Sprott | 2021 Annual Report
Contrarian. Innovative. Aligned.
sprott.com
sprott.com
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A Global Leader in Precious Metals
and Real Assets Investments
Sprott is a global asset manager providing clients with access to
highly-differentiated precious metals and real assets investment
strategies.
We are specialists. Our in-depth knowledge, experience and
relationships separate us from the generalists. Sprott’s specialized
innovative physical bullion and
investment products
commodity 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.
include
Sprott has offices in Toronto, New York and London. Sprott Inc.’s
common shares are listed on the New York Stock Exchange and
the Toronto Stock Exchange under the symbol “SII”.
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Table of Contents
Letter to shareholders
Management's Discussion and Analysis
Management's Responsibility for Financial Reporting
Management's Responsibility for Financial Controls
Independent Auditors' Reports
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
2
3
27
28
29
34
38
Dear fellow shareholders,
Each of Sprott’s business units performed well in 2021.
Our excellent results were driven by increases in our
Assets Under Management (“AUM”), which reached
$20.4 billion as of December 31, 2021, up $1.4 billion
(8%) from September 30, 2021 and up $3.1 billion
(18%) from December 31, 2020. Highlights for the year
included over $3 billion of flows into our physical trusts,
new capital commitments in our lending strategies and a
strong year of mining equity origination in our brokerage
segment. These achievements led to Sprott generating
full year net income of $33.2 million ($1.33 per share),
up 23%, or $6.2 million ($0.23 per share) from the year
ended December 31, 2020. Additionally, adjusted base
EBITDA for the year reached a record high of $64.1
million ($2.58 per share), up 45%, or $19.9 million
($0.78 per share) from the year ended December 31,
2020.
With the acquisition of Uranium Participation Corp and
subsequent creation of the Sprott Physical Uranium Trust,
we established ourselves as the dominant physical
uranium fund manager in the world. This strategic move
into an adjacent mineral asset category was a natural
complement to our core expertise in precious metals
investments. During the fourth quarter, we further
expanded our uranium business through an agreement to
acquire the exclusive rights to the index tracked by the
North Shore Global Uranium Miners ETF, the second
largest global uranium equity ETF, in a transaction
expected to close in the first half of 2022. Investor
demand for low carbon strategies is rapidly growing and
Sprott is actively developing new strategies in this area.
During the fourth quarter of 2021, the Sprott Private
Resource Streaming and Royalty Fund completed its final
closing, raising over $700 million. This strategy increases
the scale and scope of our private resource investments
area, and has expanded our institutional client base of
public pension plans, foundations and family offices.
We are pleased to have generated solid 2021 results
despite the lackluster performance of gold and silver
throughout the year. No doubt gold was held back in
2021 by surging equity markets, a 60% increase in the
10-year Treasury rate and perceptions of an increasingly
hawkish Federal Reserve.
Early in 2022, the backdrop for precious metals has
become increasingly supportive. Inflation has surged
above 7% and the Federal Reserve risks losing credibility
if they do not act convincingly. The record $8.7 trillion
Federal Reserve balance sheet and over $300 trillion of
global debt balances have increased systematic risk and
the potential for policy errors. Geopolitical tensions are
rising considerably, recently culminating in the Russian
invasion of Ukraine, and have heightened investor
demand for safe havens. In response, the gold price has
convincingly broken to the upside of its recent technical
range.
The factors outlined above position Sprott to thrive in the
current environment with our combination of products
and investment talent. We look forward to continuing to
create value for our shareholders and clients in 2022.
Sincerely,
Peter Grosskopf
Chief Executive Officer
2
Management's Discussion and Analysis
Years ended December 31, 2021 and 2020
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) our development of new strategies in low carbon strategies; (ii) the potential actions by the Fed Reserve with respect to inflation; (iii) the potential for precious
metals prices to increase; (iv) our ability to thrive with our combination of products and investment talent and continuing to create value for our shareholders and clients in
2022; (v) our anticipation of another solid year of operating performance as we continue to benefit from strong gold and silver bullion markets, ongoing inflows into most of our
fund products and continued success in the build out of our uranium physical trust and ETFs; (vi) our commitment to implement ESG considerations into both our investment
management activities as well as our corporate operations; (vii) our agreement to acquire exclusive licensing rights to the index tracked by the North Shore Global Uranium ETF
(“URNM”); (viii) expectation of the effects of COVID-19; and (ix) 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; (iv) the impact of COVID-19; and (v) 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) the potential risk that the transaction and the related fund reorganization will not
be approved by the shareholders of URNM; (xxix) failure to, in a timely manner, or at all, obtain the other necessary approvals for the transaction and related fund
reorganization; (xxx) failure of the parties to otherwise satisfy the conditions to complete the transaction and related fund reorganization; (xxxi) the effect of the announcement
of the transaction and related transaction on URNM generally and other customary risks associated with transactions of this nature; (xxxii) those risks described under the
heading "Risk Factors" in the Company’s annual information form dated February 24, 2022; and (xxxiii) those risks described under the headings "Managing Financial Risk"
and "Managing Non-Financial Risk" 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 24, 2022, presents an analysis of the consolidated
financial condition of the Company and its subsidiaries as at December 31, 2021, compared with December 31, 2020, and the
consolidated results of operations for the three and twelve months ended December 31, 2021, compared with the three and twelve
months ended December 31, 2020. The board of directors approved this MD&A on February 24, 2022. All note references in this
MD&A are to the notes to the Company's December 31, 2021 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 annual 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 is the U.S. dollar. Accordingly,
all dollar references in this MD&A are in U.S. dollars, unless otherwise specified. The use of the term "prior period" refers to the three
and twelve months ended December 31, 2020.
4
Key performance indicators and non-IFRS and other 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 and non-IFRS and other financial
measures are discussed below. For quantitative reconciliations of non-IFRS financial measures to their most directly comparable
IFRS financial measures please see page 10 of this MD&A.
Assets under management
Assets under management ("AUM") refers to the total net assets managed by the Company through its various investment
product offerings and managed accounts.
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 fee earning capital 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, sub-advisor, other fees and direct payouts) 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.(1)
Net commissions
Commissions, net of commission expenses (internal and external), arise primarily from transaction-based service offerings of our
brokerage segment and purchases and sales of uranium in our exchange listed products segment.(1)
Net compensation
Net compensation excludes commission expenses paid to employees, other direct payouts to employees, carried interest and
performance fee payouts to employees, which are all presented net of their related revenues in this MD&A, and severance and
new hire accruals which are non-recurring.(1)
Total shareholder return
Total shareholder return is the financial gain (loss) that results from a 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.
(1) Prior period non-IFRS measures presented throughout this MD&A have been re-presented to align with these definitions
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 (credits) (2)
Adjusted EBITDA
Other adjustments:
3 months ended
12 months ended
Dec. 31, 2021 Dec. 31, 2020 Dec. 31, 2021 Dec. 31, 2020
10,171
6,720
33,185
26,978
239
3,354
1,136
331
2,561
1,023
14,900
10,635
43
450
3,304
18,697
3,089
1,307
4,266
19,297
1,161
12,005
4,552
50,903
1,883
1,698
13,217
67,701
1,237
7,684
4,052
39,951
(5,109)
2,835
11,035
48,712
Carried interest and performance fees
(4,298)
(10,075)
(12,235)
(10,075)
Carried interest and performance fee payouts
Trailer, sub-advisor and other fees
Adjusted base EBITDA
Operating margin (3)
2,516
790
5,529
—
7,222
1,385
5,529
—
17,705
14,751
64,073
44,166
55 %
51 %
53 %
49 %
(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, this reconciliation line also includes $0.2 million severance and new hire accruals for the 3
months ended December 31, 2021 (3 months ended December 31, 2020 - $0.1 million) and $0.7 million for the 12 months ended (12 months ended December 31, 2020 -
$1.3 million). This reconciliation line excludes income (loss) attributable to non-controlling interests of ($0.2 million) for the 3 months ended (3 months ended December 31,
2020 - $0.3 million) and $0.1 million for the 12 months ended December 31, 2021 (12 months ended December 31, 2020 - $0.8 million).
(3) Calculated as adjusted base EBITDA inclusive of depreciation and amortization. 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
Financial highlights
* Excluding dividend reinvestment, the S&P/TSX composite cumulative 5-year return was 39%.
Outlook
After posting record adjusted base EBITDA in 2021, we are anticipating another solid year of operating performance as we
continue to benefit from strong gold and silver bullion markets, ongoing inflows into most of our fund products and continued
success in the build out of our uranium physical trust and ETFs.
Product and business line expansion
On November 4, we announced that we are further expanding our uranium franchise with an agreement to acquire exclusive
licensing rights to the index tracked by the North Shore Global Uranium ETF (“URNM”), which has the potential to result in a
transaction that would be accretive to our AUM. We believe URNM is a perfect complement to SPUT, which has quickly become
the largest and most in-demand physical uranium vehicle in the world. The transaction is expected to close in the first half of
2022.
On July 19, the Company closed on the previously announced transaction with Uranium Participation Corporation (“UPC
acquisition”) to form the Sprott Physical Uranium Trust ("SPUT"). Under the agreement, UPC shareholders received one half of
one unit of SPUT. As part of the transaction, the Company has contributed CAD$6.7 million to UPC at closing, paid a CAD$5.8
million termination fee to the former manager, and reimbursed CAD$1 million in out-of-pocket expenses to UPC. At the time of
closing, this transaction added $630 million to the Company's AUM.
COVID-19 update
Our business continuity plan continues to operate effectively throughout the pandemic. Our portfolio managers, brokerage
professionals, enterprise shared services teams and key outsource service providers are fully operational.
8
Environmental, social, governance highlights
Sprott is committed to implementing ESG considerations into both our investment management activities as well as our
corporate operations. Our 2021 ESG accomplishments are noted below. Please see “Environmental, social, and governance
policy” in the 2021 Annual Information Form for additional details regarding our commitment to ESG.
Responsible investing
Social
Governance
• Added two new independent directors
• Completed an external review of our
governance practices with Global
Governance Advisors to identify and
implement policy and disclosure
enhancements
• Our compensation practices continue
to incorporate a mix of pay reflecting
the objectives of our shareholders that
management be compensated more
towards variable at-risk pay (AIP) and
long-term stock incentives (LTIP)
• Hired BitSight (an independent third
party Cyber Security rating firm), which
ranked the Company in the top 10% of
all financial services firms worldwide as it
relates to cybersecurity and cybersecurity
performance. The company continues to
make good progress towards the
finalization of our National Institute of
Standards & Technology ("NIST") audit
• We completed the submission of our
inaugural report to the Principles for
Responsible Investment, signaling our
commitment to incorporate ESG factors
into our investment ownership decisions
Environmental
• This year, we completed an assessment
of our offices in Canada and the United
States and determined that we achieved
carbon neutrality under the Carbonzero
program as we sourced carbon offsets in
the equivalent amount of our 2020 Scope
1 and Scope 2 Greenhouse Gas emissions
• Launched the Sprott Physical Uranium
Trust, providing investors access to a
vehicle focused on a form of energy
generation that is one of the cleanest
energy generation sources based on CO2
emissions(1), and a contributor to global
de-carbonization goals
• We continued to build scale in the Sprott
Physical Silver Trust, providing investors
with the opportunity to invest in a base
metal used in solar and other green
technologies that are critical in the fight
against climate change
• This year, we made further progress
towards our Diversity, Equity and
Inclusion (“DEI”) goals by increasing the
number of women and BIPOC individuals
on the Sprott leadership team. The
promotion and advancement of these
deserving high achievers brings us
closer to our long-term goal of at least
1/3 women and 1/3 BIPOC
individuals on the leadership team
over the next 36 months. Further
strengthening our company as we better
reflect the makeup of our shareholder
base, clients and employees across the
world
• Continued to deepen our relationships
with organizations in the communities
we operate in, including those
committed to COVID-19 relief, at-risk
communities in our local neighborhoods,
and those advancing opportunities for
women in mining and in governance
roles
• Awarded the first Sprott School of
Business Scholarship for women in
finance at Carleton University
• Delivered mandatory company-wide
training sessions on DEI, unconscious
bias, and emotional intelligence
• Introduced a company-wide Truth and
Reconciliation education session,
developed by the Four Seasons of
Reconciliation Indigenous Circle and the
First Nations University of Canada
• Supported employee health and wellness
through mental health & wellbeing
seminars
(1) Based on Greenhouse gas emissions factors from the Intergovernmental Panel on Climate Change AR5 (2014) and Pehl et al. (2017) in Nature.
9
Results of operations
Summary financial information
(In thousands $)
Summary income statements
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Q4
2020
Q3
2020
Q2
2020
Q1
2020
Management fees
27,783
28,612
25,062
22,452
22,032
19,934
15,825
15,125
Carried interest and performance fees
less: Carried interest and performance fee payouts
less: Trailer, sub-advisor and other fees (1)
less: Direct payouts (1)
Net fees
Commissions
less: Commission expense - internal (1)
less: Commission expense - external (1)
Net commissions
Finance income
Gain (loss) on investments
Other income
Total net revenues
4,298
2,516
1,662
1,367
—
—
637
—
126
552
1,892
1,198
7,937
10,075
4,580
1,194
890
5,529
583
695
—
—
527
476
—
—
516
490
—
—
414
634
26,536
26,083
23,186
23,725
25,300
18,931
14,819
14,077
14,153
11,273
7,377
12,463
4,128
3,016
7,009
788
(43)
313
3,089
2,382
5,802
567
310
529
3,036
5,289
49
4,292
932
253
6,921
1,248
6,761
2,093
98
4,570
1,629
9,386
3,313
344
6,133
1,887
161
5,179
1,236
—
5,729
4,085
3,943
757
656
914
2,502
(4,652)
(3,089)
4,408
8,142
(4,352)
438
303
949
914
285
113
34,603
33,291
31,350
27,545
29,359
30,739
27,987
14,695
Compensation
20,632
18,001
15,452
22,636
20,193
16,280
10,991
10,125
less: Carried interest and performance fee payouts
less: Commission expense and direct payouts
less: Severance and new hire accruals
2,516
5,495
187
—
126
4,981
4,234
207
293
4,580
6,179
44
5,529
2,788
65
—
—
—
3,789
2,377
1,870
210
358
667
Net compensation
12,434
12,813
10,799
11,833
11,811
12,281
8,256
7,588
Severance and new hire accruals
Selling, general and administrative (1)
Interest expense
Depreciation and amortization
Other expenses (credits)
Total expenses
Net income
Net Income per share
Adjusted base EBITDA
187
207
293
44
65
210
358
667
4,172
3,682
3,492
3,351
2,320
2,465
2,944
3,370
239
1,136
2,910
312
1,134
3,875
260
1,165
876
350
1,117
4,918
331
1,023
4,528
320
992
4,154
350
1,049
2,893
236
988
(1,081)
21,078
22,023
16,885
21,613
20,078
20,422
15,850
11,768
10,171
8,718
11,075
0.41
0.35
0.44
3,221
0.13
6,720
0.27
8,704
10,492
0.36
17,705
16,713
15,050
14,605
14,751
12,024
1,062
0.04
8,187
0.33
0.43
9,204
0.38
Adjusted base EBITDA per share
0.71
0.67
0.60
0.59
0.60
0.49
Operating margin
55 %
52 %
52 %
51 %
51 %
47 %
49 %
43 %
Summary balance sheet
Total assets
Total liabilities
Total AUM
Average AUM
365,873
375,819
361,121
356,986
377,348
358,300
338,931
318,318
74,654
84,231
64,081
67,015
86,365
81,069
70,818
65,945
20,443,088
19,016,313
18,550,106
17,073,078
17,390,389
16,259,184
13,893,039
10,734,831
20,229,119
19,090,702
18,343,846
17,188,205
16,719,815
16,705,046
13,216,415
11,007,781
(1) Certain comparative figures have been reclassified to conform with current year presentation.
10
AUM summary
AUM was $20.4 billion as at December 31, 2021, up $1.4 billion (8%) from September 30, 2021 and up $3.1 billion (18%)
from December 31, 2020. On a three and twelve months ended basis, we benefited from strong inflows to our physical trusts
and lending strategies. We also benefited from the UPC acquisition adding $630 million to our physical trusts in the third
quarter. These increases more than offset market value depreciation across most of our fund products during the year.
3 months results
(In millions $)
Exchange listed products
- Physical trusts
- Physical Gold Trust
- Physical Gold and Silver Trust
- Physical Silver Trust
- Physical Uranium Trust
- Physical Platinum & Palladium Trust
- Exchange Traded Funds
Managed equities
- Precious metals strategies
- Other (4)
Lending
Other (5)
Total (6)
12 months results
(In millions $)
Exchange listed products
- Physical trusts
- Physical Gold Trust
- Physical Gold and Silver Trust
- Physical Silver Trust
- Physical Uranium Trust
- Physical Platinum & Palladium Trust
- Exchange Traded Funds
Managed equities
- Precious metals strategies
- Other (4)
Lending
Other (5)
Total (6)
AUM
Sep. 30, 2021
Sep. 30, 2021
Net
inflows (1)
Market
value changes
value changes
Other (2)
AUM
Dec. 31, 2021
Blended
management fee rate (3)
management fee rate
4,778
3,921
3,378
1,303
128
317
13,825
2,017
350
2,367
1,383
1,441
19,016
39
4
59
539
5
6
652
(56)
—
(56)
64
125
785
191
169
163
(73)
(1)
33
482
180
12
192
3
(11)
666
—
—
—
—
—
—
—
—
—
—
(24)
—
(24)
5,008
4,094
3,600
1,769
132
356
14,959
2,141
362
2,503
1,426
1,555
20,443
0.35%
0.40%
0.45%
0.30%
0.50%
0.35%
0.38%
0.80%
0.93%
0.82%
0.79%
0.95%
0.51%
AUM
Dec. 31, 2020
Net
inflows (1)
Market
value changes
value changes
Other (2)
AUM
Dec. 31, 2021
Blended
management fee rate (3)
management fee rate
4,893
4,423
2,408
—
127
382
12,233
2,479
352
2,831
999
1,327
315
(17)
1,756
998
37
24
3,113
(52)
(1)
(53)
583
381
(200)
(312)
(564)
141
(32)
(50)
(1,017)
(286)
11
(275)
(12)
(153)
17,390
4,024
(1,457)
—
—
—
630
—
—
630
—
—
—
(144)
—
486
5,008
4,094
3,600
1,769
132
356
14,959
2,141
362
2,503
1,426
1,555
20,443
0.35%
0.40%
0.45%
0.30%
0.50%
0.35%
0.38%
0.80%
0.93%
0.82%
0.79%
0.95%
0.51%
(1)
(2)
See 'Net inflows' in the key performance indicators and non-IFRS and other financial measures section of this MD&A.
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 weighted average fees for all funds in the category.
(4) Includes institutional managed accounts.
(5) Includes Sprott Korea Corp. and high net worth discretionary managed accounts in the U.S.
(6) 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
Key expense lines
Management, carried interest and performance fees
Compensation
Management fees were $27.8 million in the quarter, up $5.8
million (26%) from the quarter ended December 31, 2020 and
$103.9 million on a full year basis, up $31 million (43%) from
the year ended December 31, 2020. Carried interest and
performance fees were $4.3 million in the quarter, down $5.8
million (57%) from the quarter ended December 31, 2020 and
$12.2 million on a full year basis, up $2.2 million (21%) from
the year ended December 31, 2020. Net fees were $26.5
million in the quarter, up $1.2 million (5%) from the quarter
ended December 31, 2020 and $99.5 million on a full year
basis, up $26.4 million (36%) from the year ended December
31, 2020. Our revenue performance was primarily due to
strong net inflows in our exchange listed products segment
(primarily our silver bullion trust) and higher average AUM
resulting from the UPC acquisition and subsequent inflows into
this newly acquired fund. We also benefited from inflows in our
lending and brokerage segments. Additionally, we experienced
carried interest crystallization in our lending segment.
Commission revenues
Commission revenues were $14.2 million in the quarter, up
$7.4 million from the quarter ended December 31, 2020 and
$45.3 million on a full year basis, up $17.8 million (65%) from
the year ended December 31, 2020. Net commissions were $7
million in the quarter, up $2.4 million (53%) from the quarter
ended December 31, 2020 and $24 million on a full year basis,
up $5.7 million (31%) from the year ended December 31,
2020. Net commissions were strong in the quarter and on a full
year basis due to a combination of commissions earned on
strong mining equity origination in our brokerage segment
during the first half of the year and commissions earned on the
purchase of uranium in our exchange listed products segment
during the second half of the year.
Finance income
Finance income was $0.8 million in the quarter, down $0.8
million (52%) from the quarter ended December 31, 2020 and
$3.5 million on a full year basis, down $0.4 million (11%) from
the year ended December 31, 2020. Our quarterly and full year
results are primarily driven by income generation in co-
investment positions we hold in LPs managed in our lending
segment.
Net fees, net commissions, adjusted base EBITDA and
operating margins are key drivers of the company’s net
compensation expense and related net compensation
expense ratio (net compensation divided by net fees and net
commissions). Net compensation expense was $12.4 million
in the quarter, up $0.6 million (5%) from the quarter ended
December 31, 2020. This compares to net fees and
commissions growth of 12% and adjusted base EBITDA
time period. Net
growth of 20% over
compensation expense was $47.9 million on a full year
basis, up $7.9 million (20%) from the year ended December
31, 2020. This compares to net fees and commissions
growth of 35% and adjusted base EBITDA growth of 45%
over the same time period. Our net compensation expense
ratio on a full year basis was 39% compared to 44% for the
year ended December 31, 2020.
the same
Selling, general & administrative ("SG&A")
SG&A was $4.2 million in the quarter, up $1.9 million
(80%) from the quarter ended December 31, 2020 and
$14.7 million on a full year basis, up $3.6 million (32%)
from the year ended December 31, 2020. The increase was
mainly due to higher marketing, regulatory and technology
costs.
Earnings
Net income was $10.2 million ($0.41 per share) in the
quarter, up 51%, or $3.5 million ($0.14 per share) from the
quarter ended December 31, 2020 and $33.2 million
($1.33 per share) on a full year basis, up 23%, or $6.2
million ($0.23 per share) from the year ended December 31,
2020.
Adjusted base EBITDA was $17.7 million ($0.71 per share)
in the quarter, up 20%, or $3 million ($0.11 per share)
from the quarter ended December 31, 2020 and a record
$64.1 million ($2.58 per share) on a full year basis, up
45%, or $19.9 million ($0.78 per share) from the year
ended December 31, 2020.
On a quarterly and full year basis, we benefited from strong
inflows into our physical trusts (primarily silver bullion), the
UPC acquisition, subsequent additional inflows into this
newly acquired fund and our lending products. Finally, we
saw very robust mining equity origination activity in the first
half of the year, coupled with strong ongoing AUM
development in our brokerage segment.
12
Additional revenues and expenses
Balance sheet
Total assets were $365.9 million, down $11.5 million from
December 31, 2020. The decrease was primarily due to a
decrease in co-investments and other assets held by the
Company. Total liabilities were $74.7 million, down $11.7
million from December 31, 2020. The decrease was due to
lower accrued liabilities on the payment of contingent
consideration related to the Tocqueville acquisition. Total
shareholder's equity was $291.2 million, up $0.2 million
from December 31, 2020.
Investment losses in the quarter were primarily from net
market value depreciation of certain digital gold strategies
that were partially offset by market value appreciation of
our co-investments and equity holdings. On a full year
basis, we were impacted by unrealized losses on certain co-
investments that were partially offset by net gains on our
digital gold strategies and equity holdings.
Other income was lower due to a decrease in income
attributable to non-controlling interests.
Amortization of intangibles was largely flat from the prior
period. Depreciation of property was higher from the prior
period mainly due to increased depreciation expense related
to leases.
Other expenses (credits) were lower during the quarter and
higher on a full year basis. The decrease in the quarter was
primarily due to last year's accrual of additional contingent
consideration related to the Tocqueville acquisition. The
increase on a full year basis was due to a $2.6 million
payment to the former owners of Central Fund of Canada
Limited to cover legacy transaction costs from the 2018
acquisition.
13
Reportable operating segments
Exchange listed products
(In thousands $)
Summary income statement
Management fees
less: Trailer, sub-advisory and other fees
Net Fees
Commissions
less: Commission expense - internal
less: Commission expense - external
Net commissions (1)
Other income
Total net revenues
Net compensation
Severance and new hire accruals
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses (credits)
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 months ended
12 months ended
Dec. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
14,448
344
14,104
5,072
638
2,567
1,867
—
15,971
2,153
—
879
93
251
21
3,397
12,574
12,953
11,449
101
11,348
—
—
—
—
1
11,349
1,437
—
452
76
242
994
3,201
8,148
9,497
53,404
588
52,816
9,577
1,177
4,924
3,476
2
56,294
7,033
—
2,877
414
1,007
2,621
13,952
42,342
46,449
37,670
394
37,276
—
—
—
—
10
37,286
5,085
73
1,836
338
940
485
8,757
28,529
30,563
80 %
81 %
81 %
79 %
14,959,109
14,771,210
12,233,316
11,786,235
14,959,109
13,513,765
12,233,316
9,914,709
(1) See 'net commissions' in the key performance indicators and non-IFRS and other financial measures section of this MD&A.
3 and 12 months ended
Income before income taxes was $12.6 million in the quarter, up $4.4 million (54%) from the quarter ended December 31,
2020 and was $42.3 million on a full year basis, up $13.8 million (48%) from the year ended December 31, 2020. Adjusted
base EBITDA was $13 million in the quarter, up $3.5 million (36%) from the quarter ended December 31, 2020 and was $46.4
million on a full year basis, up $15.9 million (52%) from the year ended December 31, 2020. Our three and twelve months
ended results benefited from the UPC acquisition and higher average AUM given strong inflows in our physical trust products
throughout the year (particularly our silver bullion and uranium trusts). We also benefited from commissions earned on the
purchase of uranium during the second half of the year.
14
Managed equities
(In thousands $)
Summary income statement
Management fees
Carried interest and performance fees
less: Carried interest and performance fee payouts
less: Trailer, sub-advisor and other fees
less: Direct payouts
Net fees
Gain (loss) 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 (credits)
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 months ended
3 months ended
12 months ended
Dec. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
5,898
374
226
364
32
5,650
2,156
700
8,506
2,632
—
731
93
58
321
3,835
4,671
2,911
5,901
10,075
5,529
428
19
10,000
1,719
297
12,016
2,268
12
328
200
54
2,579
5,441
6,575
3,288
24,137
1,082
752
1,417
247
22,803
(2,091)
1,485
22,197
10,058
30
2,790
492
228
5,023
18,621
3,576
11,387
20,621
10,075
5,529
1,339
118
23,710
9,803
855
34,368
8,116
142
1,649
686
208
4,899
15,700
18,668
10,762
49 %
56 %
49 %
53 %
2,502,727
2,531,842
2,831,023
2,735,878
2,502,727
2,626,817
2,831,023
2,649,120
Income before income taxes was $4.7 million in the quarter, down $1.9 million (29%) from the three months ended December
31, 2020. Our quarterly results were primarily impacted by lower net fees, partially offset by lower other expenses. Adjusted
base EBITDA was $2.9 million in the quarter, down $0.4 million (11%) from the quarter ended December 31, 2020. Our
quarterly results were primarily impacted by higher compensation and increased SG&A.
12 months ended
Income before income taxes was $3.6 million on a full year basis, down $15.1 million (81%) from the year ended December 31,
2020. Our full year results were primarily impacted by unrealized losses on co-investments in the year, compared to material
gains in the prior year. Adjusted base EBITDA was $11.4 million on a full year basis, up $0.6 million (6%) from the year ended
December 31, 2020. Adjusted base EBITDA benefited from higher management fees, partially offset by higher compensation
and SG&A expense.
15
Lending
(In thousands $)
Summary income statement
Management fees
Carried interest and performance fees
less: Carried interest and performance fee payouts
less: Trailer, sub-advisor and other fees
less: Direct payouts
Net Fees
Finance income
Gain (loss) 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 (credits)
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 months ended
3 months ended
12 months ended
Dec. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
3,428
3,924
2,290
820
346
3,896
773
(333)
92
4,428
1,628
—
276
—
—
992
2,896
1,532
2,222
2,198
—
—
41
151
2,006
1,629
2,062
185
5,882
1,480
15
318
—
1
2,115
3,929
1,953
2,423
13,245
11,153
6,470
1,499
1,264
15,165
3,447
(2,429)
313
16,496
6,475
461
1,024
7
1
801
8,769
7,727
8,921
9,366
—
—
192
955
8,219
3,838
2,037
268
14,362
4,833
212
887
11
53
1,326
7,322
7,040
7,272
57 %
61 %
57 %
59 %
1,425,581
1,397,881
999,037
950,909
1,425,581
1,104,350
999,037
880,577
Income before income taxes was $1.5 million in the quarter, down $0.4 million (22%) from the quarter ended December 31,
2020. Our quarterly results were impacted by lower finance income and losses on co-investments, partially offset by higher net
fees and lower other expenses. Adjusted base EBITDA was $2.2 million in the quarter, down $0.2 million (8%) from the quarter
ended December 31, 2020. Our quarterly results were impacted by lower finance and other income, partially offset by higher
net management fees.
12 months ended
Income before income taxes was $7.7 million on a full year basis, up $0.7 million (10%) from the year ended December 31,
2020. Our full year results benefited from higher net fees (which includes net carried interest), partially offset by losses on co-
investments and compensation expense. Adjusted base EBITDA was $8.9 million on a full year basis, up $1.6 million (23%)
from the year ended December 31, 2020. Our full year results benefited from higher net management fees partially offset by
higher compensation expense.
16
Brokerage
(In thousands $)
Summary income statement
Commissions
less: Commission expense - internal
less: Commission expense - external
Net commissions
Management fees
less: Trailer, sub-advisor and other fees
less: Direct payouts
Net Fees
Finance income
Gain (loss) 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 (credits)
Total expenses
Income before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 months ended
3 months ended
12 months ended
Dec. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
8,388
3,490
449
4,449
2,439
61
989
1,389
15
259
21
6,133
1,517
176
1,423
9
177
147
3,449
2,684
2,986
6,882
2,363
98
4,421
886
—
350
536
—
5
24
4,986
1,859
30
1,031
12
145
494
3,571
1,415
2,522
34,216
14,336
776
19,104
9,599
150
3,836
5,613
63
12
73
24,865
7,704
218
4,696
47
690
706
14,061
10,804
12,596
44 %
53 %
46 %
26,705
9,702
603
16,400
2,168
—
1,047
1,121
118
1,590
102
19,331
6,033
680
4,151
45
533
660
12,102
7,229
8,052
47 %
778,341
763,401
529,641
449,199
778,341
696,980
529,641
266,946
Income before income taxes was $2.7 million in the quarter, up $1.3 million (90%) from the quarter ended December 31, 2020.
Adjusted base EBITDA was $3 million in the quarter, up $0.5 million (18%) from the quarter ended December 31, 2020. Our
quarterly results primarily benefited from increased management fee generation in our U.S. managed accounts.
12 months ended
Income before income taxes was $10.8 million on a full year basis, up $3.6 million (49%) from the year ended December 31,
2020. Adjusted base EBITDA was $12.6 million on a full year basis, up $4.5 million (56%) from the year ended December 31,
2020. Our full year results benefited from increased management fee generation in our U.S. managed accounts and from strong
mining equity origination in the first half of the year in our Canadian broker-dealer.
17
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
Gain (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 (credits)
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
3 and 12 months ended
3 months ended
12 months ended
Dec. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
(2,016)
42
(1,974)
3,950
—
513
44
521
997
6,025
(6,793)
71
(6,722)
3,987
—
331
43
572
389
5,322
2,609
89
2,698
14,454
—
2,118
197
2,375
2,106
21,250
(7,351)
137
(7,214)
13,036
52
1,699
157
2,286
1,336
18,566
(7,999)
(4,317)
(12,044)
(3,965)
(18,552)
(16,071)
(25,780)
(13,722)
•
Investment loss in the quarter was primarily from market value depreciation of certain digital gold strategies, partially
offset by market value appreciation of our equity holdings. On a full year basis, we benefited from net gains from our
digital gold strategies and equity holdings.
• Net compensation was largely flat in the quarter. On a full year basis, net compensation increased primarily due to
higher AIP on improved financial performance. Our corporate compensation ratio (net compensation per above divided
by consolidated total net fees and net commissions) on a full year basis was 12% compared to 14% in the prior period.
• Other expenses (credits) were primarily due to FX translation movements and non recurring costs.
18
Dividends
The following dividends were declared by the Company during the twelve months ended December 31, 2021:
Record date
March 8, 2021 - Regular dividend Q4 2020
May 17, 2021 - Regular dividend Q1 2021
August 16, 2021 - Regular dividend Q2 2021
Payment Date
March 23, 2021
June 1, 2021
August 31, 2021
November 15, 2021 - Regular dividend Q3 2021
November 30, 2021
Dividends (1)
Cash dividend
per share
Total dividend amount
(in thousands $)
$0.25
$0.25
$0.25
$0.25
6,426
6,426
6,426
6,429
25,707
(1) Subsequent to year end, on February 24, 2022, a regular dividend of $0.25 per common share was declared for the quarter ended December 31, 2021. This dividend is
payable on March 22, 2022 to shareholders of record at the close of business on March 7, 2022.
Capital stock
Including the 0.8 million unvested common shares currently held in the EPSP Trust (December 31, 2020 - 0.8 million), total
capital stock issued and outstanding was 25.8 million (December 31, 2020 - 25.6 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 $0.41 for the quarter and $1.33 on a full year basis
compared to $0.27 and $1.10 in the prior periods respectively. Diluted earnings per share was $0.39 in the quarter and $1.28
on a full year basis compared to $0.26 and $1.05 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.
19
Liquidity and capital resources
As at December 31, 2021, the Company had $29.8 million (December 31, 2020 - $17 million) outstanding on its credit facility,
all of which is due on December 14, 2025. The increase was primarily to fund the cost of the Tocqueville and UPC acquisitions.
The Company has access to a credit facility of $120 million with a major Canadian schedule I chartered bank. Amounts under
the facility may be borrowed through prime rate loans or bankers’ acceptances. Amounts may also be borrowed in U.S. dollars
through base rate loans. On November 4, 2021, the Company upsized its credit facility from $70 million for general corporate
purposes.
As at December 31, 2021, 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, $120 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, 2021, the Company had $7.7 million in co-investment commitments from the lending segment (December 31, 2020 - $4.6
million).
20
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 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 annually, 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.
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.
21
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 U.S. dollars and Canadian dollars. 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
and managed accounts 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 $120 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.
22
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 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 laws), concluded that the Company's DC&P and ICFR were properly
designed and were operating effectively as at December 31, 2021. 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.
23
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 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.
24
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
Our business continuity plan continues to operate effectively throughout the pandemic. Our portfolio managers, brokerage
professionals, enterprise shared services teams and key outsource service providers are fully operational.
Additional information relating to the Company, including the Company's Annual Information Form is available on EDGAR at www.sec.gov and SEDAR at www.sedar.com.
25
Consolidated Financial Statements
Years ended December 31, 2021 and 2020
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,
2021 and 2020. The consolidated financial statements were prepared by management in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board. 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 24, 2022
Kevin Hibbert, FCPA, FCA
Chief Financial Officer and Senior Managing Director
27
Management's responsibility for financial controls
The management of Sprott Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over
financial reporting, and has designed such internal control over financial reporting to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
Management has used the Internal Control – Integrated Framework (2013) to evaluate the effectiveness of internal control over
financial reporting, which is a recognized and suitable framework developed by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has evaluated the design and operation of the Company's internal control over financial reporting as of December
31, 2021, and has concluded that such internal control over financial reporting is effective. There are no material weaknesses
that have been identified by management in this regard.
KPMG LLP, the independent auditors appointed by the shareholders of the Company, who have audited the consolidated
financial statements, have also audited internal control over financial reporting and have issued their report below.
Peter Grosskopf
Chief Executive Officer
February 24, 2022
Kevin Hibbert, FCPA, FCA
Chief Financial Officer and Senior Managing Director
28
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
Sprott Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Sprott Inc. and its subsidiaries
(the Company) as of December 31, 2021 and 2020, the related consolidated statements of
operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of
the years in the two‑year period ended December 31, 2021, 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, 2021 and
2020, and its financial performance and its cash flows for each of the years in the two‑year period
ended December 31, 2021, in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting
as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
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 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.
© 2022 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
29
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. 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the
audit and risk management committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of a critical audit matter does not alter in any
way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which they relate.
Valuation of indefinite life fund management contracts
As discussed in note 2 to the consolidated financial statements, the Company tests indefinite-life
fund management contracts for impairment annually or whenever there are changes in
circumstances that indicate the carrying amounts may be impaired. An indefinite-life fund
management contract is considered impaired when its carrying amount is greater than its
recoverable amount. The indefinite-life fund management contracts’ recoverable amounts are
estimated using assumptions that require significant judgement, including forecasted fund flow
assumptions and discount rates, and are determined using the value-in-use method. As discussed
in note 7 to the consolidated financial statements, the Company’s indefinite-life fund management
contracts totaled $160,973 thousand as at December 31, 2021.
We identified the estimation of the recoverable amount of the indefinite-life fund management
contracts as a critical audit matter. A higher degree of auditor judgment was required to evaluate the
significant assumptions, which were determined to be fund flow assumptions and discount rates,
used in determining the recoverable amount. The sensitivity of reasonably possible changes to
those assumptions could have had a significant impact on the determination of the recoverable
amount of the indefinite-life fund management contracts.
30
The following are the primary procedures we performed to address this critical audit matter. We
evaluated the design and tested the operating effectiveness of certain internal controls related to
the Company’s impairment testing process, including controls over the development of the
significant assumptions. We evaluated the Company’s ability to forecast fund flows by comparing
historical forecasts to actual results. We evaluated the forecasted fund flows by considering
external market and industry outlook data. We performed a sensitivity analysis over the forecasted
fund flows and discount rates to assess the impact to the Company’s determination that the
recoverable amount of the indefinite-life fund management contracts exceeded the carrying
amount.
We involved a valuation professional with specialized skills and knowledge, who assisted in:
–
–
assessing the discount rates used by management by comparing against discount rate ranges
that were developed using publicly available market data and independently developed
assumptions.
assessing the recoverable amounts determined by management using the forecasted fund
flows and discount rates by evaluating the implied earnings before interest, taxes, depreciation
and amortization (“EBITDA”) multiples by comparing to publicly available EBITDA multiples for
comparable companies.
We have served as the Company’s auditor since 2016.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 24, 2022
31
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 Sprott Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Sprott Inc. and its subsidiaries (the Company) internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2021, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 31, 2021 and 2020, the related consolidated statements of operations and
comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year
period ended December 31, 2021, and the related notes (collectively, the consolidated financial
statements), and our report dated February 24, 2022 expressed an unqualified opinion on those
consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the 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.
© 2022 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms
affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
32
We conducted our audit in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 24, 2022
33
Consolidated balance sheets
As at
(In thousands of US dollars)
Assets
Current
Cash and cash equivalents
Fees receivable
Short-term investments
Other assets
Income taxes recoverable
Total current assets
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
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
Commitments and provisions
Dec. 31
2021
Dec. 31
2020
49,805
13,183
6,133
6,793
1,613
77,527
68,765
12,433
16,479
170,061
19,149
1,459
288,346
365,873
9,362
15,751
3,005
28,118
8,280
29,769
8,487
74,654
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
417,425
35,357
(97,006)
(64,557)
291,219
365,873
417,758
43,309
(104,484)
(65,600)
290,983
377,348
(Notes 3 & 10)
(Note 5)
(Note 4 & 10)
(Note 5 & 10)
(Note 6)
(Note 7)
(Note 7)
(Note 9)
(Note 15)
(Note 9)
(Note 8)
(Note 8)
(Note 16)
The accompanying notes form part of the consolidated financial statements
"Ron Dewhurst"
Director
"Sharon Ranson, FCPA, FCA"
Director
34
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 revenues
Expenses
Compensation
Trailer, sub-advisor and other fees
Selling, general and administrative
Interest expense
Amortization of intangibles
Depreciation of property and equipment
Other expenses (credits)
Total expenses
Income before income taxes for the period
Provision for income taxes
Net income for the period
Net income per share:
Basic
Diluted
Net income for the period
Other comprehensive income (loss)
Items that may be reclassified subsequently to profit or loss
Foreign currency translation gain (loss) (taxes of $Nil)
Total other comprehensive income (loss)
Comprehensive income
The accompanying notes form part of the consolidated financial statements
For the years ended
Dec. 31
2021
Dec. 31
2020
103,909
12,235
45,266
3,535
(1,883)
1,583
164,645
76,721
9,745
14,697
1,161
930
3,622
12,579
119,455
45,190
12,005
33,185
(Note 3, 4 and 5)
(Note 5)
(Note 8)
(Note 7)
(Note 6)
(Note 5)
(Note 9)
(Note 8)
(Note 8)
1.33
1.28
72,916
10,075
27,459
3,956
5,109
2,261
121,776
57,589
2,643
11,099
1,237
869
3,183
10,494
87,114
34,662
7,684
26,978
1.10
1.05
33,185
26,978
1,043
1,043
34,228
5,608
5,608
32,586
35
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Consolidated statements of cash flows
(In thousands of US dollars)
Operating activities
Net income for the period
Add (deduct) non-cash items:
(Gain) Loss 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
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
Management contract consideration
Cash provided by (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 period
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
2021
Dec. 31
2020
33,185
26,978
1,883
3,650
4,552
4,034
7,971
(1,291)
(7,838)
8,398
2,294
(5,592)
51,246
(15,225)
35,843
(693)
(40,559)
(20,634)
(10,201)
—
—
(1,969)
892
12,652
(25,562)
(24,188)
(725)
5,699
44,106
49,805
(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
44,087
5,718
49,805
43,901
205
44,106
37
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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, 2021 and 2020 ("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 24, 2022 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.
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 in the Other expenses (credits) line of the consolidated statements of operations and comprehensive income.
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.
38
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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) SGRIL Holdings Inc. ("SGRIL Holdings"); (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 "US entities"
in these financial statements;
Sprott Resource Streaming and Royalty Corporation and Sprott Private Resource Streaming and Royalty
(Management) Corp ("SRSR");
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.
39
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
Valuation of investments
Investments include public equities, share purchase warrants, fixed income securities, mutual funds, 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 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 gain (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.
40
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 with 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 co-investment income from lending LP units and interest income from brokerage client
accounts, 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.
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
transferred, and include an estimate for contingent consideration where applicable.
Intangible assets with finite lives are amortized over their useful economic life and assessed for impairment indicators at
each reporting date, or more frequently if changes in circumstances indicate that the carrying value is greater than its
recoverable amount. 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 is greater than its
recoverable amount. 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.
41
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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.
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 sheets 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.
42
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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.
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 sheets 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 sheets. 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
incurred.
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.
43
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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.
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. The recoverable amounts associated with goodwill and intangibles involve estimates and assumptions,
including those with respect to future cash inflows and outflows, discount rates and asset lives, and are determined
using the value-in-use method. These estimates require significant judgment regarding market growth rates, discount
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.
44
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 U.S.
entities, which uses the U.S. dollar as their functional currency. Accordingly, the assets and liabilities of U.S. entities 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 U.S. entities 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.
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
Total short-term investments
Classification and
measurement criteria
Dec. 31, 2021
Dec. 31, 2020
FVTPL
FVTPL
FVTPL
4,113
—
2,020
6,133
6,751
731
1,993
9,475
Gains and losses on financial assets and liabilities classified at FVTPL are included in the Gain (loss) on investments line
in 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, 2021
Dec. 31, 2020
FVTPL
68,765
68,765
82,467
82,467
Gains and losses on co-investments in funds are included in the Gain (loss) on investments line in the consolidated
statements of operations and comprehensive income.
45
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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)
Total other assets
Dec. 31, 2021
Dec. 31, 2020
7,060
2,509
3,780
3,637
2,240
19,226
11,518
6,043
3,518
2,316
1,919
25,314
(1) Digital gold strategies are financial instruments classified at FVTPL. Gains and losses are included in the Gain (loss) on investments line in the consolidated
statements of operations and comprehensive income.
(2) Includes miscellaneous third-party receivables.
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 (credits)
Consist of the following (in thousands $):
Costs related to energy assets
Foreign exchange (gain) loss
Increase in contingent consideration related to the Tocqueville transaction (1)
Other (2)
Total other expenses (credits)
For the years ended
Dec. 31, 2021
Dec. 31, 2020
1,490
93
1,583
1,502
759
2,261
For the years ended
Dec. 31, 2021
Dec. 31, 2020
—
470
4,449
7,660
12,579
798
772
4,717
4,207
10,494
(1) During the first quarter, the contingent consideration was successfully renegotiated, re-measured and settled as part of the previously announced amendment to
the purchase agreement.
(2) Includes net income attributable to non-controlling interest of $93 thousand for the year ended December 31, 2021 (year ended December 31, 2020 - $759
thousand) as well as non-recurring professional fees, transaction and new fund start-up costs. During the year, the Company also made a $2.6 million payment to
.
the former owners of Central Fund of Canada Limited to cover legacy transaction costs from the 2018 acquisition
46
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 (in thousands $):
Assets
Liabilities - current(1)
Liabilities - long-term(1)
Dec. 31, 2021
Dec. 31, 2020
3,780
(10)
(3,770)
3,518
(640)
(2,878)
(1) Current and long-term liabilities attributable to non-controlling interest are included in accounts payable and accrued liabilities and other accrued liabilities,
respectively.
47
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
6
Property and equipment
Consist of the following (in thousands $):
Cost
At Dec. 31, 2019
Additions
Net exchange differences
At Dec. 31, 2020
Additions
Disposals
Net exchange differences
At Dec. 31, 2021
Accumulated amortization
At Dec. 31, 2019
Depreciation charge for the year
Net exchange differences
At Dec. 31, 2020
Depreciation charge for the year
Disposals
Net exchange differences
At Dec. 31, 2021
Net book value at:
Dec. 31, 2020
Dec. 31, 2021
Artwork
Furniture
and fixtures
Computer
hardware
and software
Leasehold
improvements
Right of use
assets
Total
7,352
—
167
7,519
—
—
54
7,573
—
—
—
—
—
—
—
—
2,527
279
70
2,876
95
—
10
2,981
(2,402)
(68)
(26)
(2,496)
(101)
—
18
(2,579)
2,706
153
71
2,930
101
—
5
3,036
(2,510)
(205)
(59)
(2,774)
(93)
—
(15)
(2,882)
5,332
254
135
5,721
497
(196)
4
6,026
(2,617)
(970)
(133)
(3,720)
(1,077)
196
31
(4,570)
7,484
2,435
322
10,241
2,937
(372)
84
12,890
(1,642)
(1,940)
(104)
(3,686)
(2,351)
168
(127)
(5,996)
25,401
3,121
765
29,287
3,630
(568)
157
32,506
(9,171)
(3,183)
(322)
(12,676)
(3,622)
364
(93)
(16,027)
7,519
7,573
380
402
156
154
2,001
1,456
6,555
6,894
16,611
16,479
48
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
7
Goodwill and intangible assets
Consist of the following (in thousands $):
Cost
At Dec. 31, 2019
Additions
Net exchange differences
At Dec. 31, 2020
Additions
Net exchange differences
At Dec. 31, 2021
Accumulated amortization
At Dec. 31, 2019
Amortization charge for the year
At Dec. 31, 2020
Amortization charge for the period
At Dec. 31, 2021
Net book value at:
Dec. 31, 2020
Dec. 31, 2021
Fund
management
contracts
(indefinite life)
Fund
management
contracts
(finite life)
Total
Goodwill
132,251
—
—
132,251
—
—
132,251
(113,102)
—
(113,102)
—
(113,102)
103,470
36,107
6,454
146,031
13,559
1,383
160,973
—
—
—
—
—
36,308
—
198
36,506
—
81
36,587
(25,700)
(869)
(26,569)
(930)
(27,499)
272,029
36,107
6,652
314,788
13,559
1,464
329,811
(138,802)
(869)
(139,671)
(930)
(140,601)
19,149
19,149
146,031
160,973
9,937
9,088
175,117
189,210
49
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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, 2021, the Company had allocated $19.1 million (December 31, 2020 - $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, 2021, the Company had indefinite life intangibles related to fund management contracts of $161
million (December 31, 2020 - $146 million). There was no impairment as at December 31, 2021. The addition during
the year was due to the Uranium Participation Corporation transaction ("UPC acquisition").
Impairment assessment of finite life fund management contracts
As at December 31, 2021, the Company had exchange listed fund management contracts within the exchange listed
products CGU of $9.1 million (December 31, 2020 - $9.9 million). There was no impairment as at December 31, 2021.
50
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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, 2020 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.
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 cancelled under normal course issuer bid
Issuance of share capital on conversion of RSUs
Issuance of share capital under dividend reinvestment program
At Dec. 31, 2020
Shares acquired for equity incentive plan
Issuance of share capital to settle contingent consideration
Shares released on vesting of equity incentive plan
Issuance of share capital on conversion of RSUs
Issuance of share capital under dividend reinvestment program
At Dec. 31, 2021
Number
of shares
Stated value
(in thousands $)
24,417,639
(128,304)
104,720
248,883
150,000
(112,343)
103,269
5,501
24,789,365
(237,172)
93,023
237,626
105,291
3,487
24,991,620
407,900
(2,514)
2,500
4,361
5,159
(2,024)
2,231
145
417,758
(10,201)
3,000
4,382
2,341
145
417,425
Contributed surplus consists of: stock option expense; earn-out shares expense; equity incentive plans' expense; and
additional purchase consideration.
At Dec. 31, 2019
Stock-based compensation
Issuance of share capital on conversion of RSUs
Share-based contingent consideration related to the Tocqueville acquisition
Released on exercise of stock option plan
Released on vesting of common shares for equity incentive plan
At Dec. 31, 2020
Issuance of share capital to settle contingent consideration
Shares released on vesting of equity incentive plan
Stock-based compensation
Issuance of share capital on conversion of RSUs
At Dec. 31, 2021
Stated value
(in thousands $)
43,160
4,517
(2,231)
4,879
(2,655)
(4,361)
43,309
(4,879)
(4,382)
3,650
(2,341)
35,357
51
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 typically 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 no stock options issued during the year ended December 31, 2021 (year ended December 31, 2020 - Nil).
There were no stock options exercised during the year ended December 31, 2021 (year ended December 31, 2020 -
150,000).
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, 2019
Options exercisable, Dec. 31, 2019
Options outstanding, Dec. 31, 2020
Options exercisable, Dec. 31, 2020
Options outstanding, Dec. 31, 2021
Options exercisable, Dec. 31, 2021
Number of
options
Weighted
average exercise
price (CAD $)
327,500
257,500
162,500
162,500
162,500
162,500
25.70
26.00
23.61
23.61
23.61
23.61
Options outstanding and exercisable as at December 31, 2021 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
4.1
4.4
4.1
150,000
12,500
162,500
52
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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; and (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. 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 1,182 RSUs granted during the year ended December 31, 2021 (year ended December 31, 2020 - 104,858).
The Trust acquired 237,172 shares in the year ended December 31, 2021 (year ended December 31, 2020 - 128,304).
Unvested common shares held by the Trust, Dec. 31, 2019
Acquired
Released on vesting
Unvested common shares held by the Trust, Dec. 31, 2020
Acquired
Released on vesting
Unvested common shares held by the Trust, Dec. 31, 2021
Number of
common shares
895,438
128,304
(248,883)
774,859
237,172
(237,626)
774,405
Of the $76.7 million compensation expense for the year ended December 31, 2021 (December 31, 2020 - $57.6
million), $3.7 million (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, 2021 Dec. 31, 2020
—
3,650
3,650
10
4,507
4,517
53
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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, 2021
Dec. 31, 2020
33,185
26,978
25,695
(817)
24,878
163
867
25,908
25,464
(976)
24,488
163
1,132
25,783
1.33
1.28
1.10
1.05
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") 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. SAM US and RCIC are also
registered with the SEC. As at December 31, 2021 and December 31, 2020, 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, 2021 and 2020
9
Income taxes
The major components of income tax expense are as follows (in thousands $):
Current income tax expense
Based on taxable income of the current period
Adjustments in respect to previous years
Total current income tax expense
Deferred income tax expense
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, 2021
Dec. 31, 2020
7,835
136
7,971
5,010
(976)
4,034
12,005
2,901
102
3,003
5,373
(692)
4,681
7,684
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
Temporary difference not currently utilized and (not benefited previously)
Rate differences and other
Tax charge
For the years ended
Dec. 31, 2021
Dec. 31, 2020
45,190
12,079
221
161
78
(840)
87
219
12,005
34,662
9,324
356
841
(458)
(590)
(1,563)
(226)
7,684
The weighted average statutory tax rate was 26.7% (December 31, 2020 - 26.9%). The Company has $2 million of capital tax losses from prior
years that will begin to expire in 2024. 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, 2021 and 2020
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, 2021
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, 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)
Dec. 31, 2020
Recognized in
income
Exchange rate
differences
Dec. 31, 2021
3,821
2,270
435
6,526
9,446
118
(16)
9,548
(3,022)
333
(1,240)
140
(767)
4,477
(1,109)
(101)
3,267
(4,034)
23
31
2
56
18
13
(3)
28
28
4,177
1,061
577
5,815
13,941
(978)
(120)
12,843
(7,028)
Dec. 31, 2019
Recognized in
income
Exchange rate
differences
Dec. 31, 2020
4,117
3,432
247
(368)
(1,195)
230
7,796
(1,333)
6,809
2,360
(910)
40
5,939
1,857
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)
(1) Deferred tax assets of $1.5 million (December 31, 2020 - $1.7 million) and deferred tax liabilities of $8.5 million (December 31, 2020 - $4.8 million) are presented on the balance
sheet net by legal jurisdiction.
56
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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, 2021 and December 31, 2020 (in
thousands $).
Short-term investments
Dec. 31, 2021
Level 1
Level 2
Level 3
Total
Public equities and share purchase warrants
Private holdings
Total net recurring fair value measurements
1,790
2,188
—
—
1,790
2,188
135
2,020
2,155
4,113
2,020
6,133
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
Co-investments
5,101
1,379
—
—
731
—
5,101
2,110
271
—
1,993
2,264
6,751
731
1,993
9,475
Dec. 31, 2021
Level 1
Level 2
Level 3
Total
Co-investments in funds
Total net recurring fair value measurements
—
—
68,765
68,765
—
—
68,765
68,765
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
57
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
Other assets
Dec. 31, 2021
Level 1
Level 2
Level 3
Total
Digital gold strategies
Total net recurring fair value measurements
—
—
—
—
7,060
7,060
7,060
7,060
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
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, 2021
Dec. 31, 2020
Purchases and
reclassifications
Sales
271
1,993
2,264
61
—
61
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2021
(3)
—
(3)
(194)
27
(167)
135
2,020
2,155
Share purchase warrants
Private holdings
Changes in the fair value of Level 3 measurements - Dec. 31, 2020
Dec. 31, 2019
Purchases and
reclassifications
Sales
Private holdings
Fixed income securities
Share purchase warrants
1,864
766
—
2,630
—
(783)
271
(512)
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2020
(15)
—
—
(15)
144
17
—
161
1,993
—
271
2,264
58
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
Co-investments
Changes in the fair value of Level 3 measurements - Dec. 31, 2021
Dec. 31, 2020
Purchases and
reclassifications
Sales
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2021
Co-investments in funds
6,441
6,441
(6,441)
(6,441)
—
—
—
—
—
—
Changes in the fair value of Level 3 measurements - Dec. 31, 2020
Dec. 31, 2019
Purchases and
reclassifications
Sales
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
Other assets
Changes in the fair value of Level 3 measurements - Dec. 31, 2021
Dec. 31, 2020
Purchases and
reclassifications
Sales
Net unrealized
gains (losses)
included in net
income
Dec. 31, 2021
Digital gold strategies
11,518
11,518
100
100
(2,000)
(2,000)
(2,558)
(2,558)
7,060
7,060
Changes in the fair value of Level 3 measurements - Dec. 31, 2020
Dec. 31, 2019
Purchases and
reclassifications
Sales
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
During the year ended December 31, 2021, the Company transferred public equities of $Nil (December 31, 2020 -
$0.5 million) from Level 2 to Level 1 within the fair value hierarchy. For the year ended December 31, 2021, the
Company purchased level 3 investments of $0.1 million (December 31, 2020 - $2.1 million) and sold level 3 investments
of $2 million (December 31, 2020 - $Nil). Total proceeds from the sale were $6.5 million, with the $4.5 million gain
recorded in gain (loss) on investments in the consolidated statements of operations and comprehensive income. For the
year ended December 31, 2021, the Company transferred $Nil (December 31, 2020 - $Nil) from Level 3 to Level 1
within the fair value hierarchy. For the year ended December 31, 2021, the Company transferred $0.1 million
(December 31, 2020 -$0.3 million) 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, 2021, the Company transferred $6.5 million
(December 31, 2020 - $0.8 million) from Level 3 to Level 2 within the fair value hierarchy.
59
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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
Fixed income securities
Private holdings (including
digital gold strategies)
Fair values are determined using pricing models which incorporate all available market-
observable inputs.
Valuation technique
Fair values are based on the last available net asset value.
Fair values are based on independent market data providers or third-party broker quotes.
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, share purchase warrants 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, volatility, 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 $0.5 million (December 31, 2020 - $1 million).
Financial instruments not carried at fair value
The carrying amounts of fees receivable, other assets, accounts payable and accrued liabilities and compensation
payable represents a reasonable approximation of fair value.
60
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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, 2021
Dec. 31, 2020
3,932
11,991
738
16,661
3,247
8,715
1,817
13,779
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 10,592 DSUs
issued during the year (December 31, 2020 - 3,559).
12 Dividends
The following dividends were declared by the Company during the year ended December 31, 2021:
Record date
March 8, 2021 - Regular dividend Q4 2020
May 17, 2021 - Regular dividend Q1 2021
August 16, 2021 - Regular dividend Q2 2021
November 15, 2021 - Regular dividend Q3 2021
Dividends (1)
Payment Date
March 23, 2021
June 1, 2021
August 31, 2021
November 30, 2021
Cash dividend
per share
Total dividend amount
(in thousands $)
$0.25
$0.25
$0.25
$0.25
6,426
6,426
6,426
6,429
25,707
(1) Subsequent to year end, on February 24, 2022, a regular dividend of $0.25 per common share was declared for the quarter ended December
31, 2021. This dividend is payable on March 22, 2022 to shareholders of record at the close of business on March 7, 2022.
61
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 investments and co-investments. 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 $4.1 million for the year (December 31, 2020 - $5.2 million). For more details about
the Company's investments and co-investments, refer to Note 3, Note 4 and Note 5.
The Company's revenues are also exposed to price risk since management fees, carried interest and performance fees
are all 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, SRSR, 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, 2021, the Company had no fixed income securities (December 31, 2020 - $0.7 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 US entities 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 US entities, as at December 31, 2021,
approximately $59.1 million (December 31, 2020 - $74.1 million) of total Canadian assets were invested in proprietary
investments priced in USD. A total of $13 million (December 31, 2020 - $12.2 million) of cash, $6 million
(December 31, 2020 -$8.1 million) of accounts receivable and $3.4 million (December 31, 2020 - $1.5 million) of other
assets were denominated in USD. As at December 31, 2021, 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 $4.1 million for the year (December 31, 2020 - $4.8 million).
62
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 indirectly through co-investments made in the lending LPs managed by SRLC and SRSR.
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.
The Company may 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.
Net investments
The Company incurs credit risk when entering into, settling and financing various proprietary transactions. As at
December 31, 2021 and 2020, 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; and as a
result, it is required to maintain minimum levels of regulatory capital at all times.
Other
The majority of accounts receivable relate to management, carried interest and performance fees receivable from the
funds and managed accounts 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 US entities incur credit risk when entering into, settling and financing various proprietary transactions. As at
December 31, 2021 and 2020, the US entities' 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 and SAM US. 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.
63
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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 $120 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,
2021, the Company had $49.8 million or 14% (December 31, 2020 - $44.1 million or 12%) of its total assets in cash
and cash equivalents. In addition, approximately $26 million or 32% (December 31, 2020 - $35.1 million or 38%) 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, 2021, the
Company had $7.7 million in co-investment commitments from the lending segment (December 31, 2020 -
$4.6 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, 2021 (in thousands $):
Contractual obligations
Lease obligation
Compensation payable
Operating accounts payable
Loan facility
1-3
years
3-5
years
3,176
1,532
More
than
5 years
Carrying
Amount
Less
than
1 year
7,081
15,751
6,989
29,769
59,590
2,373
15,751
6,989
—
—
—
—
—
—
29,769
31,301
25,113
3,176
—
—
—
—
—
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: drawing on the line of credit; liquidating investments
and co-investments and/or issuing common shares.
Concentration risk
The majority of the Company's AUM, as well as its investments and co-investments 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.
64
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
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;
• 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 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, 2021
Total revenue
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Exchange
listed
products
Managed
equities
62,983
20,641
42,342
46,449
24,613
21,037
3,576
11,387
Lending
Brokerage Corporate
25,729
18,002
7,727
8,921
43,963
33,159
10,804
12,596
2,698
21,250
(18,552)
(16,071)
Consolidation,
elimination
and all other
segments
4,659
5,366
(707)
791
Consolidated
164,645
119,455
45,190
64,073
65
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
For the year ended December 31, 2020
Total revenue
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Exchange
listed
products
37,680
9,151
28,529
30,563
Managed
equities
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
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, 2021
Dec. 31, 2020
146,616
18,029
164,645
95,962
25,814
121,776
66
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2021 and 2020
15 Loan facility
As at December 31, 2021, the Company had $29.8 million (December 31, 2020 - $17 million) outstanding on its credit
facility, all of which is due on December 14, 2025. The increase was primarily to fund the cost of the Tocqueville and
UPC acquisition.
The Company has access to a credit facility of $120 million with a major Canadian schedule I chartered bank. Amounts
under the facility may be borrowed through prime rate loans or bankers’ acceptances. Amounts may also be borrowed
in U.S. dollars through base rate loans. On November 4, 2021, the Company upsized its credit facility from $70 million
for general corporate purposes.
As at December 31, 2021, 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, $120 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 investment and
co-investment portfolio of the Company. As at December 31, 2021, the Company had $7.7 million in co-investment
commitments from the lending segment, all due within one year (December 31, 2020 - $4.6 million).
67
A Global Leader in Precious Metals
and Real Assets Investments
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
Rick Rule, Director
Sharon Ranson, FCPA, FCA, Director
Rosemary Zigrossi, Director
Graham Birch, Director
Barbara Connolly Keady, Director
Catherine Raw, 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 6, 2022 at 12pm
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