July 17, 2023 | (17 mins 28 secs)
John Ciampaglia, CEO of Sprott Asset Management, sits down with James Connor of Bloor Street Capital to discuss the current state of the gold market, the resilience of uranium compared to other commodities, the growth of the battery metals sector and Sprott’s focus on providing investors with access to energy transition investments.
Watch more Bloor Street Capital videos on Youtube.com/@BloorStreetCapital.
John Ciampaglia: Who would have thought lithium companies could be some of the fastest growing growth companies, but they are.
James Connor: John, Sprott has over $20 billion in assets under management, allocated between many different assets: gold, silver, uranium and battery metals. I want to discuss all these asset classes, but given that gold and silver are the largest portion of your AUM, why don't we start right there?
I'm just curious, given what's happening with the global economy, with interest rates, inflation, what type of flows are you seeing in gold?
John Ciampaglia: It's been a weird year, obviously, for just about all asset classes, particularly for gold in the last 10 to 12 months, where it had a bit of a swoon and it's been clawing its way back recently to $2,000 again, which is great. We're seeing some investor flows and interest returning to the gold sector. But I would say it's very muted relative to the strength and the price. We constantly want to know where the investor money is going and it is going into money market and fixed-income funds. These funds are getting the lion's share of the capital flows right now, everything from retail to institutional. Why? You're getting 5% on risk-free money or 7% or 8% on bonds. [These yields] have not been available to investors for many years and are attracting much investor interest in the short term.
James Connor: One of the things that really surprises me is that even though gold is at or near all-time highs, the gold stocks are not participating in this rally. Many of them are down on the year, including many large producers. Many producers are even trading at a discount to their NAVs. Why do you think that is? Why isn't there more interest in these gold equities?
John Ciampaglia: I think people generally are very nervous about the economy. I have talked to several institutional investors and many are in a very risk-off mode right now. They're just not sure whether the Fed [U.S. Federal Reserve] will continue to break things, whether we're going to have a recession and whether that will pull this equity market down. Until we get some more certainty, I think investors will continue to sit on the sidelines in cash, making 5% while they wait. That's taken a lot of interest out of many different pockets.
If you look at the broader equity benchmarks, they all look great this year. But the returns are being driven by about eight stocks. If you don't own those eight stocks, the returns are flat or down for the year. It's very misleading in terms of what's driving the equity returns so far in 2023.
James Connor: You raise a very good point because it is very misleading. The Nasdaq is up 30% on the year. The S&P 500 is up 15% on the year. You have some stocks like Facebook that are up, I believe, 150% on the year. Nvidia is up similarly. It's over a trillion dollars. What will it take to get investors back into gold and silver?
John Ciampaglia: I think the number one thing is the Fed. The Fed has sucked all the oxygen out of the room for investors. They've created so much uncertainty with their hawkish tone and the ongoing interest rate saga. Are they done? Are they pausing? Are they pivoting? Until that happens, I think people will sit on the sidelines. It's frustrating because many of these sectors and commodities have very positive fundamentals and very good long-term growth stories. But people are not focused on the long term right now. They're focused very much quarter to quarter on how their portfolios are doing.
James Connor: I want to move on now and discuss uranium. It is performing very well. The long-term contracting price is doing very well. The spot uranium price is up 15% on the year. I'm just curious about what you see regarding flows into these products.
John Ciampaglia: Uranium continues to be quite resilient. I say that because many commodity prices this year have had significant corrections, whether it’s lithium, nickel or cobalt.
Why is uranium performing well this year? It's being driven by the utilities which are finally rebuilding inventories and buying significant amounts of uranium. Last year we saw the highest amount of uranium contracted in 10 years at about 125,000,000 pounds. So far this year, we're at 107,000,000. This is important because we want to know if we're returning to replacement rate purchasing. Last year, even at 125,000,000, that was below the annual replacement rate for utilities. This year we might just hit it. [Data Source: UxC Market Outlook Q2 2023]
But there are still pockets of the world, much to our confusion, that are still not buying lots of uranium. For example, U.S. utilities last year purchased less uranium than the year before, which is odd given uranium's price appreciation last year, the uncertainty and the Russa-Ukraine war and the threat of sanctions against Russia. You would think U.S. utilities would be more aggressively buying. We think they're finally starting to move, which is reflected in the year-to-date numbers.
James Connor: John, you mentioned that there's a lot of interest coming from utilities and we see that both in the long-term contracting price and the uranium spot price. But when you look at the uranium mining equities, we're not seeing that same interest from investors. Why do you think that is?
John Ciampaglia: The number one challenge we see is that the depth of the liquidity among many of these uranium stocks is not yet where it needs to be for many of the larger institutions to get involved. We often talk to institutions that are very interested in buying physical uranium. They're very interested in buying some of the large-cap mining stocks and some of the late-stage development companies.
But for smaller uranium mining companies, it's hard for these big institutions to get a position in them. They have so many risk management and liquidity parameters right now that prevent them from being invested. We see, with our clients, a much greater skew of institutional investors interested in Sprott Physical Uranium Trust and a much higher skew of retail investors interested in our uranium mining ETFs that we have in both the U.S. and Europe.
James Connor: John, I want to ask about the Sprott Physical Uranium Trust or "SPUT". It has been trading at a discount, which would imply that there's not much interest in that product from investors. Maybe you can touch on that and tell us what you're seeing or hearing from investors.
John Ciampaglia: We have a very large investor base in SPUT. We're not seeing a lot of selling by that investor base, but we're not seeing much buying either. I think that's why we've had a discount for the last few months. We were at a premium earlier in the year and were pretty active in buying uranium. But what's interesting to us is that even though we haven't been overly active in the market, I think the news flow and the utilities buying uranium have benefited the sector.
James Connor: John, you and your team are excellent at creating new products for investors to capitalize on new investment themes. One of the themes that we've seen in the last couple of years is anything to do with energy transition. You have created some new products for investors to invest in. Can you tell us about these new products that you offer?
John Ciampaglia: The new products are a byproduct of the success of the Sprott Physical Uranium Trust. Our conversations with institutional investors made us realize it wasn't just about uranium. They were interested in many other commodities and mining sectors that have a role in the global energy transition, especially in mining and metals, which tend to be very technical subjects. Most investors do not want to do the work on individual companies. They're very comfortable looking for trends and themes and buying a basket of companies. That's where the ETFs are helpful tools for investors to get diversified company exposure within a theme.
We've noticed over the years at Sprott, given our expertise in metals and mining, that some of these offerings out in the marketplace are not what they appear to be. When we dissect them, we can see potential issues. A good example is a copper ETF we dissected for an institutional client. We explained that this copper miners ETF has only a 58% exposure to copper, which may mean you will have unintended consequences and exposures to other things outside copper. That completely blew them away. My point is that you need to know what you're doing in the mining sector to build these products, even if they're passively index based, because picking the securities, understanding what exposures you get, and some of the unattended exposures are very important.
Our team has done a lot of work in partnership with Nasdaq, and together we built a suite of different indices that give investors access to lithium producers, nickel producers, copper and junior copper producers and junior uranium miners. And we have a senior uranium miners ETF as well.
We have created a strong suite of energy transition-related ETFs available in the United States and Europe through our partnership with HANetf, which offers an energy transition materials ETF and a uranium miners ETF to European investors.
James Connor: What's driving the whole battery metals sector is this growth in EVs (electric vehicles). It's gone from 3 million in global sales in 2020 to 10 million in 2022. Do you see significant flows into these products because of this growth in EVs?
John Ciampaglia: We’re definitely starting to see flows. I think, more importantly, we're getting the right investors reaching out and asking the right questions. I say that because this is a relatively new category. If you think about Tesla, it was the only EV company available to investors just a few years ago. If you look at their sales, they were small four or five years ago.
As these industries grow, EVs and the supply chains for producing battery cells and all the related infrastructure will continue to attract investors because they see it as a growth sector. Given that the market environment has been muted in terms of company earnings and revenues in the last couple of years, EVs are a bright spot.
Who would have thought lithium companies could be some of the fastest-growing growth companies? The amount of production they are delivering right now and the price increases over the last three to four years have turned energy transition-related companies into growth engines, and that's attracting investor interest.
James Connor: What about the lithium price being very volatile in the last few quarters? I believe it peaked at around US$80,000 a tonne in Q4 of 2022 and fell to $35-$40,000 a tonne in the first half of this year. Has that impacted your flows at all?
John Ciampaglia: I think the price volatility reflects a very new and fast-growing lithium mining industry. If you think about the copper business, we've been mining copper for thousands of years. It's a more mature market with very established supply chains. If you think about the lithium market, most of the lithium today is produced by a handful of companies and countries. It is very small, is growing quickly, and has had to deal with incredible growth last year in EV sales. But if you take a step back and compare the price of lithium in 2020, which was around $17,000 per tonne, to $80,000 a metric ton, nobody, including us, thought was sustainable. This reflects a supply shortage and squeeze.
The lithium prices corrected down to $25,000 and we're now back to $42,000 a tonne. It's been very volatile. But I think that even at $42,000, lithium companies are well positioned to make profits potentially. The price and the demand are only going up over time. There is a lot of EV demand forecast as the world transitions away from internal combustion engines (ICEs).
Lithium is one of the minerals people are most concerned about in terms of whether we will have enough supply. The reason is that most of the future lithium supply that the world will need will come from greenfield production. These are either lithium hard rock or brine deposits that are not yet in production. A lot will depend on bringing these assets to market will dictate the lithium price. It will be volatile, but I think the demand story is intact.
James Connor: John, you and your team spent much time on the road marketing in North America, South America and Europe. What are you hearing from investors? What product are they asking most about? Would it be precious metals, battery metals or uranium?
John Ciampaglia: We see a lot of interest in energy transition materials. It's a global set of investors. Many family offices, institutions and hedge funds. They're very intrigued by this story because they view it as a long-term secular growth story.
There are not many things you could point to and say this sector will grow for the next 10, 15, 20 or 30 years. If the world is serious about hitting some of these net-zero targets in 2050, the amount of CapEx and infrastructure investment that will be needed is enormous.
Investors are following the money, and when you have the European Union, even the Canadian government, and the U.S. government flashing all this money in front of companies to crowd in private capital with public capital, it's a very powerful investment signal.
Last week, the U.S. Department of Energy extended a $9 billion loan to Ford for EV production. That's just one of the countless announcements we follow between OEMs [original equipment manufacturers] or different Korean battery-making companies announcing plants in Canada, the U.S. and Europe. Investors see the shift, the capital, the financial incentives, the regulatory policy incentivizing these investments, and they want to be where the money's going.
On the flip side, I think gold always has a place in people's portfolios as an anchor type of investment. We've seen significant capital come into gold in the last three years. It's slowed down the last 12 months, but we've seen a huge uptick in physical gold. Our physical gold trust [Sprott Physical Bullion Trust] is a little over $6 billion.
James Connor: Sprott is always involved in creating new products to capitalize on various investment themes. What new products can we expect from Sprott in the coming months?
John Ciampaglia: This energy transition theme is not going away. It will be very volatile from quarter to quarter, but we think it will be a multi-decade transition. We're constantly looking at the landscape and trying to identify gaps that investors are interested in that we could bring our knowledge to bear.
We don't want to be a fund supermarket and we are very selective in what we do. We believe there are more products to bring to market, particularly in terms of physical commodities, but we need to wait for better market conditions. Many of these products need IPOs [initial public offerings] to get them off the ground, and we're just not in an attractive IPO market environment right now. We're monitoring the condition, but it's hard to say what's imminent.
James Connor: John, that was a great update on what's happening at Sprott. Thank you very much.
John Ciampaglia: Thank you for having me.
Past performance is not an indication of future results. All data is in U.S. dollars unless otherwise noted.
Investments, commentary and statements are unique and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this presentation are those of the presenter and may vary widely from opinions of other Sprott affiliated Portfolio Managers or investment professionals.
The intended use of this material 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 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, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The investments discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.
Sprott Physical Bullion Trusts
Sprott Asset Management LP is the investment manager to the Sprott Physical Bullion Trusts (the “Trusts”). Important information about the Trusts, including the investment objectives and strategies, purchase options, applicable management fees, and expenses, is contained in the prospectus. Please read the document carefully before investing. Investment funds are not guaranteed, their values change frequently. This communication does not constitute an offer to sell or solicitation to purchase securities of the Trusts.
The risks associated with investing in a Trust depend on the securities and assets in which the Trust invests, based upon the Trust’s particular objectives. There is no assurance that any Trust will achieve its investment objective, and its net asset value, yield and investment return will fluctuate from time to time with market conditions. There is no guarantee that the full amount of your original investment in a Trust will be returned to you. The Trusts are not insured by any government deposit insurer. Please read a Trust’s prospectus before investing. The information contained herein does not constitute an offer or solicitation to 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. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the specific circumstances before taking any action.
Sprott ESG Gold ETF
This material must be preceded or accompanied by a prospectus. For an additional copy of the Sprott ESG Gold ETF Prospectus, please visit https://sprott.com/sesg/prospectus. An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a Sprott ESG Gold ETF Statutory Prospectus, which contains this and other information, visit https://sprott.com/sesg/prospectus, or contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing.
There is currently no internationally accepted standard determining under what circumstances gold can be determined to be ESG. The Fund is not suitable for all investors. There are risks involved with investing in ETFs including the loss of money. The term “Sprott ESG Approved Gold” refers to gold that is physically indistinguishable from other gold but that has been sourced and produced in a manner consistent with the ESG standards and criteria used by the Sponsor (the “ESG Criteria”), which are designed to provide investors with an enhanced level of ESG scrutiny along with disclosure of the provenance of the metal sourced and include an evaluation of mining companies and mines. Mining companies and mines that meet the ESG Criteria (“Sprott ESG Approved Mining Companies” and “Sprott ESG Approved Mines”, respectively) must also comply with the Mint Responsible Sourcing Requirements.
The Fund’s investments will be concentrated in the gold industry. As a result, the Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the gold industry. The price of gold may be affected by changes in inflation rates, interest rates, monetary policy, economic conditions, and political stability. The price of gold may fluctuate substantially over short periods of time; therefore, the Fund’s share price may be more volatile than other types of investments. In addition, they may also be significantly affected by political and economic conditions in gold producing and consuming countries, and gold production levels and costs of production.
Shares are not individually redeemable. Investors buy and sell shares of the Sprott ESG Gold ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares. Past performance is not an indication of future results.
Sprott Asset Management USA, Inc. is the Investment Adviser of Sprott ESG Gold ETF; Sprott Global Resource Investments Ltd. is the Distributor and is a registered broker-dealer and FINRA Member.
Sprott Physical Uranium Trust
The Sprott Physical Uranium Trust is generally exposed to the multiple risks that have been identified and described in the prospectus. Please refer to the prospectus for a description of these risks.
Past performance is not an indication of future results. All data is in U.S. dollars unless otherwise noted. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action. Sprott Asset Management LP is the investment manager to the Sprott Physical Uranium Trust (the “Trust”). Important information about the Trust, including the investment objectives and strategies, applicable management fees, and expenses, is contained in the prospectus. Please read the prospectus carefully before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation to 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. 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. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.
The Sprott Funds Trust is made up of the following ETFs (“Funds”): Sprott Gold Miners ETF (SGDM), Sprott Junior Gold Miners ETF (SGDJ), Sprott Energy Transition Materials ETF (SETM), Sprott Lithium Miners ETF (LITP), Sprott Uranium Miners ETF (URNM), Sprott Junior Uranium Miners ETF (URNJ), Sprott Junior Copper Miners ETF (COPJ) and Sprott Nickel Miners ETF (NIKL). Before investing, you should consider each Fund’s investment objectives, risks, charges and expenses. Each Fund’s prospectus contains this and other information about the Fund and should be read carefully before investing.
This material must be preceded or accompanied by a prospectus. A prospectus can be obtained by calling 888.622.1813 or by clicking these links: Sprott Gold Miners ETF Prospectus, Sprott Junior Gold Miners ETF Prospectus, Sprott Energy Transition Materials ETF Prospectus, Sprott Lithium Miners ETF Prospectus, Sprott Uranium Miners ETF Prospectus, Sprott Junior Uranium Miners ETF Prospectus, Sprott Junior Copper Miners ETF Prospectus and Sprott Nickel Miners ETF Prospectus.
Investors in these Funds should be willing to accept a high degree of volatility in the price of the Funds' shares and the possibility of significant losses. An investment in the Funds involves a substantial degree of risk. The Funds are not suitable for all investors. The Funds are non-diversified and can invest a more significant portion of assets in securities of individual issuers than diversified funds. As a result, changes in a single investment’s market value could cause more significant share price fluctuation than in diversified funds.
Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV) and are not individually redeemed from the Fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns. "Authorized participants" may trade directly with the Fund, typically in blocks of 10,000 shares. Past performance is not indicative of future results.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of experiencing investment losses. ETFs are considered to have continuous liquidity because they allow for an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.
ALPS Distributors, Inc. is the Distributor for the Sprott Funds Trust and is a registered broker-dealer and FINRA Member. Sprott Asset Management USA, Inc. is the investment adviser to the Sprott ETF Funds. Sprott Asset Management LP is the Sponsor of the Sprott ETF Funds.
ALPS Distributors, Inc. is not affiliated with Sprott Asset Management LP.
Sprott Gold Equity Fund
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus which should be considered carefully before investing. Click here to obtain the prospectus or call 888.622.1813.
Sprott Gold Equity Fund invests in gold and other precious metals, which involves additional and special risks, such as the possibility for substantial price fluctuations over a short period of time; the market for gold/precious metals is relatively limited; the sources of gold/precious metals are concentrated in countries that have the potential for instability; and the market for gold/precious metals is unregulated. The Fund may also invest in foreign securities, which are subject to special risks including: differences in accounting methods; the value of foreign currencies may decline relative to the U.S. dollar; a foreign government may expropriate the Fund’s assets; and political, social or economic instability in a foreign country in which the Fund invests may cause the value of the Fund’s investments to decline. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund.
NOT FDIC INSURED • MAY LOSE VALUE • NOT BANK GUARANTEED
Sprott Asset Management USA, Inc. is the investment adviser to the Fund. 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. Sprott Global Resource Investments Ltd. is the Fund’s distributor.
You are now leaving sprottus.com and entering a linked website.Continue
You are now leaving Sprott.com and entering a linked website. Sprott has partnered with ALPS in offering Sprott ETFs. For fact sheets, marketing materials, prospectuses, performance, expense information and other details about the ETFs, you will be directed to the ALPS/Sprott website at SprottETFs.com.Continue to Sprott Exchange Traded Funds
You are now leaving Sprott.com and entering a linked website. Sprott Asset Management is a sub-advisor for several mutual funds on behalf of Ninepoint Partners. For details on these funds, you will be directed to the Ninepoint Partners website at ninepoint.com.Continue to Ninepoint Partners