Whitney George, president of Sprott, and John Hathaway of Tocqueville Asset Management have been talking for more than a year about a deal. But the announcement on Monday that Sprott Asset Management will acquire Tocqueville’s gold equities asset management business appears impeccably timed, as stock prices sink around the globe and gold’s appeal as a safe haven rises.
Depending on valuations at the time the deal closes, Sprott, a precious metals and real asset manager headquartered in Toronto, expects to gain $1.9 billion in institutional and retail gold strategies, including the Tocqueville Gold fund. The transaction, expected to be final in January, is subject to regulatory, shareholder, and other approvals.
“This has been in the works for a long time, but the timing seems spectacular today,” said George in an interview with Institutional Investor.
Sprott — which also has a small merchant banking business providing financing and advice to mining companies — and Tocqueville formed a joint venture in February to co-manage a precious metals mining strategy.
“Our thesis is playing out. We’re now seeing the beginnings of a bull market in precious metals,” said George.
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At the time of the joint venture, George and Hathaway were betting that the long bear market in gold mining stocks would soon end as investors took action to hedge against a ten-year rise in equities and other geopolitical risks.
“As the trade wars have escalated, the market has been hoping for a ratcheting down of that rhetoric. But that has a new element now. Our leadership is weaponizing the world’s reserve currency,” said George. “Now the Fed is expected to cut rates at least two more times. And the trade wars look like they’re turning into currency wars with people worrying about currency devaluations. That has put the final nail in the coffin.”
George explained that the supply of gold is finite and that has been exacerbated by mining companies’ belt tightening over the long bear market. As a result, exploration has dried up.
“It takes 15 years to go from a new discovery to operating a mine,” he said.
As a contrarian, Hathaway is used to being patient. He came up with the idea for the gold fund in 1998, when technology stocks were near their peak and no one was thinking about hedging their stock holdings.
George said Hathaway’s patience pays off with the stocks of companies he holds.
“He’s very popular among many mining executives, because patient capital is hard to come by,” George said. “In a gentlemanly style, he has important influence with management and helping them make shareholder-friendly decisions.”
