Sprott Inc. · TSX:SII
Sprott — Q3 2009 Earnings Presentation
27 slides from Sprott's earnings presentation, Oct 22, 2009
Slide 1: Q3 Webcast & Conference Call
Eric Sprott, CA Chairman, Chief Executive Officer & Portfolio Manager Q3 Webcast & Conference Call October 22, 2009
Slide 2: Disclaimer
Disclaimer Sprott Asset Management LP is the investment manager to the Sprott Funds. Important information about these funds, including their investment objectives and strategies, purchase options, and applicable management fees and expenses, is contained in their prospectus. Please read these docum
Slide 3: Dow Jones Back to 10,000
Dow Jones Back to 10,000 2009 1999 Source: Bloomberg 3
Slide 4: Sprott Offshore Fund vs Dow Jones
Sprott Offshore Fund vs Dow Jones 2002 - 2009 Sprott Offshore Fund Ltd. + 352.93% - 3.09% Dow Jones Industrial Average Source: Bloomberg 4
Slide 5: Looking into the Abyss
Looking into the Abyss “Britain was within hours of a banking shutdown last autumn as the government battled to piece together a rescue plan for the stricken Halifax and Royal Bank of Scotland, it has emerged. Treasury mandarins and Bank of England officials battled the clock to come up with a suppo
Slide 6: The Bank Balance Sheet
The Bank Balance Sheet SUBPRIME ALT-A HELOC IES CDS CDO LI T AS MBS Deposits SE BI STUDENT LIA AUTO & Loans TS CORPORATE REAL ESTATE 95% CONSTRUCTION STOCKS PREFERREDS Equity 5% ETC, ETC, ETC … 6
Slide 7: FDIC to the Rescue
FDIC to the Rescue Colonial Bank, Alabama (Aug. 14): Total Assets: $25 billion Total Deposits: $20 billion Cost to FDIC: $2.8 billion (11% write-down) Guaranty Bank, Texas (Aug. 21): Total Assets: $13 billion Total Deposits: $12 billion Cost to FDIC: $3 billion (25% write-down) Corus Bank, Chicago (
Slide 8: Liquidations Reveal True Reality
Liquidations Reveal True Reality “An auction last month from the failed New Frontier Bank generated $157 million on a portfolio once valued at more than $500 million… the federal government salvaged 27 cents on the dollar in the auction, underscoring the poor quality of agriculture loans that were s
Slide 9: Quantitative Easing
Quantitative Easing “The [Federal Open Market] Committee directs the Desk to purchase agency debt, agency MBS, and longer-term Treasury securities during the intermeeting period with the aim of providing support to private credit markets and economic activity... The Desk is expected to purchase up t
Slide 10: Quantitative Easing (cont.)
Quantitative Easing (cont.) 10
Slide 11: China's Loan Bubble
China’s Loan Bubble China’s GDP in 2008: 30.1 trillion yuan Chinese Government Stimulus Program to 2010: 4.0 trillion yuan Chinese Bank Lending in first half of 2009: 7.37 trillion yuan Chinese Bank Lending: June 2009: 1,530.00 billion yuan July 2009: 355.9 billion yuan August 2009: 410.4 billion yu
Slide 12: Beyond the Stimulus
Beyond the Stimulus The Moment of Truth for Stimulus Contribution to real GDP growth 4% 3% By 2010 the net impact of the ARRA stimulus 2% package to real GDP will 1% be barely over 1%. 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 09 09 09 09 10 10 10 10 -1% Source: Moody's Economy.com, Sprott Asset Management LP In t
Slide 13: The Real Economy
The Real Economy “Revenues in 2009 were almost $420 billion (or 17 percent) below receipts in 2008 and totaled about 15 percent of GDP, the lowest level in over 50 years. [2009] At the same time, outlays increased by over $530 billion (or 18 percent) in 2009, to nearly 25 percent of GDP, the highest
Slide 14: HUI Index
HUI Index +1,133% 2000 2005 2009 Source: Bloomberg 14
Slide 15: Investment Style
Investment Style • We focus on long-term secular trends. ‘Buy and Hold’ is not dead if you own the right things. • We tend to look for small-mid cap “hidden gems” with a strong chance of significant upside potential, similar to the style of Peter Lynch. • We typically take a big ownership interest.
Slide 16: Investment Examples: Norseman Gold
Investment Examples Norseman Gold Plc (NGX-ASX) • Market Cap: A$148 mill. / Ownership: 11.1%* • Based in Australia where they operate the country’s longest continually running gold mine • Successful at reducing costs and increasing production after undergoing operational restructuring in late 2008 •
Slide 17: Investment Examples (cont.)
Investment Examples (cont.) Norseman Gold Plc (NGX-ASX) Valuations at US$1000 Gold Average Cost Purchase P/E Current Price** Current P/E 2011 Earnings Est.* A$0.38 1.5x A$0.86 3.3x A$0.26 Valuations at US$1200 Gold Average Cost Purchase P/E Current Price** Current P/E 2011 Earnings Est.* A$0.38 1.0x
Slide 18: Investment Examples: Medusa Mining
Investment Examples (cont.) Medusa Mining (MML-ASX) • Market Cap: AU$605 mill. / Ownership: 5%* • Gold producer mining high grade project in the Philippines • Phase I production expansion achieved annualized production of 65,000 ounces in June 2009. • Phase II expansion planned to increase productio
Slide 19: Investment Examples (cont.)
Investment Examples (cont.) Medusa Mining (MML-ASX) Valuations at US$1000 Gold Average Cost Purchase P/E Current Price** Current P/E 2011 Earnings Est.* A$1.01 1.7x A$3.59 5.9x A$0.61 Valuations at US$1200 Gold Average Cost Purchase P/E Current Price** Current P/E 2011 Earnings Est.* A$1.01 1.3x A$3
Slide 20: Investment Examples: CGA Mining
Investment Examples (cont.) CGA Mining Limited (CGA:TSX) • Market Cap: C$516 mill. / Ownership: 10.3%* • Focused on Masbate open-pit mine in the Philippines. • Company has defined over 7 million ounces of gold with remaining exploration potential. • Gold production achieved in May 2009 • Ramping up
Slide 21: Investment Examples (cont.)
Investment Examples (cont.) CGA Mining Limited (CGA:TSX) Valuations at US$1000 Gold Average Cost Purchase P/E Current Price** Current P/E 2011 Earnings Est.* C$1.36 3.7x C$1.92 5.2x C$0.37 Valuations at US$1200 Gold Average Cost Purchase P/E Current Price** Current P/E 2011 Earnings Est.* C$1.36 2.6
Slide 22: Investment Examples: Sensio Technologies
Investment Examples (cont.) Sensio Technologies Inc. (SIO-TSXV) • Market Cap: C$67 mill. / Ownership: 13%* • Montreal-based company with patented technology that facilitates the broadcast and distribution of 3-D content using existing 2D / HD infrastructure • They can also enable broadcasters to upg
Slide 23: Investment Examples (cont.)
Investment Examples (cont.) Sensio Technologies Inc. (SIO-TSXV) Valuations using 2012 Earnings Estimate Average Cost Purchase P/E Current Price** Current P/E 2012 Earnings Est.* C$0.50 3.6x C$1.91 13.6x C$0.14 Valuations using 2013 Earnings Estimate Average Cost Purchase P/E Current Price** Current
Slide 24: Other Stocks We Own
Other Stocks We Own Yukon Nevada Gold Corp. (YNG-TSX) Market Cap: C$120 million Price: C$0.32 Excellon Resources Inc. (EXN-TSX) Market Cap: C$140 million Price: C$0.59 Romarco Minerals Inc. (R-TSXV) Market Cap: C$378 million Price: C$1.26 *As of October 20, 2009 24
Slide 25: Performance Summary
Performance Summary as at September 30, 2009 1 MONTH YTD 1 YEAR 3 YEAR 5 YEAR INCEPTION Sprott Offshore Fund Ltd. (2002)* 9.35% 8.52% 11.06% 12.95% 16.11% 21.52% Sprott Offshore Fund II Ltd. (2007)* 6.92% -0.79% 4.68% - - 4.66% Sprott Capital L.P. (2002) 9.31% 8.47% 11.03% 12.92% 15.99% 21.23% Sprot
Slide 26: Q&A Session
Q&A SESSION Please visit our website at www.sprott.com Or email us at [email protected] 26
Slide 27: A History of Outperformance
A History of Outperformance Year 2002 2003 2004 2005 2006 2007 2008 2009* Sprott Offshore Fund Ltd. 64.8% 10.8% 28.2% 14.3% 27.0% 41.1% -12.9% 8.5% S&P 500 -22.1% 28.7% 10.9% 4.9% 15.8% 5.5% -38.5% 17.0% Value Add 86.9% -17.9% 17.3% 9.4% 11.2% 35.6% 25.6% -8.5% (* YTD as at Sept. 30, 2009) Annualize