Sprott Gold Talk Radio Season 2 Episode 6 – Sprott ESG Gold ETF

SHOWNOTES

Host Ed Coyne is joined by Sprott Asset Management CEO John Ciampaglia to discuss the new Sprott ESG Gold ETF. Ed and John detail the mechanics of how the fund works, the partners involved and how the fund differs from a traditional gold ETF.

TRANSCRIPTION

[00:00:11.710] - Ed Coyne

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

[00:00:31.670] - John Ciampaglia

Hey, thanks Ed. Good to be back on.

[00:00:34.030] - Ed Coyne

Well, let's dive right into this. I'd like to talk today about investing in gold with trust, transparency and traceability with the introduction of the Sprott ESG Gold ETF. So let's go right at this and talk about what really led Sprott to develop the Sprott ESG Gold ETF with the ticker symbol SESG.

[00:00:55.950] - John Ciampaglia

Yeah, great start. 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. And over that twelve years, we've accumulated billions of dollars of gold and silver on behalf of our clients. And we've learned a great deal about the marketplace, about the gold marketplace, and more specifically about the different types of investors. And what I would say is it's not a homogeneous group. It's not just one type of investor that buys gold. You have everything from investors that insist on holding physical gold coins or small bars in their hands right up to institutional investors that are playing with very large sums of money and are focused on institutional grade 400 ounce London Good Delivery bars. So it's not a homogeneous market. And over the years, what we have discovered in talking to thousands of different investors over time is that there is a growing segment of investors that is becoming more and more focused on what they own. They want higher levels of transparency. And I think one of the main reasons why ETFs in general over the last 20 years have proliferated is because they do provide investors with amongst the highest levels of transparency.

[00:02:20.230] - John Ciampaglia

But when you bring it back to the gold market, we increasingly get questions from institutional investors that like to know more about the gold market as they do research and diligence in the space. And they would like to know things like where does the gold come from, how was it produced, where was it produced, what are the different forms of gold? And I think that's just because they're doing prudent diligence before making large dollar investments. But I also think it comes in part because over the years, unfortunately, there have been some headline stories in the news about certain gold refiners that were accused of doing things that were offside. Gold obviously comes from certain conflict parts of the world from time to time. There are ongoing issues with artisanal gold. And so people like to know where does their gold come from? Because they don't want to wake up one day and find out that their gold investment, which is supposed to be a very safe and secure part of the portfolio could be tainted because of some kind of allegation based on where it was produced or how it was produced. So that's kind of the backstory of how this came to be.

[00:03:26.250] - Ed Coyne

Well, I think the transparency component is a big one, right? I mean if you think about gold as an investment, it's really just been the last few decades where more and more investors are using it, even though it's centuries old as an asset. I think we're onto something here with the transparency component as well as the trust of where it's coming from and the traceability of who's providing it, who's producing it. Let's talk a little bit more about that for a minute then, if we could. You talk about the history of Sprott delivering unique precious metal solutions for well over a decade now. Can you spend a bit of time talking more in detail about the Sprott ESG Gold ETF on kind of just day in, day out, how it works, the functionality of it, how are we ensuring that these are ESG type of bars? Talk a bit about how that actually works.

[00:04:14.420] - John Ciampaglia

Well, if you think about Gold ETFs, the way they operate is that different authorized participants deliver gold to the ETF in exchange for new shares. And so in that process, it's the authorized participants who take the responsibility of sourcing gold bars and gold bars, as long as their London Good Delivery 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 to be completely exchangeable with any other bar. In the case of the Sprott ESG Gold ETF, Sprott Asset Management, as the sponsor of the ETF is essentially taking that responsibility away from the authorized participant because we as the sponsor are going to be controlling the sourcing. And that sourcing of gold is really designed to provide complete traceability back to the producer and back to the actual mine site as to where this gold is coming from. So if you are an investor who is concerned about where your gold is coming from, which companies are producing it, are they good stewards, are they 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 is able to provide that kind of chain of custody back to the actual mine site.

[00:05:40.270] - John Ciampaglia

So we think it provides a great level of trust because of the transparency and the traceability that it provides. The gold that we will be buying on behalf of the trust will be coming from certain producers that we have reviewed and ensured that they are operating with very high levels of sustainability and ESG. That's very important because gold mining is an extractive industry. Obviously you have to be very careful about the way you mine any kind of 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, 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. So you're getting gold from Canada, which again is what we think is a very safe jurisdiction and it really eliminates any kind of heightened risk I would say that's unfortunately associated with other parts of the world where perhaps rules and regulations are not as onerous, government oversight, environmental regulations and so on.

[00:06:58.750] - John Ciampaglia

Obviously there are no conflicts in Canada, so you don't have any of those kinds of risks. And then there are other forms of risks that can introduce themselves into the gold supply chain. If you're sourcing gold from recycled sources, which is harder to trace, or artisanal gold, which is even harder to trace, and obviously has a whole bunch of issues related to that. So we think this is a very elegant solution in terms of investors that can feel confident investing in physical gold that was produced in a tier-one jurisdiction, by very sustainable producers and have that trust and transparency and traceability as to the goal that they own in their ETF.

[00:07:40.770] - Ed Coyne

Well, John, you talk a bit about where we're actually getting the gold from. What about stage two and three, the refining stage and the actual storage stage. How is that going to come into play when we're looking at these bars? Who are the partners for that? Why do we choose those partners and how is that going to work along with the mining partners that we joined with?

[00:08:03.060] - John Ciampaglia

Sure. So the Royal Canadian Mint, which is our long-term partner on all of our physical precious metals funds since 2010, is going to be responsible for two critical elements. One is the storage, which is very important. You want to make sure you're storing your metal with a counterparty that represents low risk, but more importantly, it's the segregated refining. And what I mean by that is we are going to be asking the Royal Canadian Mint to actually segregate the production of these 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. And 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 the segregated production and then ultimate storage.

[00:09:07.310] - 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?

[00:09:46.470] - John Ciampaglia

Well, 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. So 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 that they are guests in. It really begins with the company culture, the management teams, the boards, the incentives. We wanted to make sure these companies are not just greenwashing, that it's really integrated into the way they operate.

[00:10:58.220] - John Ciampaglia

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.

[00:11:30.660] - Ed Coyne

Well, John Sprott, as you mentioned earlier, we have 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?

[00:12:08.730] - 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. So 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. So it really depends on your personal situation and whether ESG is a criteria in your decision making or not.

[00:13:23.890] - 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?

[00:13:49.230] - 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.

[00:14:14.150] - Ed Coyne

Well, thank you for that, John. And for those of you that would like to learn more about Sprott in general, or to learn more and get more information on the Sprout ESG Gold ETF (ticker symbol SESG) I encourage you to visit us at sprout.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.

[00:15:57.770] - Speaker 3