Private equity firm Sprott Resource Corp. recently sold off nearly $76 million in gold bullion, but don’t count the firm out of precious metals yet. What is the firm shopping for with its new-found cash? In this interview with The Mining Report, new Sprott Resource Corp. President and CEO Steve Yuzpe discusses where the company will focus its capital, and Sprott Asset Management Associate Portfolio Manager Maria Smirnova shares her outlook for resource markets.
The Mining Report: Steve, first off, congratulations on your recent appointment as president and CEO of Sprott Resource Corp. In the last quarter, it sold roughly $76 million ($76M) in gold bullion. The company said about two-thirds of the proceeds will be used to pay down debt, while the other $24M would be used to pursue “new investment opportunities.” What type of assets is Sprott Resource Corp. seeking?
Steve Yuzpe: The main driver and the rationale in selling our remaining gold holdings was to improve our financial flexibility. Recent volatility in the gold price was making it challenging for us to maintain a capital plan that allowed us to support our existing portfolio companies and also make new investments. Now, we have about $24M in net cash, which we’ll use to pursue investments and support our investees. We see precious metals, energy and agriculture as the key themes at Sprott Resource Corp. that we want to pursue.
TMR: What will those investments look like and what will they have in common?
SY: It doesn’t matter whether its energy, agriculture or precious metals, we look to partner with proven and successful management teams. We want to operate in geopolitically safe and mining-friendly jurisdictions. We want to work on projects that will have something unique about the actual deposit or geological resource, whether it’s world-class scale or a low-cost producer and of course, we need to acquire the company at the right valuation.
TMR: Are energy equities perhaps borrowing the spotlight that once belonged to gold and silver at Sprott?
SY: Not necessarily. Today we have a large concentration in the energy sector and no exposure to the precious metals sector. That isn’t the way we expect to be positioned over the long term. It just happens to be where we are right now. I’d like to see Sprott Resource Corp. with a more balanced portfolio in the three sectors.
TMR: Are you bullish on precious metals in the long term?
TMR: One of Sprott Resource Corp.’s four core beliefs is that peak oil is real and that we’re on the downward side of that equation. Is that still the case despite all the success that fracking has had in the U.S.?
SY: Peak oil is still real because there’s a finite amount of everything. The success of fracking unconventional deposits and finding new hydrocarbon deposits in places that were unimaginable five years ago, like off the coast of Brazil underneath a mile of water and half a mile of salt, is certainly amazing. Peak oil will be, in all likelihood, pushed out on the timeline, but the era of cheap energy is receding. That’s changing the economics of the energy sector. It makes it all the more challenging to navigate as an asset class. But where there are challenges, there are investment opportunities with the potential to deliver good returns.
TMR: What percentage of Sprott Resource Corp.’s assets is in the energy space?
SY: If I include actual exploration and production companies (E&Ps), as well as the energy services sector, it’s about 60%. Our investments in the energy sector are primarily in light and heavy oil and natural gas, uranium and the services sector. We buy when commodities are cheap and we see opportunities over the next few years, meaning the commodity is likely to move back to its mean price or beyond and has the potential to create good returns. Those areas are natural gas, metallurgical coal and uranium. Those are the places where we see a lot of value right now.