Ninepoint Flow-Through Update

Ninepoint 2022 Flow-Through Update

The NAV for the Ninepoint 2022 Flow-Through - National Fund Series A and the Ninepoint 2022 Short Duration Flow-Through Fund on December 29, 2023 was $8.26/unit and $13.30/unit, respectively.

We have always stressed to clients that commodities and resource equities are incredibly volatile. The performance of flow-through funds will range from spectacular to awful. After two years of posting triple-digit after-tax returns in the 2019 and 2020 flow-through limited partnerships, microcap resource equities underperformed in both 2022 and 2023. Underperformance was most pronounced amongst microcap, gold exploration equities which comprise most of the flow-through fund portfolios. The underperformance of microcap, gold exploration equities in 2023 was baffling since gold bullion appreciated 13%. However, the gold bullion outlook has improved markedly. At the December FOMC meeting, the Federal Reserve abruptly changed course when it signaled a willingness to significantly reduce the federal funds rate in 2024. Historically, gold equities have dramatically outperformed during Fed easing cycles as illustrated below. If this thesis comes to fruition, unitholders who will be provided with liquidity when the 2022 flow-through funds rollover in mid-February may be best served to remain invested in the rollover fund.

While digesting the performance of the 2022 LPs, I would like to remind investors of the track record and the need to evaluate returns on an after-tax basis. I would also remind clients of the importance of remaining committed to the flow-through strategy during poorly performing periods because the product track record clearly illustrates the benefit of consistent participation.

Investors are routinely fixated on pre-tax returns. This is surprising considering investors rarely capture those returns on an after-tax basis as most investors are taxed on capital gains and income. When evaluating the returns of a flow-through fund the only meaningful measure of performance is on an after-tax basis considering it is a tax mitigating product. Although after-tax return figures are not calculated until the fund is terminated, investors should consider some of the following points when gauging how the investment is performing on an after-tax basis. Many investors incorrectly evaluate the performance of the fund based on the initial investment of $25/unit and as a result, do not account for any of the tax benefits.

It is also important to remember the $25/unit is not adjusted for initial fees, premiums paid to acquire flow-through shares or tax benefits. Most importantly, it is critical that investors understand how impactful the tax benefits are to the per-unit economics. As disclosed in the 2023 Short Duration Flow-Through LP prospectus, the breakeven point on an after-tax basis for an Ontario investor taxed at the highest marginal rate is approximately $11.75/unit, which assumes only 25% of the portfolio qualifies for the Critical Minerals Exploration Tax Credit. The bogey for a flow-through fund is the aforementioned after-tax breakeven point, not the $25/unit initial offering price. Investors need to understand this to correctly evaluate the performance of any flow-through fund

Ninepoint 2023 Flow-Through National Update

The NAV of the Ninepoint 2023 Flow-Through National Fund, Series A on December 29, 2023 was $16.47/unit.

The fund successfully raised $33M in April 2023. 100% of the initial proceeds were invested by year end. 62% had been allocated to gold mining equities, 12% to base metal equities while uranium and other metals account for the balance. The portfolio currently consists of 30 companies with a weighted average market capitalization of $105M. The weighted average premium paid was 5%.

As disclosed in the 2023 Flow-Through LP prospectus, the breakeven point on an after-tax basis for an Ontario investor taxed at the highest marginal rate is approximately $12.00/unit. Note that this breakeven figure does not include the enhanced Critical Minerals Exploration Tax Credit. The bogey for a flow-through fund is the after-tax breakeven point, not the $25/unit initial offering price. Investors need to understand this to correctly evaluate the performance of any flow-through fund.

Ninepoint 2023 Short Duration Flow-Through Update

The NAV of the Ninepoint 2023 Short Duration Flow-Through Fund, Series A on December 29, 2023 was $23.51/unit.

The fund successfully raised $20M in October 2023. 100% of the initial proceeds were invested by year end. 60% had been allocated to gold mining equities, 22% to uranium equities and 18% to base metal equities. The portfolio currently consists of 20 companies with a weighted average market capitalization of $70M. The weighted average premium paid was 2%.

As disclosed in the 2023 Short Duration Flow-Through LP prospectus, the breakeven point on an after-tax basis for an Ontario investor taxed at the highest marginal rate is approximately $11.75/unit. The bogey for a flow-through fund is the after-tax breakeven point, not the $25/unit initial offering price. Investors need to understand this to correctly evaluate the performance of any flow-through fund.

Jason Mayer CFA, MBA
Sprott Asset Management
Sub-Advisor to the Fund

References

1. Peer Group includes: Middlefield, Frontstreet, NCE, Brompton, Maple Leaf, CMP
2. Peer Group includes: Middlefield, Frontstreet, NCE, Brompton, Maple Leaf, CMP, Canoe
3. Peer Group includes: Middlefield, Frontstreet, Maple Leaf
4. Peer Group includes: Middlefield, NCE, Brompton, Maple Leaf, CMP, Canoe
5. Peer Group includes: Middlefield, NCE, Maple Leaf, CMP, Canoe
6. Peer Group includes: Marquest, Maple Leaf
7. Peer Group includes: Middlefield, Brompton, Maple Leaf, CMP
8. Peer Group includes: Middlefield, Maple Leaf
9. Peer Group includes: Middlefield, Maple Leaf, CMP
10. Peer Group includes: Maple Leaf
11. Peer Group includes: Middlefield, CMP, Maple Leaf
12. Peer Group includes: Middlefield, Maple Leaf
13. Peer Group includes: Middlefield, CMP, Maple Leaf
14. Peer Group includes: Middlefield, Maple Leaf
15. Peer Group includes: Middlefield, CMP
16. Peer Group includes: Middlefield, Maple Leaf