Creating two bullion funds, one based on gold and the other based on silver, has proven to be a winning combination for the manager, Sprott Asset Management LP, for the underwriters, RBC Capital Markets and Morgan Stanley, but, more importantly, for investors.

For instance:

- The Physical Gold Trust: Launched in early 2010, the fund raised US$442 million at US$10 per unit in its initial public offering. Since then, it has gone back to the market on five occasions and there are now more than 145 million units outstanding. The fund's net asset value has risen steadily and the trust trades at a premium. The units closed Monday at $14.40.

- The Sprott Physical Silver Trust: In late 2010, this fund completed a US$575-million initial public offering via the sale of US$10 units. While there have been no subsequent financings, both the fund's net asset value and trading price have risen steadily. The units, which trade at a premium, closed Monday at $14.99

Now the same two groups are back with a physical platinum-and-palladium trust. It has been formed "to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding physical platinum and palladium bullion." Those groups are looking for third-party investors. If they are successful, the manager will use the proceeds to purchase the two minerals, which will be stored with the Royal Canadian Mint "or a sub-custodian of the Mint." The goal is to provide investors with a low-cost, exchange-traded fund that will own the two minerals. The fund, to be listed in the United States and Canada, comes with a 0.50% annual management fee.

To be an investment winner, the price of the two minerals has to rise because the company's only asset is its stake in the two minerals. (It plans to allocate the proceeds equally between the two minerals.) The prospectus indicates that over the past three, five and 10-years, the prices of the two have risen steadily. Over the past 12 months, the prices have fallen: For platinum, the one-year fall is 15.6%; for palladium, the decline is 18.3%. For 2008, the year in which the global financial crisis started, the price of the two minerals was down sharply. Gold is up over all time periods.

Funds based on other minerals have been as successful. A few years ago, efforts were made by another manager to launch a copper fund. But lack of interest, particularly from institutions and especially from U.S. investors, helped kill that plan. Both Sprott's gold and silver funds, as well as the current platinum-and-palladium fund, but not the copper fund, have favorable U.S. tax outcomes.

Through the years, Sprott Asset Management has formed other special-purpose issuers that were also based on minerals. Some of its previous approaches haven't been winners.

- Sprott Molybdenum Participation Corp.: Launched in April 2007, the $200-million fund, of which $180 million came from the public, was formed to invest in a variety of molybdenum assets, both in the metal itself and those companies involved in exploring, mining and processing it. Capital appreciation was the fund's primary investment objective.

In January 2009, the issuer announced "that, in view of the unfavourable outlook for the price of molybdenum and for issuers involved in the production and sale of molybdenum," the board had decided to distribute substantially all of the its assets to shareholders. At the time, the fund's net asset value was $1.75 a share. The shares were originally issued at $5 apiece.

bcritchley@nationalpost.comv