Good morning ladies and gentlemen and thank you for standing by. Welcome to the Sprott Inc's 2017 First 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 and 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 May 10, 2017. On behalf of the speakers that follow, listeners are cautioned that today's presentation and 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 conference 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 Hibbart; and Glen Williams our Head of Investor Relations. Our 2017 first quarter results were released this morning and are available on our website and you can also find the financial statements and MD&A.

I'll start on Slide 3 with the quick review of our Q1 results. I'm pleased to report that we posted another quarter of improved financial performance and asset growth as our AUM increased by approximately $500 million due largely to the market growth in our exchange listed products business.

Our adjusted base EBITDA was up by more than 10 million to 16 million in the quarter due to higher management fee and commission revenues as well as the reversal of loan loss provision that Kevin will talk about in a few minutes.

We are committed to running a lean organization and the cost containment program we initiated in prior year is paying off by driving our operating expense ratio lower. We continue to maintain a strong balance sheet with more than $310 million in investable capital.

This figure will increase after giving effect of our sale of our Canadian diversified assets, which I will cover on Slide 5.

Turning now to Slide 4 for a look at some of our year-to-date highlights, in April, we've completed the second close of our oversubscribed private resource lending LP raising more than $560 million which we expect to deploy over the next 18 to 24 months.

We also recapitalized Sprott Resource Holdings through a merger and subsequent equity raises that have positioned that business well for future growth with more than 75 million in cash to invest.

Our recently launched merchant banking business, Sprott Capital Partners has enjoyed high levels of activity in the early going, participating in more than $500 million in financing so far this year. Business has begun to generate respectable commission revenue and operating earnings.

Finally, we've received approval from TSX to launch in normal course issuer bid once our current blackout period expires. Under NCIB, we'll have the potential to buyback up to 5% of our shares for cancellations.

Turning now to Slide 5, in April, we announced an agreement to sell our Canadian diversified assets and contracts to a management-led group for $46 million. The sale will happen in two phases with the sale of the asset management contracts closing in Q3 and the private client accounts closing in Q4.

Once, this sale is complete, our headcount will be reduced by approximately 50% and our SG&A expenses will decline accordingly. After giving effect to the transaction, we will have approximately $7.6 billion in assets under management, including close to $900 million in some advisory mandates for the SAM precious metal and mutual funds.

Proceeds of this sale will increase our balance sheet capital to more than $350 million, and we will also benefit from the repatriation of certain seed investment in working capital from the SAM funds. After the sale, we will be a streamlined organization entirely committed to delivering results to our investors by focusing on core strength.

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

Thanks, Peter, and good morning everyone. I'll start on Slide 6 with a look at our AUM roll forward. AUM as if March 31, 2017 was $9.7 billion, which was up over $440 million from December 31, 2016.

The increase was largely due to market value increases in our exchange listed products and to a lesser extent market value increases in our alternative assets and private resource investment.

Though, it doesn’t appear here, as Peter noted, the $750 million in commitment to our new Resource Lending LP will be reported as AUM as that capital was deployed into fee generating loan investments over the next 18 to 24 months. Moving to Slide 7, you will see a breakdown of our Q1 2017 revenues.

Net fees were $16.8 million for the quarter, reflecting an increase of $1.4 million or 9% from the prior period. The increase was largely due to an increase in the average AUM of our exchange listed products and resource focused funds.

We also experienced however good AUM growth in our alternative credit products as a result of both higher market values and net sales inflows. Gross management fees as a percentage of average AUM were 1% on a three months ended basis, largely unchanged from the prior period.

Returns on proprietary investments were negative $2 million for the quarter, reflecting a decrease of $13.5 million from the prior period. This was due to market value depreciation in some of our resource focused equity holding compared to material gains on investment in the prior period.

Interest income was $5.9 million for the quarter, reflecting an increase of $1.9 million or 50% from the prior period. The increase was due to the recognition of cash interest on a previously impaired loan that had its provision reverse in the period.

This was partially offset by lower average loan balances in the rest of our lending segment as we continue our efforts to wind down on balance sheet lending and build scale in our Private Resource Lending fund. Commission revenues were $8.2 million for the quarter, reflecting an increase of $7.1 million from the prior period.

The increase was largely due to robust merchant banking activity in our new merchant banking business, Sprott Capital Partners, as well as good client trading and private placement activity in the U.S. broker dealer business of our private resource investments platform.

Other income was $1.3 million for the quarter reflecting an increase of $5.6 million from the prior period. The increase was largely due to reduce foreign exchange losses in the quarter.

Turning now to Slide 8 for a look at our expenses, compensation expense was $14.4 million for the quarter reflecting an increase of $5.2 million or 56% from the prior period.

A significant portion of the increase was due to higher incentive compensation specifically higher commissions and discretionary bonus on robust private placement activity in our new merchant banking business, as well as decline trading and private placement activity in our U.S. broker dealer as I previously noted.

The other contributor to increased compensation was increased salary expense relating to the year-over-year increase in headcount in the Canadian diversified fund business that is Peter mentioned is in the process of being sold and as previously announced on April 10th of this year.

SG&A expenses were $6.6 million for the quarter, reflecting a decrease of $700,000 or 10% from the prior period.

During the quarter, we benefited from lower fund operating expenses, lower technology costs, lower marketing and sales expenses in the alternative asset management business as the management team continues to see the benefits of the ongoing cost containment program in that area. Turning now to our loan loss provision.

As you may recall, at the end of 2015, we instituted specific loan loss provisions on two loans as well as the general loan loss provision on the rest of the loan book.

In 2016, the credit profile of one of the two impaired loans worsen which required us to write off that specific loan against the provision while the general provisions on the rest of the loan book was reversed as the credit profile of those loans improved.

At the end of this quarter after completing our quarterly assessment of the credit risk in the loan book, we made the decision to reverse the $5 million provision on the remaining impaired loans as its credit profile improve to the point where the loan is no longer impaired. The Slide 9 shows an improved trend in our SG&A expense ratio in Q4 2015.

We show the slide to highlight our commitment to lowering our SG&A expense ratio. As you can see, it began falling at the end of 2016 which is when we launched our cost containment plan and have continues to decline steadily.

Turning now to Slide 10, net income was $8.8 million for the quarter reflecting an increase of $7.5 million from the prior period. Excluding last year's impairment charges on intangible assets, higher net income was mainly due to the reversal of a specific loan loss provision I described, higher net management fees and net commissions and lower SG&A.

Adjusted base EBITDA was $15.9 million for the quarter reflecting an increase of $10.7 million from the prior period. Higher adjusted base EBITDA was due to the same factors impacting our quarterly net income. In conclusion Slide 11 provides a snapshot of our current capital position.

We continue to enjoy a strong balance sheet, no debt and over $309 million of investable capital. After giving effect to the disposition of our Canadian diversified assets, we expect to have approximately $350 million in balance sheet capital to deploy. I will now pass it back to Peter for some closing remarks..

Thank you, Kevin. On slide 12, we have focused on Sprott going forward. We're committed to building a global market leader and resource and real asset investments. Culturally, we're also committed to be an employee-owned organization in order to ensure complete alignment between our management and our shareholders.

We expect that employees will be increasingly motivated to buy shares going forward. A leadership team is focused on fostering a performance based culture to improve the performance of existing strategies while creating best-in-class products where our investment expertise gives us a sustainable competitive advantage.

We have a strong presence in the U.S. through our exchange listed products business, and under the leadership of Rick Rule and Whitney George, we will continue to grow our U.S. assets under management.

We’ll accomplish this by increasing the scale of our key strategies and acquiring new capabilities and capacity constraint areas of the asset management business and within our core expertise. Internationally, our brand and awareness in our sector has always been a key perhaps our greatest asset and our test now is to capitalize on that recognition.

In order to achieve this, we will benefit from building out systems, people and partnerships to help our service clients and distribute our products, global and investors. With more than 350 million in capital to drive future growth, how we allocate and compound that capital is going to be a key factor and our success going forward.

We’ll generate returns on our balance sheet by continuing pursue co-investment opportunities with key clients and through the creation of products and core areas. We will also consider acquiring the asset managers who would provide us with complementary investment and capital raising capabilities.

On Slide 13, our outlook, I’ll provide you with a few thoughts on that and then ask for follow-up questions. In today, it’s highly correlated financial metrics. We believe that investors need for portfolio insurance is never been greater. And I believe that we’re in the early innings of an allocation cycle to those types of alternatives.

The fundamentals for precious metals are strong and as investor demand for uncorrelated assets like gold, silver and other real assets increases, our goal is to be a go to provider alternative strategies in these areas. One of the areas where we see immediate opportunity is in precious metal ETFs.

As cost of investment products in this area have grown in size, it began to cause distortions in the markets and gold equities particularly in the junior space. The growth of the incumbent index funds has started to cause problems both structurally and through the impact on the underlying holdings of these funds.

We’ve already begun to see increased inflows to our SGDJ product, as a result of these changes and we now need to increasingly educate the markets to the superiority of our factor-based products. We’re also exploring opportunities in new areas that are complementary to core precious metals.

Private firm land and infrastructure are two categories that with the right teams could round up product line up and provide us with additional cross-selling opportunities. That completes our remarks for today’s call. We’ll now open the line for questions..

[Operator Instructions] Our first question comes from the line of Gary Ho with Desjardins Capital. Your line is open. Please go ahead..

Now that you have a bit more time to consider since the transaction. Peter, just wanted to pick your brain in terms of capital deployment. You mentioned products and perhaps small acquisitions.

I just wondering if you can elaborate on may be size, timing and where do you see the best opportunity there?.

Well, we would look at everything on the basis of what most accretive and value generating to our shareholders in the long-term, and I think you've touched on the three key areas there.

One of them being what actual investment opportunities do we see, and how compelling are they are and how many clients are willing to come along with us, so what kind of returns can we generate there.

The second one is niche products or managers that could really just be a hand and glove fit and could operate in a capacity constrained probably direct to investor approach where margins are good and they're in an area where we can confidently forecast the returns to our shareholders.

And the third would be returning capital to shareholders through buybacks with and of course the dividends. And we see both of those has being enhancements to what we're doing as oppose to the only thing that we would consider..

Okay. So it sounds like you would consider kind of all three of those in parallel..

Absolutely..

Got it. Okay. And then just on Sprott Capital Partners business. It's good quarter in Q1. Just wondering if you can elaborate on visibility for the rest of the year..

Now, there is basically no visibility in that business. It's a -- what we're pleased with in particular is that they're very good team of originators and what's also been pleasing as they’ve teamed up with us to generate new investment opportunities other institutions have come along.

And it allows us to club deals there, so that part of it is suggesting that that they've got a core business and franchise that is going to be healthy, it's going to have margins, and it's going to grow overtime.

But we've got no aspirations to taking over the rule there and it will be very dependent on the transactions that they're actually involved with. It's a high margin business and if we crack a really big deal or we're deploying let's say a $100 million of our own capital or another 400 from partners well that will make a huge impact on our quarter.

But it's just impossible to forecast when and as the business will find those opportunities..

Okay. Got it. And then maybe just lastly question for Kevin. Just on the SG&A. The 6.6 this quarter and couple of things that kind of help.

just wondering if this is a good run rate to use or should we think lower SG&A for the balance of the year?.

Yes, I would say that generally speaking the direction is probably where we're going, but you're going to see a little bit of noise throughout the year given the fact that as you know we're also going to be in the process of transitioning out of the Canadian diversified business, right.

So with your like we're going to see a little bit of noise from that. So this year is probably not the year to try to come up with the good run-rate. I think generally speaking you should see if anything a good size drop but there may be some bluffs along the way as we transition out of that at the business.

So again the policies as always I can't give any guidance on the SG&A side, in particular this year when there is going to be a little bit of noise I think..

Thank you. And our next question comes from the line of Geoff Kwan with RBC Capital Markets. Your line is open. Please go ahead..

Just had one question, maybe a follow-up on Gary's question on capital deployment. On Slide 11, you've got the 309 million of kind of investable capital roughly half of that is liquid.

Obviously it's going to be dependent on when you find things, but just how do you think about, based on what you know right now? How quickly you kind of deploy that liquid part of that capital? And maybe more just a bigger picture, when you kind of think about that, what would be your ideal target in terms of percentage that would be liquid investable capital?.

Again, we’re more focused on optimizing return on capital employed and adding accretion at this stage then whether it’s liquid or not.

We’ve always had a high-degree liquidity, I expect we’ll continue to have a high degree of liquidity, we needed in fact to support the resource lending business or we made a commitment, but where the draw cycle is a little less certain.

So, I don’t think there is a right answer on that except to say there will be a high proportion that’s liquid and that it’s been quite conservative in the past, right. We’ve had a huge cash drag there.

And we want to be a lot more mindful going forward that we need to make good returns off of that going forward or start to buy back shares or both, so the shareholders can realize bigger performance going forward..

Thank you. And our next question comes from the line of Nik Priebe with BMO Capital Markets. Your line is open. Please go ahead..

I'm just wondering guys, just a quick follow-up question on Sprott Capital Partners. I'm just wondering if you can give us a bit of a breakdown of the 8.2 million that was generated in commission revenue? I guess, what derived from a new merchant bank versus trading in the U.S.

broker-dealer or private placement activity in the quarter?.

Yes, we’re not going to be able to give you an exact breakdown. The U.S. operations are separate. The Canadian operations are mostly involved with capital raising and advisory services around that and we can’t give you a breakdown story..

Okay. That's all right. I guess, one more follow-up question. I can appreciate some of the activity with Sprott Capital Partners would be sort of episodic and lumpy and sort of capitalize on, curious whether its strength in the market and it will be a little quite in another period.

I'm just wondering how did the first quarter sort of compared to your expectations for the new merchant bank?.

We above, we thought it will take a while to find some deal flow and to get other institutions interested in partner and it was quite a bit quicker and the idea generation was quite a bit better than we expected..

Thank you. And your next question comes from the line of Graham Ryding with TD Securities. Your line is open. Please go ahead..

The Sprott Private Lending LP, I’m just looking at your net sales slide. It doesn’t look like there was any new money deployed or invested in the quarter.

Can you just provide a little bit color why that was the case?.

Yes, so you're not going to see it in sales because we only included in AUM when we drive it. And in terms of generations, it was a quiet quarter because we were just involved in the signing of the documents and kind a getting of the legal closings all aligned.

So we've got a really big pipeline right now, and I would expect to see that turn momentarily..

Okay.

So I guess anything that you had already raised previous to this second round of fund raising I guess that's fully deployed or drawn is that the right way to think?.

No, it's not at all.

In fact I think, Kevin, do you want to comment on the exact proportion that's drawn of the initial LP?.

Sure. So, right now, if you look at the lending segment, Graham, we've got the summary financial table, and we have a little footnote there that mentioned that there is about $53 million of the 750 that's been deployed..

Okay.

And that's Canadian dollars?.

Yes..

Okay. Peter and just you mentioned capacity constrained areas of the asset management industry.

What are you referring to there anything in particular?.

Yes, there is niche areas where teams operate and they have more capital than opportunities, but it's hard to invest capital in those sectors and we need a high degree of expertise. So, the fees are generally higher, the relationships are generally directly with investors.

And I guess the example that I would give us as opposed to going through a list is direct ownership to farm land has a high correlation with our investor base. A lot of people that think about gold and silver think about farm land as a portfolio diversifier.

And it is an absolutely humongous area compared to precious metal, it's probably I don't know five times a size ten times a size, and there is only a few niche themes out there. So, that would be a good example of an area.

There is a lots of other, there is special areas within energy and resource infrastructure where people are owning pipelines their infrastructure projects that are people constrained. And they're good areas, they generate very strong value added performance..

And your $500 million raised to date at Sprott Capital Partners, how much of that have you been co-investing alongside, if any?.

Well, we have and it's been a decent proportion but I can't be specific on that..

Okay, that's fine. Your net sales bullion was quite strong in Q1, but you did have redemptions in your ETF products.

Can you just provide a little bit of color around that dynamic?.

So, on the exchange listed product side, the redemptions that you're seeing there, maybe in the physical trust. I would probably characterize that as just somewhat normal course for the first quarter of the year.

However, subsequent that we’ve seen over $100 million of inflows into the change listed products, specifically the SGDJ that noted earlier during his opening remarks. So net-net, I would say that we’re actually up from December 31st as of today and that’s base..

Okay.

So Peter, you surprised when bullion is strong, you surprise to see redemptions from the physical trusts?.

Well, bullion hasn’t been that strong this year. And our trusts, the physiology tracks the other ETFs globally pretty well and generally speaking the other ETFs have been down, so I’m not that surprised and it's just been a cooling off period.

And it does have inflow, if you see our trust go to premiums we’re creating, we're creating new units and when they go to discounts, there is a risk that some come up. So, generally speaking our investor basis, a lot more sticky in our competitors because of the exact service that we’re offering.

So we’re not big flows on percentage basis, compared to our ETF and listed bullion competitors..

Okay..

And last thing I should say is, look there is a couple of those couple of things we have in the works to grow that area. We talk before about the partnership with IEX that we have on a company called Tradewin, that has a new physical gold token and some of you that track Bitcoin may have seen that had record.

And I think once goals get linked into the block chain and made us easier investment product, I think that’s kind of the next phase for gold investment by individuals and institutions, we’re right on type of that. And then there is some commodity physical products, we’re looking at now.

So it’s just an active area for growth for us and that will continue to be..

My one last question just with buyback, you’ve got NCIB there 5%, would you consider buying back more than that, if you didn’t see any of the opportunities to invest count full otherwise?.

I’ll tell you this from the bottom of our heart to shareholders, we would consider anything..

Thank you. And our next question comes from the line of Scott Chan with Canaccord Genuity. Your line is open. Please go ahead..

Peter just going back to the Sprott Resource Lending fund, do you have a sense, how long will take to deploy that 715 million of capital, just based on your previous one?.

We said 18 to 24 months perhaps that’s being opportunistic. It really comes in big run. So it’s very hard to predict exact drawdown schedule. We had a lot term sheets outstanding. We could deploy 200 million to 500 million in one quarter or could be fairy drive like it was last quarter.

Just depends whether our deals fit, it depends on the state of the equity markets. There is a bit of counter cyclicality to it. If the equity markets are super strong, nobody really want to sign that term sheets, just kind of one to two quarter lag. So, there is just so many different variables there..

And you're looking at the term sheets like range from like small to very large I guess like that's not?.

That's right. It's all over because our clients like the fact that we can do small deals are usually higher value added on a percentage basis. But obviously, we need to do a lot more of them and the larger deals tend to be more competitive and little bit harder to do. So, it's a trade offs. We have both in our portfolio..

And can you remind me as Sprott seven allocations to that fund overtime?.

Yes I believe we submitted $80 million..

$80 million okay, and when you talk about building a global market leader top priority of securing distribution partnership.

Can you expand on that, that consultant or was there something different?.

No, it's a little bit of everything. We had success with the couple of institutional people and people focused on corner office and national accounts so far, that gone well. So to build on that a little bit just in terms of having direct client facing people would help. And by the way, those people are in London and New York respectively.

Then in terms of consultants, they provide a meaningful impact and I think that having relationships there with the start of the year, year and half ago is going to help and then finally in terms of distribution partners, we see what the international wire houses and distribution platforms are looking for, they're looking for best-in-class products alternative is a bit of a buzz word.

So when we find a link with one of them that launch the make a push and growth, we will try and straight our relationship globally that would get us into a lot more channels. We don’t have obviously the capital or the desire to build kind of the network ourselves.

But I don't know if that involves weight labeling, I don't know if that involves using our brand those discussions are fairly preliminary. We've had a distribution partner in the U.S. with our ETF products and that is not gone as to our expectations.

We think we need somebody bigger that can reach more markets that has more people on the grounds to get that process moving a bit quicker..

And just lastly, just on that passive side.

Is there are demand or what the outlook for new products on that platform? Is that anything in the works or?.

Yes, its' good. I mean more and more so in asset management assuming, you've seen with others. It's more of a distribution partner to an active strategy that already exists. And we have those, so we certainly don't need more people to generate more product ideas.

It really is a question of which you can get to scale and scale is a bigger number in that business it's a $100 million to $200 million in the U.S. at least before you start to generate the final liquidity and interest and approvals that you need.

And so what we're not interested in doing as having a stable of safety funds of which only three or four at scale. We're interested in sticking with each one of our products called it gets there. And we have to be careful about not confusing our brand and thinking about the right product right time..

Thank you. And I'm showing no further questions and I like to turn the conference back over to Mr. Peter Grosskopf for any further remarks..

Sure. Well, thank you everyone for participating in this call. We appreciate your interest in Sprott. We look forward to talking to you again after our Q2 results..

Ladies and gentlemen, thank you for participating in today’s conference. You may all disconnect. Everyone have a great day..