Rick Rule, Chairman of Sprott Global Resource
Investments Ltd., says some of the ‘big money’ that was circling the resource
sector has finally found a home. Rick Rule recently commented on a couple of
new investment mandates that he believes signal a positive development in the
resource sector.
The first mandate is a deal for Sprott Asset
Management to co-manage upwards of $110 million in funds along with Zijin
Mining Group Company Limited, the largest publicly traded non-ferrous metals
mining company in China. $100 million of those funds come from Zijin while $10
million is to come from Sprott Inc., Sprott Asset Management’s parent company. 1
Sprott CEO Peter Grosskopf said: “We believe the
combination of Zijin’s technical strengths and Sprott’s resource investment
expertise will prove to be an attractive option for investors looking to invest
in the mining sector with a focus on gold.”
In another development, Sprott Inc. announced in
December, 2013, that it had been awarded a mandate to co-manage a $375 million
private equity fund by South Korea’s National Pension Service with a matching
$375 million commitment from the state-owned Korean Electrical Power Company
(“KEPCO”), the largest electric utility in Korea.
Mr. Grosskopf said, “This mandate marks Sprott’s
second entry into the growing Asian marketplace and solidifies our
international reputation for expertise in natural resource investing.” He
added, “We are committed to continuing to build our institutional client base
as we seek undervalued opportunities in the sector.”
Sprott expects the closing of the second mandate to
be completed in the first quarter of 2014.
Rick suggests these new partners give credence to
the argument that the sector is undervalued. Many large state-controlled funds
are using the weakness in the natural resource market to set themselves up for
future returns, but also to make strategic investments beyond the scope of
merely generating a profit on investments.
Rick explained why he views this as an important
development for the sector:
What is interesting about both of these mandates is
that they represent new capital to the sector.
Our Korean partners in particular are Asian
sovereign or semi-sovereign investors looking to make the types of strategic
investments that North American and European countries looked to make in the
1950’s and 1960’s – to secure their country’s access to natural resources and
to develop the financial infrastructure in their capital markets that will
allow them to play the game in natural resource businesses.
Natural resource investing that participates in
financing the juniors has typically originated from small hedge funds or
open-ended mutual funds, but these are often generalist, short term investors
relative to the natural resources cycle.
Our new partners are long-term investors with the
intention to stay in the natural resources business. […]These new type of
investors are more focused and long-term participants with financial and
strategic objectives, with the design of providing the raw materials for the
development of their respective countries.
That these private equity pools of capital are
choosing to deploy capital in the natural resource sector now is an “extremely
bullish” sign for the sector, says Rick, though Sprott is unlikely to rush into
the sector in order to deploy this capital immediately. In fact, it will
structure the deals in a way that makes sense for these funds. Nonetheless, in
the event of a recovery, Rick believes that participation from these Asian partners
will help strengthen the sector and allow Sprott and its partners to invest
rationally in both bull and bear markets.
There may also be more of these types of investors
to come, says Rick: “From talking to sovereign investors in my network, it
appears big money is circling the physical sector as well. The money has not
yet ‘landed,’ but it is important to know what might happen to those markets if
the ‘big money’ begins to settle. We believe it would not take much demand for
physical delivery on the futures exchanges to create a very unsettling
experience for the large institutions that are short the trade.”
1http://sprottinc.com/investors/press-releases/press-release/?prId=122620
2http://www.newswire.ca/en/story/
1283307/sprott-to-co-manage-us-750-million-south-korean-private-equity-fund
This information is for information purposes only
and is not intended to be an offer or solicitation for the sale of any
financial product or service or a recommendation or determination by Sprott
Global Resource Investments Ltd. that any investment strategy is suitable for a
specific investor. Investors should seek financial advice regarding the
suitability of any investment strategy based on the objectives of the investor,
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Generally, natural resources investments are more
volatile on a daily basis and have higher headline risk than other sectors as
they tend to be more sensitive to economic data, political and regulatory
events as well as underlying commodity prices. Natural resource investments are
influenced by the price of underlying commodities like oil, gas, metals, coal,
etc.; several of which trade on various exchanges and have price fluctuations
based on short-term dynamics partly driven by demand/supply and nowadays also
by investment flows. Natural resource investments tend to react more
sensitively to global events and economic data than other sectors, whether it
is a natural disaster like an earthquake, political upheaval in the Middle East
or release of employment data in the U.S. Low priced securities can be very
risky and may result in the loss of part or all of your investment.
Because of significant volatility, large dealer spreads and very limited
market liquidity, typically you will not be able to sell a low priced
security immediately back to the dealer at the same price it sold the stock to
you. In some cases, the stock may fall quickly in value. Investing in foreign
markets may entail greater risks than those normally associated with domestic
markets, such as political, currency, economic and market risks. You
should carefully consider whether trading in low priced and international
securities is suitable for you in light of your circumstances and financial
resources. Past performance is no guarantee of future returns. Sprott Global,
entities that it controls, family, friends, employees, associates, and others
may hold positions in the securities it recommends to clients, and may sell the
same at any time.
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