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.
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