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Unearthing Investment Opportunities in Precious Metals and Critical Minerals

Unearthing Investment Opportunities in Precious Metals and Critical Minerals

 

Overview

Sprott CEO Whitney George discusses the global energy transition and the growing interest in critical minerals investing with Asset TV's Jonathan Forsgren. George explains how Sprott expanded beyond "all things gold" to offer physical uranium, as it forged a path to becoming a recognized asset manager in the energy transition space.

Video Transcript

Jonathan Forsgren, Asset TV: Welcome to today's program. Joining me in the studio is Whitney George, chief executive officer at Sprott Inc. We'll be discussing the energy transition, metals and minerals investing, and how Sprott has grown to be one of the biggest and most recognized players in the space. Whitney, thank you for joining us.

Whitney George, Sprott: Thank you for having me.

Jonathan Forsgren: Could you start us off by sharing a little bit about the history of Sprott and then your role at the firm?

Whitney George: Sure. Sprott was founded by Eric Sprott at the beginning of the century. He's an entrepreneur, an investor in small precious metals mining companies. Had a fabulous record, and then in the bear market that began in 2011, things came a bit unglued and Eric retreated because he preferred to invest his own money in the kinds of investments that might not be appropriate for institutions or retail. And so the firm was in the position to remake itself.

I arrived in 2015, eight years ago. I had a vision of gathering up all the best talent in the world, in the precious metals and mining space in the middle of a bear market. It took a couple of years to convince management that that was a good strategy. But beginning in the summer of 2017, about five and a half years ago, we separated ways with a mutual fund company that's now called Ninepoint and began to build Sprott in the vision that I had.

Jonathan Forsgren: Over the last five years Sprott has really experienced some explosive growth. Can you give us a sense of how much you've grown in those five years and what have been some of the key drivers for that growth?

Whitney George: I think when we started out and separated the business in 2017, we had less than $5 billion under management, and currently we have roughly $25 billion under management. That growth has been a lot of fun and it's been with a lot of headwinds in the precious metals and mining space. It's not as if gold has gone to all-time new highs. We're roughly where we were back in 2011. It was done through a combination of opportunistic acquisitions, some really excellent marketing of what I think are well-structured products and market appreciation.

Jonathan Forsgren: Recently, Sprott has evolved from what you started off as, as an investor in the precious metal space, and you've expanded that to precious metals and energy transition metals and minerals. Can you talk us through what led to that transition or expansion?

Whitney George: Sure. After the financial crisis, Eric Sprott invented our physical trusts, which are closed-end funds, as opposed to ETFs, which have the ability to store physical metal, be redeemed and new shares can be created when they trade at a premium. It's a unique structure. We have very large offerings now in gold, silver, platinum and palladium. We were looking for other areas where we might use that structure and stumbled upon uranium. That was two-and-a-half years in the making. We got really lucky with our timing when we finally closed that transaction where we took over a UPC corporation and converted it to one of our physical trusts where it would go out and issue shares, buy physical uranium, and store it.

That was very well received, and what we realized, as we came to understand energy transition, was that most investors were investing in upstream electric vehicle manufacturers and utilities. But you need some basic mined material in order for any of that to happen. whether it's silver, uranium, cobalt, nickel or lithium, and Sprott has all of this resident mining expertise. Very often the materials come out of the same mine in different quantities and mixtures, and so we decided to focus on the upstream requirements that we're going to need to come close to meet carbon reduction goals for things like batteries, nuclear power transmission, silver for solar, rare earth materials for magnets to go into turbines or electric vehicles. These are all things that are basic materials that have been underinvested in for two decades and an investment area that has very little interest or expertise out there, but are very critical for all these other great things to happen.

Jonathan Forsgren: And you gathered all the expertise at Sprott, so.

Whitney George: Sure. We have a very large team of mining analysts, portfolio managers, geologists and some technical people, and that all grew from our precious metals franchise.

Jonathan Forsgren: Over the last year, markets have really struggled between rising inflation, rising interest rates, and recently the bank crisis, and yet Sprott has come out on top. What are some factors that have allowed the firm to do well in this environment?

Whitney George: We're kind of a big fish in a very small pond. Allocations to commodities, precious metals or transition materials are at historic lows among most asset managers and portfolio managers. There wasn't really much further to go down. Gold has played its role as a neutral currency, nobody's obligation, and in the last year has held up very nicely. In fact, a few people realize it's done better than the S&P 500 Index so far this century as an investment and a diversifier. There is growing interest in the gold space now, and we've had positive flows through this whole difficult period.

Jonathan Forsgren: Whitney, as we go into the summer, the saying is, sell in May and go away, but I'm sure for investors who are interested in staying active, what should they be looking out for? Where are you seeing some risks and where are you seeing opportunities?

Whitney George: I think we're probably done with the interest rate hike cycle as of today. One would hope. There's a lag effect, already we're seeing accidents popping up all over the place in banking. I think people should be prepared to see that happen in leveraged commercial real estate. There are obviously going to be some large issues with pensions and how they're funded. It's likely to be a difficult period. And of course, the debt ceiling due date is moving very quickly toward us. Tax receipts have been disappointing. We ran an 8% of GDP deficit in the first half of the year, so spending is going up, and of course, a recession would make that even more expensive. We have some things to deal with for sure.

"Sell in May and go away" might not be a terrible idea. In the end, we think hard assets are likely to do well. Fundamentally, we believe the Fed didn't cause inflation. There are some global forces at play. One is our decarbonization goals and how much that's going to cost to be able to accomplish that, and de-globalization in general. Onshoring and friend shoring, those are going to be expensive propositions and will be with us for a long time, irrespective of what the Fed does with interest rates.

Jonathan Forsgren: You're well positioned for all of that.

Whitney George: We hope so. Thank you.

Jonathan Forsgren: Well, Whitney, thank you very much for joining us today.

Whitney George: My pleasure.

c: For our viewers and listeners who would like to learn more about Sprott, we encourage you to visit sprott.com to download research reports and educational materials. For Asset TV, I'm Jonathan Forsgren. We'll see you next time.

 

Whitney George
Whitney George
Chief Executive Officer, Sprott Inc.; Senior Portfolio Manager of Sprott Focus Trust
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