Sprott' offer to take over GTU

[ER59]

Re: Sprott' offer to take over GTU

I don't think it is really that much more flexible, if you read the fine print to redeem phys, you only have a small window of time each month, and you have to take one good delivery bar which is 400Oz or roughly 400,000 bucks. Too rich for me. After the new amendment to the GTU trust to allow a cash exchange for GTU shares if they are 95% of NAV or less, this makes GTU more attractive, and I guess should keep the price within 5% of NAV. However ... I think the amendment goes into effect on July 14th, and the sprott deal is closing July 1. Is this a dupe to keep some people from tendering their shares?

What if I don't tender and the deal goes through there was some clause about best efforts to convert shares ... What does that mean?
I don't get the best price???

Confusing mumbo jumbo of lawyers, maybe I should reduce my holdings just in case...

http://sprottadvantage.com/media/100...ed-booklet.pdf

What happens if I do not deposit my GTU Units in the Offer but holders of more than 662⁄3% of GTUUnits do?
If GTU Unitholders representing more than 662⁄3% of the issued and outstanding GTU Units deposit theirGTU Units in the Offer (whether making the Exchange Offer Election or the Merger Election) and do notwithdraw them prior to 4:58 p.m. (Toronto time) on the Expiry Date, then the Special Resolutions will beapproved. If the Special Resolutions are approved and the Merger is completed then GTU Unitholders thathave not deposited GTU Units in the Offer, or Non-Depositing GTU Unitholders, will receive PHYS Unitsunder the Merger as if they had deposited and made a Merger Election. See Section 12 of the Offer, ‘‘GTUUnits Not Deposited Under the Offer’’.

[ER59]

Re: Sprott' offer to take over GTU

Yes also if the premium got too big for GTU, GTU would issue new shares and use it to buy more bullion. One could trade GTU for GTU and make a nice profit, because after the new shares were announced the price would plummet.

I remember it happened once since I invested in GTU. The share price dropped very significantly. This badly hurts all existing shareholder, right?
or am I missing something?

[Milton Kuo]

Re: Sprott' offer to take over GTU

I remember it happened once since I invested in GTU. The share price dropped very significantly. This badly hurts all existing shareholder, right?
or am I missing something?

When buying something like GTU, which isn't a company that produces anything, shareholders are supposed to be buying based on NAV and not the share price. Thus, causing the share price to fall due to a reduction of NAV premium through bullion purchases and new share issuance doesn't really hurt existing shareholders since they still own the same amount of gold, minus any management fees, as before the issuance of new shares.

[ER59]

Re: Sprott' offer to take over GTU

When buying something like GTU, which isn't a company that produces anything, shareholders are supposed to be buying based on NAV and not the share price. Thus, causing the share price to fall due to a reduction of NAV premium through bullion purchases and new share issuance doesn't really hurt existing shareholders since they still own the same amount of gold, minus any management fees, as before the issuance of new shares.

I don't get it.
If I have 100 shares and today they are $10/share, my holdings are worth $1000
a week later they buy more gold and issue new shares, so the share price drops to let's say $8, now my holdings are worth only $800 - 20% loss overnight.?
If they isuue new shares at current NAV (# of new shares = new gold / NAV), then the share price should not drop, if NAV drops that means they issued more new shares, and diluted the existing shares. Right?

[rjwjr]

Re: Sprott' offer to take over GTU

I have investments in both in order to have some safety by spreading amounts around rather than all eggs in one basket. I'm not tendering my GTU shares simply because I want them to remain independent entities. If Sprott prevails then I likely sell/move half of my position.

[Milton Kuo]

Re: Sprott' offer to take over GTU

I don't get it.
If I have 100 shares and today they are $10/share, my holdings are worth $1000
a week later they buy more gold and issue new shares, so the share price drops to let's say $8, now my holdings are worth only $800 - 20% loss overnight.?
If they isuue new shares at current NAV (# of new shares = new gold / NAV), then the share price should not drop, if NAV drops that means they issued more new shares, and diluted the existing shares. Right?

Using your example of shares at $10 per share, let's assume that the NAV is actually $9. That is, each share of stock you purchased is only backed by $9 of gold. For the purposes of this discussion, let's ignore the small amount of cash that GTU typically has. Thus, even though you paid $10 per share, its intrinsic value is only $9 per share. It is the intrinsic value of each share that you're really buying. Anything over that is the premium over NAV and you cannot assume that it will exist in the future. The extra $1/share you paid is the result of inefficiencies in the market, which is not what you're investing in when you buy GTU. What you care about is the gold.

If GTU decides to issue more shares, it buys bullion and then creates new shares backed by the newly-purchased bullion for sale. I forget how such newly-created shares are priced but, assuming each newly-created share has the same weight of gold backing it as the old shares ($9 worth per share), then hypothetically GTU could sell the shares on the market at $9/share and you would not really be harmed. You would still own $900 worth of gold ($9 of gold per share multiplied by your 100 shares) if we assume gold prices stay constant for the purposes of this example.

Of course, what does happen is that the premium over NAV would likely decrease as it has in the past when GTU created new shares. I don't think losing the premium over NAV is a cause for concern because when it is time to sell, you cannot reasonably expect there to be a premium over NAV to your liking. The only thing you can expect is that the price of the gold backing the shares. If we assume for argument's sake that each share is backed by 1/130 of a troy ounce (using your $10/share example and my $9/share NAV supposition) and we sell when gold doubles from its price today, then you should expect to be able to sell at $18/share. Anything above that would be a bonus due to market inefficiencies that cannot be predicted.

The problem is what happens if the share price is below NAV as it is now. Obviously, you do not want to sell for much less than $18/share if the price of gold doubles. GTU is preparing to offer the ability for shareholders to redeems their shares at 95% of NAV, or $17.10 in our example. If the share price is higher than 95% of NAV, however, no one in his right mind would ask GTU to redeem his shares; he would instead sell his shares on the open market and get a better price.

--

To put some real, concrete numbers to the above, we use the following information about the NAV from the Central GoldTrust web site:

Gold Bullion (troy ounces)	698,496
Gold Certificates (troy ounces)	6,156
Cash (USD)	6,966,753

There are a total of 19,299,000 shares outstanding. What this means is that each share gives the shareholder ownership of approximately 1.1357 grams of gold and $0.36 of cash. [The quantity of gold per share is calculated by taking the sum of 698,496 troy ounces of gold bullion and 6,156 troy ounces of gold through certificates, multiplying the sum by 31.1035 grams/ozt, and dividing by the total share count.]

What shareholders are buying is the 1.1357 grams of gold backing each share and the little bit of cash. As time passes, management fees will eat into the cash and maybe even some of the bullion although it is possible to ameliorate management fees from eating into the bullion by buying bullion and creating new shares during times when the share price is greater than NAV and selling the share prices at a premium to NAV.

The end result, though, is that regardless of the discount or premium to NAV, each share of GTU should give you ownership rights to approximately 1.1357 grams of gold. Creation of new shares backed by newly-bought bullion should not dilute the ounces-of-gold-per-share ownership if management does its job.

[ER59]

Re: Sprott' offer to take over GTU

Thank you for the explanation
Btw, when you say ' ask GTU to redeem his shares' do you mean redeem for cash or for physical gold?

[Milton Kuo]

Re: Sprott' offer to take over GTU

Thank you for the explanation
Btw, when you say ' ask GTU to redeem his shares' do you mean redeem for cash or for physical gold?

The shares will be redeemed for cash as per the following filing made on June 24, 2015 from Central GoldTrust:

http://www.gold-trust.com/Press%20Re...15%20FINAL.pdf

The relevant text from the first paragraph:

The new feature, which will be effective upon the later of receipt of required regulatory approvals or July 14, 2015, will allow ALL Unitholders to redeem their GoldTrust Units AT ANY TIME for cash in the amount of 95% of Net Asset Value (“NAV”), based on the average published NAV of GoldTrust for the five trading days following the notice of redemption.

[don]

Re: Sprott' offer to take over GTU

In related news . . .

The Bucket Shop managed to hold gold below the 1180 level, thereby allowing most of the calls for the option expiration to go out worthless. Oh well done.

There was intraday commentary about the Greek situation which may be actually coming to some sort of resolution over the next few weeks. You may read that here.

The Supreme Court upheld 'Obamacare' today, from a highly technical objection about some wording. Despite Scalia's thuggish rant, it really was a no-brainer. At the end of the day it is better than nothing but not by much.

It is a hand-crafted piece of legislation from the healthcare and pharmaceutical industry that was spawned by the conservative corporatists and adopted by Barack 'Sell Out' Obama. Same thing for the TPP by the way, which is why it was so easy for him to team up with the House GOP to defeat his own progressives. Honor and service go begging when everyone is out for gettin' paid.

I had to laugh when I read that this is the most liberal Supreme Court in so many years. The Citizen's United boys? That is about as Orwellian it gets.

Now that they have joined to pass the corporatist TPP, the Wall Strett Dems and Republicans can get back to role playing their opposition, and whipping their ardent constituencies into frothing yahoos who will continue to go out and vote for their own demise.

In other words, if the rubes keep buying it, they will keep selling it. Just like Comex precious metal options.

I have included the statistics for the July 15 Comex Gold Calls and Puts from Last Friday when gold was about 1202 in the first two charts below.

I remember when I first looked at the distribution of the open interest on the right of them. I was stunned at the size of the option open interest because July is not a big or active contract month for gold. That comes in August. As you know in my commentary I initially dismissed the significance of this option expiration for gold because of it.

And I remember vividly thinking to myself, 'they are going to take the price of gold down below 1180 into the expiration. There is nothing to stop them in the futures contracts, no really buying pressure, and the options look like a setup. Who the heck is writing and buying these things?'

And so here we are.

Obviously the details of exactly who was buying and selling what is the key, as the apologists for the Wall Street kleptocracy like to opaquely say. But the action was concentrated enough on a 'nothing contract month' to raise a skeptical eyebrow or two.

Jesse's Cafe Americain

[charliebrown]

Re: Sprott' offer to take over GTU

Thank you for clearing that up. I think I interpreted the letter from my broker wrong, stating "if they do not hear from me before the reply date, any instructions will be processed on a best effort basis."
perhaps as you stated, my indecision will be immaterial if I choose not to tender.

Also are there any tax implications? I hold some GTU shares in a taxable account. That was murky in the documents too.

As per others on this site, I would prefer if GTU were not aquired, therefore maybe I have two independent places to park assets instead of one.

[shiny!]

Re: Sprott' offer to take over GTU

I have included the statistics for the July 15 Comex Gold Calls and Puts from Last Friday when gold was about 1202 in the first two charts below.

I remember when I first looked at the distribution of the open interest on the right of them. I was stunned at the size of the option open interest because July is not a big or active contract month for gold. That comes in August. As you know in my commentary I initially dismissed the significance of this option expiration for gold because of it.

And I remember vividly thinking to myself, 'they are going to take the price of gold down below 1180 into the expiration. There is nothing to stop them in the futures contracts, no really buying pressure, and the options look like a setup. Who the heck is writing and buying these things?'

And so here we are.

Obviously the details of exactly who was buying and selling what is the key, as the apologists for the Wall Street kleptocracy like to opaquely say. But the action was concentrated enough on a 'nothing contract month' to raise a skeptical eyebrow or two.

Jesse's Cafe Americain

Can someone please explain the implications of Jesse's post to this financially illiterate newbie?

[ER59]

Re: Sprott' offer to take over GTU

I just received some more soliciting materials from Sprott, which is very convincing to me, btw.
There they have a graph comparing 2 years performance GTU vs PHYS. According to their graph, PHYS outperforms GTU,
but when I run a 5 years comps in Yahoo Finance, it is a completely different picture - PHYS really underperforms GTU.
Question: if both invest into the same asset - gold, assuming they both are 100% invested, how come one under/out performs the other?
Is this due to premium/discount to NAV, just because one has better marketing?
Capture.jpg

[Milton Kuo]

Re: Sprott' offer to take over GTU

I just received some more soliciting materials from Sprott, which is very convincing to me, btw.
There they have a graph comparing 2 years performance GTU vs PHYS. According to their graph, PHYS outperforms GTU,
but when I run a 5 years comps in Yahoo Finance, it is a completely different picture - PHYS really underperforms GTU.
Question: if both invest into the same asset - gold, assuming they both are 100% invested, how come one under/out performs the other?
Is this due to premium/discount to NAV, just because one has better marketing?
[ATTACH=CONFIG]5648[/ATTACH]

The difference in gains is due to the discount/premium over NAV. If you buy at a time when there is a premium to NAV and sell when there is a discount to NAV, that would give you a lesser return than if you had bought and sold bullion (assuming minimal transaction fees on buying and selling bullion.) In the case of PHYS and GTU, it is possible that on a past date, it would be possible to purchase GTU at a greater premium or lesser discount to NAV than PHYS. Then as the premium to NAV decreases or the discount to NAV increases over time, it would make GTU look like it really underperforms PHYS.

However, how can PHYS really outperform GTU long term? Neither is a business that produces something and can grow; both are closed-end funds and PHYS actually has higher management fees than GTU. Clearly, the only difference on return is the discount/premium to NAV. As I have stated in a previous posting on this thread, what you're really buying when you purchase shares of GTU or PHYS are the grams of gold (and cash) backing each share.

Long term, the returns of GTU and PHYS should be very similar unless, on a specific date, the different in NAV between the two funds was quite substantial.

As for the Sprott offer, it really only offers an advantage under one or more of the following circumstances:

1. You want to sell your shares right now. Sprott's offer of a price at NAV is currently better than the greater of GTU's offer of 95% of NAV or the going market price of one share of GTU.
2. You like the Sprott company better than the Central GoldTrust company and would prefer to own a Sprott product.
3. You do not believe that GTU's discount to NAV will ever go away for it to offer better or equivalent value to PHYS.

I will not tender my shares to Sprott. Since Sprott's initial offer, they have extended the deadline for GTU shareholders to tender their shares twice. Being that GTU is not a productive company (and neither is PHYS), I do not see Sprott being so much interested in helping GTU shareholders as it is in helping itself.

[Milton Kuo]

Re: Sprott' offer to take over GTU

If anyone is still following this soap opera , Sprott Asset Management (SAM) has extended, for the third time, their deadline for Central GoldTrust shareholders to tender their shares.

I've already stated elsewhere on this thread that I have no intention of tendering my shares. The recent actions of SAM have made it very clear to me that their offer is entirely one of self-interest and is not in the best interests of GTU shareholders. Why else would SAM go to such incredible efforts to help GTU shareholders who are somehow getting a raw deal?

The most recent materials from SAM and GTU, if I understand it correctly, show that SAM, after all these months of constant solicitations, only has approximately 10% of the GTU float. Furthermore, it seems that SAM has enjoined GTU from putting into action its 95% of NAV cash redemption feature for shares.

Finally, SAM claims that GTU's trustees have some sort of conflicted custodial relationship where insiders are paid a lot of money for managing the fund. That may or may not be true but I don't see how that is meaningfully different from SAM. Instead of a small number of people being paid relatively well to manage GTU, SAM would have a larger number of people being paid relatively well to manage the same. After all, the fees for Sprott's PHYS are actually greater than the fees for GTU.

If GTU is unnecessarily lavishing a lot of money on insider managers at shareholder expense, then how is PHYS, which claims to be prudently run, somehow need even more money (greater percentage of AUM) to manage the same gold bullion?

[ER59]

Re: Sprott' offer to take over GTU

The recent actions of SAM have made it very clear to me that their offer is entirely one of self-interest and is not in the best interests of GTU shareholders. Why else would SAM go to such incredible efforts to help GTU shareholders who are somehow getting a raw deal?

Totally agree