Sprott ESG Gold ETF

Podcast Transcript

Ed Coyne: Hello and welcome to Season 2, Episode #6 of Sprott Gold Talk Radio. I'm your host. Ed Coyne, Senior Managing Director of Sprott Asset Management. Our special guest today is John Ciampaglia, Senior Managing Director of Sprott Asset management. John, thank you for joining us today on Sprott Gold talk radio.

John Ciampaglia: Thanks Ed. Good to be back on.

Ed Coyne: Let's dive right in. I want to talk today about investing in gold with trust, transparency and traceability with the introduction of the Sprott ESG Gold ETF. Let's get right to it and talk about what led Sprott to develop the Sprott ESG Gold ETF with the ticker symbol SESG.

John Ciampaglia: It's an interesting question, and I think I would start by answering that Sprott has been managing physical gold and silver assets for clients for over twelve years. Over this period, we've accumulated billions of dollars of physical gold and silver on behalf of our clients. And we've learned a great deal about the gold marketplace and, more specifically, the different types of investors it attracts. It is not a homogeneous group with just one. It's not just one type of investor who buys gold.

You have everything from investors that insist on holding physical gold coins or small bars in their hands to institutional investors that are playing with large sums of money and are focused on institutional grade 400-ounce London Good Delivery bars. Over the years, what we have discovered in talking to thousands of different investors is that a growing segment is becoming more and more focused on what they own and wants higher levels of transparency. I think one of the main reasons why ETFs, in general, have proliferated over the last 20 years is because they provide investors with some of the highest levels of transparency.

Focusing on the gold marketplace, we have been increasingly getting questions from institutional investors that like to know more about the gold market as they do research and diligence in the space. They ask about where the gold comes from, how it is produced, where it was produced, and what the different forms of gold are. I think they're doing prudent diligence before making sizable investments. I also think it comes in part because, unfortunately, there have been some headline stories in the media about certain gold refiners accused of doing things offside. Gold can often be found in certain conflict-ridden parts of the world. There are ongoing issues with artisanal gold. Investors want to know where their gold originates. They don't want to discover that their gold investment, which is supposed to be a very safe and secure part of the portfolio, could be tainted because of an allegation based on where it was produced or how it was produced. That's a bit of the backstory of how this came to be.

Ed Coyne: I think the transparency component is big, right? I mean if you think about gold as an investment, it's just been the last few decades where more investors are using it, even though it's centuries old as an asset. We're onto something here with the transparency component, the trust of where it's coming from and the traceability of who's providing it and producing it. Let's talk a little bit more about this issue. You talk about the history of Sprott delivering unique precious metals solutions for over a decade. Can you explain in more detail the day-in-day-out specifics of how Sprott ESG Gold ETF works?

John Ciampaglia: If you think about gold ETFs, they operate because different authorized participants deliver gold to the ETF in exchange for new shares. In this process, the authorized participants take responsibility for sourcing gold bars, as long as their London Good Delivery bars are completely fungible with each other. Irrespective of whether the bar was cast yesterday or whether the bar was made 100 years ago. As long as it meets the London Good Delivery requirements, the bar is considered completely exchangeable with any other bar. In the case of Sprott ESG Gold ETF, Sprott Asset Management, as the sponsor of the ETF, is essentially taking that responsibility away from the authorized participant. We, as the sponsor, control the sourcing. And that sourcing of gold is designed to provide complete traceability back to the producer and back to the actual mine site where the gold is coming from. If you are an investor who is concerned about where your gold is coming from, which companies are producing it, and whether they are good stewards and sustainable producers, then this is something that would appeal to you because we don't know of any other gold ETF in the world that can provide that kind of chain of custody back to the actual mine site.

We think SESG provides a great level of trust because of its transparency and traceability. The gold that we buy on behalf of the ETF comes from certain producers that we have reviewed and ensured are operating with very high levels of sustainability and ESG [environmental, social and governance]. That's very important because gold mining is an extractive industry. You have to be very careful about the way you mine any metal. You obviously cannot damage the local environment; you can't cause harm to the local communities that you're operating in. And I think with the two partners that we've identified, Agnico Eagle Gold and Yamana,¹ which is their partner at the Canadian Malartic Mine, we have identified two best-in-class gold producers that have a long track record of operating very safely in what we think is the premier mining jurisdiction in the world, which is Canada. You're getting gold from Canada, which again is what we believe is a very safe jurisdiction and eliminates the heightened risks associated with other parts of the world, where perhaps rules and regulations are not as onerous, there is less government oversight, environmental regulations, etc.

Other forms of risks can introduce themselves into the gold supply chain. There are many concerning issues if you're sourcing gold from recycled sources, which is harder to trace, or artisanal gold, which is even harder to trace. We think this is a very elegant solution for investors that can feel confident investing in physical gold produced in a tier-one jurisdiction by very sustainable producers and have that trust, transparency and traceability as to the goal that they own in their ETF.

Ed Coyne: John, you've discussed where we're getting the gold. What about stages two and three, the refining and storage stages? How will that come into play when we're looking at these bars? Who are the partners for that, and why did Sprott choose them?

John Ciampaglia: Sure. The Royal Canadian Mint, which has been our long-term partner on all of our physical precious metals funds since 2010, is responsible for two critical elements. One is storage, which is very important. You want to ensure you're storing your metal with a counterparty that represents low risk, but more importantly, it's the segregated refining. What I mean by that is we are asking the Royal Canadian Mint to physically segregate the production of SESG bars so that we are not commingling any gold from any Sprott non-approved miners or mines, or any recycled gold or any gold from artisanal sources. That's very important because that segregation of production is something I don't think many refiners are doing around the world right now. And we feel very confident that the Royal Canadian Mint has an excellent reputation, it's refining business globally, is our trusted partner in terms of providing segregated production and then ultimate storage.

Ed Coyne: And John when talking about that, and talking about the importance of the segregation of the storage and bringing the bars in through the mining companies and refining and so forth, at the end of the day, who's actually tracking that? Who's responsible to ensure that all ESG criteria in the SESG ETF are met? And how is that going to be audited or viewed or overseen on an ongoing basis? What are some of the stop gaps or guardrails that Sprott has put in place to ensure that these mining companies are continuing to operate at the highest standard to meet the ESG criteria?

John Ciampaglia: It all starts with us. Sprott Asset Management as a sponsor has worked very closely with the companies as well as outside consultants to perform the necessary diligence to satisfy ourselves that, one, the companies are good stewards, and second of all, that each particular mine site does not have any controversies associated with it and have good operating track records. At the end of the day, Sprott is responsible for monitoring the companies. We worked very closely with the companies, and I can say that it made our jobs easier when these companies are very committed to ESG and sustainability. Agnico Eagle, for example, just published their 13th annual sustainability report, and I think it's just a simple reflection of how serious they take this. And it's not just them. I mean, many of the gold mining companies around the world need to take ESG and sustainability very seriously, otherwise they won't have social license to produce in these communities where they are guests. It really begins with the company culture, the management teams, the boards and the incentives. We wanted to make sure these companies are not just greenwashing, that it's really integrated into the way they operate.

And these are companies that obviously have long-term track records and have demonstrated over many years that they are good stewards. We also used outside consultants to help validate some of the results so we could have objective measurements and quantitative measurements as much as we could because we do think it's important that we're taking this oversight role very seriously and people can be confident that we are putting them through a pretty tough set of criteria to ensure that they are leaders in their respective fields.

Ed Coyne: John, as you mentioned earlier, Sprott has a long history of offering unique solutions across the entire precious metals landscape. We clearly have solutions currently in place for investors to allocate to the physical market, whether it's gold, silver, or even platinum palladium, and as we all know more recently uranium. Who do you envision being the investor? What is your target audience in your mind? Who will be allocating to this space and maybe talk a little bit about how this is different from what we currently offer to our shareholders? How should they be thinking about this as an allocation going forward?

John Ciampaglia: We designed these products to complement our flagship product, which is the Sprott Physical Gold Trust. PHYS has been in existence since 2010. It is almost $6 billion, and it has an incredible track record of delivering value to shareholders since its inception. We think for most investors, that fund will serve them very well. But for some investors who are more and more focused on transparency around where they're buying their gold from, if certain investment funds or institutional investors or family offices are adopting more ESG criteria into their selection process, this is something that they should look at. ESG is really the defining differentiator here. For somebody is very focused on that, whether you're an individual investor or a large institution, I think this product is the one you probably should look at. For most investors, PHYS is going to serve you very well. For US retail investors, there's a potential tax advantage incorporated into the fund that people should consider and etc. It really depends on your personal situation and whether ESG is a criteria in your decision making or not.

Ed Coyne: Great, thank you. I think that's going to be helpful for a lot of our listeners as they navigate the waters. As we've all seen, there are becoming more and more choices out there for investors to allocate to precious metals in general, so I think it's helpful to get that insight on how to think about it. Before we end this podcast, is there any final thoughts that you'd like to leave the listeners with, when thinking about precious metals in general or specific to ESG?

John Ciampaglia: I would say that I think it's important that people do their homework and spend some time on our website to understand what the differences are between the two. We have two very compelling offerings and again, it's not a homogeneous market. There are very different investor segments and quite frankly, we'd like to cater to all of them. Whether ESG is important to you or not, I think it's important that we have a range of solutions to meet different investor needs.

Ed Coyne: Thank you, John. For those of you that would like to learn more about Sprott in general, or to learn more and get more information on the Sprott ESG Gold ETF (ticker symbol SESG) I encourage you to visit us at sprott.com, and learn more about how Sprott can help guide and advise you on the multiple ways to allocate to precious metals. My name is Ed Coyne, your host of Sprott Gold Talk Radio, and thank you for listening.

¹As of March 31, 2023, Agnico Eagle, upon acquiring Yamana Gold's interests, now owns 100% of the Canadian Malartic Mine. Pan American Silver Corp. also completed its acquisition of Yamana Gold on 3/31/2023.