Prepared remarks
Good morning, everyone, and thanks for joining us today. I'm starting on Slide 3. On the call with me today is our CFO, Kevin Hibbert; and John Ciampaglia, CEO of Sprott Asset Management. As you can see from Slide 3, all the turmoil has not aged us a bit. Our 2025 second quarter results were released this morning and are available on our website where you can also find the financial statements and MD&A. Slide 4. 2025 continues to be an eventful year. Since the April 2 Liberation Day tariff announcements, we have witnessed extreme volatility in all markets. A 20% correction in the S&P 500 Index, followed by a full recovery to new highs in one quarter is extreme, but not unexpected. As I noted in this quarter's letter to shareholders, we expect more of the same going forward. In the short term, we don't know what comes next, and we will avoid making any predictions. Turning now to our results.
I'm pleased to report that our Assets Under Management increased by $5 billion in the second quarter to $40 billion. Net sales continued to accelerate during the quarter due to the rising interest in multiple metals. In addition to strong ETFs, precious metals physical trust, we also completed two capital raises in the Sprott Physical Uranium Trust, which John will speak to more about in a few minutes. Our Managed Equity strategies continued to perform well, delivering strong results in the quarter and over the first half of 2025 and we also benefited from carried interest and performance fees crystallization in our Managed Equities segment. Earlier this year, we launched two new precious metals ETFs, and we are very pleased with the early results from these strategies. The Sprott Active Gold and Silver Miners ETF, our first actively managed ETF and the Sprott Silver Miners and Physical Silver ETF have been two of our most successful ETF launches to date hitting key AUM thresholds more quickly than any of our previous. With that, I'll pass it over to Kevin for a look at financial results.
Thanks, Whitney, and good morning, everyone. I'll start on Slide 5, which provides a summary of our historical AUM. AUM finished the quarter, as Whitney noted, at $40 billion, up 14% from $35.1 billion as at March 31, 2025, and up 27% from $31.5 billion as at December 31, 2024. On a three- and six-month ended basis, we benefited from positive market value appreciation across the majority of our fund products and positive net inflows to our physical trusts. Slide 6 provides a brief look at our three- and six-month earnings. Net income this quarter was $13.5 million, up 1% from $13.4 million over the same three-month period last year. On a year-to-date basis, net income was $25.5 million, up 2% from $24.9 million this time last year. Our flat net income performance was caused by a change in accounting requirements brought on by our new cash-settled stock plan that took effect this year largely offsetting much of the net income we otherwise generated on market appreciation and flows into our physical trusts and carried interest and performance fee crystallization in our Managed Equity segment.
By way of background, cash settled stock plans like the one we implemented this year require the use of mark-to-market and graded vest accounting under IFRS 2 which creates the dual impact of accelerating the amount of vesting that occurs each period and adding market volatility to each vested amount. In our case, at a time when our stock has appreciated 54% in the quarter and 64% on a year-to-date basis. In contrast, last year, we had an equity settled stock program, that required each vest to be valued at the original grant date fair value on a constant basis over the entire amortization period. Adjusted EBITDA, on the other hand, which excludes quarterly volatility from items such as stock-based compensation, FX volatility and intermittent carried interest and performance fee crystallizations was $25.5 million for the quarter, up 14% from $22.4 million over the same three-month period last year and was $47.4 million on a year-to-date basis, up 12% from $42.1 million this time last year.
Adjusted EBITDA in the quarter and on a year-to-date basis benefited from higher average AUM on market value appreciation and inflows to our precious metals physical trust. However, offsetting these positives was our finance income being down due to last year's higher syndication fees and our net commissions also being down due to last year's Copper Trust IPO and higher ATM activity in our Physical Uranium Trust. Finally, Slide 7 provides a few treasury and balance sheet management highlights, and as you can see there, our cash and liquidity profile remains quite strong. For more information on our revenues, expenses, net income, adjusted EBITDA and balance sheet metrics, you can refer to the supplemental information section of this presentation as well as our quarterly MD&A and financial statements filed earlier this morning. With that said, I'll pass things over to John.
Thank you, Kevin, and good morning to everyone. We appreciate your participation. We experienced very strong operating results in the second quarter. As Kevin noted, there was significant asset growth in our physical trusts product suite, driven by a combination of market appreciation and net flows. Gold, silver, platinum, palladium, and uranium all performed well during the quarter. Assets under management amounted to $31 billion as of August 1, marking an all-time high for the physical trusts product suite. As the funds continue to grow, they benefit from a scale effect that enhances liquidity, which attracts more institutional capital as they begin reallocating to the metal sector. Moving on, we recorded our strongest sales quarter in the last three years, fueled by renewed interest in multiple metals. Our business excels when several metals are performing simultaneously. As we've noted in previous quarters, metals like silver are finally seeing a catch-up trade with gold.
Silver remains undervalued compared to gold and is still significantly below its 2011 high. Since the start of 2021, our Physical Silver Trust has captured over 100% of net flows among U.S. listed peers, allowing us to substantially grow our market share of assets. Regarding uranium, our Uranium Trust completed two innovative capital raises, which received strong backing from institutional investors. With these proceeds, Sprott has acquired another 2 million pounds of uranium, increasing our total stockpile to 68.4 million pounds. Since Sprott's inception four years ago, we have purchased a total of 50 million pounds of uranium. Moving to our suite of ETFs, we have seen a significant recovery in assets under management since the market lows in early April, rebounding to $3 billion. We are very pleased with the initial market response to our two latest ETF launches. The Sprott Silver Miners and Physical Silver ETF, ticker SLVR, has started strong with approximately $170 million in assets.
For context, many new ETFs launch and only attract around $5 million in their first year. Our first actively managed ETF, the Sprott Active Gold and Silver Miners ETF, is also gaining momentum and is nearing $50 million. We believe there are substantial opportunities to grow our market share with these new ETFs, and they are very scalable. Overall, it was a solid quarter for ETF flows despite mixed results by product type. The precious metals mining ETFs are leading the flows, while uranium mining ETFs have recently faced some redemption pressure. We believe this shift is due to some investors moving towards the downstream segment of the nuclear energy sector, as more market participants recognize that we are entering another nuclear renaissance period. We expect this trend to be temporary, as the price of uranium remains low in our view, and uranium mining stocks present good value to capture potential upside. Now, I’ll pass it to William.
Thank you, John. We'll move now to Slide 12 for a look at our managed equity segment. As I mentioned in my opening remarks, our managed equity strategies have performed well this year. Our flagship gold equity fund was up 15.5% during the quarter and has gained 46% year-to-date. However, flows continue to lag performance and we reported $61 million in net redemptions during the quarter and $81 million on a year-to-date basis. One of the reasons we launched Sprott's Active Gold and Silver Miners ETF was to capitalize on investors' current preference for ETFs over mutual funds. GBUG, it allows strength of our investment team in an active strategy within an ETF wrapper, which is more transparent and tax efficient for investors. We are pleased with the early response to this new strategy, which actually yesterday just surpassed $50 million in AUM. Looking ahead, we expect to launch at least one additional active ETF before the end of 2025.
I'll turn now to the private strategies on Slide 13. Private strategies AUM was $2.1 billion, down slightly from March 31, 2025. The decline reflects a net decrease in investments quarter-over-quarter, new investments less distributions to our partners across the lending and streaming and royalty segments. The team continues to assess new investment opportunities for Lending Fund III and is actively monitoring our streaming and royalty portfolio investments. Slide 14. To recap, we're pleased with our results over the first half of 2025. AUM has increased $8.5 billion year-to-date, driven by rising metal prices as well as $1.6 billion in net sales. Metal markets are experiencing a new kind of scarcity, which is placing upward pressure on prices. The global trade and inventory system for some metals is starting to break down due to geopolitical tensions, protectionist trade policies, and resource nationalism.
The result is greater volatility in spreads, higher regional price differences, and a long-term premium on strategically essential metals. Gold has set a new series of record prices out to a 12-year high and Platinum was recently at its highest level in 10 years. Prices may stay elevated even without significant changes in traditional supply-demand metrics because it has become harder for metals to flow freely around the world. At Sprott, we're fortunate to be extremely well positioned to create value for our clients and our shareholders with an asset base divided between precious metals and critical materials investments. We look forward to reporting to you on our progress in the quarters ahead. That concludes our remarks for today's call, and I'll now turn it over to the operator for some Q&A.
Questions and answers
Our first question comes from Matt Lee from CG.
Maybe starting with the housekeeping one. Can I just ask you how you determine the market value changes in private strategies? Like, is it that market-to-market? Or is it recognized on the underlying investments to reach maturity?
Matt, it's Kevin here. Good question. The accounting requires us to use pull-to-par accounting because these are loans. It is essentially amortized cost, but we also believe that amortized cost reasonably reflects the market.
But some of them have like equity components, right, in the private strategies. And inevitably, if it's gold related and given how well the gold market has done, in theory, there's some market appreciation that's not captured in that market value change.
Well, when you're dealing with those types of equity kickers, they actually come out, and then the pull-to-par accounting helps return you to that ultimate amortized cost value. In times like this, where the market value has increased significantly, you will see some of that, but the equity kickers generally represent a relatively smaller portion of the overall value of those loans.
All right. Got it. That's helpful. And then maybe can you just give us an idea of what you're seeing in the uranium market in general? Spot market does seem to have pulled back a bit in the last month. But if you read the news, U.S. executive orders, international demand, both seem to point towards kind of an upswing. Is that kind of what you mean when you're saying there's going to be a nuclear renaissance on the way?
Matthew, it's John. Yes, sure, I'd love to pick up on that. Yes, I think it's fair to say that there's been kind of a disconnect between the physical uranium market and the overwhelming shift of energy policy support back to nuclear energy over the last three years? Most of that disconnect has been in the last 12 months, and it's been related largely to uncertainty around, obviously, the incoming administration. It was also in part to the price of uranium dumping very sharply in 2023 and early 2024, which I think made some utilities cautious about chasing the price. Now that we have some clarity in terms of the Trump administration's position with the four executive orders, which were incredibly holistic and beneficial for the sector as well as clarity on tariffs, which were not applied to uranium products or related fuel services, I think we're really set up right now for utilities to come back to market.
And I'll just share a quick stat with you, which I think is very important. The industry basically operates through long-term purchase agreements. And to August 4 year-to-date, the industry has signed a grand total of 30 million pounds of contracts for future delivery. That's about one-third of replacement rate so far year-to-date. So it really signals that utilities have not been actively buying. They've been on the sidelines because of all the distraction and noise, but we just yesterday got an early sign that a Korean utility came to market through a public RFP process for almost 9 million pounds of uranium that they’re looking for. And we're now moving into the seasonal start of the contracting cycle, which starts with the World Nuclear Association Conference, which will start the first week of September. So we think that the utilities are finally starting to emerge from their hibernation and the price and the term market and the spot market should respond accordingly to that.
Our next question comes from Etienne Ricard from BMO Capital Markets.
I'd like to cover copper. The Physical Trust is trading at quite a discount to NAV. I'm curious what do you think needs to happen for this discount to narrow? And more broadly, how is the current volatility to trade policies impacting demand for the Copper Trust?
Yes, Etienne, it's John. I'll address that. The most significant aspect of the copper market, which I will start with, has been the recent disconnection between CME and LME prices. This was largely due to uncertainty and tariff threats, where CME prices for copper stored in U.S. warehouses were approximately 30% higher than those in European warehouses. This discrepancy has resolved itself in the last few days as tariffs were not implemented as widely as expected. The disconnection between the two markets has now equalized, creating considerable uncertainty and stress for traders and end users. Regarding the Copper Trust, we recognize that it is trading at a discount, which we find unacceptable. Currently, it is trading at about a 20% discount, which is quite unusual compared to our other funds. We have taken steps by filing an application with the New York Stock Exchange and the SEC for a dual listing of the vehicle. This dual listing would include a more flexible redemption option, both physical and cash redemptions, which we believe would significantly incentivize closing the discount to NAV if approved. We are currently in a quiet period with the SEC, but this is our primary effort to improve the product and reduce that discount. Additionally, an institution under stress has been selling shares, which I think has contributed to the situation.
Thank you, John. And a question maybe for Kevin. On operating expenses, can you remind us what incremental margins Sprott could achieve given the rising net flows?
Sorry, I don't understand the question.
Well, so currently, you're generating about 60% adjusted EBITDA margins. How do you think about incremental margins as you raise more AUM?
Okay. Got you. Okay. Thanks for that. Well, I think one of the things that can help you or any analyst or investor looking at the story to get a sense of what's left as far as margin expansion opportunities. As the earnings base grows. And to the extent that, that growth is coming primarily from our Exchange Listed Products segment, what will just happen is you'll see a greater proportion of that business making up the consolidated results. And if you just look at the margins of that business, it's a little north of 80%. So in other words, as that business continues to grow and make up a bigger proportion of our overall consolidated results, you should see that 60% margin climbing higher. In theory, if the Exchange Listed Products segment made up a significantly bigger portion of the overall business, then you would see the number getting closer to that 80% number there. But as Whitney's mentioned over the last few quarters, we do reinvest in the business to continue to achieve that growth.
And so that will offset that climb a fair bit as well. So basically, if there was a high end, you're probably looking at somewhere a little closer to where the exchange listed business is right now, which is, I think it's Page 14 of the shareholders' report. And then the low end would be, to the extent the Managed Equities business became a bigger portion since that's the lower margin segment that we'd have.
I'd add to that, we would like to grow the lower-margin businesses because they carry higher fees on AUM. So we would trade off margin expansion for absolute net income growth for sure. But we've been blessed by having these physical trusts do very well. And it's certainly our hope that other divisions catch up at some point.
I apologize for adding to that, but it was another valid point made by Whitney, and those businesses are where all the carry and performance fees originate.
Our next question comes from Graham Ryding from TD Securities.
Maybe I could start on the carried interest performance fees. Can you share some details about the contribution in the quarter from one fund that was winding down and also from your active mining equity fund? Can you provide some insight on the mix?
Yes, sure. It's Kevin here, Graham. How's it going? So I'd say probably roughly about 65% to 70% would have come from that legacy Exploration LP and the rest would have come from our resource exploration and development and active equity fund.
Okay. And then on that, it looked like the sort of the payout or the compensation payout was quite low relative to the, I think, $15 million in total carried interest and performance fees. Any reason why that was so low?
Yes. The majority of it originated from the Legacy LP. When we restructured the business and exited certain areas, we were left with the exploration LPs that we are currently cashing in on and in the process of closing down. Consequently, the individuals who would have had a larger claim on that profit and loss statement are no longer with us. This puts us in a favorable position to retain those earnings for our shareholders, and that is essentially the reason.
Yes. Okay. That makes sense. And then my last question on this theme is just can you give us any sort of color on sort of outlook maybe multiyear or next year, how you're thinking about the outlook for carried interest and performance fees because if I look historically, I think you're averaging about 3% of your net fees would come from carried interest and performance fees. But this quarter was obviously a big outlier. So it doesn't feel like we should be using this as a run rate. But can you give us any sort of color on what your expectations are?
Do you want me to take that, Kevin?
Yes, sure, Whitney.
So generating performance fees, carried interest in the second quarter has been unusual. We have one small fund. It's an exploration partners fund that crystallizes performance fees semiannually, but most of our funds in Managed Equities calculate them and get them at year-end. So that's kind of the timing of most of these come. And then, of course, there is a lending franchise, and those are long-term partnerships, and we earn those fees at the end of those partnerships. Lending Fund II will wind up sometime maybe late next year. And that's when those lumpy performance or carried interest would show up, but I think it'd be very hard. I certainly wouldn't try to model them in on a long-term basis.
Okay. Understood. And then my last question, if I could be a bit greedy here, just flows quarter-to-date. It looks like I'm estimating about $100 million or just north of $100 million. Does that sound right?
John, do you want to take that?
Yes. Graham, I don't have the number in front of me. I think it's fair to say that with heightened volatility in metals markets, which is what we've been experiencing, obviously, for the last two months, that does put us in a stronger position to issue new equity because of the requirement we need to achieve, which is issued above NAV. So that volatility, while markets and traders don't like it, it's actually positive for our business. And we have seen pretty consistent sales, and it seems as though platinum carries the baton for a few weeks and then it goes to silver, and then it goes to gold. And I think that's what's really helped our business is that we've had multiple metals kind of pulling the load and contributing here. So I think that's why we've had such good sales in the last four months or so.
And just remind me, Graham, you were saying what number did you say, Graham, you said $100 million, you have roughly?
Yes. For your exchange-listed products, I had just over $100 million a quarter like basically through July?
Yes. We're probably a little higher than that.
On the other hand, we have had redemptions in some of our ETFs, particularly the uranium ETFs. So that's a little bit of an offset that might bring you down a bit.
Yes. So with the offsets Whitney talked about and what you're probably missing, you probably want to be a little closer to $150 million.
Our next question comes from Mike Kozak from Cantor Fitzgerald.
Whitney, John, and Kevin, I have two questions. First, on a broader level, you mentioned having multiple metals performing well, with gold at all-time highs and silver reaching a 14-year peak recently. Additionally, you reported a significant cash increase in the second quarter, with around $20 million in free cash flow. How do you approach the dividend policy at the corporate level? Would you consider a special dividend given the current performance of multiple metals?
We brought that up with a lot of our shareholders. Most of them don't like special dividends. I always thought that if particularly when we've got performance fees or carried interest or one-off kind of windfalls that might be a way to distribute to shareholders. But I think the current thinking is that we're going to continue to maintain a high payout on our earnings. And if things persist and continue to grow, certainly, you should expect the dividend to grow. We are coming into kind of a difficult period for markets in general. And so we remain committed to buying shares back opportunistically. And there are always a few items worth looking at in the acquisition area, but none significant, I would say, at this point.
Okay. And then my second question, and John, you kind of mentioned on the call, and I would agree with you that rightly or wrongly, the interest in the last couple of months has been elsewhere in the nuclear fuel cycle, specifically with the conversion enrichment, some of the SMR tech companies. My question is, would you consider an ETF that tracks that section of the fuel cycle, I certainly think it would be well received in current market conditions.
Mike, nice to check. Yes. Look, I mean, we're obviously very opportunistic and innovative at Sprott. I think our track record confirms that. And we're always looking for new ideas. We have strict criteria around what we will do and not do. ETFs are very crowded. So the last thing we want to do is to create another me-too product. But we do acknowledge that the interest in the space has shifted somewhat. Some of those stocks have gotten way ahead of themselves. So we have to be kind of mindful of what people are chasing. But yes, we're always open to different ideas, but we don't also want to stray out of our lane, which I think has been very helpful, and it allows us to really build on our core strengths and our competitive advantages.
Yes. If we can find a way to make something better that brings our mining expertise to bear, that's certainly something we'd look at. But again, we want to be focused on what we think we're best at, and that's in metals and mining.
Okay. I'm showing no further questions at this time. This concludes the question-and-answer session. I would now like to turn it back to Whitney George for closing remarks.
Thank you, everyone, for participating in this call. We appreciate your interest in Sprott and look forward to speaking to you again after our third quarter results. Have a great day.
Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.