May 9 (Bloomberg) -- Sprott Inc. may rise when it begins trading on the Toronto Stock Exchange after the mining and energy hedge fund run by investor Eric Sprott raised C$200 million ($197 million) in the biggest Canadian initial public offering in five months.

The 20 million shares were sold at C$10 each, in the middle of the expected range of C$9.50 to C$10.50 a share, the Toronto- based money manager said in a Canada NewsWire statement late yesterday. The stock is expected to begin trading after the IPO closes on May 15, Sprott said.

Eric Sprott and other shareholders are selling a stake of as much as 15 percent in the firm, whose hedge funds and mutual funds have soared along with prices for oil, gold and other metals. The C$2.1 billion Sprott Canadian Equity Fund has returned 30 percent annually in the past five years, compared with a 19 percent gain for the Standard & Poor's/TSX Composite Index.

``Eric Sprott's a good manager,'' said Bill Tynkaluk, who helps manage about $2 billion at Leon Frazer & Associates Inc. in Toronto and bought about 50,000 Sprott shares. ``The stock will go to a premium when it begins trading. Then it'll probably drop. But we're not in it for a flip.''

The shareholders may sell an additional 3 million shares within 30 days of the closing date to meet demand, raising gross proceeds to about C$230 million. The IPO, led by Cormark Securities Inc. and TD Securities, is the biggest in Canada since Franco-Nevada Corp. raised C$1.26 billion in December. The banks will share fees of about C$10 million, or 5 percent of the proceeds, according to the filing.

Valuation

The sale values Sprott Inc., which has 72 employees, at about C$1.5 billion. That's almost twice the market value of Gluskin Sheff & Associates Inc., a rival Canadian money manager that went public two years ago. Toronto-based Gluskin manages C$5.6 billion, compared with Sprott's C$6.8 billion. Gluskin's shares have risen almost a third since the IPO.

Tynkaluk at Leon Frazer said he bought Sprott stock for clients with a ``high risk tolerance.''

``It's a high-multiple stock and the market is nervous,'' he said.

Sprott, which will trade under the ticker SII, had net income of C$42.3 million in 2007 on revenue of C$227.6 million. A year earlier, profit was C$34.8 million on revenue of C$198.6 million, according to the sale documents. The firm won't get any money from the IPO, with all proceeds going to the selling shareholders.

Eric Sprott will receive at least C$141.1 million from selling shares as part of the IPO, according to the final prospectus filed today with securities regulators.

Reinvest Proceeds

The executive plans to reinvest a portion of the proceeds in ``securities of our funds,'' according to the filing. Assuming bankers exercise their option to buy more stock, Eric Sprott will control 66 percent of the company after the IPO, a stake valued at about C$996 million.

According to the filing, Eric Sprott loaned the company C$46 million in 2006 and 2007, an amount that was repaid by Dec. 31. The CEO took C$37 million in ``precious metal'' bullion and the rest in cash, the filing said.

Sprott spokeswoman Kirstin McTaggart didn't return calls seeking comment on the IPO.

Sprott's assets under management have tripled since the end of 2004, and investor inflows have exceeded redemptions for 16 consecutive months through March. Inflows for the quarter ended March 31 amounted to C$302 million, the filing said.

The company will buy all the outstanding shares of Sprott Asset Management before the IPO closes. Current Sprott Asset Management shareholders will receive about C$27 million in dividends before the closing, the filing said.

Sprott Inc. expects to pay a quarterly dividend of 2.5 cents a share starting in the third quarter of 2008.

Eric Sprott, 63, has been managing funds for 35 years and owned 78 percent of the money manager before the IPO. He started his career in the investment industry as an analyst at Merrill Lynch & Co. and founded Sprott Securities in 1981.

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

Last Updated: May 9, 2008 16:58 EDT