Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc's 2021 third quarter results conference call. At this time, all participants are in 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. If anyone have any difficulties hearing the conference, please press star followed by the zero for operator assistance at any time. As a reminder, this conference is being recorded today, November 5, 2021. 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 and U.S. securities regulators. I will now turn the conference over to Mr. Peter Grosskopf. Please go ahead, Mr. Grosskopf.
Thanks for joining us today. On the call with me today are Whitney George, the President of Sprott, our Chief Financial Officer, Kevin Hibbert, and John Ciampaglia is Chief Executive Officer of Sprott Asset Management. Our third quarter 2021 results were released this morning and are available on our website, where you can also find the financial statements and MD&A. I'd like to begin the call by providing a bit of context, which I believe is important when considering our quarter. This has been a difficult year for gold and silver, given their pullbacks, with much choppy sideways price movement. Investor interest was tested as metals took a backseat to eye-watering appreciation in the equity and crypto markets. Precious metals do not usually fare well during times of maximum confidence and compressed volatility. Given that backdrop, I believe our business performed exceptionally well during the quarter.
The big story this quarter was the launch of the Sprott Physical Uranium Trust in July. SPUT has quickly emerged as the world's most in-demand physical uranium vehicle and has now grown to more than $1.6 billion in AUM. Yesterday, we announced we are expanding our uranium business with the addition of URNM, one of the world's leading uranium equity ETFs. John will speak more about both SPUT and URNM in a few minutes. All of Sprott's businesses are currently growing, including our streaming and royalty strategy, which raised $400 million in Q3. Finally, subsequent to quarter end, our AUM reached the $20 billion milestone for the first time. This is a significant milestone for our business, and I would like to thank all of our employees for their efforts and for all of our client support. We have a long way to go.
With that, I'll pass it over to Kevin for a look at our financial results for the quarter.
Thanks, Peter, and good morning, everyone. I'll start on slide five, which provides a summary of our AUM as at September 30 of this year. AUM was $19 billion this quarter, up $466 million or 3% from June 30 of this year, and was up $1.6 billion or 9% from December 31 of last year. In the quarter, we benefited from the UPC transaction, which added $630 million to our physical trusts at inception, followed by another $670 million of uranium trust inflows and market value appreciation. On a full year basis, we also benefited from strong inflows into our physical silver trust earlier in the year, coupled with continued inflows into our lending segment this quarter, as Peter noted earlier.
To Peter's point, subsequent to the quarter end, we did surpass the $20 billion mark in AUM, which is a new historic high for our shareholders. Moving now to slide six. Slide six provides a brief look into our three- and nine-month earnings. Adjusted base EBITDA in the quarter was $16.7 million, which was up $4.7 million or 39% from the prior period. On a year-to-date basis, adjusted base EBITDA was $46.4 million, up $17 million or 58% from the prior period. On a quarter and year-to-date basis, we benefited from the acquisition of UPC and the subsequent market value appreciation and inflows into those assets. We also benefited from strong inflows into our lending products this quarter and into the physical silver trust earlier in the year.
Finally, we saw very robust mining equity origination activity in the first half of the year, coupled with strong ongoing AUM development in our brokerage segment. For more information on our revenues, expenses, and EBITDA, you can refer to the supplemental information section of this presentation, as well as our third quarter 2021 MD&A filed earlier this morning. With that said, I'll pass things over to John.
Great. Thanks, Kevin, and good morning, all. I'm just gonna cover the exchange-listed products for the quarter, and we had a very robust quarter of net flows at $593 million. I really wanna point out the star of the show, which was the Sprott Physical Uranium Trust, which in just about six weeks in the quarter attracted $459 million. That mid-August number, August seventeenth, is when the at-the-market capital-raising mechanism became effective, and we've seen just tremendous response to that from all investor types from right around the globe. This has really helped us overall in the quarter. As Peter said, gold and silver have been kind of sputtering around for the last few months, and the introduction of the Uranium Trust has been very helpful for our business.
Post the quarter end, October sales continue to be very robust. We've booked already $329 million for the month of October. Even in November, in the first few days, we're continuing to see the same kind of momentum. Just moving to the next slide, I'll give everybody a little bit more color around the Uranium Trust, better known as SPUT, for simplicity. I think this will go down as one of our most successful fund launches and acquisitions of Sprott's history. On July 19, when we acquired UPC and reorganized the company to the new trust, the net asset value in the fund was $630 million. Fast-forward to October 31, we're now at $1.6 billion.
The combination of market appreciation and the price of uranium combined with the inflows from the ATM have really made a big mark in a very short period of time. I think this is a really great case study for our shareholders around taking a vehicle that was a little bit antiquated and taking all of our knowledge and expertise and modernizing it. I think a lot of this knowledge that we bring to bear has come from over 10 years of running physical commodity funds and having a shareholder base of over 250,000 gives us incredible insights to leverage. Adding the daily net asset value and holdings every day provided much-needed transparency in a very opaque uranium market.
We feel as though the ATM is one of the most investor-friendly, capital-raising mechanisms out there with very low friction costs and really is designed to provide real-time liquidity when the market is asking for it. This now positions us as the largest and most liquid physical uranium fund in the world. This is really important because when we made the acquisition, I said very early on, I felt the fund was way too small to really make a difference. What I meant by that is that at $630 million, it just wasn't big enough to get a lot of institutional money involved in the trust. I think with the size now approaching $2 billion, we're having very different conversations with institutions much bigger in size, much bigger tickets, and much more global.
We're very excited about the response. The NYSE Arca listing application is in progress. We're working in conjunction with them to get the application ready. It is not yet, but it will be this year. I'm just gonna reiterate that we still believe we're in very early innings of a new bull market, which will support our recent acquisition news yesterday of buying URNM. Just gonna move to the next slide here about the uranium market because it is a very different market than we traditionally have dealt with in precious metals. It's a much more opaque market. It's a very OTC market. I think what the new trust has really helped to do is encourage more activity in the spot market, more liquidity, and more price transparency.
On slide nine here, you can see how the trust has acquired pounds of uranium since the ATM commenced on August as well as the cumulative pounds acquired. This chart is a little bit out of date going to October 26th. I can tell you as of today, we're through 18 million uranium purchases since the ATM. I'm just gonna give everyone some context. UPC, the vehicle we acquired was launched back in 2005. Just had a little bit of fun here, but it took them 5,911 days to purchase 18.1 million pounds of yellowcake. It's taken SPUT 110 days to buy the equivalent amount, just to give you a sense of the power of this vehicle in terms of its capital-raising ability.
Moving to the next slide, this daily discovery that the trust is providing, I think we've received really great feedback from the marketplace on the value that's providing as well as the liquidity and activity in the spot market, which historically has not been where utilities buy and has languished. All the feedback we're getting from institutions and retail investors has been very positive on what the trust has been doing. All right. Let's pivot over to slide eleven. URNM, that's the NYSE Arca ticker for the North Shore Global Uranium Mining ETF. We announced an agreement yesterday, late in the day, that we were gonna acquire the licensing rights to this index and reorganize it. It will become upon board approvals, shareholder approvals. It will turn into the Sprott Uranium Miners ETF.
It will continue with the same ticker, the same holdings, the same underlying index.
We're very pleased with Tim Rotolo and his team. They've done a great job in terms of building this ETF from a very small number up towards $900 million in size. It's had over $600 million of inflows year-to-date. Its one-year performance of 230% is ranked number two out of 2,504 non-levered ETFs that I could find on etf.com. It's had tremendous success in terms of performance for its investors and shareholders. Essentially, the reorganization, once it's completed in Q1, will just basically turn the fund into a new Sprott fund. As I said, the holdings will not change or the index. We're very excited about adding this to our suite of products.
'Cause one thing we've learned over the last few months is that many uranium investors not only are interested in the physical, but they're also involved in the equities. We think this is the perfect pairing and complement, putting the physical trust along with the uranium equity product. Very high overlap globally around the world across every investment type, and I think it's fair to say that we've got two market-leading products, in the uranium equity and physical, category. We're very excited about that. With that, I will turn it over to Whitney.
Thank you, John. I was just gonna speak to our managed equities business. A year ago this time, it was the star of the show, and we've taken a bit of a back seat here in the last quarter. Again, as has been mentioned, gold equities have been struggling with the underlying precious metal prices. The team performed very well in the third quarter relative to our passive ETFs and most of our active competitors. We have, you know, we've held things together, and again, the success in other parts of our business has allowed us to continue to invest in what I think is the leading team in the world in mining equities.
We've seen a pretty sharp swing over the last year in redemptions. They've slowed significantly. There have been modest positive cash flows. We've got some new institutional arrangements both in SMAs and in our special situation strategy. Gold stock valuations are trading at multi-year lows, maybe even historic lows. One would expect now that value investing is coming back into vogue in a rising rate environment or potentially rising rate environment that generalists are going to discover this sector. We remain excited about our prospects you know as we wait for our turn again. Thank you. Peter?
Thanks, Whitney. Turning to slide 13, our private capital strategies continue to perform well. Combined AUM for this segment is now approximately $1.4 billion. Lending Fund two deployed $63 million in Q3, and de-deployments are continuing to be strong. The fund is still generating attractive returns for LPs and for Sprott seed capital. Our streaming and royalty fund had a great quarter, securing $400 million in institutional commitments. The fund has also been actively putting capital to work through new deals, deploying $105 million to date, year-to-date. I'll move to slide 14 for a look at the brokerage segment. Our brokerage businesses in Canada and the U.S. are both continuing to perform well and make more meaningful contributions to our overall results.
In Canada, the institutional brokerage is benefiting from high activity levels, both in originations, which generate commission revenue and in advisory work with emerging juniors. Our U.S. brokerage team is continuing their efforts to convert assets under administration to fee-earning AUM, with approximately $450 million converted year-to-date. They are also launching new products for high-net-worth individuals and recently completed the first close of a new PIPE strategy. Moving now to slide 15, Sprott is firing on all cylinders, delivering exceptional performance, the performance and AUM growth despite volatility in precious metals. Gold and silver prices have recovered since the quarter end as investors seek inflation protection, and we believe that they will fare well in the face of tapering. To us, the upside is much greater than the downside. We sense that the movement into alternative assets in our sector is gaining momentum.
The Uranium Trust, which is already generating meaningful royalty-like revenue income to Sprott, also demonstrates the potential to launch new products on our exchange-listed products platform. To that point, the URNM transaction will add a compelling equity offering to our minerals equities businesses. Our private strategies are performing well, generating new LPs to a steadily expanding institutional client base. As usual, we remain active in reviewing add-on funds, validation of niche managers in our focus areas. That concludes our remarks for today's call, and I'll now turn it over to the operator for some Q&A. Operator?
Our first question will be from the line of Geoffrey Kwan from RBC Capital Markets. You may begin.
Hi, good morning. Just first question was on compensation, base compensation expense as well as on the G&A expense. How are you thinking with the new transaction kind of pro forma, what the run -rate looks like? Then also extrapolating that in terms of how you think that may evolve, in terms of growth in 2022.
Hey, Jeff. Kevin here. Sorry, I'm not at all understanding that question. You're trying to correlate compensation to the acquisition?
Well, yeah, just with yesterday's announcement, too, it's just, you know, how to think about where the run -rate is right now on compensation expense and G&A expense. Just as you enter, you know, 2022, do you expect that to grow at, you know, 3% rate or some other type of growth rate?
Oh, okay. I got you. Okay. On the SG&A front, you know, one of the good things about our business is it is at least from an infrastructure perspective, people, processes, technology around our AUM. I would say, the business is very scalable at our current levels. To me, the SG&A is probably. I think you'd be safe if you had a number in and around $4 a quarter. I think that's realistic. I don't think we would get to that number for now.
The biggest driver of our SG&A this year is just like we noted in the MD&A, Jeff, it's the regulatory and insurance cost that came on stream last summer when we started trading on the New York Stock Exchange. Obviously, now we're having to be 404 compliant. There's more continuous disclosure requirements, and obviously it's a more litigious environment, so your D&O insurance goes up. That's really what drove where the numbers are there. Not so much these additional assets coming on board, because essentially, the last few acquisitions we've done were largely ones that we could just plug into our existing operations. And then when it comes to comp, I would say that our compensation is not driven directly by any particular acquisition.
If you look at our information circular and even the disclosures we made in the press release today, the main driver of our comp is how the overall organization is doing from a net revenues perspective and from an EBITDA and operating margin perspective. I think if you look at how we're doing or how you expect us to do in your own models, and just look at what the compensation ratio is today, and where you think it's gonna run to at the end of the year, I think it'll be a little bit higher than what you see now at 39%. You can just plop that into your models and just extrapolate what the comp number would look like based on what the overall earnings of the business look like.
Okay, great. Just my second question was, on the fundraising side, can you talk about what the mix was in the early days of your private strategies and how it's different in terms of what you're seeing today? By mix, I mean stuff like geographic breakdown, types of investors that you're bringing into these strategies.
Okay. I can maybe handle that. The mix hasn't changed that much. These are mostly large endowments, pensions, mostly from the U.S. It is getting a bit more global in terms of the interest base. Also we have put in place a couple of feeder funds which allow high net worth individuals or accredited investors to access those funds. Those feeders are quite small still, but it's a different source of capital. We imagine it will be quite sticky as well. We're growing those feeders hopefully going forward.
Okay, great. Thank you.
Our next question comes from the line of Gary Ho from Desjardins Capital. You may begin.
Yeah, thanks, good morning. I just want to go back to the URNM transaction. Can you provide a bit more color in terms of the deal metric, whether there's any earnouts, and also maybe talk about the fee, arrangement side?
Yeah. Hey, Gary, it's John here. Yeah, at this point, we're not providing all the metrics on that. We're still in the process of working through not only our own ETF trust board, but also the ETF trust board where the existing ETF is housed. Until we move further along in that process, we're not gonna disclose the terms. I think it's fair to say that you know the valuation metrics are very similar to prior transactions that we've done in the recent past.
You won't be surprised.
Yeah. Any thoughts on, I guess I can check out what the management fees they're charging today, but any thoughts on potentially changing those fees, or are you planning to keep that unchanged?
Yeah. The ETF has a unitary fee where it's kind of an all-in fee. Everything is embedded in a flat fee of 85 basis points. At this point, we're not planning any changes with that.
Perfect. Okay. Great. Thanks. Then next question, just within the exchange listed segment, there's a new commission line in there. Just wondering what that is related to. What are the drivers behind those commissions, if I'm gonna model this out, looking out?
Sure. The trust document discloses all the details. If you want us to send it to you, we're happy to do that after the call. Essentially, when we raise new capital and acquire more uranium, the trust is able to charge a 1% commission. What you're seeing there, as we've been buying material, we've been applying that commission. That basically compensates us on uranium, which is a lot of work relative to buying other commodities.
I should do that as a one-time when you buy it. Like if, obviously, if you buy more-
That's right.
this quarter
Yeah, it's a one-time fee, and that structure carried over from Uranium Participation Corporation.
Right. I would say, Gary, that it is a core part of what we do in this business and how you manage acquiring and exiting uranium. Just keep that in mind too when you're looking at that line.
Okay. What happens on the other way when you sell uranium? Like if AUM goes down, how does that work?
Yeah. We don't sell any uranium in the trust. It's sequestered permanently.
Okay. Yeah. My last question on the lending segment, when I look at the AUM increase, it was 44% sequentially from June - September. The management fees went up 2.7x. Can you help me bridge the two?
Sure.
Are there other commitment fees?
Yeah. Great catch there, Gary. All that's happening there is in those specific closed-end products, the way it works is when an institution comes in, a sizable one at that, like what we benefited from. They're actually expected to make a catch-up payment on the management fees that would've otherwise been charged throughout the previous months and the years. If you're coming in in Q3, you're having to catch up for, you know, all the way back to January. That's why the numbers wouldn't really be correlated as nicely as you would have thought for your modeling purposes.
Oh, okay. Got it. Okay. I should still use that blended management fee rate then?
Yeah. Yeah. Exactly, yeah. It's only because these folks came in and then had to make the catch-up payment. It's not. Yeah.
Okay. Makes sense. Maybe just last one for Peter. Just on the uranium side, any other potential targets? Not necessarily in the name, but like, other products that you could be looking for?
We don't wanna name anything specific. We're looking at the spectrum of decarbonization minerals, and we always have, by the way. We have pretty high hurdles for making an investment. We, you know, need to be careful that we can deliver a long-term growing vehicle for our shareholders. We're looking to build royalty-like income on a large asset base, not just to do, you know, specific one-off deals. The hurdles are pretty high. We put a lot of effort into structuring these funds and strategies so that they offer a material improvement to what's out there already. That's kind of been our modus operandi in terms of getting into new businesses if we can do it better than anyone else and we can make it more liquid.
Look, it's a huge growing new world, and I think people are increasingly aware of the fact that, hey, we underinvested in all of these sectors for 30 years, and now we need all these minerals to power a green grid. There's a bit of a land rush into not just metals, but also the underlying mines. It's a very productive opportunity for investment. It's a really neat, you know, I think globally scalable opportunity.
Okay. Great. Thanks. Thanks for the call. That's it for me.
Our next question on the phone line of Graham Ryding from TD Securities. You may begin.
Peter, are there other sort of clean metals that you're looking at besides uranium and, you know, I guess silver falls in that bucket?
There are, but we don't wanna comment on the specifics.
Okay. Good.
Sorry about that.
That's okay.
Just, it's like they can hear us coming, so we gotta be quiet about what we're up to next.
Well, I'll take that as a good question if you can't answer it. URNM, are you essentially buying this fund? I just wanna be clear because you sort of used the language, you know, you're acquiring licensing rights, but I just wanna be clear. Are you essentially buying this fund similar to how you've done in the past?
Yeah. Graham. Yeah. It's John here. Yeah, that's essentially. I know the language is a little bit confusing, but essentially, we will be acquiring it by launching a parallel vehicle and basically taking in all the assets. But it is an acquisition.
Okay.
I think what it does do, Graham, sorry to interrupt.
Yep.
What it does do is it speaks to the value of the business that John and his team built over, you know, five years. We looked at a number of different options for housing our ETF business in the U.S. We tried some things that didn't work. John and Arthur and their team did a great job providing us with our own infrastructure so that we could do these types of deals. I think it's a very valuable business going forward.
Okay. Understood. Kevin, just a couple of expense questions. Just first, what was driving the higher your trailer fee expenses at around $2 million in the quarter? What was driving the big jump there?
I'll have to get back to you on that one.
Oh, okay.
I just don't have the answer in front of me.
Okay. You mentioned the comp ratio. I think I just wanna make sure I got your message right here.
Yeah.
The comp ratio for 2021, you're suggesting is fairly reflective of what the business should be operating at going forward. If I think about operating leverage here within the business, it's not gonna come from a lower comp ratio over time. It's probably gonna come from the scale that you would get just from sort of less growth on, you know, SG&A and your other expense lines. Is that leverage?
Yeah, I would say the latter part of what you said is spot on. The former part's a little off. I didn't say that the current number is a run -rate. What I was actually saying is that the number's probably gonna be a little bit higher than that. The 39% that you see right now, it'll probably get up a little bit closer to what you saw coming out of last year, which was around 43%. That actually does speak to what you're saying, Graham, which is, you know, earnings are up right now significantly. We're looking forward to having another very strong quarter come Q4.
The comp ratio is most likely gonna be flat, and if anything, slightly lower even, than where it finished last year. It's just this quarter. It's a little lower than what's actually gonna be the reality. All for the reasons you just mentioned in the last half of your statement.
Okay. Okay. Yeah, that's it for me. Thank you.
Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Peter to make his closing remarks.
Thanks, operator, and thank you everyone for participating on this call. We appreciate your interest in Sprott, and we look forward to speaking with you again after our year-end results.
This will conclude the conference call. Thank you for participating. You may now disconnect. Have a great day.