​Why Eric Sprott Doubled Up on Newmarket Gold

Henry Truc  |

Major precious metals investor Eric Sprott just doubled his stake in Newmarket Gold (NMI:CA) this week after purchasing 16,200,000 common shares of the Vancouver-based gold company from Luxor Capital Partners for about $45.4 million, a price of $2.80 per share. This is in addition to the 10 million shares of Newmarket that Sprott purchased from Luxor earlier this month for $22.5 million, or $2.25 per share. Sprott’s 31 million-plus shares puts his stake of Newmarket at just under 18% of the total float.

He also has the right of first refusal to purchase another 16.2 million from Luxor, which expires at the end of the year. Luxor remains the largest shareholder of Newmarket, however, edging out Sprott with their stake of 19.3%, or about 33.9 million shares. Newmarket has approximately 175.6 million common shares issued and outstanding.

So Why is Sprott so Bullish on Newmarket Lately?

Well, for one, gold is looking to push above $1,250 again, a level it had not even touched until this year’s rally. If gold manages to finally break out of its prolonged slump, it obviously bodes well for the entire industry, which has been battling a bear market for years now.

But Newmarket isn’t just another boat waiting for a rising tide, and Sprott isn’t the only one looking favorably on the company’s prospects. According to the Globe and Mail, all 10 analysts covering Newmarket have a buy rating on the stock with a consensus price target of CA$3.03, and RBC Capital’s Raymond James and Laurentian have pushed up their target prices in the past two weeks.

"Newmarket has a strong balance sheet with approximately US$52 million in the treasury and essentially no debt,” Sprott said in a statement. “Their three gold mines achieved record consolidated production in 2015 and the trend to increasing gold grades and recoveries continues into 2016. I look forward to being a supportive shareholder and participating in the growth of the Company."

Newmarket operates three mines in Australia, including its flagship Fosterville project, and is seeking to make additional acquisitions to help it achieve its goal of becoming a mid-tier gold miner by doubling its projected production rate to as much as 500,000 ounces in 2016.

Shares of Newmarket are up about 145% year-to-date, currently trading at around its 52-week high of $3.30 per share with a market cap of $576 million. Considering shares were trading as low as 25 cents this time last year, Sprott’s Newmarket buying spree is certainly something gold bugs are paying attention to.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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