The Miners Take the Lead: What's Driving Gold & Silver Equities

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October 20, 2026 | (1 h 12 mins 36 secs)

Webcast Overview

Gold and silver continue to attract attention as investors navigate rising debt, currency pressures and geopolitical uncertainty. In this webcast, Sprott’s Maria Smirnova outlines the structural forces supporting bullion demand, while Justin Tolman examines improving fundamentals and valuations among mining equities. The discussion also considers supply constraints, shifting industrial demand, and the potential leverage miners may have on precious metal prices. The webcast concludes with insights into diversification, stock selection and opportunities across large-, mid- and small-cap miners.

For the latest standardized performance and holdings of Sprott ETFs, please visit the individual website pages: GBUG, SLVR, SGDM, SGDJ and METL. Past performance is no guarantee of future results.

Webcast Transcript

Ed Coyne, Slides 1-5, Introduction

Ed Coyne: Thank you all for joining us today for our webcast. I've got two featured Sprott speakers joining us today. First is Maria Smirnova, who's our Managing Partner at Sprott Inc. and Senior Portfolio Manager and Chief Investment Officer at Sprott Asset Management. Also with us today is Justin Tolman, a Managing Partner at Sprott Inc., a Senior Portfolio Manager and an Economic Geologist at Sprott Asset Management. For today's webcast, we're going to explore the case for gold and silver bullion with Maria Smirnova, and then we'll turn it over to Justin Tolman to discuss gold and silver mining equities, including an outlook and view on opportunities.

As we near the top of the hour, we'll summarize what we've discussed today and save time for an interactive Q&A. For those who aren't familiar with Sprott, Sprott is a global leader in precious metals and critical materials investments. We manage over $55 billion in assets and are a publicly listed company trading on both the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol SII.

We offer exchange-listed products, including our physical bullion trust, physical uranium trust and physical copper trust. We also have a suite of ETFs that provide exposure to mining equities. In addition, we have a suite of managed equities, including our flagship Sprott Gold Equity Mutual Fund, a closed-end value fund, our Sprott Concentrated M&A strategy and our Sprott wealth management strategies. Last but not least, we have a private strategy suite that focuses on bespoke credit investments for mining and resource companies.

I've asked both Maria and Justin to join me today because they have boots-on-the-ground experience. Maria and Justin are both part of the Sprott Precious Metals team, which applies geological and engineering expertise, including up to 30 site visits per year, to assess project feasibility and risk. Some of the recent visits include mines and projects in Greece, Mexico, Australia, South Carolina, Ontario and British Columbia. With that, I'd like to turn the webcast over to Maria to discuss the case for both gold and silver bullion. Maria?

The Case for Gold and Silver Bullion

Maria Smirnova, Slides 6-25

Maria Smirnova: Thank you, Ed, and thank you, everyone, for joining us. Before delving into our discussion about gold and silver, I wanted to spend a few minutes talking about the current state of the world. This article that you see on the page (slide 7) appeared in the Wall Street Journal on October 15th, before this past weekend's escalation of protests in Europe. This year in particular has been characterized by economic damage from high energy prices and rising borrowing costs globally, splitting the world into a new set of winners and losers as countries with limited exposure to the artificial intelligence boom fall behind.

In the U.S. and a few other countries, surging investments in AI are helping mask the financial pain of higher living costs, triggered in part by the war in Iran and its widening fallout. But elsewhere, popular discontent is boiling over as governments get caught between spending more to help their citizens and servicing their spiraling debts.

There has been a wave of protests across Southern and Western Europe, as well as multiple countries across the globe. The International Monetary Fund (IMF), which held its annual meetings in Bangkok last week, is predicting a slowdown in global economic growth to 3.1% from 3.5% last year. Just 32 economies are now responsible for 95% of global growth, and higher energy prices could concentrate growth in even fewer countries.

Global debt has hit a nosebleed-inducing $365 trillion, equivalent to 310% of global GDP. Global debt is three times the size of the global economy, and as interest rates rise, the risk of refinancing that debt is becoming more acute. This brings me to our main topic for today. In this divisive world of the haves and have-nots, profligate government spending, and political instability, we see how gold and silver will benefit as vehicles for storing value and as instruments to protect oneself from fiat currency debasement.

Now more than ever, the importance of diversifying away from fiat that can be printed or debt that can be inflated away cannot be underestimated. We have remained bullish on the precious metal complex through the 21st century, and the recent pullback provides an opportune entry point for those seeking less risk from inflation, less risk of exploding debt, and less risk of what a paper currency could be worth when central banks start printing once again. Why gold and silver? Gold has experienced an extraordinary year, with its price accelerating sharply in January to just over $5,500 per ounce before correcting and now holding between $4,000 and $4,100 per ounce.

This floor is being defended in what can be viewed as a hostile environment for gold: tighter monetary policy, soaring nominal and real rates and a stronger dollar. Gold is increasingly valued not only as an asset that moves inversely to interest rates and the U.S. dollar, but also as an alternative monetary asset in a world where investors and central banks are growing concerned about fiscal sustainability, currency debasement, and geopolitical fragmentation. As a result, buyers have repeatedly emerged during periods of weakness in bullion.

Silver has historically taken cues from gold's performance, but its smaller market and importance in industrial applications have meant that its return history has followed a more winding path. This year has been no different. Silver followed gold higher in early 2026, briefly trading above $120 an ounce before suffering an abrupt correction, and is now trading at approximately $58 an ounce. The higher volatility can partly be attributed to silver's smaller market and the notable absence of central bank buying. However, we like silver for both its industrial applications and its status as a lower-priced monetary asset with zero growth in mine supply over the last decade.

This chart (slide 9) shows that gold and silver have outperformed the S&P 500 over the past 16 years and have more than doubled the performance of bonds. Notably, the last few gold bull markets followed periods of liquidity infusion. This includes the post-GFC era of zero rates, the 2018 to 2020 period punctuated by falling rates, and the 2021 to now period influenced by post-COVID liquidity and central bank buying triggered by fears of economic sanctions and dollar concerns. Both metals have exhibited a tendency to revert to their longer-term structural bull trends.

The majority of annual gold demand is tied to some form of value retention, whether through gold bars, central bank reserves, ETFs or jewelry (slide 10). Only 6% of demand is from industrial uses. Gold has been universally accepted as a store of value, offering diversification, hedging, and liquidity benefits. It is essentially indestructible. It is scarce and has a low correlation to stocks and bonds. In addition, gold's value is recognized worldwide, making it a universally accepted store of wealth. These are the key characteristics that enhance its appeal today, as institutions and individuals alike are seeking ways to preserve the purchasing power of their savings against currency debasement.

This is quite an important slide (slide 11). Prior to 2022, gold had maintained a well-understood inverse relationship with real yields, declining when yields rose and vice versa. This is clearly seen in the chart, in the blue dots and the trend line. For the first two decades of the century, a 1% move in U.S. real rates typically coincided with a roughly 14% move in gold in the opposite direction. That relationship ended in February 2022, when Western governments froze Russia's foreign exchange reserves. This post-2022 time period is shown in the red dots.

Between March 2022 and October 2023, U.S. 5-year real yields rose more than four percentage points. Based on historical relationships, gold should have fallen about 55%. Instead, it rose 7%. Over the following two years, real yields fell by less than 1 point, while gold rallied by 110%. Gold is now far more responsive to falling real yields and less sensitive to rising real yields. The structural driver of this new asymmetry is geopolitical fragmentation and the erosion of confidence in the largely U.S.-denominated world trade order.

One of the most important changes in the gold market over the past decade has been the emergence of central banks as consistent buyers of bullion. According to the World Gold Council, central banks purchased approximately 289 tons of gold on a net basis during the second quarter of this year, representing a record second quarter and an increase of roughly 62% from the prior year.

This year, Poland has been an important buyer, while China is continuing to add to its reserves. Central banks are not momentum investors. Their decisions tend to reflect much longer-term considerations surrounding reserve diversification, liquidity, geopolitical risk and confidence in sovereign currencies. In an era of increasing geopolitical uncertainty and rising levels of sovereign and private debt, trust in fiat currencies is declining. We believe this helps explain why gold has behaved differently through the current cycle. While the price of bullion has declined by approximately 29% from its January intraday high, official-sector demand has remained robust.

Central banks took advantage of lower bullion prices to accumulate additional reserves. This resurgence of physical buyers helps buttress our central thesis for gold. Gold is increasingly being recognized as a reserve asset with no counterparty risk.

Seen another way, since at least 2006, we've seen a structural reversal in central bank holdings between dollar-denominated reserves and gold reserves, as shown in this chart (slide 13). The proportion of dollar-denominated reserves has declined, as shown by the blue line, while the proportion of gold held in reserves has nearly tripled, as shown by the gold line. At the least, this suggests a trend towards central bank diversification into gold reserves and away from dollar-based reserves.

At the extreme, one could argue that the U.S. dollar could lose its status as the world's reserve currency. For now, however, the dollar remains deeply embedded in global trade and financial markets. But reserve diversification does not require abandoning the dollar. Even a modest reallocation of global reserves towards gold can represent a meaningful source of incremental demand in a market where annual mine supply changes very slowly.

Gold's value retention is evident in the quantity of currency required to purchase it. Over the past 20 years, a basket of major developed market currencies has declined precipitously against gold. In other words, the yellow line is gold in USD set at a level of 100, which is flat, as you can see, and the squiggly lines are the USD, the euro, the CAD, the yen, and the British pound, which have all depreciated versus gold in the last 20 years (slide 14). This reflects the declining purchasing power of fiat, or paper, currencies over time, alongside increasing global fiscal deficits and rising debt levels.

Looking at this another way (slide 15), we can examine the relationship between gold and the M2 money supply, which measures the total volume of highly liquid money available in the economy. Over long multiyear cycles, gold prices generally rise when M2 grows. Because the supply of gold is physically constrained, while the fiat money supply can expand, gold acts as a hedge against currency debasement and loss of purchasing power.

I already mentioned that global debt levels are hitting new highs. The U.S. is running the biggest budget deficit of any developed economy, projected to reach 8.5% of GDP this year, and has seen yields on its 10-year Treasuries rise to their highest levels since 2002. As a result, total U.S. public debt has grown to over $40 trillion, as shown in this chart (slide 16). The service cost of this debt has doubled since COVID, now $1.36 trillion per year and climbing.

Persistent government deficits and rising debt loads have historically led to currency debasement, and given the lack of fiscal austerity, we believe the situation will not change anytime soon, which will benefit gold prices over the long term. Ray Dalio, the founder of Bridgewater Associates, is seeing the same trends and is becoming increasingly alarmed by them. Of late, Mr. Dalio has been recommending overweighting gold to 10-15% of one's portfolio.

While we believe that gold demand will continue to increase for reasons described earlier, gold supply remains quite limited, especially relative to fiat issuance (slide 17). Since 1980, the total amount of gold found above ground has only doubled, with a growth rate of less than 2% per annum, compared to a 45-fold increase in U.S. government debt outstanding. This is a growth rate of 9%. Compared with other investable vehicles, gold's float is extremely limited at $9 trillion, versus global equities at $152 trillion and debt at $350 trillion.

This is a busy chart, so bear with me (slide 18). Gold is trading at historic highs, yet the industry is facing a quiet crisis. New major discoveries continue to trend lower. On the left side, we're looking at data from Capital IQ: the gold bars represent gold in reserves, resources and past production, and the green bars show new initial resources.

As you can see, recent discoveries are appalling compared with past levels, and only a limited number exceed 2 million ounces. This is happening despite exploration budgets increasing significantly over the last two decades. Some of the reasons for this are that exploration activity is shifting toward lower-risk resource growth, which we call the shadow of a headframe, rather than greenfield discovery.

Many of the world's most accessible high-grade gold deposits have already been found, forcing today's explorers to search deeper underground, interpret more complex geology, or venture into remote, underexplored regions with steeper logistical challenges. Looking at the chart on the right, we can see that gold production has been essentially flat over the last 10 years. In addition, ore quality is becoming increasingly marginal, with more capital required per ounce produced.

The historically low discovery rates, coupled with declining ore quality, suggest that sustaining production at current levels may become increasingly difficult as existing mines deplete.

Before we move on to silver, I would like to conclude our discussion of gold with this chart of ETF demand (slide 19). Since 2024, ETFs have largely accumulated gold, even as the price of gold has risen. There was a small dip in holdings earlier this year, but ETFs have now resumed accumulation.

According to Deutsche Bank, structural demand remains strong. Their tracking of globally aggregated flows continues to point to robust physical demand. Deutsche notes that 77% of UK gold exports were tied to BRICS+ nations over a three-month period, and I quote: "Suggesting gold is moving West to East as the de-dollarization theme runs at its fastest pace in years." While physical buying is strong, gold is still underowned. Macro funds, discretionary traders and physical traders mostly remain on the sidelines, fearing the knock-on effects of a meltdown in rates.

With that, let's move on to silver. While gold is almost purely a monetary asset, silver has far more diverse uses due to its remarkable physical properties, including electrical conductivity, reflectivity, malleability and high antibacterial properties. Because of this, silver is affected by both investment trends and the state of the economy. It's a metal of two heads. Some of the oldest money in the world was made from silver, and now it is at the forefront of technological innovation, used in many electronic applications, including solar, electric vehicles, AI data centers, and more.

Because silver is a much smaller market by value than gold, it tends to be more volatile, and it has produced both spectacular rallies and uncomfortable downswings, such as the one we observed earlier this year. However, there are real returns to be made in silver by understanding the interplay between the precious and industrial cycles.

The physical silver market has been in a fundamental deficit for the past seven years, and this year is projected to record another deficit, although a smaller one. Much of this can be attributed to booming industrial demand, particularly in the electronics sector, specifically solar panels. Industrial use grew by more than 20% in the last 10 years. The price of silver has nearly doubled since January 2025. One would think this would incentivize supply from new or shuttered mines coming back online, but this has yet to happen. We continue to observe that the supply of silver has become increasingly inelastic despite higher silver prices.

One theme I can point to that makes me confident in silver's future is the world's electrification. As economies grow and living standards improve, global electricity consumption is projected to more than double in the coming decades. I cannot overstate the importance of silver in technology. As technology grows more complex and more compact, the importance of silver as a technology enabler grows. There's no metal that conducts electricity as effortlessly as silver.

If you believe in an electrified, seamlessly integrated world, you must believe in the importance of silver. Silver's applications in high-end electronics and photovoltaic cells make it the ideal metal to benefit from this trend. In fact, silver was added to the U.S. Geological Survey list of critical minerals late last year, highlighting the metal's value in the modern world.

Let's look at some demand. India is a well-known consumer of silver, traditionally for jewelry and investment purposes, but China is also very active in the market, both for investment and industrial use. China is the largest manufacturer of solar panels, so the country has been gobbling up silver. As with rare earths, tungsten, and antimony, their protectionist agenda is being injected into the silver market. Just as the U.S. added silver to its critical minerals list late last year, Beijing also elevated silver to a strategic material and imposed export controls on the metal on January 1st. This coincides with a jump in the premium in the Shanghai market at the beginning of the year, and it has persisted to date, meaning traders in China are paying more per ounce of silver than the spot price.

ETFs shed ounces after silver peaked earlier this year, but are now once again accumulating metal. Investment demand is silver's swing factor, so once interest returns in earnest, there's potential for that demand to accelerate rapidly.

Two-thirds of mined silver output is produced as a byproduct of mining other metals. This means that even a sustained rise in silver prices may fail to have a meaningful impact on mined production. Much of the silver output is tied to the production of other minerals that have no bearing on silver market fundamentals. For example, nearly 30% of silver output comes from lead and zinc mines, so mined silver output may decline as demand for lead and zinc falls. These connections require a proper understanding of underlying miner characteristics, which can provide opportunities for actively managed strategies.

In line with the supply inelasticity discussed on our previous slide, the data show that silver supply has been stagnant for over a decade and is expected to decline by 2% in 2026 (slide 25). Mine supply is slightly down from 10 years ago. As with gold, silver discoveries are becoming rare, and there's less focus on building silver mines due to the lower price point. We believe the incentive price to elicit significant new supply is much higher. Silver has never been more important to humanity, and we're taking the availability of the metal for granted when we should be rushing to secure access to silver in future years.

Before I pass the mic to Justin, I would like to reiterate that our thesis for gold and silver rests on their ability to reduce risk, boost returns, and hedge against systemic risks in a world of mounting debt and weakening paper currencies.

Ed Coyne: Thank you, Maria, and thank you for those insights. I know we'll have some questions for you to address at the end of this webcast. Now, I'd like to turn over to Justin. Justin, could you spend some time discussing both gold and silver mining equities, provide an outlook and share your view on opportunities?

Gold and Silver Mining Equities: Outlook and Opportunity

Justin Tolman, Slides 26-37 

Justin Tolman: Let's do that. What a good idea. Maria did a good job making the case for the metals, so let's talk a little bit about why the companies deserve a look right now. There are a lot of words on this slide (slide 27). I won't pretend you guys can't read it faster than I can say it. I thought, while you digest that, I’ll start by saying something debatable.

I'll give you some context first. When I was a young geologist, my first job in the gold mines was in 1997, so it'll be the 30-year anniversary next year. It was an open-cut mine, the Mount Leyshon mine in the Charters Towers district, and it was a terrible time to be a gold miner. The gold price was low, the sector was just coming off a big scandal called Bre-X, and the industry was really struggling. That's a lot of words to say that I've been doing this too long, and I've seen too many seasons to be a gold permabull or a gold permabear. I'm not sure what animal that makes me, maybe like a gold elephant. I don't forget. I've seen all the seasons, and when the watering holes dry up, I know where they'll be when they come back.

The point that I wanted to make was that, in most markets, you have to choose. Cheap stocks are usually cheap for a reason: weak balance sheets, bad businesses. Good businesses are usually expensive because everyone wants to own them. Right now, when I look at the gold and silver miners, I think they're in both camps at the same time. I think they're cheap. I think valuations are still below where they were in prior cycles, and the gold price is far above what these companies plan for their businesses. They're relatively unloved. Unlike the gold ETFs that piled in over the last few years, investors were pulling money out of miner funds.

It's not a crowded trade. But the difference is, for the first time in a long time, there are good businesses today. I think, as an industry, we need to do a better job communicating that to everybody else. But the sector currently has net cash-balance sheets. They're paying dividends. They're buying back stock at a level that, frankly, I've never seen, and I don't think anyone's ever seen.

We should be honest about the history. A lot of you have probably heard that gold miners have been cheap for the past decade. For much of that time, it was a trap. Yes, they were cheap, but for a reason. They took on too much debt for overpriced acquisitions and projects that ran over budget. They deserved to be cheap. I'm going to run through in the next few slides why I think that's different. Maybe I'll end here by just saying that the complaint in past cycles was that gold miners were wasting shareholders' money.

This month, BlackRock complained that miners are being too careful with their money. That's a very different problem to have, and, frankly, a much better one. Here's a chart of equities to bullion (slide 28). It reflects the broad trend that Maria showed earlier. She did a good job making the case that gold is our defense. It provides capital preservation and diversification. If that's the case, then the gold miners are the offense. They're going to give us leverage to rising gold prices.

In bear markets, and you can see a few of them on this slide, the equities traditionally lag the price of gold. Have a look at the start of the GFC there in '07-'08, or the pullback at the end of '12 through to '13. You can see the equities underperforming. Then, in previous bull cycles, those gaps narrow, the equities catch up and start outperforming. We've put a couple of the easy green arrows on this image. I could probably add another couple of places, but it's just starting to show up in the data now. You can see the precipitous rise, but the catch-up of the equities is just coming.

This chart covers 26 years. We're going to zoom into the next decade. But before I do, when I talked about gold miners being cheap, you can track it here from 2013 to 2019. They were cheap for a long time. They just weren't necessarily good value. That's starting to change.

This is the last 10 years, and what we've done here is show the ratio of mining equities to gold (slide 29). How many miners do you get for each unit of gold? When it goes up, the miners are outperforming and vice versa.

For most of this period, that ratio was pretty low. This runs all the way through to the tail end of the recent bear market. You can see the 10-year average here: 0.485. That's the average for a decade when nobody wants to own you. Today, we're sitting at about 0.6. Being above average in a bad decade is not the same as fair value. If we go back (slide 28), you can see there's still that little red arrow that points to a still meaningful valuation gap. We're nowhere near the outperformance we saw in the early 2000s or in the middle of the decade.

That recent outperformance is real. It's operating leverage, turning up as advertised. I'm going to give some examples now. My compliance department has instilled in me that, before I do this, I need to say that past performance is no guarantee of future returns. I'm giving you these only as illustrations of what leverage looks like when it works. The actively managed precious metal ETF GBUG went up in the last quarter, Q3 of this year. The NAV increased by about 20%, versus about 4% for gold.

That's four or five times the leverage. You'll see the same relationship with other funds, maybe at a different scale. Directionally, if you look at it, that's the upside.

On the downside, during the September pullback at the end of the quarter, the decline was only about 1.5 times the gold pullback. In bear markets, you often see the opposite relationship. The miners would often fall by multiple times the amount of the gold in a sell-off. This is what the offense looks like when it's clicking and working for you.

We see the valuation gap. We see it's starting to close. Why should it do it now when it stayed open like this for a decade? As I said, the business underneath has changed, and this next chart starts to show how (slide 30). Here, we're looking at free cash flow per share for the gold miners index going back to 2004. Simply put, this is the money that's left over after running the mines and investing in sustaining capital.

Now look at the years from 2004 to 2012. This is the old business. Over this period, gold rose markedly, about fourfold. The miners, what did they do with that? They had negative free cash flow every single year. They spent everything that they got and then some. I remember this period marked by what we now call growth for its own sake.

There was that one good year in 2011, but by and large, it wasn't a great way to run a business. The companies took on a lot of debt for very large projects and paid the price when the inevitable happened, and the market turned. Since 2015, free cash flow has been positive every year, 12 years in a row. That's not the gold price helping, because 2015, 2016, 2017 and 2018 weren't great years. That's operational discipline. What happened was we sacked a whole bunch of CEOs who didn't deserve to be there, put in a lot more focused people, and, as an industry, focused on what we can control: costs. We don't get to pick the price; we get to pick the costs.

Have a look at where those cash flows are now. We're sitting here in 2025 and 2026. It's three times the 2011 peak, and this isn't one great year at the top of the cycle. I don't think we're anywhere near the top of the cycle. What it is is a decade of discipline that's now meeting a higher price, a catch-up in price driven by all the factors Maria talked about.

This is what matters to everyone on the call now. This cash builds the war chest and pays for reinvestment in the business, dividends and buybacks. But it's a byproduct of a structural change in how the businesses are being run. BMO's coverage universe is talking about a 10% free cash flow yield in 2027. 10% is better than some banks, and that's what these companies are generating today. Let's take a look at what the market expects next and what it's paying for.

Here, we graphed 2027 EPS expectations for gold miners against the metal and equities since '24 (slide 31). Since the start of '24, which is where I put the line, gold's up one time, call it 100%. The shares are up two times. That's pretty good. That's our leverage. But the expected earnings for '27 are up nearly 3.3 times, quadrupling from the same starting line. It's the same operating leverage story we've been talking about. The business has a pretty high fixed-cost component, so every extra dollar of gold price increase largely hits the bottom line. Here's the fun part. The market hasn't paid for it. Share prices have lagged earnings so much that the implied earnings multiple has compressed by roughly 30%.

That's starting to get better. Partly, people are catching up; partly, we're seeing it come from the other way, with some costs. The bottom line is that the stocks have gone up but are still cheaper on forward earnings. This is while the businesses have been derisked. They're lower-risk businesses now than they were two years ago.

This isn't a story where I'm telling you to hope for higher gold prices. The cash flows are already in the numbers. The balance sheets are the best they've been in decades. By and large, we've got the lowest hedging in years. The capital is returning after reinvestment in the business, and net cash is increasing. Importantly, and I'll talk about this later, the discipline is still there.

The heady excesses I've seen aren't showing up at levels that give me concern here. We don't need the gold price for this to work. Gold is entitled to take a breather. It had a pretty good run. The pullback, we'll talk about, but at today's prices, these companies are cash machines. If gold does nothing, the miners can still rise as the multiple gap closes.

How does this compare with the broader market? Again, a numbers, graph-heavy slide (slide 32). I won't read it all to you. On fundamentals, our sector looks very attractively positioned relative to broader equities.

I've already talked about the margins, the idea that even after accounting for everything, including interest on debt and G&A, they still have very strong margins, even allowing for a little bit of cost crimp from some of the geopolitical oil price shocks and rising consumable prices. We've still got strong margins like I haven't seen for decades.

The second part of the argument is valuation. Despite the stronger fundamentals, the gold miners, at least to us, remain inexpensive relative to the broader market. You can see here, on EV-to-EBITDA, that the gold miners index is trading at a discount of more than 50% to the S&P 500. That's despite it showing lower leverage, higher dividend yields and better margins.

If you felt you missed the trade, if you just looked at the gold price or the raw accumulation in the equities, hopefully I've made the case that you should take another look. The pullback we've had since the start of this year, which, again, I think is healthy, warranted, and appropriate, gives you another reason to come back, do some math, and run the numbers here. Share prices are lower than at the start of the year, even as fundamentals are stronger.

All our analysis shows that generalists remain underweight. The quants have rotated towards energy compared to where they were at the end of last year. There are some green shoots sprouting elsewhere. We're starting to see a little bit of money start coming back into the miners.

The ETF channel reported a lift in weekly inflows into GDX last week, with some inflows into GDXJ, which hasn't been the case in recent years. We were talking in past versions of these calls about those things being actively redeemed into higher gold prices. There's potentially another source of support alongside the earnings story, albeit an early one.

I think the punchline here is this table. As you digest those numbers, remember that they represent the average. These are not sector cherry-picked names. Averages can be misleading, and this chart shows why (slide 33). I've got a lot of favorite slides, but this is one of my favorites. Each bar here represents one year of equity returns, and we've divided them into quartiles. The worst quartile is on the left; the best is on the right.

Look at the shape. The upside tail has a strong positive skewness; we'd describe it in statistical terms. It's much longer than the downside. This tells us that a small number of companies are delivering most of the gains. As a geologist, that doesn't especially surprise me. It follows the same pattern as a whole bunch of things you see in nature and human systems all the time, including ore bodies. It's how deposits work. A handful of the world's deposits hold most of the gold. There's a Venn diagram showing where a handful of deposits deliver most of the value. The share prices follow the same pattern.

In 2024, for example, let's pick an easy one. The Gold Miners Index returned about 11% on average. The individual stocks in that index ranged from roughly- 40% to 100%. The index told you very little about what owning any one gold miner was like. Even in bad years, some stocks win.

Look at the negative years in 2021 and 2022, when the index was down about 9% a year. Yet you still had performers in there going up 150% one year. Usually, that's things like a brand-new discovery, an important mine coming into production. We should be honest; dispersion cuts both ways.

In 2022, the worst miner did way worse than that. Just owning the index will protect you from that, but it limits you to the average. This is an area where we believe active management can really shine. It can add a lot of value if you consistently pick well.

When we talk about this stuff and build our portfolios, we tend to focus on our highest-conviction ideas and overweight them. We end up with portfolios that can look very different from some of the more passive indexes.

Just as importantly, we work hard to avoid the left side, the blue side of the chart. Most of those losses stem from operational failures, catastrophic pit wall collapses, financing problems, and jurisdictional risk. This is part of why we do all the site visits Ed talked about, all the engagement, all the jurisdictional analysis, to try to catch exactly those risks and limit our downside.

We should talk for a second about the right side of the chart. This is light on detail. There's more to talk about what we do in the active management process (slide 34). The truth is, there are a lot of smart people on this call, and if we sat down across the table, I would probably learn a lot more from you guys than you would from me.

Natural resources are our bread and butter. That's where our competitive advantage lies. This is what we do. We focus hard on strong relationships with the industry. We're not activists, but we're very active. We know all the management teams. We have tremendous access. We know who's got a track record of delivering projects on schedule and on budget. We know who's been successful serially over and over, and which groups tend to underpromise and overdeliver.

It's not uncommon for boards to proactively reach out to us to solicit feedback. As I said, we've been on the warpath recently, trying to engage with groups to help the industry do a better job of showcasing its appeal as a business rather than just as a miner, to try to get some of these generalists to sit up and pay attention to what we're talking about today.

Ed talked about the emphasis we place on site visits. We think that's really important. It lets you do much deeper due diligence that complements financial analysis or macro analysis. It helps you, from a bottom-up perspective, identify which mines we think are good early and position ourselves accordingly.

It helps you minimize risk. We're engaging not just with the C-suite in 20-minute one-to-ones. We're engaging with operators. You can't see the culture in a one-to-one. You only see it when you're out there on site talking to the guys who are doing this day in, day out. It does change how you look at this.

I don't think we're near a cycle top here. This is a useful slide for talking about that concept a bit (slide 35). This is mergers and acquisitions, and we've graphed it up here over 24 years. Despite the record gold prices, we haven't seen any blockbuster M&A happening yet, and I think that's a good sign.

Year-to-date, we're only at $12 billion, and 85% of that is in four deals. When you go back and look at when the big M&A periods were, and you can see it there in '06, $38 billion, and 2010, 2011, which are both in the high $30s, those tend to come at cycle tops or periods of peak enthusiasm. When I think back to those periods, 2010 and 2011, I mostly remember those years for the write-downs.

In 2010, a company called Kinross paid a little over $7 billion for Red Back Mining, and it had to write down $2.5 billion of that about a year and a half later. Barrick borrowed a bunch of money to pay $7-8 billion for a copper mine at the 2011 peak.

This cycle doesn't look like that yet. Gold is constantly hitting numbers that we didn't see coming, but the gold M&A is a third of those numbers. That gap is bigger than the chart shows because these are all today's dollars. If we adjust for inflation, the deal volume is probably even smaller.

Interestingly, when I look at the deals done so far, they overwhelmingly favor operational synergies over growth. You can see some of the examples. I put the four big deals there. G Mining acquired G2, a neighboring asset with a deposit located right across the border. In fact, the border between their properties shared a gold deposit. It doesn't make sense to build two mills when you can build one and run it. That's great.

When Agnico acquired Rupert Resources, it got a big mine right next door again, which helps it build a strong regional base in Finland. The Genesis Vault deal is the same again, consolidating a greenstone belt in Western Australia. It's the same pattern. None of these deals is betting the company. They make good business sense. The growth for the sake of growth deals are in the minority here.

The last true mega deal that we had was Newmont-Newcrest back in 2023. Remember one of those bad years? That was about $17 billion. It was done when the gold miners' share prices were out of favor. Since then, we haven't had a big deal. Gold Fields made a bid for Northern Star, which was being mooted, but it was recently rejected.

The bottom line for investors is that a bidding frenzy is one of those classic signs that you're nearing a top in the bull market, and we just haven't seen it. The companies are showing discipline, which I think is a good indicator that the cycle has room to run.

We're coming up on the top of the hour, so let's do a couple of minutes on silver, and then we can pass back to Ed. Everything I've said about the gold miners applies to silver, but with some more leverage, and Maria talked about that. Silver, what's different? Silver just became strategic. Maria mentioned this. She said that late last year, Washington added silver to its critical minerals list.

Another interesting corollary to that data point is that, a few weeks later, Beijing put silver exports under license. I don't think that's a coincidence. That industrial use case for silver is very real and a clear example of the multipolar world Maria described at the start of this talk.

To recap some of what Maria said, the market's been in deficit for six years. Over the last half-decade, we've drawn down basically an entire year's worth of mine supply from inventory. Here we are today. You can see the producers are trading at about 1.3x NAV, which is lower than they did when fundamentals were weaker.

I see a valuation gap in the sector, with the price 50% below its peak at the start of the year. The bubbles have gone, the froth has cleared, but the deficit hasn't changed. The shortage didn't go away. I like the business here today.

We should touch on profitability. Again, this isn't wildly different from what we saw before. The bottom blue bar shows the cost to produce an ounce, and the top bar shows the margin up to the average price.

In 2025, that margin was double the previous best year. That's not bad. Today's price, what did we say it was? $58, I think Maria mentioned. That average silver price there isn't quite matching the spot. That's got to come down a little bit. I don't mind. The margins are even better, even after accounting for costs that have come up a bit. Nobody's immune to inflation, but nowhere near at the same rate of change. It's the same operating leverage we've been talking about.

I would say stock selection here matters even more. Only a fraction of silver, maybe a quarter, comes from primary silver mines. Most of it's a byproduct. If you want silver exposure through equities, you need to pick your companies very carefully to get silver miners. Not all the indexes do that for you.

Again, we should be honest about the risks. Silver can move faster than gold in both directions. The pullback has been steeper here since the start of the year, which is why we size our positions carefully rather than chase them. Let's put it in perspective. Silver's back 50%-ish since the start of the year. You could use the word crash. It's crashed. It's still roughly double its 2024 average. I'm not worried about earnings for the silver miners here, or at least the good ones. They're going to be as profitable as they've ever been.

With that, I'll stop there. I'll hand it to Ed. Thank you for indulging me, everyone.

Q&A

Ed Coyne

Ed Coyne: Thank you, Justin, and I know we're getting close to the top of the hour. I do want to save some room for some Q&A, but I do want to point out one additional slide that I think gets to the crux of it: if you're an advisor, you're an investor, why bother? Why even think about gold and silver, both on the physical front, but also on the miners, the equities themselves?

It really comes down to diversification. When you look at what gold and silver have been able to provide over multiple market cycles, whether you're talking about the S&P 500 or even a general commodity index like the Bloomberg Commodity Index, or inflation-protected TIPS, bonds, cash, you name it, you continue to see over multiple market cycles that both gold and silver have offered a nice ballast or a nice diversifying piece to the puzzle when you're building out a portfolio.

We just ask those listening to the webcast today to consider it as a low-cost, liquid way to hedge a portfolio and provide greater diversification. When you look at Sprott as a firm, we offer a full suite of solutions, again, whether it's on the physical side to diversify or on the active mutual fund side to give you exposure to the mining stocks themselves.

For those who prefer ETFs, we offer active, passive and factor-based ETFs to give you exposure to both the precious metals and critical materials markets today. At this time, I'd like to open the call for a few questions.

This first question is for Justin. Justin, you mentioned earlier the margin expansion in mining companies. How impactful has inflation been on mining companies in general over the last two years?

Justin Tolman: Let's talk about it broadly for a second. It's very real, and I don't think it's running anywhere near the headline numbers we're supposed to talk about, and not just the last two years, for the last 10 years, right? This is a real assets business. It's got a lot of consumables, and it's probably 5-6%. The last couple of years have been marked by a major shock: diesel prices have risen sharply. They probably went up 50- 60% year-on-year. I don't think you've seen the full impact of that yet, because many companies will hedge their fuel prices or have some delayed pass-through.

It was trickling in Q2. You'll get a better look at it now in Q3 earnings. I don't think it's a dealbreaker. I don't think it's a thesis breaker. I think the cost inflation we're seeing is an earnings haircut, and that's reflected in some of those numbers I showed you. The earnings per share for '24 have gone down from a quarter ago, when they were even higher, to accommodate that. The price environment has expanded faster than inflation can erode our cost side. When I talked about that, I had already factored some of that in. It's there, it's real, and, by and large, companies are exercising the same discipline they have for the last decade because that's the only thing they can control: costs.

Ed Coyne: The next question I'm going to hand over to Maria as it relates to silver. The question is, how do you see silver being valued today, and how do you think about it from an investment standpoint? Is it truly becoming a critical material, or do you still value it as a precious metal?

Maria Smirnova: That's a good question, and I get it a lot. The way I think about silver, and I've followed the silver market for a long time now, is that, to me, industrial use is becoming more of a backbone of silver demand. If we say industrial uses now represent roughly 60% of all demand for silver, with 40% being investment, industrial use has been steadier over the years. It does fluctuate as solar increases, or maybe if the economy's weak, it'll drop.

But the investment side is more volatile. That is, to me, what sets the price of silver at the margin. When we see periods of gold prices rocking, silver prices rocking, there's enthusiasm in the sector. That's when the investment side comes in, and as investors pile in, that's what's driving the price on the margin. I hope that answers the question. Yes, to me, industry is the backbone, with the added layer of investment.

Ed Coyne: Maybe you can both address this next one. We'll start with you, Justin. You talked a lot about mining stocks in general from an active standpoint, and so forth. The question is, can you comment on your view of the junior- or small-cap mining companies relative to the senior, more established large-cap mining companies? What's your view on how you look at both areas?

Justin Tolman: As a group, here and now today, the micro-caps and the junior pre-development explorers by and large are the redheaded stepchildren of the industry. The valuations haven't risen proportionately, and that's normal and expected and typical. That's another one of those things we could talk about as an indicator of where you are in market cycles.

Now, having said that, again, averages are misleading here. The devil is always in the details. There are a couple that have done great and a couple that are doing better and very interesting. Part of what we do is monitor the universe for companies that can raise capital and drill. As more companies raise capital and drill more holes, eventually, you get more discoveries. That declining discovery chart that Maria showed should start to pick back up in later years, as the law of averages says that throwing more darts eventually means more bullseyes. That's what I care about, not the average, the very small sectors that are going to be adding disproportionate value.

Ed Coyne: Thank you. I don't know if you have anything to add to that, Maria.

Maria Smirnova: I agree with Justin, but I would add that, for me, the sweet spot is in the middle. It's in those companies that are past the initial risk stage, and they may have resources and maybe even production, or they may have production but still have the ability to grow. In other words, they're not a big company that's a big ship that's hard to turn. They're still nimble, and they're still able to find and add resources, and maybe even launch new mines that can transform them in meaningful ways. I think that's where we can find a lot of value in the market as well.

Ed Coyne: I want to end with one last question, because we've talked about discoveries a little bit, and the lack of discoveries more recently. If there were a new discovery to hit the news today on a scale, what would that mean for supply-demand dynamics, both on the gold side and the silver side? Justin, why don't we start with you on that one?

Justin Tolman: The answer, I suspect, is probably not much, which is to say that the situation that we have with structurally rising demand and inelastic supply, a single new discovery isn't really going to help at the margin to fill the gap. We need multiple new discoveries, and we needed them 5 years ago, if we're being honest. They'll do wonderfully for investors at the time. I think you're seeing some of that come through. There are always discoveries, but the Grasberg-type things that will move the whole sector up and change the global average are once-in-a-generation stuff, and I think we need more than one Grasberg in the coming decade.

Ed Coyne: Maria, let's close with you. Any final thoughts on that as it relates to discoveries?

Maria Smirnova: A couple of things. The cycle from discovery to production now takes close to 20 years, including exploration, drilling, and permitting. I think the stat is, Justin, correct me if I'm wrong, it's at least 18 or 19 years, so I'm rounding up here. As I mentioned, the quality of the discoveries is getting worse, meaning what we call the grade of the ore or how many grams of gold or silver are in a ton of ore, has declined over the years. That's an indisputable fact.

If a good copper open-pit mine was 2% in the past, now it's 0.5%. Gold, a good open-pit would have gone from a couple of grams to now maybe 1 gram, maybe 0.9 grams; that's a big open-pit. In silver, we have a dire shortage of new projects.

For example, to really drive the point home, a good silver mine produces between 10 and 20 million ounces per year. We can probably count those upcoming mines on one hand, and we have been running deficits of between 100 million ounces and 200 million ounces. Not only is the time not there, but the quantity is not there either. Again, I called it a quiet crisis, and that's what it is.

Ed Coyne: That's a great way to put it. Thank you for taking the time today to do this. For all our listeners, I encourage you to reach out to our senior investment consultants and sales associates to learn more about who we are, what we do and the product suite we offer. I also encourage you to visit our website, where we have many interesting research papers and documents that go in depth on this topic, often authored by Maria and/or Justin. I encourage you all to visit us on sprott.com as well. Once again, thank you for listening to our webcast today, and we look forward to working with you in the future.

Justin Tolman: Thank you, everyone.