Update: Sprott Inc. Takes A 27.6 Million Share Position In Heron Resources

Sep. 4.14 | About: Sprott Inc. (SPOXF)


Sprott Inc. announced that it purchased 27.6 million shares of Heron Resources from NHP Minerals Holdings.

I had not anticipated that the company would do this as it has been an asset manager rather than an equity investor.

Weakness in commodity prices have created headwinds for the stock, but the company has cut costs and stymied the decline in AUM making the shares worth owning.

Sprott Inc. (OTCPK:SPOXF) just announced that it bought 27.6 million shares of Heron Resources (OTC:HRLDF) - an Australian company exploring and developing the Woodlawn zinc/poly-metallic deposit. The stake is worth about $14 million.

This doesn't exactly fit the company's modus operandi as a fund manager, although investors should keep in mind that the company did recently purchase Sprott Lending Corp., which lends money to resource companies, and these loans often come with some equity or warrant considerations. Nevertheless this doesn't fit my investment thesis laid out in January, in which I argued that the company's high exposure to gold and other commodities masked its underlying AUM growth, and that when demand for commodities returned this fact would become apparent to investors.

While this thesis still holds true - and we saw this in the company's Q2 numbers - this could reflect a change in strategy. Whether or not this is a good thing depends on your personal preferences. On the one hand if you like Sprott Inc. as an asset manager, then it makes sense that they should take some of their own capital in order to buy assets. On the other hand the asset management business is one of collecting investors' monies and generating fees and cash-flow. Holding stock in a junior mining company may turn out to be a winning bet but it doesn't generate cash-flow.

So this move may not be substantial relative to the company's $650 million valuation but it does mark a symbolic change in strategy that increases both the risk and reward.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.