Sprott Asset Management LP and Sprott Physical Copper Trust

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exchange-traded non-redeemable investment fund investing substantially all of its assets in physical copper metal exempted from the custodian requirements of subsection 6.1(1) and sections 6.2 and 6.3 of NI 81-102 to permit specialized warehouse providers with storage facilities located in the Netherlands, Belgium, Germany, Spain, Sweden, Italy, the U.S., Canada, the United Arab Emirates, Singapore, South Korea and Malaysia to each act as custodian of the fund's copper metal -- Relief subject to conditions, including that the copper metal is stored with three specified warehouse providers in LME or CME approved warehouses in the storage jurisdictions, that the copper metal stored with the warehouse provider be 100% insured against loss, theft and damage, and that a single entity, to be the valuation agent, complete daily reconciliations amongst the warehouse providers and the custodian of the fund's assets other than copper before calculating the NAV of the Fund -- National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 6.1(1), 6.2, 6.3 and 19.1.

May 30, 2024

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF SPROTT ASSET MANAGEMENT LP (the Filer) AND SPROTT PHYSICAL COPPER TRUST (the Trust)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, in its capacity as the manager of the Trust, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation), in connection with the formation and offering of the securities of a new non-redeemable investment fund trust to be established and managed by the Filer, for relief pursuant to Section 19.1 of National Instrument 81-102 -- Investment Funds (NI 81-102), that the Filer and the Trust be exempt from Subsection 6.1(1) and Sections 6.2 and 6.3 of NI 81-102, to permit warehouse facilities owned and operated by well-established leading warehouse providers that are highly specialized, qualified and certified in the provision of physical base metal warehousing services (any one, a Warehouse Provider, collectively the Warehouse Providers) to act as custodians of the Copper (as defined below) owned by the Trust, both inside and outside Canada (the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (together with Ontario, collectively, the Canadian Jurisdictions).

Interpretation

Terms defined in NI 81-102, National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

In this decision, the "total net assets" of the Trust means the NAV of the Trust determined in accordance with Part 14 of National Instrument 81-106 -- Investment Fund Continuous Disclosure.

Representations

This decision is based on the following facts represented by the Filer and the Trust:

The Filer and the Trust

1. The Filer is a limited partnership formed and organized under the laws of the Province of Ontario and maintains its head office in Toronto, Ontario. The general partner of the Filer is Sprott Asset Management GP Inc. (the General Partner), which is a corporation incorporated under the laws of the Province of Ontario. The General Partner is a wholly-owned, direct subsidiary of Sprott Inc. (SII). SII is a corporation incorporated under the laws of the Province of Ontario and is a public company with its common shares listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange. SII is the sole limited partner of the Filer and the sole shareholder of the General Partner.

2. The Filer is registered under the securities legislation in Ontario as an adviser in the category of portfolio manager and in Ontario, Quebec, and Newfoundland and Labrador as an investment fund manager.

3. The Trust will be a non-redeemable investment fund established as a trust under the laws of the Province of Ontario pursuant to a trust agreement (the Trust Agreement). Pursuant to the Trust Agreement, a licensed trust company will be the trustee (Trustee) and the Filer will be the manager (Manager), respectively, of the Trust. The Trust will be formed for the purposes of investing and holding substantially all of its assets in physical copper metal (Copper). The Trust will only purchase and hold Copper of the standard that the major exchanges accept. This is called Grade 1 Copper cathodes for the Chicago Mercantile Exchange (CME) and Grade A Copper cathodes for the London Metal Exchange (LME).

4. The Filer will act as the Manager of the Trust pursuant to the Trust Agreement and a management agreement to be entered into between the Trust and the Filer (the Management Agreement).

5. The Filer currently manages other Sprott investment funds and physical commodity funds, such as Sprott Physical Gold Trust, Sprott Physical Silver Trust, Sprott Physical Platinum and Palladium Trust, Sprott Physical Gold and Silver Trust, and Sprott Physical Uranium Trust.

6. The Filer will appoint a registrar and transfer agent of the Trust pursuant to a transfer agent, registrar and disbursing agent agreement prior to the closing of the initial public offering (the Offering) of units of the Trust (Units).

7. In connection with the Offering, a preliminary long form prospectus will be filed with the securities regulatory authorities in each of the provinces and territories of Canada (collectively, the Canadian Jurisdictions) and the Trust intends to become a reporting issuer, or the equivalent thereof, in such Canadian Jurisdictions following the filing of a final prospectus in respect of the Offering.

8. The Trust intends to list its Units on the TSX.

9. The Trust will be a "non-redeemable investment fund" as such term is defined in the Securities Act (Ontario) and is subject to the investment restrictions applicable to such funds that are prescribed by NI 81-102. The Filer will establish an independent review committee for the Trust in accordance with the requirements under National Instrument 81-107 -- Independent Review Committee for Investment Funds.

10. The Filer is not in default of securities legislation in the Canadian Jurisdictions.

The Trust's Investment Objective, Strategy, and Investment and Operating Restrictions

11. The Trust will invest and hold substantially all of its assets in Copper. The Trust will seek to provide a convenient and exchange-traded investment alternative for investors interested in holding Copper without the inconvenience that is typical of a direct investment in Copper. The Trust does not anticipate making regular cash distributions to unitholders of the Trust (the Unitholders).

12. The Trust intends to achieve its objective by investing primarily in long-term holdings of Copper, for which the Filer expects demand (growth) to be predominantly driven by the anticipated increase in the use of renewable energy applications.

13. The Filer will engage a technical advisor (Technical Advisor) that has a team with specialized knowledge and experience in trading, storing and handling of Copper to assist the Filer in fulfilling the Trust's investment objectives and strategy.

14. The Trust intends to use at least 90% of the net proceeds of the Offering to acquire Copper as soon as practicable following the closing of the Offering.

15. The Trust's net asset value (NAV) will be calculated through the value of Copper that the Trust holds in addition to the Trust's cash reserves. Copper is a commodity that can be readily purchased and disposed of through market facilities and therefore is not an "illiquid asset" (as defined in NI 81-102).

16. The Trust intends to achieve its objective by investing primarily in long-term holdings of Copper and will not speculate with regard to short-term changes in Copper prices. The Trust may occasionally use futures, warrants, LME and CME warehouse receipts and other financial instruments ("collectively, Financial Instruments) to complement the Trust's Copper procurement strategy to ensure, as appropriate, that physical exposure is secured while locking in corresponding pricing, until the near-term delivery of Copper into the holdings of the Trust. The Trust may occasionally enter into transactions intended to (a) enhance, or maintain, the value of its holdings of Copper or (b) optimize Copper holdings and Trust operating costs. The Trust may occasionally lend out Copper to other market participants, of sufficient credit quality and/or with appropriate credit enhancing measures, in exchange for a lending fee. The Filer expects to, from time to time, make use of Financial Instruments in the form of futures and/or warrants on the LME or CME (1) in the case of futures to temporarily hedge price risk of underlying physical index-linked (LME) procurement and (2) in the case of warrants, for complementary physical procurements.

17. The investment and operating restrictions of the Trust will provide that the Trust will invest in and hold a minimum of 90% of the total net assets of the Trust in Copper (whether in physical form or through Financial Instruments) and invest in and hold no more than 10% of the total net assets of the Trust, at the discretion of the Filer, in debt obligations of or guaranteed by the Government of Canada or a province thereof, or by the Government of the United States of America or a state thereof, short-term commercial paper obligations of a corporation or other person whose short-term commercial paper is rated R-1 (or its equivalent, or higher) by DBRS Limited or its successors or assigns or F-1 (or its equivalent, or higher) by Fitch Ratings or its successors or assigns or A-1 (or its equivalent, or higher) by Standard & Poor's or its successors or assigns or P-1 (or its equivalent, or higher) by Moody's Investor Service or its successors or assigns, interest-bearing accounts and short-term certificates of deposit issued or guaranteed by a Canadian chartered bank or trust company, money market mutual funds, short-term government debt or short-term investment grade corporate debt, or other short-term debt obligations approved by the Filer from time to time (for the purpose of this paragraph, the term "short-term" means having a date of maturity or call for payment not more than 182 days from the date on which the investment is made), except during the 60-day period following the closing of offerings of Units or prior to the distribution of the assets of the Trust.

18. The Trust intends to primarily own Copper that is in physical form, which will be stored on its behalf at Warehouse Providers appointed by the Manager, pursuant to storage agreements or other types of contracts or arrangements consistent with industry standards (each such agreement, contract or arrangement, a Storage Agreement).

19. The Trust will offer a limited redemption feature. Unitholders will have a semi-annual right, subject to certain restrictions and limits, to redeem their Units for cash or Copper.

Net Asset Value of the Trust, Liquidity and Pricing of Copper

20. The NAV of the Trust and NAV per Unit will be calculated on a daily basis as of 4:00 p.m. (Toronto time) (the Valuation Time) on each day on which the TSX, or any U.S. stock exchange on which the Units are listed, is open for trading (the Valuation Date), by the Trust's valuation agent, which valuation agent is expected to be the Trustee or an affiliate of the Trustee. The NAV of the Trust as at the Valuation Time on each Valuation Date shall be the amount obtained by deducting from the aggregate fair market value of the assets of the Trust as of such Valuation Date an amount equal to the fair value of the liabilities of the Trust (excluding all liabilities represented by outstanding Units) as of such Valuation Date. The NAV per Unit will be determined by dividing the NAV of the Trust on a Valuation Date by the total number of Units then outstanding. In calculating the NAV of the Trust and NAV per Unit, the valuation agent will reconcile all the portfolio assets of the Trust and will complete daily reconciliations amongst the Warehouse Providers holding the Trust's Copper and the custodian (described in paragraph 27) holding the Trust's assets other than Copper. The valuation agent will receive input as required from any investment manager, the Technical Advisor, the Warehouse Providers and the custodian of the Trust, as applicable. The Filer will remain responsible for overseeing the valuation agent's calculation of the NAV of the Trust and NAV per Unit.

21. Pursuant to the Offering, the Filer expects that Units will be offered at a price equal to $10.00 per Unit. The Trust may not issue additional Units of the same class following the completion of the Offering, except: (i) if the net proceeds per Unit to be received by the Trust are not less than 100% of the most recently calculated Net Asset Value per Unit immediately prior to, or upon, the determination of the pricing of such issuance; or (ii) by way of Unit distribution in connection with an income distribution.

22. The fair market value of the assets of the Trust will be determined based on reported Copper spot prices from one, or more, credible, market leading commodity exchanges to determine the copper base price and independent price reporters to determine the applicable copper premium to be added on top of the copper base price (the Price Reporters) that are most commonly used by the market subject to adjustment, as described in paragraph 23 below. The Price Reporters are private business organizations that offer subscription services to which most Copper market participants subscribe and the spot prices reported by such Price Reporters are used by such market participants as a basis on which to negotiate or settle contracted prices for Copper. The principal Price Reporters whose services the Filer is currently considering are Fastmarkets MB, S&P Platts, CRU and Argus, in addition to the LME. The LME, the largest base metals commodity exchange in the world, is a regulated commodities exchange in the United Kingdom and provides public pricing information for base prices on Copper metal. The Filer may use the LME prices or may determine to use a different Price Reporter (or Price Reporters) from those listed above, depending on the results of negotiations with such Price Reporters and any changes in market conditions.

23. Copper base prices are reported daily on the LME. Specific copper premiums are reported on a daily, weekly or bi-weekly basis and are reported for, amongst other characteristics, different locations.

24. If the Trust purchases Copper in a location or with other characteristics for which none of the Price Reporters report a spot price, the Trust will use the best available alternative spot price, as determined by the Manager and the Technical Advisor, to determine the fair market value of such Copper.

25. The Filer expects the Trust to purchase most of the Copper directly over-the-counter, by entering into bilateral physical spot purchase and sale contracts with sellers, as that type of market should provide the most liquidity. The sellers are typically producers, traders, and banks. Generally, the trades would be settled by payment by the Trust upon release of Copper by the Warehouse Provider to the Trust. The LME has financially settled contracts for copper metal. The Filer may use these financial products in the future to help with the Trust's procurement strategy, specifically, to manage short-term price movements of Copper until the completion of the corresponding physical deliveries of Copper to the Trust's holdings.

26. Copper is traded in a similar manner with other commodities including precious metals and non-precious metals in over-the-counter transactions, with an observable base price published daily by exchanges and premium prices bilaterally agreed upon, which is captured in price references provided by Price Reporters. In most cases, the spot price reflects the most recently traded price and/or anticipated next transaction, but the spot price may deviate from the trade price as a result of a number of factors, including delivery location, origin, form, quantity, quality, counterparty and other factors.

The Trust's Custody Arrangements

27. The Trustee (or another entity that is qualified to act as a custodian under section 6.2 of NI 81-102) will act as the custodian of the assets of the Trust, other than Copper, pursuant to the Trust Agreement. The Trustee will only be responsible for the assets of the Trust that are directly held by the Trustee, its affiliates or its appointed sub-custodians.

28. The Trust anticipates that Copper will constitute in excess of 90% of the Trust's NAV and, consequently, the Warehouse Providers will hold substantially all of the assets of the Trust. The Trustee, as custodian of the Trust, will hold only the assets of the Trust other than Copper and, consequently, the division of the assets of the Trust will be clearly distinguished and will be separated by the respective areas of expertise of these custodians. As the investment objective and strategy of the Trust is to invest primarily in long-term holdings of Copper, the Trust will not be actively selling Copper held in the custody of the Warehouse Providers, except in cases where funds are required to pay the ongoing expenses of the Trust or to fund cash redemptions. Accordingly, the Trust's Copper held in the custody of the Warehouse Providers will generally remain fixed from day-to-day, with the exception of incrementally purchased quantities that will add to the Trust's balance of Copper in accordance with the Trust's purchasing activities.

29. Pursuant to the Trust Agreement and the Management Agreement, Copper owned by the Trust will be fully allocated and stored by Warehouse Providers with which the Trust will enter into Storage Agreements to store such Copper. The Trust will store its Copper with Warehouse Providers that are reputable and exclusively in warehouses that are LME or CME approved, which are the main global market standards for physical metal warehousing services that are accepted by market participants and financiers. The LME approves warehouses pursuant to its LME Policy on Approval of Locations at Delivery Points. To obtain such approval, the Warehouse Provider must satisfy the LME that the proposed warehouse location is safe, well managed, politically and economically stable, commercially sensible, fiscally appropriate, legally sound, not subject to corruption, and that the metal belonging to the owner can be removed in case of bankruptcy or insolvency of the Warehouse Provider. Similar to the LME, the CME approves warehouses for the storage of base metals pursuant to the CME Group Delivery Facilities and Procedures and audits warehouses' compliance with such requirements to maintain such approval. By virtue of LME and CME policies, an individual warehouse location cannot simultaneously have both LME and CME approved status.

30. The Trust will only store Copper with such Warehouse Providers at locations in the Netherlands, Belgium, Germany, Spain, Sweden, Italy, the United States, Canada, the United Arab Emirates, Singapore, South Korea and Malaysia (the Storage Jurisdictions). The Storage Jurisdictions are all advanced economies with regulations similar to those in Canada.

31. The Trust is not expected to meet the requirement in subsection 6.1(1) of NI 81-102 for the portfolio assets of the Trust to be held under the custodianship of one custodian that satisfies the requirements of section 6.2. Due to the physical form and location of Copper, the manner in which Copper purchases and sales are settled (as described in paragraph 25), and the fact that entities qualified to act as custodians under NI 81-102 are generally deposit-taking institutions that can only hold cash or securities, it is necessary for the Trust to retain several custodians, including one custodian to hold the cash and securities of the Trust, and several Warehouse Providers in the Storage Jurisdictions to hold Copper. While the custodian of the Trust's cash and securities will meet the requirements of sections 6.2 and 6.3 of NI 81-102, the Warehouse Providers who will hold the Trust's Copper will not satisfy those requirements as they will not be a banking institution or trust company but rather will be leading warehouse providers that are highly specialized, qualified and certified to store Copper.

32. While the Warehouse Providers are not generally expected to meet the capitalization requirements in section 6.3 of NI 81-102, the Filer will mitigate risks associated with such lack of capitalization by maintaining, at all times, a separate, market standard insurance policy that insures 100% of the Copper held with the Warehouse Providers for its full value. This arrangement is in accordance with the industry standards for transactions in, and the storage of, Copper. In addition, in connection with becoming an LME or CME approved warehouse, Warehouse Providers must have market standard insurance in place that insures the Copper they are storing. The Filer will further mitigate this risk by only entering into Storage Agreements with Warehouse Providers that are large, well-regarded multi-national entities, namely Access World, C. Steinweg Handelsveem and P Global Services, which are the three (3) largest Warehouse Providers in terms of global LME and/or CME approved storage capacity of Copper.

33. The Filer believes that the selection of the three (3) largest Warehouse Providers in terms of aggregate global LME and CME approved storage capacity, supplemented by the insurance combination noted in paragraph 32, represents best practices and exceeds industry standard in connection with the storage, financing and trade of Copper.

34. The safekeeping of Copper is a specialized business in respect of which the Warehouse Providers have specialized knowledge and experience. Globally, there are a limited number of LME or CME approved warehouses available to Copper market participants. These warehouses and corresponding Warehouse Providers are used by suppliers, buyers and commodity traders for their storage needs. Accordingly, the Filer considers the Trust's risk in respect of its ownership and storage of Copper to be no greater than that of any other participant in the Copper industry. The Filer further believes this risk should always be regarded in conjunction with the additional protections the Trust will have, including the insurance policy described in paragraph 32. The combination of Storage Agreements with insurance is the industry standard from a security perspective for trading, logistics and financing related transactions for Copper in addition to a range of other metals and soft-commodities.

35. Under the Storage Agreement(s), the Warehouse Provider will receive Copper specified in a notice delivered by the Manager to the Warehouse Provider that indicates the amount, weight, type, form, origin, characteristics and packaging condition of Copper that is to be stored with the Warehouse Provider. After verification, the Warehouse Provider will issue a "warehouse receipt" that confirms the information from the notice. In the event of discrepancy arising during the verification process, the Warehouse Provider will promptly notify the Manager. Copper owned by the Trust and stored at the Warehouse Providers will be segregated and identifiable at all times as belonging to the Trust, either by lot numbers (when stored in a common location) or by location (when stored in a location that is exclusively for the Trust). Under each Storage Agreement, Copper stored with the applicable Warehouse Provider will be required to be evidenced in an account maintained by the Warehouse Provider for the Trust, and the Warehouse Provider will be required to provide a written settlement statement no less frequently than each quarter indicating the type and amount of Copper owned by the Trust. The Filer and Technical Advisor expect to have inspection and audit rights, including with respect to the Warehouse Provider's inventory management system that keeps track of the Trust's inventory of Copper. Pursuant to the Storage Agreement(s), title to stored Copper will remain with the Trust, as the owner, and does not form part of the Warehouse Provider's assets. As such, in the event of an insolvency or other event at a Warehouse Provider, ownership of Copper will remain with the Trust.

36. Before entering into any Storage Agreement, the Filer, or the Technical Advisor on the Filer's behalf, will conduct due diligence on the respective Warehouse Provider, including the following analysis that are necessary to complete a risk profile in respect of such Warehouse Provider:

(a) A business profile of the Warehouse Provider detailing its corporate history, reputation in the market, location of warehouse facilities, ownership structure, etc.;

(b) A financial profile of the Warehouse Provider that includes a review of available financial statements and financial ratios, an assessment of the Warehouse Provider's credit worthiness and a review of financial news;

(c) An insurance coverage review;

(d) A draft or template version of inventory reports; and

(e) Confirmation of the LME or CME approved status of the respective warehouses the Warehouse Provider and Filer agree are acceptable to use for the purpose of storing Copper on behalf of the Trust, pursuant to the Storage Agreements.

In addition, the Filer, or the Technical Advisor on its behalf, will request audited financial statements of the Warehouse Provider as part of the due diligence before entering into the Storage Agreement.

37. The Filer believes that the potential risks of storing Copper with the Warehouse Providers are damage to and/or loss of material due to theft, fire and flooding and to a lesser extent, gross negligence and fraud by the Warehouse Provider. The Filer intends to mitigate such risks by only selecting reputable Warehouse Providers located in the Storage Jurisdictions, using warehouses that are LME or CME-approved with the required insurance coverage, and arranging for the Trust's own industry standard all-risk insurance of the owned Copper.

38. The Filer, on behalf of the Trust will ensure that each Storage Agreement contains provisions as to who bears the responsibility for loss that are consistent with industry practice and covenants with respect to maintaining the necessary insurance policies.

39. The Filer, on behalf of the Trust, will use reasonable commercial efforts to ensure that, pursuant to each Storage Agreement, the terms with respect to liability of the parties continue to apply after the termination of the Storage Agreement until all Copper stored is transferred from the Trust's account.

40. In addition to continuous monitoring and reconfirmation of LME or CME approved warehouse status, the Filer expects to negotiate in the Storage Agreement with each Warehouse Provider a requirement that each respective warehouse location maintain its LME or CME approved status, as well as inspection and information rights to, among other things, maintain proper visibility on the financial standing of the Warehouse Provider. The Filer's actions in this regard are in addition to the due diligence the LME or CME carries out on an ongoing basis on LME or CME approved warehouses.

41. The Storage Agreements will require Warehouse Providers to exercise their services with (A) the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances; or (B) at least the same degree of care as they exercise with respect to the property of LME or CME warehouse receipt holders, if this is a higher degree of care than the degree of care referred to in (A), and to have appropriate insurance in place (as noted in paragraph 32). The Filer will ensure that the arrangements with the Warehouse Providers satisfy the requirements under subsections 6.6(2) to 6.6(4) of NI 81-102 regarding the Warehouse Providers' standard of care owed to the Trust. The Warehouse Providers will not be entitled to an indemnity from the Trust in the event that they breach their standard of care.

42. The Storage Agreements will include industry standard termination provisions, including for termination in the event of a material breach of the Storage Agreement by the Warehouse Provider that is not cured within a prescribed number of days following the giving of written notice to the Warehouse Provider of such material breach.

43. As part of the ongoing due diligence activities, the Filer will ensure that Copper stored at the Warehouse Providers will be subject to a physical count by a representative of the Filer or the Technical Advisor periodically on a spot-inspection basis as well as subject to audit procedures by the Trust's external auditors on at least an annual basis (which audit procedures may include a site inspection).

44. The Filer believes that the custodial arrangements with respect to the Trust's owned Copper will be consistent with industry practice.

45. The Storage Agreements will restrict a Warehouse Provider from transferring Copper without the Trust's consent and/or assigning any of its obligations under the Storage Agreement. In the Filer's view, these restrictions will effectively prohibit any sub-custody arrangements and the appointment of any sub-custodian by the Warehouse Provider, provided, however, that for the avoidance of doubt, under the applicable Storage Agreement, each Warehouse Provider will be expressly permitted to store Copper at an LME or CME approved warehouse owned by its subsidiaries or affiliates.

46. The Filer will not be responsible for any losses or damages to the Trust arising out of any action or inaction by the Trust's custodians or any sub-custodians holding the assets of the Trust, including the Trustee or its sub-custodians holding the assets of the Trust other than Copper, and a Warehouse Provider holding the Copper owned by the Trust.

47. The Filer, with the consent of the Trustee, will have the authority to change the custodial arrangements described above including, but not limited to, the appointment of a replacement custodian or sub-custodian and/or additional custodians or sub-custodians subject to the requirements under NI 81-102, as modified by the Requested Relief.

Requested Relief

48. Holding Copper owned by the Trust with the Warehouse Providers in LME or CME approved warehouses in combination with the appropriate insurance put in place by the Manager and the other assets of the Trust with the Trustee will not detract from the objectives of subsection 6.1(1) of NI 81-102 to ensure effective custody of the portfolio assets of an investment fund, and it will not be prejudicial to the Unitholders to grant the Requested Relief. The Warehouse Providers have the expertise to store Copper safely and have the resources and experience required to act as the custodian for the Trust's Copper. The Warehouse Providers are also subject to government regulation and licensing processes in their jurisdictions, intended to ensure safe and secure handling and storage of Copper in addition to adherence to internationally recognized LME or CME approved status on the warehouse level.

Decision

The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.

The decision of the Principal Regulator under the Legislation is that the Requested Relief is granted provided that:

a) the final long form prospectus of the Trust contains disclosure regarding the unique risks associated with an investment in the Trust, including the risk that direct purchases of Copper by the Trust may generate higher transaction and custody costs than other types of investments and any material risks relating to the storage of Copper with Warehouse Providers, which may impact the performance of the Trust;

b) Copper will be stored with established and reputable Warehouse Providers, specifically subsidiaries or affiliates of the following entities (or their successors): Access World, C. Steinweg Handelsveem, and P Global Services in LME or CME approved warehouses in the Storage Jurisdictions, that provide secure storage space for Copper owned by the Trust;

c) The Filer will:

(i) maintain market standard insurance coverage for 100% of the value of the Copper owned by the Trust for loss of, theft of and damage to the Copper stored with Warehouse Providers; and

(ii) require each Warehouse Provider to present evidence of the relevant insurance coverage for fraud and gross negligence by the Warehouse Provider for the stored Copper as part of the initial due diligence when entering into a Storage Agreement and on an ongoing basis as part of the Filer's annual audit of the Warehouse Provider;

d) Each Storage Agreement will:

(i) require that the Warehouse Provider only store Copper owned by the Trust in LME or CME approved warehouses;

(ii) require that the Warehouse Provider have the required insurance in place, in accordance with the LME or CME standards for approved warehouses, and further require that the Warehouse Provider present evidence of satisfactory insurance coverage for its contractual liabilities on an ongoing basis as part of the Filer's annual audit of the Warehouse Provider;

(iii) provide that the Warehouse Provider, in carrying out its duties concerning the storage and safekeeping of, and dealing with, Copper, will exercise:

(A) the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances; or

(B) at least the same degree of care as they exercise with respect to the property of LME or CME warehouse receipt holders, if this is a higher degree of care than the degree of care referred to in paragraph (A);

(iv) provide that all Copper owned by the Trust will be segregated from any Copper and other materials owned by the Warehouse Provider or other customers of the Warehouse Provider and be identifiable at all times as belonging to the Trust, and

(v) provide that the Copper stored with the Warehouse Provider will be subject to a physical count by a representative of the Filer or the Technical Advisor periodically on a spot-inspection basis as well as subject to audit procedures by the Trust's external auditors on at least an annual basis;

e) a single entity, expected to be the valuation agent, will reconcile all the portfolio assets of the Trust and will provide the Trust with valuation and unitholder recordkeeping services and will complete daily reconciliations amongst the Warehouse Providers and the custodian of the Trust's assets other than Copper before calculating the NAV of the Trust and NAV per Unit;

f) the Filer will maintain such operational systems and processes, as between the Warehouse Providers and the custodian of the assets of the Trust and the single entity referred to in paragraph e) above, in order to keep a proper reconciliation of all the portfolio assets that will move amongst the Warehouse Providers and the custodian of the assets of the Trust, as appropriate; and

g) legal and physical title of the Copper that form the assets of the Trust will be at all times held by the Trust.

Application File #: 2024/0291

SEDAR+ File #: 6130367