Canadian asset manager Sprott says earnings hit bottom in 2013

TORONTO Thu Mar 27, 2014 3:43pm EDT

Fifteen new wind turbines were officially opened by Sprott Power Corporation in Amherst, Nova Scotia, June 25, 2012. REUTERS/Paul Darrow

Fifteen new wind turbines were officially opened by Sprott Power Corporation in Amherst, Nova Scotia, June 25, 2012.

Credit: Reuters/Paul Darrow

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TORONTO (Reuters) - Alternative asset manager Sprott Inc (SII.TO) said on Thursday its earnings hit bottom in the final quarter of 2013 as resource markets swooned, and it expects to do better in 2014 as it considers what to do with ample cash.

Toronto-based Sprott has long been bullish on precious metals and profited handsomely when their prices soared after the financial crisis.

But the company was sideswiped by a dramatic reversal in bullion prices last year, which spurred investors to bail out of many of their funds. Assets under management (AUM) dropped 29 percent to C$7 billion ($6.33 billion) at the end of 2013 from C$9.9 billion a year earlier.

Sprott Chief Executive Peter Grosskopf said 2014 will be better and noted the company has had a strong start, with a 35 percent stock price increase since the start of the year. Higher prices for precious metals including gold and silver, which have made double-digit gains so far in 2014, have helped the Canadian asset manager's funds.

"Just as AUM led performance metrics on the way down, it will lead our metrics on the way up," Grosskopf said on a conference call with analysts.

"(Our) platform is capable of managing a substantial increase in AUM with minimal new investment. We have the capital, as mentioned, to seed and launch new products and selectively pursue strategic acquisition opportunities."

Grosskopf said the money manager is not simply going to wait out the downturn in natural resources, but was careful not to raise expectations that it will deploy its C$350 million in capital on big acquisitions.

"There are some ... what I call in-market Canadian diversification opportunities. But on the precious metal side, all those franchises have been reduced dramatically in value from two, three years ago. So those are the real turnaround opportunities," he said, noting that acquisitions might be in the C$10 million to C$20 million range.

"Not anything bigger than that. So they're not dial-moving capital amounts. And in terms of chunks of AUM, you're talking C$500 million to C$1.5 billion," he said.

Sprott has had little luck with acquisitions in recent years. Its 2013 results included a non-cash goodwill impairment charge of C$88 million for its 2011 acquisition of Global Companies group.

POSTS 2013 LOSS

The company is also adjusting as its famous founder and long-time gold bull Eric Sprott slowly pulls back from daily fund management by the end of 2014.

Canaccord Genuity analyst Scott Chan said he doesn't expect 2014 to be transformative for Sprott.

"2014 is going to be more of a transitional year for the company as they have so much excess capital that is going to be looked to be deployed in different areas - product initiatives, seed investment and potential acquisitions," said Chan, who has a "hold" rating and a price target of C$3 on the stock.

"They have the infrastructure and the different subsidiaries in place to grow organically, and the positive start to the year in terms of the precious metals market and the bullion prices could help Sprott grow some of these initiatives finally."

Shares in Sprott were down 0.6 percent at C$3.56 in late afternoon trade on the Toronto Stock Exchange after it released results.

The net loss for the year was C$81.3 million, or 39 Canadian cents a share, compared with net income of C$32 million, or 19 Canadian cents a share, in 2012.

($1 = 1.1059 Canadian Dollars)

(Editing by Jeffrey Hodgson abnd Tom Brown)

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