Eric Sprott To Buy $235 Million In Gold, Or Over 6 Metric Tonnes, As Part Of PHYS Follow-On Offering

Tyler Durden's picture

Eric Sprott's Physical Gold Trust (PHYS) has just announced it is issuing a follow-on offering of 18 million trust units, with an overallottment option of another 2.7 million, for a total, including the greenshoe, of 20.7 million new units. The proceeds, as expected, will be used to purchase physical gold bullion to satisfy unprecedented investor demand for a safe haven away from the central bank printing press madness. At a post-announcement per unit price of $11.40, this means Sprott will buy $235 million worth of gold in the open market. At today's gold price of $1,200 this translates into 195,833 troy ounces of gold to be acquired, or roughly 6 metric tonnes. Somehow, we don't think the LBMA will be too thrilled with this extraction of physical gold out of the controlled synthetic precious metal ponzi system.

Full press release:

Sprott Physical Gold Trust Announces Follow-On Offering of 18,000,000 Trust Units

 

TORONTO, ONTARIO--(Marketwire - May 25, 2010) - Sprott
Physical Gold Trust (the "Trust") (TSX:PHY.U)(NYSE:PHYS), a trust
created to invest and hold substantially all of its assets in physical
gold bullion and managed by Sprott Asset Management LP, announced today
that it plans a follow-on offering to the public (the "Offering") of
18,000,000 transferable, redeemable units of the Trust ("Units"). As
part of the Offering, the Trust expects to grant the underwriters an
over-allotment option to purchase up to 2,700,000 additional Units.

The
Trust intends to use the net proceeds of this Offering to acquire
physical gold bullion in accordance with the Trust's objective and
subject to the Trust's investment and operating restrictions described
in the prospectus related to this 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 the NYSE Arca and the
Toronto Stock Exchange under the symbols "PHYS" and "PHY.U",
respectively. The Offering will be made simultaneously in the United
States and Canada through a syndicate of underwriters led by Morgan
Stanley and RBC Capital Markets in the United States and RBC Capital
Markets and Morgan Stanley in Canada.

Copies of the
U.S. prospectus related to this Offering may be obtained by contacting
Morgan Stanley & Co. Incorporated, 180 Varick Street, 2nd Floor,
New York, New York 10014 Attention: Prospectus Department (telephone
866-718-1649 (toll free) or 917-606-8474) or by e-mailing prospectus@morganstanley.com,
or RBC Capital Markets Corporation, Attention: Prospectus Department,
Three World Financial Center, 200 Vesey Street, 8th floor, New York,
New York 10281-8098 (telephone: 212-428-6670, fax: 212-428-6260).

This
news release does not constitute an offer to sell or a solicitation of
an offer to buy the Units, nor shall there be any sale of the Units in
any state or jurisdiction in which such an offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.

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Turd Ferguson's picture

This is great news!!!

Should help eliminate some of the premium to NAV, too, that was keeping some investors out.

Captain Obviousness's picture

Possibly, but that depends what the NAV premium is caused by.  CEF also generally carries a significant NAV premium which temporarily evaporates when they issue new shares.  But PHYS claims to get regular capital gains tax treatment, unlike the higher "collectible" rate you have to pay in other precious metal ETF's.  I think most of the NAV premium in PHYS is due to perceived tax advantages, not due to perceived safety.  The US gov will eliminate any legitimate tax advantages PHYS currently has.  Can't let transactions in gold be too cheap, you know.

Cistercian's picture

 Sprott is chock full of WIN.The real comedy is that the more WIN he has, the more likely the ponzi FAIL.And an epic fail it will be.

akak's picture

"WIN"?

It may soothe the ego and stroke one's sense of superiority to casually and flippantly bandy about obscure acronyms, but we mere mortals would be interested in following the conversation as well.

Temporalist's picture

I think he meant WIN as in WIN not W.I.N.

Like Sprott PWNED...

jmf's picture

Moin from Germany,

add "The Gold Rush In China"  to the physical bullion mix......

http://timiacono.com/index.php/2010/05/25/the-gold-rush-in-china/

Must see clip!!

ZerOhead's picture

Yup... must see clip. The party is starting... feel the energy... feel the fear.

Soros of course is correct... gold will become a bubble... but it sure ain't yet!

Rusty_Shackleford's picture

Yeah, you gotta' love that line (as he was buying hand over fist).

Slewburger's picture

Watched Roubini on Bill Maher's show (ashamed), he was advocating spam investment instead of gold.

Maher called it antiquated. Of course the crowd laughs when the signs light up on queue.

Maher's show is filmed in NBC studios, looks like Immelts propaganda machine is running almost as fast as Uncle Bennie's press.

No bubble for us yet, but the Chinese will be laughing when the music stops and they're already sitting in their chairs.

drwells's picture

I remember a few years ago some mainstream financial analyst was recommending that you fill your garage with Plasma TVs rather than gold. I loved the fact that the asshole even managed to pick the one of the few things that actually manages to depreciate faster than green toilet paper.

Temporalist's picture

I have been a fan of Maher's for a while.  He is an "entertainer" so I take everything he says with a grain of salt.  The guests he has are worth listening to usually...when he lets them speak.

Rebel's picture

Watched the clip . . . looked like a big gold shop in a mall. Can you imagine whipping out your cash in that crowded store, getting your 1 Kg (2.2 lb) bar, and walking out with it, back through the mall and out to your car. Chances of making it home alive in US?

Mesquite's picture

At the 800+ peak, years ago, that was going on in Vancouver, Canada...(Lined up around the block to get in, even..)

Cognitive Dissonance's picture

"Somehow, we don't think the LBMA will be too thrilled with this extraction of physical gold out of the controlled synthetic precious metal ponzi system."

In all seriousness, I hope Sprott is somehow testing the physical they receive because there's a whole lot of tungsten filled Gold 400 oz bars looking for a sucker to buy.

tomb traider's picture

Would anyone consider Linden Dollars to be a safe haven?

Temporalist's picture

I have been thinking about that myself TT.

The problem I see is that without an internet connection you cannot collect, walk to your atm, write a check...it is imaginary until you convert it to real currency or use it in game.

I think it has value though but earning it in game is probably best not investing in it for the next year or three.

nobita's picture

it´s tied to the dollar genius.

btw i want to ask the crowd, do you guys have the same level of trust for central fund of canada as you do for sprott?

DoChenRollingBearing's picture

I cannot imagine that buying so many millions worth of gold that he would NOT check it.

Good for Sprott! 

A lesson here: buy gold!  Before Sprott buys it all up!

Joe Sixpack's picture

Same element, but in metallic form rather than as a carbide (as in drills). Use the drills (with or without tungsten carbide) to make holes in the gold (in non-carbide form) to check for tungsten (in non-carbide form).

 

www.Gold-Silver.US

ZerOhead's picture

Kinda brings a smile to mind when I think of the Worlds Largest House of Cards Ponzi Scheme built on only a couple of gold bars (less than 1%)... and then a guy like Sprot comes along and takes one itsy bitsy ($180MM) bar away...

Not thrilled indeed... their "doomsday" clock just moved one minute closer to midnight!

Amish Hacker's picture

Funny how GLD claims to hold something like 1,100 metric tons of AU, but their activity buying and selling never seems to have much of an impact on the rigged gold market. Then along comes Eric Sprott looking to buy just 8 tons, and suddenly everyone starts wondering if the physical market can withstand this sort of off-take.

Get physical.

RossInvestor's picture
  1. Since Rob Kirby, a Toronto-based newsletter writer, broke the story on gold-plated T-bars, I strongly suspect Sprott, who is HQ'd in Toronto, is well aware of the issue and is likely testing every bar.
  2. Trying to offload T-bars to Sprott would be one of the stupidest acts the LBMA and/or CRIMEX could possibly do, because Sprott would immediately go public with the information.  Such a revalation would casue an immediate run on both exchanges.
DosZap's picture

CD,

As I see things unraveling, what makes Sprott think all he is doing, is stockpiling it, so they can get it all in ONE fell swoop?.

Out of the realm of reality, I think a MOST likely sceanario.........

Sprott, being the billionaire he is, I doubt seriously he is as UP on the REALITY of the situation, except from a financial perspective.

Uber wealthy folks, having lived large in safe places, and prospered, most likely have not REALLY looked at REALITY, if the SHTF.

He's doing it as an investment...........he's never likely had to face a LOCKED door, and denied entrance, nor access to what is rightfully HIS.

There's likely going to be a lot of wealthy people, wondering what hell just hit em'.

'

Mesquite's picture

DZ--fyi..

In 1967, when one couldn't openly purchace Au in

USA, one could in Canada..(Even had some represented in their coinage..Course one never saw 'it' circulating..)

Double down's picture

Rumour is he is building a vault in Alberta.  Read that somewhere but I do not remember where.  

Mesquite's picture

Re: CD ..beware tungsten bars..

Now WHY would anyone 'junk' this post..??

Hmmm..

Rebel's picture

We are experiencing Junk Inflation. Anyone can sit and "print" junks as easy as FRN's. We need to go on some sort of gold standard. Each member allowed only one junk a day. Put an end to this insanity.

Cognitive Dissonance's picture

YES!!!!

Cap and Trade ZH junks.

I call first dibs on ZH junks. I'll corner the market by setting up an exchange and soak them up when supply is high and people will sell them for pennies. Then when Harry Wanger and the market both come back (admittedly there is the potential for a long wait here) I'll sell them for $10 each for those so desperate to junk Harry Wanger they'll pay through the teeth. :>)

Hephasteus's picture

Dude. I'm totally not naked shorting my junk. It's just wrong on so many levels.

Gunther's picture

That test can be done by ultrasound. Ultrasound measures speed of sound times thickness of piece.

Austrian refiner Oegussa made such a testing device until the nineties.  In German:

http://www.foonds.com/article/5714/gefaelschte_goldbarren_sind_keine_leg...

 

MsCreant's picture

Eric wants to hold it if he is sold it.

Thing is, so do I.

Meanwhile, after testing his bars, it would be cool to see more people with serious resources taking delivery.

papaswamp's picture

...that's alot of bacon

faustian bargain's picture

Newb question...does Sprott make money on fees or per-sale commissions, or on spreads? Because the way it's worded, it looks like they would like to sell the stocks at one price and then buy the gold backing it up, at a lower price. They definitely don't want to do it the other way around. So are they shorting gold, or just hoping for a well-timed dip?

dumpster's picture

commission structure

Management Fee 2.5% annual - (A) Performance Fee 10% of excess over S&P/TSX Global Gold Index
Barmaher's picture

2.5% management fee annually?  Holy Crap Batman!   Bullionvault holds more than 19 metric tons and charges 0.2% annual fees for storage/insurance within a good delivery vault.  The custodian, ViaMat, provides audits every business day.   That extra 2.3% every year would be hard to justify IMHO.

dumpster's picture

2.5 fee can be justified .. small potatoes for a large fund ... in my opinion .

 

knukles's picture

Management fees.
Read the prospecti before you fondle or invest.

The premium IMO is solely a function of the custodian, segregated and unencumbered nature of the arrangement.  After all, if you want gold, this is the safest way next to real physical coin or bars under the mattress, under the bed or in the safety deposit box that can be had today.  No loans, extensions of credit, promissory notes, delivery receipts from other alternative vaults....just real countable, shiny bars, all there in one safe place which the manager can go see at any time their little heart desires.  Plus, under most circumstances, the good custody is "backed" by the Mint (See prospectus...nice touch relative to other deals out there.

Make me all warm and....opps, mixed company!  Sorry!

chet's picture

Do you know the details on where he keeps it?  Is it really safe if the SHTF?

knukles's picture

Royal Canadian Mint. 
Define SHTF and use your imagination.
EMP.  No wire transfers.
Expropriation.  No so good.
Maggot filled ingots.  Outta Luck.
Invasion of the Body Snatchers.  WTF knows.
More Astute Political, Monetary and Fiscal Prowess displayed by world wide Power Elite. Could be Priceless.
Serve as food or smoke?  Nope, grow yer own.
Getting it on the Cheap?  NFW.  Big Premium to NAV. 
Ya' pays for a whatcha thinks a good night's sleep.

ZerOhead's picture

You look a little shady chet yet vaguely familiar... however I'm sure you're OK so I'll tell ya.

It's in the wall safe behind the fan... 36L-24R-36L

If the SHTF however...  the safe may not pass the sniff test!

chet's picture

Thanks.  I just want to, um, check in on it.  For the good of the order, and all that....

faustian bargain's picture

Sweet, you put it in a Brick....House.

MsCreant's picture

Good catch!

Built mightee mightee, just letin it all hang out.

Riley Wilde's picture

I would think Sprott makes most of his money by buying up all the new shares at NAV and then slowly unwinding his position at high premiums.  If he is not allowed to trade it himself, then you still need to ask...with the premiums at 10-25% (http://www.sprottphysicalgoldtrust.com/Net-Asset-Value/default.aspx), who captures this premium when new shares are issued at NAV? Surely an acution of new shares would be fairest to current holders.

For all its (supposed) weakneses, the creation and redemption process of GLD keeps it trading very closely to spot gold.  If you have significant holdings in GLD and are worried about its legal/ownership risks, then taking physical yourself of some gold coins or bars (which really should never be at a premium of more than 5%) seems like a far wiser idea than paying an outrageous premium for PHYS, high management charges, and uncertain tax consequences.

In fact, PHYS stores its metal at the Royal Canadian Mint. If you wanted to store your metal there too for much less cost, then try pushing Kitco to re-open their RCM Prestige Account. Alternatively there is BullionVault and GoldMoney which work out less expensive annually for the buy-and-hold investor. COMEX and GLD have their usefulpurposes for frequent trading and/or hedging of your physical. And then paying a small premium for real physical and very little to hide it somewhere yourself is probably the cheapest and wisest move of all.

Anyway, that's my two cents...

Temporalist's picture

Dylan Ratigan had Peter Schiff on today to discuss gold and the Glen Beck/Weiner spat.

Unfortunately Schiff had technical difficulties and was cut off but comes back at the end.

http://www.msnbc.msn.com/id/3096434/vp/37343028#37343028

Harbourcity's picture

That woman in that report did NOT look comfortable.  Must be her first time on TV - as some points it looked like she was going to pass out or vomit.