Commodity Picks up on China Optimism

By Travis Johnson, Stock Gumshoe, March 4, 2009



Sprott Resources and Altius Minerals, the two recent commodity picks that got a lot of attention a few weeks back, are both having a nice day thanks to renewed optimism for commodities in the wake of talk of more stimulus out of China.

I dont know if that will really move the needle for either of these guys, though it certainly might – Altius, in particular, would benefit from higher royalties from Voisey’s Bay if copper and nickel prices recover.  But more interesting in recent days has been Sprott Resources.

Sprott released their earnings, which were no surprise, and, as expected, the company is now essentially an investment fund in search of investments — they do have several relatively small investments, and a big hoard of silver and gold bullion still, but they primarily have a big cash hoard, and this seems like it might be a reasonable time to start investing it.

That they’re doing, to some extent, but it’s not what you might have expected — in a story that I found very intriguing, it sounds like Sprott is extending some of their cash to help build a more efficient agribusiness in some First Nations territories in Canada.  That press release is here, they’re investing just under C$30 million to start. They’ve still got the ability to invest in just about anything they want, since they ended the year with about C$200 million in cash and short term investments, so perhaps it will be an interesting year for this little investment fund. They’re trading at pretty close to fair value based just on the cash, though warrants will provide a bit of an overhang if the shares advance, so the downside seems limited — assuming they don’t blow the rest of that cash pile by investing in banks or beanie babies.

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