Sprott on Oil and Gold - Where Do We Go From Here

8/9/2019 Sprott on Oil and Gold - Where Do We Go From Here

1/12

contact us at [email protected] or call 760.444.5289 1

Oil and Gold: Where do we go from here?With Eric Sprott, Rick Rule, and Marc Faber

Published February 13, 2015

A Recovery with Soft Oil Demand and Low Wage Growth?

Positive economic data has helped fuel the US stock market over the last year. In January 2015, the US economy added 257,000jobs according to the Department of Labor.1 New jobs have increased by over 200,000 each month for the lasts 12-months. TheUS economy grew at an annualized rate of 5% from July to September 2014, according to the Bureau of Economic Analysis, andcontinued at a clip of 2.6% from October to December. 2

With that backdrop of economic growth, oil prices have done something straight out of left field. They got cheaper by halfover a period of only about six months. Oil was selling for over $100 per barrel globally last summer. West Texas Intermediatecrude, a benchmark for US oil prices, was above $90 per barrel this summer3 and was below $55 per barrel as of lateDecember 2014. As of early February, oil remains below $60 per barrel.4

The oil price is falling while stock prices are reaching all-time highs. That is what you call an elephant in the room. On theone hand, an economic recovery should mean that oil will be in higher demand, as manufacturing, housing starts, and otherenergy-consuming industries pick up.

And yet, the recent price action suggests that oil is becoming less appealing. What should you make of it?

There is evidence that part of the reason for lower oil prices is an increase in supply due to higher oil production, particularlyin the US. Global oil production rose from 84.9 million barrels per day in 2009 to 90.1 million barrels per day in 2013 5. As you

can see, worldwide oil production has increased steadily over the last 3 years.

CHART 1: GLOBAL CRUDE OIL PRODUCTION – DEPARTMENT OF ENERGY

1 0 0 0 B a

r r e l s o f O i l

5000

6250

7500

8750

10000

2015-01-022014-01-032013-01-042012-01-062011-01-072010-01-29

Source: Bloomberg


2/12


Why did this three-year old trend suddenly spook the market?

Many analysts and economists have suggested that a lower oil price will not last, as consumers will take advantage of lowerprices to use more oil and thus dispatch with excess supply. So far, we have yet to see this occur.

Oil traders view the oversupply as so severe right now that we have entered a situation known as ‘contango.’ The price ofoil for delivery a few months from now is higher than the current spot price. As a result, traders buy oil to stockpile, whichthey immediately sell on the futures market to lock in a profit. Partly thanks to the ‘contango’ trade, oil stockpiles in the US

have skyrocketed.

So far, neither the boost to consumption expected from a lower price, nor the reduction in current supply due to US stockpiling

appear to have firmed up the price of oil very substantially.

While the oil price decline has been blamed on surging supply, production growth has been steady over three years, and wasof little concern for most of that period as prices remained comfortably around $90 to $110 per barrel. Meanwhile, the globaleconomy – and particularly the US – are supposed to have improved. If so, why isn’t oil in higher demand?

A Lower Oil Price Confirms What Interest Rates Suggest

Low interest rates support the idea that the world economy is slowing down. In a real boom, consumers and investors aroundthe world tend to deploy more capital into assets like businesses or new housing starts, a move that drives up interest rates.Yet, lower and lower interest rates suggest that these investors are hunkering down, instead of ramping up.

The Federal Reserve offers a feel-good take on low interest rates – that they help the economy. This might be true, if therewere substantial demand for credit and places to re-invest using this huge supply of capital. In the absence of beneficialuses for this cheap credit, low interest rates are more a symptom of a tepid economy, rather than an aid to an economy thatappears to have little use for them.

An important misconception among analysts and economic observers is to suggest that low interest rates are set by theFederal Reserve, and that other aspects of the economy depend on these interest rates. Remember, though, that the marketexerts a strong force on interest rates – one that might very well be overwhelming. The Fed is certainly taking advantage ofweak credit demand to help fund the government cheaply, but the reasons for low interest rates may be more deeply-rootedthan the Fed’s policies.

CHART 2: US CRUDE OIL INVENTORIES EXCLUDING STRATEGIC PETROLEUM RESERVES – DEPARTMENT OF ENERGY

350000

360000

370000

380000

390000

400000

410000

420000

Jan 30, 2015Jan 03, 2014Jan 04, 2013

1 0 0 0

B a r r e l s o f O i l

Source: Bloomberg


3/12


In fact, interest rates might go even lower if the Fed did not discourage holding cash by producing heavy amounts of newdollars and expanding their balance sheets.

In other words, low interest rates may simply be caused by much lower demand for capital and debt. Along with a weak oilprice, weak interest rates suggest an overall sluggish economy, not a broad recovery.

Weakness Around the World

The oil price is driven by the same dynamic that underpins the case for most commodities, such as copper, uranium, or iron ore.

As people get richer, especially in emerging markets, they tend to consume more metals with which to build houses and cars,and more fuels to generate energy and power machines.

Yet commodities have been flat since the Great Recession ended, suggesting, once again, that economic growth is slowing down.

The price of copper is at a four-and-a-half-year low of $2.60 per pound6. Uranium sells for $36 per pound today, down fromaround $65 in 2011.7 Iron ore for delivery in 2015 trades for below $60 per tonne on the futures market, down from over $180per tonne in 2011.8

The price of oil, meanwhile, had not declined substantially over the last three years. Perhaps its recent price collapse is notas sudden and inexplicable as many believe. Indeed, a low oil price is consistent with the price action we’ve seen in other

commodities. It also dovetails with economic data we’re seeing from around the world, which suggest that global growthrates are simply decreasing.

The Eurozone is trudging along more slowly than the US, according to statistics from the European Central Bank.9 In the thirdquarter of 2014, its GDP was nearly flat at 0.3% in growth. Inventories were being dis-hoarded, falling by around 15 billioneuros over the last 6 months. This suggests that fewer goods are being produced and stockpiled – a response to weak demand.Employment grew by 0.2% over the quarter, meaning that unemployment levels are still high for the developed world, andindustrial production increased by only 0.1%.

The situation is similar in Japan. Despite sustained ultra-low interest rates and activist policies meant to stoke growth, thecountry is mired in what isn’t far off from being a depression. Its GDP shrank 0.5% in the third quarter of 2014, right on theheels of a more than 1.5% contraction in the second quarter.10

Developed-world economies are not the only ones that are experiencing weakness now.China’s annual growth rate has slowed from around 10% in 2011 to around 7.5% as of the third quarter of 2014. 11 Itsdomestic consumer market appears subdued. In the third quarter of 2014, the Consumer Price Index (CPI), which measuresthe average change in the prices of consumer goods and services, was its lowest since February 2010. The real estate markethas been weak and domestic investments in fixed assets – which includes new building projects – grew by only 16.1%. Thatnumber was above 21% in early 2013, and has been declining steadily ever since.

Weak economies around the world offer weak demand for commodities and for capital. The effect is to keep interest ratesextremely low and to push commodity prices down.

The same logic applies to oil, which has long been priced with the expectation of ever-increasing demand and ever-decliningsupply. We can therefore view the oil price as a symptom of poor global economic growth, which is a long-term problem – andnot just as a short-lived consequence of a slight oversupply of oil.

Falling oil prices are yet another sign that the world economy may be more fragile than before the Great Recession.

Why is this important? Well, many write off the oil price drop as merely the machinations of Saudi Arabia to throw a monkeywrench in the wheels of the US shale industry – or perhaps a market that’s over-reacting to a slight supply and demandimbalance. You would then naturally expect a quick recovery after the market worked through the problem of oversupply, oronce OPEC and Saudi Arabia had adequately bludgeoned its rivals. On the other hand, if you attribute the oil price decline to amore significant underlying issue within the world economy, then the oil price drop starts to look like the harbinger of a morelong-term trend.


4/12


Why the Recovery Story Is Widely Believed

For now, there have been a few main indicators that suggest that the US is in an economic recovery. The first is the positiveeconomic data we’re seeing in the US. However, the data is still mixed. Even though it suggests that the GDP is growing andthat unemployment is going down, household incomes are stagnant, and often decreasing in real terms. The chart below, fromthe Federal Reserve, shows real median household earnings from 2008 to 2013.12

Eric Sprott, Chairman and Founder of Sprott Inc. –

Markets at a Glance, July 2014

“How can we have an economic recovery when there is barely anydiscretionary disposable income for 40% of the population? As

we have shown above, those that have seen their incomes grow

are not the ones most likely to spend, while the bottom 40% of

households still rely heavily on government assistance, have had

stagnant incomes and have been faced with increasing inflation

for “non-discretionary” goods that constitute a very large share of

their incomes.

There is clearly no recovery…”

CHART 3: DECREASING REAL WAGES SINCE 2007 IN THE UNITED STATES – US BUREAU OF THE CENSUS

51000

52000

53000

54000

55000

56000

57000

2013-01-012012-01-012011-01-012010-01-012009-01-012008-01-012007-01-01

2

0 1 3 C P I - U - R S

A d j u s t e d U S

D o l l a r s

Real Median Household Income in the United States

Source: Bloomberg

The second important reason that many believe in a recovery is the broad boom in both US stocks and bonds. As you can seein the chart below, almost anyone who got into a broad basket of US stocks over the last 5 years, and stuck with it, wouldhave made money. Those that got in in early 2011 would have practically doubled their money by now.


5/12


If you look at how unlikely a rally in the US stock market seems when you consider all the other indicators suggesting aweakening economy, you begin to look for what may have tipped balances in favor of US stocks in the midst of a tepideconomic environment.

Ultra-low interest rates are the usual suspects. They allow large corporations – those big enough to borrow large amounts ofcash – to re-finance their outstanding debt at lower rates, and to re-purchase their own shares using borrowed money. Thisresults in higher share prices and increasing earnings per share, which in turn help fuel optimism for the stock market.

As you can see in the chart below, about $1.4 trillion of new debt was accumulated between 2011 and 2014.

CHART 4: MARKET VALUE OF S&P 500 ($ BILLIONS)

Market Value ($ Billions)

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2014-09-302013-12-312013-03-312012-06-302011-09-302010-12-312010-03-312009-06-302008-09-30

Source: Bloomberg

CHART 5: CORPORATE DEBT RESUMES CLIMB AFTER PAUSE FROM 2008 – 2010

Nonfinancial Corporate Business; Credit Market Instruments; Liability

5600

5800

6000

6200

6400

6600

6800

7000

7200

7400

7600

2014-01-012013-01-012012-01-012011-01-012010-01-012009-01-012008-01-012007-01-01

B i l l i o n s o f U S D

o l l a r s

Source: Board of Governors of the Federal Reserve System (US)


6/12


CHART 6: BUYBACKS AND BUYBACKS + DIVIDENDS FOR THE S&P 500 ($ BILLIONS)

Buybacks + Dividends ($ Billions)

Buyback ($ Billions)

0

50

100

150

200

250

300

2014-09-302011-09-302008-09-30

Source: S&P 500 Dow Jones Indices

That’s eerily similar to the amount of corporate buybacks over the same period. Companies were buying back around $105billion of their own shares each quarter during that time period, which amount to over $1.7 trillion over the same time frame.

The Wall Street Journal reports that in the first half of 2014, about $315 billion of corporate bonds had been sold in the US torepay or refinance existing debt.13 That amounts to around a third of total worldwide corporate debt issuances of $995 billionduring that period – just to re-finance debts of US companies.

Record US corporate debt issuance is suspicious when businesses are not even re-deploying their existing cash-flows into theirown businesses. In 2014, S&P 500 companies are expected to have spent 95% of profits on buybacks and investor payouts. 14 It looks like this new debt is acquired for buybacks and that the stock market rally is in large part a product of cheap credit.

It’s possible that the US economy really is back on track and that the oil price drop is just an outlier incident. However,considered in conjunction with weak commodities overall, weak household earnings growth, and persistently low interestrates, the alternative explanation that we are living in a period of slowing global growth appears more compelling. This

framework also gives us an explanation for the lower oil price that doesn’t depend on speculating about the obscuremachinations of the countries that make up OPEC.

What Wall Street and Russia’s Oil Oligarchs Have in Common

For the US, Treasury debt markets dwarf oil sales. Since the US produces around 9 million barrels per day, that’s 3.2 billionbarrels per year. If prices fall 50% from $100 to $50, that’s $160 billion less in annual revenue.

In contrast, the US issues around $1 trillion worth of Treasury debt each year.15 That does not include the trillions in corporatedebt outstanding.

And yet, just as abundant oil production has soaked the world economy in ample supplies of oil, so too has the USgovernment’s profligacy, and the Fed’s acquiescence, flooded the world’s monetary system with US Treasuries.

Russia capitalized on strong oil prices when they were there. Natural gas, crude oil, and petroleum products exports brought in$356 billion in 2013.16

The problem in Russia is that a massive portion of the economy had become dependent on energy exports.

Similarly, the Federal government in the US has been able to divert the benefits of ultra-low interest rates to pay its bills andcontinue to keep its commitments.


7/12


Rick Rule, Chairman of Sprott US Holdings Ltd., July 2014

“Most developed economies have consumed and borrowed at

worrying levels. The US federal government has on-balance-

sheet liabilities of over $16 trillion and off-balance-sheet

liabilities estimated at about $70 trillion.

These numbers do not include state and local government

liabilities, or the likely liabilities from underfunded private

pensions. Not to mention increased costs associated with

more comprehensive health care and an aging population!”

The US Treasury has accumulated debt at break-neck speed over the last 5 years, totaling around $17 trillion.17 This doesn’teven take into account all of the government’s other liabilities. The total number has been estimated at around $70 trillion.18

Add to that the stock market’s reliance on cheap debt to fund buybacks and re-finance debts, and it is clear that much of the USeconomy now revolves around ultra-low interest rates – expensive bonds. The economic destruction we’ve seen in Russia mayforebode events to come in the US if the US Treasury bond ever comes under the same pressure as a barrel of Russian crude.

Gold and gold mining stocksToday, the demand for US Treasuries is unrelenting,but bear in mind that an increase in interest rates willhave profound implications for the US economy when itoccurs. A rise in interest rates would likely damage USshare prices, as well as the financial solvency ofthe Federal government.

Precious metals companies have hardly received theirshare of the stock market boom – but that’s a goodthing. While turbulence in the bond markets may

damage most stocks, precious metals stocks are notlike the others.

For one, gold miners also have the backing of thephysical gold that they own in their deposits. Whileother companies will be paying your dividends indollars, miners may be able to accumulate physical gold,silver, platinum, or palladium.

The events in Russia confirm that gold can serve as ahedge against currency disasters. When the oil fall-outthreatened the Russian economy, the price of gold inRubles surged.

CHART 7: 60 DAYS GOLD PRICE (FIX)

50000

55000

60000

65000

0000

5000

80000

85000

2015-01-052014-12-052014-11-07

RUB/oz

Source: S&P 500 Dow Jones Indices


8/12


Trends in Gold, Mining, and ExplorationGold Mergers and Acquisitions May Increase in 2015

The gold mining sector is seeing adjustments to a gold price in the range of $1,100 to $1,300 per ounce, down from over$1,900 in 2011. These are healthy adaptations to a lower gold price.

When investors expected the price of a metal to rise, companies responded by acquiring mines, even if they did not stand to

produce a profit right away. A rise in the price of the metal could render the mine profitable at a later date, while holding offuntil metals prices rose may have meant paying more for the acquisition.

This explains why mining companies as a whole went on a buying spree during the years leading up to 2011, when everyoneexpected gold to keep going up.

What has happened to those acquisitions in the meantime?

The mining industry saw massive amounts of write-offs from mergers and acquisitions from 2011 onwards. Well-knownbillion-dollar write offs include the Alaskan Pebble mine and the Fruta del Norte deposit in Ecuador.

We are now entering a new phase of mergers and acquisitions, since many of the worst and least efficient projects from thelast cycle have been dumped.

In 2014, big miners mostly switched from shedding deposits to acquiring new ones. Big acquisitions include Osisko Miningfor over $3 billion by Agnico Eagle and Yamana Gold.19 Another example, Cayden Resources, received a takeover offer fromAgnico Eagle of around $205 million.20 Bloomberg reports that $11.2 billion in new mergers and acquisitions in the gold miningsector have been proposed or completed in 2014.21

We expect more takeovers of companies with potential or producing mines to occur in the next 12 to 18 months.

Cash Is King

‘Juniors’ that are looking to bring an asset into production require capital for exploration drilling and acquiring the data thatmay make the project attractive for an acquirer.

Exploration companies make high-risk ventures for investors. They can quickly drop in price if their projects fail to stimulateinterest. For geological reasons, most exploration projects are destined to end in failure. The good thing is that bad projectscan go out of business fast because they usually have no source of income other than issuing new shares. This culls the herdfor investors and eliminates wasteful uses of capital.

The chart below clearly shows that, as a whole, a culling is imminent for many juniors, unless they can raise more cash. Cashheld by junior gold miners listed on the TSX Venture exchange, the main marketplace for US and Canadian exploration stocks,is less than a third of its level from early 2012. In just three years, cash on these companies’ balance sheets has dropped fromC$3.5 billion to around C$1 billion.

This means that cash is king – and becomes more important the longer this trends keeps going.

CHART 8: CASH HELD BY JUNIOR GOLD MINERS ON TSX VENTURE ($CAD BILLIONS)

0

1

2

3

4

2014-12-012014-09-012014-06-012014-03-012013-12-012013-09-012013-06-012013-03-012012-12-012012-09-012012-06-012012-03-01

Source: Bloomberg


9/12


Some of the large miners may benefit from this trend. Because they have stronger balance sheets, they can absorb projectscheaply – especially when those companies are out of cash and their managers are worrying about their salaries.

Royalty and streaming companies could also swoop in to benefit from this trend. These companies offer financing to bigminers and to junior exploration companies in exchange for a share of future production or discovery potential. They typicallypay for the royalty upfront, but can end up with a very long-lasting stream of cash flows, at no additional cost.

Franco Nevada, the leading royalty and streaming company in the mining space, recently raised $500 million, which it has

re-deployed into streaming agreements with mines owned by the Lundin Group.22

The share price action of the three largest royalty and streaming companies suggests that this business model is increasinglypopular with investors. The three largest royalty and streaming companies, Franco Nevada, Silver Wheaton, and Royal Gold areup 68%, 19%, and 27% respectively over the five years ending December 31, 2014. The GDX, which tracks major mining stocks,is down 63% during that period. The GDXJ, which tracks the junior miners, is down 78%.23

Pitfalls of Acquisitions

It is highly possible that this time around mining companies that are making acquisitions will focus on low-risk projects.Perhaps they will swallow up smaller mining companies to get their hands on an asset that is producing already.

Over the last ten years, miners have suffered from failing to operate mines optimally or underestimating costs. That has beenreflected in their share price.

One example in recent memory: in 2006 a major miner acquired a gold-silver-zinc project in Mexico, promising shareholders itwould be a huge multi-decade profit-generator.

The major paid over $6 billion to acquire the project, expecting to spend around $900 million to build the mine and forecastingproduction to start just two years later in 2008.

After reviewing the project, the company said it would produce about 30% more ore per year than initially estimated, thoughexpenses to build the mine would nearly double. They also pushed out the start date for the mine to 2010 from 2008. For goodmeasure, it added an extra $190 million in sustaining expenditures and pre-operating costs.

When all was said and done, the mine cost $1.7 billion to build, almost twice the initial estimate of $900 million, on top of the

$6 billion purchase price. Production was two years’ late. When it actually started in 2010, the mine lost around $100 million. In2011, the mine was still well below full production. Recently, they ran into issues with water availability, and the mine will notlikely reach full production until 2017 at the earliest.

In 2013, the major cut its initial estimate on the total size of the reserves, reducing the life of the mine to 13 years down fromaround 20 as originally forecast. On top of these issues, the miner announced litigation against them by the local community.

It isn’t a stretch to call the entire acquisition and mine development a corporate disaster. Miners sabotaged themselves withprojects like this one.

They will likely be looking for ‘safe’ projects.

In the case of Osisko, the company owned a producing mine when it was taken over. For Agnico Eagle and Yamana Gold, who

acquired the company, this eliminated a lot of uncertainty compared to taking over an asset at the exploration stage.


10/12


- Marc Faber, Board of Directors of Sprott Inc., February 2014

“This is the second longest bull market in the last 100 years.

I wouldn’t buy shares here. I’m not interested.

Now can the market go up another 20 percent? I wasn’t interested to

buy the NASDAQ in late 1999, but between January 2000 to March 2000

the NASDAQ went up another 30%. Afterwards people were crying

when they realized their losses.

The markets go up and down. I think that the upside potential now

for the general stock market is very limited and there is considerable

downside risk. Probably more downside risk than investors realize.”

Outlook for 2015

‘Cash is king’ and that’s good for speculators involved in financing small exploration companies. It is also good for miningcompanies that want to acquire assets and for royalty and streaming companies that provide financing to the sector.

If you have the ability to analyze specific takeover targets for potential acquisitions, these opportunities may offer outsizereturns over the coming year.

However, a more general approach requiring less technical expertise may be to accumulate a position in the miners androyalty and streaming companies that stand to make acquisitions at bear market prices. Whether you invest in explorationand development stocks, or in relatively low risk royalty companies, there are always risks to investing including possibleloss of principal.

To many people, the oil price drop looks like a wrinkle on otherwise smooth water. Taking a closer look, though, we can seethat it doesn’t come ‘out of nowhere.’ In fact, commodities as a whole have been weak for several years now. Low interestrates and stagnant household income numbers also suggest poor economic conditions, leaving us to explain how we couldsee an epic stock market rally at the same time.

The mining industry is consolidating, which is a natural and positive occurrence. They are also not part of the pack that hasparticipated in the ongoing rally. That’s partially because their weak balance sheets didn’t allow them to issue new debt in

large amounts.

There is reason to be positive for gold and silver mining stocks because of improvements that are intrinsic to the industry.

Precious metals stocks have been unloved for the last three years and consequently are at long-term lows. In contrast, webelieve that most US stocks are teetering near all-time highs, on the shaky premise of a broad recovery.

Interested in Gold and Precious Metals?Not Sure How to Invest?

Request to Be Contacted by a Sprott Representative

Click here

http://sprottglobal.com/special/resource-portfolio-consultation/http://sprottglobal.com/special/resource-portfolio-consultation/http://sprottglobal.com/special/resource-portfolio-consultation/http://sprottglobal.com/special/resource-portfolio-consultation/http://sprottglobal.com/special/resource-portfolio-consultation/


11/12


1 Bureau of Labor Statistics New Release. February 6, 2015.[http://www.bls.gov/news.release/empsit.nr0.htm]2 Bureau of Economic Analysis New Release: National Income and Product Accounts; Gross Domestic Product: Fourth Quarter and Annual 2014.

January 30, 20153 Bloomberg4 Bloomberg5 International Energy Statistics online: Petroleum: Production [www.eia.gov]6 SkyNews online: Copper price hits four-and-a-half year low. December 29, 21047 Infomine online: Historical Uranium Price Chart8 Infomine online: Historical Iron Ore Fines Prices and Price Chart9 European Central Bank Eurosystem: Euro area economic and financial data [www.ecb.europa.eu]10 Moody’s Analytics Dismal Scientist online: Key Economic Indicators for Japan [www.economy.com]11 KPMG Global China Practice: China Quarterly Report. Third Quarter 201412 Economic Research: Federal Reserve Bank of St. Louis: Real Median Household Income in the United States. [research.stlouisfed.org]13 The Wall Street Journal online: U.S. Bond Issuance Nears $1 Trillion. August 21, 201414 Bloomberg online: S&P 500 Companies Spend 95% of Profits on Buybacks, Payouts. October 06, 201415 TreasuryDirect online: Historical Debt Outstanding – Annual 2000 – 2014 [www.treasurydirect.gov]16 U.S. Energy Information Administration: Today in Energy: Oil and natural gas sales accounted for 68% of Russia’s total export revenues in 2013. July 23, 201417 U.S. Treasury website [http://www.treasurydirect.gov/NP/debt/current]18 The Wall Street Journal online: Cox and Archer: Why $16 Trillion Only Hints at the True U.S. Debt. November 28, 201219 Forbes online: Agnico Eagle, Yamana Gold and Osisko Mining Strike $3.6 Billion ‘Friendly’ Deal to Sidestep Goldcorp Takeover Bid. April 16, 201420 News Release: Agnico Eagle to Acquire Cayden Resources. September 08, 201421 Bloomberg online: Gold M&A Pickup Boosts Prospects for Seabridge Project. August 21, 201422 News Release : Franco-Nevada To Buy Candelaria Gold & Silver Stream From Lundin For $648 Million. October 06, 201423 Bloomberg


12/12

1910 Palomar Point Way, Suite 200

Carlsbad, CA 92008

1.800.477.7853

www.sprottglobal.comMember FINRA/SIPC

This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financialproduct or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategyis suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy basedon the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intendedto provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individualcircumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks,including a possible loss of the principal amount invested.

Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectorsas they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices.

Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several ofwhich trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply andalso by investment flows. Natural resource investments tend to react more sensitively to global events and economic data thanother sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employmentdata in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because ofsignificant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low pricedsecurity immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value.Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political,currency, economic and market risks. You should carefully consider whether trading in low priced and international securitiesis suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns.Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities itrecommends to clients, and may sell the same at any time.

Sprott on Oil and Gold - Where Do We Go From Here

Documents