09 June 2010

Net Asset Value of Certain Precious Metals Trusts and Funds

Interestingly, the Sprott premium has been driven down to near parity with that of GTU, which has no meaningful redemption policy for its gold.

I suspect this is the result of the ham-handed way in which Sprott managed its recent sale of additional units, and the munificence with which it delivered shares to the underwriters at prices well below the market. If I had done it that way, I would have been ashamed.

TORONTO, June 1 /CNW/ - Sprott Physical Gold Trust (the "Trust") (NYSE: PHYS / TSX: PHY.U), a trust created to invest and hold substantially all of its assets in physical gold bullion and managed by Sprott Asset Management LP, today announced that it has completed its follow-on offering of 24,840,000 Units at US$11.25 per Unit for gross proceeds of US$279,450,000 (the "Offering"). This includes the exercise in full by the underwriters of their over-allotment option.
I do expect the PHYS premium to get back closer to long term trend after the excess shares are sold into the market and the profits of the underwriters are booked. The redemption feature is attractive, but the method in which Eric Sprott treated his shareholders may dampen future enthusiasm for his products.

This just serves to remind one that no trust or fund is a long term substitute for owning the real thing.