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

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:

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 expect to 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:

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.

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 –

SOURCE Terra Nova Royalty Corporation