Sprott Inc.: Leverage For The Coming Gold And Uranium Bull Run

Investment Thesis - Uranium and gold are expected to perform well in the second half of 2024 due to under-investment in uranium and high demand for gold driven by political uncertainty and inflation concerns [4] - Sprott Inc. is positioned to capitalize on these trends with over $31.2 billion in assets under management (AUM) and a focus on bullion and commodities [4][5] - The company generates revenue primarily through management fees, averaging about 0.50% per annum [4] Fund Exposure - Gold constitutes approximately 45% of Sprott's portfolio, with $10 billion in AUM in their physical gold fund [5] - Uranium accounts for 28% of the portfolio, with Sprott's Physical Uranium Trust being a key investment vehicle [5] - Physical silver makes up 26% of the portfolio, with additional marginal positions in other commodities [5] The Case For Uranium - The uranium market is facing a supply-demand imbalance, with estimates indicating that mines needed to meet 20-25% of demand by 2030 have not yet been developed [6] - Historical under-investment in uranium mining has led to a tight market, with significant demand growth expected from countries pledging to increase nuclear energy capacity [7][8] - Kazatomprom, a major uranium producer, is facing production challenges, further tightening supply [8] The Case For Gold & Silver - Gold has gained 15% year-to-date, reaching an all-time high of approximately $2,480 per ounce, driven by inflation fears and political instability [9][12] - Central banks, particularly the Chinese central bank, are increasing their gold purchases, enhancing demand [9] - Silver is highlighted as an attractive alternative due to its industrial demand and lower price point compared to gold [13] Sprott's Leverage - Sprott benefits from operational leverage, where increases in fund values lead to significant revenue growth without a corresponding rise in costs [14] - For example, a 20% increase in gold prices could lead to a 20% increase in revenue from Sprott's Physical Gold Fund, while costs remain stable [14] Track Record - Sprott has demonstrated strong growth in AUM, with a compound annual growth rate (CAGR) of nearly 45% from Q1 2020 to Q4 2023 [16] - The ETF segment is growing even faster, with a 150% CAGR between 2022 and 2023, particularly in uranium-focused funds [16] Financials - Sprott's financials show a widening gap between revenue growth and expense growth, indicating strong profitability potential as commodity markets improve [17] - The company maintains a clean balance sheet with minimal liabilities and significant current assets [18] Valuation - Sprott is currently trading at a P/E of 25, with potential for significant upside if gold, silver, and uranium prices appreciate [19] - Various scenarios indicate that under favorable market conditions, Sprott could see substantial increases in net income and share price [19][20] Conclusion - Sprott presents a compelling investment opportunity, particularly in the context of rising gold and uranium markets [21] - The company is well-positioned to leverage its assets and capitalize on the growing demand for these commodities [21]