Sprott Inc. · TSX:SII
Sprott — Investor Presentation (May 2016)
41 slides from Sprott's investor presentation, May 25, 2016
Slide 1: Sprott Precious Metals Update
Sprott Precious Metals Update May 25, 2016 Webcast
Slide 2: Disclaimer
Disclaimer Sprott Asset Management LP is the investment manager to the Sprott Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully b
Slide 3: Disclaimer: Forward-Looking Statements
Disclaimer Forward-Looking Statements This presentation contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”, “would”, “cou
Slide 4: Sprott Gold and Precious Minerals Fund
Sprott Gold and Precious Minerals Fund Paul Wong Senior Portfolio Manager Jason Mayer Senior Portfolio Manager Maria Smirnova Portfolio Manager Shree Kargutkar Associate Portfolio Manager
Slide 5: Portfolio Management Team
Portfolio Management Team IN-HOUSE INVESTMENT MANAGEMENT TECHNICAL ADVISORS Jason Mayer, Paul Wong, Maria Smirnova, Shree Kargutkar, Andrew Jackson, Neil Adshead, Senior Portfolio Manager Senior Portfolio Manager Portfolio Manager Associate Portfolio Manager Economic Geologist Investment Strategist
Slide 6: Portfolio Management
Portfolio Management Traditional Approach Sprott Approach Individually managed Team-based approach Too many positions Focused portfolio Limited technical due diligence Emphasis on technical expertise Volatile Reduced volatility Long only, leveraged gold bet Options/shorts/ETFs/cash to protect downsi
Slide 7: Portfolio Construction
Portfolio Construction Two Broad Portfolio Components Core Tactical Driven by asset quality, management Protect downside using options, short caliber and economic potential selling, bear ETFs, cash management Thorough technical and financial Agnostically driven by models and data evaluation 15-20 po
Slide 8: Portfolio Changes – From Bear Market to Bull Market
Portfolio Changes – From BEAR Market to BULL Market BEAR Market Positioning in 2015 BULL Market Positioning in 2016 Improved portfolio liquidity, Selling down Big Caps to increase reduced number of positions the core portfolio (emerging producers, early development and Lowered allocation to ex
Slide 9: Past Performance and Top Holdings
Past Performance and Top Holdings As at April 29, 2016 MTD 1 YR 3 YRS 5 YRS 10 YRS Inception* Sprott Gold & Precious Minerals Fund, 30.0% 48.2% 7.6% -14.7% -3.3% 10.0% Series A S&P/TSX Global Gold Total Return Index 25.5% 38.7% 5.7% -9.7% -2.7% 4.6% * Inception Date: November 15, 2001 Top Ten Positi
Slide 10: Gold Returns in Various Currencies
Gold Returns in Various Currencies US Dollar Euro Yuan Rupee Yen Pound CAD AUD CHF Average 2001 2.5% 8.1% 2.5% 5.9% 17.6% 5.3% 8.7% 11.8% 5.3% 7.5% Year US Dollar Euro Yuan Rupee Yen Pound CAD AUD CHF Average 2002 24.8% 5.8% 24.8% 24.1% 12.6% 12.7% 23.5% 13.9% 3.9% 16.2% 2001 2.46% 8.13% 2.45% 5.90%
Slide 11: Total Returns by Asset Class Rankings
Total Returns by Asset Class Rankings 10-Years 2006-'15 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Annualized MSCI MSCI Barclays MSCI Russell REITs Gold Gold REITs REITs REITs S&P 400 EmMkts EmMkts Agg Bond EmMkts 2000 35.5% 29.3% 9.6% 19.6% 28.1% 2.8% 8.2% 34.5% 39.8% 8.4% 78.8% 38.9% M
Slide 12: Gold Investment Thesis: Default or Debase
Gold Investment Thesis: Default or Debase Total U.S. Credit Market Debt as % of GDP 400% 375% 287% 350% 1933 when FDR devalued U.S. dollar 40% 325% 272%: 2000 Stock market top 300% 350% today 275% 250% 225% 200% 175% 150% 176%: 125% 1929 stock market top 100% 1916 1922 1928 1934 1940 1946 1952 1958
Slide 13: Gold Investment Thesis: U.S. real rates are declining
Gold Investment Thesis: U.S. real rates are declining Negative interest rates are bullish for gold Historical Data: 85.6% R-Square, -92.5% Correlation, T-Test -53 Rates more negative Source: Bloomberg, as at April 8, 2016 12 Sprott Asset Management LP
Slide 14: Gold Investment Thesis: Negative Interest Rate Policy
Gold Investment Thesis: Negative Interest Rate Policy 9 8 7 6 5 Yield 4 3 0.8472 2 1 0 Source: Bloomberg Average G7 10-Year Yields in secular decline. 13 Sprott Asset Management LP
Slide 15: Negative Interest Rate Policy: $7.9 Trillion of Negative-Yielding Bonds
Gold Investment Thesis: Negative Interest Rate Policy $7.9 Trillion of Negative-Yielding Bonds Amount of debt with sub-zero yields swells 10 $9.0T 9 $7.9T 8 7 ($ Trillion) 6 $5.4T 5 4 3 $2.7T 2 1 0 less than Zero Zero to 1% 1% to 2% More than 2% Yield Source: Bloomberg Global Development Sovereign B
Slide 16: Canadian Equity Allocation to Precious Metals
Canadian Equity Allocation to Precious Metals $50 $50B $40 20x $30 ($ Billion) $20 $10 $0 $2.4B $50 BILLION = Market Weight 15 Sprott Asset Management LP
Slide 17: Bear Market in Gold Equities
Bear Market in Gold Equities 4,000 3,500 607% gain 3,000 -67% 2,500 decline 760% 2,000 gain -80% decline 1,500 -76% decline 77% 1,000 gain -80% decline 500 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Chart represents S&P/TSX Global Gold Index in $USD. Source: Bloomberg As at April
Slide 18: Precious Metal Equity Returns Following Bear Markets
Precious Metal Equity Returns Following Bear Markets Average Returns Following Seven Major Bear Markets 100% 80% 60% We are Return here Average of 7 Rallies 40% 3 Month 42% 6 Month 68% 9 Month 76% 20% 12 Month 93% 24 Month 114% 0% 1 11 21 31 41 51 Weeks Source: Bloomberg 17 Sprott Asset Management L
Slide 19: Performance of Gold Equities
Performance of Gold Equities 300 HUI Index (1996-2004) 700 HUI Index (2008-2016) US dollar surges/ 600 Financial 250 central bank selling/ crisis: tech bubble: ~70% ~84% decline decline 500 200 Bear 400 market: 150 ~83% decline 300 100 Recovery: 200 ~320% appreciation 50 Recovery: 100 ~614% apprecia
Slide 20: Valuations are Attractive
Valuations are Attractive 30x Price to Cash Flow Multiples for Senior Producers 25x 20x P/CF (Spot) 15x 10x 5x 0x 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: BMO Capital Markets, Bloomberg Long Term Gold Equity to Gold Bullion Ratio – 45 Yea
Slide 21: Global Gold Discoveries
Global Gold Discoveries Major Gold Discoveries by Year, 1990-2014 150 3-year Running-Average Au in Discoveries Discovery-oriented Gold Budgets $7,200 Three-year Running Average of Gold Discovered (Moz) Grassroots + 75% of Late-stage Gold Budgets (US$M) 125 $6,000 100 $4,800 75 $3,600 50 $2,400 25 $1
Slide 22: Mined Grades are Declining
Mined Grades are Declining 2.5 Reserve Grade (g/t) Mined Grade (g/t) Cash Costs (US$/oz) (RHS) $800 2.3 $700 2.0 $600 Cash Costs (US $/oz) Grade (g/tonne) 1.8 $500 1.5 $400 1.3 $300 1.0 $200 0.8 $100 0.5 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201
Slide 23: Sprott Silver Equities Class
Sprott Silver Equities Class Maria Smirnova Portfolio Manager
Slide 24: Silver is a derivative gold play…
Silver is a derivative gold play… Silver and gold prices – 1967 to present $2,000 $50 $1,800 $45 Gold Silver $1,600 $40 $1,400 $35 $1,200 $30 $1,000 $25 $800 $20 $600 $15 $400 $10 $200 $5 $0 $0 Source: Bloomberg, monthly as at March 31, 2016 23 Sprott Asset Management LP
Slide 25: Gold to Silver Ratio
Gold to Silver Ratio 120 100 80 60 40 20 0 Source: Bloomberg, weekly data as at May 24, 2016 24 Sprott Asset Management LP
Slide 26: Silver Equities Have Broken Out of Their Underperformance Trend
Silver Equities Have Broken Out of Their Underperformance Trend 250 Silver bullion Silver Miners 200 Cumulative Return (%) 150 100 50 0 Source: Bloomberg, at May 24, 2016 25 Sprott Asset Management LP
Slide 27: …But Investment Demand Has Been Main Driver of Growth
…But Investment Demand Has Been Main Driver of Growth Contribution to Demand by Category, change from 2005 to 2014 700 Coins and bars have 600 contributed 144M 500 ounces per year 400 Millions Ounces ETF’s have also 300 accumulated 600M 200 ounces over the time 100 period - Industrial usage ha
Slide 28: Indian Demand is Exploding
Indian Demand is Exploding Official Indian Bullion Imports 300 242 250 212 Millions Ounces 200 181 25% of global mine supply 150 120 is being imported by India 100 66 62 50 Almost half of Indian - 2010 2011 2012 2013 2014 2015E demand is investment and it has more than doubled Demand Growth in l
Slide 29: Where will Supply Come From? Silver Mine Supply
Where will Supply Come From? In just 4 years, mine supply forecasts lost 70Moz to 90Moz per year Supply Forecast Now vs. 4 Years Ago 1,000 900 Silver Mine Supply (Moz) 800 700 600 500 400 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20
Slide 30: Where will Supply Come From?
Where will Supply Come From? Government Sales 100 90 Government stockpiles are thought to 80 be 78M ounces and there were no 70 sales in 2014 Million ounces 60 50 Scrap supply is price-sensitive and has 40 30 reduced to 170M ounces 20 10 ETF holdings are stable 0 ETF Holdings 700 Scrap 600 280
Slide 31: Market Outlook: Physical Silver Deficit
Market Outlook 20 Physical Silver Deficit 2 Silver has underperformed in the bear 0 market – we expect it to outperform in the medium term -20 Physical deficits that started 3 years -40 ago are expected to continue: – Demand is at record highs Million ounces -60 • Coins, bars, jewellery, solar,
Slide 32: Valuations are Reasonable
Valuations are Reasonable Consensus Forward Looking Price to Cash Flow Multiples, at March 2016 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x Note: Resources defined as silver ounces and inclusive of reserves, measured & indicated and inferred resources. Coverage Universe includes PAAS, CDE, SSRI, FSM
Slide 33: Sprott Silver Equities Class: Strategy – Portfolio Construction
Sprott Silver Equities Class Strategy – Portfolio Construction Focused: 20-25 positions Buy Businesses: – Management track record of delivering on promises – Near term Free Cash Flow visibility – Ability to grow production – Significant resources in the ground and/or exploration potential Mana
Slide 34: Sprott Silver Equities Class
Sprott Silver Equities Class As at April 29, 2016 1 MTH 3 MTH 6 MTH 1 YR 3 YR Inception* Sprott Silver Equities Class, Series A 40.3% 92.7% 72.0% 39.8% 4.6% -10.0% MSCI ACWI Select Silver Miners IMI (CAD) 36.5% 95.8% 76.6% 41.0% 1.6% -11.7% As at April 29, 2016 YTD 2015 2014 2013 2012** Sprott Silve
Slide 35: Summary
Summary Why Precious Metals? – Diversification for traditional asset classes, non-correlated asset – Historical store of value, established alternative asset class Why Sprott? – Established track records in resource public equities, fixed income, hedge, private equity and private lending – In-house
Slide 36: Appendix
Appendix 35 Sprott Asset Management LP
Slide 37: Principal Biographies: Investment Team
Principal Biographies: Investment Team Paul Wong Senior Portfolio Manager Paul Wong joined Sprott Asset Management LP with more than 20 years of experience in the investment industry. Previously, he was a Portfolio Manager with Natcan Investment Management, where he managed three natural resource-re
Slide 38: Principal Biographies: Investment Team
Principal Biographies: Investment Team Jason Mayer Senior Portfolio Manager Jason Mayer joined Sprott Asset Management LP in November 2012. Jason has more than 10 years of investment industry experience and joined Sprott from Middlefield Capital Corporation, where he acted as lead portfolio manager
Slide 39: Principal Biographies: Technical Advisors
Principal Biographies: Technical Advisors Dr. Neil Adshead Neil Adshead joined Sprott Asset Management LP in January 2012. Over the past 20 years, Neil has built up an extensive network in both the mining and investment sectors. Prior to joining Sprott, Neil was a senior mining analyst with Passport
Slide 40: Sprott Group: Executive Summary
Sprott Group: Executive Summary Global Expertise in • Excellent deal flow in mining sector Hard Assets • In-house technical team • Established track records in resource public equities, fixed income, hedge, private equity and private lending • Broadest investor globally in junior mining sector • 34
Slide 41: Contact Information
Contact Information Sprott Asset Management LP Royal Bank Plaza, South Tower 200 Bay Street Suite 2700, PO Box 27 Toronto, ON M5J 2J1 T: 416 943 6707 Toll Free: 866 299 9906 F: 416 943 6497 Email: [email protected] Web: www.sprott.com Follow us on Twitter @Sprott 40 Sprott Asset Management LP 40