Sprott CIO on Gold/Silver Miner Selection and Silver Outlook

James Connor of Bloor Street Capital interviews Maria Smirnova, Sprott CIO and Senior Portfolio Manager, about Sprott’s distinctive approach to selecting gold and silver miners. Smirnova also shares her compelling outlook on silver. Smirnova believes a lack of central bank buying and stagnant mine supply have kept silver prices from matching gold’s rally despite booming industrial demand. Her outlook remains bullish,¹ given silver's deep supply deficit and the critical role silver plays in electrification and clean energy.

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Video Transcript

James Connor: Maria, thank you very much for joining us today. You are the Senior Portfolio Manager and the Chief Investment Officer at Sprott Asset Management. You're the perfect person to speak to about investing in precious metals. I want to start with how you determine what names you invest in. What are the most important characteristics you look for in a gold or silver company?

Maria Smirnova: Hi. Great to see you as well, Jimmy. We have a whole process at Sprott about how we look at mining equities, be it silver, gold, or in general, any mining equities. Number one, it starts with people. We look for management teams who have done this before, have run mines, and have discovered orebodies. We also look for deposits that will ultimately be mines. For an exploration or development stage company, that means size and good metallurgy. It means many different things and aspects of mining that we look at.

People are number one, the technical aspect is number two. The third is looking at metrics like a company's financials and capital structure. Do they have cash? What are their funding needs? There are a lot of questions that we need to answer. Finance would be bucket number three, overlayed with geopolitics and ESG factors. What is ESG? Well, that's environmental, social and governance. That's how a company treats its people. How does a company treat the communities surrounding its properties? How does the board of directors interact with management and with shareholders? What are the policies of the company? We look at so many different questions. I don't think I can summarize it well in about a minute, but that's the gist of it.

James Connor: As you mentioned, geopolitics is now more important than ever. We've seen many examples where mines, especially very successful mines, have become nationalized. Jurisdiction is very important. Are there countries you will not invest in? Or maybe the proper question is, are there countries that you prefer to invest in over other ones?

Maria Smirnova: Certainly, that is the case. In fact, at Sprott, we have developed a proprietary heat map. As a team, we have gone through country by country and ranked our preferences for countries. It is like the Fraser Institute survey, but it's internal to us. If you think about stable regions, such as North America and Australia, those are our preferences. But we have gone into Africa, Latin America and Europe. We go to many places in the world, but you have to size positions accordingly. We will size a position in West Africa differently than we would size a position in somebody who has mines in North America, for example. It's all relative. There are places we also would not go to. I'm not going to name them, but certainly there are certain countries that we try to stay away from.

James Connor: What about market cap? You focus on small- and mid-caps, but do you have any market cap restrictions?

Maria Smirnova: Our bread and butter has been small- to mid-caps. I would say we don't restrict it by market cap. What we do look at is liquidity. In other words, how much does a stock trade every day? Of course, that goes together with market cap. Usually, size dictates liquidity, but other factors dictate liquidity, such as sometimes a company will have large control positions of when another company owns a stock or when an institution owns a stock. That's a moving target. But certainly, liquidity is something we take very seriously because we want to make sure that if we need to get out of a position, we can.

James Connor: You're just trying to minimize your risk.

Maria Smirnova: We're trying to ensure that the portfolio has liquidity even in downtimes and that we can sell positions if need be.

James Connor: When it comes to valuation, how do you value a company? Let's say an explorer co or a developer versus a producer.

Maria Smirnova: That's a very important distinction because you wouldn't value an explorer like a producer. It's very hard to value an explorer. Somebody doesn't have ounces written down on paper. That becomes an interesting exercise because you're trying to think about the potential, what a company could find, and how many ounces. I don't think we have hard and fast rules for how we would value something like that. In terms of if you look at a production company, and we certainly look at various metrics, be it price to NAV, price to cash flow, free cash flow yields, we look a lot at ROIC, return on invested capital, and we have had many conversations with companies to ask them to start disclosing those numbers as well. We apply many different valuation metrics. 

James Connor: Part of the valuation process is determining the proper price of gold or silver. What price do you use?

Maria Smirnova: I generally use spot prices. What we find is that the sell-side analysts, a lot of the time, will not use spot prices; frankly, they will not even use the forward curve. They will use some assumptions they've come up with, whether by the bank or the brokerage. We like to look at spot because we don't think we're very good at forecasting metals prices. We say, today the gold price is $3,000. Great, let's take it and see what happens to valuations at that price.

James Connor: You mentioned that sell-side analysts will use a lower price, as do corporates and other buy-side investors. Why do you think they use a lower gold or silver price than the spot price at any given time?

Maria Smirnova: I'm not sure I have the answer to why they do that, but it has certainly become quite punitive in recent years. As you know, the prices of gold and silver have risen quite a bit in recent years. But the forecasts have not kept up even with spot prices. As I said, we're sitting at $3,000 gold, and I think consensus estimates are much lower than that. It becomes very punitive for the companies  when you don't apply spot. As to why, I'm not sure. I know why the corporates use lower prices, and that's probably because they need to run budgets. They need to think of protection on the downside. That's a more risk-averse take on the whole thing. I understand why a company would do that, but I'm not certain why sell-side analysts and financial players would use lower prices.

James Connor: As we both know, hundreds of gold and silver companies are out there, maybe thousands. But how many names do you and your team cover, and how many do you have in your portfolios?

Maria Smirnova: Our team comes across many companies, and we take a lot of meetings with companies. If it's a smaller company, we want to start tracking it from an early stage. I would say it's in the hundreds for sure. When you say tracking, it doesn't mean we're tracking the company month to month, quarter by quarter, but we take a lot of introductory meetings to see if something is interesting there.

James Connor: How many names would you have in your portfolio?

Maria Smirnova: When structuring portfolios, we try to be more focused. We have certain portfolios with about 30 to 40 names, and some portfolios that are even more focused than that, let's say around 20 names.

James Connor: Once again, I want to go back to valuation, or where many gold and silver names are trading, especially when you compare it to the spot price. They're trading at deep discounts and, in some cases, with many different producers, trading at deep discounts to their NAVs. Why do you think that is?

Maria Smirnova: That's an excellent question. The answer goes back to that disconnect between what's happening in the price of the metals themselves and expectations of people in the future. Again, going back to the sell-side analyst comment, they usually expect the price of gold to decline or the cost of silver to decline, which affects NAV and your forward multiples. That's punitive. I also think there hasn't been a generalist buy-in to the sector and the belief that these companies can generate lots of cash flow, etc. We're seeing now that, in 2025, these companies are generating a lot of money because the prices of metals have appreciated. In the future, we're going to see that even more so. Again, I think there's just been a disconnect with how fast the metals prices have moved and that cash flow generation. It will be very interesting to see what happens with the mining equities.

James Connor: I want to ask you a silver-specific question now. Gold is trading at or near all-time highs, but silver is nowhere near the all-time high we saw back in 2011, which was $50 an ounce. Why do you think silver still trades at a big discount to its previous high? We keep hearing that demand keeps increasing, especially regarding the supply and demand economics associated with silver, but the supply is stagnant or decreasing.

Maria Smirnova: I speak to the supply-demand deficit in silver a lot. As you know, silver has two heads. It has the monetary head and the industrial head. Yes, the industrial demand has been growing rapidly and in large quantities. But what silver doesn't have is the buy-in from central banks. As you know, gold has been gobbled up in the last three years by central banks. Over a thousand tons a year. Silver hasn't had that. Central banks have not been known to accumulate silver. Sorry, silver does not have that. Central banks are not accumulating silver. I think that has hurt silver.

Also, I think if people are expecting a slowdown in the economy, specifically because of all the tariffs that are being announced, the perception would be to hurt silver as well, because again, it is used in industry. My pushback on that argument would be that silver is used A, in many, many different uses, but in small quantities, and B, it's used in energy transition or green-type uses. For example, solar allows humans to transition towards cleaner energy. Again, we try to push electric vehicles forward for cleaner energy and a cleaner environment. Unless there's a big reversal in those trends, and I think they are secular, they're longer-term. I believe silver should be insulated from downturns in the mass economy.

If we continue pushing towards the electrification of the world, silver will directly benefit from it. Another area would be artificial intelligence or AI, where silver is used repeatedly, but in tiny quantities. We'll see what happens. It has been frustrating to watch the silver price, to your point. But I think the supply-demand deficit will catch up to the price sooner or later. What's happened recently in the last couple of years, and I talk about that a lot, is that the above-ground inventories in London, COMEX and Shanghai have declined by nearly 500 million ounces if I'm not mistaken. That's a very large amount. Again, these supply-demand deficits should translate to eating through these inventories over time. As that happens, I hope that will again translate to a higher silver price.

James Connor: I keep hearing this bullish narrative for silver, but I don't see the corresponding move in the silver price. But I think you raised a very good point that silver might be more like copper, and that it reflects what's happening in the economy.

Maria Smirnova: Yes, it's the perception that if the economy slows, demand for silver will slow. But we are sitting at about a 150 to 200 million shortage of silver a year, and this is a market where we only produce a billion ounces a year. Think about that. That's between 10 and 20% of the supply we're short of annually. That's a lot of ounces to find. I've been tracking this market for over 10 years. Over the last 10 years, we have not increased silver production in the very least. If anything, we have lost about 50 million ounces per year of production. Various factors are playing a role. There has been a lack of exploration and development in the silver market. Reserve grades and production grades have been declining. We have to find bigger orebodies that are lower grade. We have to invest more money in infrastructure to develop these deposits. That's just led to a stagnant or declining production profile.

It's interesting because I see forecasts for an annual increase in mine production. But we're just not seeing it to the extent that people are forecasting because something always happens. A mine could have operational issues. You mentioned earlier that sometimes the mine is shut down because of various issues. Something always happens in mining where supply can't keep up with the projections that are out there. Longer term, I don't see a scenario where silver prices are lower. The market fundamentals are very favorable for silver right now.

James Connor: I want to ask you about the deal pipeline. How would you describe the deal market? Are you seeing a lot of deals? Are the deals you see able to raise 25, 50, or 100 million bucks in the current environment?

Maria Smirnova: We're certainly seeing financings happen. If it's a good deal, I always say that good deals will find the money. Good deals have been oversubscribed by a factor of two or three times. There is money out there, but I think it's smart money that wants good deals, deposits and mines. Yeah, we are seeing that, and it is encouraging for sure.

James Connor: Before we wrap it up, Maria, I want to ask you about one of your mentors. You had the privilege of being trained by one of the greatest investors in the precious metals space, and that's Eric Sprott. I'm curious, what were the number one or two things you learned from working with Eric?

Maria Smirnova: I don't know if I can summarize it into one or two. Eric is a great man. He hired me 20 years ago. But I will say a couple of things. Number one, Eric always looks at the big picture. He always wants to see how big something will get. Another important thing is grade. As you know, grade measures how rich a mining deposit is. Those two things are very important. The other thing is he taught me a lot about macro and looking at macroeconomics and looking at what's happening in the world, trying to learn and understand what's driving the price of gold and silver. Because these are very macro-driven things, the metals gave me a love for looking and reading about macroeconomics. Again, exploring the world and learning about the world. There are lots more, but we would need a lot of time to cover everything.

James Connor: No, you're right. Talking about macro is very important now, especially more than ever. You've got to look at the US dollar, interest rates, inflation expectations, what's happening in other countries, and where the money is flowing to. Well, that was a great discussion, Maria, and I want to thank you very much for spending time with us today. If someone would like to learn more about Sprott and its various gold and silver products, where can they go?

Maria Smirnova: Very simple. We have a website. It's great. It's www.sprott.com. I will say that our website is tremendous. We have a bunch of people writing articles. We have a whole section, at least one section of the website, dedicated just to all our articles, webcasts, and podcasts. There is a lot of information on various metals, not just gold and silver. It's a great resource; I highly recommend it.

James Connor: Maria, once again, thank you.

Maria Smirnova: Thank you.

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