“In times of fiscal prudence, it’s essential to see companies eliminating all unnecessary expenditures,” said Eric Nuttall, a portfolio manager at Sprott Asset Management LP in Toronto. “This whole every second Friday off thing, that’s the most egregious example.”
The changes to incentives at Canadian Natural and ConocoPhillips are according to people familiar with the moves, who asked not to be identified discussing private matters. Kristen Ashcroft, a spokeswoman at ConocoPhillips, said the company won’t confirm specific cost-reduction actions. Julie Woo, a Canadian Natural spokeswoman, declined to comment.
At Cenovus, “no stone is being left unturned” in a broad review of workforce policies, said Brett Harris, a spokesman. Employees currently work longer hours on other days to earn the Fridays off, he said.
Sprott Asset Management Inc., the Canadian investment firm best known for precious metals, doesn’t want to solely be known for precious metals any more.
The protracted bear market for commodities has forced the fund to diversify its investments and shift focus away from the resource sector, where it profited so substantially during the bull market of the 2000s.
Company chief executive John Wilson, who was brought on in 2012 to help lead the shift, says more than 80 per cent of the company’s actively managed business is not related to resources at all today, compared with only about a quarter in 2012.
In an interview, Mr. Wilson said that Sprott actually started as a small cap investment firm and saw big gains on non-resource plays such as Taser International Inc., but the commodity bull market pushed the firm more into resources.
“The firm grew incredibly quickly through there and grew this reputation as a resource manager, but at its core that’s not necessarily what it was about. It’s just that’s what worked, and that’s what people wanted to put money in.”
But the resource reputation has stuck, helped in part by founder Eric Sprott’s affinity for gold, and Mr. Wilson said that the company determined from a recent survey that 70 per cent of Canadian fund managers still think of Sprott as only focused on gold and resources.
And so Sprott Asset Management, the biggest component of the Sprott Inc. public company, is now in the middle of a cross-Canada tour and advertising campaign to change the perception that it’s only about resources as the bear market for commodities continues for a fourth year.
Mr. Wilson said precious metals, mining, and energy have “all been hit incredibly hard,” and he doesn’t see a turnaround soon as the fast growth in emerging markets that drove the commodity boom shows a lot of stress.
“Those growth rates are clearly decelerating pretty rapidly, and so over the near term, it doesn’t look particularly compelling, and the price action is telling that,” he said.
As the commodity cycle wound down, Sprott Asset Management started shifting into new areas of investment and is now more involved in fixed income, blue-chip equity investments, and real asset investing outside of resources.
But despite the diversification, Sprott is still a big name in precious metals, in part as a major player in physical gold investments.
And Sprott Asset Management is currently pursuing a hostile takeover of Central GoldTrust and Silver Bullion Trust to increase its stake in the physical gold business.
If the company is successful in its all-share US$898 million offer, the firm plans to merge the two businesses with its own precious metals holding companies, the Sprott Physical Gold and Silver Trusts.
Wilson said he thinks Sprott can do a better job of managing Central GoldTrust and Silver Bullion Trust.
“Sometimes when you’re the biggest in an asset class, and in precious metals we are, it is incumbent on you to clean up the space,” said Wilson.
The deal is anything but certain, with Sprott already extending the deadline for its offer twice, the latest of which ends on Friday.
"We still haven’t seen capitulation yet," Rick Rule told me.
Two weeks ago, I met up with my good friend Rick at Sprott’s headquarters in Toronto. Sprott is one of the largest resource companies in the world. They have over $8 billion in assets under management.
I also spent the day with Sprott founder Eric Sprott and chief portfolio strategist John Embry. These men are considered the Warren Buffett, George Soros and Carl Icahn of the resource industry. They have over 140 years of combined experience in the resource sector.
I was excited to catch up with Rick. After all, resource stocks have been in one of the biggest bear markets in decades. And I was sure Rick was about to tell me why investors should be aggressively buying stocks in this sector right now.
But his advice caught me by surprise.
Rick told me, "It’s still an incredibly risky market that could see more pain ahead over the next few months." And he explained why investors should be "extremely careful" when buying gold and silver stocks right now.
If you are not familiar with the resource industry, most stocks have lost more than 80% of their value over the past four years. Some experts (including John Embry) say it’s the worst bear market in resources in more than 30 years.
These types of extreme conditions in the resource sector often lead to incredible opportunities for investors.
For example, most resource stocks fell sharply during the late 1990s. By 2002, the sector finally bottomed. Over the next few years, resource stocks enjoyed an incredible run — with many individual names surging more than 10 times in value.
Resource stocks also fell sharply during the 2008-’09 credit crisis. Once again, this cyclical market reversed and sent stocks sharply higher. Smaller names like ATAC Resources, Kaminak Goldand Africa Oil surged more than 500% in just a few years’ time.
I’m sure huge opportunities will open up for investors once the current bear market reverses. However, Rick cautions that investors should be patient as resource stocks could fall further from here.
He highlights how most companies in the resource sector are "delusional." They have less than nine months of cash left on their balance sheets. Yet, these companies refuse to raise money … "hoping" that the sector will finally bottom.
Rick also says that larger companies are not restructuring fast enough. They still have huge amounts of debt on their books. This will force industry leaders like Barrick Gold to sell assets well below net asset value (to raise cash).
Sprott is in a great position to weather a further downturn.
Rick says the company is only invested in a few dozen names today. That leaves more time for its portfolio managers and geologists to see more projects and spend time with their largest clients.
Plus, Sprott is sitting on over $330 million in cash. I’m sure this money will be used to fund some of the well-run resource companies who have fallen victim to the bear market. Based on Rick’s history of being an exceptional dealmaker, I’m also sure the terms of these deals will be extremely favorable for Sprott.
I suggest paying close attention to Rick’s advice. Many resource names are still sitting on piles of debt and need to restructure. Most junior mining stocks (which do not generate revenue) are also running low on cash. In fact, Rick says 90% of these small speculative names are worthless.
However, if you do venture into this volatile sector, be sure to buy stocks that are flush with cash. Also be sure they have experienced management teams and high insider ownership.
Most resource companies that are currently in Sprott’s portfolio fit this profile.
Good investing,
Frank Curzio
Well, in a gold market that has 4,000 tons of supply, I see 6,000 tons of buyers. You know that the 2,000 tons has to come from somewhere. It has got to come from Western central banks and I think these Western central banks are depleting their gold resources. Someday they’re not going to be able to make the payment when somebody demands the gold.
Of course the guy demanding the gold would be either Indian or Chinese or the US retail coin buyer -- people like that. And all of a sudden people will realize that the demand was always way above supply. And the same thing for silver. I mean look at what India has done in the last two years. They’re buying 30% of the silver market up from 10%. How is that possible?
You could buy an extra 20% of the market and have the price go down. It’s mathematically challenging to come up with that conclusion unless somebody in the paper market just wants to make the price whatever he wants to make it. Somebody who has got deep pockets can make the price do anything he would want as long as nobody asks for the silver. So I’m pretty convinced that the physical argument is a very powerful one.
