Mining for Ideas Inside Sprott's Golden Portfolio

There is simply no reliable substitute for exhaustive due diligence when paring down a list of potential investments, but fielding ideas from the right sorts of sources can help to reduce risk from the start.

For investors looking to gold and silver miners for exposure to the bullish long-term outlook for prices of those metals, it's hard to ignore Sprott Asset Management as a compelling source of investment ideas within the sector. During the first quarter of 2011, SEC filings show the precious-metal specialist making a number of interesting moves.

An understandable round of profit-taking led to slightly reduced stakes in several of Sprott's noteworthy outperformers, including a 19% reduction in its holding of silver streaming sensation Silver Wheaton (NYSE: SLW  ) that dropped the equity to fourth position within Sprott's portfolio. Perhaps more interesting from a strategic standpoint, meanwhile, are the two stocks that moved above Silver Wheaton on the list as a result of the minor shuffle. After a pair of portfolio-dominating positions in his own Sprott Physical Silver Trust (NYSE: PSLV  ) and the Sprott Physical Gold Trust -- with a combined market value of more than $250 million -- Sprott's next-largest holdings were First Majestic Silver (NYSE: AG  ) and Alexco Resource (AMEX: AXU  ) , respectively. First Majestic certainly has the Midas touch, and Alexco's bonanza-grade discoveries at Keno Hill portend a meaningful success story in the works for the recently crowned producer. Sprott also pared its stake in Claude Resources by about 7%, but the small-scale producer with the large-scale discovery at Amisk remains a top-ten holding.

Subsequent to the quarter-end, it is worth noting, Sprott reportedly liquidated some $34 million worth of the Sprott Physical Silver Trust, and Fools will no doubt join me in anticipating the second-quarter filing to see which silver equities were purchased with the proceeds of those sales.

Among the stand-out purchases executed during the first quarter, Sprott doubled-down during the period on its stake in the company that Fortune Magazine heralded as the fastest-growing company for 2010: Eldorado Gold. Eldorado is a prime choice for investors looking for exposure to gold production in China, and continues to offer the most aggressive production growth profile among its peers. Sprott also added 36% to its stake in Yamana Gold (NYSE: AUY  ) , which this Fool has repeatedly touted as one of the most undervalued stocks in its class. Since I first included the stock among my top 10 picks in the sector for 2011, my assessment of Brigus Gold's (AMEX: BRD  ) upside potential has only grown stronger, and so I enjoy observing that Sprott Asset Management increased its stake in Brigus during the first quarter.

Finally, I would like to point out a new $25.7 million investment by Sprott in Extorre Gold Mines (AMEX: XG  ) , which only recently secured a listing on the AMEX exchange. Observing the stock's speedy five-bagger explosion since its spinout from Exeter Resource last year, and the fact that its market capitalization is now more than twice that of Exeter, I think all of Fooldom will appreciate this terrific call made by former Fool contributor Toby Shute. Toby's astute analysis serves as a timely reminder that the biggest things in mining can often come in smaller packages.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Alexco Resource, Brigus Gold, Claude Resources, Eldorado Gold, Exeter Resource, First Majestic Silver, Silver Wheaton, and Yamana Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a golden disclosure policy.


Read/Post Comments (9) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 26, 2011, at 8:52 PM, Frankydontfailme wrote:

    Although I think know the answer, I'll ask anyway. Does Sprott selling SLW mean anything other rebalancing to you?

    Im very bullish long term, but have to admit that I worry that streams will not open at quite the rate they used to with the rise in the price of pms.

    It seems eerily too long since SLW or SNDXF have opened a new stream.

    It will probably pass though...

  • Report this Comment On May 27, 2011, at 6:08 AM, XMFSinchiruna wrote:

    Simply stated, SLW's incredible gains made it the obvious target from which to extract cash, which was high on many investors' lists of priorities as silver screamed to such heights. I rebalanced myself, and now SLW has slipped into number-two position among my top holdings (behind Great Panther); but by no means have I lost an ounce of my bullish expectations for SLW.

    http://www.fool.com/investing/general/2011/05/09/why-silver-...

    Excerpt:

    "Incoming CEO Randy Smallwood predicted a "flurry of transactions" once silver backed down a bit from its epic surge, and aims to ultimately amass a stream portfolio that is capable of producing 100 million ounces per year."

  • Report this Comment On May 27, 2011, at 8:28 AM, jargonific wrote:

    Why do so many of the silver trades occur during times when the New York exchange is closed to all but the most wealthy investors. For those who have ability to trade in foreign markets, there is now the opportunity to capitalize on the up trend overnight, down trend in the US hours when the short sell is on and ZSL climbs. It seems like a very tricky racket for those of us only able to do daytime trading. What stops anyone from stripping out our 'profits' overnight?

  • Report this Comment On May 27, 2011, at 8:49 AM, XMFSinchiruna wrote:

    jargonific,

    Silver is a global asset with a global market.

    As to your perception of a pattern:

    http://caps.fool.com/Blogs/a-useful-discussion-of-gata/45759...

    "The next most solid piece of evidence that I have encountered of foul play in the gold market is a more recent report from Adrian Douglas from his August report: "Gold Market is not Fixed; it's Rigged". In it, he offers an empirical statistical analysis of a phenomenon that longstanding observers of the market like myself have long-observed: the uncanny consistency of the relationship between am and pm spot prices, day in and day out, in such a way that the net daily price action actually moves counter to the massive prevailing bull market trend. Those who appreciate the scale of this bull market move to date may be surprised to learn that a trader who purchased gold at every successive am fix and sold it at each successive pm fix since April 2001 would have lost a cumulative $500 per ounce over the 9-year period!. Daily movements can diverge substantially from a prevailing trend, but a disparity of this magnitude (and consistency) constitutes extremely compelling evidence of foul play. Also in August, Douglas published a follow-up piece entitled "The Failure of the Second London Gold Pool", in which he discusses his interpretation of the data as indicating an emerging failure (breakdown) of the ability of strategic suppressive gold sales to have the desired effect and thus contain or diminish the scope of gold's ascent. Although speculation creeps into that discussion, I find his interpretation an entirely reasonable hypothesis on which to base further investigation."

  • Report this Comment On May 30, 2011, at 10:11 PM, skypilot2005 wrote:

    Sinch,

    After perusing your piece, I did some poking around regarding Mr. Sprott. See holding #5, below. They are going to be issuing a Dividend-In-Kind, soon. Looks promising to me.

    I haven’t had a chance to research Sangihe Gold, Barisan Gold or East Asia energy individually, yet. Been on the road with #4. I’ll get on it, soon. But, I am thinking if they are part of Mr. Spott’s #5 holding, they should be OK.

    I was cleaning out #4s vehicle today and found some change under the floor mats. I am going to initiate a small position, tomorrow.

    EAST ASIA MINERALS CORP

    Quote | Trade

    Symbol EAIAF

    CUSIP 270541105

    Sprott Canadian Equity Fund

    Sector Allocation

    as at: March 31, 2011

    Top Ten Holdings

    as at: March 31, 2011

    1 Silver Bullion

    2 Gold Bullion

    3 Sterling Resources Ltd.

    4 Avion Gold Corp.

    5 East Asia Minerals Corp.

    6 Corridor Resources, Inc.

    7 First Majestic Silver Corp.

    8 Yukon-Nevada Gold Corp.

    9 South Boulder Mines Ltd.

    10 Colossus Minerals, Inc.

    Dividend-in-kind: East Asia Minerals intends to distribute to eligible East Asia Minerals shareholders 1 share of Sangihe Gold for every 4 shares of East Asia Minerals held, 1 share of Barisan Gold for every 4 shares of East Asia Minerals held and 1 share of East Asia Energy for every 10 shares of East Asia Minerals held at the record date to be established and announced by East Asia Minerals in the near future.

    Rights offerings by Sangihe Gold and Barisan Gold: Immediately following the spin-off, each of Sangihe Gold and Barisan Gold intends to distribute to the eligible shareholders 1 Sangihe Gold right for every 1 Sangihe Gold share held and 1 Barisan Gold right for every 1 Barisan Gold share held. For every 3 Sangihe Gold rights, eligible shareholders will be entitled to subscribe to 2 Sangihe Gold units (each unit comprising of 1 common share and one half of a common share purchase warrant) at a price of C$0.40 per unit. For every 1 Barisan right, eligible shareholders will be entitled to subscribe to 1 Barisan Gold unit (each unit comprising of 1 common share and one half of a common share purchase warrant) at a price of C$0.55 per unit. Sangihe and Barisan common share purchase warrants will be exercisable at a price of C$2.25 per common share for a period of 24 months.

    Other jurisdictions, including but not limited to United States of America (other than QIBs and AIIs), the United Kingdom and Australia, have been determined by East Asian Minerals, Sangihe Gold and Barisan Gold to be ineligible jurisdictions (together the "Ineligible Jurisdictions") and the dividend-in-kind and rights will not be issued in the names of shareholders of East Asia Minerals resident in these ineligible jurisdictions but rather will be issued to Computershare Investment Services Inc. as trustee for the benefit of these shareholders.

    Subject to regulatory approvals, East Asia Minerals anticipates completing these transactions by June 2011. Completion of the proposed transactions is subject to a number of conditions including the approval of the TSX Venture Exchange and other applicable securities regulatory authorities.

    If you are a shareholder of East Asia Minerals who are not resident in Canada and have any question in relation to whether you are eligible, please contact:

    Nick Kohlmann, Corporate Communications Toronto T: +1 416 792 8734 E: kohlmann@eaminerals.com Mark Patchett, Investor Relations Vancouver T: +1 604 637 8154 E: patchett@eaminerals.com

    I do not see that the date of record has been announced, yet.

    http://www.eaminerals.com/s/NewsReleases.asp

    http://www.eaminerals.com/s/Home.asp

    Sky Pilot

    Official Web Link Assistant to Sinch.

  • Report this Comment On May 30, 2011, at 10:23 PM, skypilot2005 wrote:

    Sinch,

    I also HAVE to point out Mr. Sprott's #8 holding above. That's right, our old friend Yukon-Nevada!

    I feel COMPLETELY vindicated. I've had occasion to be in a lot worse company.

    I wonder if he'll still be in there with me when they hit 1 billion shares?

    :)

    Sky Pilot

    Official Web link assistant to Sinch.

  • Report this Comment On May 31, 2011, at 8:48 AM, XMFSinchiruna wrote:

    skypilot,

    Thanks for posting additional ideas for further research. The list you posted is for one of several funds managed by Sprott Asset Management. You can view top holdings for each of the various funds at Sprott's website. The holdings discussed in the article above, meanwhile, are the company's own investment holdings.

  • Report this Comment On June 01, 2011, at 10:31 PM, skypilot2005 wrote:

    Sinch wrote:

    "Since I first included the stock among my top 10 picks in the sector for 2011, my assessment of Brigus Gold's (AMEX: BRD ) upside potential has only grown stronger, and so I enjoy observing that Sprott Asset Management increased its stake in Brigus during the first quarter."

    Brigus Continues to Expand New 147 Gold Zone at Black Fox Complex

    Press Release Source: Brigus Gold Corp. On Wednesday June 1, 2011, 9:57 pm

    HALIFAX, Nova Scotia--(BUSINESS WIRE)-- Brigus Gold Corp. (“Brigus” or the “Company”) (NYSE Amex: BRD) (TSX:BRD.to - News) is pleased to report very good gold assays over significant widths within the new 147 gold zone (147 Zone). The 147 Zone trends in a north-south direction and is located approximately 150 metres to the east running parallel to the gold mineralized Contact Zone.

    http://finance.yahoo.com/news/Brigus-Continues-to-Expand-bw-...

    http://www.brigusgold.com/news-releases.asp?id=69

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On June 17, 2011, at 1:57 AM, INVESTWISE2010 wrote:

    Hi Chris,

    It has been over 17 days, since you have last commented on gold and silver mining stocks. At a time when most of them have been falling (at a rate that is much higher than the price of gold and silver - in fact, they have not fallen during the last 3 weeks), it would be great to continue to have your views, especially for those of us, who have been keenly following your perceptive comments over an extended period of time.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1500217, ~/Articles/ArticleHandler.aspx, 10/21/2014 1:06:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement