Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Incorporated 2019 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a 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 9, 2019. 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 provisions of the Canadian provincial securities law.

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 implied in making forward-looking statements, please consult the MD&A for the 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 Whitney George; President, Kevin Hibbert, our CFO and John Ciampaglia, the Chief Executive Officer of Sprott Asset Management.

Our Q2 results were released this morning and are available on our website where you can also find the financial statements and MD&A.

I’ll begin by saying that this has been the most pleasurable week in my nine years with Sprott after eight years of correction, precious metals finally broke out of their trading range in the second quarter of 2019 and have recently been achieving multi-year highs.

Gold and Silver have gained 17% and 10% respectively this year and the related gold equities are up by close to 35%. The catalysts for this change in sentiment in no particular order were 180 degree turn from the Fed when it abandoned its tightening program began to cut rates.

The $15 trillion in negative yielding debt globally and the looming possibility of a competitive currency devaluation, we believe that the likely path forward is through fiscal stimulus, more spending and attendant deficit increases all of which will be positive for gold, silver and precious metal equities.

The other reason for my happiness is that earlier this week that we announced one of the most important transactions in Sprott’s history, the acquisition of the Tocqueville gold strategies.

John Hathaway and the Tocqueville team are the preeminent active managers in the sector and co-thought leaders of the gold sector along with ourselves and we are thrilled to have them join our team.

This transaction is expected to add CAD 2.5 billion to our managed equities platform and equally importantly will give us access to relationships and distribution that would have been impossible to establish in this day and age. I'll pass it over to Whitney George to talk about this transaction in more detail..

Thank you, Peter. Good morning everybody. As I'm sure many know in particular the United States John Hathaway and his team Doug Groh and Ryan McIntyre are absolutely some of the most experienced investors in the gold mining space, we manage both mutual funds or a mutual fund and separate accounts.

Certainly John is a spokesman for the gold trade of the caliber I would suggest is Eric Sprott is also border here in Canada and we're very thankful for the Tocqueville organization including Robert Kleinschmidt, and his senior management team for partnering with us to put together these two organizations to make what I believe will be truly a world class platform with both investors and issuers in the gold precious metals mining space.

The terms of the transaction are an upfront payment of $10 million in cash and $5 million in Sprott common shares plus we have a contingent earn-out partnership I call it over the course of the next two years that could value the transaction as much as $50 million again including Sprott shares and cash.

We’re expecting and hoping to close the transaction in early January. Currently the Tocqueville Gold fund has about $1.1 billion in assets under management and the institutional and sub-advice mandates for the team are currently about $800 million under management and are both in North America as well as Europe.

So we get some geographic distribution expansion opportunities as well. With that, I'd like to turn it over to John to talk a little bit about the rationale behind this transaction..

Sure. Thank you, Whitney and good morning everybody. I just want to go back. It's been about two years now since we completed the divestiture of our mutual fund business in Canada. And at that point, we undertook a strategic review and came to some conclusions, I'm happy that we're executing on.

One of them was to improve scale across our different product lines. Second one was to improve our profit margins. The first big initiative to achieve those goals was obviously the acquisition of Central Fund of Canada which adds a lot of scale and revenue to our platform.

The second, the second leg of our strategy around active has been completed now with Tocqueville announcement. So we're very excited that both of these deals really helped solidify our plan from two years ago. We really like this plan.

It sets a very strong strategic set, it’s a good high margin business and we feel it will be accretive right away to our business. Having over $2 billion of assets in a strategy in this space would put you amongst the upper echelon of the different teams in the world.

So we think the team is very well positioned as the sector recovers and institutions start reallocating to it and to be able to win new business. We know the people very well through our joint venture that gives us a lot of comfort that we've got alignment of interests and we've got partners that we feel good about and that's very important.

We're not just acquiring assets, we’re acquiring the people. Second of all it does, it does strengthen our position in metals, and mining and provides us a lot of operating leverage to higher gold prices. And I think that the last part was very attractive about this is that, it does broaden our footprint in terms of distribution.

It's historically been very strong in Canada and the U.S. We've always wanted to increase our presence in the U.K. and Continental Europe which is a very large gold and mining market. We feel that with this fund that gives us a very good toehold into that marketplace.

So the distribution side equation is also as important longer-term as the sector recovers. Moving to the next slide, let’s talk a little bit about our passive and active strategies. And while the quarter was a little challenging, what we've seen since the end of May has been really a sea change.

At the end of May, Gold was at $1300 an ounce, silver was at $14.50, Gold is up 15% and silver is up 17%. So we've seen really good bounce back in market prices and now obviously is triggering renewed investor interest around the world.

What we're seeing in terms of inflows and what we think we'll continue to carry is that inflows have centered mostly on physical gold and that's because investors around the world right now are trying to hedge equity risk, that equity risk obviously is coming from trade anxiety, currency war, anxiety and so forth.

We then see flows moving over to silver, it was a laggard at the beginning of this rally and is now catching up. And as I said it's slightly ahead of gold since the end of May. And then finally we think that the interest in the flows will cascade down to the mining stocks.

Mining stocks have had a very hard bounce here, our Gold Miners ETF is up 33% since the end of May. So it's had a very nice, very nice bounce but investors haven't quite paid a lot of attention to mining stocks as of yet.

We think they're going to start recognizing these numbers and see the operating leverage in the businesses improve because of the higher metals prices and we will start to see flows there.

We believe we're very well-positioned in this market environment to capture flows and since June 20, we had $84 million of new inflows into our Gold Trust PHYS and the Silver Trust which is PSLV. Just for background, we've not had any new creations of units in the silver fund for over a year prior to the new inflows of capital.

So to us that is very important that the flows and the trading volumes are all moving in the right direction. Investors are responding to the market. And on the redemption side, we have been seeing a moderation of overall redemption.

So what we would expect is that we move from net redemptions to flat and hopefully to positive inflows in the next few quarters. And with that, I’ll pass over to Kevin..

Thanks John and good morning everyone. Slide 9 provides a summary of our AUM at quarter-end as well as a pro forma estimate of where our AUM would have closed on August 6 inclusive of the AUM from the acquisition of Tocqueville Gold Strategy. AUM was $10.7 billion as at June 30, 2019 up $100 million or 1% from March 31, 2019.

Our exchange listed products segment benefited from strong gold price appreciation particularly late in the quarter to John's point earlier while our lending segment benefited from additional commitment fee earning AUM which partially offset the capital distributions from the lending LPs from the quarter.

The onboarding of the Tocqueville Gold Strategy assuming fund prices remain at current levels through to January 2020 would add an additional $2.5 billion in AUMs to our managed equity segment creating material operating scale in day one EBITDA accretion in the process.

In addition to Tocqueville Gold Strategy taking into account the current closing AUM estimates for all our other fund product offerings across the company, our pro forma AUM would be approximately $13.7 billion creating a significant earnings capacity for Sprott beginning fiscal 2020 and beyond.

Moving on to Slide 10 for a look at our second quarter earnings. Adjusted base EBITDA in the quarter was $9.4 million down $1.3 million or 12% from the prior period.

The decrease was primarily due to lower net commissions on lower equity origination and placement activities in our Brokerage segment, lower fee income earned in our exchange listed products and managed equity segments given lower average AUM year-over-year and lower income in our lending segment given last year's fees generated on the early settlement of a loan.

These decreases more than offset expense savings arising from our lower annual incentive accruals, LTIP amortization and SG&A. For more information on our revenues, expenses and EBITDA you can refer to the supplemental information section of this presentation as well as our 2019 Q2 MD&A filed earlier this morning.

With that said, I'll pass it back to Peter for some final remarks..

Thanks Kevin. I’ll summarize recent developments for our private resource strategies. Recently our first private lending fund has been performing better than expected delivering strong IRR and to our clients and operating earnings to Sprott.

The downside of this performance is that we experienced shorter duration than expected due to some early loan repayments and as a result, our AUM was somewhat reduced in the recent past.

More importantly as an offset, we began deploying capital in our Lending Fund II in this current quarter with several notable deal announcements and more in the works. We continue fundraising for this second Lending Fund and expected to be closed at capacity before the end of the year.

We’re also advancing another private resource strategy which would target approximately $500 million in AUM and we should be able to give more details on that at our upcoming November quarter. As we announced last quarter, Neil Adshead has rejoined Sprott and will be managing a new private mining equity fund which we expect to launch in Q3.

And now turning to Slide 12 for some closing remarks. Recent change in sentiment in our sector is finally giving Sprott and providing Sprott with tailwinds in our business.

We believe that Central Bank policies will no longer be the focus point of the scent of the markets in the future and that investors will now be focused on adding more insurance to their portfolios. The Tocqueville acquisition is extremely significant for our business. It expands our global footprint and distribution.

It's a perfect fit with our broader platform and it complements our other resource investment and financing businesses. As John noted, our physical trusts are returning to growth and creations creating new units and multiple funds.

Our managed equity strategies have performed extremely well year-to-date and our lending strategy is also delivering strong returns. That concludes our formal remarks for today and we'll now open the call to questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Gary Ho with Desjardins Capital. Your line is now open..

Thanks, good morning. I just want to dive into the Tocqueville acquisition a little bit.

Can you tell us kind of the blended fees from that $2.5 billion that you're acquiring and the potential perhaps it can base EBITDA lift you expect assuming today's gold prices?.

Hi Gary. So the blended fees as I mentioned to you the other day, we will be disclosing that in the next quarter's results. What I'd say is there are some data that is public that you can work with in your model.

But as far as earnings impact, in the managed equity segment is that I said in my opening remarks, I think that you'll see significant EBITDA accretion on day one. And I think the most I could say on that is to expect a multiple increase in the managed equities EBITDA number from what you are going to see by the end of this year..

Okay.

And then maybe just in terms of the $35 million contingent payment, are you able to kind of tell us kind of what those hurdles need to be met before you pay these amounts and is it based on maintaining current AUM or increasing AUMs, just want to kind of assess the likelihood of payments for these months?.

Sure.

It's contingent payment based on maintaining and then ultimately growing AUM, where we're paying a multiple of revenues the rate remains consistent throughout the two-year payment schedule and I think it's an excellent sharing of risk in the transaction and I hope that we pay the maximum because that's a very good thing for Sprott in the long run..

Okay. And then Peter just related to this one. What's your appetite for more transaction.

And if so which silo would those be in and maybe as attach that can Kevin, can you remind me kind of your available capital pro forma of this transaction?.

All right. Well maybe I'll take the first part of the question then. So our immediate focus is going to be and growing our gold business. We just feel that there is so much potential short-term, the attitude that we're getting from our clients and potential clients is that they're very engaged in looking at more business.

And I would say, we don't need anything in the gold area to really go at some growth now. We just need to execute and be focused on using our relationships to bring in new clients.

That said, I think that our company is well poised to consider additional opportunities next year, the commodity area as you know become very unpopular and similar to the gold area where there's just teams that have no capacity for growth on their own.

We will see global opportunities for tuck-ins and we will also see other areas that are closely related to gold where there are teams that just don't have the capacity to raise capital for their products. And like the Tocqueville deal, we've really made this team a partner in our business.

We're not just giving them a check to walk away or take client transition, we're bringing them in to grow and as Whitney said couldn't be more pleased to go through the maximum in that transaction.

So we want to keep with that style of partnership and I think we will have more opportunities next year, so we're not like we look at -- we look at a half a dozen deals per quarter and very few of them are a fit in the end, some of them are like product tuck-ons, some of them are tuck-unders and some of them are new areas.

So it's pretty busy corporate development business right now..

And just Gary on the capital side. Page 14 of our MD&A, we saw investable capital spec at about $200 million. I think we'll probably remain at that level for the foreseeable future with the majority of that about 60% invested in a variety of co-investment strategies across our different fund products.

So I would say our investable capital be probably as I mentioned in the previous quarters would not be expecting to deploy an awful lot of that on any future ideas we may have.

Rather we'll have a small portion of that being deployed with the rest being covered by our facility, our credit facility which we know is for specifically for people investment ideas such as what you saw the other day with Tocqueville..

Got it. Okay, that's helpful. And then just maybe last question just for clarification.

Going back to Slide 9 here, if I look at your last column here excluding the acquisitions so that $11.1 billion, so assets are up 4.5% since Q2 and I assume roughly $100 million is coming from net inflows, is that how I should interpret that that chart there?.

Yes, that sounds right. Can’t give it right to the penny there. But that's approximately what we've experienced about $80 million or $85 million in just those two funds. So between market appreciation and the metals prices and inflows, we've had a pretty good lift about $500 million. So excited about last quarter..

Okay, perfect. And that's it from me. Thank you..

Thank you. And our next question comes from Nik Priebe with BMO Capital Markets. Your line is now open..

Okay, thanks. Good morning. I just want to ask a few question, I think most my questions on the Tocqueville acquisition have been asked. I just want to ask a few on the some of the segmented results. I did see there was about a $3 million charge or so on some non-recurring professional fees and transaction costs in the quarter.

Kevin, I was just wondering if you could help kind of breakout what’s that related to?.

Yes, so obviously Nik, we just did this transaction, so a lot of the professional fees and transaction costs relate to this transaction and a few other things that we thought on the go in the background..

Okay, okay. And then just so obviously you know there's been a lot of momentum here in precious metals the last few months, very strong quarter in the second quarter but commissions from the Brokerage segment were kind of flat sequentially.

Nice, I think gold really started to gain some momentum in the last month of the second quarter, so I was just wondering if you could give us some color on how you're seeing the pipeline of equity issuance activity start to build in that Brokerage segment and if we should kind of expect a better earnings contribution from that segment in the second half of this year?.

Yes, it's a good point. There is a bit of a lag obviously from generating deal flow to seeing it occur in the financial statements, the first quarter was probably the slowest, quietest completely moribund quarter that I've seen in the precious metal business since there were a couple of other points like that end of 2015, beginning of 2000.

So it was absolutely dead, the activity started to pick-up late second quarter. And right now it is all hands on deck. So it's going to be a lot busier, a lot more active and a lot better results in the back half of the year..

Okay, that's helpful color. Thank you. And then just one last one for me, I did notice in the Lending segment, I'm just looking at interest income generated in that segment looks higher on a sequential basis despite the on balance sheet loans were pretty stable quarter-over-quarter. And you did experience some repayments in the private Lending LP.

So can I infer that there was a bit of incremental interest income recognized in that figure associated with some of the early repayments?.

No there's two. If you look on that, I think you're talking about Page 16. You look there's a little footnote beside the interest income line that explains there's two components of the interest income.

There's to your point the interest income on the on-balance sheet loans which is running down but then we also have the investment income from the co-investments we make. So there's essentially interest income that's also being earned in that LP and as a co-investor in them we're entitled to that interest income.

So what's been happening there is that because we've been deploying more capital into the LP since last year, there is more AUM that is generating interest income for us over that period. So that's more than offsetting at least at this time, the drop-off in interest income from the on-balance sheet..

Okay, okay, got it. Thanks for taking my questions..

Thank you. And our next question comes from Graham Ryding with TD Securities. Your line is now open..

Good morning. Just a couple from me, the distributions from your Resource Lending LP. It sounds like that's clients sort of clients or people that you're lending money to is repaying is what’s your outlook there.

Is this something that you expect to continue or is this more of a one-off event in the quarter?.

Well, it’s a constant process in lending and it’s very difficult to forecast from quarter-to-quarter. The reality is that that business is on a slow growth track maybe not even slow but a decent growth track.

But from quarter-to-quarter, if you get an early repayment your AUM can dip and then the next quarter if you get a lot of deployments your AUM can spike fairly quickly. So it's very tough to call from quarter-to-quarter. The other irritating factor is that when you get early repayments you witnessed spikes in returns.

So you get a short-term spike then you get a drop-off and then you're deploying and you get no more growth. The way I think of it is just kind of underlying those dips is pretty strongly growing business that should get to over a billion in AUM as it gets fully deployed..

And I will just add to that, Graham. Once we get to that critical mass of AUM and you'll see it in a footnote 3 of the AUM summary on page 11. There's about in Canadian dollar terms about $1.25 billion of committed capital, $300 million of which is earning commitment fees now and the remainder $950 million is still on the sidelines.

So all of the majority of that is going to come on stream eventually over time and generate some very compelling returns for shareholders. It's just going to take a little bit more time to get it all deployed. But Peter said the last quarter companies are not entering into committed facilities without the intention of going out there modestly.

So we have a short term little spike here. But over time it will be deployed..

Okay, understood. Just to be clear this is being driven by corporate entities that you're lending to. They're sort of repaying these loans back as opposed to this is not being driven by institutional investors taking money away -- looking at capital right..

The institutional commitments are growing..

Yes, got it. Okay..

So it's short-term borrower repayments whereas there should be long-term borrower growth as others draw down on their facilities. So what happens is in the mining business as you can imagine, it's fairly bifurcated.

Those companies that do better than expected, they want to pay us off, pay our bonuses, the IRRs on those loans are very high but the duration is shorter. Then what happens is there's others that experienced difficulties and they drag things out a little bit. But over time, it's that pretty steady growth you can count on..

And are you still lending predominately to energy companies or is it more on the mining side?.

No, we haven't lent to energy companies in two years, where this is all mining. The portfolio is approximately 50% to 60% gold, silver, platinum and palladium. So precious metals and 40% is quite diversified across the other mining commodities..

Okay. Got it. And then this environment where it's much stronger precious metals market.

Is that conducive to more borrowing by corporate entities or do they have less of a need for to be borrowing in this stronger gold price?.

We always get that question and it ebbs and flows. Right now it is flowing. And the reason is because there were a lot of projects that were stalled for lack of equity support and those projects are now slowly able to raise equity. And you've seen a few bought deals occur in the sector recently, we've seen some other strategic financings.

So as that equity gets applied behind projects of interest, they will be qualified to allow our loans to start to be drawn but we're actually seeing a pickup in deployment now..

Okay, that makes sense.

And then just my last would be just be on the exchange listed products, just trying to get a bit of insight into what's driving the outflows there, is it predominantly the Central Fund that is driving the outflows?.

Yes, it is predominantly that's fund that is experiencing the outflows. We have seen somewhat of a moderation in the last couple of months. So that's a positive sign. We would like the fund, the discount to tighten to NAV that will take pressure off redemptions. I think generally what's the sequence is metal prices go up. We get more trading volume.

That imbalance tightens up the discount and will alleviate the issue. So last month, we had very modest redemptions, this month we don’t have them in yet but we don't expect any big number as well. So we're optimistic that the issues are self-correcting..

Okay. That's it from me. Thank you..

Thank you. And our next question comes from Jeff Cohen with RBC Capital Markets..

Hi, good morning. With the AUM that you would have reported, I guess even for the August 6.

How much should that percentage wise ballpark even would you say is kind of tied to gold and then presumably with the Tocqueville when that closes, like that’s pretty much dollar for dollar that would add to that exposure?.

That's correct. We’re predominantly gold, silver. There is some, there are some other mining commodities in the mix and there's also a couple of value strategies. But if you took those percentages and added them up, the gold, silver, precious metals would be all the way through 90%..

Okay.

So 90% on all of the precious metals but would gold be 70% of the total AUM or higher?.

Yes, the vast majority of that 90% is related to gold..

Yes, I would estimate about 70%, 65% gold, 35% silver somewhere in the neighborhood..

And that’s up 90..

Yes, yes..

Right, right. Okay. And then on the those loan repayments, you've been kind of doing these resource bonds for many years like was there any -- was this kind of expected.

Is it something that was driving it, that was maybe a little bit different than what you've seen in the past?.

No, it's the same pattern. The companies that do really well, we had two in the quarter Equinox Gold and Champion Iron that exceeded expectations and when they exceed expectations, they get a lot of money chasing them and when they get a lot of money chasing them, we get repaid along with a bonus.

I mean to give you an idea of the quantum, we're lending with bonus somewhere between 12% and 15%. And when they're getting refinanced, they're getting refinanced at 5% to 8%. So there's a big advantage for them and a great business for us..

Got it, okay. And just one last question I had was the your managed equities segment. When I'm looking at AUM and then just kind of that other categories. How would you kind of describe as the kind of key drivers of let's call them market performance or the investment performance of those funds.

I mean similar strategies is a little bit obvious as to what those drivers might be but just generally speaking, how do you kind of describe what makes it try to hire and obviously conversely lower?.

So this is Whitney George. Our gold related mutual funds and separate accounts. The performance is very -- has been very, very strong in high-20s to mid-30s year-to-date. So that obviously drives some of it. I manage the growth in value strategy. That's having a very, very solid year kind of in line with the S&P.

So you have a high-teens return drives assets in a noticeable way there. I would say that generally there hasn't been a lot of investor interest in investing in the products. So some of the performance has been offset by modest redemptions. But I think that's normal for this part of the cycle.

There's always a little bit of a get even and out kind of reflex that occurs after a prolonged difficult period.

Yes SPROTT HATHAWAY SPECIAL SITUATIONS FUND or joint venture is performing exceedingly well, this January and started 100% in cash in February which was another strong month and has pretty much caught up to just about any other benchmark that you might want in its first six months..

Okay, thank you..

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back over to Peter Grosskopf for any closing remarks..

Thank you, operator and thank you all for joining us today. We look forward to reporting back to you at our next quarter on our progress and please have a good weekend..

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