Executive Summary / Key Takeaways

• Sprott Inc. ($SII) stands as a specialized asset manager uniquely positioned to capitalize on a macro environment characterized by persistent volatility, inflation, and a global reordering towards physical assets and critical materials.
• The company's Exchange Listed Products segment, particularly its physical trusts, is a primary growth engine, demonstrating robust AUM expansion and net inflows, driven by increasing institutional and retail interest in gold, silver, and uranium.
• Sprott differentiates itself through specialized product offerings, such as physical redemption options, high-exposure ETFs like SLVR (70% silver exposure), and actively managed strategies, allowing it to maintain strong fee structures and avoid broader ETF price wars.
• Despite strong performance in managed equities, investor flows have lagged, prompting a strategic shift towards actively managed ETFs to capture evolving investor preferences and leverage the firm's deep mining expertise.
• Sprott maintains a strong financial position, evidenced by a debt-free balance sheet, consistent dividend growth, and ample operating leverage, supporting its long-term growth initiatives and shareholder returns.

The Enduring Allure of Tangible Assets in a Shifting Global Order

Sprott Inc. ($SII), established in 2008, has carved a distinct niche in the asset management landscape, focusing exclusively on precious metals and critical materials investments. This specialization positions the firm as a compelling play amidst a macro environment increasingly defined by geopolitical tensions, protectionist trade policies, and resource nationalism. The company's overarching strategy is to provide investors with specialized access to tangible assets, offering both safe havens and growth opportunities, underpinned by a belief in persistent inflation and the growing global electrification trend.

Sprott's historical journey reflects a consistent commitment to this specialized focus, evolving from a boutique firm to a significant player in its chosen segments. Over the five years leading up to 2024, the company's Assets Under Management (AUM) expanded by $24.1 billion, with a notable 13% attributed to strategic acquisitions and new fund launches. This growth trajectory underscores a foundational strength in identifying and capitalizing on long-term thematic shifts in commodity markets.

A core differentiator for Sprott lies in its unique product structures and deep domain expertise. Its physical trusts, such as the Sprott Physical Gold Trust (PHYS) and Sprott Physical Silver Trust (PSLV), offer direct physical ownership, safe custodianship with the Royal Canadian Mint, and a physical redemption option. These features, coupled with potential tax advantages for certain U.S. investors, create a compelling value proposition that distinguishes Sprott from many competitors. This differentiation has allowed Sprott to avoid the intense fee-based price wars prevalent in the broader ETF market, maintaining solid fees for its unique and specialized offerings.

The company's commitment to innovation is further exemplified by its actively managed ETFs. The Sprott Silver Miners & Physical Silver ETF (SLVR), for instance, provides approximately 70% exposure to silver, a significantly higher concentration compared to the 26% to 31% typically found in competing silver mining indexes. This targeted exposure is a direct response to investor demand for pure-play access. Similarly, the Sprott Active Gold and Silver Miners ETF (GBUG), launched in early 2025, leverages Sprott's investment team's over 100 years of collective experience in an ETF wrapper, offering greater transparency and tax efficiency for investors seeking alpha in the volatile mining sector. Most recently, on September 10, 2025, Sprott launched the Sprott Active Metals & Miners ETF (METL), an actively managed fund designed to invest across the entire metals and mining industry lifecycle, including recyclers and royalty companies.

Financial Strength and Operational Momentum

Sprott's financial performance in 2025 reflects the success of its specialized strategy, particularly within its Exchange Listed Products segment. In the second quarter of 2025, AUM surged by $5 billion to $40 billion, marking a 14% increase from $35.1 billion at the end of March 2025 and a 27% rise from $31.5 billion at the close of 2024. This growth was primarily fueled by positive market value appreciation across most fund products and robust net inflows into its physical trusts. Year-to-date in 2025, AUM has increased by $8.5 billion, driven by rising metal prices and $1.6 billion in net sales.

The Exchange Listed Products segment, which includes physical trusts and ETFs, remains the primary growth engine and boasts impressive margins "a little north of 80%." This high profitability means that as this segment continues to expand, it is expected to drive higher consolidated EBITDA margins for the company. The Sprott Physical Gold Trust, a flagship product, surpassed $12 billion in assets in Q1 2025, generating $1.1 billion in net flows year-to-date, a significant acceleration compared to $350 million for the entirety of 2024. The Sprott Physical Silver Trust also attracted approximately $200 million in net flows in 2025, outperforming its closest competitor which experienced net outflows.

Despite this strong operational performance, reported net income in Q2 2025 saw a modest 1% increase to $13.5 million, up from $13.4 million in the prior year. This seemingly flat performance was attributed to a change in accounting requirements for a new cash-settled stock plan, which introduced mark-to-market and graded vest accounting under IFRS 2. This change accelerated vesting and added market volatility, largely offsetting the underlying net income generated from market appreciation and inflows. Adjusted EBITDA, which excludes such volatility, presented a clearer picture of operational health, rising 14% to $25.5 million in Q2 2025 and 12% year-to-date to $47.4 million. The adjusted EBITDA margin improved to 61% from 58% in the comparable quarter.

Sprott's Managed Equity Strategies, while delivering strong performance (the flagship gold equity fund was up 15.5% in Q2 and 46% year-to-date), experienced net redemptions of $61 million in Q2 and $81 million year-to-date. This highlights a persistent challenge of investor flows lagging performance in the mining equity sector, which Sprott is addressing through its actively managed ETF offerings like GBUG. The Sprott Active Gold and Silver Miners ETF (GBUG) has already accumulated $47 million in AUM as of August 1, 2025. The Private Strategies segment, with $2.1 billion in AUM in Q2 2025, provides a steady, albeit slower-growing, revenue stream from lending and streaming/royalty activities. While a significant portion of carried interest in Q2 2025 was a "one-off" from a legacy exploration LP being wound down, future contributions are expected from the private strategies funds as they mature.

The company's balance sheet remains robust, characterized by a strong cash and liquidity profile and a debt-free status. This financial strength supports Sprott's commitment to a high payout on earnings, with expectations for continued dividend growth. The company also remains opportunistic in buying back its shares.

Competitive Edge in a Crowded Market

Sprott operates in a competitive asset management industry, but its specialized focus provides a distinct advantage against more diversified players. While global giants like BlackRock (BLK) offer a vast array of products and technological platforms like Aladdin, Sprott's deep expertise in precious metals and critical materials allows it to offer highly differentiated solutions. BlackRock's scale and diversification generally lead to stronger revenue growth and profitability margins, with a TTM P/E ratio of 27.27 as of September 24, 2025. Sprott's TTM P/E ratio stands at 40.51. However, Sprott's niche focus enables it to maintain solid fees, avoiding the broader ETF price wars that often impact more commoditized offerings.

Against competitors like Invesco (IVZ) and Franklin Templeton (BEN), which have broader product ranges and distribution networks, Sprott's targeted approach can lead to stronger customer loyalty in its specialized segments. Invesco, with a TTM P/E of 24.18 as of September 21, 2025, and Franklin Templeton, with a TTM P/E of 38.41, benefit from larger market penetration. However, Sprott's unique value proposition, such as the physical redemption option for its trusts and the high silver exposure of its SLVR ETF, are difficult for competitors to replicate. This allows Sprott to capture over 100% of net flows among U.S. listed peers in its Physical Silver Trust since 2021, while its closest competitor experienced net outflows. Units of PHYS have grown by 109% over the last five years, and PSLV by 219%, significantly outpacing competitors.

Even against alternative asset managers like Brookfield Asset Management (BAM), which has a TTM P/E of 40.19 as of September 17, 2025, and strengths in infrastructure, Sprott's commodity-centric approach offers a complementary, yet distinct, investment avenue. Sprott's strategic move to add physical copper allocation to its Copper Miners ETF (COPP), making it the only ETF to offer exposure to both physical copper and pure-play copper miners, exemplifies its innovative approach to maintaining a competitive edge.

Outlook and Risks: Navigating the Future of Resource Investing

Sprott's outlook is firmly rooted in the expectation of continued market volatility and a "new kind of scarcity" in metal markets. Management anticipates that geopolitical tensions, protectionist trade policies, and resource nationalism will continue to place upward pressure on prices, creating a long-term premium on strategically essential metals. Gold's emergence as "the last hedge standing" amidst signs of stagflation and de-dollarization is expected to accelerate central bank gold buying and broaden investor participation.

The "nuclear renaissance" is a key driver for Sprott's critical materials thesis. Despite recent shorting pressure and market uncertainty that has kept utilities on the sidelines, management views this as transitory. They point to recent signs of utilities re-entering the market, such as a Korean utility's public RFP for almost 9 million pounds of uranium, and the upcoming World Nuclear Association Conference in September as catalysts for a market response. The projected 35 million-pound production deficit in uranium for 2025, expected to widen, underscores the long-term bullish outlook. Sprott is also strategically positioned to optimize the value of its U.S. uranium stockpile, which trades at a premium, through potential location swaps. The Sprott Physical Uranium Trust has accumulated 68.4 million pounds of uranium, having purchased 50 million pounds since its inception four years ago. It also closed an upsized US$200 million bought deal financing in Q2 2025.

Silver is seen as undervalued relative to gold and poised for a "catch-up trade" once tariff uncertainties dissipate. The company also expects further volatility in 2025 as evolving trade alliances force countries to prioritize security of supply and domestic production, benefiting Sprott's focus on critical materials produced in "friendly jurisdictions."

However, risks persist. The extreme market volatility observed since April 2025, including sharp corrections and rapid recoveries, highlights the unpredictable nature of the current environment. The Sprott Physical Copper Trust is currently trading at approximately a 20% discount to its Net Asset Value, a situation the company is actively addressing through an application for a dual listing on the NYSE with a more robust and flexible redemption option. Uncertainty surrounding government administrations and tariffs, particularly in the uranium market, continues to cause market participants to "freeze," impacting spot prices and contracting activity. While Sprott is confident in its long-term thesis, these near-term headwinds could affect investor sentiment and AUM growth.

From a financial perspective, the CFO, Kevin Hibbert, expects Adjusted EBITDA margins to continue to rise for the remainder of 2025 due to ample operating leverage, particularly from the high-margin Exchange Listed Products segment. The company anticipates its compensation ratio to remain in the mid-to-high 40% range through 2025.

Conclusion

Sprott Inc. is a compelling investment proposition for those seeking exposure to precious metals and critical materials in an increasingly uncertain global economy. The company's disciplined focus, innovative product development, and robust financial health provide a strong foundation for continued growth. While market volatility and specific product discounts present challenges, Sprott's strategic responses, including the pursuit of dual listings and the launch of differentiated ETFs, demonstrate an agile approach to market dynamics. The long-term trends of de-dollarization, energy security, and global electrification are powerful tailwinds that Sprott is uniquely positioned to harness, making it a specialist poised for sustained relevance and value creation for its shareholders.