How Eric Sprott Made $1 Billion on a Mining Ten Bagger

After getting ditched by the company he founded, Eric Sprott earned $1 billion in 5 years building Kirkland Lake Gold through mergers and exploration.

Imagine your hedge fund, your pride and joy, takes a nosedive. First, it falls over 20% in a year, then another 30% the next, and a staggering 50% the year after that.

The cash you're managing shrinks to $350 million from $3 billion in 5 years.

Then the firm with your name on it announces they're phasing you out of investment decisions.

That's the rough ride Eric Sprott found himself on in early 2014.

His relentless faith in gold and commodities, which made him a billionaire, turned against him. He was 69 years old, destined for the dustbin of finance history, or not…

In January 2015, Sprott became chairman of a quiet Canadian gold producer, Kirkland Lake Gold (KGI). Worth $319 million, KGI was tracking 150,000 ounces of annual gold production. Sprott held a $36 million personal stake.

A few months after joining KGI, Sprott merged it with St. Andrews Goldfields (SAS), a fellow Ontario miner. Owning $4.8 million in SAS stock, Sprott couldn’t vote for the merger, but it proceeded anyway. The new company was 71% KGI and 29% SAS owned. It aimed for 285,000 ounces in 2016. After the deal, the company's value hit $540 million.

Next Sprott recruited Tony Makuch, an experienced Canadian miner, as CEO.

Bigger gold miners attract more investors, Sprott knew. He was ‘driving the bus’ behind the Fall 2016 merger of KGI, now trading as KL, with Newmarket Gold (NMI). Sprott owned 18% of NMI, a Vancouver-based miner with operations in Australia, and stayed out of that merger vote as well. The new entity targeted 500,000 ounces in 2017, with a $2.4 billion market value, split 57% KL and 43% NMI.

Sprott announced he owned 19,178,195 shares of KL on Jan 4, 2017. My best guess is he paid about $92.12 million* for the stock, but it’s impossible to know without access to his trading records. KL closed at $7.73 on Jan 5, valuing his stake at $148.5 million.

Then things took off. A rich new find at the Fosterville mine, one of NMI’s operations, expanded KL’s potential and profitability. 2017 production soared 20% above expectations. KL ripped to over $44 per share by early 2019.

In May 2019, Sprott retired as KL’s chairman. His last insider filings showed him owning 19.783 million KL shares.

Later that year, KL acquired a massive Canadian gold mine, Detour Gold (DGC), in a $4.9 billion stock deal. The combined company, 73% KL and 37% DGC owned, produced over 1.5 million ounces in 2019 with US $700M in free cash flow.

Gold was on KL’s side as well, climbing from $1280 per ounce in early 2019 to over $2000 by August 2020 when KL eclipsed $74 per share.

In September 2021, Agnico Eagle (AEM) announced a takeover of KL, then trading at $55.70, in another stock swap. KL got 45% of AEM. AEM, now worth $35 billion, did over 3.25 million gold ounces in 2023.

Sprott’s $92.2 million* bet soared to over $1.4 billion at its peak, $1.1 billion at the time of the AEM merger.

“I’ve had lots of ten baggers and the important thing is to stay in it,” Sprott told Financial Post’s Gabriel Friedman in late 2019.

Since 2017, Sprott’s family office invested $900 million in over 175 mining companies. 'It’s like being at a table with a winning run,’ Sprott reflected.

In a three-month span of 2019, research by Oreninc showed that $1 of every $4 raised by Canadian listed junior miners was from Mr. Sprott. Yet, he admits these high-risk bets are 'the worst place for money', with more losses than wins.

‘The guy gets up at ungodly hours, he might get up at 2 a.m. studying,’ said Conor O’Brien, a Sprott colleague. ‘Neither one of us are geologists, we’re just financial people that can do mathematics, as opposed to the geology. We more kind of conceptualize, and dream and kind of multiply.’

Mr. Sprott turns 80 this year. Outside of KL, he’s best known for founding Sprott Securities, now called Cormark, a leading investment dealer. He founded Sprott Asset Management as well. The Sprott School of Business at Carlton University is named for him.

For his KL win and others, Sprott is a legend among retail investors. Unlike so many mining entrepreneurs, he buys his stock like everybody else, rather than manufacturing companies.

He confesses to reading internet message boards for stock tips, and his comments promoting CEO.CA, my mining community web site, were a huge benefit to us.

Sprott owned 17% of Goldspot Discoveries when it acquired CEO.CA in 2021. That’s how my partner and I ended up with some of Sprott’s KL winnings.

At a ceremony in Toronto last week, Sprott was inducted into the Canadian Mining Hall of Fame for his vast contributions.

'He was a public champion of the sector and then how many dozens of juniors would not have made it if it wasn't for Eric Sprott,’ said colleague Peter Grosskopf.

Ten years ago, Sprott was down on his luck after grave losses to his hedge fund. But he stuck to his knitting and it led to one of the all-time great mining scores. His comeback story is one of resilience and vision. In the world of commodities, Eric Sprott's legacy shines like the gold he believes in.

* Estimate of Eric Sprott KL cost basis:

+ $35.831 million market value for 8,143,466 KL shares reported Jan 26, 2015, + $22.5 million for 10 million NMI in Feb 2016, per SEDI, + $45.36 million for 16.2 million NMI, also in Feb 2016, per SEDI, + $11.332 million for 5,151,196 NMI shares held before becoming a reporting insider, estimate $2.20 cost basis, + $4.8 million 13,349,000 SAS * .36 in context of market at announcement, - $27.7 million for NMI sales July-Sep 2016 = $92.123 million… This estimate is definitely wrong… But directionally accurate…