Sprott Inc (SII) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2014 third-quarter results conference call. (Operator Instructions) As a reminder, this conference is being recorded today, November 13, 2014.

On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provision of the Canadian Provincial Securities law. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements.

Certain material factors or assumptions are implied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectation and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for this quarter and Sprott's other filings with the Canadian securities regulators.

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

Thank you, operator. Good morning, everyone, and thanks for joining us today. With me on the call today are John Wilson, the CEO of Sprott Asset Management; and Steve Rostowsky, our CFO.

Our Q3 results were released this morning and are available on our website, where you can also find the financial statements and MD&A. I'll start on slide 3 with a review our third-quarter highlights.

After delivering solid performance through the first eight months of the year, most of our funds experienced a setback that began in September, as precious metal and energy stocks sold off. However, our investment performance remained positive through the first three quarters of 2014, with CAD170 million in market value appreciation.

Our overall AUM has proven resilient despite the headwinds in our sectors and our overall defensive positioning and stands at CAD7.4 billion at the end of Q3 compared to CAD7.8 billion at the end of Q2.

During the quarter, we launched two new funds, including our first ETF, the Sprott Gold Miners ETF, ticker SGDM. The ETF trades on the New York Stock Exchange and has performed well since it was launched in July. It's actually raised more than CAD90 million in assets, which after some of the sector losses, stand currently around CAD75 million, CAD80 million and outperforming its main competitor, the GDX.

We've also expanded our specialty lending franchise with the introduction of the Sprott Bridging Income Fund. Finally our capital book, which stands at about CAD320 million, continues to deliver strong results, with an annualized return of approximately 12%.

It's been a busy quarter at Sprott Asset Management, where we've continued to revamp the franchise. And I'd like to introduce John Wilson, who can talk about some of the recent highlights and new additions to the team.

Thank you, Peter. And you're right; it has been a busy couple of months. I want to hit a few of the key highlights on slide 4.

First of all, as many of you know, Jason Meyer joined Sprott two years ago with a job of revitalizing our flow-through franchise and has done a great job. We did close an additional CAD20 million in our flow-through LP in the third quarter and that brings our total raise year to date to just over CAD35 million, which has been a great job in a very difficult resource market. And we really believe the flow-through franchise is now set up continue its growth and be a major competitor in that space as we move into 2015 and beyond.

On top of our success on flow-through on the US side, our team down there under Rick Rule closed a ten-year limited partnership on exploration that raised close to CAD30 million and was well oversubscribed, showing that despite the difficult resource markets, we continue to have people focused on the long-term potential of the sector.

And then finally, we continue to look at the opportunities out there to add talent and we see significant opportunity and we were able to close on two of them recently and I'll talk to both of those.

Earlier this week, we did announce that Whitney George will be joining Sprott from Royce and Associates. Whitney was with Royce for a very long time and he helped it grow to become one of the largest and most respected small-cap managers in the US, with well over $30 billion in AUM.

Whitney is going to stay in New York and he's going to be a key part of our effort to grow our US and international business. We think he can also play a strong role growing the awareness of our existing products, such as the physical trust and the new ETFs.

On top of Whitney joining us, he is bringing -- well, we have assigned letter of intent to bring two of the funds with him with combined AUM of about $285 million and that's still pending regulatory and shareholder approval. I think it's important to note that beyond the opportunities for us of having Whitney join us, Whitney saw a tremendous opportunity to become part of our team and he is planning to become a significant equity investor in our firm.

In the Canadian side, we announced two new portfolio managers who are going to deepen our investment team here. James Bowen and Jon Wiesblatt, both of whom have a great long-term record picking stocks and who we think we can build new businesses with as well as improve existing businesses, including the Canadian equity fund.

They most recently came from a Toronto-based longshore hedge fund, where they delivered impressive performance during their time there.

Now with those comments, I'll pass it over to Steve to review our financial results.

Thanks, John. Good morning, everyone. I'll start on slide 5 with a look at our assets under management. Our AUM were CAD7.4 billion as of September 30, 2014, a decrease of CAD479 million from the end of Q2.

The decrease in AUM during the quarter was largely due to a decrease in market values of CAD558 million, which was slightly offset by net sales of CAD61 million and an acquisition of CAD18 million, which was the Sprott Bridging Income Fund.

Our AUM held steady through the first two months of the quarter, but fell fairly significantly in September, as precious metal sold off and energy prices declined steeply. Unless this trend reverses over the next six weeks, we expect the same factors to also have a negative impact on our fourth-quarter AUM.

Turning now to AUM and AUA changes by product type. Our asset mix is relatively unchanged from the end of Q2. Our physical bullion businesses, which remained the largest contributor to our total AUM, decreased by CAD320 million during the quarter, mostly due to the markets as well as about CAD20 million in net redemptions.

Our mutual funds recorded CAD95 million in net sales during the quarter, which was offset by CAD139 million in market value depreciation. Our alternative investment funds as a Group reported CAD12 million in redemptions and CAD49 million in market value declines during the quarter, while our fixed term LPs declined by CAD30 million during the quarter.

Moving on to slide 7, which gives you a breakdown of our revenue for the quarter. Management fees were CAD20.3 million, reflecting an increase of about CAD800,000 or 4% from the comparative period. Average AUM for the quarter was CAD7.8 billion, about 5% higher than the corresponding period last year.

Commission revenues were CAD2 million for the quarter, reflecting an increase of about CAD500,000 from the prior period. There was some private placement activity early in the quarter, which resulted in higher commissions than last year.

Interest income was CAD5.3 million during the quarter, up from CAD3.3 million in Q3 2013, due largely to the performance of the loan book and cash from last year's Sprott Resource Lending acquisition.

During the three months ended September 30, 2014, we recorded CAD4.3 million in losses from capital invested in proprietary investments compared with a gain of CAD1.3 million in the third quarter last year.

In the third quarter of last year, other income included two large nonrecurring items -- a break-fee from the termination of a management contract and the purchase gain related to the SRLC acquisition. The other income of CAD4.3 million for the third quarter this year is largely due to foreign exchange gains, given our larger holdings of US denominated cash and loans.

Looking now at summary financial information, total expenses for the quarter were CAD21.5 million, a decrease of CAD8.9 million or 29.3% from the third quarter last year. However, the decrease was largely due to decreased compensation expenses, but in the comparative period last year, again, there were two large specific items.

So on a run rate basis, our salaries and benefits expense for Q3 is reflective of our current situation. As discussed in previous quarters, discretionary bonus accruals are higher than last year due to the inclusion in 2014 of income relating to the management of capital, including the loan portfolio following the Q3 2013 acquisition of SRLC.

Trailer fees for the quarter increased by over 20% compared with the same period last year. This was a positive development as our trailer paying assets, particularly mutual funds, have increased.

G&A expenses were about CAD400,000 or 6% higher than Q3 last year. The increase was primarily due to subadvisory fees and higher marketing costs mainly relating to the launch of the Sprott Gold Miners ETF and the Sprott Bridging Income Fund. These increases were partially offset by decreases in regulatory fees, fund subsidies, and general G&A expenses.

Adjusted base EBITDA for the quarter was CAD11.4 million or CAD0.05 per share, up from CAD5.9 million or CAD0.03 per share in the third quarter of 2013. Net income for the period was CAD4.5 million or CAD0.02 per share compared with a net income of CAD13.5 million or CAD0.06 per share for the three months ended September 30, 2013.

The next slide shows the EBITDA reconciliation in more detail. The slide is self-explanatory, but we thought it would be useful to show the components of the adjustments included in the adjusted based EBITDA metric.

The adjustment for gains and losses on proprietary investments and loans differs from the income statement amount by about CAD200,000 because the income statement includes resource loan-loss provisions, whereas those are not added back for the purpose of calculating adjusted based EBITDA.

Slide 10 provides a snapshot of our current capital position. We currently have an extremely strong balance sheet, with CAD320 million in investable capital as well as an undrawn line of credit. We have a disciplined capital allocation framework in place and we'll be judicious in the deployments of balance sheet capital.

With that, I'll pass it back to John.

Thanks, Steve. Looking at slide 11, I wanted to talk quickly about where we are moving into 2015. And on that note, we see a great opportunity to continue to build on the diversified Canadian platform we've created over the last couple of years.

But a key focus on improving not only our investment management and performance, but also leveraging that to build new businesses. A key element of that has been repositioning our brand away from the traditional perception as a resource-oriented firm with a focus on precious metals towards a firm known for being a differentiated provider of new strategies that help our advisors add value to their client portfolios.

Now we have a number of new strategies that we are focused on bringing to scale as we move into 2015. We have a strong fixed-income offering that we continue to focus on and you'll see more effort behind in 2015 to build that into a bigger scale platform.

We have built a very good base in the marketplace in what we call alternative income, ways to generate yield and income for our advisors and their clients without taking rate risk or investing in traditional instruments. And the launch of our bridging offering is a key example there.

Third, we are seeing good momentum in our real asset offering and we expect to make great progress in 2015 as we bring those funds to scale. And finally, after a few very difficult years in our sector-oriented funds, we think there's an opportunity in 2015, mostly because many competitors are leaving those areas, for us to add scale on our sector-based funds.

With that, I'll hand it over to Peter to talk about our US and international efforts.

Thanks, John. On the resource side of the business, we will continue to expand our passives business, both in the US and internationally. The early results from the SGDM are very encouraging, despite negative market conditions, which is always a good sign. And we think there could be opportunities to leverage our expertise in resources to expand and build a broader ETF franchise.

The next step for us will likely be the launch -- US launch of a junior golds ETF in early 2015. We believe the current sea change in resources requires a new approach and we're in the process of developing next-generation funds and hedge long only lending and private equity for resources.

After a good start in 2013 with our Chinese and Korean efforts, we were not able to realize on our objective of announcing large-scale commitments on the year to date. However, we are close and we will continue to look at building new institutional business through winning substantial mandates.

The second part of that strategy is with the addition of Whitney George, we can look at a more general asset management business in the US. The downturn in precious metals has taken a toll on many of our competitors and we continue to selectively evaluate acquisition opportunities. We'll look at opportunities, both in-market and internationally.

Finally, while we are confident in our ability to advance our business plan and vision and we believe our positioning will pay off in the longer term, we're also committed to prudent expense management. And in the absence of a significant rebound in energy and resources, many of our efforts will look towards cost-cutting in the future.

I guess that concludes the remarks for today's call. I'll now pass it back to the operator for questions. Thank you.

(Operator Instructions) Geoff Kwan, RBC Capital Markets.

I just had one question for you. You talked about in your presentation about wanting to be a global leader in the precious metals investing and also you've been looking at doing some M&A internationally. And my question is a little bit broader then, just broadly more in resource investing.

Are you able to, in terms of reaching out to more broadly in the institutional part of the market, and also to the extent that you want to touch the retail outside of North America, can you do that with the current platform that you have or do you need to maybe look at doing some sort of either acquisition of somebody outside of North America or build a greenfield-type operation to try and grow that business?

Thanks for the question, Geoff. The answer is that we have everything that we need. The acquisitions that we've been looking at in the past internationally, we've hoped to gain one thing in particular that we haven't had, which is a committed institutional shareholder base.

So we've looked at it from the perspective mostly of clients additions or distribution. What we found is that we are doing everything we need to already, in terms of fund management on our existing platform.

I think in terms of retail distribution, the ETF is really the answer internationally. The ETFs are just so much easier to purchase for such an absolutely huge retail base that it's the natural way to grow. We haven't found anything on the retail side that we've looked at in international markets. That's mostly been institutional.

Okay. So if you wanted to go out and whether or not it's in Asia or in Europe and stuff like that, are you able to do it with the North American listed type products or would you have to do something more local there?

Well, if your answer is on retail, anyone who wants a passive product can buy those ETFs in almost any market. So for passives, those are good internationally. For a direct retail -- a managed fund for retail investors, we would have to partner in a local market with a distribution partner.

Okay, thank you.

Graham Ryding, TD Securities.

Could you just maybe provide a little more color on where you're at with the Sprott Resource Lending LP?

Yes, so we continue to run approximately CAD125 million to CAD150 million in those strategies. We do have some outside partners, but they are really just syndicate partners at this stage.

We were very close, as you know, to a large scale subscription earlier this year and we hope to revisit that the near future. We've been out there talking to people for most of the year and we think we have a good chance for success to launch a more institutional fund in the near future.

Okay, great. I think it was mentioned as resource loan losses of approximately CAD200,000 in the quarter. How does that compare to previous quarters?

They have been really -- Graham, it's Steve. They've been pretty small in previous quarters. It's pretty much the same. I think it's just interest on a couple of loans, where there were a couple of loans that you -- that aren't performing. We have to accrue the interest and then provide against it, just under accounting rules.

The loans that we have in the portfolio are as different than sort of more traditional kind of bank loans, because you have really good coverage ratios. So a lot of times, it's lent with 2 or whatever times the asset based loans, so coverage ratios.

So we do look at valuation every quarter, but you also look at coverage and the assets that those are lent against before you write down the loans. So there's no loans that are -- through three quarters were impaired to the extent that we actually had to write them down. No resource loans, anyway.

And I'll answer that question in a more broader context as well. All of our significant positions in the resource lending book are on side. We are fortunate that we don't have any workouts to deal with.

And there is from quarter to quarter some accounting slop that gets created just from mark to markets on various security positions that we inherit through the loans. And we are still working through our last real estate position, which is just about -- we're just about out of. So it's going very much on plan in that portfolio.

Okay, so the two loans that are not performing, has that changed at all in the subsequent quarter, given there is a little bit of further weakness or what's your visibility there?

No, it hasn't changed.

Okay. And then just lastly on the performance fee side, overall, it sort of looks to us like it's pretty limited for your funds this year. Is that accurate and then is there any visibility with Sprott Resource Corp. or Toscana for performance fee outlook there?

Yes, Graham, I think you're correct. Our sources -- our performance fees are going to be similar to last year, the private credit fund, something from Toscana, and maybe a couple of our other funds, but they are small and/or close, so it's hard to predict. So I think our performance fee visibility is really not that much different than last year at this point, but we still got two months to go.

Okay, appreciate it. Thank you.

Gary Ho, Desjardins Capital Markets.

First question is for John and Peter. Decent net sales this quarter, particularly on the mutual fund side. Can you give me a little bit more color on where flows are going into in particular and can you give an update on AUM in the enhanced products? Thanks.

Hi, it's John Wilson here. Well, our flows on mutual funds continue to be led largely by the enhanced series of products. We did see some flows start to come in to some of our other funds as well, which was a focus for us as we moved to the second half.

And you know, to be successful as we move into 2015, we clearly expect to keep growing the enhanced franchise, but we also, as I mentioned earlier, have several other categories which we want to keep growing or get to scale.

The enhanced franchise in total is sitting over CAD800 million -- actually, just under CAD900 million at this point. And it continues to see pretty good flows on a daily basis.

Okay. And then on a related question, it seems like you guys are getting traction in your diversification efforts, seeing funds are going into enhanced products as well as announcements of the new hires.

And correct me if I'm wrong -- their primary focus is not resource or energy driven in particular. I'm not sure if you can quantify, but how much of your assets are kind of non-resourced focused and where do you want to take that to, let's say, over the next five years?

Well, I'll take that in two parts. So in terms of our diversification effort regarding talent, you're right that the two new gentlemen we have joining us are what I'll call stock pickers. They may be in resources, they may not, they don't care.

They are looking to generate alpha through making money for clients. And their history has been much more broad-based than the resource, sector obviously. So in that sense, they add more diversified equity stockpicking talent to our team and we do think there's some interesting businesses we can build with them, based on their past success. So that is a key focus for us.

If you look at our asset mix, obviously a big component of our AUM remains the physicals, which are clearly resource-oriented funds. But in our active managed products, well over half of our actively managed funds now are non-resource funds.

It's something that we do track primarily because of, obviously, the difficult resource market, we want to have more than half of our business levered to things that aren't in resources at the moment, because it allows us to swing the growth momentum of the Firm.

In terms of a long-term target, I'll tell you honestly, I don't have a percentage in mind. Ideally, I want both sides of the ledger to grow significantly from these levels.

Resources will obviously depend more on the general commodity markets that they're leveraged to and harder to call on a short- to medium-term basis, whereas we think regardless of what happens on that side, we can continue to meaningfully grow the diversified side.

So until commodity markets turn around, we're going to try and do our best job in those categories. We are going to be a survivor in those categories. We're going to actually continue to try and launch new products in those categories, but we think we can definitely grow our AUM regardless on the diversified side.

In all likelihood over the near to medium term, you're going to see that percentage continue to decline.

Okay, perfect.

And for a little bit more color, Gary, if you look at our -- broad asset management's AUM mix, if you take out the physicals, both the physical class and the physical bullion funds, about 40% of the active manager is in resource and about 60% in non-resource focused mandates.

Okay. Thank you very much.

Paul Holden, CIBC.

Peter, I want to ask you a little bit about the potential for cost reductions. It sounds like you're very busy launching new products, adding additional portfolio managers. I think that's the right strategy and makes sense. I'm just wondering how we reconcile that against the potential for cost reductions?

Well, I'll answer by saying first of all, the easy pickings on cost reductions have mostly been done. That said, we're still a little fat in some places. It's not going to amount to a large number, but it's significant enough to say we're going to go ahead and do it.

You're right; we're investing in our franchise. We believe those investments are going to pay off and we are also taking risk on new product launches. And not all of those will work out, but we think on balance, they will. And it's tough to cut costs when everybody's busy doing that.

So if there needs to be a more substantial rounds, we've got a lot of water yet to go under the bridge. And as John said, to us, it looks like we're close to the bottom of the U here and that both sides can grow pretty substantially. So the last thing you want to do is let go of good people that are launching good products when you could have very big payoff in the near future.

So there's still a little easy fat to take off and after that, it's going to be much more difficult. And we really want to see how our road marks are going next year. We think it's going to be a very crucial year for us to grow during.

Okay, got it. And then in terms of the two funds you intend to inquire from Royce, I assume those are retail funds?

Yes. And just to be clear, those funds are very closely associated with Whitney himself. One is a hedge fund and the other is a closed end fund, which is exchange traded. They're both very interesting long-term vehicles in the US market and they have a very distinct style of performance and strategy.

But to be clear, we are affecting a transfer to ourselves. We're not paying a large purchase price. We have some expenses in bringing them over, but we feel both are capable of growing in and of themselves.

Okay, okay. So you don't think you're actually going to have to pay a true transfer price to Royce, then?

It's more complicated -- no. The short answer is no.

Okay. Okay, fair enough. And then so if it's more retail funds that you're bringing over with Whitney, how will it help you grow in the institutional space?

Well, Whitney has been in the funds business for a long time and is a very well-known portfolio manager. And he has in the past courted institutions. It's not been a big part of his business, but he is certainly known.

And I think what's particularly valuable to us that for his knowledgebase and contact base, precious metals and resources constitute an important component of what he does, but he's a generalist and I think he can speak very well for the Firm in a general context.

Okay, fair enough. Now you've already answered a few questions around the Sprott Resource Lending and I don't want to beat this to death, but obviously, we're concerned for a reason, given the way commodity prices have come off, including post-quarter and.

So maybe some more context in terms of why we should be comfortable around the performance or continued performance of the loans. Anything you can give us in terms of asset coverage might be helpful.

Okay, well, we have -- the bulk of our book is with pretty substantial resource credits and there's a lot of repayments that are coming up that are already funded. And so when we look at our book, the vast majority's in very safe credits that are covered well over what conventional covenants would entail. There's a smaller component of the portfolio that's more risky and even within that smaller component, I think that the coverage ratios are still on average, probably 4 to 1 net worth to loan.

And so yes, those companies are struggling, but in one case, we might have the gold on a heat bleach pad that we can extract no matter what happens. In another case, we might have oodles of coverage in another way.

We think we're well covered. And so we've been on any occasion that we think there's risk, we've been providing aggressively for it and we don't think we have to provide here. So we're good.

The interest payments are good. What has not been good is the bonus payments. And clearly in a year like this, where we would have realized 20% gross returns in the past, we are struggling to make 15%. Because every time we take a bonus, it gets cut in half. So that part of it's been a bit frustrating.

We still have a big cash component and a big component of our capital book is invested, in a broadly diversified sense, in seed investments and other funds. So overall, I'd say it's very liquid and pretty safe.

Okay, that's very helpful. Thank you, Peter. One final question and maybe a broad part to it and a smaller part is with respect to CRM2 -- obviously, very topical and something we are discussing on the other asset management conference call.

So maybe can get your broad thoughts and the sort of smaller part of that question is how CRM2 might specifically impact the flow-through business, given that the benefits of the flow-through product won't show up on the performance reporting?

So it's John Wilson here. This is obviously have been a well-discussed and somewhat complicated transition as you move towards CRM2. I'll give you a few general thoughts on it in terms of our business and its impact and then I'll talk quickly on your comments on flow-through.

So it's not -- in our mutual fund business and in our advisor relationship channel, by far the biggest category of fund flows have been -- over the last few years transitioning towards fee-based class funds. And that's -- obviously, we see that our major channel partners as they prepare for CRM2.

Related to that, when we offer funds -- and I'll use enhanced as an example. It's available in corporate class, so as people -- they choose to switch out of one fee category into another, they can do that relatively seamlessly and I think that's a key advantage for us.

But you know, this is going to be a big transition for the advisor network. I think it's going to be a great opportunity for bigger books of business. I think a lot of these smaller books of business that haven't transitioned or maybe not up for the transition and that's an opportunity for those bigger books of business through M&A to acquire them and become even bigger.

I think importantly, our greatest traction is with big books of business. That's sort of core segment for what we offer and so I think that's good for us.

On the flow-through, you're right -- flow-through, at the best of times, is a complicated selling proposition, not least of which because it's always difficult to remind people about the tax implications later. Once they look at the fund performance, they always have to remember it's a tax effective fund performance and that's never been an easy exercise.

Certainly, this transition won't make it any easier. We recognize that, but the key supporters in that category for us have been advisors that are truthfully just trying to do the right tax effective things for their clients.

They have always had to have a pretty specific dialogue on flow-through with those key clients that support it anyway. So I'm not sure that changing the reporting is going to change it that much.

So we'll have to wait and see, but it's not like all of the advisors do flow-through. It's a very small subset that focus on it and put a lot of effort on it and because of that, already have a pretty detailed conversation with their clients on it.

Okay. Thanks for your answers. That's all the questions I had.

(Operator Instructions) Scott Chan, Canaccord Genuity.

Peter, just on the institutional side, you said you are close to closing. Was that on the existing clients or is that potentially new institutional clients?

No, that would be new clients.

That would be new. And with the resource market decline in the last four months, has it tempered the outlook of coinvestment opportunities on the institutional side versus the start of the year?

Well, no one's in a hurry, that's for sure. Look, ironically it's -- and I think they understand that -- it's a distressed sector, so there's lots of great opportunities to invest and I think it's a perfect time to be starting up. But given the returns, everybody is reluctant until all the i's are dotted and t's are crossed. And they all have due diligence advisors and it just takes a while. It takes a frustratingly long period of time.

Okay. Just on a clarification on when these funds coming over. The CAD285 million, is that going to be added towards AUM and earned a fee on or is it --

Absolutely, but it won't come in until January or February at the -- I think February maybe. First-quarter sometime.

First quarter sometime. And how has Whitney's reforms been long term on the two funds? Do you have that available?

Sorry, what was your question?

Just Whitney's performance track record over the long term, is it --

So these funds go back to the early 2000s, so well over 10 years. He's had a very good long-term track record. On a relative basis, his performance hasn't been as strong the last three years, given his -- we have some focus on real assets, but it's still been on an absolute basis pretty good.

So he's just been a great long-term investor, focused on small mid-cap stories and a deep value guy. So he'll go through periods when value is not as -- on a relative basis, not performing as well, but his long-term numbers have been very strong.

Okay. And then just maybe the final question for Steve. You talked about trailer fees and you had the sequential uptick in the quarter. Is that due to more front-end? I'm just kind of curious to see why it upticked with that, with the market declines on the retail side.

Just more mutual funds. Well, there's two aspects. One is mutual fund sales generally, particularly the enhanced, but there are some others. And not particularly front-end loaded. We do some low loads, but it hasn't been a lot. We don't do any full sort of 5% commission business. We've never been in that business.

Also, the funds that SPW historically held, Sprott Private Wealth, have historically been the older established funds. And those have declined faster. Those trailers eliminate on consolidation. So what we're seeing is external trailers and those have picked up, as sales of the mutual fund assets have accelerated this year.

Okay, got it. Okay, those are all my questions. Thanks a lot, guys.

Aram Fuchs, Fertilemind Capital.

I was wondering if you could comment a little bit on Sprott Korea and its relationship with Woori. You've mentioned in the past that it's a bit of a hybrid, I think, it was the language you used, where it's sort of like an asset management and it is sort of like an i-banking deal. You've never really talked about the economics of that model, though. Can you give us a little more detail?

Sure. It's an institutional fund. It has the largest institutions in Korea as investors. The deal with Woori is a joint venture, so we do split fees with them. It's a 10-year deal.

It funds under management for the purposes of calculating the fee, double under certain conditions, so the notional maximum is CAD750 million and we start out at a number that's lower than that, about half.

The fee is not that substantial. After we pay for office costs and all the cost of supporting the business, we do not make a big profit margin on those assets, but we do make some money.

The real advantage is A; if the fund is successful and we deploy the balance of the capital, the fee doubles. So then it starts to make a reasonable contribution to EBITDA and that would be next year.

B; the performance fee potential. So if the assets perform over hurdles, those performance fees could be good. And then C; the most important thing is that we've got a fully established and qualified asset manager in Korea and we are right now going after additional mandates there. So that's the real upside.

Okay. And are the hurdles government bond hurdles, bullion hurdle? What is the reference index and is it like a performance fee -- is it like a [20] on top of a 1 management? Can you tell us more about that?

No, the fees are lower than that. They are institutional style. And rather than talk about the exact hurdles, I'd say you are talking about relatively little contribution on EBITDA at this stage.

You're talking about very low kind of single-digit millions of EBITDA in performance fees and management fees going forward. It's not a big contributor at this stage.

Got it. And the tests in order to get the increased AUM -- they are just performance or what are the hurdles they have to pass there to get the increased assets? I mean, is it automatic or is it still involving a decision from your customer?

No, it has to do with how the money is deployed. And quite frankly, you're getting into areas which are too minor to describe in detail.

Okay. It's just not that important?

No.

Okay, great. Thank you very much.

There are no further questions at this time. I will turn the call back over to the presenters.

Okay. Well, thank you, everyone, for participating in the call. We appreciate your interest in our Company. We look forward to speaking to you again after our year-end results. Thanks again.