Sprott Asset Management LP (Re), 2022 CanLII 92723

October 6, 2022

(the Jurisdiction)

AND

(the Filer)

AND

(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 to store the Battery Metals (as defined below) (any one, a “Warehouse Provider”, collectively the “Warehouse Providers”) as custodians of the Trust to hold the Trust’s Battery Metals both inside and outside Canada (the “Requested Relief”).

Under National Policy 11-203 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

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 TSX and the New York Stock Exchange. SII is the sole limited partner of the Filer and the sole shareholder of the General Partner.
The Filer is registered under the securities legislation in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as an adviser in the category of portfolio manager and in Ontario as an investment fund manager.
The Trust will be a non-redeemable investment fund trust established 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 Nickel metal, Cobalt metal and Lithium carbonate (collectively, the “Battery Metals”). The Trust may hold the Battery Metals in different grades (i.e. purity levels) and/or different shapes (i.e. cut-cathodes, briquettes, pellets, etc.) as determined by the Manager.
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”).
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.
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”).
In connection with the Offering, a preliminary long form prospectus was filed on September 27, 2022, 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.
The Trust intends to list its Units on the Toronto Stock Exchange (the “TSX”).
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.
The Filer is not in default of securities legislation in the Canadian Jurisdictions.

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

The Trust will invest and hold substantially all of its assets in Battery Metals. The Trust will seek to provide a convenient and exchange-traded investment alternative for investors interested in holding Battery Metals without the inconvenience that is typical of a direct investment in Battery Metals. The Trust does not anticipate making regular cash distributions to unitholders of the Trust (the “Unitholders”).
The Trust intends to achieve its objective by investing primarily in long-term holdings of Battery Metals that are associated with the production of Lithium-ion batteries and for which future demand (growth) is expected to be predominantly driven by the Lithium-ion battery supply chain.
The Filer will engage a technical advisor (“Technical Advisor”) that has a team with specialized knowledge and experience in trading, storing and handling of the Battery Metals to assist the Filer in fulfilling the Trust’s investment objectives and strategy.
The Filer expects that the Trust will generally target the following composition of the Battery Metals that will be included in the Trust’s portfolio (the “Target Composition”):

Nickel Metal

Cobalt Metal

Lithium Carbonate

Target Composition (expressed as % of NAV at then current prices)

20-60%

20-40%

15-40%

The Target Composition is non-binding, may change from time-to-time and will be impacted by, among other things, the evolution of the relative Battery Metals input requirements for Lithium-ion batteries, the availability and price of the Battery Metals and the associated transaction costs.

15. The Trust intends to use 80% of the proceeds of the Offering to acquire the Battery Metals as soon as practicable following the Closing of the Offering. The remaining proceeds will be held in cash reserve for future purchases of Battery Metals (15%) and for the Trust’s expenses (5%).

16. The Trust’s net asset value (“NAV”) will be calculated through the value of Battery Metals that the Trust holds. The Battery Metals are commodities that can be readily disposed of through market facilities and therefore are not “illiquid assets” (as defined in NI 81-102).

17. The Trust intends to achieve its objective by investing primarily in long-term holdings of Battery Metals and will not speculate with regard to short-term changes in Battery Metal prices. The Trust may occasionally use futures, warrants, London Metals Exchange (“LME”) warehouse receipts, and other financial instruments (“collectively, “Financial Instruments”) to complement the Trust’s Battery Metals procurement strategy to ensure, as appropriate, that physical exposure is secured while locking in corresponding pricing, until the near-term delivery of the Battery Metals into the holdings of the Trust. The Trust does not intend to actively rebalance the Trust’s invested assets in Battery Metals back to the Target Composition. The Trust may occasionally enter into transactions intended to (a) enhance, or maintain, the value of its holdings of Battery Metals or (b) optimize the Battery Metals holdings and Trust operating costs, which could also lead to rebalancing. The Trust may occasionally lend out Battery Metals to other market participants, of sufficient credit quality and/or with appropriate credit enhancing measures, in exchange for a lending fee. The Filer does not anticipate utilizing any Financial Instruments in the Trust’s initial portfolio following the completion of the Offering.

18. 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 Battery Metals 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 the offerings or prior to the distribution of the assets of the Trust.

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

20. The Trust will not offer a redemption feature. Unitholders will not be permitted to redeem their Units for cash or Battery Metals.

Net Asset Value of the Trust, Liquidity and Pricing of the Battery Metals

21. 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 and the custodian of the Trust. 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.

22. 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.

24. The Battery Metals prices are mostly reported on a daily basis, and in all circumstances once a week, and, are reported for, amongst other, different locations, grades and shapes of the respective Battery Metals.

25. If the Trust purchases Battery Metals with characteristics (i.e. in a location, grade or shape) 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 Battery Metals. In making such a determination, the Manager and the Technical Advisor will consult with an independent market consultant that has the relevant experience on the matter who will issue a formal opinion to the Trust confirming that the selected alternative spot price is an appropriate proxy for purposes of valuating such Battery Metals. This may only be applicable for Nickel Metal in a limited number of forms (e.g. pellets, rounds and crowns), which all adhere to LME grade minimum purity specifications.

26. The Filer expects the Trust to purchase most of the Battery Metals 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 (mine operators), traders, and banks. Generally, the trades would be settled by payment by the Trust upon release of the Battery Metals by the Warehouse Provider to the Trust.

27. The markets for each Battery Metal are in different stages of development. The LME has both physically and financially settled contracts for Nickel metal and Cobalt metal. Lithium hydroxide financially settled futures contracts were recently introduced by the LME and it is expected that futures contracts for Lithium carbonate will follow. The Filer may use these financial products in the future to help with the Trust’s procurement strategy, specifically, from time-to-time to manage short-term price movements of Nickel metal until the completion of the corresponding physical deliveries of Nickel metal to the Trust’s holdings.

28. The Battery Metals are traded in a similar manner with other commodities including precious metals in over-the-counter transactions, with market 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

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 the Battery Metals, 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.
The Trust anticipates that the Battery Metals 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 the Battery Metals 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 the Battery Metals, the Trust will not be actively selling the Battery Metals held in the custody of the Warehouse Providers, except in cases where funds are required to pay the ongoing expenses of the Trust. Accordingly, the Trust’s Battery Metals 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 Battery Metals in accordance with the Trust’s purchasing activities.
Pursuant to the Trust Agreement and the Management Agreement, the Battery Metals owned by the Trust will be fully allocated and stored by Warehouse Providers that the Trust will enter into Storage Agreements with to store such Battery Metals. The Trust will store its Battery Metals with Warehouse Providers that are reputable and exclusively in warehouses that are LME approved, which is the main global market standard for physical metal warehousing services that is accepted by market participants and financiers. The LME approves warehouses pursuant to its LME Policy on Approval of Locations as 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.
The Trust will only store Battery Metals with such Warehouse Providers at locations in the Netherlands, Belgium, the United States, Canada, Singapore, South Korea and Malaysia (the “Storage Jurisdictions”). The Storage Jurisdictions are all advanced economies with regulations similar to those in Canada.
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 the Battery Metals, the manner in which Battery Metals purchases and sales are settled (as described in paragraph 26), and the fact that entities qualified to act as custodian 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 the Battery Metals. 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 Battery Metals 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 the Battery Metals.
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 Battery Metals held with the Warehouse Providers for their full value. This arrangement is in accordance with the industry standards for transactions in, and the storage of, Battery Metals and is typically a requirement of the Warehouse Providers pursuant to the Storage Agreements. In addition, in connection with becoming an LME approved warehouse, Warehouse Providers have market standard insurance in place that insures the Battery Metals they are storing against gross negligence and fraud. 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 approved storage capacity of Battery Metals.
The Filer believes that the selection of the three (3) largest Warehouse Providers in terms of global LME approved storage capacity, supplemented by the insurance combination noted in paragraph 34, represents best practice and exceeds industry standard in connection with the storage, financing and trade of physical metals.
The safekeeping of Battery Metals is a specialized business in respect of which the Warehouse Providers have specialized knowledge and experience. Globally, there are a limited number of LME approved warehouses available to Battery Metals 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 Battery Metals to be no greater than that of any other participant in the Battery Metals 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 34. The combination of Storage Agreements with insurance is the industry standard from a security perspective for trading, logistics and financing related transactions for Battery Metals in addition to a range of other metals and soft-commodities.
The Storage Agreements will require Warehouse Providers to exercise their services with great care and skill, which is the same degree and care, diligence and skill that a reasonably prudent person would exercise in the circumstances, and to have appropriate insurance in place (as noted in paragraph 34).
Under the Storage Agreement(s), the Warehouse Provider will receive the Battery Metals 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 the Battery Metals that are to be stored with the Warehouse Provider. After verification, the Warehouse Provider will issue a “receipt of deposit” 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. The Battery Metals 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, the Battery Metals 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 the Battery Metals 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 Battery Metals. Pursuant to the Storage Agreements, title to stored Battery Metals 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 the Battery Metals will remain with the Trust.
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;

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

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

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

The Filer believes that the potential risks of storing the Battery Metals 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 approved with the LME mandated insurance coverage, and to arrange for the Trust’s own industry standard all-risk insurance of the owned Battery Metals.
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.
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 the Battery Metals stored are transferred from the Trust’s account.
In addition to continuous monitoring and reconfirmation of LME approved warehouse status, the Filer will take reasonable commercial efforts to satisfy itself that the balance sheet of each Warehouse Provider is sufficiently sound to continue its performance under the relevant Storage Agreement and that the Trust’s Battery Metals will present a small fraction of each Warehouse Provider’s aggregate warehoused materials, which the Filer expects will also be a requirement under the insurance policy that the Trust will have in place to avoid concentration risk. The Filer expects to negotiate in the Storage Agreement with each Warehouse Provider a requirement that each respective warehouse location maintain its LME 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 carries out on an ongoing basis on LME approved warehouses.
The Filer will take reasonable commercial efforts to ensure that the Storage Agreements it enters into impose a standard of care on each Warehouse Provider such that each Warehouse Provider is required to exercise the same degree of care and diligence in safeguarding the Battery Metals as any reasonably prudent person acting as custodian of the Battery Metals would exercise in the circumstance. 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.
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.
The Filer will ensure that the Battery Metals 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.
The Filer will ensure that the Battery Metals stored at the Warehouse Providers will be covered under available and appropriate insurance coverage for loss of and damage to the Battery Metals in storage in accordance with industry standards.
The Filer believes that the custodial arrangements with respect to the Trust’s owned Battery Metals will be consistent with industry practice.
The Storage Agreements will not allow the Warehouse Providers to appoint any sub-custodians to store the Battery Metals, provided, however, that for the avoidance of doubt, each Warehouse Provider may store Battery Metals at an LME approved warehouse owned by its subsidiaries or affiliates.
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 the Battery Metals, and a Warehouse Provider holding the Battery Metals owned by the Trust.
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

Holding Battery Metals owned by the Trust with the Warehouse Providers in LME 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 Battery Metals safely and have the resources and experience required to act as the custodian for the Trust’s Battery Metals. 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 Battery Metals in addition to adherence to internationally recognized LME 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 Battery Metals by the Trust may generate higher transaction and custody costs than other types of investments and any material risks relating to the storage of the Battery Metals with Warehouse Providers, which may impact the performance of the Trust;

b) Battery Metals 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 approved warehouses in the Storage Jurisdictions, that provide secure storage space for the Battery Metals owned by the Trust;

c) The Filer will:

(i) maintain insurance coverage for 100% of the value of the Battery Metals owned by the Trust for loss of, theft of and damage to the Battery Metals 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 Battery Metals 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 Battery Materials owned by the Trust in LME approved warehouses;

(ii) require that the Warehouse Provider have appropriate insurance in place for gross negligence and fraud by the Warehouse Provider, in accordance with LME standards for LME 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, the Battery Metals, 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 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 Battery Metals owned by the Trust will be segregated from any Battery Metals 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 Battery Metals 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 assets of the Trust 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 Battery Metals that form the assets of the Trust will be at all times held by the Trust.

"Darren McKall"

Darren McKall

Manager, Investment Funds and Structured Products

Ontario Securities Commission

App. No. 2022/0444; SEDAR #3440582