Contrarian.
Innovative.
Aligned.
2022 Annual Report
Purpose & Values
We aspire to be the leading global asset manager focused on precious
metals and energy transition materials
As contrarian investors with a long-term
investment horizon, we remain both patient
and persistent. We will continue to innovate
to bring our clients the best possible
investment products. We remain aligned
with our partners
(shareholders, clients,
employees, and the communities wherein
we operate) as significant shareholders of
Sprott and meaningful co-investors in Sprott
products. We are committed to the support
and advancement of our people. We give
back to communities we operate in both with
our time and resources. At Sprott, we have
a strong plan, but the flexibility to adjust
where necessary. We share our success with
our partners.
Our Values:
• We believe in partnership with our
employees, clients, and our shareholders
• We are prepared to be contrarian
• We are innovative
• We are aligned
• We are patiently persistent
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
4
28
29
30
35
39
Letter from the CEO
Dear Fellow Shareholders,
For most investors, 2022 was a very difficult year, as
the Russian invasion of Ukraine accelerated long-term
structural inflationary forces. Global central banks
responded with aggressive interest rate hikes, which
took a heavy toll on the most popular asset sectors.
Unfortunately wars, either hot or cold, always drive
inflation. There’s nothing central banks can do to
replace the destroyed capital and required rebuilding
investments. Equity markets were extremely volatile
and ended the year down broadly as the S&P 500
Index lost 18.11%. Fixed income markets offered
little shelter, registering their worst performance in
decades with bonds declining 13.01% as measured
by Bloomberg Barclays US Agg Total Return Value
Unhedged USD Index.
Net income was $7.3 million ($0.29 per share) in the
quarter, down 28% or $2.8 million ($0.12 per share)
from the quarter ended December 31, 2021 and $17.6
million on a full year basis ($0.70 per share), down 47%,
or $15.6 million ($0.63 per share) from the year ended
December 31, 2021. Adjusted base EBITDA was $18.1
million ($0.72 per share) in the fourth quarter, up 2%, or
$0.4 million ($0.01 per share) from the quarter ended
December 31, 2021, and $71 million ($2.83 per share)
on a full-year basis, up 11%, or $6.9 million ($0.25
per share) from the year ended December 31, 2021.
Adjusted base EBITDA grew for a third consecutive
year benefiting from continued strong net inflows to
our physical gold, silver and uranium trusts as well as
the URNM acquisition.
Sprott’s positioning in precious metals and energy
transition materials served our shareholders well in
this challenging market environment. We generated
$2.8 billion in net sales during the year, largely in our
physical trusts and private strategies. We also benefited
from the acquisition of the Sprott Uranium Miners ETF
(URNM) and strong late-year performance in precious
metals. As a result, Assets Under Management
(“AUM”) grew to $23.4 billion as of December 31,
2022, up $2.4 billion (11%) from September 30, 2022,
and up $3 billion (15%) from December 31, 2021.
“More than ever, we are convinced
Sprott is well positioned for the
next decade, with investment
strategies designed to help our
clients navigate the paradigm shifts
already underway.
”
2
Energy Transition Investments
Outlook
As we have remarked in previous letters, the global
energy transition is an increasingly important theme
for Sprott. Russia’s invasion of Ukraine awakened the
developed world to the importance of energy security
and the real costs of decarbonization. Energy transition
policies are bound to uncover large supply deficits in the
essential materials required to produce cleaner power.
In the U.S., a massive infrastructure plan should begin
in earnest this year. These developments should offer
unique opportunities to well-positioned investors.
At Sprott, we aspire to be the global leader in precious
metals and energy transition investments. Beginning
in 2021, we took our first steps toward this goal with
the launch of the Sprott Physical Uranium Trust. In
2022, we added an equity complement to our uranium
strategies with the acquisition of URNM. Subsequently,
we capitalized on our deep bench of talented portfolio
managers and analysts by introducing an actively-
managed energy transition strategy. Earlier this
month, we expanded our ETF offerings with the launch
of four new energy transition themed ETFs listed on
the NASDAQ:
1. Sprott Energy Transition Materials ETF (SETM)
2. Sprott Lithium Miners ETF (LITP)
3. Sprott Junior Uranium Miners ETF (URNJ)
4. Sprott Junior Copper Miners ETF (COPJ)
Subsequent Events
Subsequent to year end, we plan on selling our
Canadian broker-dealer operations to the current
management team as we continue to focus on our
core asset management businesses (however, we
will migrate our charity flow-through operations
into our managed equities segment). We expect the
transaction to close by June 30, 2023. The impact of
this change will be immaterial to our future earnings
and cash flows but moderately positive to our
consolidated operating margins as a greater proportion
of our consolidated earnings will now arise from our
core precious metals and energy transition materials
product offerings. These core offerings have materially
larger and more predictable revenue streams and also
yield higher operating margins than our Canadian
broker-dealer. The transition away from transaction-
based businesses will also free up more capital to
reinvest into our core precious metals and energy
transition materials product and service offerings.
Looking ahead, we expect inflation to moderate
somewhat in 2023, but it will likely remain stubbornly
above the Fed’s 2% target. The forces driving inflation
are structural and will not be easily defeated. The
ongoing energy transition and the accelerated trend
toward deglobalization will require massive CAPEX
for many years to come. The Fed may keep interest
rates higher for longer, but we expect their medicine
will ultimately prove more toxic than the disease. Deep
recessions with job losses and deteriorating credit will
become politically unacceptable, forcing central banks
to set more realistic targets, abandon quantitative
tightening (QT) and resume some form of quantitative
easing (QE).
Early evidence of this shift appeared in the fourth
quarter of 2022. Three examples include new policies
proposed by short-lived UK Prime Minister Liz Truss
and Kwasi Kwarteng, her even shorter-lived Chancellor
of the Exchequer, in the September 23, 2022 “mini-
budget” which unraveled the UK gilt market. On October
12, 2022, Secretary of the Treasury Janet Yellen openly
expressed concern about liquidity in the US treasury
market in statements that marked the 2022 bottom
in equity markets. Finally, on December 20, 2022, the
Bank of Japan shocked markets by moving away from
its longstanding policies of zero-bound interest rates
and yield curve control. The combined result of these
events was the weakening of the U.S. dollar, which
offset hawkish central bank rhetoric, led to rapidly
improving liquidity conditions and ignited a late-year
rally in many assets, including equities, bonds and gold.
investments
All of these developments favor
in
precious metals and energy transition materials. More
than ever, we are convinced Sprott is well positioned
for the next decade, with
investment strategies
designed to help our clients navigate the paradigm
shifts already underway. We have a strong pipeline
of innovative new investment solutions, a loyal and
growing client base and an exceptional team that is
fully aligned with our shareholders. We expect volatile
market conditions to continue. We will control what we
can by carefully managing expenses and our balance
sheet while continuing to grow. We thank you for your
support and look forward to reporting to you on our
progress in the quarters ahead.
Sincerely,
Whitney George
Chief Executive Officer
3
Management's Discussion and Analysis
Years ended December 31, 2022 and 2021
4
Forward looking statements
Certain statements in this Management's Discussion & Analysis ("MD&A"), and in particular the "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 belief that energy transition
is an increasingly important investment theme for Sprott, (ii) aspiration to be the global leader in precious metals and energy transition investments, (iii) our view of the macro-
economic effects related to inflation and liquidity in the market; (iii) our conviction that we are well positioned for the next decade with investment strategies designed to help
our clients navigate the paradigm shifts already underway; (iv) our strong pipeline of innovative new investment solutions; (v) being able to control what we can by carefully
managing expenses and our balance sheet while continuing to grow; (vi) our expectation of a healthy gold and silver bullion market in 2023 and continued organic growth in
our energy transition materials funds, which we believe should lead to a greater proportion of our consolidated earnings arising from core AUM in fee-based businesses and a
reduction in earnings contribution from non-Core AUM and transaction-based businesses; (vii) 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; and (viii) the closing, including timing thereof, of the transaction in
respect of our Canadian broker-dealer operations.
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; (v) that the conditions to closing of the transaction in respect of our Canadian broker-dealer operations will be satisfied or waived on
a timely basis, or at all; and (vi) 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 favorable 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 private
strategies business; (xxvii) risks relating to the Company’s brokerage business; (xxviii) failure to satisfy the conditions to closing of the transaction in respect of our Canadian
broker-dealer operations on a timely basis or at all; (xxix) those risks described under the heading "Risk Factors" in the Company’s annual information form dated February 23,
2023 ; and (xxx) 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 23, 2023, presents an analysis of the consolidated
financial condition of the Company and its subsidiaries as at December 31, 2022, compared with December 31, 2021, and the
consolidated results of operations for the three and twelve months ended December 31, 2022, compared with the three and twelve
months ended December 31, 2021. The board of directors approved this MD&A on February 23, 2023. All note references in this
MD&A are to the notes to the Company's December 31, 2022 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 source and presentation currency is the U.S. dollar, IFRS requires that the Company measure its
foreign exchange gains and losses through its consolidated statements of operations and comprehensive income using the Canadian
dollar as its functional currency. Accordingly, all dollar references in this MD&A are in U.S. dollars, however the translation gains and
losses were measured using the Canadian dollar as the functional currency. The use of the term "prior period" refers to the three and
twelve months ended December 31, 2021.
5
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 11 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. We divide our total AUM into two distinct categories: Core and Non-core. Core AUM
arises from our IFRS reportable segments involved in asset management (Exchange Listed Products Segment, Managed Equities
Segment and the Private Strategies Segment). Non-core AUM arises from IFRS non-reportable segments and comprises our
immaterial legacy Asia-based asset management business. As at December 31, 2022 this business accounted for 3.2% of total
AUM and 1% of consolidated Adjusted Base EBITDA.
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 private strategies LPs are a key source of AUM creation, and ultimately, earnings for the Company.
Once capital is called into our private strategies LPs, it is included within the AUM of the Company as it will now earn a
management fee. 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 private strategies 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, fund expenses and direct payouts, and carried interest and performance fees, net
of carried interest and performance fee payouts (internal and external), are key revenue indicators as they represent the net
revenue contribution after directly associated costs that we generate from our AUM.
Net commissions
Commissions, net of commission expenses (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.
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, new
hire accruals and other which are non-recurring.
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.
6
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 (or adjustments thereto) 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.
Operating margins are a key indicator of a company’s profitability on a per dollar of revenue basis, and as such, is commonly
used in the financial services sector by analysts, investors and management.
Neither EBITDA, adjusted EBITDA, adjusted base EBITDA, or operating margin have a 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, adjusted base EBITDA and operating margin measures are
determined:
(in thousands $)
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
3 months ended
12 months ended
Net income for the period
Adjustments:
Interest expense
Provision for income taxes
Depreciation and amortization
EBITDA
Other adjustments:
(Gain) loss on investments (1)
Amortization of stock based compensation
Other expenses (2)
Adjusted EBITDA
Other adjustments:
Carried interest and performance fees
Carried interest and performance fee payouts - internal
Carried interest and performance fee payouts - external
Adjusted base EBITDA
Operating margin (3)
7,331
10,171
17,632
33,185
1,076
2,372
710
11,489
930
3,635
2,560
18,614
(1,219)
567
121
18,083
59 %
239
3,354
1,136
14,900
43
450
3,304
18,697
(4,298)
2,516
790
17,705
2,923
7,447
3,355
31,357
10,242
14,546
15,929
72,074
(3,265)
1,596
597
71,002
1,161
12,005
4,552
50,903
1,883
1,698
13,217
67,701
(12,235)
7,222
1,385
64,073
55 %
57 %
53 %
(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 $1.2 million severance, new hire accruals and other for the
three months ended December 31, 2022 (three months ended December 31, 2021 - $0.2 million) and $5.2 million for the year ended December 31, 2022 (year ended
December 31, 2021 - $0.7 million). This reconciliation line excludes income (loss) attributable to non-controlling interest of $0.3 million for the three months ended
December 31, 2022 (three months ended December 31, 2021 - ($0.2) million) and ($0.5) million for the year ended December 31, 2022 (year ended December 31, 2021 -
$0.1 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.
7
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. In the first quarter of
the year, the Company completed the restructuring of its U.S.-based discretionary accounts operations which led to the
conversion of those client assets from administrated brokerage assets to actively managed AUM. Consequently, these
operations were reclassified to form part of the managed equities segment.
Private strategies
•
The Company's lending and streaming activities occur through limited partnership vehicles ("private strategies LPs"). In
the first quarter of the year, the Company renamed the Lending segment to "Private strategies" in order to reflect the
successful growth of its streaming funds alongside its traditional lending partnership vehicles.
Brokerage
•
The Company's regulated broker-dealer activities (equity origination, corporate advisory, sales and trading). In the first
quarter of the year, the Company completed the restructuring of its U.S.-based discretionary accounts operations which
led to the conversion of those client assets from administrated brokerage assets to actively managed AUM.
Consequently, these operations were reclassified to form part of the managed equities segment.
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 operating segments, refer to the Company's Annual Information Form and Note 2 of the
annual financial statements.
8
Financial highlights
Product and business line expansion
On April 22, we completed the previously announced agreement to acquire the management contract of North Shore Global
Uranium Mining ETF (“URNM acquisition”). As consideration, the Company paid $10.5 million in cash and $4 million in
common shares upon closing. Contingent consideration valued up to an additional $4.5 million in cash is payable on April 25,
2024 (subject to the achievement of certain financial performance conditions).
Outlook
Despite a challenging pricing environment for the vast majority of asset classes across the globe, we managed to finish the year
strong. Consolidated annual AUM, earnings, and operating margins continued to grow for a third straight year. We continue to
place strategic emphasis on core AUM, specifically, precious metals and energy transition materials. We expect a healthy gold
and silver bullion market in 2023 and continued organic growth in our energy transition materials funds. This should lead to a
greater proportion of our consolidated earnings arising from core AUM in fee-based businesses and a reduction in earnings
contribution from non-core AUM, and transaction-based businesses as noted below.
Subsequent event
Consistent with the successful transition of our U.S. broker-dealer from a transaction-based business into a fee-based
discretionary account management business, subsequent to year end, we plan on selling our Canadian broker-dealer operations
to the current management team as we continue to focus on our core asset management businesses (however, we will migrate
our charity flow-through operations into our managed equities segment). We expect the transaction to close by June 30, 2023.
The impact of this change will be immaterial to our future earnings and cash flows but moderately positive to our consolidated
operating margins as a greater proportion of our consolidated earnings will now arise from our core precious metals and energy
transition materials product and service offerings. These core offerings have materially larger and more predictable revenue
streams and also yield higher operating margins than our Canadian broker-dealer. In 2022, the Canadian broker-dealer
contributed less than 5% and 4% to our consolidated net income and adjusted base EBITDA, respectively, and yielded operating
margins of less than 39% compared to our consolidated total operating margins of 57%.The transition away from transaction-
based businesses will also free up more capital to reinvest into our core precious metals and energy transition materials product
and service offerings.
9
Environmental, social, governance highlights
Sprott is committed to implementing ESG and sustainability considerations into both its investment management activities as
well as corporate operations. Our 2022 ESG accomplishments are noted below. Please see “Environmental, social, and
governance policy” in the 2022 Annual Information Form for additional details regarding our commitment to ESG.
Environmental
Social
• We completed an assessment of greenhouse gas
emissions (GHG) associated with our offices in Canada
and the United States and achieved carbon neutrality
under the Carbonzero program after we sourced carbon
offsets in the equivalent amount of our 2021 Scope 1
and Scope 2 GHGs.
•
• We further grew the Sprott Physical Uranium Trust and
launched the Sprott Uranium Miners ETF, providing
access for more investors globally to investment
vehicles 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.
•
Subsequent to year end, we continued to expand our
focus on energy transition materials with the launch of
four ETFs focused on providing investors exposure to
materials essential to the generation, transmission and
storage of cleaner energy.
During the year, Sprott engaged a leading, independent
Diversity, Equity and Inclusion (“DEI”) specialist to
further refine and enhance our overall approach to DEI.
In this context, we have updated our long-term
performance metrics to now include increased diversity
in leadership. On an annual basis, Sprott will target for
advancement at least one or more deserving female
and BIPOC individuals to the position of managing
partner or senior managing partner to the extent
leadership opportunities arise.
•
• We continue to provide mandatory company-wide
training sessions on DEI, covering important topics
such as unconscious bias, emotional intelligence,
inclusive performance
cultural competence, and
management.
to
response
In
the Truth and Reconciliation
Commission Calls to Action, we continued to provide
access to training and developed further resources to
increase awareness and understanding about truth
and reconciliation amongst our employees, and
awarded a scholarship to the 2022 winner of the
Women
Indigenous Student
Trailblazer Award.
in Mining Canada
Governance
Investment management
Launched the Sprott ESG Gold ETF (“SESG”), the
world’s first ETF to exclusively source and refine gold
from recognized ESG mining leaders that meets certain
environmental, social and governance standards and
criteria established by Sprott Asset Management.(2)
Together with our partner, Agnico Eagle Mines, the
trust,
investment
transparency, and traceability on the source of gold
bullion.
investors with
fund provides
• We completed our
first assessment under
the
Principles for Responsible Investment, which identified
existing performance and opportunities to further
advance the incorporation of ESG factors into our
investment ownership decisions.
Corporate operations
• We continue to add depth to our annual board of
directors and executive committee training program
with additional CPD-accredited mandatory training
modules, covering such topics as DEI, cyber security,
and the role of effective committee chairs.
Sprott was proud to establish the Sprott Inc. TIER Fund
at the University Health Network Foundation (“UHN
Foundation”) in 2022. As a longstanding supporter of
the UHN Foundation, one of the largest health care
and medical research organizations in North America,
we are proud that our fund will support BIPOC
female staff and
leadership and predominately
researchers at The Institute of Education Research
(TIER) and will focus on health and wellness through
education.
Continued our support of organizations focused on the
areas of health and wellness in our communities, DEI,
and sustainability in the mining sector.
Awarded the first Sprott ESG Scholarship through the
Young Mining Professionals Scholarship Fund.
Recognizing the importance of mental health to our
employees, we continued to support health and
wellness through various resources available to our
employees.
•
•
•
•
Completed our first National Institute of Standards &
Technology ("NIST") audit and was classified as Tier
3, indicating that our cyber security framework has
best practices in place.
incorporates
Subsequent to year-end, we aligned our financing
strategy to ESG performance by transitioning our debt
financing to a sustainability linked credit facility
(“Amended Credit Facility”). The Amended Credit
Facility
to
achievements in progressing Responsible Investing
principles and DEI targets as described above. The
sustainability linked covenants form a key part of the
performance-based reviews and scorecards of the
company's senior managing partners.
incentive pricing
related
(AIP) and
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
long-term stock
incentives
(LTIP). Performance evaluation when
determining compensation levels for senior managing
partners is achieved via scorecards that not only
incorporate quantitative measures such as net
revenues, EBITDA and operating margins, but also key
qualitative measures surrounding ESG, employee
engagement, risk management etc.
Subsequent to year-end, we entered into a long-term
lease agreement with a LEED platinum certified and
further
WELL Health-Safety accredited property,
demonstrating our commitment to the environment
and the workplace health, safety and overall wellbeing
of our employees.
•
•
•
•
•
(1) Based on Greenhouse gas emissions factors from the Intergovernmental Panel on Climate Change AR5 (2014) and Pehl et al. (2017) in Nature.
(2) Based on Morningstar's universe of listed commodity funds. Data as at 12/31/2022.
10
Results of operations
Summary financial information
(In thousands $)
Summary income statements
Management fees
Trailer, sub-advisor and fund expenses
Direct payouts
Carried interest and performance fees
Carried interest and performance fee payouts - internal
Carried interest and performance fee payouts - external (1)
Net fees
Commissions
Commission expense - internal
Commission expense - external (1)
Net commissions
Finance income
Gain (loss) on investments
Other income
Total net revenues (2)
Compensation
Direct payouts
Carried interest and performance fee payouts - internal
Commission expense - internal
Severance, new hire accruals and other
Net compensation
Severance, new hire accruals and other (3)
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Net income (4)
Net Income per share (5)
Adjusted base EBITDA
Adjusted base EBITDA per share
Operating margin
Summary balance sheet
Total assets (6)
Total liabilities (7)
Total AUM
Average AUM
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
28,405
29,158
30,620
27,172
27,783
28,612
25,062
22,452
(1,204)
(1,114)
1,219
(567)
(121)
(1,278)
(1,121)
(1,258)
(1,272)
—
—
—
—
—
—
(853)
(1,384)
2,046
(1,029)
(476)
(872)
(1,367)
4,298
(2,516)
(790)
(637)
(552)
(1,892)
(1,198)
—
—
—
—
(126)
—
(599)
(890)
7,937
(4,580)
(595)
26,618
26,759
28,090
25,476
26,536
26,083
23,186
23,725
5,027
(1,579)
(585)
2,863
1,439
(930)
6,101
(2,385)
(476)
3,240
933
45
6,458
13,077
14,153
11,273
7,377
12,463
(2,034)
(978)
3,446
1,186
(7,884)
(3,134)
(3,310)
6,633
1,433
(1,473)
(4,128)
(3,016)
7,009
788
(43)
(3,089)
(2,382)
5,802
567
310
(3,036)
(49)
4,292
932
2,502
(5,289)
(253)
6,921
1,248
(4,652)
999
30,989
(227)
30,750
170
25,008
208
32,277
313
34,603
529
33,291
438
31,350
303
27,545
17,030
18,934
19,364
21,789
20,632
18,001
15,452
22,636
(1,114)
(1,121)
(1,272)
(567)
(1,579)
(1,240)
—
(2,385)
(1,349)
—
(2,034)
(2,113)
(1,384)
(1,029)
(3,134)
(514)
(1,367)
(2,516)
(4,128)
(187)
(1,892)
(1,198)
—
(3,089)
(207)
(126)
(3,036)
(293)
(890)
(4,580)
(5,289)
(44)
12,530
14,079
13,945
15,728
12,434
12,813
10,799
11,833
1,240
4,080
1,076
710
1,650
1,349
4,239
884
710
5,697
2,113
4,221
483
959
868
514
3,438
480
976
1,976
187
4,172
239
1,136
2,910
207
3,682
312
1,134
3,875
293
3,492
260
1,165
876
44
3,351
350
1,117
4,918
21,286
26,958
22,589
23,112
21,078
22,023
16,885
21,613
7,331
0.29
3,071
0.12
757
0.03
6,473
10,171
8,718
11,075
0.26
0.41
0.35
0.44
3,221
0.13
18,083
16,837
17,909
18,173
17,705
16,713
15,050
14,605
0.72
59 %
0.67
55 %
0.71
55 %
0.73
57 %
0.71
55 %
0.67
52 %
0.60
52 %
0.59
51 %
383,748
375,386
376,128
380,843
365,873
375,819
361,121
356,986
106,477
103,972
89,264
83,584
74,654
84,231
64,081
67,015
23,432,661 21,044,252 21,944,675 23,679,354 20,443,088 19,016,313 18,550,106 17,073,078
22,323,075 21,420,015 23,388,568 21,646,082 20,229,119 19,090,702 18,343,846 17,188,205
(1) These amounts are included in the "Trailer, sub-advisor and fund expenses" line on the consolidated statements of operations.
(2) Total revenues for the year ended December 31, 2022 were $145,182 (December 31, 2021 - $164,645; December 31, 2020 - $121,776).
(3) The majority of the 2022 amount is compensation and other transition payments to the former CEO that is currently scheduled to be paid out in 2022, 2023 and 2024.
(4) Net income for the year ended December 31, 2022 was $17,632 (December 31, 2021 - $33,185; December 31, 2020 - $26,978).
(5) Basic and diluted net income per share for the year ended December 31, 2022 was $0.70 and $0.67, respectively (December 31, 2021 - $1.33 and $1.28, respectively;
December 31, 2020 - $1.10 and $1.05, respectively).
(6) Total assets as at December 31, 2022 were $383,748 (December 31, 2021 - $365,873; December 31, 2020 - $377,348).
(7) Total liabilities as at December 31, 2022 were $106,477 (December 31, 2021 - $74,654; December 31, 2020 - $86,365).
11
AUM summary
AUM was $23.4 billion as at December 31, 2022, up $2.4 billion (11%) from September 30, 2022 and up $3 billion (15%)
from December 31, 2021. Our AUM benefited on a three and twelve months ended basis from strong inflows to our physical
trusts and private strategies funds. We also benefited from the onboarding of AUM on the closure of the URNM acquisition,
adding $1 billion to our AUM in the second quarter. Additionally, we benefited from strong market value appreciation during
the quarter that partially offset cumulative losses experienced earlier in the year.
3 months results
(In millions $)
Exchange listed products
- Physical trusts
- Physical Gold Trust
- Physical Silver Trust
- Physical Gold and Silver Trust
- Physical Uranium Trust
- Physical Platinum & Palladium Trust
- Exchange Traded Funds
- Uranium ETFs
- Gold ETFs
Managed equities
- Precious metals strategies
- Other (4)(5)
Private strategies
Core AUM
Non-core AUM (6)
(7)
Total AUM (7)
12 months results
(In millions $)
Exchange listed products
- Physical trusts
- Physical Gold Trust
- Physical Silver Trust
- Physical Gold and Silver Trust
- Physical Uranium Trust
- Physical Platinum & Palladium Trust
- Exchange Traded Funds
- Uranium ETFs
- Gold ETFs
Managed equities
- Precious metals strategies
- Other (4)(5)
Private strategies
AUM
Sep. 30, 2022
Sep. 30, 2022
Net
inflows (1)
Market
value changes
value changes
Other (2)
AUM
Dec. 31, 2022
Dec. 31, 2022
Blended net
management fee rate (3)
management fee rate
5,235
3,135
3,523
2,843
147
884
286
16,053
1,504
903
2,407
1,896
20,356
688
21,044
2
133
(39)
37
(5)
1
13
142
(14)
8
(6)
8
144
—
144
509
823
514
(4)
(4)
(28)
50
1,860
231
121
352
(12)
2,200
57
2,257
—
—
—
—
—
—
—
—
—
—
—
(12)
(12)
—
(12)
5,746
4,091
3,998
2,876
138
857
349
18,055
1,721
1,032
2,753
1,880
22,688
745
23,433
0.35%
0.45%
0.40%
0.30%
0.50%
0.67%
0.34%
0.39%
0.92%
1.20%
1.02%
0.79%
0.50%
0.51%
0.50%
AUM
Dec. 31, 2021
Dec. 31, 2021
Net
inflows (1)
Market
value changes
value changes
Other (2)
AUM
Dec. 31, 2022
Dec. 31, 2022
Blended net
management fee rate (3)
management fee rate
5,008
3,600
4,094
1,769
132
—
356
14,959
2,141
1,141
3,282
1,426
823
390
(99)
931
12
37
52
2,146
(69)
57
(12)
700
(85)
101
3
176
(6)
(222)
(59)
(92)
(351)
(166)
(517)
(25)
—
—
—
—
—
1,042
—
1,042
—
—
—
(221)
5,746
4,091
3,998
2,876
138
857
349
18,055
1,721
1,032
2,753
1,880
0.35%
0.45%
0.40%
0.30%
0.50%
0.67%
0.34%
0.39%
0.92%
1.20%
1.02%
0.79%
776
(634)
2,834
19,667
Core AUM
Non-core AUM (6)
(7)
Total AUM (7)
(1) See 'Net inflows' in the key performance indicators and non-IFRS and other financial measures section of this MD&A.
(2) Includes new AUM from fund acquisitions and lost AUM from fund divestitures and capital distributions of our private strategies LPs.
(3) Management fee rate represents the weighted average fees for all funds in the category.
(4) Includes institutional managed accounts and high net worth discretionary managed accounts in the U.S.
(5) Prior year figures have been restated to conform with current year presentation. See the “Business overview” section of this MD&A.
(6) Previously called Other, this AUM is related to our legacy asset management business in Korea, which accounts for 3.2% of our AUM and 1% of consolidated net income and EBITDA.
(7) No performance fees are earned on exchange listed products. Performance fees are earned on certain precious metals strategies and are based on returns above relevant benchmarks. Other managed equities
strategies primarily earn performance fees on flow-through products. Private strategies LPs earn carried interest calculated as a pre-determined net profit over a preferred return.
23,433
20,443
22,688
0.50%
0.50%
0.51%
2,834
(665)
(31)
821
821
745
—
—
12
Key revenue lines
Key expense lines
Management, carried interest and performance fees
Compensation
Management fees were $28.4 million in the quarter, up
$0.6 million (2%) from the quarter ended December 31,
2021 and $115.4 million on a full year basis, up $11.4
million (11%) from the year ended December 31, 2021.
Carried interest and performance fees were $1.2 million
in the quarter, down $3.1 million (72%) from the quarter
ended December 31, 2021 and $3.3 million on a full year
basis, down $9 million (73%) from the year ended
December 31, 2021. Net fees were $26.6 million in the
quarter, up $0.1 million
from the quarter ended
December 31, 2021 and $106.9 million on a full year
basis, up $7.4 million (7%) from the year ended
December 31, 2021. Our revenue performance was
primarily due to strong net inflows to our exchange listed
products segment (primarily our physical uranium, gold
and silver trusts) and higher average AUM from the
URNM acquisition. These increases were partially offset
by lower average AUM in our managed equities segment
and lower carried interest crystallization in our private
strategies segment.
Commission revenues
Commission revenues were $5 million in the quarter,
down $9.1 million (64%) from the quarter ended
December 31, 2021 and $30.7 million on a full year
basis, down $14.6 million (32%) from the year ended
December 31, 2021. Net commissions were $2.9 million
in the quarter, down $4.1 million (59%) from the quarter
ended December 31, 2021 and $16.2 million on a full
year basis, down $7.8 million (33%) from the year ended
December 31, 2021. Lower commissions were due to
weaker mining equity origination activity in our brokerage
segment.
Finance income
Finance income was $1.4 million in the quarter, up $0.7
million (83%) from the quarter ended December 31,
2021 and $5 million on a full year basis, up $1.5 million
(41%) from the year ended December 31, 2021. Our
results were primarily driven by higher income generation
in co-investment positions we hold in LPs managed in our
private strategies segment.
Net compensation expense was $12.5 million in the quarter,
up $0.1 million (1%) from the quarter ended December 31,
2021 and $56.3 million on a full year basis, up $8.4 million
(18%) from the year ended December 31, 2021. The increase
was primarily due to higher long-term incentive plan ("LTIP")
amortization as a result of grant date valuations required on
the launch of our new 2022 LTIP program. This higher
accounting valuation on our LTIP amortization was partially
offset by lower annual incentive compensation ("AIP").
Selling, general & administrative ("SG&A")
SG&A was $4.1 million in the quarter, down $0.1 million (2%)
from the quarter ended December 31, 2021 and $16 million on
a full year basis, up $1.3 million (9%) from the year ended
December 31, 2021. The increase on a full year basis was
mainly due to higher marketing and technology costs.
Earnings
Net income was $7.3 million ($0.29 per share) in the quarter,
down 28% or $2.8 million ($0.12 per share) from the quarter
ended December 31, 2021 and $17.6 million on a full year
basis ($0.70 per share), down 47%, or $15.6 million ($0.63
per share) from the year ended December 31, 2021. Net
income was negatively impacted by a combination of weaker
equity origination activity
in our brokerage segment,
unrealized losses on co-investments and legacy digital gold
investments, FX losses and non-recurring severance costs.
Adjusted base EBITDA was $18.1 million ($0.72 per share) in
the quarter, up 2%, or $0.4 million ($0.01 per share) from the
quarter ended December 31, 2021 and $71 million ($2.83 per
share) on a full year basis, up 11%, or $6.9 million ($0.25 per
share) from the year ended December 31, 2021. Our results
benefited from strong net inflows to our physical trusts
(primarily our physical uranium, gold and silver trusts) and the
URNM acquisition. These increases were only partially offset by
weaker mining equity origination activity in our brokerage
segment and lower AUM in our managed equities segment.
13
Additional revenues and expenses
Balance sheet
We experienced unrealized investment losses from market
value depreciation of our co-investments, certain equity
holdings and digital gold strategies.
in
income attributable
Other income was higher in the quarter due to an
to non-controlling
increase
interest. Conversely, other income was lower on a full
year basis due to a decrease in income attributable to
non-controlling interest.
Amortization of intangibles was lower from the prior
period due to the reclassification of a management
contract from finite life to indefinite life in the first
quarter. Depreciation of property and equipment was
slightly lower from the prior period.
Other expenses were lower primarily due to
last year's
payment of contingent consideration related to the
Tocqueville acquisition.
Total assets were $383.7 million, up $17.9 million from
December 31, 2021. The increase was primarily due to the
addition of an indefinite life fund management contract related
to the URNM acquisition, an increase in assets attributable to
non-controlling interest and co-investments in our funds. Total
liabilities were $106.5 million, up $31.8 million
from
December 31, 2021. The increase was primarily due to loan
facility drawdowns used to fund certain co-investments and the
URNM acquisition as well as an increase in liabilities related to
non-controlling
interests. Total shareholders' equity was
$277.3 million, down $13.9 million from December 31, 2021
primarily due to FX translation losses during the year.
14
Reportable operating segments
Exchange listed products
(In thousands $)
Summary income statement
Management fees
Trailer, sub-advisory and fund expenses
Net Fees
Commissions
Commission expense - internal
Commission expense - external
Net commissions
Gain (loss) on investments
Other income
Total net revenues
Net compensation
Severance, new hire accruals and other
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 and 12 months ended
3 months ended
12 months ended
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
17,544
(826)
16,718
359
(26)
(187)
146
634
52
17,550
2,987
164
947
527
27
(56)
4,596
12,954
13,800
81 %
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
67,609
(2,840)
64,769
9,119
(682)
(4,588)
3,849
3
88
68,709
12,016
591
3,004
1,315
104
2,081
19,111
49,598
56,948
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
80 %
83 %
81 %
18,055,140
17,085,679
14,959,109
14,771,210
18,055,140
16,724,098
14,959,109
13,513,765
Income before income taxes was $13 million in the quarter, up $0.4 million (3%) from the quarter ended December 31, 2021
and was $49.6 million on a full year basis, up $7.3 million (17%) from the year ended December 31, 2021. Adjusted base
EBITDA was $13.8 million in the quarter, up $0.8 million (7%) from the quarter ended December 31, 2021 and was $56.9
million on a full year basis, up $10.5 million (23%) from the year ended December 31, 2021. Our three and twelve months
ended results benefited from higher average AUM given strong inflows to our physical trusts (particularly our physical uranium,
gold and silver trusts) and the URNM acquisition in the second quarter. These increases were partially offset by lower
commissions earned on the purchase of uranium in the quarter.
15
Managed equities
(In thousands $)
Summary income statement
Management fees
Trailer, sub-advisor and fund expenses
Direct payouts
Carried interest and performance fees
Carried interest and performance fee payouts - internal
Net fees
Gain (loss) on investments
Other income
Total net revenues
Net compensation
Severance, new hire accruals and other
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3 months ended
12 months ended
Dec. 31, 2022 Dec. 31, 2021 (1)
Dec. 31, 2022 Dec. 31, 2021 (1)
6,386
(355)
(694)
559
(240)
5,656
2,851
328
8,835
2,579
74
1,447
507
80
(26)
4,661
8,337
(425)
(1,021)
374
(226)
7,039
2,240
700
9,979
2,632
2
1,292
98
88
311
4,423
30,577
(1,658)
(3,768)
578
(254)
25,475
(2,246)
801
24,030
11,483
288
5,377
1,467
311
1,028
19,954
33,736
(1,562)
(4,083)
1,082
(752)
28,421
(2,283)
1,485
27,623
10,930
32
4,706
514
349
5,023
21,554
4,174
1,845
33 %
5,556
3,747
50 %
4,076
9,932
39 %
6,069
14,215
49 %
2,752,700
2,634,818
3,281,568
3,295,243
2,752,700
2,940,192
3,281,568
3,323,797
(1) Prior year figures have been restated to conform with current year presentation. In the first quarter of the year, the Company completed the restructuring
of its U.S.-based discretionary accounts operations which led to the conversion of those client assets from administrated brokerage assets to actively
managed AUM. Consequently, these operations were reclassified to form part of the managed equities segment.
3 and 12 months ended
Income before income taxes was $4.2 million in the quarter, down $1.4 million (25%) from the quarter ended December 31,
2021 and was $4.1 million on a full year basis, down $2 million (33%) from the year ended December 31, 2021. The decrease
on a three and twelve months ended basis was mainly due to lower management fees and higher SG&A. These decreases were
partially offset by lower other expenses as the prior year included the payment of a contingent consideration related to the
Tocqueville acquisition. Adjusted base EBITDA was $1.8 million in the quarter, down $1.9 million (51%) from the quarter ended
December 31, 2021 and was $9.9 million on a full year basis, down $4.3 million (30%) from the year ended December 31,
2021. The decrease on a three and twelve months ended basis was mainly due to lower management fees and higher SG&A.
16
Private strategies (1)
(In thousands $)
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
3 months ended
12 months ended
Summary income statement
Management fees
Trailer, sub-advisor and fund expenses
Direct payouts
Carried interest and performance fees
Carried interest and performance fee payouts - internal
Carried interest and performance fee payouts - external
Net fees
Finance income
Gain (loss) on investments
Other income
Total net revenues
Net compensation
Severance, new hire accruals and other
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Operating margin
Total AUM
Average AUM
3,599
(23)
(420)
660
(327)
(121)
3,368
1,319
(4,672)
9
24
1,431
103
264
—
—
131
1,929
(1,905)
2,796
62 %
3,428
(30)
(346)
3,924
(2,290)
(790)
3,896
773
(333)
92
4,428
1,628
—
276
—
—
992
2,896
1,532
2,222
13,442
(95)
(1,123)
2,687
(1,342)
(597)
12,972
4,794
(4,007)
68
13,827
6,842
416
1,064
—
—
921
9,243
4,584
9,207
13,245
(114)
(1,264)
11,153
(6,470)
(1,385)
15,165
3,447
(2,429)
313
16,496
6,475
461
1,024
7
1
801
8,769
7,727
8,921
57 %
54 %
57 %
1,879,840
1,882,378
1,425,581
1,397,881
1,879,840
1,636,178
1,425,581
1,104,350
(1) In the first quarter of the year, the Company renamed the Lending segment to"Private strategies"in order to reflect the successful growth of its streaming
funds alongside its traditional lending partnership vehicles.
3 and 12 months ended
Loss before income taxes was $1.9 million in the quarter, down $3.4 million from the quarter ended December 31, 2021.
Income before income taxes was $4.6 million on a full year basis, down $3.1 million (41%) from the year ended December 31,
2021. The decrease on a three and twelve months ended basis was primarily due to higher unrealized losses on co-investments
and lower carried interest. These decreases were only partially offset by higher management fees and higher finance income on
our co-investments. Adjusted base EBITDA was $2.8 million in the quarter, up $0.6 million (26%) from the quarter ended
December 31, 2021 and was $9.2 million on a full year basis, up $0.3 million (3%) from the year ended December 31, 2021.
The increase on a three and twelve months ended basis was primarily due to higher management fees and finance income as
mentioned above.
17
Brokerage
(In thousands $)
Summary income statement
Commissions
Commission expense - internal
Commission expense - external
Net commissions
Finance income
Gain (loss) on investments
Other income
Total net revenues
Net compensation
Severance, new hire accruals and other
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Operating margin
3 months ended
12 months ended
Dec. 31, 2022
Dec. 31, 2021 (1)
Dec. 31, 2022 Dec. 31, 2021 (1)
4,398
(1,553)
(398)
2,447
120
73
186
2,826
725
118
657
—
13
1,196
2,709
8,388
(3,490)
(449)
4,449
15
175
21
4,660
1,517
174
862
4
147
157
2,861
20,874
(8,450)
(761)
11,663
197
(1,031)
432
11,261
4,832
436
2,956
3
308
1,309
9,844
34,216
(14,336)
(776)
19,104
63
204
73
19,444
6,832
216
2,785
25
569
706
11,133
117
1,396
53 %
1,799
2,150
47 %
1,417
4,602
36 %
8,311
9,768
47 %
(1) Prior year figures have been restated to conform with current year presentation. In the first quarter of the year, the Company completed the restructuring
of its U.S.-based discretionary accounts operations which led to the conversion of those client assets from administrated brokerage assets to actively
managed AUM. Consequently, these operations were reclassified to form part of the managed equities segment.
3 and 12 months ended
Income before income taxes was $0.1 million in the quarter, down $1.7 million (93%) from the quarter ended December 31,
2021 and was $1.4 million on a full year basis, down $6.9 million (83%) from the year ended December 31, 2021. Adjusted
base EBITDA was $1.4 million in the quarter, down $0.8 million (35%) from the quarter ended December 31, 2021 and was
$4.6 million on a full year basis, down $5.2 million (53%) from the year ended December 31, 2021. Our three and twelve
months ended results were impacted by weaker mining equity origination activity in both our Canadian and U.S. broker dealers.
Our results were also impacted by unrealized losses on certain equity holdings on a full year basis.
18
Corporate
This segment is primarily a cost center 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, new hire accruals and other
Selling, general and administrative
Interest expense
Depreciation and amortization
Other expenses
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
3 and 12 months ended
3 months ended
12 months ended
Dec. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
118
47
165
4,255
632
491
29
439
502
6,348
(2,016)
42
(1,974)
3,950
—
513
44
521
997
(3,388)
100
(3,288)
18,547
3,329
2,390
125
1,808
5,047
2,609
89
2,698
14,454
—
2,118
197
2,375
2,106
6,025
31,246
21,250
(6,183)
(2,119)
(7,999)
(4,317)
(34,534)
(10,518)
(18,552)
(16,071)
Investment loss on a full year basis was due to market value depreciation of our legacy digital gold strategies.
•
• Net compensation was higher largely due to higher LTIP amortization as a result of grant date valuations required on
the launch of our new 2022 LTIP program. This higher accounting valuation on our LTIP amortization was partially
offset by lower AIP.
Severance, new hire accruals and other primarily includes compensation and other transition payments to the former
CEO that is currently scheduled to be paid out in 2022, 2023 and 2024.
•
• Other expenses increased primarily due to FX translation movements.
19
Dividends
The following dividends were declared by the Company during the last three years:
Record date
Payment Date
Cash dividend
per share
Total dividend amount
(in thousands $)
November 14, 2022 - Regular dividend Q3 2022
November 29, 2022
August 12, 2022 - Regular dividend Q2 2022
May 16, 2022 - Regular dividend Q1 2022
March 7, 2022 - Regular dividend Q4 2021
Dividends declared in 2022 (1)
August 29, 2022
May 31, 2022
March 22, 2022
November 15, 2021 - Regular dividend Q3 2021
November 30, 2021
August 16, 2021 - Regular dividend Q2 2021
May 17, 2021 - Regular dividend Q1 2021
March 8, 2021 - Regular dividend Q4 2020
Dividends declared in 2021
August 31, 2021
June 1, 2021
March 23, 2021
November 23, 2020 - Regular dividend Q3 2020
December 8, 2020
August 17, 2020 - Regular dividend Q2 2020
September 1, 2020
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.25
$0.23
May 19, 2020 - Regular dividend Q1 2020
March 9, 2020 - Regular dividend Q4 2019
Dividends declared in 2020
June 3, 2020
March 24, 2020
CAD$0.30
CAD$0.30
6,480
6,484
6,500
6,467
25,931
6,429
6,426
6,426
6,426
25,707
6,378
5,915
5,560
5,387
23,240
(1) Subsequent to year end, on February 23, 2023, a regular dividend of $0.25 per common share was declared for the quarter ended December 31, 2022.
This dividend is payable on March 21, 2023 to shareholders of record at the close of business on March 6, 2023.
Capital stock
Including the 0.6 million unvested common shares currently held in the EPSP Trust (December 31, 2021 - 0.8 million), total
capital stock issued and outstanding was 26 million (December 31, 2021 - 25.8 million). During the year, the Company issued
72,464 shares related to the URNM acquisition. This issuance was more than offset by the repurchase and cancellation of
81,538 shares through the normal course issuer bid.
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 $0.29 for the quarter and $0.70 on a full year basis
compared to $0.41 and $1.33 in the prior periods, respectively. Diluted earnings per share was $0.28 in the quarter and $0.67
on a full year basis compared to $0.39 and $1.28 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 12,500 stock options are outstanding pursuant to our stock option plan, all of which are exercisable.
20
Liquidity and capital resources
As at December 31, 2022, the Company had $54.4 million (December 31, 2021 - $29.8 million) outstanding on its credit
facility, all of which is due on December 14, 2025. The increased draws on our loan facility were necessary to fund the URNM
acquisition as well as additional co-investments during the year.
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. As at December 31, 2022, 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
Base 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
The Company has commitments to make co-investments in private strategies LPs arising from our private strategies segment or
commitments to make co-investments in fund strategies in the Company's other segments. As at December 31, 2022, the
Company had $5.7 million in co-investment commitments from the private strategies segment due within one year
(December 31, 2021 - $7.7 million) and $0.4 million due after one year (December 31, 2021 - $Nil).
The following are the remaining contractual maturities of financial liabilities as at December 31, 2022 (in thousands $):
Contractual obligations
Lease obligation
Compensation payable
Operating accounts payable
Contingent consideration on URNM acquisition
Loan facility
Carrying
Amount
Less
than
1 year
4,515
12,342
8,641
4,352
54,437
84,287
2,062
12,342
8,641
—
—
23,045
1-3
years
4-5
years
1,665
788
More
than
5 years
—
—
4,352
54,437
60,454
—
—
—
—
788
—
—
—
—
—
—
21
Critical accounting estimates, judgements and changes in accounting policies
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are described below. The
Company based its assumptions and estimates on parameters available when the 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 and asset lives. These estimates require significant judgment regarding market growth rates,
fund flow assumptions, expected margins and costs, all of which could affect the Company's future results if estimates of future
performance and fair value change.
Fair value of financial instruments
When the fair value of financial assets and financial liabilities recorded in the consolidated balance sheets cannot be derived
from active markets, they are determined using valuation techniques and models. Model inputs are taken from observable
markets where possible, but where this is not feasible, unobservable inputs may be used. These unobservable inputs include,
but are not limited to, projected cash flows, discount rates, comparable recent transactions, volatility of underlying securities in
warrant valuations and extraction recovery rates of mining projects. The use of unobservable inputs can involve significant
judgment and materially affect the reported fair value of financial instruments.
Contingent consideration
The URNM acquisition necessitated the recognition of contingent consideration for the amounts payable in cash under the terms
of the purchase agreement. The consideration is subject to certain financial performance conditions based on the average AUM
of the fund over the two-year period from closing of the transaction. The key judgements utilized in the estimation of the
contingent consideration were fund flow assumptions.
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 interest in the investee; (2) the level of compensation to be received from the investee for
management and other services provided to it; (3) "kick out rights" available to other investors in the investee; and (4) other
indicators of the extent of power that the Company has over the investee.
22
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 the carrying value or recoverable amounts. The Company's revenues are also exposed to price risk since
management fees, carried interest 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 and liabilities. The Company’s earnings, particularly through its private strategies 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. 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.
23
The Company's exposure to liquidity risk as it relates to our co-investments in private strategies LPs arises from fluctuations in
cash flows from making capital calls and receiving capital distributions. The Company manages its 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: drawing on the line of
credit; slowing its co-investment activities; liquidating investments; adjust or otherwise temporarily suspend AIPs; cut or
temporarily suspend its dividend; 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 and energy transition material 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 DC&P and ICFR (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, 2022. In addition, there were no material changes to ICFR during the quarter and the
year.
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.
24
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, the New Self-Regulatory
Organization of Canada, 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; 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.
25
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.
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.
26
Consolidated Financial Statements
Years ended December 31, 2022 and 2021
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,
2022 and 2021. 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.
Whitney George
Chief Executive Officer
February 23, 2023
Kevin Hibbert, FCPA, FCA
Chief Financial Officer and Senior Managing Partner
28
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, 2022, 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.
Whitney George
Chief Executive Officer
February 23, 2023
Kevin Hibbert, FCPA, FCA
Chief Financial Officer and Senior Managing Partner
29
KPMG LLP
Bay Adelaide Centre
333 Bay Street, Suite 4600
Toronto, ON M5H 2S5
Canada
Tel 416-777-8500
Fax 416-777-8818
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
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, 2022 and 2021, the related consolidated statements of
operations and comprehensive income, changes in shareholders’ equity, and cash flows for the
years then ended, 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, 2022 and 2021, and its financial performance and its
cash flows for the years then ended, 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, 2022, 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 23, 2023 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.
© 2023 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.
30
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, an annual test for impairment
augments the quarterly impairment indicator assessment of impairment for indefinite life intangibles.
The recoverable amounts associated with 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. As discussed in note 7 to the consolidated financial
statements, the Company’s indefinite life fund management contracts totaled $178,613 thousand as
of December 31, 2022.
We identified the assessment 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.
31
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; and
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 23, 2023
32
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, 2022, 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, 2022, 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, 2022 and 2021, the related consolidated statements of operations and
comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the
related notes (collectively, the consolidated financial statements), and our report dated February 23,
2023 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.
© 2023 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.
33
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 23, 2023
34
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
The accompanying notes form part of the consolidated financial statements
"Ron Dewhurst"
Director
"Sharon Ranson, FCPA, FCA"
Director
Dec. 31
2022
Dec. 31
2021
51,678
10,967
3,348
8,723
2,247
76,963
73,573
21,271
12,496
178,613
19,149
1,683
306,785
383,748
10,703
12,342
2,707
25,752
18,061
54,437
8,227
106,477
428,475
33,716
(105,305)
(79,615)
277,271
383,748
(Notes 3 & 10)
(Note 5)
(Notes 4 & 10)
(Notes 5 & 10)
(Note 6)
(Note 7)
(Note 7)
(Note 9)
(Note 15)
(Note 9)
(Note 8)
(Note 8)
(Note 16)
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
417,425
35,357
(97,006)
(64,557)
291,219
365,873
35
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 fund expenses
Selling, general and administrative
Interest expense
Amortization of intangibles
Depreciation of property and equipment
Other expenses
Total expenses
Income before income taxes for the year
Provision for income taxes
Net income for the year
Net income per share:
Basic
Diluted
Net income for the year
Other comprehensive income
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
2022
Dec. 31
2021
115,355
3,265
30,663
4,991
(10,242)
1,150
145,182
103,909
12,235
45,266
3,535
(1,883)
1,583
164,645
(Notes 3, 4 and 5)
(Note 5)
(Note 8)
(Note 7)
(Note 6)
(Note 5)
(Note 9)
77,117
10,539
15,978
2,923
—
3,355
10,191
120,103
76,721
9,745
14,697
1,161
930
3,622
12,579
119,455
25,079
7,447
17,632
45,190
12,005
33,185
(Note 8)
(Note 8)
0.70
0.67
1.33
1.28
17,632
33,185
(15,058)
(15,058)
2,574
1,043
1,043
34,228
36
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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 interest
Net advances from loan facility
Dividends paid
Cash provided by (used in) financing activities
Effect of foreign exchange on cash balances
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the
year
Cash and cash equivalents:
Cash
Short-term deposits
The accompanying notes form part of the consolidated financial statements
For the years ended
Dec. 31
2022
Dec. 31
2021
17,632
33,185
10,242
17,041
3,355
—
7,447
(542)
(8,070)
2,216
(7,438)
(9,387)
32,496
(25,771)
12,907
(128)
(10,500)
(23,492)
(6,948)
(3,036)
1,127
(2,329)
7,320
25,750
(25,781)
(3,897)
(3,234)
1,873
49,805
51,678
51,494
184
51,678
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
44,087
5,718
49,805
38
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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, 2022 and 2021 ("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 23, 2023 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 U.S. 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 interest 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 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.
39
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
The Company currently controls the following principal subsidiaries:
•
•
•
•
•
•
Sprott Asset Management LP ("SAM");
Sprott Capital Partners LP ("SCP");
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 private strategies 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.
40
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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 on the reporting date 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.
41
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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 private strategies 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 the 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.
42
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Any loss resulting from the 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.
43
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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 may 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.
Reportable segments
In the first quarter of the year, the Company completed the restructuring of its U.S.-based discretionary accounts
operations which led to the conversion of those client assets from administrated brokerage assets to actively managed
AUM. As a result, these operations were reclassified from the brokerage segment to managed equities as they more
closely aligned with the revenues reported in this segment. In accordance with IFRS 8, all comparative balances have
been restated. Please refer to Note 14 for segment information.
44
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Contingent consideration
The acquisition of the management contracts of the North Shore Global Uranium Mining ETF ("URNM acquisition") in
the second quarter necessitated the recognition of contingent consideration payable for the amount payable in the
future under the terms of the purchase agreement. The consideration is subject to certain financial performance
conditions based on the average AUM of the fund over the two-year period from closing of the transaction. The key
judgements utilized in the estimation of the contingent consideration were fund flow assumptions. The contingent
consideration liability is carried at fair value and included in other accrued liabilities. The contingent consideration
estimate as at the acquisition date has been included in the cost of the indefinite life intangible (see Note 7).
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.
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.
45
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Contingent consideration
The URNM acquisition necessitated the recognition of contingent consideration for the amounts payable in cash under
the terms of the purchase agreement. The consideration is subject to certain financial performance conditions based on
the average AUM of the fund over the two-year period from closing of the transaction. The key judgements utilized in
the estimation of the contingent consideration were fund flow assumptions.
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 private
strategies, managed equities and brokerage segment activities (in thousands $):
Classification and
measurement criteria
Dec. 31, 2022
Dec. 31, 2021
Public equities and share purchase warrants
Private holdings
Total short-term investments
FVTPL
FVTPL
1,863
1,485
3,348
4,113
2,020
6,133
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
Total co-investments
Classification and
measurement criteria
Dec. 31, 2022
Dec. 31, 2021
FVTPL
73,573
73,573
68,765
68,765
Gains and losses on co-investments are included in the gain (loss) on investments line in the consolidated statements of
operations and comprehensive income.
46
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
5 Other assets, income, expenses and non-controlling interest
Other assets
Consist of the following (in thousands $):
Assets attributable to non-controlling interest
Fund recoveries and investment receivables
Advance on unrealized carried interest
Digital gold strategies (1)
Prepaid expenses
Other (2)
Total other assets
Dec. 31, 2022
Dec. 31, 2021
11,301
4,617
4,454
3,778
3,741
2,103
29,994
3,780
2,509
—
7,060
3,637
2,240
19,226
(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
Consist of the following (in thousands $):
Foreign exchange (gain) loss
Increase in contingent consideration related to the Tocqueville transaction
Other (1)
Total other expenses
For the years ended
Dec. 31, 2022 Dec. 31, 2021
1,672
(522)
1,150
1,490
93
1,583
For the years ended
Dec. 31, 2022 Dec. 31, 2021
4,654
—
5,537
10,191
470
4,449
7,660
12,579
(1) Includes net income (loss) attributable to non-controlling interest of ($0.5) million for the year ended December 31, 2022 (year ended December 31, 2021 -
$0.1 million) as well as mark-to-market on deferred share units, non-recurring professional fees, transaction and new fund start-up costs.
47
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Non-controlling interest assets and liabilities
Non-controlling interest consists of third-party interest in our consolidated co-investments. The following table provides
a summary of amounts attributable to this non-controlling interest (in thousands $):
Assets
Liabilities - current (1)
Liabilities - long-term (1)
Dec. 31, 2022
Dec. 31, 2021
11,301
(211)
(11,090)
3,780
(10)
(3,770)
(1) Current and long-term liabilities attributable to non-controlling interest are included in accounts payable and accrued liabilities and other accrued liabilities,
respectively.
48
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
6
Property and equipment
Consist of the following (in thousands $):
Cost
At Dec. 31, 2020
Additions
Disposals
Net exchange differences
At Dec. 31, 2021
Additions
Net exchange differences
At Dec. 31, 2022
Accumulated amortization
At Dec. 31, 2020
Depreciation charge for the year
Disposals
Net exchange differences
At Dec. 31, 2021
Depreciation charge for the year
Net exchange differences
At Dec. 31, 2022
Net book value at:
Dec. 31, 2021
Dec. 31, 2022
Artwork
Furniture
and fixtures
Computer
hardware
and software
Leasehold
improvements
Right of use
assets
Total
7,519
—
—
54
7,573
—
(484)
7,089
—
—
—
—
—
—
—
—
2,876
95
—
10
2,981
2
(160)
2,823
(2,496)
(101)
—
18
(2,579)
(98)
164
(2,513)
2,930
101
—
5
3,036
126
(160)
3,002
(2,774)
(93)
—
(15)
(2,882)
(93)
153
(2,822)
5,721
497
(196)
4
6,026
—
(372)
5,654
(3,720)
(1,077)
196
31
(4,570)
(522)
278
(4,814)
10,241
2,937
(372)
84
12,890
—
(531)
12,359
(3,686)
(2,351)
168
(127)
(5,996)
(2,642)
356
(8,282)
29,287
3,630
(568)
157
32,506
128
(1,707)
30,927
(12,676)
(3,622)
364
(93)
(16,027)
(3,355)
951
(18,431)
7,573
7,089
402
310
154
180
1,456
840
6,894
4,077
16,479
12,496
49
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
7
Goodwill and intangible assets
Consist of the following (in thousands $):
Cost
At Dec. 31, 2020
Additions
Net exchange differences
At Dec. 31, 2021
Additions
Transfers
Net exchange differences
At Dec. 31, 2022
Accumulated amortization
At Dec. 31, 2020
Amortization charge for the year
At Dec. 31, 2021
Amortization charge for the year
At Dec. 31, 2022
Net book value at:
At Dec. 31, 2021
At Dec. 31, 2022
Fund
management
contracts
(indefinite life)
Fund
management
contracts
(finite life)
Total
Goodwill
132,251
—
—
132,251
—
—
—
132,251
(113,102)
—
(113,102)
—
(113,102)
146,031
13,559
1,383
160,973
20,410
9,088
(11,858)
178,613
—
—
—
—
—
36,506
—
81
36,587
—
(9,088)
—
27,499
(26,569)
(930)
(27,499)
—
(27,499)
314,788
13,559
1,464
329,811
20,410
—
(11,858)
338,363
(139,671)
(930)
(140,601)
—
(140,601)
19,149
19,149
160,973
178,613
9,088
—
189,210
197,762
50
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Impairment assessment of goodwill
The Company has identified 5 cash generating units ("CGU") as follows:
•
•
•
•
•
Exchange listed products
Managed equities
Private strategies
Brokerage
Corporate
As at December 31, 2022, the Company had allocated $19.1 million (December 31, 2021 - $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, 2022, the Company had indefinite life intangibles related to fund management contracts of $178.6
million (December 31, 2021 - $161 million). There was no impairment as at December 31, 2022. The addition in the
year was due to the URNM acquisition on April 22, 2022. The addition includes the transaction price of $14.5 million,
contingent consideration of $4.3 million and transaction costs of $1.6 million.
Impairment assessment of finite life fund management contracts
As at December 31, 2022, the Company had exchange listed fund management contracts within the exchange listed
products CGU of $Nil (December 31, 2021 - $9.1 million). During the first quarter, $9.1 million of management
contracts were reviewed and subsequently determined to have a change in estimated remaining useful life.
Consequently, these management contracts were prospectively reclassified to the indefinite life category and no further
amortization has been accumulated.
51
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
8
Shareholders' equity
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, 2020
Shares acquired for equity incentive plan
Issuance of shares to settle contingent consideration
Shares released on vesting of equity incentive plan
Issuance of shares on vesting of RSUs
Issuance of shares under dividend reinvestment program
At Dec. 31, 2021
Shares acquired for equity incentive plan
Issuance of shares on exercise of stock options
Shares released on vesting of equity incentive plan
Issuance of shares on vesting of RSUs
Issuance of shares to purchase management contracts
Shares acquired and canceled under normal course issuer bid
Issuance of shares under dividend reinvestment program
At Dec. 31, 2022
Number
of shares
Stated value
(in thousands $)
24,789,365
(237,172)
93,023
237,626
105,291
3,487
24,991,620
(180,594)
115,102
324,568
80,345
72,464
(81,538)
3,927
25,325,894
417,758
(10,201)
3,000
4,382
2,341
145
417,425
(6,948)
1,807
12,867
2,210
4,000
(3,036)
150
428,475
Contributed surplus consists of stock option expense, earn-out shares expense, equity incentive plans' expense, and
additional purchase consideration.
At Dec. 31, 2020
Issuance of shares to settle contingent consideration
Shares released on vesting of equity incentive plan
Stock-based compensation
Issuance of shares on conversion of RSUs
At Dec. 31, 2021
Issuance of shares on exercise of stock options
Shares released on vesting of equity incentive plan
Stock-based compensation
Released on vesting of RSU's
At Dec. 31, 2022
Stated value
(in thousands $)
43,309
(4,879)
(4,382)
3,650
(2,341)
35,357
(680)
(12,867)
17,041
(5,135)
33,716
52
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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, 2022 (year ended December 31, 2021 - Nil).
There were 150,000 stock options exercised during the year ended December 31, 2022 (year ended December 31, 2021
- Nil).
For valuing share option grants, the fair value method of accounting is used. The fair value of option grants is
determined using the Black-Scholes option-pricing model, which takes into account the exercise price of the option, the
current share price, the risk-free interest rate, the expected volatility of the share price over the life of the option and
other relevant factors. Compensation cost is recognized over the vesting period, assuming an estimated forfeiture rate,
with an offset to contributed surplus. When exercised, amounts originally recorded against contributed surplus as well
as any consideration paid by the option holder is credited to capital stock.
A summary of the changes in the Plan is as follows:
Options outstanding, December 31, 2020
Options exercisable, December 31, 2020
Options outstanding, December 31, 2021
Options exercisable, December 31, 2021
Options exercised
Options outstanding, December 31, 2022 (1)
Options exercisable, December 31, 2022 (1)
(1) Outstanding options have 3.4 years remaining on their contractual life.
Number of
options
Weighted
average exercise
price (CAD $)
162,500
162,500
162,500
162,500
(150,000)
12,500
12,500
23.61
23.61
23.61
23.61
23.30
27.30
27.30
53
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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 372,000 RSUs granted during the year ended December 31, 2022 (year ended December 31, 2021 -1,182).
Unvested common shares held by the Trust, Dec. 31, 2020
Acquired
Released on vesting
Unvested common shares held by the Trust, Dec. 31, 2021
Acquired
Released on vesting
Unvested common shares held by the Trust, Dec. 31, 2022
Number of
common shares
774,859
237,172
(237,626)
774,405
180,594
(324,568)
630,431
The table below presents details of stock based compensation, which is presented in the Compensation line of the
consolidated statements of operations and comprehensive income.
Amortization of stock based compensation (1)
Deferred annual incentive plan
Total stock-based compensation
For the years ended
Dec. 31, 2022 Dec. 31, 2021
16,496
545
17,041
3,650
—
3,650
(1) Included in this amount is amortization of stock based compensation of $1,950 for the year ended December 31, 2022 (year
ended December 31, 2021 - $Nil) related to the transition of the former CEO.
54
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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
The Company's objectives when managing capital are:
For the years ended
Dec. 31, 2022 Dec. 31, 2021
17,632
33,185
25,923
(857)
25,066
13
1,107
26,186
25,695
(817)
24,878
163
867
25,908
0.70
0.67
1.33
1.28
•
•
•
•
•
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 New Self-Regulatory Organization of
Canada (a consolidation of the Investment Industry Organization of Canada and the Mutual Fund Dealers Association
of Canada (the "New SRO"), 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, 2022 and 2021, all entities were in compliance with their respective capital requirements.
55
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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 (recovery)
Origination and reversal of temporary differences
Adjustments in respect to previous years
Total deferred income tax expense (recovery)
Income tax expense reported in the consolidated statements of operations
For the years ended
Dec. 31, 2022
Dec. 31, 2021
8,096
(649)
7,447
(187)
187
—
7,447
7,835
136
7,971
5,010
(976)
4,034
12,005
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, 2022
Dec. 31, 2021
25,079
6,679
(21)
884
—
(462)
318
49
7,447
45,190
12,079
221
161
78
(840)
87
219
12,005
The weighted average statutory tax rate was 26.6% (December 31, 2021 - 26.7%). The Company has $1.1 million (December 31, 2021 -
$2 million) of capital losses from prior years that will begin to expire in 2024. The benefit of these capital losses has not been recognized.
56
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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, 2022
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)
Advance on unrealized carried interest
Total deferred income tax liabilities
Net deferred income tax assets (liabilities) (1)
For the year ended December 31, 2021 (2)
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)
Total deferred income tax liabilities
Net deferred income tax assets (liabilities) (1)
Dec. 31, 2021
Recognized in
income
Exchange rate
differences
Dec. 31, 2022
4,177
1,061
488
5,726
13,732
(978)
—
12,754
(7,028)
1,928
344
(147)
2,125
2,231
(1,337)
1,231
2,125
—
(337)
(81)
(250)
(668)
(1,167)
66
(51)
(1,152)
484
5,768
1,324
91
7,183
14,796
(2,249)
1,180
13,727
(6,544)
Dec. 31, 2020
Recognized in
income
Exchange rate
differences
Dec. 31, 2021
3,821
2,270
451
6,542
9,446
118
9,564
(3,022)
333
(1,240)
30
(877)
4,266
(1,109)
3,157
(4,034)
23
31
7
61
20
13
33
28
4,177
1,061
488
5,726
13,732
(978)
12,754
(7,028)
(1) Deferred tax assets of $1.7 million (December 31, 2021 - $1.5 million) and deferred tax liabilities of $8.2 million (December 31, 2021- $8.5 million) are presented on the balance
sheet net by legal jurisdiction.
(2) Certain comparative figures have been reclassified to conform with current year presentation.
57
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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, 2022 and December 31, 2021 (in
thousands $).
Short-term investments
Dec. 31, 2022
Level 1
Level 2
Level 3
Total
Public equities and share purchase warrants
Private holdings
Total net recurring fair value measurements
1,012
—
1,012
804
—
804
47
1,485
1,532
1,863
1,485
3,348
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
Co-investments
Dec. 31, 2022
Level 1
Level 2
Level 3
Total
Co-investments (1)
Total net recurring fair value measurements
10,279
10,279
63,294
63,294
—
—
73,573
73,573
Dec. 31, 2021
Level 1
Level 2
Level 3
Total
Co-investments
Total net recurring fair value measurements
—
—
68,765
68,765
—
—
68,765
68,765
(1) Co-investments also include investments made in funds which we consolidate that directly hold publicly traded equities or precious metals.
58
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Other assets
Dec. 31, 2022
Digital gold strategies
Assets attributable to non-controlling interest
Total net recurring fair value measurements
Dec. 31, 2021
Digital gold strategies
Assets attributable to non-controlling interest
Total net recurring fair value measurements
Level 1
Level 2
Level 3
Total
—
3,248
3,248
—
3,778
8,053
8,053
—
3,778
3,778
11,301
15,079
Level 1
Level 2
Level 3
Total
—
—
—
—
7,060
7,060
3,780
—
7,060
10,840
3,780
3,780
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, 2022
Net unrealized
gains (losses)
included in net
Purchases and
reclassifications
Share purchase warrants
Private holdings
Total
Dec. 31, 2021
135
2,020
2,155
Sales
—
—
—
income Dec. 31, 2022
(44)
(535)
(579)
47
1,485
1,532
Changes in the fair value of Level 3 measurements - Dec. 31, 2021
Net unrealized
gains (losses)
included in net
Purchases and
reclassifications
Share purchase warrants
Private holdings
Total
Dec. 31, 2020
271
1,993
2,264
(44)
—
(44)
61
—
61
Sales
income Dec. 31, 2021
(3)
—
(3)
(194)
27
(167)
135
2,020
2,155
59
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Co-investments
Changes in the fair value of Level 3 measurements - Dec. 31, 2022
Net unrealized
gains (losses)
included in net
Purchases and
reclassifications
Co-investments
Total
Dec. 31, 2021
—
—
—
—
Sales
—
—
income Dec. 31, 2022
—
—
—
—
Changes in the fair value of Level 3 measurements - Dec. 31, 2021
Net unrealized
gains (losses)
included in net
Purchases and
reclassifications
(6,441)
(6,441)
Sales
—
—
income Dec. 31, 2021
—
—
—
—
Dec. 31, 2020
6,441
6,441
Co-investments
Total
Other assets
Changes in the fair value of Level 3 measurements - Dec. 31, 2022
Net unrealized
gains (losses)
included in net
Purchases and
reclassifications
Digital gold strategies
Total
Dec. 31, 2021
7,060
7,060
Sales
—
—
income Dec. 31, 2022
(3,282)
(3,282)
3,778
3,778
—
—
100
100
Digital gold strategies
Total
Dec. 31, 2020
11,518
11,518
Changes in the fair value of Level 3 measurements - Dec. 31, 2021
Net unrealized
gains (losses)
included in net
Purchases and
reclassifications
Sales
(2,000)
(2,000)
income Dec. 31, 2021
(2,558)
(2,558)
7,060
7,060
During the year ended December 31, 2022, the Company transferred public equities of $0.8 million (December 31, 2021
- $Nil) from Level 2 to Level 1 within the fair value hierarchy. For the year ended December 31, 2022, the Company
purchased level 3 investments of $Nil (December 31, 2021 - $0.1 million) and sold Level 3 investments of $Nil
(December 31, 2021 - $2 million). For the year ended December 31, 2022, the Company transferred $Nil (December 31,
2021 - $Nil) from Level 3 to Level 1 within the fair value hierarchy. For the year ended December 31, 2022, the
Company transferred a nominal amount (December 31, 2021 - $0.1 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.
60
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
The following table presents the valuation techniques used by the Company in measuring fair values:
Type
Public equities, precious metals
and share purchase warrants
Alternative funds and private
equity funds
Fixed income securities
Private holdings (including
digital gold strategies)
Valuation technique
Fair values are determined using publicly available prices or pricing models which incorporate all
available market-observable inputs.
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 and share purchase warrants. The significant unobservable
inputs used in these valuation techniques can vary considerably over time, and include gray 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 $0.3 million (December 31, 2021 -
$0.5 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.
61
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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, 2022
Dec. 31, 2021
4,998
7,913
11,881
24,792
3,932
11,991
738
16,661
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 16,820 DSUs
issued during the year (December 31, 2021 - 10,592).
12 Dividends
The following dividends were declared by the Company during the year ended December 31, 2022:
Record date
March 7, 2022 - Regular dividend Q4 2021
May 16, 2022 - Regular dividend Q1 2022
Aug 12, 2022 - Regular dividend Q2 2022
Nov 14, 2022 - Regular dividend Q3 2022
Dividends (1)
Payment Date
March 22, 2022
May 31, 2022
August 29, 2022
November 29, 2022
Cash dividend
per share
Total dividend amount
(in thousands $)
$0.25
$0.25
$0.25
$0.25
6,467
6,500
6,484
6,480
25,931
(1) Subsequent to quarter-end, on February 23, 2023, a regular dividend of $0.25 per common share was declared for the quarter ended December
31, 2022. This dividend is payable on March 21, 2023 to shareholders of record at the close of business on March 6, 2023.
62
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
13 Risk management activities
The Company's exposure to market, credit, liquidity and concentration 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 million for the year (December 31, 2021 - $4.1 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 and liabilities. The Company’s earnings, particularly through its co-investment in
private strategies LPs and credit facility drawdowns in our line of credit, are exposed to volatility as a result of sudden
changes in interest rates.
As at December 31, 2022, the Company had no fixed income securities (December 31, 2021 - $Nil).
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, 2022,
approximately $55.2 million (December 31, 2021 - $59.1 million) of total Canadian assets were invested in proprietary
investments priced in USD. A total of $12.9 million (December 31, 2021 - $13 million) of cash, $4 million (December
31, 2021 -$6 million) of accounts receivable and $5.4 million (December 31, 2021 - $3.4 million) of other assets were
denominated in USD. As at December 31, 2022, 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 $3.9 million for the year (December 31, 2021 - $4.1 million).
63
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
Credit risk
Credit risk is the risk that a borrower will not honor its commitments and a loss to the Company may result.
Loans receivable
The Company incurs credit risk indirectly through co-investments made in the private strategies 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 the
Company's 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.
Investments
The Company incurs credit risk when entering into, settling and financing various proprietary transactions. As at
December 31, 2022 and 2021, 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 the New SRO;
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, 2022 and 2021, 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.
64
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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,
2022, the Company had $51.7 million or 13% (December 31, 2021 - $49.8 million or 14%) of its total assets in cash
and cash equivalents. In addition, approximately $32 million or 40% (December 31, 2021 - $26 million or 32%) 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 private strategies LPs arises from
fluctuations in cash flows from making capital calls and receiving capital distributions. The Company manages its 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, 2022,
the Company had $6.1 million in co-investment commitments from the private strategies segment (December 31, 2021 -
$7.7 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, 2022 (in thousands $):
Contractual obligations
Lease obligation
Compensation payable
Operating accounts payable
Contingent consideration on URNM acquisition
Loan facility
Carrying
Amount
Less
than
1 year
4,515
12,342
8,641
4,352
54,437
84,287
2,062
12,342
8,641
—
—
23,045
1-3
years
4-5
years
1,665
788
More
than
5 years
—
—
4,352
54,437
60,454
—
—
—
—
788
—
—
—
—
—
—
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 and energy transition materials.
65
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
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 management services to the Company's alternative
investment strategies managed in-house and on a sub-advisory basis. In the first quarter of the year, the
Company completed the restructuring of its U.S.-based discretionary accounts operations which led to the
conversion of those client assets from administrated brokerage assets to actively managed AUM.
Consequently, these operations were reclassified to form part of the managed equities segment;
• Private strategies (reportable), which provides lending and streaming activities through limited partnership
vehicles. In the first quarter of the year, the Company renamed the Lending segment to "Private strategies" in
order to reflect the successful growth of its streaming funds alongside its traditional lending partnership
vehicles;
• Brokerage (reportable), which includes the activities of our Canadian and U.S. broker-dealers. In the first
quarter of the year, the Company completed the restructuring of its U.S.-based discretionary accounts
operations which led to the conversion of those client assets from administrated brokerage assets to actively
managed AUM. Consequently, these operations were reclassified to form part of the managed equities
segment;
• 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 investments
(as if such gains and losses had not occurred), other expenses, amortization of 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, 2022
Total revenue
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Exchange
listed
products
76,819
27,221
49,598
56,948
Managed
equities
Private
strategies
29,710
25,634
4,076
9,932
16,984
12,400
4,584
9,207
Brokerage Corporate
20,472
19,055
1,417
4,602
(3,288)
31,246
(34,534)
(10,518)
Consolidation,
elimination
and all other
segments
4,485
4,547
(62)
831
Consolidated
145,182
120,103
25,079
71,002
66
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
For the year ended December 31, 2021
Total revenue
Total expenses
Income (loss) before income taxes
Adjusted base EBITDA
Exchange
listed
products
62,983
20,641
42,342
46,449
Managed
equities
Private
strategies
34,020
27,951
6,069
14,215
25,729
18,002
7,727
8,921
Brokerage Corporate
34,556
26,245
8,311
9,768
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
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, 2022 Dec. 31, 2021
130,397
14,785
145,182
146,616
18,029
164,645
67
SPROTT INC.
Notes to the consolidated financial statements
For the years ended December 31, 2022 and 2021
15 Loan facility
As at December 31, 2022, the Company had $54.4 million (December 31, 2021 - $29.8 million) outstanding on its
credit facility, all of which is due on December 14, 2025. The increased draws on our loan facility were necessary to fund
the URNM acquisition as well as additional co-investments during the year.
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. As at December 31, 2022, 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
Base 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
The Company has commitments to make co-investments in private strategies LPs arising from our private strategies
segment or commitments to make co-investments in fund strategies in the Company's other segments. As at December
31, 2022, the Company had $5.7 million in co-investment commitments from the private strategies segment due within
one year (December 31, 2021 - $7.7 million) and $0.4 million due after one year (December 31, 2021 - $Nil).
17 Subsequent event
Consistent with the successful transition of our U.S. broker-dealer from a transaction-based business into a fee-based
discretionary account management business, subsequent to year end, we plan on selling our Canadian broker-dealer
operations to the current management team as we continue to focus on our core asset management businesses
(however, we will migrate our charity flow-through operations into our managed equities segment). We expect the
transaction to close by June 30, 2023.
68
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
Graham Birch, Director
Barbara Connolly Keady, Director
Catherine Raw, Director
Whitney George, Chief Executive Officer and Director
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 5, 2023 at 12pm
sprott.com