Last year’s big selloff in gold may be stabilizing, bringing back some of the shine to precious metals-focused companies, such as alternative asset manager Sprott Inc.
The Toronto-based firm is off to a good start in 2014, with a 43-per-cent stock price increase since the start of the year.
That appreciation was caused in part by stronger resource markets and the “market pricing in an extended resource rally,” Scott Chan, analyst with Canaccord Genuity Corp., wrote in a recent note to clients. He noted that the TSX Materials index, gold and silver bullion had all made double-digit gains since the start of the year.
Higher precious metals prices have helped Sprott’s funds. “After three years of relative underperformance, several of Sprott’s funds have increased significantly year to date,” Mr. Chan said.
Investors will get a better sense of Sprott’s outlook for the year, as well as how it weathered the last three months of 2013, when the company reports fourth-quarter and full-year earnings this Thursday.
The company already estimated that assets under management declined to $7-billion at the end of 2013, as “the downturn in the natural resource sector took a toll on some of our larger strategies,” Sprott chief executive Peter Grosskopf said in a statement.
Rick Rule, chairman of subsidiary Sprott Global Resource Investments Ltd., recently said on a company blog that he thinks the market has reached the “bear-market bottom in precious metals and natural resources.” While he predicts there will be volatility, he thinks investors will “see a rising market with higher highs and higher lows.”
Sprott is in a transitional phase as its well-known founder Eric Sprott pulls back from daily fund management. A long-time precious metals bull, Mr. Sprott made his name by championing the idea that gold and silver are safe places for investors in times of global market unrest. That philosophy scored big in the late 1990s and early 2000s, but has been tested in recent years by volatile commodity prices. Mr. Sprott is now preparing to give over daily management of his flagship funds by the end of 2014.
The company said late last year that it was “building a team around” Mr. Sprott. He is still setting the big-picture strategy for the hedge funds on which he is lead portfolio manager, but other managers and analysts assist with stock picking. In early March, John Wilson replaced Mr. Sprott as CEO of Sprott Asset Management LP.
He may be stepping back, but Mr. Sprott is still an influential shareholder – the largest in his namesake firm, with more than 35 per cent of the company’s outstanding shares, according to Bloomberg data.
Sprott’s strategic changes have also included changing investment strategies to improve performance, and seeking new international and institutional opportunities.
Some of the changes Sprott is making have costs. In late February, Sprott said it will take a non-cash goodwill impairment charge of about $90-million in the fourth quarter. The charge is tied to its 2011 acquisition of its Global Companies group, which includes Sprott Global Resource Investments. Revenues “were reduced primarily due to the protracted decline in the junior resource sector between 2011 and the end of 2013,” Sprott said in a release. Sprott’s management expects revenue will climb again as the natural resources sector recovers.