PSLV Shareholders Continue To Amaze (Confuse?) Me

Sprott Physical Silver Trust ($PSLV, no positions) released a 6-k filing this week showing that some shares were redeemed for cash during the first quarter.  I have no explanation for this.  Perhaps there is a tax attorney in my audience who can offer up some sort of crazy explanation?  Because I can’t even think of a tax angle (or any other angle) where this would make sense.

Why is this so crazy?  Well, I explained it all in a post last year:

“Unitholders whose units are redeemed for cash will be entitled to receive a redemption price per unit equal to 95% of the lesser of (i) the volume—weighted average trading price of the units traded on the NYSE Arca…for the last five days on which the respective exchange is open for trading for the month in which the redemption request is processed and (ii) the NAV of the redeemed units as of 4:00 p.m.”

But last year the redemption was small – just a few thousand units.  This time, it was larger:

The trust also redeemed 80,965 units for cash at a cost of $1,007,435 during this period.

So that’s about $12.44/share.   Shortly after their secondary offering in January, the PSLV traded at roughly a 10% premium to NAV, which deteriorated down to below a 5% premium to NAV.  It looks to me (trying to back into the prices) like this redemption was done at the end of January: take the $12.44 per share, multiply by 1.15 (redemption was done at a 5% discount, and then tack on a 10% premium to NAV where the Trust was trading in the market at that time, and we get $14.30, which is about where $PSLV was trading in late January).

Now, you have to ask the simple question:  WHY ON EARTH WOULD YOU REDEEM YOUR SHARES FOR CASH INSTEAD OF JUST SELLING THEM IN THE MARKET?  Did you not want the extra $150,000 you would have received?  Again, I have no explanation, but PSLV shareholders have confounded me in the past with their actions, so I don’t know why I’d be surprised here.

related:  How To Lose 25% In A Hurry



If I had the same (lack of) intellectual honesty as most of the precious metals blogs out there, I might take some insidious view here, like “Were PSLV shares redeemed for cash because the Trust didn’t have the physical bullion to give to a unitholder who requested redemption?”   Or maybe “Did PSLV offer a huge premium for cash redemption to avoid delivering physical bullion?” (Oh – that one is ironic, no?   And no – I don’t think that’s what happened, because the $12.44 price just doesn’t make sense as a premium payoff, and because I am based in reality here on Planet Earth not in Metal-Head fantasy land)



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