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February 27, 2024

Gold Poised to Hit New High, Decarbonization Minerals Set for Years of Growth

After a management-led buyout, Sprott Capital Partners has been rebranded as SCP Resource Finance.

Sprott Capital Partners originated as a division of Sprott (TSX:SII,NYSE:SII), where Peter Grosskopf was CEO for 12 years. He’s now taking the helm at SCP, and he sat down with the Investing News Network to share his thoughts on the resource sector.

Speaking about where the market is at right now, he said that while it’s recovered from its lows there’s still a long way to go.

“We now have two fairly bullish growth markets both in precious metals and in decarbonization minerals, which are a lot of base minerals and specialty minerals,” he explained. “Company valuations at the smaller end of that spectrum have kind of remained in the doldrums, so they need to catch up … it’s an ideal time to jump on an undervalued sector.”

Gold’s push past the US$2,000 per ounce mark has helped to stoke interest in the mining industry as a whole, and Grosskopf noted that diverse investors are showing interest in the yellow metal. He’s seeing activity from central banks and institutions, as well as retail players, largely driven by growing mistrust in the financial system and belief in gold as a safe haven.

“I’m reasonably confident that the gold price will make a new high (in 2023), and it’s because there’s more investors than ever participating in the gold market,” he said. “And as well it’s climbed a wall of worry with higher rates, a higher US dollar. And yet gold continues to gain against other currencies and in US dollar pricing. I think that at some point there’s going to be a shock to the system — there’s going to be some kind of correction somewhere that easily drives it to new highs.”

Against that backdrop there’s been strong M&A activity lately in both the gold space and the resource sector as a whole. When asked if the deals taking place make sense to him, Grosskopf answered in the affirmative. He said that after about a decade of sitting back, large companies have reached the point where it’s easier to buy production growth than it is to finance it internally. In his view, mergers and acquisitions will continue in 2023 at all levels, encompassing majors, developers and juniors.

Looking over to the decarbonization minerals, Grosskopf said they have suffered from 20 years of slow investment, during which time China has risen as a major supplier. Now that’s starting to change as countries around the world look to secure supply.

“I think we’ve got years of growth ahead of us in those sectors,” he commented. “I’ve heard it said from a qualified service that almost a trillion dollars will need to be spent to build the battery metals (and) decarbonization minerals pipeline.”

Despite strengthening interest in precious metals and metals needed for the energy transition, Grosskopf noted that earlier-stage companies still aren’t seeing as much interest as their larger counterparts, partially because they don’t attract generalists.

“The generalists that have been missing out on mining have been doing so mostly because they’re not willing to take illiquid positions in smaller companies. So we have seen them buying index securities, the larger mining companies,” he said.

“I think what’s needed to resuscitate the junior sector is the willingness of institutions to take a little bit more risk on the growth side of the market and replace many of the funds, the sector funds, that used to be so active on the junior side. That’s not yet happened, and I think it will happen,” he continued, noting that good performance could trigger this type of move.

SCP’s services include advising mining companies, and in closing Grosskopf shared his best advice for these players.

“I would say underpromise (and) overdeliver, because the usual mode in the mining business is to promote a fairly aggressive time schedule and a fairly aggressive set of assumptions with respect to capital spend,” he said.

“It’s been a really rewarding sector. I think there’s great people in our business across the sector that are trying to make it better. I think it will soon prove itself to be an environmentally sound and necessary business for the future,” Grosskopf added.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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