Good morning, ladies and gentlemen and thank you for standing by. Welcome to Sprott Inc.’s 2016 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

[Operator Instructions] As a reminder, this conference is being recorded today, August 12, 2016. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the Safe Harbor provision of the Canadian Provincial Securities Laws.

Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements.

For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter and Sprott's other filings with the Canadian Securities Regulators. I will now turn the call over to Mr.

Peter Grosskopf. Please go ahead, Mr. Grosskopf..

Thank you, operator. Good morning everyone and thanks for joining us today. On the call with me today is our Chief Financial Officer, Kevin Hibbert. Our Q2 results were released this morning and are available on our Web site where you can also find our financial statements and MD&A. I’ll start on Slide 03, with a look at our assets under management.

As you can see after a difficult three year period our assets under management have returned to their previous peak levels in the 10 billion range. On a year-to-date basis our AUM has increased by over 30% or 2.5 billion.

A lot of this impressive growth is attributable to resurgence in precious metal prices, good performance in our resource equity funds and continued net sales for our alternative income products.

We have a significant pipeline of product launches scheduled for the second half of 2016 and we're confident that we'll be able to maintain this strong top-line growth. Looking now at Slide 04, our Q2 adjusted EBITDA was $0.02 per share, our net income was $0.07 per share in the quarter.

Our book of proprietary investments continued their strong performance during the quarter generating 17 million in gains. On a year-to-date basis, our proprietary investments are up by close to 30 million, due largely to investments, seed investments in our precious metal funds and some proprietary gold and silver equity investments.

We continue to maintain a strong and debt free balance sheet, with more than 305 million in available capital. Turning now to Slide 05 for some highlights, the big story for us in the first half of the year was the performance of precious metals and our precious metals funds.

Investors are continuing to grapple with concerns over slowing economic and global growth negative interest rates, a general loss of confidence in central bank policies and together these factors have created enough of uncertainty such that the appeal of holding gold and silver has increased.

Our precious metal equity strategies performed extremely well this year, posting gains well in excess of 100% and our exchange listed products have returned to growth mode through the launched aftermarket program. In terms of sales, it's been a slow build for our diversified strategies due mostly to difficult fund industry conditions.

We have had a recent uptick in inflows to our gold and silver products and our new Sprott Global Gold fund is generating interest amongst institutional investors. Overall, Sprott Asset Management has delivered positive year-to-date net sales, which is impressive accomplishment considering some of the challenges facing asset managers in Canada.

Our specialty credit franchise is performing well. We recently launched the Sprott Private Credit Trust II and we are excited about the launch of an additional alternative income strategy in the near future. On the lending side of the business during Q2 we completed the first close of our Private Resource Lending LP raising 200 million.

With that I'll turn it over to Kevin, for a more detailed look at our results..

Thanks, Peter and good morning everyone. I will start on Slide 6 with a look at our AUM roll forward. AUM as at the end of the quarter was $9.8 billion, which was up $1 billion from March 31, 2016 and up by $2.4 billion from December 31, 2015.

As Peter noted and as we announced in July, shortly after the quarter-end our AUM broke through the $10 billion mark, returning us to the levels not seen since 2012. The increase in AUM during the quarter was mainly due to the performance of our precious metals strategies, as well as good sales momentum in our alternative income products franchise.

Average AUM for the quarter was $9.3 billion, an increase of $1.4 billion or 18% from June of last year. Moving on to Slide 07, you will see a breakdown of our Q2 revenues. Management fees net of trailers and sub-advisory fees were $16.3 million on a three months ended basis reflecting an increase of $800,000 or 5% from the prior year period.

The increase was largely due to an increase in the average AUM of our exchange listed products, and diversified alternatives asset management funds, partially offset by a slight decrease in the average AUM of managed companies in our private resources businesses.

Growth management fees as a percentage of average AUM were 1%, largely unchanged from the prior period. As Peter noted, returns on proprietary investments were $17.6 million on a three months ended basis and $29.1 million on a six months ended basis, reflecting an increase of $14.2 million and $28.4 million respectively from the prior periods.

Gains were due to significant market value appreciation and resource and precious metals focused seed investments of our diversified alternative asset management business, private resources business, as well as on equity holdings in the corporate segment. Our reported interest income at $3.9 million was largely unchanged from Q2 of last year.

However excluding non-cash interest on impaired loans, interest income in the quarter was actually $3.6 million, which is down $300,000 from the prior period due to lower average loan balances in our lending business and the impact of previously impaired loans.

Commission income was $4.5 million on a three months ended basis, reflecting an increase of $3 million from the prior period. The increase was due to improved client trading and private placement activity in our U.S. and Canadian broker dealers.

Other income was $1.3 million on a three months ended basis, reflecting an increase of $1 million from the prior period. The increase was due to lower foreign exchange losses on translation of U.S. dollar denominated cash, receivables and loan balances, as well as higher income earned on certain seeded energy assets.

Turning now to Slide 08 for a look at our expenses in the quarter, compensation expense was $11.6 million in the quarter, reflecting an increase of $4 million or 52% from the prior period.

Excluding quarter-over-quarter bonus true up adjustments, the increase was primarily due to higher salaries and benefits expense in our diversified alternative asset management business, as we continued our efforts in the quarter to invest in the long-term success of this important franchise.

As well as higher commission expense due to improved client trading and private placement activity again in our Canadian and U.S. broker dealers. SG&A expenses were $7.9 million in the quarter reflecting an increase of $2 million or 33% from the prior period.

The increase was primarily the result of higher marketing and fund operation expenses as part of the ongoing strategic investments in our diversified alternative asset management business as previously described. Stock-based compensation was $1.4 million during the quarter, reflecting an increase of $1.2 million from the prior period.

The increase was partially due to the amortization of stock-based compensation attributable to new long-term incentive compensation plan we adopted in the first quarter of this year. As noted last quarter, we believe the new LTIP program will better align executive compensation and incentives to that of our shareholders going forward.

Other expenses were $1.5 million during the quarter, reflecting a $600,000 increase from the prior period. The increase was primarily due to a placement fee on the startup of our new Private Resource Lending LP, partially offset by the reversal of a transaction accrual we recorded in Q1 of this year in our private wealth business.

Turning now to Slide 09, net income was $16.9 million for the quarter reflecting an increase of $10.2 million from Q2 2015.

The increased net income was due to a combination of higher net management and performance fees, higher commissions and robust gains on proprietary investments, all of which more than offset increased spend in the areas of compensation and SG&A, arising largely from our diversified alternative asset management business.

Adjusted base EBITDA was $5.8 million during the quarter, reflecting a decline of $1.4 million or 19% from the prior year period. Lower adjusted base EBITDA in the quarter, was due to improved fee income being more than offset by higher compensation and SG&A spend as previously noted.

Despite disappointing year-over-year EBITDA results over the first two quarters of 2016, we expect a better second half of the year, as well as improved annual results on a year-over-year basis compared to 2015.

The main reasons for this are that last year's, particularly in the back half of the year were negatively impacted by material loan loss provisions in our lending segment, weaker private placement activity in our U.S.

broker dealer and elevated compensation and SG&A spend in our diversified alternative investments business relative to its management fee levels. This year we continue to anticipate no new material credit events in our lending business.

Our first half results in our global segment have already exceeded our full year 2015 level and the pace of spend in our diversified alternative investments business is nearing an eventual conclusion with potentially positive benefits to our operating expense ratio in that business going forward.

Slide 10 provides a snapshot of our current capital position and as Peter mentioned, we do continue to enjoy a strong balance sheet, no debt and over $300 million of invested capital. That said, I’ll pass it back to Peter for some closing remarks..

Thanks Kevin. On Slide 11, you can see an overview of our loan book, which stands at over 80 million down significantly from 2015. Gold industry conditions were strong in the quarter and companies in the sector took advantage by refinancing primarily through equity.

It is normal for our pipeline to swell and contract during the year, and we note that we have a strong pipeline for the next quarter as new projects in the sector tender for debt financings.

We are pleased with the performance of the resource lending business in general and with the launch of our new LP, any loans originated by us will go into the LP and generate a new revenue stream for Sprott rather than being carried exclusively on the balance sheet. Slide 12 just in terms of our outlook for the year.

We are pleased that we have returned to top-line growth and are now focused on maintaining our momentum and translating this into economies of scale for our shareholders. We know that we have also been rebuilding our performance fee book and several funds now in positive territory.

We look forward to delivering gains, as these funds hit their respective year-ends. We have a number of new product launches scheduled for the second half and I think fund flows will continue to improve with some of our existing products. As Kevin, noted the majority of the investments in our platform are now complete.

We expect our expense ratios to decrease in the second half of the year as cost containment efforts start to kick in. That completes our remarks for today's call.

We will now open the line for questions, operator?.

First question on the net flows, just good momentum on the exchange listed products.

Can you give me more details around that and outlook post quarter end? And then on the 27 million net mutual fund outflow, is there a particular fund you're seeing higher redemptions? And I'm wondering how you view your mutual fund piece benchmark against peers?.

Sure. Thanks for the question, it is Kevin here. I'll try to answer that as best I can. So, as far as what you saw around net sales, I think you're asking about our exchange listed products.

Correct?.

Yes, yes..

Yes. So, a good chunk of that relates to the PSOB offerings for the silver trust offering that we did I think it was back in April. And then the large majority of the remaining growth in sales on that line is really coming from our ETFs as far as -- new ETF creates in the second quarter of the year.

As far as the redemption that you see on the mutual funds line, I would say it's somewhat concentrated in a limited few funds and at this point in time has more than offset some of the growth that we were seeing in our other areas.

But as Peter noted earlier, there're some new products that we have underway and some of them that have recently launched have been showing some pretty good results as far as very early sales, it's just unfortunate that at this time there were a couple of our products that somewhat overshadowed it on the redemption side..

And then comforting your mutual fund fees versus benchmark?.

I mean we haven't noticed fee pressure Gary, our fund’s fees are in line with the averages and there is a general industry pressure obviously because of the move to ETFs or fund companies to reduce fees, but for our strategies they're all non-benchmark alternative strategies and we've not noticed the fee line as being an issue.

What is the case, is that when Brexit occurred and other negative interest rate policies really started to kick in and investors started to just become unenthusiastic about new fund sales in general in Canada. And it's true that every day we have flows and if you don't get flows on the sales side you start to notice some redemptions.

The redemption trends that we saw were not as Kevin mentioned there was no particular fund and no particular strategy, and no particular performance issue. It was just a small reduction due to the difficulty of the quarter and difficult market conditions.

Offsetting that a bit our gold and silver funds started to see some inflows and those have continued post quarter..

And then maybe more numbers question I guess for Kevin, just on the discretionary bonus accrual line this quarter, I know this just kind of means lumpy, can you walk me through how and when you accrue for these bonuses? And then on the SG&A spend, 7.9 million would you say this is more of the elevated spend level or should we expect this is a run rate going forward?.

I'll first tackle the discretionary bonus piece, so much like all companies, we do accrue our bonus on a quarterly basis and it can be lumpy at times as we look to a variety of factors in determining how to accrue as we approach the end of the year.

This $2 million increase year-over-year in the quarter is largely offset or is entirely offset by the fact that in the first quarter the accrual was actually down by about $3 million which is why on a year-to-date basis we are down about $1 million in that bonus accrual line Gary..

Okay..

So, if things can get lumpy I wouldn’t place too much emphasis as far as whether this provides indicative information on how the year is going to go. It's just that from time-to-time we may do true ups here and there, I think even on the call I heard awhile ago at Goldman they had a similar situation where it was a little noisy.

As far as the SG&A, I've motioned a couple of quarters back that we're sort of moving away from providing any guidance anymore around the run rate SG&As because we're in the midst of a couple of things one, we've mentioned is the sort of getting to the final stages of our diversified alternative investment business growth initiatives and investing in that.

And then concurrent with that project running in the background was the cost containment plan that I launched shortly after coming in as CFO, so what I can say is the goal is to, as Peter noted gets our operating expense ratios down overtime.

We believe that we will slowly start to see that hopefully in the back half of this year and I probably point you in that direction as opposed to any specific run rate SG&A number..

No. That's great. I appreciate that. And then may be just lastly just an update on the diversification strategy, just wondering how that's progressing provided that last quarter, and the quarter before you mentioned 50% AUMs actively managed and I think 70% to 80% non-resourced.

Can you give me update on those numbers please?.

Yes. They haven’t changed that much. We have been one of the -- we do have one of the fastest growing diversified platforms in Canada. It took a bit of a pause this quarter because of the difficult industry conditions.

Our private credit funds did grow and offsetting that some of the other areas came back a bit with some net outflows, but on balances it's still growing quickly. With these back-half of the year private credit launches we actually expect significant momentum back half of the year..

Okay.

So those percentages are roughly in line then?.

As a percentage of overall AUM?.

Yes..

No. I don’t think those -- that it would have gone the opposite way this quarter just because of precious metal performance was so strong. So it's a nice problem to have, I think that the number will keep going up but depending on what happens in precious metals, it's very hard to benchmark where the actual ratio would be..

Thank you. Our next question comes from the line of Marko Kais with TD Securities. Your line is open..

I was just wondering what is the reasonable timeline for deploying the $200 million in commitments on your Private Lending LP and what type would you like to go this to?.

It's very difficult to tell, but it's lumpy, it could be -- I mean the goalpost would be quite far apart. What I think is reasonable is a two year deployment period and I think it's also reasonable that we'll have a second quote. So, I don't think we're going to limit ourselves to 200 million we're shooting for 400 to 500 altogether..

Okay.

And could you let me know, how should we think of this business relative to your on balance sheet loan book?.

How do we [Multiple Speakers]..

…a lot more deals on, right?.

Sorry I don't understand the question..

Just wondering like how should we think of this Private Resource Lending LP business rather to your on balance sheet loan book given that the on balance sheet loans obviously have higher yields?.

Well, what we're going to do is we're translating on balance sheet loans to the new commitments that we've made to the fund so you'll see those gradually slide down and move into the fund. I don't think our loan balances are going to decrease much during that process.

We remain committed I think we targeted an average deployment to the strategy of about 100 million..

Okay.

And then just lastly I saw a decline in the managed companied of $45 million quarter-over-quarter, was that related to Sprott Resource Corp.?.

Sorry, Michael you were breaking up there, can you repeat the question?.

Yes, as the decline in the managed companies of $45 million quarter-over-quarter, was that due to Sprott Resource Corp.?.

So, impart, yes. That is one of our bigger managed companies..

Okay.

And then just lastly if I could, what is the spend sheet data for your global growth funds initiative that you're launching, that’s not currently in your second line of the fund?.

Well it's an offshore hedge fund type structure and it was seeded over a year ago now and we're just now starting to take new subscriptions into that. So, that's probably why you haven't seen it historically..

Thank you. Our next question comes from the line of Aram Fuchs with Fertilemind Capital. Your line is open..

A follow-up question on the resource lending, will the -- is the inevitable goal to get the direct loans off SII's book and then it will show as LP interest in new resource lending book or were there a constant…?.

That’s right..

That’s right, okay..

That's right, the majority of that would be from an LP investment then. And the LP has co-commitment, co-investment capability, so there maybe from time-to-time where we decide that we're going to top up on a loan and hold that more directly but the majority will be through the LP..

Okay.

And then I was surprised that why didn't you accomplish that as of the end of June, are there some loans that you want to keep or is the strategy ay all going to be different? Why weren't those loans put down into research lending?.

Okay. So to be clear, the lending fund is starting from ground zero it's starting with fresh capital. There's no loans that will transferred, what happens is as we run loans off of our balance sheet, we then make new commitments, all new commitments in the LP. So, we expect the balance of loans to be roughly flat if not increasing.

But we need to make new loans in order to show the transfer and the existing loans will not be transferred..

Okay, okay that was the confusion. Okay, thank you for that. And then you did mention the Korean and Chinese businesses.

How are they pursuing, is it still just the tail in the water?.

Yes. So the Chinese fund has been very profitable for us due mostly to what I think is exceptional performance, so we have really been happy with the performance of the fund.

What we have not been happy about is fund flows, we are going to consider it a learning experience, shift gears a little bit and I think we've got new partners looking at us there who should be able to support some growth and fund flows there for us, so we are actually kind of excited about that.

And then in Korea the difficulty is not been that we don’t have a good fund or a good client there, the difficulty has been in deploying the capital, I they have rigid standards for deploying the capital. The fund doesn’t make us much money. It is a good client relationship.

We really need to change the mandate of the funds slightly in order to be able to deploy more to make it more profitable, so we are working on both of those now..

Okay.

And in China is the, the new partner is it a part of that native to finance and not mining is that the change?.

Well, we haven’t selected yet but that's our hope..

Thank you. Our next question comes from the line of Geoff Kwan with RBC Capital Markets. Your line is now open..

Hi. Good morning.

I apologize I did get on the call a bit late, but I just had a question, I know it's a small part of your business, but there has been a lot of different regulatory stuff happening within the mutual fund space, and maybe as a part of it we've seen in a number, an unusually higher number of fund companies that have been making changes to the fee structure over the past 18 months.

I just was wondering how you guys kind of feel about where your fees are these days, how much of, any sort of conversations you have with your investors in those funds, and if the tone of that conversations changed at all over the past year?.

Okay, I'll answer it in two parts. We did talk about it a bit earlier on the call, but two parts, for us we don’t really see the fee pressure so much. We have very differentiated fund products and they are mission-specific, but they are not always benchmarked, in fact most of the funds are not benchmarking strategies.

And the fees seem to be, the client relationship seem to be happy about our fee structure, we are not on the very top, we are not on the very bottom, but that's a -- it's a relationship that we don’t see changing that much. I do hope that active management and believe that active management strategies will actually gain favor.

We've seen the pendulum swing so far to low cost strategies, that for anyone that's in the benchmark if there is hiccup we think the pendulum could swing the other way very quickly. The second part to the question, mutual fund industry conditions are clearly very tough.

New sales in the quarter for the entire industry were down by a substantial margin and that's a number of factors, fee pressures is only one of them, it was at volatile quarter the CRM2 regulations are meaning that the kind of funds are held up doing paperwork and everybody's reassessing portfolios, so it is a difficult environment for new sales..

Thank you. I am showing no further questions in the queue at this time. I would now like to turn the call back over to Peter Grosskopf for any closing remarks..

Okay, well thank you operator, and thank you for all those who attended. We look forward to reporting to you next quarter on our progress. Have a good weekend..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day..