Eric Sprott : I am 80% Invested in Gold & Silver

Eric Sprott : Marc [Faber]  indicated that he was a 25% investor in precious metals; I am probably an 80% investor in precious metals. Silver COMEX inventories have held up even though the price has gone down. It’s sort of an interesting contrast with gold where there were huge redemptions in the ETFs. Those redemptions, in my mind, were created to solve the physical shortage. We had 700 tons of ETF liquidation. That would represent close to 50% of all mine supply annually, in other words, an increase in supply. But it was needed because we definitely have a shortage.

I continue to believe that silver will be the investment of the decade because 1) of its industrial uses and 2) it will take very little investment demand to really move things along.
We have years where people are buying 50 times more silver than gold, and yet mine production is only 11:1 silver versus gold. By my calculation, we only have 3 oz of silver available for investment purposes for every ounce of gold. Every time I’m talking to metal dealers, my favorite question is: What part of your business is silver, and what part is gold? And almost everyone says, 50/50. I guarantee you, that cannot continue.
What I really want to talk about is what I think is the investment opportunity of my lifetime. I happen to very firmly believe that within the next year, gold will be through $2,000/oz. I’ve chosen $2,400/oz as a target of where it will be in a year. That has amazing implications for gold equities. Back in 2000, I was beginning to aggressively buy mining stocks. We would buy up to 15% of companies like Eldorado Gold Corp. (ELD:TSX; EGO:NYSE) and Goldcorp Inc. (G:TSX; GG:NYSE), Cambior Inc. and High River Gold Mines Ltd. (HRG:TSX). At the time, I thought if gold could ever get to $400/oz, maybe these companies whose costs then were $300/oz could earn $100/oz and we could make three or four times our money. With most producers averaging around $1,000/oz costs, if the gold price goes to $2,400/oz, you have $1,400/oz of margin. That is 14 times the opportunity in 2000.
That could be huge. Take two examples. I’m not recommending these particular stocks; I just want to use them as examples. If production at Veris Gold Corp. (VG:TSX; YNGFF:OTCBB), for instance, is 150,000 oz and the margin is $1,400/oz, that could be $147M in earnings, put a measly 10 multiple on it, and you have a stock that can go up 2,000%. Veris has a royalty agreement with Newmont Mining Corp. (NEM:NYSE), which will kick in another $30M. And I think production next year will be higher than this. So you can add onto that.
Another example is San Gold Corp. (SGR:TSX.V). It has a market cap of $64M. We recently bought a private placement here, where we paid 2.5% of the five-year high in this producer. That’s how desperately underperforming that equity was and a lot of equities are in this market—2.5% of its previous five-year high. Same analysis, with a $64M market cap, production of 85,000 oz, and potential profit of $83M, the stock can go to $830M. You have a 1,200% gain, hopefully in a year. And it’s the in-a-year part that to me represents the opportunity of a lifetime.
I totally subscribe to the manipulation of gold and silver and the shortages of gold and silver. I’ve written many articles asking whether the central banks have any gold left and what is going to happen to gold when they finally give up the ghost, which I believe is coming. That is why I think the opportunity in the equities is spectacular. Of course, also I’m a great believer in owning physical gold and silver with my particular emphasis on silver these days. - at Sprott Resources Round-table