OK, so that headline is a bit misleading — I don’t much like bank investments right now, with the possible exception of the TARP Warrants that continue to tempt me on some of the big US banks just because of the huge potential time value.
But one of the stocks I’ve held for quite a while (and have bought at higher prices) continues to slowly build up its banking business, and I just bought some more shares as the stock price slipped below 90% of (temporarily depressed, I think) book value.
That’s Sprott Resource Lending (SILU) — which is sort of like a business development company for natural resources firms (mostly miners). SILU does mezzanine lending and precious metals lending — supplying funding to miners who may be a year or two from production and need a capital infusion for construction or development, in exchange for a relatively steep interest rate (around 10%) and an equity kicker (shares or warrants that could be quite profitable if the project is successful). The anticipated annual return for their loans, if you include the equity kicker, is generally in the range of 14-20%. The loans are generally targeted to be between 1-4 years, though they’re thinking about doing longer-term loans to higher-quality borrowers as one possible way to expand their pipeline of deals.
The precious metals loans are not terribly different from what royalty or streaming companies are trying to do — they lend money up front to get cheaper gold in the future, with a minimum return that’s lower than the interest rates on regular loans (5% minimum for their first gold loan, for example). The anticipated gains from that part of their business are higher, but that depends on the gold price rising or at least staying high.
I’ve owned SILU for quite a while now, and suggested it to the Irregulars when it was substantially more expensive and just getting started — their conversion to a natural resource lender has been slower going than I (and they) anticipated, which has meant that their dividend has not grown as quickly as I would like. They are still in the process of offloading something like $50 million of distressed real estate assets from their days as a real estate investment firm (that was back when they were called Quest Capital, they did some resource lending back then, too, but ...