Sprott Copper Arbitrage against LME copper futures, discount 20%Currently COP.UN (traded on TSX, Toronto Stock Exchange) is showing some substantial discount again against NAV. Discount is more than 20% which basically means that you can buy copper on the world markets (LME) with a 20% discount! I expect discount will narrow again in coming weeks and wil go back to minus 10 or even better.
A more detailed description can be find below of all facts and figures.
Current Situation:
Discount to NAV: COP.UN is trading at just over a 20% discount to its net asset value (NAV). Essentially, this means you can buy copper exposure at a significant discount to the current market price.
Copper Storage and Transfers: The trust’s copper is stored in LME-approved warehouses and is increasingly being shipped to COMEX warehouses in the U.S. The reason is straightforward: copper prices on COMEX are currently higher than on the LME. By moving copper to COMEX, Sprott can sell inventory at better prices.
Mechanism for Payouts: The proceeds from selling copper at a premium on COMEX versus the LME can be distributed to unitholders as a special cash distribution (dividend). This provides a direct way for investors to benefit from arbitrage between exchanges.
Redemption Option: Institutional investors can redeem trust units for physical copper, subject to minimum tonnages and fees. This helps keep the trust price connected to physical copper markets and offers an arbitrage route if the discount remains wide.
The Opportunity:
This setup offers trading houses huge opportunities:
Arbitrage Play: Buy COP.UN units at a >20% discount, redeem them for physical copper, and sell the metal at spot prices, pocketing the spread (net of costs).
Dividend Upside: Hold COP.UN units and potentially benefit from future special dividends if Sprott continues moving copper to COMEX and realizing higher sales prices.
Useful Resources:
COP.UN Prospectus (Sprott Physical Copper Trust) cop-prospectus-en.pdf
