Sprott to launch rebranded Quest as resource-focused lender

Shares in the company jumped 13% on the news

TORONTO (Reuters) - 

Fund management firm Sprott Inc (SII.TO: Quote) announced an agreement on Thursday under which it will capitalize and manage a rebranded Quest Capital (QC.TO: Quote) as a lender focused on Canada's booming resources sector.

Shares of Quest, which will take the name Sprott Resource Lending, jumped 13 percent on news of the deal, under which it would shift its focus away from real estate.

"We believe that, by combining Quest's asset base and lending expertise together with the deal flow, contacts and execution abilities of the Sprott organization, Sprott Resource Lending will be a dominant player in the business of natural resource lending," said Eric Sprott, the founder and chief executive of Toronto-based Sprott Inc.

The move is designed to take advantage of growth in Canada's booming natural resource sector which has weathered the global economic crisis but faces credit restrictions.

"Quest and Sprott management believe that there is a substantial untapped potential within the resource sector for credit, both due to the global credit contraction and diminished activities of the global banks once active in the area and to the much larger mid-tier component of the sector," said Quest Chairman Murray Sinclair.

Stock in Sprott slipped 0.28 percent to C$3.55 per share in Toronto. Stock of Quest jumped 13.39 percent to open the day at C$1.44 per share.

Under the deal, Quest said it would initiate a substantial issuer bid under which it will offer to repurchase up to C$60 million of its currently issued and outstanding common shares by way of a so-called "Dutch auction".

Purchase prices will range, depending on prevailing market conditions, not to exceed $1.60 per common share, the companies said in a statement.

Quest will discontinue real estate lending and will focus instead on lending to natural resource companies including those active in the mining and oil and gas sectors.

Quest's existing real estate loan book will be monetized and redeployed into new resource loans, the companies said.

"An annual management fee of 2 percent of net assets would be payable to Sprott together with an incentive fee of 20 percent of annual pre-tax profits above a hurdle rate equal to the average 30-year Government of Canada bond interest rate," Sprott said.

Following the substantial issuer bid, Sprott and its affiliates plan an investment in Sprott Resource Lending through a private placement of up to C$25 million.

($1=$1.03 Canadian)

(Reporting by Pav Jordan in Toronto; Editing by Frank McGurty)

© Thomson Reuters 2010 All rights reserved

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