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Sprott Resource Class

During June the Sprott Resource Class returned -4.35%, outperforming the benchmark which returned -5.22%. Year to date, the Sprott Resource Class has outperformed the benchmark by 5.06%. Of the 24 resource fund peers we track, the Sprott Resource Class is the top performing resource fund over the 1-year and 3-year periods ending June 30, 2017.

The most noteworthy portfolio development during June was Hong Kong billionaire Li Ka-Shing’s 50% owned CEF Holdings Ltd. investing $110 million into NexGen Energy Ltd. This investment was made despite the fact that uranium prices have been sliding for six years, having declined more than 70% from their 2011 highs. Although uranium has been out of favour for many years, NexGen has been a sizeable Resource Class holding because the asset is world class and is in the early stages of development. CEF’s investment validates not only the asset quality but also the need for nuclear power in China. This has not gone unnoticed as NexGen’s stock price has appreciated 23% year-to-date compared to Cameco’s 16% decline. NexGen is an ideal example of how an active approach can add value in a sector that has been in a multiyear decline.

This month we want to highlight zinc. Tight inventory levels and a lack of new primary mine supply may result in a significant price surge in H2/17. Year-to-date zinc inventories have declined 35% and have been steadily declining since peaking in early 2013. Why? Major zinc mines have been depleted. Since 2013, three mines that accounted for over 10% of primary global mine supply have been shuttered as a result of depleted reserves – these properties were mined out. The supply outlook is bleak. There is a lack of development projects with critical mass. One of these projects, Dugald River, has been chronically delayed as a result of technical challenges, but is expected to finally open in 2018. Note that starting up a mine is always challenging and considering the technical difficulties experienced to date, this will be one to watch. The only other potentially bearish supply data point is if Glencore re-starts production of their zinc mines, which were put on care and maintenance in October 2015 in response to low zinc prices. Where could prices go? The last time we saw inventories at current levels, prices climbed to $2.00/lb, which is dramatically higher than today’s $1.25/lb.

 

COMPOUNDED RETURNS (%) AS AT JUNE 30, 20171

1MTH YTD 3MTH 6MTH 1YR 3YR 5YR ANNUALIZED INCEPTION (10/17/11)
SPROTT RESOURCE CLASS, SERIES A -4.3 -6.1 -10.7 -6.1 8.0 1.5 4.4 -2.8
BLENDED INDEX2 -5.2 -11.2 -9.8 -11.2 -6.5 -9.0 -2.7 -4.5
1 Blended Index (50/50 S&P/TSX Capped Materials Total Return Index and S&P/TSX Capped Energy Total Return Index) and is computed by Sprott Asset Management LP based on available index information.
2 All returns and fund details are a) based on Series A shares; b) net of fees; c) annualized if period is greater than one year; d) as at June 30, 2017; e) 2011 annual returns are from 10/17/11 to 12/31/11.
3 The Fund is generally exposed to the following risks. See the prospectus of the Fund for a description of these risks: capital gains risk; class risk; commodity risk; concentration risk; currency risk; derivatives risk; exchange traded funds risk; foreign investment risk; inflation risk; liquidity risk; market risk; regulatory risk; securities lending, repurchase and reverse repurchase transactions risk; series risk; short selling risk; small capitalization natural resource company risk; small company risk; tax risk; uninsured losses risk.
4 fees, performance fees (if any), other charges and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. The indicated rate of return for series A shares of the Fund for the period ended June 30, 2017 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.
5 The opinions, estimates and projections (“information”) contained within this report are solely those of Sprott Asset Management LP (“SAM”) and are subject to change without notice. SAM makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, SAM assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. SAM is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Sprott Asset Management LP is or will be invested. SAM LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. SAM LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, SAM LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.