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Edited Transcript of SII.TO earnings conference call or presentation 28-Feb-20 3:00pm GMT

Q4 2019 Sprott Inc Earnings Call

TORONTO Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Sprott Inc earnings conference call or presentation Friday, February 28, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Ciampaglia

Sprott Inc. - Senior MD

* Kevin Lloyd Hibbert

Sprott Inc. - Senior MD & CFO

* Peter F. Grosskopf

Sprott Inc. - CEO & Director

* W. Whitney George

Sprott Inc. - President

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Conference Call Participants

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* Gary Ho

Desjardins Securities Inc., Research Division - Analyst

* Geoffrey Kwan

RBC Capital Markets, Research Division - Analyst

* Nikolaus Priebe

BMO Capital Markets Equity Research - Analyst

* Rasib Ali Bhanji

TD Securities Equity Research - Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sprott Inc. 2019 Annual Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, February 28, 2020.

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 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 applied in making forward-looking statements, please consult the MD&A for the quarter and Sprott's other filings with the Canadian security regulators.

I will now turn the conference over to Peter Grosskopf. Please go ahead, Mr. Grosskopf.

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Peter F. Grosskopf, Sprott Inc. - CEO & Director [2]

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Good morning, everyone, and thanks for joining us today. On the call with me today is Whitney George, the President of Sprott; our Chief Financial Officer, Kevin Hibbert; and John Ciampaglia, the CEO of Sprott Asset Management.

Our 2019 annual results were released this morning and are available upon -- on our website where you will also find our financial statements and MD&A.

I'll begin just by saying, wow, we've been expecting this for some time, but it's not easy to watch. In recent days, fear of the impacts of the coronavirus have taken a huge toll on financial markets and at least initially helped to push gold prices above the $1,650 level. This has already been handicapped by markets to require more monetary and fiscal accommodation. In the long term, we believe it further underpins the thesis for precious metals. And this event could prove to be the straw that broke the camel's back and eventually shakes investors' confidence in central banks and fiat currencies. We do expect sovereign gold to continue to outperform in this environment on a long-term basis.

In 2019, gold and silver finally broke out of their multiyear ranges as the U.S. Fed abandoned its quantitative tightening program and in fact, again, aggressively to increase its balance sheet during Q4. Easing by all central banks contributed to stronger precious metal prices over the year, which drove good performance in our funds and a meaningful increase in our assets under management during the year.

All of our core business lines are now in growth mode, and in our managed equities business, we recently added significant scale with the acquisition of the Tocqueville gold strategies. This transaction added $2.3 billion to our total assets under management, which now stand at $15.4 billion as of yesterday's close. This is a new high watermark for Sprott and we believe there is more growth to come.

A new cycle for precious metals is underway, and we're well positioned to benefit with a global platform, strong brand recognition and a large experienced investment and technical team.

As our businesses continue to evolve, Sprott now generates the vast majority of its revenues in U.S. dollars. To reflect this change, beginning in Q1 2020, our reporting currency will switch to U.S. dollars. U.S. dollar reporting also reflects the move towards the majority of our shareholders, our fundholders and our other clients whom are based in the United States and very oriented towards a U.S. dollar gold price.

With that, I'll pass it over to Kevin for a review of our financial results before discussing each of our core segments in more detail.

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [3]

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Thanks, Peter, and good morning, everyone. Slide 5 provides a summary of our AUM, including a recent estimate of AUM as at yesterday's close, inclusive of the Tocqueville gold strategies acquisition that closed last month and recent net asset values across all our various fund products.

The recently strong performance in precious metals, coupled with good fund flows in our exchange-listed products, lending funds and managed equities funds, have helped Sprott achieve an AUM balance of $12.1 billion as at December 31, 2019, and a historic high in AUM of $15.4 billion for our company as at February 27, 2020.

Moving now to Slide 6 for a look at our 2019 earnings. Our full year 2019 adjusted base EBITDA was $38.5 million, down $2 million or 5% from 2018. We experienced the benefits of a strong precious metals pricing environment in the second half of the year through higher market value appreciation in our exchange-listed products' AUM and increased equity origination activity in our brokerage segment.

Although these recent market conditions helped our in-quarter results, it was not enough to offset the significantly weak operating environment we encountered in the first half of 2019, which was driven primarily by our 2018 redemption experience in exchange-listed products that continued through the first half of 2019 and lower average AUM valuations in our managed equity segment over that same time period.

We also encountered legacy loans being repaid in full by the end of the third quarter in our lending segment, resulting in lower full year finance income, offsetting increases we saw in management fees from our lending segment. We ended 2019 in the early stages of a highly constructive operating environment for precious metals investors, and we are very much looking forward to the 2020 reporting season.

To Peter's point, noteworthy for the upcoming 2020 reporting season is Sprott's transition to U.S. dollar reporting that will be effective Q1 of this year. With the successful close of the Tocqueville gold strategies acquisition, a significant proportion of our subsidiaries have the U.S. market as their primary economic environment.

Hence, we believe that the U.S. dollar better reflects our financial position, results of operations and will ensure we remain in compliance with International Accounting Standards 21 as we expand the scope of our operations in the U.S. 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 Q4 MD&A filed earlier this morning.

That said, I will turn things over to John. John?

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John Ciampaglia, Sprott Inc. - Senior MD [4]

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Great. Thanks, Kevin, and good morning, everybody. Just want to talk a little bit about what we're seeing in our physical bullion trust products. I think it's safe to say that gold breaking through $1,360 a few months back was really a key moment for the gold market. It had unsuccessfully tried to breach that number many times. And now even though we've had a little bit of a correction this week, goal at $1,600 is very, very healthy for our business.

What's been really supportive of our business is that gold has been hitting these levels despite equity markets in both Canada and U.S. recently hitting all-time highs. So we've seen a very different psychology in the market prior to the last few days. And we see very strong renewed interest in precious metals, particularly gold, as people are looking for safe-haven assets.

We had very good market appreciation last year in the core business, but we also had 2 other drivers helping us, which was we had a return to new flows through our at-the-market program. We also had a very sharp decline in redemptions. I think more interestingly, if you look at the year-to-date period, our year-to-date new unit creation in the Sprott are almost at the entire level of 2019, just a good indicator of the renewed interest.

Earlier this week, for example, we experienced our single largest sales day through our ATM offering. So we've had very good results there, and most of those flows are going on the gold side. We also added a second partner to our ATM program, which is Virtu markets. They are the largest market maker in the U.S., and we expect them to be a very additive partner as we build out our trust business going forward.

The book of business is around $9.5 billion. So the funds have very good scale and very good profitability. And what we are seeing is more and more institutional money looking at precious metals into their funds. We're seeing a lot more block trading, very large blocks as investors are repositioning their portfolios in a more defensive manner.

And I will now pass it over to Whitney.

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W. Whitney George, Sprott Inc. - President [5]

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Thank you, John. Good morning, everybody. I was just going to touch on our progress with the integration of our Tocqueville gold strategies acquisition, which we completed a little over a month ago. John Hathaway and his partner, Doug Groh, and their team are now working very closely on a daily basis with Jason, Maria and Shree, our team in Toronto.

We have added support throughout the firm with other geologist specialists, Neil Adshead in Vancouver, who focuses on very junior companies. And recently, Paul Wong rejoined the firm as our strategist and his work can be found on our web page.

The typical early redemption activity that goes along with the transition of a fund that seems to be sort of leveling out, we now have signed new agreements with 70 dealers, and we have begun to experience gross sales, which was not possible until all of those agreements were in place.

The active equity business in the precious metal space has been under redemption pressure across the industry, not just with John and his partners, but all of our competitors. That continues despite the rising gold price, essentially the gold price rise last year and earlier this year was more reflective of defensive positioning, not a desire for more equity exposure of any sort but certainly sets up the -- a very positive picture looking forward as these gold mining companies enjoy a higher metal price and the operating leverage that comes with it.

We would expect and have already seen the group -- the sector's surprising earnings -- delivering surprising earnings on the upside, raising guidance. And these are factors that many strategies, particularly algorithmically driven strategies, are seeking. So it's going to be very hard to find earnings surprise momentum or growth in most parts of the equity markets. We think we're in pretty good shape there in precious metals.

We think the rotation in equities will come this year for the reasons that I mentioned. Obviously, now we're in a fairly sharp corrective mode across all equities, but I will remind people, not too long ago, maybe for some people, the financial crisis, gold was -- we suffered as well as everything else because it is an insurance policy and every once in a while, people must make a claim.

I think we're seeing a little bit of that right now, but gold did start to recover way before everything else in November of 2008, and the equities were quick to follow very early in 2009. We're among the first positive acting groups of stocks as we came out of the financial crisis. So I think we are well positioned, probably better lucky than smart the way the things have worked out. But we're in great shape at this stage looking out through 2020. Thanks.

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Peter F. Grosskopf, Sprott Inc. - CEO & Director [6]

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Thanks, Whitney. Turning now to Slide 9 for a look at our private strategies. The conversion of our balance sheet investments to LP earnings is now almost complete. This transition has decreased the income we earn from our balance sheet. While we generated substantial income and value for our shareholders during the gold downturn and will miss the income, the move does reduce our risk profile. To replace the income as we build scale in our lending LPs, we are now generating significant management fees with performance fee upside.

In 2019, our lending management fee income contracted due to some early loan repayments. But with the bonuses from those repayments, we continued to deliver excellent investment returns for our LPs and also generated a strong return on our co-invested capital. We've recently started deploying our lending fund more aggressively.

We continue to attract institutional commitments to our lending strategies with nearly USD 800 million now raised for our second fund. Of this, we've deployed $75 million and issued another $175 million in credit facilities. Our pipeline is also strong with more than $200 million in actively negotiated term sheets.

I should underscore that it is precisely at times like this of significant market dislocation that having dry powder of over $1 billion available to our private strategies is of the most value. In Q4 2019, we launched a new direct project participation strategy that complements our existing lending business with an additional $200 million to $300 million of available undrawn capital.

Turning to Slide 10 for some closing comments. We've now achieved critical mass in all of our core segments and are well positioned to drive continued growth and improving profitability. We're a global leader in a growing market niche, and we've built a high-margin, royalty-like business model for participation in the resource sector.

With a fully covered, attractive dividend yield, we believe, we present an attractive opportunity for investors and we see our own shares as offering attractive value at these levels and will continue to step in to repurchase shares when we can.

I'd say in closing that this macro environment is ideal for our firm. This is exactly what we've positioned ourselves for, for years now. I think that with increasing accommodation required to sustain the current financial markets, gold will be in an excellent position to serve as a store of value, and we look forward to a very interesting year ahead.

That concludes our remarks for today's call. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is Nik Priebe with BMO Capital Markets.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [2]

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Okay. Just wanted to start with a question on Tocqueville. I think in your comments, you alluded to some early redemptions, which have started to transition to positive net sales. Just a 2-part question. Can you just give a sense how meaningful those early redemptions were? And also, could you just remind me, is the contingent component of the purchase price connected to AUM retention in that business?

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W. Whitney George, Sprott Inc. - President [3]

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This is Whitney. I would say that redemptions were modest and typical. There were some dealers that we had where it did make sense for them to continue to support the product as there was so little interest. There were redemptions everywhere last year in the industry despite the rising equity prices as I think people typically who got left with [start] in the sector got even and decided to move on to try something else. That's normal.

But I'd say, in this kind of environment, it would be hard to predict a lot of positive flows right away. But certainly, I think the market had more than compensated for whatever redemption activity we had experienced prior to this week's activity. And yes, the -- our transaction is related -- directly linked to asset, AUM and net revenue retention.

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Nikolaus Priebe, BMO Capital Markets Equity Research - Analyst [4]

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Got it. Okay. That's helpful. And then just one other one for me. I was wondering if you could give us a little bit of color. I know it was a relatively modest number, but you had a strategy or 2 that generated carried interest in the equities business. Can you just give us a bit of insight on which strategy generated the carry there?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [5]

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Sorry, I think -- actually, you may -- Nik, it's Kevin here. I think you might be referring to the -- we have carried interest and performance fees on one line. So that's related to one of our managed equities strategies this year. I don't know, Whitney, if you want to provide some color on the JV?

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W. Whitney George, Sprott Inc. - President [6]

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Sure. We launched a joint venture partnership with John Hathaway a year ago, not knowing that we would ultimately be able to marry the 2 organizations together but shared a common vision about M&A activity within the sector, and it's a small product, it's a partnership. It does carry with it performance fees and it performed very, very well last year.

It's a very concentrated portfolio, but Detour Gold was the largest holding. So not only did the thesis play out for us or start to play out, we think it's a longer-term phenomenon here. But it performed well, which was a happy thing for our early investors, which include myself and Sprott as seed capital and John Hathaway. And we are hopeful with that kind of start that, that product will grow.

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Operator [7]

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And our next question comes from Gary Ho with Desjardins.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [8]

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Maybe just a little bit clarity just on the new royalty and streaming strategy. Can you remind me where you are with this? I think you mentioned $200 million to $300 million undrawn capital kind of a bit on the strategy fees and outlook for capital deployment here.

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Peter F. Grosskopf, Sprott Inc. - CEO & Director [9]

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All right. The capital is available. And so we're looking for deals. I think the deal sources are going to be threefold. First of all, it can operate as a sidecar to our lending strategy for project-type loans and can obviously stay in the mine with an interest for a much longer period of time.

And secondly, royalties and streams, I think, are trading much more actively now in the secondary market and are available in smaller pieces and more like on club deals. So we'll be out there for our own account, looking at attractive cash flow, direct mine participation opportunities.

And then thirdly, occasionally, through our vast network of contacts, particularly amongst the small-cap companies, we come up with unique opportunities for these types of interest. So we're just seeding it and operating it and looking to do a few deals before we get into any sort of serious capital raising mode. We'll see how it goes. With this type of a market dislocation, you never know, but that could prove to be a real winner because companies will be -- some of them desperate for capital.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [10]

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Got it. Okay. And then -- sorry, I came on the call a bit late. I apologize if this is addressed. Just wondering if you can comment on the capital deployment in the lending fund? This quarter, it's quite strong. What was that related to? And maybe just link it to the outlook for fiscal '20. I think you guys are now talking about USD 100 million to USD 200 million in net capital deployment.

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Peter F. Grosskopf, Sprott Inc. - CEO & Director [11]

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Yes. It's always hard to tell because it ebbs and flows. And last year, we had a tale of 2 cities. We had these early loan repayments, which are great from a return perspective but not good from an AUM perspective and make it look like our business is shrinking for a while, but it does ebb and flow.

And the best way I could describe it is we're looking to deploy $400 million to $500 million per year and the drawdowns on that $400 million to $500 million per year are very lumpy. So for instance, we've done $250 million in facilities. We've only been drawn on $75 million. Next month, we could be drawn on another $175 million. So it's very difficult to tell that timing because companies access the capital: a, when they need it; and b, when they meet the conditions precedent.

So I would say, for the balance of this year, we've done the $250 million of deals. I would expect them all to be funded. And I would expect another couple of hundred million of deals to be done, and the question then becomes, how quickly do they fund? And we just don't know. But again, what makes the biggest difference on that deployment is what's the state of the markets. And I think that with what's happening out there today, it bodes well for deployment.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [12]

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Got it. And then maybe just a numbers question. I did notice on the management fee breakdown page that the management fee on the lending fund came down from 125 basis points to 100. Like what caused that?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [13]

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Gary, Kevin here. Sorry, the first, are you talking about management fees in the lending segment or are you talking overall? I missed the first part of that.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [14]

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Yes. So when I look at the lending -- Sprott private resource lending LP, it was 125 basis points last quarter, went to 100 basis points this quarter. Just wondering what drove that.

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [15]

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Yes. It's -- put simply, it's the fact that a large portion of the AUM deployment that happened this quarter was committed capital that's earning a commitment fee. If you recall, we've mentioned in the past that we had 2 tranches of AUM deployments in the lending space in terms of commitments. A portion of them would not earn a fee.

So for example, the commitments in some of our earlier stage lending funds did not attract a commitment fee. But then in the subsequent ones that we've launched obviously with the great history we've seen -- early history we've seen in the lending funds, we're now able to commend a commitment fee.

So if you look at the AUM detail, there's a little footnote that talks about the decomposition of the AUM between actively managed versus committed and undeployed. And so as that committed, undeployed number gets bigger, that means there's more commitment fees as opposed to full freight management fees and the mix, thereby bringing down the average.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [16]

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Got it. Okay. And then lastly, Kevin, while I still have you, are you able to give us some sensitivity now that you guys have closed the Tocqueville acquisition? Just kind of earnings sensitivity to the precious metal prices, given I guess your constructive outlook looking out.

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [17]

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Yes, sure. So the same spiel I give you guys every quarter, we don't provide forward-looking guidance. But in very general terms, if you look at the business that is the most perhaps directly correlated to gold prices, that would be our exchange-listed products business, which is separate from managed equities, which houses the acquired Tocqueville assets.

And in that exchange-listed business, generally speaking, for every $100 change in the average price of gold on an annualized basis, you should expect to see at least $2 million of additional EBITDA hitting that bottom line, so -- and that would be at a minimum. I think at Sprott, the large majority of our torque to gold prices is indirect through a variety of inflows, whether it be ATM creation, secondary offerings, ETF unit creations, inflows on the actively managed strategies and obviously, transaction volumes that we see coming from our brokerage businesses, which picked up in the latter half of 2019.

So all those drivers, which we cannot predict, would, by far, have the most impact on our earnings, but the direct numbers would be in exchange listed and at the level I just mentioned.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [18]

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Okay. Sorry, there was one more I want to follow up. Just, Kevin, so on the change in reporting to U.S. dollar, are there anywhere I can find kind of restated prior quarters or annual numbers that you guys are thinking of putting up?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [19]

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Sorry, you're asking -- you chopped up -- if there are -- historical numbers already in USD in our...

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [20]

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Yes, yes, just for auditing purposes, yes.

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [21]

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No, there aren't. But when we file the Q1s, what we will be doing is restating the numbers in the 8-quarter roll at least for you. And what might help you guys is, well, is the fact that we're using the presentation currency approach as opposed to fundamentally changing our functional currency. So anything beyond the 8-quarter roll, what you could perhaps simply do is maybe apply just an average FX rate to all the individual line items and get there quicker.

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Operator [22]

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And our next question comes from Geoff Kwan with RBC Capital Markets.

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Geoffrey Kwan, RBC Capital Markets, Research Division - Analyst [23]

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Just wanted to follow up on the change to the U.S. dollar just at a high level. I guess it's -- most of your products would be kind of geared to some sort of U.S. dollar currency pricing so that probably drives it from the revenue perspective. And you've got operations in the U.S. or stuff there, but a lot of the expenses would be Canadian dollar. So that's where you get a lot of the translation. Is that the way to think about just in terms of -- just being functionality around what your various income statement items are and where the actual currencies underlie in each of those line items?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [24]

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Yes. I think you pretty much got it. I would say, generally speaking, we're probably well over 90-some-odd percent of our AUM. Revenues and cash flows denominated in USD. On the expense side, with the recent acquisitions, inclusive of Tocqueville, I'd probably say that our expenses -- our cash expenses are creeping up to a pretty significant degree in terms of U.S. dollars versus Canadian as well. So the net FX exposure, you are right, Geoff, historically, has come from the cat expenses, but those cat expenses are decreasing.

One thing I would -- one technical thing I'd caution you on when you're doing your numbers is, again, we're moving to presentation currency. I won't bore anyone on the call on what that means at a granular level. But you may want to give me a call on the side just to give you some more details on the -- what it means for the FX expense and gains you're going to see because under presentation currency, that gain/loss number essentially becomes a meaningless statistic. So you got to be careful with how you interpret it in a USD-reporting world.

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Geoffrey Kwan, RBC Capital Markets, Research Division - Analyst [25]

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Okay. And then just a clarification on Slide 7 around the 2020 numbers on the new units and the AUM for the physical trust. Is that still in the Canadian dollars because that's technically what you're on right now? Or is that under the new U.S. dollar reporting?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [26]

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Right, yes, those are -- those numbers are still in Canadian dollars.

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Geoffrey Kwan, RBC Capital Markets, Research Division - Analyst [27]

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Okay. And just the last question I had was, from a product offering standpoint, is there anything new that you're working on the pipeline or areas that you like to branch out that you're not right now?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [28]

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Well, we're always thinking about product line extensions that fit in our framework. And that framework really is about coming up with something that's differentiated, meeting a market need that maybe not met or under-met. And clearly, there's an element of timing in terms of whether we think we want to put our clients in a certain product and as well as our own capital.

So it's a complex formula. We're always thinking about new products. I think right now, what we're trying to do is focus a lot of our energy on the existing product suite because it is very well positioned to capitalize on the market environment and raise capital.

Secondly, we're very focused on the Tocqueville Gold Fund, which is now called the Sprott Gold Equity Fund and making sure we lock down those clients and assets. And so right now, we're really trying to focus on the existing product suite.

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Operator [29]

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And our next question comes from Rasib Bhanji with TD Securities.

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Rasib Ali Bhanji, TD Securities Equity Research - Associate [30]

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So I got cut off from the call for a bit, so I apologize if these questions were asked before. Firstly, just on the performance fee side, it came in at a healthy $2.4 million this year. Just wondering if it was any one specific funds or if it was diversified across funds. And just as a follow-up to that question, there was a mention of your conversion from balance sheet investments to LP investments that would have some upside to performance fees. So I was wondering if you can give any indication of the impact that would have on it.

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [31]

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So I'll take the first question. It's Kevin here. So yes, that question was raised previously. The performance fee that you see varies from largely one fund strategy, which was the Hathaway joint venture. And can you just quickly repeat the second question for us?

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Rasib Ali Bhanji, TD Securities Equity Research - Associate [32]

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Yes. So in your prepared comments, you mentioned the conversion of balance sheet investments to more of the LP structure. There might be some fee upside on the performance fee. So I was just wondering if you could quantify the impact on that for us.

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [33]

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So yes, you're probably referring to Peter's earlier comments. So again, we don't provide forward-looking info. But generally speaking, if we're -- what we were simply saying is moving from the balance sheet to a fund strategy means that now we have the ability to generate carried interest, right, before we were direct lending to the borrowers, which would largely generate interest income for us. Now that we have a PE-style fund strategy, where we're lending in, we've negotiated with those clients the ability to take carry. So that's all there was to that.

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Rasib Ali Bhanji, TD Securities Equity Research - Associate [34]

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Okay, makes sense. Second question was just on the compensation expenses. So I understand you don't give specific forward-looking guidance. But I was wondering the expense level -- the compensation expense level you're at right now, would this be a fair run rate and then will you tack on some expenses for the Tocqueville acquisition? Or like how should we be thinking about this?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [35]

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So I wouldn't tack on anything for Tocqueville, but I'd probably say on the expense side, it kind of goes back to what I've been talking about for the last maybe 4 years now with our long-term incentive program. That's under the accounting rules, is done on a sort of a declining balance basis. So the LTIP you see will probably stay flat to declining a little bit. But then on the salaries and incentive line, our company is significantly levered to company performance. So whatever you have in your models in terms of how you think the company would do will reflect likely in our compensation numbers as well.

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Rasib Ali Bhanji, TD Securities Equity Research - Associate [36]

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Okay. Makes sense. And my last question was just on the capital deployment on your lending strategies. The 2020 guidance range of between USD 100 million to USD 200 million, so that's in net inflows. I was wondering on a gross -- sorry, on a gross commitment -- or gross deployment basis, would it still be in the $400 million to $500 million range?

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Kevin Lloyd Hibbert, Sprott Inc. - Senior MD & CFO [37]

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Yes, I'm more comfortable going with just the net number. There's a mixed bag of movements. To Peter's point, I'm not sure if you were on the call at the time Peter was talking about it, but it is extremely difficult to forecast out what the capital calls would be relative to distributions and in particular, exactly when they're going to happen. I think net-net, we're comfortable with the net number that you see there between $100 million and $200 million. So you probably want to just work with that. And then along with all the other details we put in the 2020 outlook, that should pretty much give you an accurate sense of where we'll likely be in the lending space this year.

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Operator [38]

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And I'm showing no further questions at this time. I'd like to turn the call back to Peter Grosskopf for any closing remarks.

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Peter F. Grosskopf, Sprott Inc. - CEO & Director [39]

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All right. Well, thanks, everyone, for your time this morning, and we look forward to keeping up with you during the course of the year. Have a good day, good weekend.

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Operator [40]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.