UPDATE 3-Sprott profit slips with lower metal prices

Thu Aug 11, 2011 6:37pm BST

Quotes

   

* Q2 net profit down 4 percent from year earlier

* Decline traced to quarter-to-quarter drop in silver

* AUM up 67.5 pct on funds appreciation, acquisition

* Funds well-positioned for current market climate - CEO

* Shares down 1.6 percent at midday on TSX (Adds CEO comments, updates shares)

By Pav Jordan

TORONTO, Aug 11 (Reuters) - Profit at Sprott Inc (SII.TO), a Canadian asset manager specializing in resources, slipped 4 percent in the quarter, partly because silver retreated from record highs, dragging down investments in producers of the metal.

Shares of Sprott initially dropped more than 3 percent on Thursday after the second-quarter results were announced, but later regained some of that ground.

Even so, assets under management surged from a year earlier, and Sprott's chief executive said its funds, invested heavily in safe-haven precious metals, were well-positioned to ride out the current turbulence in global markets.

"We believe the positioning of our funds remains strong, as markets begin to feel the pressure from weak economic conditions, continuing government debt and financial sector issues, as well as the long-term loss of currency purchasing power," CEO Peter Grosskopf said in a statement.

The Toronto-based company said net profit for the quarter ended June 30 dropped to C$7.4 million, or 4 Canadian cents a share, from C$7.8 million, or 5 Canadian cents a share, a year earlier.

Sprott attributed the decrease to a decline in the market value of portfolios and proprietary investments during the quarter, when the price of silver XAG= hit a record high of $49.51 an ounce before tumbling to the low $30s. More recently it has traded at close to $40 an ounce.

"While the correction in the price of precious metals and related equities impacted the performance of some of our funds during the second quarter, both gold and silver have recovered recently, with gold prices continuing to reach record highs," Grosskopf said in the statement.

On a conference call with analysts, Grosskopf said the company was sticking to its strategy of focusing on precious metals and the companies that produce them.

"Gold and silver shares have dramatically underperformed bullion and of course they're much more levered to that theme, and we think that there is a lot of money on the table for these gold and silver producers," he said.

Assets under management surged to C$9.3 billion from C$5.5 billion a year earlier, helped by fund appreciation and the addition of C$700 million from the acquisition of the Global Group of Companies in September.

That said, managed assets dropped 4 percent from the first quarter.

The acquisition of Global Group marked a move by Sprott to expand its global presence, raising its profile in the United States and targeting rising demand for resource-related investing.

Total revenue for the second quarter rose 47.7 percent to C$39.3 million from C$26.6 million. At the same time, total expenses jumped 78.3 percent to C$28.8 million from C$15.8 million, due primarily to the Global Group acquisition.

Management fees were up 54 percent at C$37.2 million.

Shares of Sprott, which was founded by Bay Street contrarian investor Eric Sprott and taken public in 2008, were down 15 Canadian cents, or 1.61 percent, at C$9.15 on the Toronto Stock Exchange, climbing back from earlier losses of 3.23 percent.

($1=$0.99 Canadian) (Additional reporting by Bhaswati Mukhopadhyay in Bangalore and Julie Gordon in Toronto; editing by Rob Wilson)

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