This article was first published in late February, and was lightly updated in April, the last time the ad ran heavily — and now the ad is circulating again in mid-August, so I’ve made some slight updates again. What follows is mostly unchanged from 2/28. The price of the stock is also again close to where it was in February, right around C$3.00.
Dan Ferris is out with a new teaser pick, and I haven’t seen one from him for quite some time… so let’s check it out. The emails introducing this ad are definitely over the top… this is probably what’s really getting the attention of readers:
“If I had to pick one stock to put every penny of my life savings into… this would be it.
“I’d bet my cash… my retirement savings… all of it… all on this single company.
“If that sounds like promotional bluster to you, you clearly don’t know me. And you’ll miss out on this opportunity completely.
“Because the fact is, I’ve been in this business for nearly 20 years… recommending hundreds of stocks… and this is only the second time I’ve ever felt anywhere near this kind of conviction.”
And more recently:
“Today, I’m sharing the #1 stock recommendation of my career.
“A royalty stock.
“Collecting royalties is one of the most lucrative businesses on earth.
“It’s the definition of what Porter Stansberry calls ‘capital efficiency’—where the profits can scale up big time… but the fixed costs are practically zero.”
The question I got from a bunch of readers when this ad first circulated in mid-February was, “is this Altius again?” And that’s understandable, since Altius Minerals (ALS.TO, ATUSF) has been teased off and on by Ferris for years — but this one appears to be something a bit different.
This caught my eye early on in the ad:
“It’s a royalty business that’s much smaller than Royal Gold, Wheaton Precious Metals or any other firm you’ve ever heard of. Yet, based on my research, its potential market is 6 times bigger, because in addition to gold and silver – it collects royalties on dozens of other resources too.
“There are only a handful of companies on Earth that do anything like this, which is one reason why readers who followed my initial recommendation are up over 100%… even during a bear market in precious metals… and have started collecting a nice annual dividend as well.
“But that’s not the opportunity I’m sharing today.
“The fact is, what I’m about to show you is even better…”
OK, so that’s a reference to Altius… and a confirmation that his new recommendation is different and, he thinks, “something better.” Altius Minerals has been one of my larger holdings for a long time now, and remains my biggest single exposure to commodities, and I did first learn about it because of a Dan Ferris teaser pitch way back in 2009… so I’m intrigued enough to research further. What’s this new idea?
Well, he hints at it a bit during the course of the ad for his Extreme Value newsletter (“on sale” for $1,000, no refunds), so we’ll check out the hints he drops and see what the Thinkolator can find. Here’s what really got Gumshoe readers excited:
“World’s No. 1 Stock When Gold Booms
“In short, the No. 1 stock recommendation of my life is a company that makes millions of dollars every single day from gold, silver, and other precious natural resources.
“I call it ‘the Best Gold Business on Earth.’Are you getting our free Daily Update
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“As I’ll explain, it’s like getting in on the world’s best royalty companies at the very beginning of their astronomical runs.”
And then we get some clues…
“… it’s not a conventional royalty collector… ”
” it’s not a miner… explorer… producer… or any other type of business you’ve likely heard of, either.”
And hints at some serious safety…
“This is an opportunity where you could triple your money – or more – if nothing goes right.
“You could put on a blindfold before you buy it and then forget you own it for 10 years – never once checking in on the gold market. I’m nearly certain you’d be a lot richer at the end.
“That’s why this is ‘my’ kind of stock… and not some high-risk speculation for gold diehards.”
I love royalties, the notion of collecting cash in perpetuity without doing any more work really appeals to my inner lazy bum… so what kind of royalty is Ferris teasing here?
“This other kind of royalty is different.
“It’s a payout on gold that’s already been mined.
“Tons and tons of gold. And not just once. Or once per year. But permanently… every month… forever….
“If you’ve ever owned some of the most popular gold (or silver) investments in the world… odds are you’ve paid this type of royalty, without even knowing it….
“That’s because the Best Gold Business on Earth collects a fat, steady royalty-type payment not on a mine… or an exploration project… but on a big chunk of the gold market itself.
“They essentially take a cut based on people’s desire to own gold.”
Well that’s intriguing… and it pretty well narrows things down to just a couple of businesses that could match those clues.
And it is, apparently, not terribly complicated… from the ad:
“This has nothing to do with gold futures… price setting… or any kind of reckless financial engineering.
“The Best Gold Business on Earth plays a role that’s not only 100% transparent and ethical… but an important part of a functioning gold market.”
So this is pitched as a “you can’t lose” investment… it doesn’t require gold to go up to make money, but “the upside in this stock pretty much explodes when gold gets going.” That’s pretty irresistible, right? So what is it?
Well, it’s apparently a company that’s growing and did a recent acquisition of some sort:
“The royalty-like core of this business just doubled in size.
“Not gradually, over years, but overnight – in a deal that’s going to make shareholders a ton of money.
“Keep in mind, profit margins on this segment of the business are around 80%.
“Yes, you heard that right. 80%. It’s the kind of money you can only make in ridiculously capital efficient businesses like royalties.”
What else? It pays a dividend…
“I haven’t even mentioned the fact that the Best Gold Business on Earth pays a roughly 4% annual dividend.”
And apparently it has four other businesses aside from this core “royalty” business… per Ferris:
“I haven’t told you that apart from the core, royalty-like business I’ve already told you about… this company also has at least five other resource market businesses – with tremendous upside – that you get thrown in practically for free.
“Every single one of them makes money. And every single one has big upside tied to the potential in gold and silver.”
And those businesses are apparently synergistic….
“when someone becomes a client of one segment of the Best Gold Business on Earth, they’re immediately exposed to all the other, smaller segments, allowing each client more opportunities to growth their wealth with gold and other precious metals… and therefore giving the overall company more opportunities to take a big cut.”
And one more bit of the hyperbole, just so we can look back in a few years and remember how strongly Ferris pitched this one:
“The Best Gold Business on Earth today is the best opportunity I’ve found in my entire career of picking stocks.
“Readers often ask me: ‘Dan, If you had to put everything into one stock, which would it be?’
“Most analysts will never tell you – either because they don’t know… or because they’re not willing to risk their reputation on the chance of being wrong.
“But for me, this is it – the one stock I’d bet everything on….
“The Hands-Down, No. 1 Pick of My Career.”
What other clues pop up in the ad? We’re told that the stock is currently trading close to Dan’s maximum buy price… and that it has a blockchain connection.
And that last bit is, of course, what got a few Gumshoe readers all twitchy when they sent in their questions… we’ve all seen ludicrous blockchain and bitcoin-related stocks go parabolic for no real reason. So what’s the blockchain connection here? More from the ad:
“… this company owns a substantial stake in a blockchain-based gold venture that could create a bigger gain for investors than everything else I’ve talked about today.
It’s a ‘lottery ticket’ that could pay out 100x. And by owning this stock, you get it essentially for free right now.”
OK, so leaving aside the fact that a 100X return for the jackpot winner would be the worst lottery ever, we get the metaphor — this is a “risk a little, maybe get lucky” part of the business.
So what is this crypto stuff? Here are the hints from Extreme Value…
“… the Best Gold Business on Earth has been working on this technology for two years– long before Bitcoin or blockchain became household words in 2017.
“And what they’ve created is the holy grail of cryptocurrencies:
“A fully redeemable, gold-backed crypto token.”
There are a shockingly large number of those in development, so this doesn’t give us our definitive answer, but it’s a good clue.
And he lays it on a bit thick:
“… this company owns a piece of the technology that will make gold into money again… which has been a dream of hard asset investors and critics of fiat currency since Nixon abandoned the gold standard nearly 50 years ago.”
Ferris notes that Bloomberg estimates the total gold trading activity to be $27 billion a day in the over the counter markets (meaning, people buying and selling gold back and forth), and that this company’s crypto initiative could make that far more efficient.
So… what does the Thinkolator tell us? We don’t get many other clues, and the clues we do have are a wee bit squishy… so what might push us over the edge in getting some certainty about an answer?
Well, he clarifies that this royalty is not collected from mines, but from investors. So that’s a good little confirmation of one of our suspicions…
“And this business isn’t a crazy speculation on finding gold in the middle of nowhere. It just keeps collecting its royalty on the gold market, from millions of investors all over the world… every month… forever.”
And he hints about one of the key people involved in this company:
“This business is run by from one of the most successful and wealthiest resource investors in American history… and I talk to him regularly.
“I can’t tell you his name, to protect his privacy.
“But even if you know next to nothing about gold… royalties… or the resource markets… there’s a chance you’d recognize him.
“I’ll call him ‘Mr. X.’ He’s run a series of investment partnerships in the private markets – the equivalent of small hedge funds focused exclusively on exploiting resource booms.
“One of those hedge funds would have compounded your wealth at 55% a year, after fees.”
And that will have to be enough… so we feed all that into the Mighty, Mighty Thinkolator, let it chew for a few minutes, and sit patiently. After a few moments, it spits out our answer: this must be the Canadian asset management firm Sprott, Inc. (SII in Toronto, SPOXF OTC in the US), and those “royalty-like” revenue streams are “fees on precious metals investments,” particularly ETFs.
Sprott for a while became a pretty diversified asset management company, offering up lots of mutual funds for Canadian customers, but of late it has been returning to its roots in the natural resources sector, selling off their “diversified” Canadian accounts and assets and refocusing on being both an ‘alternative’ asset manager and an investment banker/merchant bank for natural resources companies. Here’s how they describe themselves:
“Sprott is an alternative asset manager and a global leader in precious metal and real asset investments. Through its subsidiaries in Canada, the US and Asia, the Corporation is dedicated to providing investors with best-in-class investment strategies that include Exchange Listed Products, Alternative Asset Management and Private Resource Investments. The Corporation also operates Merchant Banking and Brokerage businesses in both Canada and the US. Sprott is based in Toronto with offices in New York, Carlsbad and Vancouver.”
And yes, Sprott does indeed run several precious metals ETFs, and they recently enlarged that exchange-traded precious metals portfolio pretty substantially when Sprott acquired the Central Fund of Canada, the longstanding closed-end fund that has been a way for investors to own gold and silver through an exchange-traded vehicle for decades — so that must be the “doubling of the royalty business” that Ferris hints at.
And it does boast the presence of both legendary resource investor Eric Sprott and Rick Rule, and I assume Rule is the “Mr. X” referred to by Ferris (those investment partnerships referred to were his Exploration Capital partnerships started over the years by his Global Resource Investments, which was bought by Sprott, bringing Rule in to run Sprott’s US asset management business, in 2011 — that Global Resource Investments business is why Sprott lists a major location in Carlsbad, CA, Rick Rule’s home base).
And yes, to cross our “t’s” on the clues, Sprott is indirectly involved in bringing blockchain to the gold markets — though they’re in an extremely crowded field with that one. Their investment is in Tradewind Markets, which is a well-funded and well-covered effort to use blockchain to increase liquidity and speed and trust in gold trading. I don’t think they were the first to think about using blockchain for gold trading and authentication, or “backing” a cryptocurrency with gold, and there are certainly a dozen or more relatively high profile cryptocurrencies today that are trying to do just that… but it has been around for close to two years now, and it seems to be taken pretty seriously.
What else matches? They do also pay a roughly 4% dividend, so that’s lovely.
Sprott has been coming out of the doldrums recently, perhaps partly because of this Central Fund of Canada deal. The stock hit new 3-year highs in the spring after a really weak three years, though the faltering gold price has brought it back down.
Will it be the best gold stock ever? I have no idea — they have been getting more focused on the natural resources business, aiming to be the Goldman Sachs of junior miners, so if that sector takes off again they should be quite levered to rising gold prices or rising “animal spirits” in the exploration business… and it’s true that as an investment banker and asset manager they are fee earners as opposed to mining and resources operators, so that cuts down on the downside risk much like royalty companies are lower-risk than mine builders.
What’s the story with the company if we ignore the Ferris prognostications? A quick spin through the financials tells us that Sprott does not have any long-term debt, so that also helps to limit downside risk, and their income statement has shown steady improvement over the past year or so… perhaps partly because of those asset sales as they’ve gotten rid of the diversified parts of the business.
They trade at about 2X book value, which is perhaps on the high side for an investment banking/asset management group, but not crazy high, particularly for a small company that you think might have growth potential (Sprott’s market cap is only about $600 million). It would take more time and not present a terribly clear picture to compare them to much larger companies like Blackrock (BLK) or Brookfield Asset Management (BAM) or to other “boutique” asset managers like Affiliated Managers Group (AMG) or the various small investment firms in the natural resources space.
And, well, that’s about all I can tell you on this sunny Monday morning — Ferris is very likely teasing Sprott, and my first pass through on their information indicates that it’s an interesting asset management company that is in the midst of some significant change. I wouldn’t put much hope in the blockchain-related investment or in the chance of making 20X returns on the stock anytime soon, but it’s at least a decent company that is becoming more focused on what it’s good at — and that is probably a good thing. If we get another natural resources bull market, or particularly some huge surges in gold and silver prices, then the stock could do extremely well in pretty short order like it did in 2010 and 2011 — if not, then Sprott’s stock chart will likely look a bit more muted.
In the most recent quarter their performance dropped a bit, mostly because of lower assets under management in the exchange traded products (which make up roughly 80% of the business) — particularly the Physical Trusts (their funds that are backed directly by gold or silver). That’s the primary driver of fees — if there’s more interest from investors in buying more shares of exchange-traded gold, then those funds get larger and the fees grow… if there’s less interest, the funds shrink and the fees are smaller.
They do other things, too, like lending to resource companies and running other investment funds and limited partnerships, but the exchange-traded fees are likely to be the big driver, and the steadiest part of the business, if you’re looking for future growth. The dividend is still roughly 4%, but as of the last quarter the dividend wasn’t covered by earnings — they do still have plenty of cash to cover that dividend if they wish to, but it would be more comfortable if they could pay the dividend out of after-tax earnings and still have a little cushion… which, like most of the rest of the business, probably depends more on gold and silver prices than anything else. And gold, as you’ve probably noticed, is having a bad summer — the price is down another 5% just since the end of the second quarter (silver, as is typical, is moving more sharply — down about 9% since the end of June).
So with that, dear friends, I’ll leave you to your own research and cogitation — do you see a rosy picture for Sprott as it collects fees on gold and silver ETFs and funds natural resources companies? Think it will surge higher, or remain in the doldrums for longer? Excited about that 4% dividend or their recent restructuring and increased focus on the ETF business? Let us know with a comment below.
Disclosure: I own s