by Brian Sylvester, The AU Report:
Sprott Silver Equities Class Co-Manager Maria Smirnova understands the power of leverage. She has seen the big impact even a slight increase in the silver price can have on silver producers. Every cent is multiplied and goes right to the investor’s bottom line, giving the equities more upside than possible in a coin. That is why Eric Sprott increased holdings of silver equities in certain Sprott funds.
The Gold Report: Maria, in April Eric Sprott sold more than $45 million ($45M) worth of units in the Sprott Silver Physical Trust. A spokesperson told Canada’s Globe and Mail that the sale was needed to cover charitable obligations and to buy shares in silver mining companies because Mr. Sprott believes silver equities will outperform the metal in the next rally. Can you fill in the details on that thesis?
Maria Smirnova: We believe in the equities—for any commodity—for several reasons. Equities represent a leverage play on the underlying commodity. To use a simple example: Assume Company X can earn $5 when the silver price is $25/ounce ($25/oz). If the silver price increases 20% to $30, that extra $5 goes directly to the bottom line. This doubles the company’s profits from $5 to $10. The silver price increases 20%; the profits rise nearly 100%—that is what I call leverage.
Please follow SGT Report on Twitter & help share the message.