Shares of Sprott (TSX: SII) have posted significant gains this year as gold prices continue to climb higher. Sprott CEO Peter Grosskopf joins BNN Bloomberg to discuss his outlook for the precious metal and the firm's acquisition of Tocqueville Asset Management's gold business.
Amber Kanwar, BNN: Gold is up 17% thus far this year trading near a six-year high. Sprott Inc. (TSX: SII) provides investors with exposure to precious metals and is up more than 40% this year. As Sprott looks to take advantage of the strength in precious metals, we are joined by the CEO Peter Grosskopf.
Sprott has been talking about the rally that must come in gold, now that it's here what do you look at as the fundamental drivers that are currently in place? Why is the needle now moving on gold?
Peter Grosskopf, Sprott: We've been talking about these issue for a long time, and I think that people realize that monetary policy, so far as they result in lowering interest rates to negative levels in many cases, is no longer going to be impactful in terms of handling the equation between debt and economic growth. Now we're into a different chapter.
Kanwar: How sustainable is this new chapter given that people can feel “risk-off” one moment, and this sentiment switch with a tweet.
Grosskopf: It’s very tough for me to call “risk-on” versus “risk-off.” But we are committed to the view that gold is a good hedge for that uncertainty, and gold is an excellent insurance policy. I think more investors are seeing gold as a mandatory insurance policy, compared to 20 years ago when gold was viewed as more of a fringe asset.
Kanwar: Sprott has stepped into this market in a more significant way to grow your assets under management, and you’ve made an acquisition in this space. What were the fundamental drivers of doing this new deal with Tocqueville Asset Management?
Grosskopf: Sprott has gone all-in on gold since our reorganization two years ago. We decided we could be the best in the world, and want to be the global leader in the field. Tocqueville is the other thought leader in the gold investing industry, and it represents an amazing opportunity for us to grow our business, as they are more prominent in the U.S. and Europe. We thought that this was the perfect time to make this move and that Tocqueville will bring us an amazing gold asset management franchise in the U.S.
Kanwar: Is this the beginning of an M&A strategy where you can become a greater consolidator in the space, or is it a one-off event where you have a shared vision.
Grosskopf: We do have a shared vision and this is a unique opportunity. But there are likely to other attractive situations ahead, and Sprott will continue to be an acquisitive company going forward.
Kanwar: This acquisition comes with C$2.5 billion of assets under management. How confident are you that those assets will remain?
Grosskopf: We think that we are giving these clients a bigger and better firm, specializing in exactly what they want, perhaps a bit bigger and better. We're very confident that these assets will stay with us. (Read Press Release.)
Kanwar: In the most recent quarter, I think you experience outflows from your ETFs [Sprott Physical Bullion Trusts], but they were smaller than what they had been previously. If we are in a hot cycle, why is that happening and are you seeing a turnaround now?
Grosskopf: There was a bit of a lag factor, and it took time for the discounts to NAVs (net asset values) to narrow. But we are now seeing positive inflows in our Trusts, as are many gold ETFs.
Kanwar: When you look at the discounts, what do people need to think about when they are investing in your Trusts?
Grosskopf: For the average everyday investor, the discount is not usually very significant because it translates to a minimal discount to the value of the underlying precious metals bars. But for institutional investors, occasionally as the discount gets wider, they may be motivated to arbitrage the discount.
Kanwar: The bulk of Sprott’s business is creating products that give investors exposure to precious metals and gold in particular. But you've also got a resource lending business. Talk to me about what these initiatives look like.
Grosskopf: Sprott aims to provide investment services across the spectrum for gold. Bullion is a big part of that, but managed equities are also going to be an increasingly significant part of our business, especially given the venture with Tocqueville. The private resource strategies are focused on either lending or private equity. This has been a very steady business for us, and it continues to grow because our clients love the yields that we can achieve from lending to gold companies.
Kanwar: What are you talking about in terms of yields?
Grosskopf: In the past, we have achieved yields between 12 to 17%; this is senior secured lending and for us, it is quite safe, as it is what we do every day.
Kanwar: How would you characterize the financing environment today versus a couple of years ago when gold prices were more subdued?
Grosskopf: We are in a very different environment than even 6 or 12 months ago. We are sensing that many clients are getting ready to allocate parts of their portfolio to gold. Investors have moved from being nervous and scared about staying in the gold space to being eager to invest more.
Kanwar: Where is the financing going to? Is it just in pure exploration, or is M&A activity starting to perk up?
Grosskopf: Money is definitely heating up in the sector and we continue to make the call that the junior mining companies will be consolidating either among themselves or be acquired by the seniors. We see capital flows across the spectrum right now. Bullion is leading right now, but capital is coming into equities and private strategies as well.
Kanwar: Thank you, Peter.
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