Sprott
Annual Report 2020

Plain-text annual report

Sprott | 2020 Annual Report Contrarian. Innovative. Aligned. A Global Leader in Precious Metals Investments Sprott provides investors with access to highly-differentiated precious metals strategies. We are specialists. Our in-depth knowledge, experience and relationships separate us from the generalists. Sprott’s specialized investment products include innovative physical bullion trusts, managed equities, mining ETFs, as well as private equity and debt strategies. We also partner with natural resource companies to help meet their capital needs through our brokerage and resource lending activities. Sprott is a global asset manager with offices in Toronto, New York and London. Sprott’s common shares are listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “SII”.  Table of Contents Letter to shareholders Management's Discussion and Analysis Management's Responsibility for Financial Reporting Independent Auditors' Report Consolidated Financial Statements Notes to the Consolidated Financial Statements 2 3 29 30 32 36 (cid:22)(cid:41)(cid:37)(cid:54)(cid:1)(cid:42)(cid:41)(cid:48)(cid:48)(cid:51)(cid:59)(cid:1)(cid:55)(cid:44)(cid:37)(cid:54)(cid:41)(cid:44)(cid:51)(cid:48)(cid:40)(cid:41)(cid:54)(cid:55)(cid:5) (cid:34)(cid:64)(cid:1) (cid:63)(cid:51)(cid:64)(cid:75)(cid:1) (cid:73)(cid:51)(cid:75)(cid:69)(cid:10)(cid:1) (cid:16)(cid:14)(cid:16)(cid:14)(cid:1) (cid:73)(cid:51)(cid:69)(cid:1) (cid:51)(cid:1) (cid:75)(cid:55)(cid:51)(cid:68)(cid:1) (cid:71)(cid:64)(cid:62)(cid:59)(cid:61)(cid:55)(cid:1) (cid:51)(cid:64)(cid:75)(cid:1) (cid:65)(cid:70)(cid:58)(cid:55)(cid:68)(cid:12)(cid:1) 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(cid:51)(cid:1)(cid:57)(cid:68)(cid:55)(cid:51)(cid:70)(cid:1)(cid:75)(cid:55)(cid:51)(cid:68)(cid:1)(cid:56)(cid:65)(cid:68)(cid:1)(cid:75)(cid:65)(cid:71)(cid:68)(cid:1)(cid:53)(cid:65)(cid:63)(cid:66)(cid:51)(cid:64)(cid:75)(cid:10)(cid:1)(cid:51)(cid:69)(cid:1)(cid:73)(cid:55)(cid:1)(cid:53)(cid:65)(cid:64)(cid:70)(cid:59)(cid:64)(cid:71)(cid:55)(cid:1)(cid:70)(cid:65)(cid:1)(cid:69)(cid:70)(cid:68)(cid:59)(cid:72)(cid:55)(cid:1)(cid:70)(cid:65)(cid:1)(cid:52)(cid:55)(cid:1)(cid:70)(cid:58)(cid:55)(cid:1) (cid:73)(cid:65)(cid:68)(cid:62)(cid:54)(cid:78)(cid:69)(cid:1)(cid:62)(cid:55)(cid:51)(cid:54)(cid:59)(cid:64)(cid:57)(cid:1)(cid:66)(cid:68)(cid:55)(cid:53)(cid:59)(cid:65)(cid:71)(cid:69)(cid:1)(cid:63)(cid:55)(cid:70)(cid:51)(cid:62)(cid:69)(cid:1)(cid:59)(cid:64)(cid:72)(cid:55)(cid:69)(cid:70)(cid:63)(cid:55)(cid:64)(cid:70)(cid:1)(cid:56)(cid:59)(cid:68)(cid:63)(cid:12)(cid:1) (cid:45)(cid:58)(cid:51)(cid:64)(cid:61)(cid:1)(cid:75)(cid:65)(cid:71)(cid:1)(cid:56)(cid:65)(cid:68)(cid:1)(cid:75)(cid:65)(cid:71)(cid:68)(cid:1)(cid:53)(cid:65)(cid:64)(cid:70)(cid:59)(cid:64)(cid:71)(cid:55)(cid:54)(cid:1)(cid:69)(cid:71)(cid:66)(cid:66)(cid:65)(cid:68)(cid:70)(cid:12)(cid:1) (cid:41)(cid:55)(cid:70)(cid:55)(cid:68)(cid:1)(cid:32)(cid:68)(cid:65)(cid:69)(cid:69)(cid:61)(cid:65)(cid:66)(cid:56) (cid:28)(cid:58)(cid:59)(cid:55)(cid:56)(cid:1)(cid:30)(cid:74)(cid:55)(cid:53)(cid:71)(cid:70)(cid:59)(cid:72)(cid:55)(cid:1)(cid:40)(cid:56)(cid:56)(cid:59)(cid:53)(cid:55)(cid:68) (cid:4) Management's Discussion and Analysis Years ended December 31, 2020 and 2019 3 Forward looking statements Certain statements in this Management's Discussion & Analysis ("MD&A"), and in particular the "Business Performance Highlights" section and "Outlook" section, contain forward-looking information and forward-looking statements (collectively referred to herein as the "Forward-Looking Statements") within the meaning of applicable Canadian and U.S. securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify Forward-Looking Statements. In particular, but without limiting the forgoing, this MD&A contains Forward-Looking Statements pertaining to: (i) the belief that distortion in financial asset valuations is now so extreme that there has never been a stronger argument for investors to hold non-correlated assets, such as precious metals and their related equities, in their portfolios; (ii) the belief that there will be a rotation of investor capital into precious metal equities; (iii) the commitment to extend the company’s reach by increasing our presence in key markets such as Europe and Asia; (iv) the expectation of expanding the client base with the launch of complementary new investment strategies in 2021; (v) the belief that 2021 will be a great year for the company, as it continues to strive to be the world’s leading precious metals investment firm; (vi) continued strength in global precious metals pricing and mining equities markets throughout 2021; (vii) anticipation of flat-to-lower AUM in our lending segment as capital calls into new lending LPs are offset by capital distributions from older lending LPs that will be wound up later in the year, including the expectation of crystallized material carried interest gains from those LPs; (viii) anticipation of mining sector equity origination and M&A activity to remain constructive in 2021; (ix) at a consolidated level, the belief that the aforementioned segment level results will lead to another strong year for Sprott Inc. as far as continued earnings growth and strong operating margins; (x) expectation of the effects of COVID-19, and in particular, world government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets; and (xi) the declaration, payment and designation of dividends and confidence that our business will support the dividend level without impacting our ability to fund future growth initiatives. Although the Company believes that the Forward-Looking Statements are reasonable, they are not guarantees of future results, performance or achievements. A number of factors or assumptions have been used to develop the Forward-Looking Statements, including: (i) the impact of increasing competition in each business in which the Company operates will not be material; (ii) quality management will be available; (iii) the effects of regulation and tax laws of governmental agencies will be consistent with the current environment; and (iv) those assumptions disclosed herein under the heading "Critical Accounting Estimates, Judgments and Changes in Accounting Policies". Actual results, performance or achievements could vary materially from those expressed or implied by the Forward-Looking Statements should assumptions underlying the Forward-Looking Statements prove incorrect or should one or more risks or other factors materialize, including: (i) difficult market conditions; (ii) poor investment performance; (iii) failure to continue to retain and attract quality staff; (iv) employee errors or misconduct resulting in regulatory sanctions or reputational harm; (v) performance fee fluctuations; (vi) a business segment or another counterparty failing to pay its financial obligation; (vii) failure of the Company to meet its demand for cash or fund obligations as they come due; (viii) changes in the investment management industry; (ix) failure to implement effective information security policies, procedures and capabilities; (x) lack of investment opportunities; (xi) risks related to regulatory compliance; (xii) failure to manage risks appropriately; (xiii) failure to deal appropriately with conflicts of interest; (xiv) competitive pressures; (xv) corporate growth which may be difficult to sustain and may place significant demands on existing administrative, operational and financial resources; (xvi) failure to comply with privacy laws; (xvii) failure to successfully implement succession planning; (xviii) foreign exchange risk relating to the relative value of the U.S. dollar; (xix) litigation risk; (xx) failure to develop effective business resiliency plans; (xxi) failure to obtain or maintain sufficient insurance coverage on favourable economic terms; (xxii) historical financial information being not necessarily indicative of future performance; (xxiii) the market price of common shares of the Company may fluctuate widely and rapidly; (xxiv) risks relating to the Company’s investment products; (xxv) risks relating to the Company's proprietary investments; (xxvi) risks relating to the Company's lending business; (xxvii) risks relating to the Company’s brokerage business; (xxviii) those risks described under the heading "Risk Factors" in the Company’s annual information form dated February 25, 2021; and (xxix) those risks described under the headings "Managing Risk: Financial" and "Managing Risk: Non-Financial" in this MD&A. In addition, the payment of dividends is not guaranteed and the amount and timing of any dividends payable by the Company will be at the discretion of the Board of Directors of the Company and will be established on the basis of the Company’s earnings, the satisfaction of solvency tests imposed by applicable corporate law for the declaration and payment of dividends, and other relevant factors. The Forward-Looking Statements speak only as of the date hereof, unless otherwise specifically noted, and the Company does not assume any obligation to publicly update any Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws. Management's discussion and analysis This MD&A of financial condition and results of operations, dated February 25, 2021, presents an analysis of the consolidated financial condition of the Company and its subsidiaries as at December 31, 2020, compared with December 31, 2019, and the consolidated results of operations for the three and twelve months ended December 31, 2020, compared with the three and twelve months ended December 31, 2019. The board of directors approved this MD&A on February 25, 2021. All note references in this MD&A are to the notes to the Company's December 31, 2020 audited annual consolidated financial statements ("annual financial statements"), unless otherwise noted. The Company was incorporated under the Business Corporations Act (Ontario) on February 13, 2008. Presentation of financial information The financial statements, including the required comparative information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). Financial results, including related historical comparatives contained in this MD&A, unless otherwise specified herein, are based on the annual financial statements. While the Company’s functional currency is the Canadian dollar, its presentation currency has changed to US dollars effective January 1, 2020, with the prior period figures restated accordingly. We believe the US dollar better reflects the Company’s consolidated financial position and results of operations given the materiality of revenues denominated in US dollars that further increased in 2020 with the January 17, 2020 close of the Tocqueville Asset Management gold strategies acquisition (the "Acquisition"). Accordingly, all dollar references in this MD&A are in US dollars, unless otherwise specified. The use of the term "prior period" refers to the three and twelve months ended December 31, 2019. 4 Key performance indicators (non-IFRS financial measures) The Company measures the success of its business using a number of key performance indicators that are not measurements in accordance with IFRS and should not be considered as an alternative to net income (loss) or any other measure of performance under IFRS. Non-IFRS financial measures do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Our key performance indicators are discussed below: Assets under management Assets under management ("AUM") refers to the total net assets managed by the Company through its various investment product offerings, managed accounts and managed companies. Net inflows Net inflows (consisting of net sales, capital calls and fee earning capital commitments) result in changes to AUM and are described individually below: Net sales Fund sales (net of redemptions), including 'at-the-market' transactions and secondary offerings of our physical trusts and new 'creations' of ETF units, are a key performance indicator as new assets being managed will lead to higher management fees and can potentially lead to increased carried interest and performance fee generation (as applicable) given that AUM is also the basis upon which carried interest and performance fees are calculated. Capital calls and commitments Capital calls into our lending LPs are a key source of AUM creation, and ultimately, earnings for the Company. Once capital is called into our lending LPs, it is included within the AUM of the Company as it will now earn a management fee (NOTE: it is possible for some forms of committed capital to earn a commitment fee despite being uncalled, in which case, it will also be included in AUM at that time). Conversely, once loans in our lending LPs are repaid, capital may be returned to investors in the form of a distribution, thereby reducing our AUM ("capital distributions"). Net fees Management fees (net of trailer and sub-advisor fees) and carried interest and performance fees (net of carried interest and performance fee payouts) are key revenue indicators as they represent the net revenue contribution after directly associated costs that we generate from our AUM. Net commissions Commissions, net of commission expenses, arise primarily from the transaction based service offerings of our brokerage segment. Net compensation Net compensation excludes commissions, carried interest and performance fee payouts, which are presented net of their related revenues in this MD&A, and severance and new hire accruals which are non-recurring. Total shareholder return Total shareholder return is the financial gain (loss) that results from the change in the Company's share price, plus any dividends paid over the period. Return on capital Return on capital is calculated as adjusted base EBITDA, plus gain (loss) on investments divided by capital stock plus outstanding loan facility. 5 EBITDA, adjusted EBITDA, adjusted base EBITDA and operating margin EBITDA in its most basic form is defined as earnings before interest expense, income taxes, depreciation and amortization. EBITDA is a measure commonly used in the investment industry by management, investors and investment analysts in understanding and comparing results by factoring out the impact of different financing methods, capital structures, amortization techniques and income tax rates between companies in the same industry. While other companies, investors or investment analysts may not utilize the same method of calculating EBITDA (or adjustments thereto), the Company believes its adjusted base EBITDA metric, in particular, results in a better comparison of the Company's underlying operations against its peers and a better indicator of recurring results from operations as compared to other non-IFRS financial measures. Neither EBITDA, adjusted EBITDA or adjusted base EBITDA have standardized meaning under IFRS. Consequently, they should not be considered in isolation, nor should they be used in substitute for measures of performance prepared in accordance with IFRS. The following table outlines how our EBITDA, Adjusted EBITDA and Adjusted base EBITDA measures are determined: (in thousands $) Net income for the periods Adjustments: Interest expense Provision for income taxes Depreciation and amortization EBITDA Other adjustments: (Gain) loss on investments (1) Non-cash stock-based compensation Other expenses (2) Adjusted EBITDA Other adjustments: 3 months ended 12 months ended Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 6,720 1,445 26,978 10,209 331 2,561 1,023 10,635 3,089 1,307 4,266 19,297 269 948 1,254 3,916 1,422 648 2,274 8,260 1,237 7,684 4,052 1,036 2,741 3,795 39,951 17,781 (5,109) 2,835 11,035 48,712 1,055 3,863 7,123 29,822 Carried interest and performance fees (10,075) (1,811) (10,075) (1,811) Carried interest and performance fee related expenses Adjusted base EBITDA Operating margin (3) 5,529 14,751 992 7,441 5,529 44,166 992 29,003 51 % 38 % 49 % 38 % (1) This adjustment removes the income effects of certain gains or losses on short-term investments, co-investments, and digital gold strategies to ensure the reporting objectives of our EBITDA metric as described above are met. (2) In addition to the items outlined in Note 5 of the annual financial statements, Other expenses also include severance and new hire accruals of $0.1 million for the 3 months ended (3 months ended December 31, 2019 - $0.2 million) and $1.3 million for the 12 months ended (12 months ended December 31, 2019 - $1.1 million) and excludes income attributable to non-controlling interests of $0.3 million for the 3 months ended (3 months ended December 31, 2019 - $Nil) and $0.8 million for the 12 months ended (12 months ended December 31, 2019 - $Nil) (see Other expenses in Note 5 of the financial statements). (3) Calculated as adjusted base EBITDA inclusive of depreciation and amortization, and excluding income related to legacy balance sheet loans. This figure is then divided by revenues before gains (losses) on investments, net of direct costs as applicable. 6 Business overview Our reportable operating segments are as follows: Exchange listed products • The Company's closed-end physical trusts and exchange traded funds ("ETFs"). Managed equities • The Company's alternative investment strategies managed in-house and on a sub-advised basis. Lending • The Company's lending and streaming activities occur through limited partnership vehicles ("lending LPs"). Brokerage • The Company's regulated broker-dealer activities (equity origination, corporate advisory, sales and trading). Corporate • Provides the Company's operating segments with capital, balance sheet management and other shared services. All other segments • Contains all non-reportable segments as per IFRS 8, Operating Segments ("IFRS 8"). See Note 14 of the annual financial statements for further details. For a detailed account of the underlying principal subsidiaries within our reportable business segments, refer to the Company's Annual Information Form and Note 2 of the annual financial statements. 7 (cid:32)(cid:41)(cid:54)(cid:42)(cid:51)(cid:54)(cid:49)(cid:37)(cid:50)(cid:39)(cid:41)(cid:1)(cid:44)(cid:45)(cid:43)(cid:44)(cid:48)(cid:45)(cid:43)(cid:44)(cid:56)(cid:55) (cid:31)(cid:59)(cid:64)(cid:51)(cid:64)(cid:53)(cid:59)(cid:51)(cid:62)(cid:1)(cid:58)(cid:59)(cid:57)(cid:58)(cid:62)(cid:59)(cid:57)(cid:58)(cid:70)(cid:69) + 88% AUM from Dec 31, 2019 2020: $17.4 billion 2019: $9.3 billion + 52% Adjusted base EBITDA from Dec 31, 2019 + 224% AUM from Dec 31, 2015 2020: $17.4 billion 2015: $5.4 billion + 241% Adjusted base EBITDA from Dec 31, 2015 + 4% Return on capital from Dec 31, 2019 2020: 11% 2019: 7% 28% + 9% Return on capital from Dec 31, 2015 2020: 11% 2015: 2% 81% 1-year total shareholder return as at Dec 31, 2020 5-year total shareholder return as at Dec 31, 2020 2020: $44.2 million (49% operating margin) 2019: $29 million (38% operating margin) 2020: $44.2 million (49% operating margin) 2015: $13 million (3% operating margin) Added to TSX Composite and TSX30 Listed on NYSE and raised dividends by 8.7% Added to TSX Composite and TSX30 Listed on NYSE and raised dividends by 8.7% (cid:30)(cid:64)(cid:72)(cid:59)(cid:68)(cid:65)(cid:64)(cid:63)(cid:55)(cid:64)(cid:70)(cid:51)(cid:62)(cid:10)(cid:1)(cid:44)(cid:65)(cid:53)(cid:59)(cid:51)(cid:62)(cid:10)(cid:1)(cid:32)(cid:65)(cid:72)(cid:55)(cid:68)(cid:64)(cid:51)(cid:64)(cid:53)(cid:55)(cid:1)(cid:58)(cid:59)(cid:57)(cid:58)(cid:62)(cid:59)(cid:57)(cid:58)(cid:70)(cid:69) 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(cid:59)(cid:64)(cid:1)(cid:70)(cid:58)(cid:55)(cid:1)(cid:39)(cid:51)(cid:70)(cid:59)(cid:65)(cid:64)(cid:51)(cid:62)(cid:1)(cid:34)(cid:64)(cid:69)(cid:70)(cid:59)(cid:70)(cid:71)(cid:70)(cid:55)(cid:1)(cid:65)(cid:56)(cid:1)(cid:44)(cid:70)(cid:51)(cid:64)(cid:54)(cid:51)(cid:68)(cid:54)(cid:69)(cid:1)(cid:5)(cid:1)(cid:45)(cid:55)(cid:53)(cid:58)(cid:64)(cid:65)(cid:62)(cid:65)(cid:57)(cid:75)(cid:1)(cid:28)(cid:75)(cid:52)(cid:55)(cid:68)(cid:69)(cid:55)(cid:53)(cid:71)(cid:68)(cid:59)(cid:70)(cid:75)(cid:1)(cid:31)(cid:68)(cid:51)(cid:63)(cid:55)(cid:73)(cid:65)(cid:68)(cid:61)(cid:1)(cid:7)(cid:2)(cid:39)(cid:34)(cid:44)(cid:45)(cid:1)(cid:31)(cid:68)(cid:51)(cid:63)(cid:55)(cid:73)(cid:65)(cid:68)(cid:61)(cid:2)(cid:8) (cid:10) Outlook Our businesses We anticipate continued strength in global precious metals and mining equities markets throughout 2021, which benefits our exchange listed products and managed equities segments. However, we anticipate flat-to-lower AUM in our lending segment as capital calls into new lending LPs are offset by capital distributions from older lending LPs that will be wound up later in the year (at which time, we would expect to crystallize material carried interest gains from those LPs). On the transactions side of the business, we anticipate mining sector equity origination and M&A activity to remain constructive in 2021, which benefits our brokerage segment. At a consolidated level, we believe the aforementioned segment level results will lead to another strong year for Sprott Inc. in terms of continued earnings growth and strong operating margins. Acquisition update On January 17, 2020, the Company closed on the acquisition of Tocqueville Asset Management's gold fund strategies. The Acquisition cost was $15 million and contingent consideration up to $35 million was payable over the two years following the close of the Acquisition, subject to the achievement of certain financial performance conditions. Subsequent to year-end, Sprott successfully negotiated an amendment to the original terms of the purchase agreement. In lieu of any contingent consideration entitlement for the 2020 and 2021 fiscal years, the vendor accepted a final payment from Sprott of $30 million ($27 million in cash and $3 million in Sprott Inc. common shares). This enabled Sprott to lock-in the total acquisition price and return on investment economics going into 2021 and further enabled Sprott to retain the full benefits of any additional increase in AUM expected over 2021. COVID-19 update The changing economic and market climate as a result of COVID‑19 has led to the Company implementing its business continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service providers are fully operational. While the exact impacts of COVID-19 over the short and long-term are undeterminable at the date of this report, management believes the effects of COVID-19 we have witnessed thus far, and in particular, world government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets as we progress into 2021. 9 Summary financial information (In thousands $) Summary income statements Management fees Carried interest and performance fees less: Trailer and sub-advisor fees less: Carried interest and performance fee payouts Net fees Commissions less: Commission expense Net commissions Finance income (1) Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 22,032 10,075 371 5,529 19,934 15,825 15,125 10,685 10,577 9,962 10,195 — 291 — — 326 — — 154 — 1,811 966 86 — 50 — — 67 — — — — 26,207 19,643 15,499 14,971 11,444 10,527 9,895 10,195 6,761 2,788 3,973 1,629 9,386 3,789 5,597 757 6,133 2,377 3,756 656 5,179 1,870 3,309 914 6,599 2,658 3,941 2,481 6,056 2,654 3,402 2,561 600 91 3,293 1,356 1,937 3,435 (408) 93 3,315 1,386 1,929 2,946 5 77 Gain (loss) on investments (3,089) 4,408 8,142 (4,352) (1,252) Other income Total net revenues Compensation 949 914 285 113 364 29,669 31,319 28,338 14,955 16,978 17,181 14,952 15,152 20,193 16,280 10,991 10,125 10,269 9,714 7,463 7,801 less: Carried interest and performance fee payouts less: Commission expense less: Severance and new hire accruals 5,529 2,788 65 — — — 86 — — — 3,789 2,377 1,870 2,658 2,654 1,356 1,386 210 358 667 157 168 650 109 Net compensation 11,811 12,281 8,256 7,588 7,368 6,892 5,457 6,306 Severance and new hire accruals Placement and referral fees Selling, general and administrative Interest expense Depreciation and amortization Other expenses (gain) Total expenses Net income Net Iincome per share (2) Adjusted base EBITDA Adjusted base EBITDA per share (2) 65 191 2,439 331 1,023 4,528 210 522 358 246 667 86 157 434 168 114 650 251 109 58 2,523 3,049 3,544 2,986 3,175 3,256 3,062 320 992 4,154 350 1,049 2,893 236 988 (1,081) 269 1,254 2,117 297 893 226 819 244 829 (167) 3,051 1,038 20,388 21,002 16,201 12,028 14,585 11,372 13,710 11,646 6,720 0.27 8,704 10,492 0.36 14,751 12,024 0.60 0.49 1,062 0.04 8,187 0.33 1,445 0.06 7,441 0.31 4,336 0.18 7,612 0.31 1,581 0.06 7,032 0.29 2,847 0.12 6,918 0.28 0.43 9,204 0.38 Operating margin 51 % 47 % 49 % 43 % 38 % 36 % 39 % 39 % Summary balance sheet Total assets Total liabilities Total AUM Average AUM 377,348 358,300 338,931 318,318 324,943 325,442 338,530 332,504 86,365 81,069 70,818 65,945 53,313 51,774 68,008 54,009 17,390,389 16,259,184 13,893,039 10,734,831 9,252,515 8,548,982 8,103,723 7,909,488 16,719,815 16,705,046 13,216,415 11,007,781 8,932,651 8,608,001 7,898,334 7,887,089 (1) Finance income includes: (1) co-investment income from lending LP units; (2) ancillary income earned directly or indirectly from lending activities; and (3) interest income from on-balance sheet loans and brokerage client accounts (2) Per share amounts for periods before May 28, 2020 reflect retrospective treatment of the 10:1 share consolidation. 10 Results of operations AUM summary AUM reached a record $17.4 billion as at December 31, 2020, up $1.1 billion (7%) from September 30, 2020 and up $8.1 billion (88%) from December 31, 2019. On a three and twelve months ended basis, we benefited from strong market value appreciation across most of our fund products. We also benefited from strong inflows in our physical trusts that more than offset the anticipated redemption experience in our precious metals strategies post-Acquisition (the Acquisition added $1.7 billion of AUM at time of closing). 3 months results (In millions $) Exchange listed products - Physical trusts - ETFs Managed equities - Precious metals strategies - Other (4) Lending (5) Other (6) Total (7) 12 months results (In millions $) Exchange listed products - Physical trusts - ETFs Managed equities - Precious metals strategies - Other (4) Lending (5) Other (6) Total (7) AUM Sep. 30, 2020 Net inflows (1) Market value changes Other (2) AUM Dec. 31, 2020 Blended management fee rate (3) 11,131 381 11,512 2,447 312 2,759 906 1,082 201 15 216 (9) — (9) 94 87 16,259 388 AUM Dec. 31, 2019 Net inflows (1) 6,579 252 6,831 601 350 951 783 688 9,253 2,752 61 2,813 (658) 16 (642) 260 226 2,657 519 (14) 505 41 40 81 18 158 762 Market value changes 2,520 69 2,589 795 (14) 781 41 413 3,824 — — — — — — (19) — (19) 11,851 382 12,233 2,479 352 2,831 999 1,327 17,390 0.39% 0.35% 0.39% 0.79% 0.92% 0.81% 1.05% 0.79% 0.53% Other (2) AUM Dec. 31, 2020 Blended management fee rate (3) — — — 1,741 — 1,741 (85) — 1,656 11,851 382 12,233 2,479 352 2,831 999 1,327 17,390 0.39% 0.35% 0.39% 0.79% 0.92% 0.81% 1.05% 0.79% 0.53% (1) See 'Net inflows' in the key performance indicators (non-IFRS financial measures) section of this MD&A. (2) Includes new AUM from fund acquisitions and lost AUM from fund divestitures and capital distributions of our lending LPs. (3) Management fee rate represents the net amount received by the Company. (4) Includes institutional managed accounts. (5) $1.1 billion of committed capital remains uncalled, of which $0.4 billion earns a commitment fee (AUM), and $0.7 billion does not (future AUM). (6) Includes Sprott Korea Corp., private equity strategy in Sprott Asia and high net worth discretionary managed accounts in the U.S. (7) No performance fees are earned on exchange listed products. Performance fees are earned on all precious metals strategies (other than bullion funds) based on returns above relevant benchmarks. Other managed equities strategies primarily earn performance fees on flow-through products. Lending funds earn carried interest calculated as a pre-determined net profit over a preferred return. 11 Key revenue lines Management fees Management fees were $22 million in the quarter, up $11.3 million from the prior period and were $72.9 million on a full year basis, up $31.5 million. Performance fees finished the year at $10.1 million, up $8.3 million from the prior period. Net fees were $26.2 million in the quarter, up $14.8 million from the prior period and were $76.3 million on a full year basis, up $34.3 million. The revenue increases in the quarter and on a full year basis were primarily due to strong net inflows and market value appreciation in our exchange listed products segment. We also benefited from strong market value appreciation and the addition of new AUM from the Acquisition in our managed equities segment and higher fees in our lending segment. Net Fees in thousands $ 3 months results Net Fees in thousands $ 12 months results 26,207 2,513 2,198 10,047 11,449 Q4 2020 11,444 754 1,388 2,728 6,574 Q4 2019 76,320 5,379 9,366 23,905 37,670 2020 42,061 3,615 5,646 8,319 24,481 2019 Exchange listed products Managed equities Lending Other Exchange listed products Managed equities Lending Other Commission revenues Commission revenues were $6.8 million in the quarter, up $0.2 million (2%) from the prior period and were $27.5 million on a full year basis, up $8.2 million (43%). Net commissions were $4 million in the quarter, up slightly from the prior period and were $16.6 million on a full year basis, up $5.4 million (48%). The increase was due to strong equity origination, sales and trading activities in our brokerage segment throughout the year. Finance income Finance income was $1.6 million in the quarter, down $0.9 million (34%) from the prior period and was $4 million on a full year basis, down $7.5 million (65%). Finance income primarily includes interest income from our co-investments in LP units and other ancillary income earned directly or indirectly from lending activities. The comparative period finance income also includes interest income from legacy loans. Lower finance income in the quarter and on a full year basis was primarily due to the repayment of legacy balance sheet loans. 12 Key expense lines Compensation Compensation was $20.2 million in the quarter, up $9.9 million (97%) from the prior period and was $57.6 million on a full year basis, up $22.3 million (63%). Net compensation was $11.8 million in the quarter, up $4.4 million (60%) from the prior period and was $39.9 million on a full year basis, up $13.9 million (53%). Net Compensation in thousands $ 3 months results Net Compensation in thousands $ 12 months results 1,684 1,264 4,517 5,392 5,070 11,811 7,368 3,761 5,057 2,343 39,936 20,463 14,956 26,023 15,168 5,463 Q4 2020 Q4 2019 2020 2019 Salaries AIP LTIP Salaries AIP LTIP The increase in the quarter and on a full year basis was primarily due to higher variable at-risk pay relating to the Company's significantly improved financial performance over the year. Annual adjusted base EBITDA was up 52% year-over-year, consistent with the 53% increase year-over-year in net compensation. Adjusted base EBITDA, operating margins and net revenue targets form the basis of the quantitative performance measures used when determining variable at-risk compensation. Higher compensation was also the result of additional base salaries attributable to new hires from the Acquisition. The Company reduced its compensation ratio over the last five years (net compensation / net fees & net commissions) from a high of 54% to a low of 43% in 2020 while correspondingly increasing the proportion of variable at-risk pay (AIP and LTIP) our employees receive relative to fixed compensation. Selling, general & administrative ("SG&A") SG&A was $2.4 million in the quarter, down $0.5 million (18%) from the prior period and was $11.6 million on a full year basis, down $0.9 million (7%). The decrease in the quarter and on a full year basis was the result of lower marketing and sales costs relating to travel restrictions due to COVID-19. 13 Earnings Net income was $6.7 million in the quarter, up $5.3 million from the prior period and was $27 million on a full year basis, up $16.8 million. Adjusted base EBITDA was $14.8 million in the quarter, up $7.3 million (98%) from the prior period and was $44.2 million on a full year basis, up $15.2 million (52%). During the quarter and on a full year basis, we benefited from increased fees due to strong net inflows and market value appreciation in our exchange listed products segment, the Acquisition and additional market value appreciation in our managed equities segment. We also benefited from increased commission revenues in our brokerage segment. These increases more than offset lower finance income in our lending segment and higher variable at-risk compensation on increased revenues, earnings generation and strong operating margins across the Company. Additional revenues and expenses Investment gains on a full year basis were mainly due to market value appreciation of certain equity holdings and co- investments. These gains were partially offset by unrealized losses on digital gold strategies in the fourth quarter. Other income was higher mainly due to the consolidation of certain feeder funds. Interest expense, placement and referral fees were largely flat year-over-year. Amortization of intangibles was flat from the prior period. Depreciation of property was slightly higher on a full year basis from the prior period mainly due to increased depreciation expense related to a new lease attributable to the Acquisition. Other expenses were higher primarily due to the increase in contingent consideration related to the Acquisition. Balance sheet Total assets were $377.3 million, up $52.4 million (16%) from December 31, 2019. The increase was primarily due to the increase in intangible assets related to the Acquisition. Total liabilities were $86.4 million, up $33.1 million (62%) from December 31, 2019. The increase was primarily due to the accrual of contingent consideration related to the Acquisition and accrued liabilities related to non-controlling interest. Total shareholder's equity was $291 million, up $19.4 million (7%) from December 31, 2019. 14 Reportable operating segments Exchange listed products (In thousands $) Summary income statement Management fees Other income Total revenues Net compensation Severance and new hire accruals Selling, general and administrative Interest expense Depreciation and amortization Other expenses Total expenses Income before income taxes Adjusted base EBITDA Operating margin Total AUM Average AUM 3 and 12 months ended 3 months ended 12 months ended Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 11,449 1 11,450 1,437 — 553 76 242 994 3,302 8,148 9,497 6,574 21 6,595 1,101 21 939 201 239 320 2,821 3,774 4,575 37,670 10 37,680 5,085 73 2,230 338 940 485 9,151 24,481 47 24,528 3,662 147 3,034 824 952 655 9,274 28,529 30,563 15,254 17,988 81 % 68 % 79 % 73 % 12,233,316 11,786,235 6,831,093 6,741,239 12,233,316 9,914,709 6,831,093 6,261,066 Income before income taxes was $8.1 million in the quarter, up $4.4 million from the prior period and was $28.5 million on a full year basis, up $13.3 million. Adjusted base EBITDA was $9.5 million in the quarter, up $4.9 million from the prior period and was $30.6 million on a full year basis, up $12.6 million. Our quarter and full year results benefited from higher average AUM given strong inflows and market value appreciation in our physical trust products which more than offset higher net compensation. 15 Managed equities (In thousands $) Summary income statement Management fees Carried interest and performance fees less: Trailer and sub-advisor fees less: Carried interest and performance fee payouts Net fees Gain on investments Other income Total net revenues Net compensation Severance and new hire accruals Selling, general and administrative Interest expense Depreciation and amortization Other expenses Total expenses Income before income taxes Adjusted base EBITDA Operating margin Total AUM Average AUM 3 and 12 months ended 3 months ended 12 months ended Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 5,901 10,075 400 5,529 10,047 1,719 297 12,063 2,287 12 356 200 54 2,579 5,488 6,575 3,288 56 % 2,001 1,811 998 86 2,728 1,176 364 4,268 954 90 613 — 51 20 1,728 2,540 791 32 % 20,621 10,075 1,262 5,529 23,905 9,803 855 34,563 8,234 142 1,726 686 208 4,899 15,895 18,668 10,762 7,805 1,811 1,211 86 8,319 3,558 884 12,761 4,470 90 1,876 — 212 200 6,848 5,913 3,167 53 % 35 % 2,831,023 2,735,878 950,911 907,365 2,831,023 2,649,120 950,911 854,691 Income before income taxes was $6.6 million in the quarter, up $4 million from the prior period and was $18.7 million on a full year basis, up $12.8 million. Our quarter and full year results benefited from increased management fees from the Acquisition, higher net performance fees and improved equity valuations in our funds, which more than offset higher net compensation and higher other expenses resulting from increase in contingent consideration related to the Acquisition. Adjusted base EBITDA was $3.3 million in the quarter, up $2.5 million from the prior period and was $10.8 million on a full year basis, up $7.6 million. Our quarter and full year results benefited from increased management fees, which more than offset higher net compensation. 16 Lending (In thousands $) Summary income statement Management fees Finance income (1) Gain (loss) on investments Other income Total revenues Net compensation Severance and new hire accruals Placement and referral fees Selling, general and administrative Interest expense Depreciation and amortization Other expenses Total expenses Income before income taxes Adjusted base EBITDA Operating margin Total AUM (2) Average AUM 3 months ended 12 months ended Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 2,198 1,629 2,062 185 6,074 1,631 15 41 318 — 1 2,115 4,121 1,953 2,423 61 % 1,388 2,261 (101) 268 3,816 1,256 — 15 222 30 27 1,577 3,127 689 2,459 64 % 9,366 3,838 2,037 268 15,509 5,788 212 192 887 11 53 1,326 8,469 7,040 7,272 5,646 9,962 (1,152) 289 14,745 4,944 61 44 777 61 107 2,230 8,224 6,521 10,725 59 % 56 % 999,037 950,909 783,328 555,868 999,037 880,577 783,328 496,361 (1) Includes: (1) co-investment income from lending LP units held as part of our co-investment portfolio; and (2) interest income from on-balance sheet loans in the prior period. (2) $1.1 billion of committed capital remains uncalled, of which $0.4 billion earns a commitment fee (AUM), and $0.7 billion does not (future AUM). 3 and 12 months ended Income before income taxes was $2 million in the quarter, up $1.3 million from the prior period and was $7 million on a full year basis, up $0.5 million. Adjusted base EBITDA was $2.4 million in the quarter, down slightly from the prior period and was $7.3 million on a full year basis, down $3.5 million (32%). Income before income taxes benefited from higher management fees and gains on our co-investments. However, our quarter and full year adjusted base EBITDA results were primarily impacted by lower finance income given the full repayment of legacy loans in the third quarter of 2019, which more than offset increased management fees on a full year basis. 17 Brokerage (In thousands $) Summary income statement Commissions less: Commission expense Net commissions Management fees Finance income Gain (loss) on investments Other income Total net revenues Net compensation (1) Severance and new hire accruals Placement and referral fees Selling, general and administrative Interest expense Depreciation and amortization Other expenses (gain) Total expenses Income before income taxes Adjusted base EBITDA Operating margin 3 months ended 12 months ended Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 6,882 2,713 4,169 886 — 5 24 5,084 1,859 30 98 1,031 12 145 494 3,669 1,415 2,522 6,261 2,650 3,611 358 220 165 22 4,376 1,667 25 355 835 13 136 24 3,055 1,321 1,756 53 % 41 % 26,705 10,749 15,956 2,168 118 1,590 102 19,934 6,033 680 603 4,151 45 533 660 12,705 18,480 8,024 10,456 1,298 1,461 (113) 82 13,184 6,510 390 673 4,299 58 491 (3) 12,418 7,229 8,052 47 % 766 3,342 24 % (1) Net compensation is presented excluding commission expense, which is reported net of commission revenue. 3 and 12 months ended Income before income taxes was $1.4 million in the quarter, up $0.1 million from the prior period and was $7.2 million on a full year basis, up $6.5 million. Adjusted base EBITDA was $2.5 million in the quarter, up $0.8 million from the prior period and was $8.1 million on a full year basis, up $4.7 million. Our quarter and full year results benefited from strong equity origination, sales and trading activities. 18 Corporate This segment is primarily a cost centre that provides capital, balance sheet management and shared services to the Company's subsidiaries. (In thousands $) Summary income statement Loss on investments Other income Total revenues Net compensation Severance and new hire accruals Selling, general and administrative Interest expense Depreciation and amortization Other expenses (gain) Total expenses Income (loss) before income taxes Adjusted base EBITDA 3 and 12 months ended 3 months ended 12 months ended Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 (6,793) 71 (6,722) 3,987 — 331 43 572 389 5,322 (2,111) 19 (2,092) 1,933 21 366 25 795 (211) 2,929 (7,351) 137 (7,214) 13,036 52 1,699 157 2,286 1,336 18,566 (2,668) 64 (2,604) 5,745 25 1,922 93 2,006 113 9,904 (12,044) (3,965) (5,021) (2,045) (25,780) (13,722) (12,508) (7,290) • Investments losses were primarily due to unrealized losses on our digital gold strategies in the fourth quarter. • Net compensation increased primarily due to higher variable at-risk compensation on increased revenues, earnings generation and strong operating margins across the Company, and higher base salaries as a result of the Acquisition. • SG&A decreased due to our ongoing multi-year cost containment program. • Other expenses were primarily due to FX translation movements. 19 Dividends The following dividends were declared by the Company during the twelve months ended December 31, 2020: Record date March 9, 2020 - Regular dividend Q4 2019 May 19, 2020 - Regular dividend Q1 2020 Payment Date March 24, 2020 June 3, 2020 August 17, 2020 - Regular dividend Q2 2020 September 1, 2020 November 23, 2020 - Regular dividend Q3 2020 December 8, 2020 Dividends (2) Cash dividend per share (1) Total dividend amount (in thousands $) CAD$0.30 CAD$0.30 US$0.23 US$0.25 5,387 5,560 5,915 6,378 23,240 (1) Dividends per share in this MD&A for periods before May 28 reflect retrospective treatment of the 10:1 share consolidation. (2) Subsequent to quarter-end, on February 25, 2021, a regular dividend of US$0.25 per common share was declared for the year ended December 31, 2020. This dividend is payable on March 23, 2021 to shareholders of record at the close of business on March 8, 2021. Capital stock On May 28, 2020, the Company successfully completed a 10:1 common share consolidation. Shareholders received 1 post- consolidation share for every 10 pre-consolidation shares. All information pertaining to shares and per-share amounts in this MD&A for periods before May 28 reflect retrospective treatment of this share consolidation. Including the 0.8 million unvested common shares currently held in the EPSP Trust (December 31, 2019 - 0.9 million), total capital stock issued and outstanding was 25.6 million (December 31, 2019 - 25.3 million). Earnings per share for the current and prior periods have been calculated using the weighted average number of shares outstanding during the respective periods. Basic earnings per share was $0.27 for the quarter and $1.10 on a full year basis compared to $0.06 and $0.42 in the prior periods respectively. Diluted earnings per share was $0.26 in the quarter and $1.05 on a full year basis compared to $0.06 and $0.40 in the prior periods respectively. Diluted earnings per share reflects the dilutive effect of in-the-money stock options, unvested shares held in the EPSP Trust and outstanding restricted stock units. A total of 162,500 stock options are outstanding pursuant to our stock option plan, all of which are exercisable. 20 Liquidity and capital resources As at December 31, 2020, the Company had $17 million (December 31, 2019 - $15.3 million) outstanding on its credit facility, all of which is due after 12 months (December 31, 2019 - $3.8 million due within 12 months and $11.5 million due after 12 months). On November 13, 2020, the Company extended and upsized its previous credit facility to $70 million, up from $61 million at the time of the extension. Amounts under the new facility may be borrowed under the facility through prime rate loans or bankers’ acceptances. Similar to the previous facility, amounts may also be borrowed in US dollars through base rate loans. As at December 31, 2020, the Company was in compliance with all covenants, terms and conditions under the credit facility. Key terms under the credit facility are noted below: Structure • 5-year, $70 million revolver with "bullet maturity" December 14, 2025 Interest rate • • Prime rate + 0 bps or; Banker acceptance rate + 170 bps Covenant terms • • • Minimum AUM: 70% of AUM on November 13, 2020 Debt to EBITDA less than or equal to 2.5:1 EBITDA to interest expense more than or equal to 2.5:1 Commitments Besides the Company's long-term lease agreements, there are commitments to make co-investments in lending LPs arising from our lending segment or commitments to make investments in the net investments portfolio of the Company. As at December 31, 2020, the Company had $4.6 million in co-investment commitments from the lending segment (December 31, 2019 - $6.6 million). 21 Critical accounting estimates, judgements and changes in accounting policies The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The Company based its assumptions and estimates on parameters available when the annual financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions and estimates as they occur. The Company’s significant accounting policies are described in Note 2 of the annual financial statements. Certain of these accounting policies require management to make key assumptions concerning the future and consider other sources of estimation uncertainty at the reporting date. These accounting estimates are considered critical because they require subjective and/or complex judgements that may have a material impact on the value of our assets, liabilities, revenues and expenses. Critical accounting estimates Impairment of goodwill and intangible assets All indefinite life intangible assets and goodwill are assessed for impairment, however, finite life intangibles are only tested for impairment to the extent indicators of impairment exist at the time of a quarterly assessment. In the case of goodwill and indefinite life intangibles, this annual test for impairment augments the quarterly impairment indicator assessments. Values associated with goodwill and intangibles involve estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates, AUM, net inflows, and asset lives. These estimates require significant judgment regarding market growth rates, fund flow assumptions, expected margins and costs, which could affect the Company's future results if estimates of future performance and fair value change. Fair value of financial instruments When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived from active markets, they are determined using valuation techniques and models. Model inputs are taken from observable markets where possible, but where this is not feasible, unobservable inputs may be used. These unobservable inputs include, but are not limited to, projected cash flows, discount rates, comparable recent transactions, volatility of underlying securities in warrant valuations and extraction recovery rates of mining projects. The use of unobservable inputs can involve significant judgment and materially affect the reported fair value of financial instruments. Contingent consideration The Acquisition necessitated the recognition of contingent consideration for the amounts payable in cash and shares under the terms of the purchase agreement. The cash settled portion of the contingent consideration was measured at the closing date fair value, based on management’s estimate of the level of future revenue obtained from the contracts over the contingent consideration measurement period. The equity settled portion of the contingent consideration was measured at its grant date fair value in accordance with the requirements of IFRS 2 Share-based Payment. The key judgments utilized in the estimation of the contingent consideration were fund flow assumptions. As at December 31, 2020, the contingent consideration payable was updated to reflect current estimates with the resulting adjustment recorded in Other expense. Significant judgements Investments in other entities IFRS 10 Consolidated Financial Statements ("IFRS 10") and IAS 28 Investments in Associates and Joint Ventures ("IAS 28") provide for the use of judgment in determining whether an investee should be included within the consolidated financial statements of the Company and on what basis (subsidiary, joint venture, financial instrument or associate). Significant judgment is applied in evaluating facts and circumstances relevant to the Company and investee, including: (1) the extent of the Company's direct and indirect interests in the investee; (2) the level of compensation to be received from the investee for management and other services provided to it; (3) "kick out rights" available to other investors in the investee; and (4) other indicators of the extent of power that the Company has over the investee. 22 Change in accounting policies Change in presentation currency Effective January 1, 2020, the Company changed its presentation currency from Canadian to US dollars to better reflect the Company's business activities, given the significance of our revenues denominated in US dollars that further increased in 2020 with the January 17, 2020 close of the Acquisition. The Company followed the guidance of IAS 21 Effects of Changes in Foreign Exchange Rates ("IAS 21") and have applied the change retroactively. As a result, the Company has restated prior year comparatives, including the January 1 opening balance sheet as required by IFRS 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1"). The change in presentation currency had the following effect: • • • • Assets and liabilities have been translated at the exchange rate on the respective reporting dates; Equity transactions have been translated at the historical exchange rate at the date of the transaction; The statements of operations has been translated at the average exchange rate on the respective reporting dates; and Exchange differences arising on translation are presented in the Accumulated other comprehensive loss line in shareholders' equity on the balance sheet. 23 Managing financial risks Market risk The Company separates market risk into three categories: price risk, interest rate risk and foreign currency risk. Price risk Price risk arises from the possibility that changes in the price of the Company's on and off-balance sheet assets and liabilities will result in changes in carrying value or recoverable amounts. The Company's revenues are also exposed to price risk since management fees, carried interests and performance fees are correlated with AUM, which fluctuates with changes in the market values of the assets in the funds and managed accounts managed by the Company. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will adversely affect the value of, or cash flows from, financial instrument assets. The Company’s earnings, particularly through its lending segment, are exposed to volatility as a result of sudden changes in interest rates. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed. Foreign currency risk The Company enters into transactions that are denominated primarily in US dollar and Canadian dollar. Foreign currency risk arises from foreign exchange rate movements that could negatively impact either the carrying value of financial assets and liabilities or the related cash flows which are denominated in currencies other than the functional currency of the Company and its subsidiaries. The Company may employ certain hedging strategies to mitigate foreign currency risk. Credit risk Credit risk is the risk that a borrower will not honor its commitments and a loss to the Company may result. Credit risk generally arises in the Company's investments portfolio. Investments The Company incurs credit risk when entering into, settling and financing transactions with counterparties. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed. Other The majority of accounts receivable relate to management fees, carried interest and performance fees receivable from the funds, managed accounts and managed companies managed by the Company. These receivables are short-term in nature and any credit risk associated with them is managed by dealing with counterparties that the Company believes to be creditworthy and by actively monitoring credit exposure and the financial health of the counterparties. Liquidity risk Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The Company's exposure to liquidity risk is minimal as it maintains sufficient levels of liquid assets to meet its obligations as they come due. Additionally, the Company has access to a $70 million committed line of credit with a major Canadian schedule I chartered bank. As part of its cash management program, the Company primarily invests in short-term debt securities issued by the Government of Canada with maturities of less than three months. 24 The Company's exposure to liquidity risk as it relates to our co-investments in lending LPs arises from fluctuations in cash flows from making capital calls and receiving capital distributions. The Company manages its loan co-investment liquidity risk through the ongoing monitoring of scheduled capital calls and distributions ("match funding") and through its broader treasury risk management program and enterprise capital budgeting. Financial liabilities, including accounts payable and accrued liabilities and compensation and employee bonuses payable, are short-term in nature and are generally due within a year. The Company's management team is responsible for reviewing resources to ensure funds are readily available to meet its financial obligations as they come due, as well as ensuring adequate funds exist to support business strategies and operations growth. The Company manages liquidity risk by monitoring cash balances on a daily basis and through its broader treasury risk management program. To meet any liquidity shortfalls, actions taken by the Company could include: slowing its co-investment activities; adjust or otherwise temporarily suspend AIPs; cut or temporarily suspend its dividend; drawing on the line of credit; liquidating net investments; and/or issuing common shares. Concentration risk A significant portion of the Company's AUM as well as its investments are focused on the natural resource sector, and in particular, precious metals related investments and transactions. In addition, from time-to-time, certain investment may be concentrated to a material degree in a single position or group of positions. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed. Disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR") Management is responsible for the design and operational effectiveness of DC&P and ICFR in order to provide reasonable assurance regarding the disclosure of material information relating to the Company. This includes information required to be disclosed in the Company's annual filings, interim filings and other reports filed under securities legislation, as well as the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the applicable U.S. and Canadian securities law), concluded that the Company's DC&P and ICFR were properly designed and were operating effectively as of December 31, 2020. In addition, there were no material changes to ICFR during the quarter, and the implementation of our business continuity plan as a result of COVID-19 has not prevented the normal function of our internal controls. Managing non-financial risks Confidentiality of information Confidentiality is essential to the success of the Company's business, and it strives to consistently maintain the highest standards of trust, integrity and professionalism. Account information is kept under strict control in compliance with all applicable laws, and physical, procedural, and electronic safeguards are maintained in order to protect this information from access by unauthorized parties. The Company keeps the affairs of its clients confidential and does not disclose the identities of clients (absent expressed client consent to do so). If a prospective client requests a reference, the Company will not provide the name of an existing client before receiving permission from that client to do so. 25 Conflicts of interest The Company established a number of policies with respect to employee personal trading. Employees may not trade any of the securities held or being considered for investment by any of the Company's funds without prior approval. In addition, employees must receive prior approval before they are permitted to buy or sell securities. Speculative trading is strongly discouraged. All employees must comply with the Company's Code of Ethics. The code establishes strict rules for professional conduct including the management of conflicts of interest. Independent review committee National Instrument 81-107 - Independent Review Committee for Investment Funds (“NI 81-107”) requires all publicly offered investment funds to establish an independent review committee ("IRC") to whom all conflicts of interest matters must be referred for review and approval. The Company established an IRC for its public funds. As required by NI 81-107, the Company established written policies and procedures for dealing with conflict of interest matters and maintains records in respect of these matters and provides assistance to the IRC in carrying out its functions. The IRC is comprised of three independent members, and is subject to requirements to conduct regular assessments and provide reports to the Company and to the holders of interests in public mutual funds in respect of its functions. Insurance The Company maintains appropriate insurance coverage for general business and liability risks as well as insurance coverage required by regulation. Insurance coverage is reviewed periodically to ensure continued adequacy. Internal controls and procedures Several of the Company's subsidiaries operate in regulated environments and are subject to business conduct rules and other rules and regulations. The Company has internal control policies related to business conduct. They include controls required to ensure compliance with the rules and regulations of relevant regulatory bodies including the OSC, IIROC, FINRA and the U.S. Securities and Exchange Commission ("SEC"). Enterprise risk management The starting point to any enterprise risk management program (“ERM”) is the articulation of a risk appetite, which is the amount and types of risk we are willing to accept in our pursuit of business objectives. A company’s risk appetite is the bedrock upon which an ERM framework is established. Our risk appetite is primarily based on specific regulatory and legal environment considerations; general environmental social and governance responsibilities (“ESG”); the need for sound capital adequacy and treasury management processes; the preservation of our positive reputation among current and future stakeholders; the natural expectation of our shareholders that we take appropriate and reasonable levels of risk in our various business segments to maximize shareholder returns; and our overall desire to be good corporate citizens as part of our organizational culture and core values. The aforementioned considerations formed the basis for our risk appetite statements noted below: • Regardless of loss probability, we will only accept inherent or residual risks that we have a proven, demonstrable ability to understand, diligently manage on an ongoing basis and thoroughly consider and balance relative to the outcomes; and • Our risk appetite is low around any actions or inactions that could materially jeopardize the company’s reputation, core values or commitment to its stakeholders. Furthermore, at no point would we ever accept existential inherent or residual risks, regardless of loss probability. 26 The ERM process involves a comprehensive drill down through the organization to its constituent parts to identify all salient risks and evaluate them through the lens of our risk appetite. The following is a summary of the ERM steps used to filter organizational risks through our risk appetite: • • • • • • • Identify all major processes within each business segment (and enterprise shared services function supporting them); Identify materially relevant inherent risks (both quantitative and qualitative), that may arise in each major process area; Rate each inherent risk (in the absence of internal controls), based on the degree of event probability and impact to the organization; Determine our risk tolerance for each inherent risk previously identified and rated; Identify internal controls in place (or needed) to mitigate the inherent risks down to the appropriate “residual level” (i.e. determine the post-controls risk rating and compare it to our predetermined risk tolerance level). NOTE: we stratify our internal controls universe using the “three lines of defense” approach recommended by the Institute of Internal Auditors prior to evaluating the effectiveness of internal controls; Compare all residual risk ratings to their corresponding risk tolerance level to ensure the risk is being appropriately managed (i.e. there are a sufficient number of, and appropriate types of, internal controls in place to manage the risk in light of our risk tolerance), and if not, take further action; Test, document and report on the effectiveness of the ERM program in managing risks within the boundaries of our risk appetite. COVID-19 risk The changing economic and market climate as a result of COVID‑19 has led to the Company implementing its business continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service providers are fully operational. While the exact impacts of COVID-19 over the short and long-term are undeterminable at the date of this report, management believes the effects of COVID-19 we have witnessed thus far, and in particular, world government responses thereto via fiscal and monetary policy, will continue to be highly constructive to precious metals markets as we progress into 2021. Additional information relating to the Company, including the Company's Annual Information Form is available on EDGAR at www.edgar.com and SEDAR at www.sedar.com 27 Consolidated Financial Statements Years ended December 31, 2020 and 2019 Management's responsibility for financial reporting The accompanying consolidated financial statements, which consolidate the financial results of Sprott Inc. (the "Company"), were prepared by management, who are responsible for the integrity and fairness of all information presented in the consolidated financial statements and management's discussion and analysis ("MD&A") for the years ended December 31 2020 and 2019. The consolidated financial statements were prepared by management in accordance with International Financial Reporting Standards. Financial information presented in the MD&A is consistent with that in the consolidated financial statements. In management's opinion, the consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized in Note 2 of the consolidated financial statements. Management maintains a system of internal controls to meet its responsibilities for the integrity of the consolidated financial statements. The board of directors of the Company appoints the Company's audit and risk management committee annually. Among other things, the mandate of the audit & risk committee includes the review of the consolidated financial statements of the Company on a quarterly basis and the recommendation to the board of directors for approval. The audit & risk committee has access to management and the auditors to review their activities and to discuss the external audit program, internal controls, accounting policies and financial reporting matters. KPMG LLP performed an independent audit of the consolidated financial statements, as outlined in the auditors' report contained herein. KPMG LLP had, and has, full and unrestricted access to management of the Company, the audit & risk committee and the board of directors to discuss their audit and related findings and have the right to request a meeting in the absence of management at any time. Peter Grosskopf Chief Executive Officer February 25, 2021 Kevin Hibbert, FCPA, FCA Chief Financial Officer and Senior Managing Director 29 KPMG LLP Bay Adelaide Centre 333 Bay Street, Suite 4600 Toronto, ON M5H 2S5 Canada Tel 416-777-8500 Fax 416-777-8818 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Sprott Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Sprott Inc. and subsidiaries (“the Company”) as of December 31, 2020 and 2019, and as of January 1, 2019, the related consolidated statements of operations and comprehensive income, cash flows, and changes in shareholders’ equity for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its presentation currency from the Canadian dollar to the U.S. dollar. The change is as of January 1, 2020, and has been retrospectively applied, and the statement of financial position as of January 1, 2019, has been included in pursuant to the requirements of International Financial Reporting Standards. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP. 30 Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2016. Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada February 25, 2021 31 Consolidated balance sheets As at (In thousands of US dollars) Assets Current Cash and cash equivalents Fees receivable Loans receivable Short-term investments Other assets Income taxes recoverable Total current assets Loans receivable Co-investments Other assets Property and equipment, net Intangible assets Goodwill Deferred income taxes Total assets Liabilities and shareholders' equity Current Accounts payable and accrued liabilities Compensation payable Obligations related to securities sold short Loan facility Income taxes payable Total current liabilities Other accrued liabilities Loan facility Deferred income taxes Total liabilities Shareholders' equity Capital stock Contributed surplus Deficit Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity Dec. 31 2020 Dec. 31 2019 (Note 2) Jan. 1 2019 (Note 2) 44,106 21,581 — 9,475 9,196 948 85,306 — 82,467 16,118 16,611 155,968 19,149 1,729 292,042 377,348 29,702 15,192 — — 2,347 47,241 17,379 16,994 4,751 86,365 54,748 8,682 — 17,495 12,980 1,439 95,344 — 55,595 20,276 16,230 114,078 19,149 4,271 229,599 324,943 23,618 6,912 — 3,829 807 35,166 4,247 11,486 2,414 53,313 34,637 6,330 11,197 19,580 7,893 1,744 81,381 15,207 56,894 19,175 16,392 108,726 19,149 4,322 239,865 321,246 32,106 6,939 187 — 445 39,677 5,769 — 2,291 47,737 417,758 43,309 (104,484) (65,600) 290,983 377,348 407,900 43,160 (108,222) (71,208) 271,630 324,943 407,775 42,964 (95,422) (81,808) 273,509 321,246 (Notes 3 & 10) (Note 5) (Note 4 & 10) (Note 5 & 10) (Note 6) (Note 7) (Note 7) (Note 9) (Note 15) (Note 15) (Note 9) (Note 8) (Note 8) Commitments and provisions (Note 16) The accompanying notes form part of the consolidated financial statements "Ron Dewhurst" Director "Sharon Ranson, FCPA, FCA" Director 32 Consolidated statements of operations and comprehensive income (In thousands of US dollars, except for per share amounts) Revenues Management fees Carried interest and performance fees Commissions Finance income Gain (loss) on investments Other income Total revenue Expenses Compensation Trailer and sub-advisor fees Placement and referral fees Selling, general and administrative Interest expense Amortization of intangibles Depreciation of property and equipment Other expenses Total expenses Income before income taxes for the year Provision for income taxes Net income for the period Net income per share: Basic(1) Diluted(1) Net income for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation gain (taxes of $Nil) Total other comprehensive income Comprehensive income The accompanying notes form part of the consolidated financial statements For the years ended Dec. 31 2020 Dec. 31 2019 (Note 2) 72,916 10,075 27,459 3,956 5,109 2,261 121,776 57,589 1,142 1,045 11,555 1,237 869 3,183 10,494 87,114 34,662 7,684 26,978 (Note 3, 4 and 5) (Note 5) (Note 8) (Note 7) (Note 6) (Note 5) (Note 9) (Note 8) $ (Note 8) $ 1.10 $ 1.05 $ 41,419 1,811 19,263 11,423 (1,055) 625 73,486 35,247 1,083 857 12,479 1,036 879 2,916 6,039 60,536 12,950 2,741 10,209 0.42 0.40 26,978 10,209 5,608 5,608 32,586 10,600 10,600 20,809 (1) Amounts reflect retrospective application of the May 28, 2020 share consolidation (see Note 8). 33 4 3 0 3 6 , 1 7 2 ) 8 0 2 , 1 7 ( ) 2 2 2 , 8 0 1 ( 0 6 1 , 3 4 0 0 9 , 7 0 4 9 3 6 , 7 1 4 , 4 2 l a t o T y t i u q e l d e t a u m u c c A r e h t o e v i s n e h e r p m o c e m o c n i t i c i f e D d e t u b i r t n o C l s u p r u s l a t i p a C k c o t s ) 1 ( f o r e b m u N s e r a h s i g n d n a t s t u o ) 4 1 5 , 2 ( — 0 0 5 , 2 9 7 8 , 4 4 0 5 , 2 ) 4 2 0 , 2 ( 8 0 6 , 5 7 1 5 , 4 — ) 5 9 0 , 3 2 ( 8 7 9 , 6 2 3 8 9 , 0 9 2 ) 6 0 9 , 4 ( 9 0 5 , 3 7 2 — ) 5 1 7 , 1 ( 0 0 6 , 0 1 2 9 3 , 5 3 0 4 , 1 ) 2 6 8 , 2 2 ( 9 0 2 , 0 1 0 3 6 , 1 7 2 — — — — — — — — — — 8 0 6 , 5 ) 0 0 6 , 5 6 ( ) 8 0 8 , 1 8 ( — — — 0 0 6 , 0 1 — — — — — — — — — — — — — — — 9 7 8 , 4 ) 1 6 3 , 4 ( ) 5 5 6 , 2 ( — — 7 1 5 , 4 ) 1 3 2 , 2 ( ) 0 4 2 , 3 2 ( 8 7 9 , 6 2 — — ) 4 1 5 , 2 ( 0 0 5 , 2 — 1 6 3 , 4 9 5 1 , 5 ) 4 2 0 , 2 ( — — — 5 4 1 1 3 2 , 2 — ) 4 0 3 , 8 2 1 ( 0 2 7 , 4 0 1 3 8 8 , 8 4 2 0 0 0 , 0 5 1 ) 3 4 3 , 2 1 1 ( — — — 1 0 5 , 5 9 6 2 , 3 0 1 ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 2 1 e t o N ( ) 4 8 4 , 4 0 1 ( 9 0 3 , 3 4 8 5 7 , 7 1 4 5 6 3 , 9 8 7 , 4 2 ) 2 2 4 , 5 9 ( 4 6 9 , 2 4 5 7 7 , 7 0 4 3 3 2 , 6 0 3 , 4 2 ) 2 e t o N ( — — — — — — ) 9 0 0 , 3 2 ( 9 0 2 , 0 1 — ) 5 4 9 , 4 ( — — 2 9 3 , 5 ) 1 5 2 ( — — ) 6 0 9 , 4 ( 5 4 9 , 4 ) 5 1 7 , 1 ( — — 7 4 1 — 4 5 6 , 1 ) 2 1 6 , 2 8 1 ( ) 0 6 0 , 4 7 ( 9 9 3 , 0 8 2 — — — 1 5 1 , 6 8 2 5 , 1 8 ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 e t o N ( ) 8 0 2 , 1 7 ( ) 2 2 2 , 8 0 1 ( 0 6 1 , 3 4 0 0 9 , 7 0 4 9 3 6 , 7 1 4 , 4 2 ) 2 e t o N ( s t c a r t n o c t n e m e g a n a m f o e s a h c r u p n o l a t i p a c e r a h s f o e c n a u s s I n o i t i s i u q c A e h t o t d e t a e r l n o i t a r e d i s n o c t n e g n i t n o c d e s a b - e r a h S d b i r e u s s i e s r u o c l a m r o n r e d n u l d e e c n a c d n a d e r i u q c a s e r a h S s n o i t p o k c o t s f o e s i c r e x e n o l a t i p a c e r a h s f o e c n a u s s I n a p l e v i t n e c n i y t i u q e f o g n i t s e v n o d e s a e e r l s e r a h S e r a h s r e h t o d n a s U S R f o n o i s r e v n o c n o l a t i p a c e r a h s f o e c n a u s s I ) s s o l ( i n a g n o i t a l s n a r t y c n e r r u c i n g e r o F n o i t a s n e p m o c d e s a b - k c o t S n a p l e v i t n e c n i y t i u q e r o f d e r i u q c a s e r a h S 9 1 0 2 , 1 3 . c e D t A ) s e r a h s f o r e b m u n n a h t r e h t o , s r a l l o d S U f o s d n a s u o h t n I ( 0 2 0 2 , 1 3 . c e D , e c n a l a B s n o i t a r e d i s n o c d e s a b d e r a l c e d s d n e d i v i D e m o c n i t e N 8 1 0 2 , 1 3 . c e D t A d b i r e u s s i e s r u o c l a m r o n r e d n u l d e e c n a c d n a d e r i u q c a s e r a h S n a p l e v i t n e c n i y t i u q e f o g n i t s e v n o d e s a e e r l s e r a h S n a p l e v i t n e c n i y t i u q e r o f d e r i u q c a s e r a h S e r a h s r e h t o d n a s U S R f o n o i s r e v n o c n o l a t i p a c e r a h s f o e c n a u s s I ) s s o l ( i n a g n o i t a l s n a r t y c n e r r u c i n g e r o F n o i t a s n e p m o c d e s a b - k c o t S 9 1 0 2 , 1 3 , c e D , e c n a l a B s n o i t a r e d i s n o c d e s a b d e r a l c e d s d n e d i v i D e m o c n i t e N . ) 8 e t o N e e s ( n o i t a d i l o s n o c e r a h s 0 2 0 2 , 8 2 y a M e h t f o n o i t a c i l p p a e v i t c e p s o r t e r t c e l f e r s t n u o m A ) 1 ( s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t f o t r a p m r o f s e t o n g n i y n a p m o c c a e h T y t i u q e l ' s r e d o h e r a h s n i s e g n a h c f o s t n e m e t a t s d e t a d i l o s n o C Consolidated statements of cash flows (In thousands of US dollars) Operating activities Net income for the period Add (deduct) non-cash items: Loss (gain) on investments Stock-based compensation Depreciation and amortization of property, equipment and intangible assets Deferred income tax expense Current income tax expense Other items Income taxes paid Changes in: Fees receivable Loans receivable Other assets Accounts payable, accrued liabilities and compensation payable Cash provided by (used in) operating activities Investing activities Purchase of investments Sale of investments Purchase of property and equipment Purchase of management contracts Cash provided (used in) investing activities Financing activities Acquisition of common shares for equity incentive plan Acquisition of common shares under normal course issuer bid Cash received on exercise of stock options Repayment of lease liabilities Contributions from non-controlling interests Net advances from loan facility Dividends paid Cash provided by (used in) financing activities Effect of foreign exchange on cash balances Net increase (decrease) in cash and cash equivalents during the period Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the period Cash and cash equivalents: Cash Short-term deposits The accompanying notes form part of the consolidated financial statements For the years ended Dec. 31 2020 Dec. 31 2019 26,978 (5,109) 4,517 4,052 4,681 3,003 1,015 (795) (12,899) — (2,971) 3,767 26,239 (23,634) 19,728 (686) (12,500) (17,092) (2,514) (2,024) 2,504 (1,904) 3,518 1,074 (23,095) (22,441) 2,652 (10,642) 54,748 44,106 43,901 205 44,106 (Note 2) 10,209 1,055 5,392 3,795 231 2,510 130 (1,836) (2,352) 26,404 (5,555) (6,933) 33,050 (34,197) 37,955 (2,224) — 1,534 (4,906) (1,715) — (1,650) — 15,031 (22,862) (16,102) 1,629 20,111 34,637 54,748 50,724 4,024 54,748 35 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 1 Corporate information Sprott Inc. (the "Company") was incorporated under the Business Corporations Act (Ontario) on February 13, 2008. Its registered office is at Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2600, Toronto, Ontario M5J 2J1. 2 Summary of significant accounting policies Statement of compliance These annual audited consolidated financial statements for the years ended December 31, 2020 and 2019 ("financial statements") have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). They have been authorized for issue by a resolution of the Board of Directors of the Company on February 25, 2021 and include all subsequent events up to that date. Basis of presentation These financial statements have been prepared on a going concern basis and on a historical cost basis, except for financial assets and financial liabilities classified as fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"), both of which have been measured at fair value. The financial statements are presented in US dollars and all values are rounded to the nearest thousand ($000), except when indicated otherwise. Principles of consolidation These financial statements of the Company are prepared on a consolidated basis so as to include the accounts of all limited partnerships and corporations the Company is deemed to control under IFRS. Controlled limited partnerships and corporations ("subsidiaries") are consolidated from the date the Company obtains control. All intercompany balances with subsidiaries are eliminated upon consolidation. Subsidiary financial statements are prepared over the same reporting period as the Company and are based on accounting policies consistent with that of the Company. During the year, the Company commenced consolidation of certain feeder funds due to them becoming material. The Company records third-party interests in the funds which do not qualify to be equity due to redeemable or limited life features, as non-controlling interest liabilities. Such interests are initially recognized at fair value, with any changes recorded as Other expense. Control exists if the Company has power over the entity, exposure or rights to variable returns from its involvement with the entity and the ability to use its power over the entity to affect the amount of returns the Company receives. In many, but not all instances, control will exist when the Company owns more than one half of the voting rights of a corporation, or is the sole limited and general partner of a limited partnership. 36 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 The Company currently controls the following principal subsidiaries: • • • • • • Sprott Asset Management LP ("SAM"); Sprott Capital Partners LP ("SCP"); Sprott Asia LP ("Sprott Asia") and Sprott Korea Corporation ("Sprott Korea"); Sprott U.S. Holdings Inc. ("SUSHI"), parent of: (1) Rule Investments Inc. ("RII"); (2) Sprott Global Resource Investments Ltd. ("SGRIL"); (3) Sprott Asset Management USA Inc. ("SAM US"); and (4) Resource Capital Investment Corporation ("RCIC"). Collectively, the interests of SUSHI are referred to as "Global" in these financial statements; Sprott Resource Lending Corp. ("SRLC"); and Sprott Inc. 2011 Employee Profit Sharing Plan Trust (the "Trust"). Cash and cash equivalents Cash and cash equivalents consist of cash on deposit with banks and with carrying brokers, which are not subject to restrictions, and short-term interest bearing notes and treasury bills with a term to maturity of less than three months from the date of purchase. Investments Investments classified as short-term, including equity kickers received as consideration for mining finance transactions occurring primarily in our lending and brokerage segments, are held with the primary intention of short-term liquidity and capital management. Investments classified as long-term are primarily joint-venture interests or equity stakes in companies held for strategic purposes. Co-investments Co-investments are investments we make alongside clients of our various fund strategies to demonstrate the commitment and confidence we have in investment strategies we promote and operate. Financial instruments Classification and measurement of financial assets Financial assets are measured at initial recognition at fair value, and are classified and subsequently measured at FVTPL, amortized cost or FVOCI. Financial assets are measured at amortized cost if the contractual terms of the instrument give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding and it is held within a business model whose objective is to hold assets to collect contractual cash flows. Financial assets are measured at FVOCI if the contractual terms of the instrument give rise to cash flows that are solely for payments of principal and interest on the principal amount outstanding and it is held within a business model whose objective is to hold assets to collect contractual cash flow and to sell financial assets. For equity instruments that are not held for trading, the Company may also elect to irrevocably elect, on an investment by investment basis, to present changes in the fair value of an investment through OCI. All financial assets that are not measured at amortized cost or FVOCI are measured at FVTPL. This includes all derivative financial assets the Company may hold. 37 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Valuation of investments Investments include public equities, share purchase warrants, fixed income securities, mutual fund, private companies and alternative investment strategies, while co-investments are investments held in the funds managed by the Company. Public equities, share purchase warrants and fixed income securities are measured at fair value and are accounted for on a trade-date basis. Mutual fund and alternative investment strategy investments which are valued using the net asset value per unit of the fund, which represents the underlying net assets at fair values determined using closing market prices. These investments are generally made in the process of launching a new fund and are redeemed (if open-end) or sold (if closed-end) as third party investors subscribe. The balance represents the Company's maximum exposure to loss associated with the investments. Private holdings include private company investments which are classified as FVTPL and carried at fair value based on the value of the Company's interests in the private companies determined from financial information provided by management of the private companies, which may include operating results, subsequent rounds of financing and other appropriate information. Any change in fair value is recognized in gains (loss) on investments on the consolidated statements of operations and comprehensive income. Fair value hierarchy All financial instruments recognized at fair value in the consolidated balance sheets are classified into three fair value hierarchy levels as follows: • • Level 1: valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities; Level 2: valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived from or corroborated by observable market data by correlation or other means; and • Level 3: valuation techniques with significant unobservable market inputs. The Company will transfer financial instruments into or out of levels in the fair value hierarchy to the extent the instrument no longer satisfies the criteria for inclusion in the category in question. Level 3 valuations are prepared by the Company and reviewed and approved by management at each reporting date. Valuation results, including the appropriateness of model inputs, are compared to actual market transactions to the extent readily available. Valuations of level 3 assets are also discussed with the Audit and Risk Management Committee as deemed necessary by the Company. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported on the consolidated balance sheets if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Impairment of financial assets Expected credit losses are a probability-weighted estimate of future credit losses. Credit losses are measured as the present value of the difference between the cash flows due to the Company in accordance with the contract and the cash flows the Company expects to receive. 38 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Loans receivable Loans receivable are financial assets with fixed or determinable payments that are held solely for payments of principal and interest on the principal amount outstanding and are held within a business model whose objective is to hold assets to collect contractual cash flows. Loans receivable are measured at amortized cost. Fees received for originating loans are considered an integral part of the yield earned on the loan and are recognized in finance income over the term of the loan using the effective interest method. Fees received may include cash payments and/or securities in the borrower. At each reporting date, management assesses the probability of default and the loss given default using economic and market trends, quoted credit rating of the borrower, market value of the asset, and appraisals, if any, of the security underlying the loan. The impairment is then classified into three stages: • Stage 1 - For loans where credit risk has not increased significantly, an impairment is recognized equal to the credit losses expected to result from defaults occurring over the following twelve months. • Stage 2 - For loans where credit risk has increased significantly, an impairment is recognized equal to the credit losses expected to result from defaults occurring over the life of the loan. • Stage 3 - For loans which are credit impaired, a loss allowance is recognized equal to the expected credit losses over the expected lifetime of the Loan. Any subsequent recognition of finance income for which an expected credit loss provision exists, is calculated at the discount rate used in determining the provision, which may differ from the contractual rate of interest. Recognition of income and related expenses The Company receives variable consideration in the form of management fees, which are allocated to distinct time periods in which the management services are being provided. Management fees are recognized when they are no longer susceptible to market factors and no longer subject to a significant reversal in revenue. The Company may also earn variable consideration in the form of carried interest and performance fees. These fees are recognized when they are no longer susceptible to market factors or subject to significant reversal in revenue, which is determined subject to agreements in the underlying funds. Commission income is recognized when the related services are rendered and no longer subject to a significant reversal in revenue. Finance income, which includes interest income and co-investment income, is recognized on an accrual basis using the effective interest method. Under the effective interest method, the interest rate realized is not necessarily the same as the stated rate in the loan or debenture documents. The effective interest rate is the rate required to discount the future value of all loan or debenture cash flows to their present value and is adjusted for the receipt of cash and non-cash items in connection with the loan. Costs related to obtaining a contract with clients ("placement fees") are amortized on a systematic basis related to the transfer of services to those clients. Property and equipment Property and equipment are recorded at cost and are amortized on a declining balance basis over the expected useful life which ranges from 1 to 5 years. Leasehold improvements are amortized on a straight-line basis over the term of the lease. Artwork is not amortized since it does not have a determinable useful life. The residual values, useful life and methods of amortization for property and equipment are reviewed at each reporting date and adjusted prospectively, if necessary. Any loss resulting from impairment of property and equipment is expensed in the period the impairment is identified. 39 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Intangible assets The useful life of an intangible asset is either finite or indefinite. Intangible assets other than goodwill are recognized when they are separable or arise from contractual or other legal rights, and have fair values that can be reliably measured. Intangible assets that are purchased are measured at the acquisition date and include the fair value of considerations transfered, and include an estimate for contingent consideration where applicable. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment indicators at each reporting date, or more frequently if changes in circumstances indicate that the carrying value may be impaired. Intangible assets with finite lives are only tested for impairment if indicators of impairment exist at the time of an impairment assessment. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense and any impairment losses on intangible assets with finite lives are recognized in the consolidated statements of operations. Intangible assets with indefinite useful lives are not amortized, but are assessed for impairment indicators at each reporting date, or more frequently if changes in circumstances indicate that the carrying value may be impaired. In addition to impairment indicator assessments, indefinite life intangibles must be tested annually for impairment. The indefinite life of an intangible asset is reviewed annually to determine whether the indefinite life continues to be supportable. If no longer supportable, changes in useful life from indefinite to finite are made prospectively. Any loss resulting from impairment of intangible assets is expensed in the period the impairment is identified. Any gain resulting from an impairment reversal of intangible assets is recognized in the period the impairment reversal is identified but cannot exceed the carrying amount that would have been determined (net of amortization and impairment) had no impairment loss been recognized for the intangible asset in prior periods. Business combinations and goodwill The purchase price of an acquisition accounted for under the acquisition method is allocated based on the fair values of the net identifiable assets acquired. The excess of the purchase price over the fair values of such identifiable net assets is recorded as goodwill. Goodwill, which is measured at cost less any accumulated impairment losses, is not amortized, but rather, is assessed for impairment indicators at each reporting date, or more frequently if changes in circumstances indicate that the carrying value may be impaired. In addition to quarterly impairment indicator assessments, goodwill must be tested annually for impairment. For the purpose of impairment testing, goodwill is allocated to each of the Company's cash generating units ("CGUs") that are expected to benefit from the acquisition. The recoverable amount of a CGU is compared to its carrying value plus any goodwill allocated to the CGU. If the recoverable amount of a CGU is less than its carrying value plus allocated goodwill, an impairment charge is recognized, first against the carrying value of the goodwill, with any remaining difference being applied against the carrying value of assets contained in the impacted CGUs. Impairment losses on goodwill are recorded in the consolidated statements of operations and comprehensive income and cannot be subsequently reversed. 40 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Income taxes Income tax is comprised of current and deferred tax. Income tax is recognized in the consolidated statements of operations and comprehensive income except to the extent that it relates to items recognized directly in other comprehensive income or elsewhere in equity, in which case, the related taxes are also recognized in other comprehensive income (loss) or elsewhere in equity. Deferred taxes are recognized using the liability method for temporary differences that exist between the carrying amounts of assets and liabilities in the consolidated balance sheet and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax assets and liabilities are determined based on the enacted or substantively enacted tax rates that are expected to apply when the differences related to the assets or liabilities reported for tax purposes are expected to reverse in the future. Deferred tax assets are recognized only when it is probable that sufficient taxable profits will be available or taxable temporary differences reversing in future periods against which deductible temporary differences may be utilized. Deferred taxes liabilities are not recognized on the following temporary differences: • Temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • Taxable temporary differences related to investments in subsidiaries, associates or joint ventures or joint operations to the extent they are controlled by the Company and they will not reverse in the foreseeable future; • Taxable temporary differences arising on the initial recognition of goodwill. The Company records a provision for uncertain tax positions if it is probable that the Company will have to make a payment to tax authorities upon their examination of a tax position. This provision is measured at the Company's best estimate of the amount expected to be paid. Provisions are reversed to income in the period in which management assesses they are no longer required or determined by statute. The measurement of tax assets and liabilities requires an assessment of the potential tax consequences of items that can only be resolved through agreement with the tax authorities. While the ultimate outcome of such tax audits and discussions cannot be determined with certainty, management estimates the level of provisions required for both current and deferred taxes. Share-based payments The Company uses the fair value method to account for equity settled share-based payments with employees and directors. Compensation expense is determined using the Black‑Scholes option valuation model for stock options. Compensation expense for the share incentive program is determined based on the fair value of the benefit conferred on the employee. Compensation expense for deferred stock units ("DSU") is determined based on the value of the Company's common shares at the time of grant. Compensation expense for earn-out shares is determined using appropriate valuation models. Compensation expense related to the Company's Employee Profit Sharing Plan is determined based on the value of the Company's common shares purchased by the Trust as of the grant date. Compensation expense is recognized over the vesting period with a corresponding increase to contributed surplus other than for the Company's DSUs where the corresponding increase is to liabilities. Stock options and common shares held by the Trust vest in installments which require a graded vesting methodology to account for these share-based awards. On the exercise of stock options for shares, the contributed surplus previously recorded with respect to the exercised options and the consideration paid is credited to capital stock. On the issuance of the earn-out shares, the contributed surplus previously recorded with respect to the issued earn-out shares is credited to capital stock. On the vesting of common shares in the Trust, the contributed surplus previously recorded is credited to capital stock. On the exercise of DSUs, the liability previously recorded is credited to cash. 41 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Earnings per share Basic and diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. The Company applies the treasury stock method to determine the dilutive impact, if any, of stock options and unvested shares purchased for the Trust. The treasury stock method determines the number of incremental common shares by assuming that the number of dilutive securities the Company has granted to employees have been issued. Lease commitments The Company recognizes a right-to-use asset and a lease liability as at the lease commencement date. The right-to-use asset is initially measured at cost and subsequently at cost less any accumulated depreciation and impairment. The lease liability is initially measured at the present value of future lease payments over the anticipated lease term, discounted using the Company's incremental borrowing rate. The right-to-use asset is presented in the property and equipment line of the consolidated balance sheet and the short and long-term portions of the lease liability are presented in the accounts payable and accrued liabilities line and other accrued liabilities line, respectively, of the consolidated balance sheet. The Company used the practical expedient when applying IFRS 16, Leases for short-term leases under 12 months and low-value assets such as IT equipment, with lease payments being expensed as they are occurred. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to management. Management is responsible for allocating resources and assessing performance of the operating segments to make strategic decisions. Significant accounting judgments and estimates The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are described below. The Company based its assumptions and estimates on parameters available when these financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions and estimates as they occur. Fair value of financial instruments When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived from active markets, they are determined using valuation techniques and models. Model inputs are taken from observable markets where possible, but where this is not feasible, unobservable inputs may be used. These unobservable inputs include, but are not limited to, projected cash flows, discount rates, comparable recent transactions, volatility of underlying securities in warrant valuations and extraction recovery rates of mining projects. The use of unobservable inputs can involve significant judgment and materially affect the reported fair value of financial instruments. Deferred tax assets Deferred tax assets are recognized for unused tax losses to the extent it is probable that sufficient taxable profit will be generated in order to utilize the losses. In addition, taxable income is subject to estimation as a portion of performance fee revenue is an allocation of partnership income. Such allocations involve a certain degree of estimation and income tax estimates could change as a result of: (1) changes in tax laws and regulations, both domestic and foreign; (2) an amendment to the calculation of partnership income allocation; or (3) a change in foreign affiliate rules. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based on the likely timing and the level of future taxable profits together with future tax planning strategies. 42 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Investments in other entities IFRS 10 Consolidated Financial Statements ("IFRS 10") and IAS 28 Investments in Associates and Joint Ventures ("IAS 28") provide for the use of judgment in determining whether an investee should be included within the consolidated financial statements of the Company and on what basis (subsidiary, joint venture or associate). Significant judgment is applied in evaluating facts and circumstances relevant to the Company and investee, including: (1) the extent of the Company's direct and indirect interests in the investee; (2) the level of compensation to be received from the investee for management and other services provided to it; (3) "kick out rights" available to other investors in the investee; and (4) other indicators of the extent of power that the Company has over the investee. Impairment of goodwill and intangible assets All indefinite life intangible assets and goodwill are assessed for impairment, however, finite life intangibles are only tested for impairment to the extent indications of impairment exist at time of a quarterly assessment. In the case of goodwill and indefinite life intangibles, an annual test for impairment augments the quarterly impairment indicator assessments. Values associated with goodwill and intangibles involve estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These estimates require significant judgment regarding market growth rates, fund flow assumptions, expected margins and costs which could affect the Company's future results if estimates of future performance and fair value change. Contingent consideration The Acquisition necessitated the recognition of contingent consideration for the amounts payable in cash and shares under the terms of the purchase agreement. The cash settled portion of the contingent consideration was measured at the closing date fair value, based on management’s estimate of the level of future revenue obtained from the contracts over the contingent consideration measurement period. The equity settled portion of the contingent consideration was measured at its grant date fair value in accordance with the requirements of IFRS 2 Share-based Payment. The key judgments utilized in the estimation of the contingent consideration were fund flow assumptions. As at December 31, 2020, the contingent consideration payable was updated to reflect current estimates with the resulting adjustment recorded in Other expense. Foreign currency translation Accounts in the financial statements of the Company's subsidiaries are measured using their functional currency, being the currency of the primary economic environment in which the entity operates. The Company's performance is evaluated and its liquidity is managed in Canadian dollars. Therefore, the Canadian dollar is the functional currency of the Company. The Canadian dollar is also the functional currency of all its subsidiaries, with the exception of Global Companies, which uses the U.S. dollar as its functional currency. Accordingly, the assets and liabilities of Global Companies are translated into Canadian dollars using the rate in effect on the date of the consolidated balance sheets. Revenue and expenses are translated at the average rate over the reporting period. Foreign currency translation gains and losses arising from the Company's translation of its net investment in Global companies, including goodwill and the identified intangible assets, are included in accumulated other comprehensive income or loss as a separate component within shareholders' equity until there has been a realized reduction in the value of the underlying investment. 43 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Changes in accounting policies Change in presentation currency Effective January 1, 2020, the Company changed its presentation currency from Canadian to US dollars to better reflect the Company's business activities, given the significance of our revenues denominated in US dollars that further increased in 2020 with the January 17, 2020 close of Tocqueville Asset Management's gold strategies ("the Acquisition"). The Company followed the guidance of IAS 21 Effects of Changes in Foreign Exchange Rates ("IAS 21") and have applied the change retroactively. As a result, the Company has restated prior year comparatives, including the January 1 opening balance sheet as required by IFRS 1 First-Time Adoption of International Financial Reporting Standards ("IFRS 1"). The change in presentation currency had the following effect: • Assets and liabilities have been translated at the exchange rate on the respective reporting dates; • Equity transactions have been translated at the historical exchange rate at the date of the transaction; • The statements of operations and comprehensive income have been translated at the average exchange rate on the respective reporting dates; and • Exchange differences arising on translation are presented in the accumulated other comprehensive loss line in shareholders' equity on the balance sheets. The exchange rates used for prior periods were as follows: As at reporting date Average rate for the 3 month ended Dec. 31, 2019 1.31 1.32 Sep. 30, 2019 1.32 1.32 Jun. 30, 2019 1.31 1.34 Mar. 31, 2019 1.34 1.33 Jan. 1, 2019 1.36 1.32 44 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 3 Short-term investments Primarily consist of equity investments in public and private entities we receive as consideration during lending, managed equities and brokerage segment activities (in thousands $): Public equities and share purchase warrants Fixed income securities Private holdings: - Private investments - Energy contracts Total short-term investments Classification and measurement criteria Dec. 31, 2020 Dec. 31, 2019 FVTPL FVTPL FVTPL Non-financial instrument 6,751 731 1,993 — 9,475 10,520 4,220 1,864 891 17,495 Gains and losses on financial assets and liabilities classified at FVTPL are included in the gain (loss) on investments on the consolidated statements of operations and comprehensive income. 4 Co-investments Consists of the following (in thousands $): Co-investments in funds Total co-investments Classification and measurement criteria Dec. 31, 2020 Dec. 31, 2019 FVTPL 82,467 82,467 55,595 55,595 Gains and losses on co-investments in funds are included in the gain (loss) on investments on the consolidated statements of operations and comprehensive income. 45 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 5 Other assets, income, expenses and non-controlling interest Other assets Consist of the following (in thousands $): Digital gold strategies(1) Fund recoveries and investment receivables Assets attributable to non-controlling interests Prepaid expenses Other(2) Deferred costs related to the Acquisition(3) Dec. 31, 2020 Dec. 31, 2019 11,518 6,043 3,518 2,316 1,919 — 18,913 5,951 — 4,355 2,231 1,806 Total other assets 33,256 (1) Digital gold strategies are financial instruments classified at FVTPL. Gains and losses are included in gain (loss) on investments on the consolidated statements of operations. These 25,314 investments were reclassified from long-term investments to other assets. (2) Includes miscellaneous third-party receivables. (3) Includes legal, proxy and investor relations costs. Other income Consist of the following (in thousands $): Investment income (1) Income attributable to non-controlling interest Total other income (1) Primarily includes miscellaneous investment fund income, syndication and trailer fee income. Other expenses Consist of the following (in thousands $): For the years ended Dec. 31, 2020 Dec. 31, 2019 1,502 759 2,261 625 — 625 For the years ended Dec. 31, 2020 Dec. 31, 2019 577 Costs related to energy assets 1,503 Foreign exchange losses — Increase in contingent consideration related to the Acquisition Other (1) 3,959 Total other expenses 6,039 (1) Includes net income attributable to non-controlling interest of $565 thousand and SG&A attributable to non-controlling interest of $194 thousand for the year ended December 31, 798 772 4,717 4,207 10,494 2020 (year ended December 31, 2019 - $Nil) as well as non-recurring professional fees and transaction costs. 46 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Non-controlling interest Non-controlling interest consist of third-party interest in our consolidated co-investments in funds. The following table provide a summary of amounts attributable to this non-controlling interest: Assets Liabilities - current(1) Liabilities - long-term(1) (1) Current and long-term Liabilities attributable to non-controlling interest is included in accounts payable and accrued liabilities and other accrued liabilities respectively 3,518 (640) (2,878) — — — Dec. 31, 2020 Dec. 31, 2019 47 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 6 Property and equipment Consist of the following (in thousands $): Cost At Dec. 31, 2018 Additions Net exchange differences At Dec. 31, 2019 Additions Net exchange differences At Dec. 31, 2020 Accumulated amortization At Dec. 31, 2018 Depreciation charge for the year Net exchange differences At Dec. 31, 2019 Depreciation charge for the year Net exchange differences At Dec. 31, 2020 Net book value at: Dec. 31, 2019 Dec. 31, 2020 Artwork Furniture and fixtures Computer hardware and software Leasehold improvements Right of use assets Total 7,040 — 312 7,352 — 167 7,519 — — — — — — — 2,321 107 99 2,527 279 70 2,876 (2,288) (43) (71) (2,402) (68) (26) (2,496) 2,613 — 93 2,706 153 71 2,930 (2,099) (324) (87) (2,510) (205) (59) (2,774) 3,077 2,117 138 5,332 254 135 5,721 (1,621) (926) (70) (2,617) (970) (133) (3,720) — 7,182 302 7,484 2,435 322 10,241 — (1,623) (19) (1,642) (1,940) (104) (3,686) 15,051 9,406 944 25,401 3,121 765 29,287 (6,008) (2,916) (247) (9,171) (3,183) (322) (12,676) 7,352 7,519 125 380 196 156 2,715 2,001 5,842 6,555 16,230 16,611 48 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 7 Goodwill and intangible assets Consist of the following (in thousands $): Cost At Dec. 31, 2018 Additions Net exchange differences At Dec. 31, 2019 Additions Net exchange differences At Dec 31, 2020 Accumulated amortization At Dec. 31, 2018 Amortization charge for the year Net exchange differences At Dec. 31, 2019 Amortization charge for the year At Dec 31, 2020 Net book value at: Dec. 31, 2019 Dec. 31, 2020 Fund management contracts (indefinite life) Fund management contracts (finite life) Goodwill 132,251 — — 132,251 — — 132,251 (113,102) — — (113,102) — (113,102) 97,744 1,376 4,350 103,470 36,107 6,454 146,031 — — — — — — 34,768 — 1,540 36,308 — 198 36,506 (23,753) (879) (1,068) (25,700) (869) (26,569) Total 264,763 1,376 5,890 272,029 36,107 6,652 314,788 (136,855) (879) (1,068) (138,802) (869) (139,671) 19,149 19,149 103,470 146,031 10,608 9,937 133,227 175,117 49 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Impairment assessment of goodwill The Company has identified 5 cash generating units ("CGU") as follows: • • • • • Exchange listed products Managed equities Lending Brokerage Corporate As at December 31, 2020, the Company had allocated $19.1 million (December 31, 2019 - $19.1 million) of goodwill on a relative value approach basis to the exchange listed products and managed equities CGUs. In the normal course, goodwill is tested for impairment once per annum, which for the Company is during the fourth quarter of each year or earlier if there are indicators of impairment. During the impairment testing process, there was no impairment in either the exchange listed products or the managed equities CGUs. Impairment assessment of indefinite life fund management contracts As at December 31, 2020, the Company had indefinite life intangibles related to fund management contracts of $146 million (December 31, 2019 - $103.5 million). The addition during the year relates to the Acquisition. The cost of the intangible asset was recorded at the fair value of consideration transferred of $15 million, including contingent consideration of $19.3 million (see Note 2) and the acquisition costs directly attributable to the purchase of the management contracts of $1.8 million (see Note 5). There was no impairment as at December 31, 2020 or 2019. Impairment assessment of finite life fund management contracts As at December 31, 2020, the Company had exchange listed fund management contracts within the exchange listed products CGU of $9.9 million (December 31, 2019 - $10.6 million). There was no impairment as at December 31, 2020 or 2019. 50 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 8 Shareholders' equity On May 28, 2020, the Company successfully completed a 10:1 common share consolidation. Shareholders received 1 post-consolidation share for every 10 pre-consolidation shares. All information pertaining to shares and per-share amounts in the financial statements for periods before May 28 reflect retrospective treatment of this share consolidation. Capital stock and contributed surplus The authorized and issued share capital of the Company consists of an unlimited number of common shares, without par value. Number of shares Stated value (in thousands $) At Dec. 31, 2018 Issuance of share capital under dividend reinvestment program Shares acquired and cancelled under normal course issuer bid Issuance of share capital on conversion of RSUs Shares acquired for equity incentive plan Shares released on vesting of equity incentive plan At Dec. 31, 2019 Shares acquired for equity incentive plan Issuance of share capital on purchase of management contracts Shares released on vesting of equity incentive plan Issuance of share capital on exercise of stock options Shares acquired and canceled under normal course issuer bid Issuance of share capital on conversion of RSUs and other share based considerations Issuance of share capital under dividend reinvestment program At Dec. 31, 2020 24,306,233 6,151 (74,060) 81,528 (182,612) 280,399 24,417,639 (128,304) 104,720 248,883 150,000 (112,343) 103,269 5,501 24,789,365 407,775 147 (1,715) 1,654 (4,906) 4,945 407,900 (2,514) 2,500 4,361 5,159 (2,024) 2,231 145 417,758 Contributed surplus consists of: stock option expense; earn-out shares expense; equity incentive plans' expense; and additional purchase consideration. At Dec. 31, 2018 Stock-based compensation Issuance of share capital on conversion of RSUs Released on vesting of common shares for equity incentive plan At Dec. 31, 2019 Share-based contingent consideration related to the Acquisition Shares released on vesting of common shares for equity incentive plan Shares released on exercise of stock options Stock-based compensation Issuance of share capital on conversion of RSUs and other share based considerations At Dec. 31, 2020 Stated value (in thousands $) 42,964 5,392 (251) (4,945) 43,160 4,879 (4,361) (2,655) 4,517 (2,231) 43,309 51 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Stock option plan The Company has an option plan (the "Plan") intended to provide incentives to directors, officers and employees of the Company and its wholly owned subsidiaries. The aggregate number of shares issuable upon the exercise of all options granted under the Plan and under all other stock-based compensation arrangements including the Trust and Equity Incentive Plan ("EIP") cannot exceed 10% of the issued and outstanding shares of the Company as at the date of grant. The options may be granted at a price that is not less than the market price of the Company's common shares at the time of grant. The options vest annually over a three-year period and may be exercised during a period not to exceed 10 years from the date of grant. There were 150,000 stock options exercised during the year ended December 31, 2020 (year ended December 31, 2019 - Nil) and 15,000 options expired during the year ended December 31, 2020 (year ended December 31, 2019 - Nil). There were no stock options issued during the year ended December 31, 2020 (year ended December 31, 2019 - Nil). For valuing share option grants, the fair value method of accounting is used. The fair value of option grants is determined using the Black-Scholes option-pricing model, which takes into account the exercise price of the option, the current share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and other relevant factors. Compensation cost is recognized over the vesting period, assuming an estimated forfeiture rate, with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well as any consideration paid by the option holder is credited to capital stock. A summary of the changes in the Plan is as follows: Options outstanding, Dec. 31, 2018 Options exercisable, Dec. 31, 2018 Options outstanding, Dec. 31, 2019 Options exercisable, Dec. 31, 2019 Options exercised during the year ended 2020 Options expired during the year ended 2020 Options outstanding, Dec. 31, 2020 Options exercisable, Dec. 31, 2020 Number of options Weighted average exercise price (CAD $) 327,500 187,500 327,500 257,500 (150,000) (15,000) 162,500 162,500 25.70 27.00 25.70 26.00 23.30 66.00 23.61 23.61 Options outstanding and exercisable as at December 31, 2020 are as follows: Exercise price (CAD $) 23.30 27.30 23.30 to 27.30 Number of options outstanding Weighted average remaining contractual life (years) Number of options exercisable 150,000 12,500 162,500 5.1 5.4 5.1 150,000 12,500 162,500 52 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Equity incentive plan For employees in Canada, the Trust has been established and the Company will fund the Trust with cash, which will be used by the trustee to purchase: (1) on the open market, common shares of the Company that will be held in the Trust until the awards vest and are distributed to eligible members; or (2) from treasury, common shares of the Company that will be held in the Trust until the awards vest and are distributed to eligible employees; and (3) from time-to-time, purchases from 2176423 Ontario Ltd., a company controlled by Eric Sprott, pursuant to the terms and conditions of a previously announced share transaction. For employees in the U.S. under the EIP plan, the Company will allot common shares of the Company as either: (1) restricted stock; (2) unrestricted stock; or (3) restricted stock units ("RSUs"), the resulting common shares of which will be issued from treasury. There were 104,858 RSUs granted during the year ended December 31, 2020 (year ended December 31, 2019 - 69,954). The Trust acquired 128,304 shares in the year ended December 31, 2020 (year ended December 31, 2019 - 182,612 shares). Common shares held by the Trust, Dec. 31, 2018 Acquired Released on vesting Unvested common shares held by the Trust, Dec. 31, 2019 Acquired Released on vesting Unvested common shares held by the Trust, Dec. 31, 2020 Number of common shares 993,225 182,612 (280,399) 895,438 128,304 (248,883) 774,859 Of the $57.6 million compensation expense for the year ended December 31, 2020, $4.5 million relates to stock-based compensation, details of which are presented in the table below (in thousands $): Stock option plan EIP Total stock-based compensation For the years ended Dec. 31, 2020 Dec. 31, 2019 10 4,507 4,517 188 5,204 5,392 53 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Basic and diluted earnings per share The following table presents the calculation of basic and diluted earnings per common share: Numerator (in thousands $): Net income - basic and diluted Denominator (Number of shares in thousands): Weighted average number of common shares Weighted average number of unvested shares purchased by the Trust Weighted average number of common shares - basic Weighted average number of dilutive stock options Weighted average number of unvested shares under EIP Weighted average number of common shares - diluted Net income per common share Basic Diluted Capital management For the years ended Dec. 31, 2020 Dec. 31, 2019 26,978 10,209 25,464 (976) 24,488 163 1,132 25,783 25,356 (969) 24,387 312 969 25,668 1.10 1.05 0.42 0.40 The Company's objectives when managing capital are: • • • • • to meet regulatory requirements and other contractual obligations; to safeguard the Company's ability to continue as a going concern so that it can continue to provide returns for shareholders; to provide financial flexibility to fund possible acquisitions; to provide adequate seed capital for the Company's new product offerings; and to provide an adequate return to shareholders through growth in assets under management, growth in management fees, carried interest and performance fees and return on the Company's invested capital that will result in dividend payments to shareholders. The Company's capital is comprised of equity, including capital stock, contributed surplus, retained earnings (deficit) and accumulated other comprehensive income (loss). SCP is a member of the Investment Industry Regulatory Organization of Canada ("IIROC"), SAM is a registrant of the Ontario Securities Commission ("OSC") and the U.S. Securities and Exchange Commission ("SEC"), SAM US is registered with the SEC and SGRIL is a member of the Financial Industry Regulatory Authority ("FINRA"). As a result, all of these entities are required to maintain a minimum level of regulatory capital. To ensure compliance, management monitors regulatory and working capital on a regular basis. As at December 31, 2020 and 2019, all entities were in compliance with their respective capital requirements. 54 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 9 Income taxes The major components of income tax expense are as follows (in thousands $): Current income tax expense (recovery) Based on taxable income of the current period Adjustments in respect to previous years Total current income tax expense Deferred income tax expense (recovery) Origination and reversal of temporary differences Adjustments in respect to previous years Total deferred income tax expense Income tax expense reported in the consolidated statements of operations For the years ended Dec. 31, 2020 Dec. 31, 2019 2,901 102 3,003 5,373 (692) 4,681 7,684 2,395 115 2,510 231 — 231 2,741 Taxes calculated on the Company's earnings differs from the theoretical amount that would arise using the weighted average tax rate applicable to earnings of the Company as follows (in thousands $): Income before income taxes Tax calculated at domestic tax rates applicable to profits in the respective countries Tax effects of: Non-deductible stock-based compensation Non-taxable capital (gains) and losses Intangibles Adjustments in respect of previous periods Non-capital losses and other temporary differences not benefited previously Rate differences and other Tax charge For the years ended Dec. 31, 2020 Dec. 31, 2019 34,662 9,324 12,950 3,432 356 841 (458) (590) (1,563) (226) 7,684 107 (47) 87 115 (1,405) 452 2,741 The weighted average statutory tax rate was 26.9% (December 31, 2019 - 26.5%). The Company has $8 million of capital tax losses from prior years that will begin to expire in 2022. The benefit of these capital losses has not been recognized. 55 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the future profitability of operations in the jurisdictions in which the tax losses arose. The movement in significant components of the Company's deferred income tax assets and liabilities is as follows (in thousands $): For the year ended December 31, 2020 Deferred income tax assets Stock-based compensation Non-capital and capital losses Other Total deferred income tax assets Deferred income tax liabilities Fund management contracts Unrealized gains (losses) Other Total deferred income tax liabilities Net deferred income tax assets (liabilities) (1) For the year ended December 31, 2019 (2) Deferred income tax assets Stock-based compensation Non-capital losses Unrealized losses Other Total deferred income tax assets Deferred income tax liabilities Fund management contracts Other Total deferred income tax liabilities Net deferred income tax assets (1) Dec. 31, 2019 Recognized in income Exchange rate differences Dec. 31, 2020 4,117 3,432 247 7,796 6,809 (910) 40 5,939 1,857 (368) (1,195) 230 (1,333) 2,360 997 (9) 3,348 (4,681) 72 33 (42) 63 277 31 (47) 261 (198) 3,821 2,270 435 6,526 9,446 118 (16) 9,548 (3,022) Dec. 31, 2018 Recognized in income Exchange rate differences Dec. 31, 2019 3,349 3,678 283 376 7,686 5,141 514 5,655 606 (372) 604 (143) 695 1,404 (478) 926 162 126 23 14 325 264 4 268 4,117 3,432 910 247 8,706 6,809 40 6,849 1,857 (1) Deferred tax assets of $1.7 million (December 31, 2019 - $4.3 million) and deferred tax liabilities of $4.8 million (December 31, 2019 - $2.4 million) are presented on the balance 2,031 (231) 57 sheet net by legal jurisdiction. (2) Certain comparative figures have been reclassified to conform with current year presentation 56 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 10 Fair value measurements The following tables present the Company's recurring fair value measurements within the fair value hierarchy. The Company did not have non-recurring fair value measurements as at December 31, 2020 and December 31, 2019 (in thousands $). Short-term investments Dec. 31, 2020 Level 1 Level 2 Level 3 Total Public equities and share purchase warrants Fixed income securities Private holdings Total net recurring fair value measurements 5,101 1,379 — — 731 — 5,101 2,110 271 — 1,993 2,264 6,751 731 1,993 9,475 Dec. 31, 2019 Level 1 Level 2 Level 3 Total Public equities and share purchase warrants Fixed income securities Private holdings Total net recurring fair value measurements Co-investments 7,537 — — 2,983 3,454 — 7,537 6,437 — 766 1,864 2,630 10,520 4,220 1,864 16,604 Dec. 31, 2020 Level 1 Level 2 Level 3 Total Co-investments in funds Total net recurring fair value measurements — — 76,026 76,026 6,441 6,441 82,467 82,467 Dec. 31, 2019 Level 1 Level 2 Level 3 Total Co-investments in funds Total net recurring fair value measurements — — 51,065 51,065 4,530 4,530 55,595 55,595 57 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Other assets Dec. 31, 2020 Level 1 Level 2 Level 3 Total Digital gold strategies Total net recurring fair value measurements — — — — 11,518 11,518 11,518 11,518 Dec. 31, 2019 Level 1 Level 2 Level 3 Total Digital gold strategies Total net recurring fair value measurements — — — — 18,913 18,913 18,913 18,913 The following tables provides a summary of changes in the fair value of Level 3 financial assets (in thousands $): Short-term investments Changes in the fair value of Level 3 measurements - Dec. 31 2020 Dec. 31, 2019 Purchases and reclassifications Settlements Share purchase warrants Private holdings Fixed income securities — 1,864 766 2,630 271 — (783) (512) Net unrealized gains (losses) included in net income Dec. 31, 2020 — (15) — (15) — 144 17 161 271 1,993 — 2,264 Changes in the fair value of Level 3 measurements - Dec. 31, 2019 Dec. 31, 2018 Purchases and reclassifications Settlements 2,075 733 2,808 34 — 34 Net unrealized gains (losses) included in net income Dec. 31, 2019 (43) — (43) (202) 33 (169) 1,864 766 2,630 Private holdings Fixed income securities Co-investments Changes in the fair value of Level 3 measurements - Dec. 31, 2020 Dec. 31, 2019 Purchases and reclassifications Settlements Net unrealized gains (losses) included in net income Dec. 31, 2020 Co-investments in funds 4,530 4,530 1,628 1,628 — — 283 283 6,441 6,441 Changes in the fair value of Level 3 measurements - Dec. 31, 2019 Dec. 31, 2018 Purchases and reclassifications Settlements Net unrealized gains (losses) included in net income Dec. 31, 2019 Co-investments in funds 3,574 3,574 1,193 1,193 — — (237) (237) 4,530 4,530 58 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Other assets Changes in the fair value of Level 3 measurements - Dec. 31, 2020 Dec. 31, 2019 Purchases and reclassifications Settlements Net unrealized gains (losses) included in net income Dec. 31, 2020 Digital gold strategies 18,913 18,913 500 500 — — (7,895) (7,895) 11,518 11,518 Changes in the fair value of Level 3 measurements - Dec. 31, 2019 Dec. 31, 2018 Purchases and reclassifications Settlements Net unrealized gains (losses) included in net income Dec. 31, 2019 Digital gold strategies 18,285 18,285 2,574 2,574 — — (1,946) (1,946) 18,913 18,913 During the year ended December 31, 2020, the Company transferred public equities of $0.5 million (December 31, 2019 - $2.5 million) from Level 2 to Level 1 within the fair value hierarchy due to the release of trading restrictions by the issuer. For the year ended December 31, 2020, the Company purchased level 3 investments of $2.1 million (December 31, 2019 - $3.8 million). For the year ended December 31, 2020, the Company transferred $Nil million (December 31, 2019 - $0.1 million) from Level 3 to Level 1 within the fair value hierarchy. For the year ended December 31, 2020, the Company transferred $0.3 million (December 31, 2019 - $Nil) from level 2 to level 3 due to the impact of volatility of the underlying security on the fair value of share purchase warrants. For the year ended December 31, 2020, the Company transferred $0.8 million (December 31, 2019 - $Nil) from Level 3 to Level 2 within the fair value hierarchy due to the exercise of a conversion option into equity. The following table presents the valuation techniques used by the Company in measuring fair values: Type Public equities and share purchase warrants Alternative funds and private equity funds Valuation technique Fair values are determined using pricing models which incorporate all available market- observable inputs. Fair values are based on the last available net asset value. Fixed income securities Fair values are based on independent market data providers or third-party broker quotes. Private holdings (including digital gold strategies) Fair values based on variety of valuation techniques, including discounted cash flows, comparable recent transactions and other techniques used by market participants. The Company’s Level 3 securities consist of private holdings, private equity funds and fixed income securities of private companies. The significant unobservable inputs used in these valuation techniques can vary considerably over time, and include grey market financing prices, discount rates and extraction recovery rates of mining projects. A significant change in any of these inputs in isolation would result in a material impact in fair value measurement. The potential impact of a 5% change in the significant unobservable inputs on profit or loss would be approximately $1 million (December 31, 2019 - $0.9 million). Financial instruments not carried at fair value For fees receivable, other assets, accounts payable and accrued liabilities and compensation payable, the carrying amount represents a reasonable approximation of fair value. 59 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 11 Related party transactions The remuneration of directors and other key management personnel of the Company for employment services rendered are as follows (in thousands $): Fixed salaries and benefits Variable incentive-based compensation Share-based compensation For the years ended Dec. 31, 2020 Dec. 31, 2019 3,247 8,715 1,817 13,779 2,155 3,405 1,678 7,238 The DSU plan for independent directors of the Company vests annually over a three-year period and may only be settled in cash upon retirement. DSUs issued in lieu of directors' fees and dividends vest immediately. There were 3,559 DSUs issued during the year (December 31, 2019 - 12,349). 12 Dividends The following dividends were declared by the Company during the twelve months ended December 31, 2020: Record date March 9, 2020 - Regular dividend Q4 2019 May 19, 2020 - Regular dividend Q1 2020 August 17, 2020 - Regular dividend Q2 2020 November 23, 2020 - Regular dividend Q3 2020 Dividends (2) Payment Date March 24, 2020 June 3, 2020 September 1, 2020 December 8, 2020 Cash dividend per share (1) Total dividend amount (in thousands $) CAD$0.30 CAD$0.30 US$0.23 US$0.25 5,387 5,560 5,915 6,378 23,240 (1) Dividends per share for periods before May 28 reflect retrospective treatment of the 10:1 share consolidation. (2) Subsequent to year end, on February 25, 2021, a regular dividend of US$0.25 per common share was declared for the quarter ended December 31, 2020. This dividend is payable on March 23, 2021 to shareholders of record at the close of business on March 8, 2021. 60 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 13 Risk management activities The Company's exposure to market, credit, liquidity, concentration, and COVID-19 risks are described below: Market risk Market risk refers to the risk that a change in the level of one or more of market prices, interest rates, foreign exchange rates, indices, volatilities, correlations or other market factors, such as liquidity, will result in a change in the fair value of an asset. The Company's financial instruments are classified as FVTPL. Therefore, certain changes in fair value or permanent impairment, if any, affect reported earnings as they occur. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Company manages market risk through regular monitoring of its proprietary investments and loans receivable. The Company separates market risk into three categories: price risk, interest rate risk and foreign currency risk. Price risk Price risk arises from the possibility that changes in the price of the Company's investments and co-investments will result in changes in carrying value. If the market values of investments and co-investments classified as FVTPL increased or decreased by 5%, with all other variables held constant, this would have resulted in an increase or decrease in net income before tax of approximately $5.2 million for the year (December 31, 2019 - $4.5 million). For more details about the Company's investments and co-investments, refer to Note 3 and Note 4. The Company's revenues are also exposed to price risk since management fees, performance fees and carried interests are correlated with assets under management, which fluctuates with changes in the market values of the assets in the funds and managed accounts managed by SAM, SRLC, SC, RCIC and SAM US. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will adversely affect the value of, or cash flows from, financial instrument assets. The Company’s earnings, particularly through its co-investment in lending LPs, are exposed to volatility as a result of sudden changes in interest rates. As at December 31, 2020, the Company had $0.7 million of fixed income securities (December 31, 2019 - $4.2 million). Foreign currency risk Foreign currency risk arises from foreign exchange rate movements that could negatively impact either the carrying value of financial assets and liabilities or the related cash flows when translating those balances into the Company's functional currency, Canadian dollars. The Company's primary foreign currency is the United States dollar ("USD"). The Company may employ certain hedging strategies to mitigate foreign currency risk. The Global Companies' assets are all denominated in USD with their translation impact being reported as part of other comprehensive income in the financial statements. Excluding the impact of the Global Companies, as at December 31, 2020, approximately $74.1 million (December 31, 2019 - $73.7 million) of total Canadian assets were invested in proprietary investments priced in USD. A total of $12.2 million (December 31, 2019 - $29.7 million) of cash, $8.1 million (December 31, 2019 -$5.7 million) of accounts receivable and $1.5 million (December 31, 2019 - $3.7 million) of other assets were denominated in USD. As at December 31, 2020, if the exchange rate between USD and the Canadian dollar increased or decreased by 5%, with all other variables held constant, the increase or decrease in net income would have been approximately $4.8 million for the year (December 31, 2019 - $5.7 million). 61 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Credit risk Credit risk is the risk that a borrower will not honour its commitments and a loss to the Company may result. Loans receivable The Company incurs credit risk primarily in the on-balance sheet loans of SRLC and through co-investments made in the lending LPs managed by SRLC. In addition to the relative default probability of SRLC borrowers (both directly via on balance sheet loans and indirectly via borrowers in the lending LPs we co-invest with), credit risk is also dependent on loss given default, which can increase credit risk if the values of the underlying assets securing the Company's loans decline to levels approaching or below the loan amounts. A decrease in commodity prices may delay the development of the underlying security or business plans of the borrower and will adversely affect the value of the Company's security against a loan. Additionally, the value of the Company's underlying security in a loan can be negatively affected if the actual amount or quality of the commodity proves to be less than that originally estimated, or the ability to extract the commodity proves to be more difficult or more costly than originally estimated. During the loan origination process, management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately mitigated. These include: • emphasis on first priority and/or secured financings; • the investigation of the creditworthiness of borrowers; • the employment of qualified and experienced loan professionals; • a review of the sufficiency of the borrower’s business plans including plans that will enhance the value of the underlying security; • frequent and documented status updates provided on business plans; • engagement of qualified independent advisors (e.g. lawyers, engineers and geologists) to protect Company interests; • legal reviews that are performed to ensure that all due diligence requirements are met prior to funding. As at December 31, 2020 had no exposure to credit risk via on-balance sheet loans of SRLC (December 31, 2019 - $Nil). The Company will syndicate loans in certain circumstances if it wishes to reduce its exposure to a borrower or comply with loan exposure maximums. The Company reviews its policies regarding its lending limits on an ongoing basis. For precious metal loans, the Company performs the same due diligence procedures as it would for its resource loans and resource debentures. Collectability of loans Besides the above noted measures we take to manage credit risk, the Company will report on credit risk in the notes to the annual consolidated financial statements and records expected credit loss provisions to ensure that on-balance sheet loans are recorded at their estimated recoverable amount (i.e. net of impairment risk we believe to exist as at the balance sheet date and in accordance with IFRS). Actual losses incurred in the on-balance sheet loan portfolio could differ materially from our provisions. Management takes into account a number of factors and is committed to several processes to ensure that this risk is appropriately managed. Net investments The Company incurs credit risk when entering into, settling and financing various proprietary transactions. As at December 31, 2020 and 2019, the Company's most significant proprietary investments counterparty was National Bank Independent Network Inc. ("NBIN"), the carrying broker of SCP, which also acts as a custodian for most of the Company's proprietary investments. NBIN is registered as an investment dealer subject to regulation by IIROC; as a result, it is required to maintain minimum levels of regulatory capital at all times. 62 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Other The majority of accounts receivable relate to management, carried interest and performance fees receivable from the Funds, managed accounts and managed companies managed by the Company. Credit risk is managed in this regard by dealing with counterparties that the Company believes to be creditworthy and by actively monitoring credit exposure and the financial health of the counterparties. The Global Companies incur credit risk when entering into, settling and financing various proprietary transactions. As at December 31, 2020 and 2019, the Global Companies' most significant counterparty was RBC Capital Markets, LLC ("RBCCM"), the carrying broker of SGRIL and custodian of the net assets of the Funds managed by RCIC. RBCCM is registered as a broker-dealer and registered investment advisor subject to regulation by FINRA and the SEC; as a result, it is required to maintain minimal levels of regulatory capital at all times. Liquidity risk Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The Company's exposure to liquidity risk is minimal as it maintains sufficient levels of liquid assets to meet its obligations as they come due. Additionally, the Company has access to a $70 million committed line of credit with a major Canadian Schedule I bank. As part of its cash management program, the Company primarily invests in short-term debt securities issued by the Government of Canada with maturities of less than three months. As at December 31, 2020, the Company had $44.1 million or 12% (December 31, 2019 - $54.7 million or 17%) of its total assets in cash and cash equivalents. In addition, approximately $35.1 million or 38% (December 31, 2019 - $10.5 million or 14%) of proprietary investments held by the Company are readily marketable and are recorded at their fair value. The Company's exposure to liquidity risk as it relates to our co-investments in lending LPs arises from fluctuations in cash flows from making capital calls and receiving capital distributions. The Company manages its loan co-investment liquidity risk through the ongoing monitoring of scheduled capital calls and distributions ("match funding") and through its broader treasury risk management program and enterprise capital budgeting. As at December 31, 2020, the Company had $4.6 million in co-investment commitments from the Lending segment (December 31, 2019 - $6.6 million). Financial liabilities, including accounts payable and accrued liabilities and compensation and employee bonuses payable, are short-term in nature and are generally due within a year. The following are the remaining contractual maturities of financial liabilities as at December 31, 2020 (in thousands $): Contractual obligations Lease obligation Compensation payable Operating accounts payable Contingent consideration Loan facility Carrying Amount Less than 1 year 1-3 years 3-5 years More than 5 years 7,460 15,192 19,046 20,575 16,994 79,267 2,501 15,192 19,046 10,000 — 4,719 — — 10,575 — 46,739 15,294 240 — — — 16,994 17,234 — — — — — — The Company's management team is responsible for reviewing resources to ensure funds are readily available to meet its financial obligations as they come due, as well as ensuring adequate funds exist to support business strategies and operations growth. The Company manages liquidity risk by monitoring cash balances on a daily basis. To meet any liquidity shortfalls, actions taken by the Company could include: syndicating a portion of its loans; slowing its lending activities; drawing on the line of credit; liquidating proprietary investments and/or issuing common shares. 63 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 Concentration risk The majority of the Company's AUM, as well as its proprietary investments and loans receivables are focused on the natural resource sector, and in particular, precious metals & mining. COVID-19 risk The changing economic and market climate as a result of COVID‑19 has led to the Company implementing its business continuity plan. Our portfolio managers, brokerage professionals, enterprise shared services teams and key outsource service providers are fully operational. The exact impacts of COVID-19 over the short and long-term are undeterminable at the date of this report. 64 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 14 Segmented information For management purposes, the Company is organized into business units based on its products, services and geographical location and has five reportable segments as follows: • Exchange listed products (reportable), which provides management services to the Company's closed-end physical trusts and exchange traded funds ("ETFs"), both of which are actively traded on public securities exchanges; • Managed equities (reportable), which provides asset management and sub-advisory services to the Company's branded funds, fixed-term LPs and managed accounts; • Lending (reportable), which provides lending and streaming activities through limited partnership vehicles as well as through direct lending activities using the Company's balance sheet; • Brokerage (reportable), which includes the activities of our Canadian and U.S. broker-dealers; • Corporate (reportable), which provides capital, balance sheet management and enterprise shared services to the Company's subsidiaries; • All other segments (non-reportable), which do not meet the definition of reportable segments as per IFRS 8. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on earnings before interest expense, income taxes, amortization and impairment of intangible assets and goodwill, gains and losses on proprietary investments (as if such gains and losses had not occurred), foreign exchange gains and losses, one time non-recurring expenses, non-cash and non-recurring stock-based compensation, carried interest and performance fees and carried interest and performance fee payouts (adjusted base EBITDA). Adjusted base EBITDA is not a measurement in accordance with IFRS and should not be considered as an alternative to net income or any other measure of performance under IFRS. Transfer pricing between operating segments is performed on an arm's length basis in a manner similar to transactions with third parties. The following tables present the operations of the Company's segments (in thousands $): For the year ended December 31, 2020 Total revenue Total expenses Income (loss) before income taxes Adjusted base EBITDA Exchange listed products Managed equities 37,680 9,151 28,529 30,563 41,354 22,686 18,668 10,762 Lending Brokerage Corporate 15,509 8,469 7,040 7,272 30,683 23,454 7,229 8,052 (7,214) 18,566 (25,780) (13,722) Consolidation, elimination and all other segments 3,764 4,788 (1,024) 1,239 Consolidated 121,776 87,114 34,662 44,166 65 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 For the year ended December 31, 2019 Total revenue Total expenses Income (loss) before income taxes Adjusted base EBITDA Exchange listed products 24,528 9,274 15,254 17,988 Managed equities Lending Brokerage Corporate Consolidation, elimination and all other segments 14,058 14,745 8,145 5,913 3,167 8,224 6,521 10,725 21,208 20,442 766 3,342 (2,604) 9,904 (12,508) (7,290) 1,551 4,547 (2,996) 1,071 Consolidated 73,486 60,536 12,950 29,003 For geographic reporting purposes, transactions are primarily recorded in the location that corresponds with the underlying subsidiary's country of domicile that generates the revenue. The following table presents the revenue of the Company by geographic location (in thousands $): Canada United States For the years ended Dec. 31, 2020 Dec. 31, 2019 95,962 25,814 121,776 63,375 10,111 73,486 66 SPROTT INC. Notes to the consolidated financial statements For the years ended December 31, 2020 and 2019 15 Loan facility As at December 31, 2020, the Company had $17 million (December 31, 2019 - $15.3 million) outstanding on its credit facility, all of which is due after 12 months (December 31, 2019 - $3.8 million due within 12 months and $11.5 million due after 12 months). On November 13, 2020, the Company extended and upsized its previous credit facility to $70 million, up from $61 million at the time of the extension. Amounts under the new facility may be borrowed under the facility through prime rate loans or bankers’ acceptances. Similar to the previous facility, amounts may also be borrowed in US dollars through base rate loans. As at December 31, 2020, the Company was in compliance with all covenants, terms and conditions under the credit facility. Key terms under the credit facility are noted below: Structure • 5-year, $70 million revolver with "bullet maturity" December 14, 2025 Interest Rate • • Prime rate + 0 bps or; Banker acceptance rate + 170 bps Covenant Terms • • • Minimum AUM: 70% of AUM on November 13, 2020 Debt to EBITDA less than or equal to 2.5:1 EBITDA to interest expense more than or equal to 2.5:1 16 Commitments and provisions Besides the Company's long-term lease agreement, there are commitments to make investments in the net investments portfolio of the Company. As at December 31, 2020, the Company had $4.6 million in co-investment commitments from the lending segment, all due within one year (December 31, 2019 - $6.6 million). 17 Subsequent events Subsequent to year-end, the Company successfully negotiated an amendment to the original terms of the purchase agreement. In lieu of any contingent consideration entitlement for the 2020 and 2021 fiscal years, the vendor accepted a final payment from the Company of $30 million ($27 million in cash and $3 million in Sprott Inc. common shares). This enabled the Company to lock-in the total acquisition price and return on investment economics going into 2021 and further enabled the Company to retain the full benefits of any additional increase in AUM expected over 2021. As a result of this change, the Company revised the contingent consideration in the first quarter of 2021 and incurred an expense of $4.4 million. This one-time charge on revision of contingent consideration will be included as part of the Other expenses line on the consolidated statements of operations and comprehensive income. 67 Corporate Information Head Office Sprott Inc. Royal Bank Plaza, South Tower 200 Bay Street, Suite 2600 Toronto, Ontario M5J 2J1, Canada T: 416.943.8099 1.855.943.8099 Directors & Officers Ronald Dewhurst, Chairman Sharon Ranson, FCPA, FCA, Director Rosemary Zigrossi, Director Graham Birch, Director Rick Rule, Director Peter Grosskopf, Chief Executive Officer and Director Whitney George, President Kevin Hibbert, FCPA, FCA, Chief Financial Officer Arthur Einav, Corporate Secretary US Transfer Agent and Registrar Continental Stock Transfer & Trust Company 1 State Street 30th Floor New York, NY 10004-1561 212.509.4000 continentalstock.com Canadian Transfer Agent and Registrar TMX Equity Transfer Services 200 University Avenue, Suite 300 Toronto, Ontario M5H 4H1 Toll Free: 1.866.393.4891 www.tmxequitytransferservices.com Legal Counsel Stikeman Elliot LLP 5300 Commerce Court West 199 Bay Street Toronto, Ontario M5L 1B9 Auditors KPMG LLP Bay Adelaide Centre 333 Bay Street, Suite 4600 Toronto, Ontario M5H 2S5 Investor Relations Shareholder requests may be directed to Investor Relations by e-mail at ir@sprott.com or via telephone at 416.943.8099 or toll free at 1.855.943.8099 Stock Information Sprott Inc. common shares are traded on the New York Stock Exchange and Toronto Stock Exchange under the symbol “SII” Annual General Meeting Friday, May 7, 2021 at 12pm Stikeman Elliot LLP 5300 Commerce Court West 199 Bay Street Toronto, Ontario M5L 1B9 sprott.com 

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