Sprott ESG Gold ETF - Quarter Report: 2023 September (Form 10-Q)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2023.

or

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________________ to __________________.

Commission file number: 001-41457

Primary Standard Industrial Classification Code Number: 6221

 

Sprott ESG Gold ETF

Sponsored by Sprott Asset Management LP
(Exact name of registrant as specified in its charter)

 

c/o Sprott Asset Management USA, Inc.
320 Post Road, Suite 230
Darien, CT 06820
(203) 636-0977

(Address, including Zip Code, and Telephone
Number, including Area Code, of Registrant’s
Principal Executive Offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ⬜ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ⬜ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ⬜ Yes ☒ No

The registrant had 100,000 outstanding shares as of November 2, 2023.

 

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements involve risks and uncertainties. All statements (other than statements of historical fact) included in this Form 10-Q that address activities, events or developments that may occur in the future, including such matters as future gold prices, gold sales, costs, objectives, changes in commodity prices and market conditions (for gold and the shares), the Trust’s operations, the Sponsor’s plans and references to the Trust’s future success and other similar matters are forward-looking statements. Words such as “could,” “would,” “may,” “expect,” “intend,” “estimate,” “predict,” and variations on such words or negatives thereof, and similar expressions that reflect our current views with respect to future events and Trust performance, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties that are difficult to predict and many of which are outside of our control, and actual results could differ materially from those discussed. Forward-looking statements involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed therein. We express our estimates, expectations, beliefs, and projections in good faith and believe them to have a reasonable basis. However, we make no assurances that management’s estimates, expectations, beliefs, or projections will be achieved or accomplished. These forward-looking statements are based on assumptions about many important factors that could cause actual results to differ materially from those in the forward-looking statements. We do not intend to update any forward-looking statements even if new information becomes available or other events occur in the future, except as required by federal securities laws.

Interim Report to Unitholders

September 30, 2023

Sprott ESG Gold ETF (NYSE Arca: SESG)

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Table of Contents

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Sprott ESG Gold ETF

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Sprott ESG Gold ETF
Index to Financial Statements

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Sprott ESG Gold ETF

Statements of Assets and Liabilities

(1)

No par value, unlimited amount authorized.

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Sprott ESG Gold ETF

Schedules of Investment

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Sprott ESG Gold ETF

Statements of Operations

(1)

Commencement of operations.

(2)

Period from July 19, 2022 to September 30, 2022 is presented for comparative purposes since the Trust’s operations commenced on July 19, 2022.

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Sprott ESG Gold ETF

Statements of Changes in Net Assets

(1)

Commencement of operations.

(2)

Period from July 19, 2022 to September 30, 2022 is presented for comparative purposes since the Trust’s operations commenced on July 19, 2022.

(3)

The amount represents the initial seed creation on July 19, 2022.

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Sprott ESG Gold ETF

Financial Highlights

Per Share Performance (for a Share outstanding throughout the period presented)  

(1)

Commencement of operations.

(2)

Period from July 19, 2022 to September 30, 2022 is presented for comparative purposes since the Trust’s operations commenced on July 19, 2022.

(3)

The amount represents the initial seed creation and the NAV at which the initial shares were acquired on July 19, 2022.

(4)

Calculated using the average shares outstanding method.

(5)

The total return at net asset value is based on the change in net asset value of a share during the period. An investor’s return and ratios may vary based on the timing of capital transactions. Total return for the period is not annualized.

(6)

Annualized.

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Sprott ESG Gold ETF
Notes to unaudited financial statements



September 30, 2023​

1. Organization

The Sprott ESG Gold ETF (the “Trust”) is an exchange-traded fund formed on February 10, 2021, as a Delaware statutory trust and trades on the NYSE Arca, Inc. (the “Exchange”). The Trust operates pursuant to the Amended and Restated Trust Agreement (the “Trust Agreement”), dated June 2, 2022, between Sprott Asset Management LP (the “Sponsor”), a limited partnership formed under the laws of the Province of Ontario, Canada, pursuant to the Limited Partnerships Act (Ontario), with offices in the United States and Canada, and Delaware Trust Company (the “Trustee”). The Royal Canadian Mint (the “Mint”) is the custodian of the Trust’s gold bullion. The Bank of New York Mellon is the Trust’s cash custodian (the “Cash Custodian”), administrator (the “Administrator”) and transfer agent (the “Transfer Agent”). Sprott Asset Management USA Inc. is the investment adviser (the “Adviser”) of the Trust. Sprott Global Resource Investment Ltd. is the marketing agent (the “Marketing Agent”) of the Trust. The Sponsor, together with the Trustee, the Mint, the Cash Custodian, the Administrator, the Transfer Agent, the Marketing Agent and their respective agents are generally responsible for the administration of the Trust under the provisions of their respective governing agreements.

The Trust is an “emerging growth company” as that term is used in the Securities Act of 1933, as amended (“Securities Act”), and, as such, the Trust may elect to comply with certain reduced public company reporting requirements. The Trust is not registered as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and is not a commodity pool for purposes of the Commodity Exchange Act (“CEA”). The Trust issues shares (the “Shares”), which represent units of equal, fractional undivided beneficial interest in the Trust.

The Trust’s assets are expected to consist primarily of Sprott ESG Approved Gold (“ESG Approved Gold”) that meets certain environmental, social and governance (“ESG”) standards, and on a temporary basis hold unallocated physical gold until additional ESG Approved Gold can be refined by the Mint. In addition, the Cash Custodian may hold cash temporarily received from the sale of gold. The Trust’s investment in gold is carried, for financial statement purposes, at fair value, as required by generally accepted accounting principles in the United States (“U.S. GAAP”). The Trust’s net asset value (“NAV”) is determined by the Administrator, in conformity with U.S. GAAP, on each Business Day as of 4:00 p.m., (New York City time) or as soon thereafter as practicable.

The investment objective of the Trust is for the Shares to closely reflect the performance of the price of gold, less the Trust’s expenses and liabilities, through an investment in physical gold bullion that meets certain ESG criteria determined by the Sponsor and on a temporary basis in unallocated gold.

Shares of the Trust are listed on the Exchange under the ticker symbol “SESG”. The market price of the Shares may be different from the NAV per Share. Shares may be purchased from the Trust only by Authorized Participants and only in one or more blocks of 50,000 Shares (“Creation Units”). The Trust issues Shares in Creation Units on a continuous basis at the applicable NAV per Share on the creation order date.

2. Significant Accounting Policies

In preparing financial statements in conformity with U.S. GAAP, the Sponsor makes estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amount of income and expenses reported during the period. Actual results could differ from these estimates.

 

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Sprott ESG Gold ETF
Notes to unaudited financial statementsSeptember 30, 2023​

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Sprott ESG Gold ETF
Notes to unaudited financial statementsSeptember 30, 2023​

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Sprott ESG Gold ETF
Notes to unaudited financial statementsSeptember 30, 2023​

3. Investment in Gold

The following represents the changes in fine ounces of gold and the respective fair value for nine months ended September 30, 2023:

The following represents the changes in fine ounces of gold and the respective fair value for the period from July 19, 2022 to December 31, 2022:

*

The Trust’s operations commenced on July 19, 2022

 

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Sprott ESG Gold ETF
Notes to unaudited financial statementsSeptember 30, 2023​

4. Related Parties

The Sponsor is a related party of the Trust. The Marketing Agent and Adviser are affiliates of the Sponsor. All expenses to the affiliates, the Mint, the Cash Custodian, the Administrator, and the Transfer Agent are paid through the Sponsor’s fee.

The Trust considers the entity of SII Investment LP, a controlled subsidiary of the Sponsor, to be a related party of the Trust. As of September 30, 2023, 282,200 Shares of the Trust were held by the related party.

5. Concentration of Risk

The Trust’s sole business activity is the investment in gold bullion. Several factors could affect the price of gold including: (i) global or regional political, economic, or financial events and situations; (ii) interest rates in fiat currencies; (iii) currency exchange rates, including the rates at which gold is priced in exchange and trading venues around the world; (iv) investment and trading activities of large investors, including private and registered trusts, hedge funds and commodity funds, commodity pools, that may invest in gold; (v) changes in economic variables such as economic output and growth, and monetary policies; (vi) changes in global gold supply and demand; and (vii) investor and speculator attitude or confidence towards gold.

In addition, there is no assurance that gold will maintain its long-term value in terms of U.S. dollar value in the future. In the event that the price of gold declines, the value of an investment in the Shares is expected to decline proportionately.

6. Indemnification

The Sponsor and its affiliates, and their respective members, managers, directors, officers, employees, agents and controlling persons, will be indemnified by the Trust and held harmless against any loss, judgment, liability, claim, suit, penalty, tax, cost, amount paid in settlement of any claims sustained by it or expense incurred by it arising out of or in connection with the performance of its obligations under the Trust Agreement and under each other agreement entered into by the Sponsor in furtherance of the administration of the Trust, including any costs and expenses incurred by the Sponsor in defending itself against any claim or liability in its capacity as Sponsor; provided that (i) such loss was not the direct result of gross negligence, bad faith or willful misconduct on the part of the Sponsor, and (ii) any such indemnification will be recoverable only from the assets of the Trust. Any indemnifiable amounts payable to such indemnified persons may be payable in advance or shall be secured by a lien on the Trust.

The Trustee and any of the officers, directors, affiliates, employees and agents of the Trustee shall be indemnified by the Trust and held harmless against any loss, damage, liability (including liability under state or federal securities laws), claim, action, suit, cost, expense, disbursement(including the reasonable fees and expenses of counsel generally and in connection with its enforcement of its indemnification rights), tax or penalty of any kind and nature whatsoever, to the extent arising out of, imposed upon or asserted at any time against such indemnified person in connection with the execution or delivery of the Trust Agreement, the performance of its obligations under the Trust Agreement, the creation, operation or termination of the Trust or the transactions contemplated therein; provided, however, that (i) the Trust shall not be required to indemnify any such indemnified person for any such expenses which are a result of the willful misconduct, bad faith or gross negligence related to the express duties of the Trustee, and (ii) any such indemnification will be recoverable only from the assets of the Trust. The obligations of the Trust to indemnify such indemnified persons under the Trust Agreement shall survive the resignation or removal of the Trustee and the termination of the Trust Agreement. Any indemnifiable amounts payable to such indemnified persons may be payable in advance or shall be secured by a lien on the Trust.

 

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Sprott ESG Gold ETF
Notes to unaudited financial statementsSeptember 30, 2023​

7. Subsequent Events

On September 19, 2023, the Sponsor notified the NYSE Arca, Inc. (the “NYSE Arca”) that it had determined to voluntarily close, delist, liquidate the Trust’s Shares and withdraw the Shares from registration under the Exchange Act. The Trust will cease accepting creation and redemption orders following the close of regular trading on NYSE Arca on November 9, 2023 and trading of the Trust’s Shares on the NYSE Arca will cease prior to the open of the NYSE Arca on November 10, 2023. The Trust expects that NYSE Arca will file a Form 25 with the Commission on or about November 17, 2023, and the Trust will calculate its final net asset value on or about November 16, 2023.

 

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Sprott ESG Gold ETF
September 30, 2023​

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This information should be read in conjunction with the financial statements and notes to financial statements included with this report. The discussion and analysis that follows may contain statements that relate to future events or performance. In some cases, such forward-looking statements can be identified by terminology such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed below, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments. Although the Sponsor does not make forward-looking statements unless it believes it has a reasonable basis for doing so, the Sponsor cannot guarantee their accuracy. Except as required by applicable disclosure laws, neither the Trust nor the Sponsor is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor’s expectations or predictions.

Introduction

The Trust issues shares (the “Shares”) which represents units of equal, fractional undivided beneficial interest in the Trust. The Trust’s assets are expected to consist primarily of Sprott ESG Approved Gold (“ESG Approved Gold”) that meets certain environmental, social and governance (“ESG”) standards, and on a temporary basis hold unallocated physical gold until additional ESG Approved Gold can be refined by the Mint. In addition, the Cash Custodian may hold cash temporarily received from the sale of gold. The Trust’s investment in gold is carried, for financial statement purposes, at fair value, as required by generally accepted accounting principles in the United States (“U.S. GAAP”). The Trust’s net asset value (“NAV”) is determined by the Administrator, in conformity with U.S. GAAP, on each Business Day as of 4:00 p.m., (New York City time) or as soon thereafter as practicable.

The investment objective of the Trust is for the Shares to closely reflect the performance of the price of gold, less the Trust’s expenses and liabilities, through an investment in physical gold bullion that meets certain ESG criteria determined by the Sponsor and on a temporary basis in unallocated gold.

Shares of the Trust are listed on the Exchange under the ticker symbol “SESG”. The market price of the Shares may be different from the NAV per Share. Shares may be purchased from the Trust only by Authorized Participants and only in one or more blocks of 50,000 Shares (“Creation Units”). The Trust issues Shares in Creation Units on a continuous basis at the applicable NAV per Share on the creation order date.

The Trust pays the Sponsor a fee that will accrue daily at an annualized rate equal to 0.38% of the daily NAV of the Trust, paid monthly in arrears (the “Sponsor’s fee”). The Sponsor’s fee is accrued in and payable in U.S. dollars.

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Sprott ESG Gold ETF
September 30, 2023​

Critical Accounting Policy

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s application of accounting policies. Below we describe the valuation of gold bullion, a critical accounting policy that we believe is important to understanding the results of operations and financial position. In addition, please refer to Note 2 to the Financial Statements for further discussion of the Trust’s accounting policies.

Valuation of Gold and Computation of Net Asset Value

The Administrator will determine the price of the Trust’s investment in gold by utilizing the PM price of gold expressed in U.S. dollars, as published by the LBMA (the “LBMA Gold Price PM”). If there is no LBMA Gold Price PM on any day, the Administrator is authorized to use that day’s LBMA Gold Price AM, or the most recently announced LBMA Gold Price PM or LBMA Gold Price AM. The LBMA Gold Price PM, which is used to value gold by many stakeholders in the securities industry, applies to all forms of gold and does not distinguish between ESG Approved Gold and other gold.

Results of Operations

For the three months ended September 30, 2023

For the three months ended September 30, 2023, 50,000 shares were issued in exchange for cash that was used to purchase 996 fine ounces of gold. The Trust’s NAV per Share ended the period at $37.25 compared to $38.12 at June 30, 2023. The decrease in NAV per Share was due to a lower price of gold of $1,870.50 per ounce at period end, which represented a decrease of 2.18% from $1,912.25 per ounce at June 30, 2023.

The change in net assets from operations for the three months ended September 30, 2023 was -$349,861, which was due to the Sponsor’s fee of $13,818 and a net realized and unrealized loss of -$336,043 from operations. Net realized and unrealized loss from operations of -$336,043 was due to net realized gains (losses) on redemptions and sales of gold bullion of $1,216 and a change in unrealized gains (losses) on gold bullion of -$337,259. Other than the Sponsor’s fee, the Trust had no expenses during the period ended September 30, 2023.

For the nine months ended September 30, 2023

For the nine months ended September 30, 2023, 50,000 shares were issued in exchange for cash that was used to purchase 996 fine ounces of gold. The Trust’s NAV per Share ended the period at $37.25 compared to $36.19 at December 31, 2022. The increase in NAV per Share was due to a higher price of gold of $1,870.50 per ounce at period end, which represented an increase of 3.21% from $1,812.35 per ounce at December 31, 2022.

The change in net assets from operations for the nine months ended September 30, 2023 was $325,346, which was due to the Sponsor’s fee of $39,238 and a net realized and unrealized gain of $364,584 from operations. Net realized and unrealized gain from operations of $364,584 was due to net realized gains (losses) on redemptions and sales of gold bullion of $5,662 and a change in unrealized gains (losses) on gold bullion of $358,922. Other than the Sponsor’s fee, the Trust had no expenses during the period ended September 30, 2023.

At September 30, 2023, the Custodian held 7,969 ounces of gold on behalf of the Trust in its vault, with a market value of $14,906,443 (cost:$14,168,673) based on the LBMA PM Gold Price at period end.

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Sprott ESG Gold ETF
September 30, 2023​

For the period from July 19, 2022 to September 30, 2022

For the period from July 19, 2022 to September 30, 2022, 350,000 Shares (inclusive of 2 Creation Units that were created upon the seeding of the Trust) were issued in exchange for cash that was used to purchase 7,000 fine ounces of gold. The Trust’s NAV per Share ended the period at $33.41 compared to $34.26 at July 19, 2022. The decrease in NAV per Share was due to a lower price of gold of $1,671.75 at period end, which represented a decrease of 2.41% from $1,713.05 at July 19, 2022.

The change in net assets from operations for the period ended September 30, 2022 was -$612,434, which was due to (i) the Sponsor’s fee of $7,102 and (ii) a net realized and unrealized loss of $605,332 from operations, which in turn resulted from a net change in unrealized depreciation on investments in gold bullion of $605,332. Other than the Sponsor’s fee, the Trust had no expenses during the period ended September 30, 2022.

At September 30, 2022, the Custodian held 7,000 ounces of gold on behalf of the Trust in its vault, with a market value of $11,702,009 (cost:$12,307,341) based on the LBMA PM Gold Price at period end.

Liquidity and Capital Resources

The Trust is not aware of any trends, demands, commitments, events, or uncertainties that are reasonably likely to result in material changes to its liquidity needs.

The Administrator, acting pursuant to instructions from the Sponsor, will direct the Cash Custodian to withdraw temporary held cash received from the sale of gold, to pay the Sponsor’s fee. At September 30, 2023, the Trust did not have a cash balance.

Off-Balance Sheet Arrangement

The Trust does not have any off-balance sheet arrangements.

Analysis of Movements in the Price of Gold

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Sprott ESG Gold ETF
September 30, 2023​

(l)The end of period gold price is the LBMA PM Gold Price (if no LBMA PM Gold Price is available, the LMBA AM Gold Price on the corresponding date is used) on the last business day of the period. This is in accordance with the Trust Agreement and the basis used for calculating the NAV of the Trust.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The duly authorized officers of the Sponsor, performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust were effective as of the end of the period covered by this report. Such disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934, as amended, are recorded, processed, summarized and reported, within the time period specified in the applicable rules and forms, and that such information is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, and to the Sponsor, as appropriate, to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

There has been no change in the internal control over financial reporting that occurred during the fiscal period that has materially affected or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

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September 30, 2023​

Part II. OTHER INFORMATION.

Item 1. Legal Proceedings.

The Trust is not aware of any existing or pending legal proceedings against it, nor is it involved as a plaintiff in any proceeding or pending litigation.

Item 1A. Risk Factors.

The operations of the Trust are subject to numerous risks and uncertainties. As a result, the risks and uncertainties discussed in Part I, Item 1A. Risk Factors in the 2022 Form 10-K should be carefully considered. There have been no material changes in the assessment of the Trust’s risk factors from those set forth in the 2022 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

a) None.

b) Not applicable.

c) The Trust does not purchase Shares directly from its Shareholders. In connection with its redemption of Creation Units held by Authorized Participants, the Trust redeemed 0 Creation Units (comprising 0 Shares) during the three months ended September 30, 2023. The following table summarizes the redemptions by Authorized Participants during the period:

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

No officers or directors of the Sponsor have adopted, modified or terminated trading plans under either a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933) for the three-month period ended September 30, 2023.

Item 6. Exhibits.

See the Exhibit Index below, which is incorporated by reference herein.

www.sprott.com

Sprott ESG Gold ETF

Exhibit Index

*Filed herewith.

Sprott ESG Gold ETF

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated thereunto duly authorized.

Sprott Asset Management LP
Sponsor of the Trust

Date: November 9, 2023

* The registrant is a trust and the person is signing in his capacity as an officer of Sprott Asset Management LP, the Sponsor of the Registrant.