The Royal Canadian Mint is expanding its gold bullion business through a novel new product that will give investors another avenue to gain exposure to the hottest financial asset on the planet.
The Mint announced an initial public offering Monday for exchange-traded receipts (ETRs) that will provide holders of the unique security direct ownership in physical gold bullion held in custody at the Crown corporation's facilities in Ottawa.
"The Mint has operated a refinery and storage business for a hundred years and we have been refining precious metal products for that long as well," said John Moore, an executive director with the Mint's bullion and refinery business. "We've had customers tell us that they are looking for an easier way to purchase, store and sell gold, and from our perspective this really is a natural extension of our core business."
The IPO for the new gold bullion ETRs, which will trade on the Toronto Stock Exchange, is being arranged by a group of banks led by TD Securities and National Bank Financial and is expected to close sometime in November.
The Mint expects to raise nearly $250-million in net proceeds, which will then be used to purchase gold on behalf of the initial ETR purchasers on the closing date of the offering.
The gross spot price of each receipt is $20, and once expenses and commissions to the agents are accounted for, each receipt can be expected to purchase 0.012 ounces of gold based on the current bullion price of US$1,725 an ounce. The receipts will carry an annual service fee, which is equivalent to a management expense ratio of 35 basis points. There are no other ongoing costs.
Mr. Moore said the Mint has been working on this program for a long time and that it fits nicely with the company's core competencies.
He said the ETRs are unique because they give investors direct beneficial ownership in gold. In other words there is no third party between the investor and the Mint. At the same time, it is a pure play on gold, unlike many gold funds that use complicated financial instruments to gain exposure to the yellow metal.
Mr. Moore noted the new ETRs are part of an unallocated storage program that gives customers the option of picking different denominations when they decide to redeem their receipts for physical products.
While marketed here in Canada only, the new ETRs will have great appeal for foreign investors as well, he said.
"When you look at our brand combined with one of the best physical redemption packages available in the market today and very efficient and competitive management fees, when you wrap that bundle together, I think we are pretty unique," he said.
John Ing, president and CEO of Maisons Placements Canada, has been hearing rumblings the Mint was looking at options to enhance their bullion business for a couple of years. He said demand for physical gold has been increasing due to rising counter party risk and increasing question marks about gold ETFs that use future contracts and other derivatives.
As the custodian for existing bullion funds, such as the Sprott Physical Gold Trust, the Mint probably recognized a solid opportunity to make money, the veteran gold bug said. "It's already in the game and it has very good name, so they probably thought, 'geez, why don't we just do the same,'"he said.
