalty underpayment of approximately C$11.7 million. We are currently seeking to recover interest and expenses of approximately C$4.0 million;
  • the current royalty rate went up to C$6.57 per ton in the third quarter from C$5.96 and C$5.16 per ton, for the second and first quarter 2010, respectively;
  • the third quarter of 2010 showed a lower than average tons shipped. The major contributing factor was that Cliffs Natural Resource Inc. ("Cliffs"), the mine operator, conducted an equipment shutdown at the port for 18 days, due to scheduled maintenance;
  • we have given notice pursuant to our rights under the terms of the lease agreement underlying the Wabush royalty to renegotiate the royalty rate; and
  • management of the Wabush mine has indicated that Cliffs has planned capital expenditures, estimated at $40.0 to $45.0 million, in 2011 for conversion of the production lines to reduce manganese with an additional $30.0 million to be spent on other equipment upgrades and replacement, as well as about $30.0 million for environmental clean-up.

Royalty Rate and Non-Published Price Effect

The Wabush royalty is paid quarterly and is based on the tonnage of iron ore pellets shipped from Pointe Noire, Quebec. One of the major components in the calculation of the Wabush royalty rate payable is based on the most recently published prices of a basket of five particular iron ore pellets, only two of which have been published in the third quarter of 2010.

Historically, iron-ore benchmark prices were determined in the first quarter of the calendar year through negotiations between the major producers and their most significant customers. These prices were then generally 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 major iron ore suppliers to announce a move to quarterly benchmark pricing for 2010, and culminated in the negotiation of proprietary pricing agreements with specific customers that were not published. As a result, the related royalty rate component for our Wabush royalty payments for the first half of 2010 was based on 2009 prices.

Increased prices for two of the five component pellets in the pricing basket have been recently published. If all five component pellets increase their prices to the 2008 levels, our royalty rate will be C$7.74 per ton.

Rights Offering Completed

On July 27, 2010, we announced a rights offering (the "Rights Offering"), pursuant to which, each holder of our common shares of record as of August 6, 2010, received one transferable right (a "Right") for every common share held as of such date. Every four Rights entitled a holder to purchase one common share at a price of $6.60. On September 8, 2010 we announced that the Rights Offering was fully subscribed. A total of 7,571,227 Shares of terra Nova were issued under the Rights Offering pursuant to the subscription privileges, representing total gross proceeds of approximately $50.0 million. The Rights Offering was oversubscribed, with subscriptions and requests for oversubscription amounting to approximately $125.5 million, or well over twice the amount we offered for sale. We appreciated the vote of confidence represented by this response.

Accounting

We intend to change our financial reporting standards from Canadian GAAP to International Financial Reporting Standards ("IFRS") from January 1, 2010 and have applied to Canadian securities regulators to do so. Pursuant to IAS.16, Property, Plant and Equipment, we currently expectto increase the value of the Wabush 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 currently estimate it would result in a value for the existing royalty of $200 million and we estimate the pro-forma effect on such an increase would be as follows:

All amounts in thousands, except per share data


Carrying value Dec. 31, 2009

$ 27,150


Valuation increase

172,850


Revised book value(1)

200,000


Long-term income tax provision

(51,850)


Increase in shareholders' equity

121,000


Shares outstanding (000's)(2)

62,570


Increase in shareholders' equity per share

$ 1.93


notes: (1) The increase in value has been calculated using a discount rate of 8%.

(2) Number of shares outstanding after the acquisition of 100 percent of the

common shares of Mass.







The above-mentioned valuation does not take into consideration the current pricing developments.

The final distribution of the KID shares in the fourth quarter and the change to IFRS will allow us to present a clearer picture of our financial position by presenting KID as a discontinued operation which in effect removes KID results from our profit and loss statement and year end balance sheet with our royalty assets revalued at December 31, 2010. We believe this presentation will provide a very clear foundation going forward.

Book Value

We view our book value per share as a key indicator of our overall financial performance. Our pro forma book value per share as at September 30, 2010, giving effect to the next distribution of KID shares and the Rights Offering, is set forth below.

All dollar amounts in thousands, except per share amounts



30-Sep-10

Number of shares


Historical shareholders' equity amount of Terra Nova

$ 219,764

37,897,538


Shares (approx) issued for acquisition of Mass

224,564

24,672,850


Revaluation of interest in resource property, net of taxes

121,000

n/a


Distribution of KID shares (4th tranche)

-32,678

n/a



532,650

2,570,388


Per share, pro forma

$ 8.51








Cash dividend policy

The Board of Directors met on November 2, 2010. At the meeting the Board stated that it intends to pay a regular quarterly cash dividend at a rate equal to the NYSE Composite annual dividend yield plus 0.25%, with the first regular quarterly dividend on January 20, 2011.

Tender Offer for Mass

On November 9, 2010, we announced the expiry of our offer to acquire all of the class A common shares of Mass (Vienna Stock Exchange symbol: MASS) (OTC Pink Sheets: MFCAF) through a wholly-owned subsidiary (the "Offer"). Pursuant to the Offer, Mass shares, representing over 93% of the outstanding shares of Mass, excluding shares held by Terra Nova, were tendered.

All conditions of the Offer have either been satisfied or waived, and Terra Nova will accept all tendered Mass shares. We plan to acquire the remaining Mass shares through a compulsory acquisition pursuant to applicable laws and, subsequently intend to cause the amalgamation of Mass with a wholly-owned subsidiary of Terra Nova.

The acquisition of Mass changes our profile, with the combined company having annual revenues in the range of $400 million and a stronger balance sheet. We will continue to trade on the NYSE under the ticker symbol: TTT.

Terra Nova intends to change its name, upon NYSE approval, to better reflect its ongoing business. We will issue approximately 25 million shares in exchange for shares of Mass pursuant to the Offer and subsequent transactions, resulting in our issued & outstanding share balance being approximately 62.6 million. The events of the third quarter were landmarks for Terra Nova, and the third-quarter report will be the last before the acquisition of Mass.

Chairman Michael Smith commented: "We believe that we are well positioned to grow Terra Nova, as we have a strong balance sheet, and good cash flow. We continually review the effectiveness of our strategy and are working on substantial opportunities, but are maintaining our financial discipline. Our commitment is to enhance shareholder value. Upon completion of the Mass transaction, Ernest Alders will be appointed President of the combined Companies, and Ferdinand Steinbauer will be our new Chief Financial Officer. I will stay on as Chief Executive Officer and Chairman of Terra Nova.

We would like to take this opportunity to welcome the Mass shareholders and especially our new 550 Mass employees to the Terra Nova family. This transaction is also excellent for our suppliers and customers."

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

Today at 10:00 a.m. EDT (7:00 a.m. PDT), a conference call will be held to review Terra Nova's announcement and results. This call will be broadcast live over the Internet at www.terranovaroyalty.com. An online archive will be available immediately following the call and will continue for seven days. You may also to listen to the audio replay by phone by dialing: 1 (877) 660 6853 using conference ID number: 360996, account number #356. International callers should dial: 1 (201) 612 7415.

About Terra Nova Royalty Corporation

Terra Nova Royalty Corporation is active in a broad spectrum of activities related to the integrated combination of trading, resources, royalty, financing and proprietary investing.

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; (vi) our ability to successfully integrate Mass with our business; and (vii) 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.

UNAUDITED INTERIM FINANCIAL TABLES FOLLOW –

TERRA NOVA ROYALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30, 2010 and December 31, 2009

(Unaudited)

(U.S. Dollars in Thousands)



ASSETS





2010




2009


Current Assets





Cash and cash equivalents

$ 133,273

$ 420,551


Short-term cash deposits

-

6,916


Securities

12,040

16,432


Restricted cash

2,981

24,979


Accounts receivable, trade

-

96,982


Other receivables

14,122

36,179


Amount due from a former subsidiary

373

-


Inventories

-

80,815


Contract deposits, prepaid and other

802

53,893


Future income tax assets

-

1,748


Total current assets

163,591

738,495










Non-current Assets





Note receivables

-

1,672


Accounts receivable, trade

-

4,660


Investment in a former subsidiary

32,678

-


Property, plant and equipment

109

2,257


Interest in resource property

26,927

27,150


Equity method investments

-

73


Future income tax assets

4,735

13,405


Other non-current assets

-

1,191


Total non-current assets

64,449

50,408


Total assets

$ 228,040

$ 788,903











TERRA NOVA ROYALTY CORPORATION

CONSOLIDATED BALANCE SHEETS (con't)

September 30, 2010 and December 31, 2009

(Unaudited)

(U.S. Dollars in Thousands)


LIABILITIES AND EQUITY






2010




2009


Current Liabilities





Accounts payable and accrued expenses

$ 7,759

$ 191,746


Progress billings above costs and estimated earnings on uncompleted contracts

-

77,841


Advance payments received from customers

-

26,927


Income tax liabilities

517

18,092


Deferred credit, future income tax assets

-

1,748


Accrued pension liabilities, current portion

-

2,070


Provision for warranty costs, current portion

-

28,282


Provision for supplier commitments on terminated customer contracts

-

12,943


Provision for restructuring costs

-

8,025


Total current liabilities

8,276

367,674






Long-term Liabilities





Debt, less current portion

-

11,649


Accrued pension liabilities, less current portion

-

28,861


Provision for warranty costs, less current portion

-

25,711


Future income tax liability

-

14,210


Other long-term liabilities

-

15,607


Total long-term liabilities

-

96,038


Total liabilities

8,276

463,712










EQUITY





Capital stock

183,302

141,604


Treasury stock

(64,875)

(83,334)


Contributed surplus

5,737

7,232


Retained earnings

33,628

185,790


Accumulated other comprehensive income

61,972

68,496


Total shareholders' equity

219,764

319,788


Non-controlling interests

-

5,403


Total equity

219,764

325,191







$ 228,040

$ 788,903













TERRA NOVA ROYALTY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended September 30, 2010 and 2009

(Unaudited)

(U.S. Dollars in Thousands, Except per Share Data)







2010

2009






Revenues

$ -

$ 148,233


Cost of revenues

-

(122,433)


Reduction in loss on terminated customer contracts

-

2,127


Restructuring costs, reversals of write-downs on inventories

-

1,121


Gross profit

-

29,048






Income from interest in resource property

4,940

4,630


Selling, general and administrative expense

(5,329)

(17,950)


Stock-based compensation expense - selling, general and administrative


-


(206)


Arbitration award - resource property

11,219

-


Restructuring costs

-

(4,063)


Operating income

10,830

11,459






Interest income

885

2,014


Interest expense

-

(610)


Foreign currency transaction losses, net

(1,495)

(1,413)


Share of loss of equity method investee

-

(257)


Other income (expense), net

(2,784)

1,973


Income before income taxes

7,436

13,166


(Provision for) recovery of income taxes:




Income taxes

2,109

(4,110)


Resource property revenue taxes

(3,319)

(1,052)



(1,210)

(5,162)






Net income

6,226

8,004


Less: Net income attributable to the non-controlling interest


-


(529)


Net income attributable to holders of common shares of Terra Nova Royalty Corporation


$ 6,226


$ 7,475






Basic and diluted earnings per share

$ 0.19

$ 0.25










Weighted average number of common shares outstanding




- basic

32,196,618

30,259,911


- diluted

32,196,618

30,259,911













TERRA NOVA ROYALTY CORPORATION

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

For the Nine Months Ended September 30, 2010 and 2009

(Unaudited)

(U.S. Dollars in Thousands, Except per Share Data)







2010

2009






Revenues

$ 101,585

$ 366,208


Cost of revenues

(78,659)

(296,160)


Reduction in loss on terminated customer contracts

3,517

76


Gross profit

26,443

70,124






Income from interest in resource property

13,708

8,552


Selling, general and administrative expense

(31,425)

(55,467)


Stock-based compensation recovery - selling, general and administrative


1,415


210


Arbitration award - resource property

11,219

-


Restructuring (costs) recovery

465

(10,836)


Operating income

21,825

12,583






Interest income

2,435

5,962


Interest expense

(570)

(2,024)


Foreign currency transaction losses, net

(8,607)

(733)


Share of loss of equity method investee

-

(278)


Loss on settlement of investment in preferred shares of former subsidiaries


-

(9,538)


Other income (expense), net

(2,913)

3,038


Income before income taxes

12,170

9,010


Provision for income taxes:




Income taxes

(19,418)

(5,374)


Resource property revenue taxes

(5,275)

(1,941)



(24,693)

(7,315)






Net income (loss)

(12,523)

1,695


Less: Net income attributable to the non-controlling interests


(74)

(469)


Net income (loss) attributable to holders of common shares of Terra Nova Royalty Corporation


$ (12,597)

$ 1,226






Basic and diluted earnings (loss) per share

$ (0.41)

$ 0.04










Weighted average number of common shares outstanding




- basic

30,925,754

30,385,985


- diluted

30,925,754

30,385,985














SOURCE Terra Nova Royalty Corporation

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