Sprott Acquires Management of Central Fund of Canada

Transaction Highlights:

  • Sprott Asset Management (“SAM”) to acquire common shares of Central Fund of Canada Limited (CFCL) and right to administer and manage CFCL’s assets for C$120 million in cash and stock.
  • Upon completion of the transaction, all CFCL Class A shares to be exchanged for units in a new Sprott Physical Gold and Silver Trust.
  • US$300 million in value expected to be realized for CFCL class A shareholders, relative to 9% pre-announcement net asset value (“NAV”) discount.
  • C$4.3 billion in Assets Under Management (“AUM”), and solidifies Sprott’s position as a global leader in precious metals investments
  • Highly synergistic with Sprott’s current physical bullion product suite.
  • Expands Sprott’s client base by approximately 90,000 investors.

TORONTO, October 2, 2017 – Sprott Inc. (TSX:SII) (“Sprott” or the “Company”), a global leader in precious metal and real asset investments, announced today that it has entered into an agreement with Central Fund of Canada Limited (NYSE: CEF, TSX:CEF.A) (“CFCL”), CFCL’s administrator (the “Administrator”), and the controlling shareholders of CFCL and the Administrator, to acquire the common shares of CFCL and the right to administer and manage CFCL’s assets, and move CFCL’s class A shareholders to a new Sprott-managed trust. The transaction is expected to drive long-term revenue and earnings growth for Sprott and unlock significant value for the class A shareholders of CFCL.

This transaction reinforces Sprott’s global leadership in precious metals, doubling our physical bullion holdings to more than C$8.5 billion and building our total AUM to approximately C$11.5 billion. Importantly, it demonstrates how we’re executing on our strategy of increasing our precious metal sand real assets to meet growing investor interest in the sector.
— Peter Grosskopf, CEO of Sprott

Under the agreement, (i) CFCL’s class A shares will, effectively, be exchanged for units of a newly-established trust (the “New Sprott Trust”), on a net asset value to net asset value basis, which will acquire substantially all of the existing assets and liabilities of CFCL and be managed by SAM and (ii) Sprott will acquire the common shares of CFCL and the right to administer and manage CFCL’s assets for an aggregate amount of C$105 million in cash and C$15 million of Sprott common shares. The controlling shareholders of the Administrator will also receive a one-time, performance-based cash payment of at least C$5.0 million on the first anniversary of the closing of the transaction.

With this transaction, we will add another best-in- class precious metals vehicle to our product lineup, also featuring our industry-leading physical redemption feature, while materially increasing our revenue from this business line. Based on the historical trading of SAM-managed physical bullion trusts at or near the value of the metal that underlies them, we expect to unlock approximately US$300 million in value for CFCL’s class A shareholders.
— John Ciampaglia, Senior Managing Director of Sprott and CEO of SAM.

The New Sprott Trust will be substantially similar to the existing SAM-managed physical bullion trusts, Sprott Physical Gold Trust (NYSE Arca:PHYS, TSX:PHYS) and Sprott Physical Silver Trust (NYSE Arca:PSLV, TSX:PSLV), including SAM’s best-in- class physical bullion redemption feature. The New Sprott Trust’s management fee will be 40 bps of NAV, which is comparable with Sprott Physical Gold Trust and Sprott Physical Silver Trust.

Transaction Summary

The transaction will be implemented pursuant to a plan of arrangement under the Business Corporations Act (Alberta) and is expected to close in the first quarter of 2018, subject to the satisfaction of customary conditions, including receipt of regulatory, securities commission and stock exchange approvals, Alberta court approval and approval by the class A and common shareholders of CFCL. Holders of approximately 85% of CFCL’s common shares have entered into agreements with Sprott agreeing to vote all of their common shares in favour of the transaction. Sprott’s cash on hand will be used to finance the cash portion of the purchase price and the approval of Sprott shareholders is not required.