Kevin Bambrough, who exited his role as the chief executive of Sprott Resource Corp., as well as his role as Sprott Inc. president in October, said in an interview that he still sees value in a distressed resources market and that he is looking at ways to get back into the business when his non-compete expires in April.
Throughout 2013, Sprott Inc. was criticized for its flagship funds’ poor performance. Founder Eric Sprott – one of the world’s most prominent supporters of gold and silver bullion – saw his investment portfolio shrink from $3-billion to less than $400-million.
The 43-year-old Mr. Bambrough abruptly left his leadership positions at Sprott Inc. and Sprott Resource Corp. on Oct. 22. The move closed out an 11-year career with the embattled natural resources asset manager.
During his six years at the helm of Sprott Resource Corp, the company he co-founded, Mr. Bambrough oversaw net asset growth from $77-million to $383-million, and a 150 per cent net asset value per share increase.
This performance is even more impressive coming out of a depressed resource market.
While Mr. Bambrough is proud of his track record at Sprott, he regrets the discount to net asset value that Sprott Resource Corp. receives in the market (as much as 40 per cent). That discount comes even in the wake of over $80-million of stock buybacks.
This is why he hasn’t sold a share of his original Sprott Resource Corp. position, Mr. Bambrough explained by phone from his Richmond Hill home, just north of Toronto.
Steve Yuzpe, former Sprott Resource Corp. CFO, was promoted to President and CEO upon Mr. Bambrough’s departure. So far, it seems Mr. Yuzpe’s only move has been to sell $76-million worth of bullion to repay debt and raise cash for future opportunities.
Though he’s two months into a six-month non-compete period, Mr. Bambrough is looking at the current market and licking his lips. Some $88-billion departed commodities investments in 2013, yet Mr. Bambrough believes institutional investors will be back to support natural resources.
“Commodities will always be in demand,” Mr. Bambrough said, “But as it fluctuates, the prices of various commodities oscillate between a price that allows companies to earn a good margin to a point where there’s negative margin. And often when one commodity is hot, another is distressed. This is a game you can play forever.”
At Sprott, Mr. Bambrough convinced his previous firm to invest heavily in uranium, oil, gas, potash and agriculture before they took off. In 2008, amid the global financial crisis, Mr. Bambrough led a $55-million investment in PBS Coal alongside resource investor Lukas Lundin that netted $186-million in gross profit. In 2010, Sprott Resource sold part of a phosphate company for a $60-million haul, and in 2012 it followed up with a heavy oil company sale that earned over $70-million.
Despite the moves, Mr. Bambrough maintains he’s a long term investor who “only buys things [he is] prepared to hold for a decade,” though he also quipped, “I’ll sell any investment I have if I see better value elsewhere.”
“I don’t care how great a resource company may be,” Mr. Bambrough said. “If its sector is overvalued and there are better risk to reward opportunities elsewhere, you have to move on and capitalize.”
It’s been quite the rise for the one-time Microsoft systems engineer. Mr. Bambrough fell in love with the stock market during the late 1990s and early 2000s Nasdaq tech stock boom and subsequent bust. When the tech world began migrating industry to China and India, Mr. Bambrough foresaw a quickly approaching emerging markets-led commodities boom, and shortly after turning his attention toward junior gold miners and distressed resource companies, he was introduced to Eric Sprott.
In 2005, after contributing to the firm’s investment strategy and stock selection, Mr. Bambrough was appointed to Market Strategist. In 2007, Mr. Bambrough founded and became CEO of Sprott Resource Corp. He was promoted to president of Sprott Inc. in 2009.
Under his leadership, Sprott Resource favored concentrated bets on just five or six opportunities that he would actively manage with his team, and exhaustively investigate with industry specialists.
“All of our major winning investments were found, managed and monetized by myself and [chief operating officer] Paul Dimitriadis,” Mr. Bambrough said.
Mr. Dimitriadis, who resigned his own position at Sprott Resource on December 31, 2013, says his former colleague “has tremendous instincts and is incredibly bright, but also understands his limitations,” he wrote in an email.
Mr. Bambrough explains he doesn’t believe he can personally assess the quality of a resource project based on the raw data, or by visiting the site.
“I get true experts who I can rely on,” he said. “You have to be aggressive, but you have to balance that with extreme carefulness. Most portfolio manager blow-ups occur because they overestimate their abilities and let ego take over. Fear is healthy. And I hate losing money.”
Marc Faber, a director of Sprott Inc., and editor of the Doom, Gloom and Boom report, believes Mr. Bambrough’s best days are ahead of him. “I have known Kevin for 15 years and I have always been very impressed by his innovative and creative but disciplined investment strategy,” emailed the Swiss-based economist.
Mr. Bambrough’s contract with Sprott means he can’t return to the sector until April 2014 so he is clearing his head and contemplating his next strategy. This time, Mr. Bambrough says he will incorporate mechanisms to allow him to return 100 per cent of net asset value to investors to avoid the discount issue of his previous firm.
He’d be wise to conserve energy. While being a contrarian is easy in theory, raising money for a distressed asset class never is.