Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sprott Inc (SII, Financial) reported a record high in assets under management (AUM), increasing by $1.7 billion to $31.1 billion.
- The company successfully launched the Sprott Physical Copper Trust, the world's first physical copper fund, raising $110 million.
- Adjusted base EBITDA increased by 25% year-over-year to $22.4 million for the quarter.
- Net sales rebounded strongly in Q2, generating $357 million in net sales plus an additional $110 million from the Copper Trust IPO.
- The company's flagship Gold Equity Fund performed well, up approximately 20% as of August 1, 2024.
Negative Points
- Net income for the quarter was down 25% year-over-year, from $17.7 million to $13.4 million.
- Despite strong performance in precious metals, mining equities lagged behind, with investor sentiment towards miners at historically low levels.
- The market environment for IPOs remains challenging, with the Copper Trust IPO being the first on the Toronto Stock Exchange since March 2023.
- There was a period of net redemptions in the first quarter, marking the first time in over four years.
- Uranium and copper prices experienced some recent weakness, which the company expects to be short-lived.
Q & A Highlights
Q: Just one question from me on the Uranium Trust. Other than the ATM, what other levers could you potentially pull to keep the cash position up in that trust? I mean you've done location swaps in the past I believe. Could these be ramped up in any way? And if you needed to, are there any other alternative methods to raise cash in the Uranium Trust specifically?
A: Yes. Hi, Mike, it's John. That's an interesting question. So obviously, the ATM is the primary way to issue new units and receive cash. As you mentioned, we've done a number of location and origin swaps over the last three years, which have been very beneficial in terms of generating additional income. And the last resort, if those two things don't work out, is we physically would sell a small portion of uranium, which we've not had to do in three years. So we prudently manage the cash so that we don't have to let go of any raw material. And right now, we're holding, I think, a sufficient cash balance to cover expenses of running the trust for the next two months. So it's not anything of near-term concern.
Q: Can you provide more details on the performance of your flagship Gold Equity Fund and the overall sentiment towards mining equities?
A: Despite the lack of investor interest, we are pleased with the strong performance of our precious metals equity strategies in the first half of 2024. Our flagship Gold Equity Fund is up approximately 20% as of August 1, and its performance has been steadily improving relative to its peer group. Investor sentiment towards the miners is at historically low levels, and a small rotation out of tech stocks into precious metals equities would have a profoundly positive impact on the sector.
Q: How has the launch of the Sprott Physical Copper Trust impacted your AUM and what are your future plans for this fund?
A: We are very pleased with the successful completion of the Sprott Physical Copper Trust IPO. The market environment for IPOs remains very challenging, with COP representing the first IPO on the Toronto Stock Exchange since March 2023. Gross proceeds raised were $110 million, with 80% of the assets coming from institutions. We are very excited about the long-term growth potential of the Copper Trust given the size of the market and the broader appeal of copper among generalist investors. We've recently implemented an aftermarket program to raise additional capital and our plan is to ramp up marketing and investor outreach over the coming months.
Q: What factors contributed to the increase in your assets under management (AUM) this quarter?
A: AUM finished the quarter at $31.1 billion, which was up 6% from $29.4 billion last quarter, and up 8% from $28.7 billion at the end of last year. Over the last five years, our AUM has grown by $21.8 billion, of which 49% was attributable to net inflows, 37% was related to market value appreciation, and 14% was related to acquisitions and new fund launches. Subsequent to quarter end, on August 1, our AUM increased 2% to $31.5 billion.
Q: Can you elaborate on the financial performance and key metrics for the quarter?
A: Our net income this quarter was $13.4 million, down 25% from $17.7 million for the same period last year. On a year-to-date basis, net income was $24.9 million, down 2% from $25.4 million last year. Adjusted base EBITDA was $22.4 million in the quarter, up 25% from $18 million earned over the same period last year, and was $42.1 million on a six-month basis, up 19% from $35.3 million earned over the same period last year. Our results benefited from higher management fees on improved market valuations in our precious metals exchange-listed products, higher commission income on increased ATM activity in our Critical Materials exchange-listed products, and higher finance income in our Private strategy segment due to higher streaming syndication fees.
Q: What is your outlook for the remainder of 2024 given the current market conditions?
A: Despite the recent volatility in the markets, little has changed from our outlook that we presented at the start of 2024. Inflation remained a bit stickier than most had hoped for the first half of the year. While many countries have begun to cut interest rates, the US short-term rates are unchanged. Fiscal deficits continue to grow to new non-recessionary records as a percentage of US GDP. Fortunately, gold prices have responded favorably to these difficult fundamentals, setting several new highs before settling closer to the $2,400 mark. We are pleased with our performance in the first half of 2024. AUM is near record highs, we delivered positive net sales, and results are steadily improving.
Q: How has investor interest in precious metals evolved recently?
A: After a period of indifference, investor interest in precious metals is slowly returning. This is very positive for our business, given gold is already sitting at $2,400, largely with institutional investors in the West not participating. Central bank buying of gold coupled with concerns about a number of potential portfolio risks is generating renewed interest, while copper is well positioned to benefit from the growing long-term demand for electricity and copper-intensive clean energy technologies.
Q: Can you discuss the performance and growth of your equity-based ETFs?
A: We enjoyed a strong recovery in sales for the quarter after a soft Q1. Our Uranium Mining ETFs led the pack for the quarter. In this category, we now have over 10 funds across various metal segments and listing locations, and assets continue to scale for many of the newer funds as we achieve platform approvals and breakeven AUM levels. AUM has also reached an all-time high in the quarter and has essentially doubled over the last six quarters. Mining Equity ETFs are popular choices for both institutional, adviser, and individual investors as many prefer to invest in a thematic through a basket of stocks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
