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Eric Sprott
Chief Executive Officer & Senior Portfolio Manager
October 2013
Disclaimer
Sprott Asset Management LP is the investment manager to the Sprott Funds (collectively, the Funds). Important information about these Funds, including their investment objectives and strategies, purchase options, and applicable management fees, performance fees (if any), and expenses, is contained in their prospectus or offering memorandum. Please read these documents carefully before investing. Commissions, trailing commissions, management fees, performance fees, other charges and expenses all may be associated with investing in the Funds. The indicated rates of return for series A/class A securities of the Funds for the period ended September 30, 2013 are based on the historical annual compounded total returns including changes in unit/share value and reinvestment of all distributions or dividends and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Funds. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.
Disclaimer
Forward-Looking Statements
This presentation contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as may, would, could, will, anticipate, believe, plan, expect, intend, estimate, and similar expressions have been used to identify these forward-looking statements. These statements reflect managements current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this document. These factors should be considered carefully and undue reliance should not be placed on these forward-looking statements. Although the forwardlooking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forwardlooking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Sprott Asset Management LP is or will be invested. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.
Eric Sprott
Chief Executive Officer & Senior Portfolio Manager
The Economy
Americas Debt
Off-Balance Sheet Liabilities
U.S. National Debt Expected Value of US Debt and Liabilities
$16.6T
~515%
$4.5T
A recent report by Standard & Poors highlights that, for 2012, the total deficit of S&P 500 companies pension plans and OPEBs amounted to $452 billion and $235 billion, respectively.1
Another report by the Boston College Center for Retirement Research surveyed 126 state and municipal pension plans and found that, for 2011, they were underfunded by approximately $1 trillion.
*Other Post-employment Benefits Source: City of Detroit Proposal to Creditors, June 14 2013 1 https://ratings.standardandpoors.com/us-public-finance/An-Aging-Population-Puts-Pension-Plans-To-The-Test.html 7
QE1
5.0 4.5
QE2
Increase to QE3
4.0
QE3
3.5
3.0 2.5 2.0 1.5 1.0
Source: Bloomberg
210
200 190 180 170 160 150 140 130 120
And the decline in affordability will likely persist as bond yields rise
Source: Bloomberg
US Jobs
MoM Nonfarm Payrolls
# Jobs created in Thousands 600 400 200 0 -200 -400 -600 -800 -1000 % Participation 66 65 64 63 62 67
936,000
additional Americans reported working on a
27,000
additional Americans reported working on a
part-time basis
full-time basis
35-year low.
The US has struggled to create jobs over the past two years, especially quality jobs. Since January 2013, 936,000 additional Americans reported working on a part-time basis while only 27,000 reported getting a full-time job.*
Data source: Bloomberg * Source: UPI
10
US Non-Recovery
Real Median Household Income Index (Deflated by CPI-U)
To July 2013, Seasonally-Adjusted (www.SentierResearch.com)
Source: www.shadowstats.com
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US Non-Recovery
Real Disposable Income Per Capita
(excluding transfer payments) indexed 1/1/2006 = 100
110
105
100
95
Real Disposable Personal Income is Struggling to Grow, Often Remaining in Negative Territory
Source: U.S. Department of Commerce: Bureau of Economic Analysis 12
13
14
Market Malfunction
Permanent Open Market Operations - POMO
It even works week by week
Weekly Fed purchases vs associated market move in credit and equities, Jan 09 Apr 13
Fed buying ($bn) S&P Chg (pts) Chg (%) U.S. BIG Chg bp # Weeks count
>5 bn
570
54%
-401
159
<5 bn
141
15%
55
62
<0
-51
-2%
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Precious Metals
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Tonnes
Central banks have transitioned from being sellers of ~500T of gold annually to buyers of ~500T of gold annually.
Source: IMF
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Purchases YTD
Azerbaijan
Kazakhstan South Korea Nepal
8.0T
15.6T 20.0T 6.2T
Russia
Turkey
Source: World Gold Council. Limited data available for August & September 2013.
38.7T
81.9T
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The company may import as much as 200 metric tons in 2013, from 92 tons last year, Chief Executive Officer Pawan Nawawattanasub said in an interview yesterday. First-half shipments advanced to 112 tons, accounting for 60 percent of the countrys total, she said.
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Gross Exports
200
tonnes
Net Exports
150
tonnes
100
108 tonnes
50
(50)
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
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500
400
300
200
100
August 2013
YTD 2013
-100
-200
2009
2010
2011
2012
2013
22
Weeks
23
As at September 13, 2013 Source: Koosjansen.blogspot.nl, sge.sh, usgs.gov, Hong Kong Census and Statistics Department
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25
Hong Kong Census Hong Kong Census UN COMTRADE statistics UN COMTRADE statistics UN COMTRADE statistics IMF GFMS
Total Demand
Other sources of supply Gold recycling ETF outflows
2,889
5,185
672 724
1,344 917
GFMS Bloomberg
Sources: GFMS data comes from the WGCs Gold Demand Trends publications for 2013Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate. Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan-Aug 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMFs International Financial Statistics, as published on the World Gold Councils website for 2013Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN COMTRADE database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013Q1 & Q2. ETFs data comes from Bloombergs ETFGTOTL Index. 26
2013
300
250 200 150 100 50 0
2011
2012
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Investor interest in silver coins has started gaining substantial steam over the past months.
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2,000
2,304
Tonnes
1,500
1,000
500
25%
of the total market size
2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2
Source: GFMS
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COMEX Inventories
GOFO Rates
29
Market Manipulation
Interest rates manipulation by the Fed LIBOR scandal - $2.5bn in fines so far FOREX manipulation by traders London Whale JP Morgan fined $920mm Crude oil trader fined 3m Electricity market JP Morgan fined $410mm Silver market JP Morgan narrowly escapes fine
Synopsis
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32
150%
100%
93% Correlation
50%
0%
Breakdown in Correlation
-50%
-100%
Source: Bloomberg
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Veris Atna
Lachlan Star
San Gold
Carpathian
US Silver & Gold
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Upside Scenarios
Company Market Cap at Sept. 23/13 2013E production Earnings @ $1400 Earnings @ $2400 Au (E) Au (E)
$67M
150,000
$42M
$147M
Illustrative purposes only Eric Sprott and Sprott Asset Management Funds beneficially (directly or indirectly) own in excess of 1% of one or more classes of the issued and outstanding securities of Veris Gold Corp. Source: Sprott estimates
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Upside Scenarios
Company Market Cap at Sept. 23/13 2013E production Earnings @ $1400 Earnings @ $2400 Au (E) Au (E)
$64M
85,000
$24M
$83M
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Opportunity of a Lifetime
The current pullback in gold prices presents a great opportunity for an investor The valuations on gold stocks are extremely attractive and provide the investor with a leveraged way to participate in rising gold prices
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Q&A
38
Contact Information
Sprott Asset Management LP Royal Bank Plaza, South Tower 200 Bay Street Suite 2700 Toronto, ON M5J 2J1 T: 416 943 6707 Toll Free: 1 866 299 9906 F: 416 943 6497 Email: invest@sprott.com Web: www.sprott.com
Follow us on Twitter @Sprott
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