Jason Mann: Silver and Gold Exposure Advised
Source: Brian Sylvester of
Jason Mann's mission is simple. He comes to work every day
looking for great values. Recently, he's been finding them in
precious metals. Mann, a senior analyst with Freestone Capital
Management based in Seattle, explains in this exclusive interview
The Gold Report
why about one third of Freestone's $2.1 billion assets
under management are invested in non-traditional assets,
ABERDEEN INTERNATIONAL INC.
GOLDGROUP MINING INC. NEWMONT MINING CORP. SIMMER AND JACK
MINES LTD. SPROTT RESOURCE CORP. YUKON-NEVADA GOLD CORP.
The Gold Report:
In broad strokes, how would you define your investment
strategy at Freestone?
Freestone manages an array of proprietary and open
architecture investment solutions for our high net worth clients.
We have long used non-traditional asset classes to help manage
portfolio risk, but even within our proprietary equity
strategies, we are generally risk averse. In equities, I'd
characterize us as "value with a catalyst" investors. We're
definitely looking for investments that are cheap, but if there's
not some sort of corporate action, some sort of catalyst to
really drive a stock above its fair value, then we're not really
What have been some of your best ideas that fit those
Two of our better ideas that I sourced were
Aberdeen International Inc. (
Sprott Resource Corp. (TSX:SCP)
. These have been prototypical investments for us: they appeared
cheap, they had clear catalysts that should drive the stock value
higher, and they came with some sort of "free option" that could
drive outsize returns. These two companies are good examples
because they seemed cheap when we bought them; then some of the
catalysts that we foresaw kicked in, and the stock price closed
that gap. Of course, not every idea works out as planned, but
these were two of my better ideas.
Aberdeen put out a statement in the first quarter that said
that it had a net asset value (NAV) of $1.37 per share, but it's
trading at about $0.82 right now. What do you think is the reason
behind the disconnect?
Aberdeen is small and underfollowed, which usually creates
a discount. Its liquidity is a bit lower than some larger funds
can handle, so it's stayed under the radar. I'm actually shocked
it trades at a discount because the company is very transparent
and you can see most of its individual positions. We can estimate
the NAV daily.
David Stein, Aberdeen's president and chief operating
officer, does a good job with disclosures. There's no doubt about
that. Could the dispute with South African miner
Simmer and Jack Mines Ltd. (
have been holding the stock back? The good news is that
Aberdeen entered a binding arbitration agreement over a $10
million loan that it provided to Simmer and Jack in
There's definitely a discount because of that issue. The
company holds the $10 million on the books, but it's not really
there until the lawsuit is settled. That's actually one of the
catalysts that we anticipate will drive value.
We expect the lawsuit to get cleaned up in the near to medium
term. Assuming Aberdeen settles the lawsuit, it will have that
cash flow in, and the market can more easily value the company.
The company also has a gold royalty that it can monetize once the
lawsuit is cleaned up, which should serve as another catalyst to
Another tack that Aberdeen has taken is to buy back its
shares. The company has bought back over 700,000 shares for about
$0.90 each. Do you think that's an effective use of
I believe that the shares are pretty attractive, so it
makes sense for the company to also buy them in the open market.
However, if it comes at the cost of not being able to invest in
other great companies, then it's not necessarily a good decision.
But Aberdeen has done a great job of allocating its capital over
time, and that is clear in its NAV performance. I'll give
management the benefit of the doubt because they've shown that
they're great capital allocators.
What's your upside on that stock?
It can easily trade to NAV and its NAV could continue to
grow once some of its performance shares kick in and its warrant
portfolio gets revalued upward. Some other holding companies,
such as Sprott Resource, have traded above NAV at certain points.
When gold really gets hot, junior miners take off and their
warrant portfolio might go crazy. In this scenario, the stock
could trade at 1.2 times NAV... that's definitely possible.
Sprott holds a number of oil and gas companies. It also
holds about 74,000 oz. of gold bullion. Was that what attracted
you to it?
When we first found Sprott, we couldn't believe that we
were able to buy the stock at a discount to its physical gold,
physical silver and Canadian Treasuries, plus get all of its
other unique business for free. We were very pleased to pick that
up. We got interested because we liked the long-term prospects
for gold and silver and we were able to buy that at a discount
through Sprott Resource.
Where do you see that stock trading through the end of the
If the company keeps doing what it's doing, I wouldn't be
surprised to see it trade up to between $5 and $6. We are not
concerned with where the stock price will be in one year because
its underlying businesses are really going to mature over the
next three to five years. The stock may be at $6 at the end of
this year, but I wouldn't be surprised to see it as high as $12
in three to four years.
It's a long-term play.
Definitely. Sprott is one of the top players in the
commodity space and Sprott Resource's collection of assets is
truly unique. No company can replicate its farmland business. Its
uranium business is a really unique asset. And we're happy to
have the Sprott team manage those for us.
Have you met Eric Sprott and his management team?
I've met with the management team. I recently met with
Steven Yuzpe, its chief financial officer, and received an update
on the portfolio. He's a pretty dynamic guy.
About one-quarter of the long-short strategy you manage are
investments related to commodities, and you seem eager to add
positions. There are not many asset management companies with
that much exposure to commodities. Can you explain why
Freestone's proprietary managed strategies have so much
Part of that is our macro view. We expect at least moderate
inflation as the eventual result of the massive government
stimulus and this will drive commodity prices higher. But our
exposure is really driven from our bottom-up process of finding
cheap stocks with catalysts-we just happen to find a lot in the
commodity space. It helps that we have a constructive view on
commodities in the long term.
Many large asset management companies and funds stay away
from commodities because there can be so much inherent risk. How
do you account for those kinds of risks?
One way is by holding companies like Aberdeen and Sprott,
which have a tremendous history of success in that space. We sort
of ride their coattails, and that's worked out well.
Another way is to make sure that the discount to our estimate
of intrinsic value is so large that we're compensated for taking
The third way is to limit the amount of risk that we take. One
position we have,
Yukon-Nevada Gold Corp. (TSX:YNG)
, is not a major producer, but it's sitting on an asset that was
a huge, high-producing mine. We believe that there are only
temporary, fixable issues that need to be addressed in order to
get it producing again. It's not like Yukon-Nevada has to dig a
bunch of holes and find the gold. We know that the gold is there.
It's been produced. It's just a matter of jumping through the
hoops to get that mine up and running.
In each of these three cases, we are gaining commodities
exposure in a very different way than simply buying a basket of
Yukon-Nevada was involved in a class action suit brought by
some former employees of its subsidiary. That action has been
settled recently. Do you see that as a catalyst for growth?
It's certainly nice to have that out of the way. As with
Aberdeen, a lawsuit can be an overhang on the stock. However, for
Yukon-Nevada, the major goal is getting the mine running and
producing at the levels that it's capable of. At that point, the
company should be revalued as a producing miner instead of a
speculative exploration stock. That's the major catalyst we're
looking for with Yukon-Nevada.
The company posted a profit of about $30 million in the
first quarter. However, it wasn't directly as a result from
mining. It had to do with some derivative liabilities. When do
you expect the company to post a profit from mining?
Possibly by the end of the year, or 2012 at the latest. If
it starts to get pushed out beyond that, it would really call our
investment thesis into question. Given all the hurdles that the
company has faced, we think that management is doing an OK job.
By 2012, it should be producing at the rates we expect and get a
proper valuation to push shares higher.
Yukon-Nevada recently closed a private placement that
raised almost $60 million. Obviously, someone else believes in
the long-term price appreciation of that stock. What's the upside
as far as you're concerned?
The stock was recently trading at $0.48. It could trade at
over $1. We don't have an exact price target. We just believe
that it's worth a lot more than it is trading at today.
This year, you've added positions in two silver companies
and one gold company. Are you bullish in the long term on
I think a better way to state our view is: we're bearish in
the long term on paper currencies. We think gold is interesting
as a hedge against currency devaluation. Silver can act in a
similar way, but it has its own dynamic. We like exposure to
silver and gold companies with an idea that it's a proxy for our
bearish bet on paper currencies.
One thing that's making us cautious is that there seems to be
a consensus in the investment community that gold is going up
indefinitely. It's like in 2007, when people thought that real
estate was going up indefinitely. That made us cautious, too. But
given our near-term outlook on money printing worldwide, we're
bullish on metals in the near term. We're not sure how long
they'll continue to act as the proxy for our bearish bet on paper
A number of gold pundits are predicting a significant
pullback before the ultimate high. It remains to be seen whether
or not that's going to be the case. Do you have some positions in
other small-cap mining plays?
Newmont Mining Corp. (
is an interesting trading vehicle. Other large miners tend
to come into favor and spike just as gold is peaking. As gold
sells off, they also sell off. We think that's an interesting
Another interesting small-cap miner is
Goldgroup Mining Inc. (TSX:GGA)
. It's sitting on a huge resource base. It has a decent
management team. We think that it could become a producing mine
with potential for a huge valuation change.
Its flagship project is the Caballo Blanco project in Mexico.
We expect that mine to come on in the back half of 2012. Right
now, that is not priced into its stock. But we believe that the
company seems to be executing on time and that it should be able
to get Caballo up and running.
There tends to be a bit of summer weakness, and a rally in
the fall, for precious metals. Will your investment strategy
change at all in the summer months?
Our strategy is the same. If we can find companies trading
below intrinsic value with catalysts to drive the stock prices
higher, and a couple of free options, then we'll buy them-whether
it's June or December. We're aware of the seasonality of metals
and mining, but we come to work every day looking for great
values whether it's summer or not.
Metals and mining are an interesting space. There are a lot of
risks, but there are values out there if investors look hard
enough. Aberdeen is a great example. The company published its
NAV to tell investors exactly what it is worth, and it still
trades at a discount. So, if you're willing to do the work and
find promising companies, you can be rewarded over time.
began his career with
Freestone Capital Management
in 2005 as an analyst with the alternative investments
group. Using his knowledge of alternative investment
strategies, Mann has provided analytical support and generated
investment ideas for Freestone's long-short equity and
long-only equity strategies since 2007. Jason holds the
Chartered Alternative Investment Analyst (CAIA) designation,
and has a BS in economics and psychology from the University of
Washington and a Masters degree in financial economics from the
University of Toronto. He enjoys spending his free time with
friends and family, traveling and surfing.
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1) Brian Sylvester of
The Gold Report
conducted this interview. He personally and/or his family
own shares of the following companies mentioned in this
2) The following companies mentioned in the interview are
The Gold Report
The Energy Report:
3) Jason Mann: I personally and/or my family own shares of the
following companies mentioned in this interview: Aberdeen
International, Sprott Resource, Yukon-Nevada Gold, Newmont Mining
and Goldgroup Mining. I personally and/or my family are paid by
the following companies: None.
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