Sprott Inc. (SII: TSX) Q3/08 Earnings Summary
For Q3/08, Assets Under Management (AUM) fell by $2.1 billion, or 27%, to $5.6 billion from $7.7 billion as at June 30, 2008. The company reported a 10% drop in AUM since December 31, 2007, reflecting net sales of $680 million and market value depreciation of $1.3 billion. Sprott reported positive net sales for the quarter of $122 million.
For the third quarter, Sprott reported total revenue, which is made up of management fees, crystallized performance fees, gains (losses) from proprietary investments, and interest and other income of $25.4 million, up 18% from $21.6 million in Q3 2007. The company noted that while management fees are earned throughout the year, performance fees (with the exception of one fund and performance fees attributable to redeemed units together termed as crystallized performance fees) are earned on the last day of the fiscal year and therefore are not included in the financial results for the first three quarters of the year.
Management fees rose by 19% to $32.9 million, from $27.7 million in Q3/07, as average AUM increased by 25% over the same period to $6.7 billion from $5.3 billion. Crystallized performance fees were $1.3 million, compared to $1.1 million for the corresponding period in 2007. The Sprott offshore funds were the largest contributors to the increase in 2008.
Unrealized losses from proprietary investments totalled $9.7 million. Net income was $3.7 million ($0.02 per share), compared with $3.5 million in Q3/07.
“… our style is either gonna be a winning or a non-winning style and its very important in these markets that you have the winning style because our results in the future will be very much a function of whether our style is correct or non correct …” - Eric Sprott
“… we have spoken at length about the fact that we think that we are in a systemic financial meltdown. I think it’s hard to dispute that we are in it. We have, however, huge forces between the Federal Reserves of the various countries and the treasuries of various countries fighting that meltdown but to imagine that we aren’t in a meltdown would be not to be aware of what’s happening these days …” - Eric Sprott
“…we also think we are in a secular bear market, we have thought that the bear market started in 2000. Yes, there was cyclical bull starting in 03 because of the ill advised manoeuvres of, I think the U.S. Fed which then caused an even bigger mania that we now have to deal with …” - Eric Sprott
“… it doesn’t bother me that the meltdown has happened. What has bothered me is that having anticipated it, that our Canadian Equity Fund has not done as well as we might have anticipated. I should point out that our hedge funds have done everything that we would have anticipated. For the most part, our just a little below the breakeven line or just a little bit above the breakeven line for the year to date. And in fact, for the month of October they are all showing increases while of course the TSX is down something like 21% …” - Eric Sprott
“… as we look forward here, so far we have been absolutely shocked at the reluctance of the gold price to sort of recognize the financial crisis that we are in and we have every confidence that ultimately it will go. We are still very confident in our energy themes, there’s not a day that goes by that we don’t get a data point that tells us that the world did in fact hit peak oil in oil in 2005 and supply will start to decrease rapidly going forward …” - Eric Sprott
“… we have tremendous confidence in the things that are invested in and the way we’ve positioned ourselves that if certain events unfold as we expect, its not out of the realm for us to imagine that gold could go to $1500 or $2000/oz and we have a very large component of our fund in gold. I might mention that in Canada, the price of gold is up year over year and there only 3 asset categories that have held their value this year in almost all countries and that is cash, government bonds and gold in most countries is at an high. In fact, Gold in Canada, about 4 weeks ago hit an all time high …” - Eric Sprott
“…subsequent to the quarter end, we in our non Canadian hedge funds will be experiencing some redemptions. I think it’s fair to say that most of the owners of offshore hedge funds tend to be financial institutions, international financial institutions – those same institutions that have issues and we will experience some redemptions in this quarter, particularly in our offshore funds. So far the redemptions in our domestic funds have been very modest.” – Eric Sprott
Regarding Sprott Moly and Sprott Consulting
“ ...it’s been quite unexciting in Sprott Moly, cause needless to say that all these stocks in the moly space have been severely under pressure here. The stock is trading at roughly half its NAV, half of the investment is in cash these days and that’s something that we will make some effort to diminish the discount between the real value and the stock value …” – Eric Sprott
" ...Sprott consulting, which consults to Sprott Resources has concluded the sale of PBS Coals to Severstal. That transaction is expected to close mid next week. We are still very optimistic about things that they might do going forward because they will end up with a fair balance sheet after the transaction …” – Eric Sprott
“...I still hold out to hope and I’m not gonna say that it’ll be at year end but our hope is that if things evolve the way we’ve anticipated them and most things that we’ve anticipated have evolved and one major thing that hasn’t evolved is the negative performance of the gold fund in the midst of a financial crisis and I’m absolutely convinced as I see the demand for gold in every country, physical gold, not gold on the commodity exchange which is a paper market but the physical gold demand has been absolutely immense and I think someday we are going to break the dam on gold and silver prices and perhaps maybe it even started recently.. you might have been aware that the silver price was up over 10% yesterday that we will ultimately win that game but we cant make the market do what we want it to do, we just have to wait for it all to play out …” – Eric Sprott
“…we feel reasonably good about the outlook going forward, we feel miserable about the performance of some of our long only funds and I can speak to the Canadian Equity Fund and the Energy Fund – it’s been a very, very difficult time but we’re optimistic that in the long run we’ll be correct …” – Eric Sprott
Regarding the potential for institutional redemptions in the offshore funds
“… as we get to November and December we may see some bigger redemptions (in the offshore funds). …we have people indicating to us that they may redeem at the end of November and at the end of December and it could ultimately be significant …” - Eric Sprott
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