NAV Premiums of Certain Precious Metal Trusts and Funds

Yes it certainly is a Non-Farm Jobs Payrolls day.

Apparently if you stack low paying part time jobs high enough it means something.

The dollar took off on the 'blowout' jobs number. With the rest of the world in the process of cutting interest rates, the US looks to be getting ready to raise rates, which is certainly boosting the DX index, which is most heavily weighted to the euro.

One thing I have never seen before to my memory is the negative estimate I have on the Sprott Silver Trust's cash position. Keeping in mind of course that this is my estimate based on what numbers they do publish.  And it could be wrong.  But if it is, it is not for a lack on trying to find out.

I believe they have several options to resolve this, but they do not seem to be in any hurry to share this information with their unit holders.  And it doesn't appear to be for any lack of Sprott spokespersons who are available to give their opinions on so many other things.

As I reminder, I recommend nothing to anyone, ever.  I am not in a professional position to do so.  I am actively watching macro-economic developments, and then putting out my own analysis and theories about what is happening and why.  And this does involve watching individual sectors and representative firms.

I am watching these particular trust and funds because they are closed end and publish some timely statistics, meaning that there is a way to track their variance to Net Asset Value.  And they offer a useful cross section of redeemable, non-redeemable, and a mix of gold and silver.  I do not track any open ended funds designed to track the price of an underlying commodity.  Some people do.

Everyone's individual financial position is unique, requiring much more information than a public blog will have.  I put what I know and what I think out there, and people may make their own best judgements.

I bring this up now because people have a tendency to take full credit for all their successes, but their failures are orphans at best.   Sometimes people will ask for my 'opinion' on some particular notion they have, and they provide so little meaningful personal information in their request that it is obvious that they have already made up their minds, but just want to tag someone else with the decision.  It if wins, they are a genius, if it is wrong, they ought not to have listened to that other guy.

And while I have occasionally done it, I no longer like to even disclose what specific positions I may be holding because I do not wish people to 'follow' my own investing or trading, even at a distance.  That is no way to do it.  My circumstances and objectives may be entirely inappropriate for yours.

Leverage, risk and portfolio theory.  If you do not understand them, you ought not to be investing on your own.  And in general I think that in this market no amateurs should be actively trading because the probability that they will lose money is exceptionally high for the reasons I have stated many times.

 

Insider Sales on the Sprott Physical Silver Trust

Someone emailed me about this, and I wanted to get the actual data so you can see it.

It appears that Eric Sprott has sold about 3 million shares of his Silver Trust so far this month.  That is quite a bit of selling, but certainly not unheard of for someone who is a billionaire.

I have it second hand that the sales are related to a commitment that Eric Sprott has to a charitable obligation, and has nothing to do with his views on silver or the Trust.  I obviously do not know with any certainty if this is the reason.

A similar search shows no such insider sales on the Sprott Physical Gold Trust.

I do have current positions in both of  these funds, and some of their rivals. 

I did not find anything about this on the Silver Trust homepage.  I would think that some comment should be made given the size of the sales. 

Insider Sales Data for PHS (PSLV in the US)

Note:  Ed Steer reports that he called Eric Sprott and that the sales are being conducted for a charitable obligation, and that the sales are also related to his belief that miners will outperform bullion so he is shifting his assets accordingly.

One might obverse that a simple press release stating one's intentions for a very large sale or purchase is customary for the actions of a significant insider in a substantial public organization.

Net Asset Value Premium of Certain Precious Metal Trusts and Funds - Sprott 'All In' Silver

I was very surprised to see that the Sprott Physical Silver Trust has taken their cash levels, newly replenished by a follow-on offering, down to less than $2 million US dollars with the acquisition of additional ounces of silver bullion. They recently raised at least $270 million in a follow-on offering.

Their press releases do not clearly indicate if the underwriters actually executed on their additional allotment which would have brought this to $310 million. All of it has apparently been used to purchase silver bullion.

No one can say that Eric Sprott and his team is not bullish on silver at these prices.

I have not been able to independently calculate the current 'burn rate' on salaries and expenses because of the persistent activity of expansion, but it does seem that another offering is in the cards for sometime in the first quarter of 2013, unless there is some unbooked cashed still coming or a future redemption of units.

From their September 30, 2012 financial release:

"Operating expenses for the period July 1, 2012 to September 30, 2012 amounted to $377,778 (not including applicable Canadian taxes) compared to $173,762 for the same period in 2011. Operating expenses for the period from January 1, 2012 to September 30, 2012 amounted to $1,343,411 (not including applicable Canadian taxes) compared to $701,448 for the same period in 2011.

The increase in expenses was primarily due to higher legal, audit and listing fees over these periods, as well as an increase in the bullion storage fees associated with the higher volume of physical bullion held by the Trust. Operating expenses for the period from July 1, 2012 to September 30, 2012 amounted to 0.13% of the average net assets during the period on an annualized basis, compared to 0.08% for the same period in 2011.

Sprott Silver has not yet updated their listing of silver bars in inventory from this most recent expansion. As they stated in their press release:

"As of November 12, 2012, the Trust has contracted to purchase a total of approximately 7.127 million troy ounces of physical silver bullion. Once the Trust has taken delivery of all the silver bullion, it will publish the serial numbers of all bars held by the Trust on its website."

So it appears that Sprott Silver is telling the global bullion market, 'stand and deliver,' in London good delivery bars of silver, and not paper promises.

I took my own cash levels down considerably this morning, although I do remain hedged.

Sprott Physical Silver Trust Prices Follow On Offering at $13.15

As we have watched the cash levels of the Sprott Physical Silver Trust drop below $7 million in the occasional Net Asset Value Premiums calculations posted here, I have been cautioning that they were going to be doing another follow on offering to raise cash and expand the silver inventory.

This offering is generally bullish for silver as it will take another large chunk of bullion out of the spin machine, further reducing the physical basis for leveraged paper silver.

The premiums have been reflecting that anticipation for some weeks now. The offerings tend to compress the premium on the fund for a period of time.

And here it is.

Press Release
Sprott Physical Silver Trust Prices Follow-on Offering of Trust Units In An Aggregate Amount of US$269,575,000

Nov 9, 2012

TORONTO, Nov. 9, 2012 /CNW/ - Sprott Physical Silver Trust (the "Trust") (NYSE: PSLV / TSX: PHS.U), a trust created to invest and hold substantially all of its assets in physical silver bullion and managed by Sprott Asset Management LP, announced today that it has priced its follow-on offering of 20,500,000 transferable, redeemable units of the Trust ("Units") at a price of US$13.15 per Unit (the "Offering"). As part of the Offering, the Trust has granted the underwriters an over-allotment option to purchase up to 3,075,000 additional Units. The gross proceeds from the Offering will be US$269,575,000 (US$310,011,250 if the underwriters exercise in full the over-allotment option).

The Trust will use the net proceeds of the Offering to acquire physical silver bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the Offering. Under the trust agreement governing the Trust, the net proceeds of the Offering per Unit must be not less than 100% of the most recently calculated net asset value per Unit of the Trust prior to, or upon determination of, pricing of the Offering.

The Units are listed on NYSE Arca and the Toronto Stock Exchange under the symbols "PSLV" and "PHS.U", respectively. The Offering will be made simultaneously in the United States and Canada by underwriters led by Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada...

Sprott Prices the Physical Silver Trust Offering at US$13.20

Sprott is bringing their deal out at the low end of the range. Quite a haircut for those who held the trust before the offering announcement, as I had warned. That thirty percent premium to NAV was completely undeserved and was most likely the result of a short squeeze.

It is a bullish deal for the silver market in general since it will take more than ten million ounces of silver out of the market and into the hands of longer term investment in the trust.

Sprott is giving the underwriters 15 percent of the offering in the over allotment if they choose to take it. They are Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada.

(RTTNews) - Sprott Physical Silver Trust (PSLV: News , PHS_U.TO) announced that it has priced its follow-on offering of 23 million transferable, redeemable units of the Trust at a price of US$13.20 per Unit.

As part of the Offering, the company said that it has granted the underwriters an over-allotment option to purchase up to 3.45 million additional Units.  (15 percent)

The gross proceeds from the Offering will be US$303.60 million or US$349.14 million if the underwriters exercise in full the over-allotment option.

The company stated that it will use the net proceeds of the Offering to acquire physical silver bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the Offering.

Under the trust agreement governing the Trust, the net proceeds of the Offering per Unit must be not less than 100% of the most recently calculated net asset value per Unit of the Trust prior to, or upon determination of, pricing of the Offering.

Sprott Physical Silver Trust PSLV Brings Out Its Follow On Offering

As predicted.  The cash reserves of the Trust had fallen to less than $350,000 by my estimates.

Let's see how this affects the price of silver.

According to a message to the Sprott Private Wealth clients:

PRICING: will be between $13.10 to $13.75 USD, which is a 5.6% to 10.0% discount from last trade, but a 12.3% to 17.9% premium to the latest Net asset value per unit.

PSLV closed regular trading today at $14.56, but traded as low as 13.33 after hours.

And as anticipated those buying the Trust at those 30 percent premiums will take about a ten percent hit on this offering.   The premiums must have been indicative of a short squeeze and not of a shortage in physical silver per se.   And the premiums were clearly at the outer bound of the historic range.

Of particular interest will be the allotment if any to the underwriters and at what prices. I would be surprised if deliverable silver has not already been discussed and arranged if this is going to be a deal in size.  The trust may be attractive once again at a more normal premium according to historic standards.

Press Release
Sprott Physical Silver Trust Announces Follow-on Offering of Trust Units
TORONTO, Jan. 17, 2012

(NYSE: PSLV) (TSX: PHS.U), a trust created to invest and hold substantially all of its assets in physical silver bullion and managed by Sprott Asset Management LP, announced today that it has launched a follow-on offering (the "Offering") of transferable, redeemable units of the Trust ("Units").

The Trust will use the net proceeds of the Offering to acquire physical silver bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the Offering.

Under the trust agreement governing the Trust, the net proceeds of the Offering per Unit must be not less than 100% of the most recently calculated net asset value per Unit of the Trust prior to, or upon determination of, pricing of the Offering.

From a Message Sent to Clients of Sprott Private Wealth

Sprott Physical Silver Trust (TSX: PHS.U, NYSE: PSLV) is issuing new units via an overnight follow-on offering. Anyone interested, please get back to me by 7:30 a.m. EST tomorrow (Wednesday, January 18) with their order quantity. Details are below.

The offering is expected to be for between $250 - $350 million USD. Eric Sprott will be participating as Sprott Inc., the Sprott Foundation and related entities or clients will invest at least $45 million in the offering.

PRICING: will be between $13.10 to $13.75 USD, which is a 5.6% to 10.0% discount from last trade, but a 12.3% to 17.9% premium to the latest Net asset value per unit.

Please note for Canadian investors, you can purchase silver at net asset value by buying the Sprott Silver Bullion mutual fund. Silver is Eric Sprott’s top investment thesis and as such, most of you already hold a substantial amount of silver through his Funds. As at December 30, 2011, 24% of the holdings in Sprott Canadian Equity Fund were silver bullion and for Eric’s Canadian hedge fund strategies, silver bullion makes up between 29-33% of the long portfolio.

If interested in this offering, if you have any questions or if you would like to take any other action with your portfolio, please send me an e-mail or call me.

Will Sprott's Next Physical Silver Trust Follow-On Break the Bank? Or the One After That?

Surmise on my part, based on the facts at hand, but Mr. Sprott seems to have an interesting problem with his Physical Silver Trust. And that problem is indicative of a physical bullion market that is riddled with leverage and irredeemable paper, reminiscent of the Collateralized Debt Obligation and Credit Default Swaps markets, before their virtual default and meltdown.

Cash levels in his fund are rather low, down to about 2 million US dollars or so, which is not much cash on hand for a decent sized fund with a market cap of slightly over one billion US dollars. As a note, I have to extrapolate the cash on hand since PSLV does not release this figure, but they do put out the figures surrounding it. It could be as high as 4 million, which is still rather slim, and a testimony perhaps to their belief in the silver bull and low operating expenses.

But the question remains, with a premium to NAV of over 19%, and with strong demand in silver and their units, how do they respond to this need for additional cash reserves and units?

The answer of course is a follow-on, a secondary offering, acquiring more silver and adding more units, and selling them into the public demand.

Now that they have digested their follow on gold offering of several hundreds of millions of dollars, perhaps they can turn to the silver market again.

But here is the catch. Funds like Sprott don't do paper, to the extent that a listed company's equity might do. They just print more shares.

Even supposed bullion offerings like SLV and GLD do paper chases almost every week. They do swaps for for virtual metal, for example, throwing IOUs on the pile that may or may not be good in a demand crunch for bullion, because they are tracking ETFs, and not closed end funds. They have to manage inventory to the fluctuations in almost real time.

What you see with PSLV and PHYS, and funds like them, is presumably what you get, and in these days of what appears to be a shell game in the silver market, that type of product commands a substantial premium if one has some chance of taking possession in something approaching a reasonable manner.

And in this market structure, no responsible fund manager would agree to do a follow on unless they were able to secure potential bullion inventory in advance at something approaching the market price, which today is around 39.60 per ounce, and have a reasonable plan to take delivery in the foreseeable future. I hear that their last purchase took THREE MONTHS for delivery. Three months or more is a significant period of time in today's volatile global markets. Three months puts us in the historically stormy seas of October, well beyond the known horizon these days.

The current deliverable inventory at the Comex, the single largest depository of tradeable, traceable silver in North American, stands around 27 million ounces, with total value of just over one billion dollars. Not much in today's world of billions flying about, even through individual accounts.

Can Mr. Sprott obtain about 1/5 of the 'visible float' in silver bullion without buying against himself in the market, that is, raising the prices he pays by the demand he himself presents, chasing his tail in the market as it were?

He might turn to the LBMA, the storied London Metals Exchange which is the locus of bullion trade. But with their secretive inventories that change hands in daily multiples of themselves, and purported 100:1 paper leverage, the problem remains the same. When you pull actual bullion out of that system, you start raising leverage, and risk, geometrically.

Alas, the central banks do not have stores of silver which they can strategically sell into the market to satisfy demand and help their cronies in the bullion banks as they do with gold.

Doing a deal to satisfy demand in size is going to become increasingly difficult in such an imbalanced, poorly regulated market. A default tends to occurs at the core of the market, even while supply is available on the retail level, 'at the margins.' Until it is not.

In other words, you will probably be able to buy a few coins locally the day before the wholesalers default on their obligations, there is a run on supply, and nothing is available as deliverable inventory is quickly pulled off the market, except at the most usurious prices. And of course the governments intervene to save, and probably somewhat selectively, the naked shorts from ruin.

Ah, the problems of the successful entrepreneur in times of collapsing paper  and its associated delusions.

Sprott Adds 6.5 Million Ounces of Silver to Its Trust at Approximately 25.82 Per Ounce

It is my understanding that the Sprott Trust 'books' the silver when it makes the deal to acquire it, but the actual silver will not be obtained and delivered to their vaults for some weeks as the market gathers the bullion together and ships it to them.

This was a very large purchase, and it will be interesting to see if we can determine where it is coming from as inventories draw down. Many analysts watch the reports from the Comex each day for example, and how the various levels of supply fluctuate. Then again, in this paper driven world of fractional reserve inventories at the LBMA and the unallocated accounts of certain holdings it may not show up at all, at least for now. The paper game is pervasive.

Our estimate based on the available data is that they purchased 6.5 million ounces of silver at an average price of 25.82 US dollars per ounce. This is a 1.2% premium over today's spot price of 25.51, and a much larger premium over yesterday's paper prices that went as low as 24.10 intraday.

It is interesting that even on very large purchases it appears there is a premium to be paid to acquire actual unemcumbered bullion versus fractional reserve paper claims. Handling charges? lol.

Some might consider the price that Sprott paid to be a 'leading indicator' of where silver will be going. I think when the paper Ponzi scheme actually collapses silver will be much higher than that. After all, "he who sells what isn't his'n must buy it back or go to prison." Unless, that is, they are running the game. Then they just pay a fine and admit no guilt.

By the way, I have heard that it was J Aron (Goldman) leading the bear raid on gold with a 'monster short' in the futures pits yesterday. I wonder who they were acting for and whose money they lost? The CFTC could always pull the tickets and inquire, but it might very well be one of their colleagues down the street. As you may have heard, it is said that Goldman itself is accumulating bullion. I have heard of this for quite some time, and you may recall that I said when the time is right a big player like the squid will slither out of their lair and strangle the metals shorts,  and perhaps ruthlessly so.

As an aside, I get a few 'sour grapes' emails almost every day out of the many hundreds I receive. I try to read and respond to each one, with a few exceptions for the spam filter. Some think I am too liberal, some think I am too conservative. Some think I am even guilty of the crime of being French! I am not but would gladly claim that prize. If you can offer me dual citizenship please do. lol. Some believe I speak about spiritual matters too much, or mention personal matters even obliquely, or don't invite them to my restaurant for 'free meals when they are in town.' Sometimes the self-centered and self-righteous indignation is remarkably funny. How dare anyone exist who does not do so for their personal and immediate convenience! Well, we see these types on the highway almost every day, so I imagine they must be on the internet as well.

But by far the greatest complaint I am getting is that I "write about gold and silver too much."

I write about the things that I love and that interest me: good food, good people, beautiful ideas and things, the vagaries of human nature, the Spirit.

I can think of no more interesting or important phenomenon than the decline and replacement of the US dollar as the world's reserve currency. And if you are in any way influenced or affected by the world of money, believe me when I say that it is of importance to you as well. And there is no more certain sign right now of what is happening than the bull market in gold and silver, and certain other commodities.

It is time to get your affairs in order. There are times ahead that will try men's souls.

Sprott Physical Silver Trust

Here is a link for the Sprott Physical Silver Trust

I will be tracking the progress of their silver accumulation and will be working them into my Net Asset Valuation calculations as time permits this week.

I do own some shares which I bought in the IPO. I may add later if the markets indicate this. I would like to build a long term position but will  'make haste slowly' as the Romans said (Festina lente).

This is a busy week for me in a non-market related matter. For those of you who have offered their prayerful support and encouragement I thank you from the bottom of my heart.

Things can be replaced. People can't.

The Sprott Physical Silver Trust

Since silver is 'the people's gold' I would expect this trust to be very popular.

This fund has the monthly delivery option as does PHYS for gold.

Presumably the delivery will be in standard silver bars of 1000 troy ounces with a minimum fineness of .999. This is approximately 68.5 pounds avoirdupois. The bar would be worth about $18,280 at today's prices. Presumably there will be some fees involved in delivery. This size is popular with institutions.

This fund could put some stress on the silver bullion market which is already a bit tight by any measure. We assume the prospectus will indicate a negative position on leasing of the fund's silver, and the requirement not to engage in fractional reserve silver bullion.

Of course there need to be explicit auditing standards down to the bullion level to avoid some of the counter party risk appearing in some of the ETFs which deal in subcontracting with passive audits. ETFs are fine for a trade, but if one is buying bullion for insurance against currency risks, then the auditing and allocation issues become rather substantial.

Financial Post
Sprott Has a New Physical Silver Trust
Barry Critchley
Wednesday, Jul. 14, 2010

It has worked for gold plus a number of other metals including molybdenum and uranium -- though it didn't work for copper -- and the hope now for the promoters is that it will work for silver. We are talking about the Sprott Physical Silver Trust, which wants to raise capital via the sale of US $10 units.

As the name suggests, the issuer will use the proceeds to invest in physical silver bullion. "The Trust seeks to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding physical silver bullion without the inconvenience that is typical of a direct investment in physical silver bullion," states the prospectus.

The document offers a number of reasons to invest in physical bullion: It's convenient, all the proceeds will be invested in physical silver; the silver will be stored at the mint and the trust will be able to secure lower transaction costs than investors doing it themselves. But the fund is geared to those who like their income in the form of capital gain; the trust does not intend to pay any dividends.

But one wrinkle is that once a month, unit holders will be able to redeem all or some of their units and receive physical silver. It's not immediately clear why a unit holder would want to do that, other than to provide unit holders with comfort that they can get their hands on the metal...

One reason for the popularity of funds that invest in physical metals is the favourable tax afforded U.S. institutions. The prospectus talks about the capital gains advantages for such buyers: The tax rate is 15% (though it will rise to 20% by year end) on such investments compared with the normal 28% tax rate.

h/t Rodd, aka 'Silverholic'