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Sprott Inc: Waiting To Rally

Philip MacKellar profile picture
Philip MacKellar


  • Sprott is an asset management firm focused on precious metals and mining.
  • The company has successfully transitioned to a pure-play investor in the resource space.
  • It has also increased its scale advantage through the acquisition of the Central Fund of Canada Ltd and Tocqueville’s gold strategy business.
  • Third quarter results were strong and the prospects for 2020 look promising.
  • Risks include concentration in mining, the organization’s goldbug culture, overpaying for future M&A, fee compression within the asset management industry, and possibly its valuations.


Sprott Inc. (OTCPK:SPOXF) is an asset management company focused predominately on managing funds, ETFs, and other investment products in the precious metal space. The organization is headquartered in Toronto, was founded in the 1980s by Eric Sprott, and is listed on the Toronto Stock Exchange under the symbol SII.TO.

Here at Contra the Heard Investment Newsletter, the Vice President’s Portfolio has had a position in Sprott since 2016, with an average purchase price of $2.36. Since it was first bought, the shares have appreciated only marginally. Still, the entity has paid a solid dividend, and has overcome significant challenges within the resource space.

Sprott’s Investment Thesis:

Back in 2016, the thesis was simple. The corporation was a best-in-class asset manager focused mainly in the contrary and undervalued resource space. It also had scale over other alternative managers, and offered unique funds. Furthermore, it had a good balance sheet, paid a dividend, and insiders owned a material stake.

Top brass appeared competent as well. This assessment has been borne out since 2016, as the outfit has survived the metals bear market and successfully implemented greater transparency requirements under Canada’s Client Relationship Model 2. It also divested its non-resource business (more on that below) and reorganized the shareholder structure after its founder left in 2017.

Sprott stacked up well against alternative investment options in the mining space too. Buying bullion, purchasing miners, and owning sectoral ETFs or mutual funds were all options.

We didn’t buy bullion for Contra, but we did purchase miners directly. I have written about three here on Seeking Alpha: Alacer Gold (OTCPK:ALIAF), Gold Resource Corp (GORO), and Major Drilling (OTCPK:MJDLF). These investments are panning out well, but we felt that buying Sprott for commodities exposure made a lot of sense

This article was written by

Philip MacKellar profile picture
Philip MacKellar is an analyst, portfolio manager, and investor at Contra the Heard Investment Newsletter. He has been with the company since 2011 and has been investing since 2004. The newsletter’s primary focus is on contrarian and value-oriented investment opportunities traded in the United States and Canada. In addition, Philip sometimes engages in M&A, other special situations, and holds bonds, preferred shares, and convertible securities. Contra the Heard is a Toronto based company and was founded in 1995. Philip also blogs about personal finance topics on his own website called mymoneymoves.ca in his free time. You can also follow Philip at the Globe & Mail, on Twitter @Rallekcam, and catch him on YouTube at Contra the Heard.

Analyst’s Disclosure: I am/we are long SPOXF, ALIAF, GORO, MJDLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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