LITP Frequently Asked Questions (FAQs)


LITP Launch of Sprott Lithium Miners ETF (Nasdaq: LITP)

On February 1, 2023, Sprott Asset Management announced the launch of four Exchange Traded Funds (ETFs): Sprott Energy Transition Materials ETF (Nasdaq: SETM)Sprott Lithium Miners ETF (Nasdaq: LITP)Sprott Junior Uranium Miners ETF (Nasdaq: URNJ) and Sprott Junior Copper Miners ETF (Nasdaq: COPJ).

Please Note: This FAQ is not wholly inclusive of all relevant information. Investors should consult the prospectus for more information, or please reach out to your Sprott representative at 888.622.1813 or energytransition@sprott.com for additional questions.

1

How can I invest in the Sprott Lithium Miners ETF?

The Sprott Lithium Miners ETF is listed on Nasdaq® under the symbol “LITP.” Investors can purchase LITP in a brokerage account or by contacting their financial advisor.

2

What is the Sprott Lithium Miners ETF investment objective and strategy?

The Sprott Lithium Miners ETF (LITP) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Nasdaq Sprott Lithium Miners™ Index.

The Nasdaq Sprott Lithium Miners™ Index is designed to track the performance of a selection of global securities in the lithium industry. The Fund will, under normal circumstances, invest at least 80% of its total assets in securities of this Index.

3

What is the energy transition?

The energy transition is a significant global structural change intended to decrease our dependence on fossil fuels in favor of low-carbon and renewable energy. While we believe fossil fuels will likely continue to play a role in our future, substantial global investment and government mandates in favor of low-carbon and renewable energy are driving opportunities in the energy transition industry.

4

What is the Nasdaq Sprott Lithium Miners™ Index’s methodology?

The index combines Sprott’s decades of experience in the mining sector with Nasdaq’s renowned index expertise. To be eligible for inclusion in the Nasdaq Sprott Lithium Miners™ Index (NSLITP™), a company must meet the requirements that follow.

Eligibility Requirements

    • Be a security listed on an approved exchange
    • The security’s issuers must be classified by Sprott as a lithium producer, developer or explorer
    • Have a free-float market capitalization of at least $40 million or $25 million for existing constituents
    • The security must have been publicly traded at least three months prior to the reconstitution reference date
    • A security must have a three-month average daily traded value of at least $50,000

Constituent Weighting Process

    • The index is a modified free-float market capitalization-weighted index
    • A theme-adjusted free-float market capitalization is calculated for each constituent
      • Free-float market capitalization is used to weight companies with an intensity score1 greater than 50%
      • Companies with an intensity score of 25% to 50% are given an adjusted market capitalization by multiplying the theme intensity score and its free-float market capitalization, and the company’s weight in the index is determined by its adjusted market capitalization
    • For stocks without revenue or for which revenue is an inappropriate characteristic, the intensity score is given at 50%
    • Constituents’ initial weights are determined by dividing each constituent’s theme-adjusted free-float market value by the aggregate theme-adjusted free-float market value of all constituents
    • Initial weights are adjusted to meet the following constraints:
      • No constituent weight may be less than 0.30%
      • For each stock in the top five by initial weight, the maximum weight is set to 9.75%
      • For each constituent not in the top five, weight may not exceed 4.75%
      • In the event the sum of securities weights that have theme intensity scores between 25% to 50% are higher than 15%, the sum of these securities weights is set to 15%

Index Rebalancing

    • The index is rebalanced semi-annually in June and December, effective at the market open on the first trading day following the third Friday
5

Who may want to consider investing in LITP?

Investors that seek pure-play2 access to lithium through companies that are upstream in the supply chain. Lithium miners may be well positioned to benefit from increased investment in the low-carbon and renewable energy sector.

6

Who will manage the Sprott Lithium Miners ETF?

Sprott Asset Management LP is the investment adviser to the Sprott Lithium Miners ETF. ALPS Advisors, Inc. is the sub-adviser, and ALPS Fund Services, Inc. serves as the administrator. ALPS Distributors, Inc. is the Distributor for the Sprott Lithium Miners ETF and is a registered broker-dealer and FINRA Member. Additionally, State Street Bank and Trust Company serves as the custodian and transfer agent.

7

What are the key benefits of investing in the Sprott Lithium Miners ETF?

Increased investment is driving growth in the critical minerals necessary for the energy transition

  • Globally, $1.11 trillion was invested in the energy transition sector in 2022, equal to fossil fuel’s investment for the first time3
    • Investment in renewable energy totaled $495 billion3
    • The electrified transportation sector saw $466 billion of investment3
  • Investments in electric transportation grew by 53% in the United States in 20223

Lithium is a vital component in the batteries used in the growing hybrid and electric vehicle (EV) markets

  • Lithium-ion batteries are favored in hybrid and electric vehicle batteries given they are long-lasting, charge quickly and have a high density, allowing for more battery in a lighter package
  • Compared with other countries, the United States is lagging in EV usage, but is nearing a tipping point of mass EV adoption4
  • Global sales of EVs tripled in the last 2 years, and all net growth in global car sales in 2021 came from EVs4
  • Governments are mandating the sale of EVs as soon as 2035,5 and many major auto manufacturers have plans to go fully electric as soon as 20306

Electric vehicles are the largest consumers of lithium, and demand for this critical mineral is expected to increase significantly

  • Expected supply from existing mines and projects under construction is estimated to meet only 50% of projected lithium demand7
  • Mining capacity needs to expand to meet the growing demand for lithium. Relative to 2020, production may need to increase by 42x for lithium to meet expected demand by 20407
  • Recycling of end-of-life lithium-ion batteries is expected to account for little more than 6% of total lithium production by 20308
  • The U.S. government is awarded grants totaling $2.8b to boost domestic manufacturing of EV batteries in 12 states9

The Sprott Lithium Miners ETF is the only* ETF to provide pure-play exposure to lithium mining equities essential to the electric vehicle revolution

  • LITP’s holdings are pure-play companies with business operations that are focused on the lithium mining sector
  • Companies that are upstream in the supply chain may be well-positioned to benefit from the increased investment in lithium necessary for the clean energy transition
8

What is clean energy?

Clean energy is energy that has zero carbon emissions and comes from renewable and nuclear energy sources. Currently, nations around the world have committed to the Paris Agreement, which is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris in December 2015. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To meet this goal, emissions need to be reduced by 45% by 2030 to reach net-zero by 2050.10

9

What are critical minerals?

Critical minerals are natural materials that are essential to the generation, transmission and storage of clean energy. Sprott focuses on lithium as a major battery metal that is crucial to energy storage and the batteries powering the electric vehicle revolution.

10

How does the Sprott Lithium Miners ETF add value?

  • Currently, investors have limited choice
    LITP is the only ETF to provide pure-play exposure to the lithium miners that supply this critical mineral essential to the transition to cleaner energy.
  • Investing in individual companies that mine lithium poses challenges
    Many mining companies are domiciled in foreign countries, have small market capitalizations, are volatile and may have limited liquidity, making individual equity investing more challenging for some investors. The Sprott Lithium Miners ETF offers investors a convenient vehicle to access to miners that supply this critical mineral along with company diversification.
  • Existing commodity funds have limited exposure to lithium miners
    Most ETFs focused on the lithium sector provide exposure to companies that are end users of lithium, such as electric vehicle manufacturers, or companies that only devote a small portion of their revenue/operations to this critical mineral. What sets LITP apart is the index’s comprehensive selection process to identify pure-play companies that are upstream in the supply chain that may be well-positioned to benefit from the increased investment in this critical mineral necessary for the clean energy transition.
11

What themes may be driving investor interest in the Sprott Lithium Miners ETF?

We believe the Sprott Lithium Miners ETF has broad appeal to many investors. The following general themes are driving investor interest.

  • Energy transition/Clean energy theme
    Major nations have set aggressive decarbonization targets and goals to reduce emissions. Their proposals have begun encouraging investment in electric vehicles and infrastructure, wind and solar energy, and nuclear energy to assist in this effort. We believe that miners of critical minerals should benefit from this clean energy transition as they provide essential materials that are key to reaching decarbonization goals.
  • Energy security and sovereignty
    This issue became a top headline story in 2021 as the cost of energy spiked, which highlighted the vulnerability of relying on other nations to supply energy. Rising geopolitical risks in Europe, given the Russia-Ukraine war, help highlight the energy security that renewable energy can provide.
  • Commodity investing
    After many years out of favor, investors are returning to commodities to take advantage of supply shortages due to prolonged under-investment. The fundamentals for lithium are very constructive with steady growth in demand coupled with a structural supply deficit that can only be addressed with a higher incentive price.11 Those invested in commodities and related equities should consider focusing on the potential future makeup of such markets, where we believe the energy transition sector will take a far greater market share.
  • Alternative exposure/Diversification
    Many mining companies are domiciled in foreign countries, have small market capitalizations, are volatile and may have limited liquidity, potentially limiting their inclusion in major equity indexes. Exposure to the pure-play companies in LITP’s strategy may add exposure to investor portfolios that may otherwise be lacking in traditional equity strategies.
12

Will the Sprott Lithium Miners ETF pay distributions?

The Sprott Lithium Miners ETF expects to declare and distribute all its net investment income, if any, to shareholders as dividends at least annually and on a pro-rata basis. The Fund may distribute such income dividends and capital gains more frequently, if necessary, to reduce or eliminate federal excise or income taxes on the Fund.

 

 

Please reach out to your Sprott representative at 888.622.1813 or energytransition@sprott.com for additional questions.

 

* Based on Morningstar’s universe of Natural Resources Sector Equity ETFs as of 1/31/2023.

1 The intensity score for stocks with revenue and for which revenue is deemed to be an appropriate characteristic is the percentage of their revenue attributable to the aforementioned strategy of the index.
2 The term “pure-play” relates directly to the exposure that the Fund has to the total universe of investable, publicly listed securities in the investment strategy.
3 Source: Energy Transition Investment Trends 2023, BloombergNEF.
4 Source: “U.S. Crosses the Electric-Car Tipping Point for Mass Adoption,” Bloomberg, July 9, 2022.
5 Source: Reuters, December 8, 2021.
6 Source: “Which brands are going fully electric and by when?” CarExpert, August 14, 2021.
7 Source: “The Role of Critical Minerals in Clean Energy Transitions,” International Energy Agency (IEA), May 2021.
8 Source: “Lithium Mining: How new production technologies could fuel the global EV revolution,” McKinsey & Company, April 12, 2022.
9 Source: The Associated Press, via ABC News, November 16, 2022.
10 United Nations Framework Convention on Climate Change (UNFCC).
11 Incentive price is the price at which new mining production is reasonably profitable.

Important Disclosures

An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Sprott Lithium Miners ETF Statutory Prospectus, which contains this and other information, visit https://sprottetfs.com/litp/prospectus, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing.

The Fund is not suitable for all investors. Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund's shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. The Fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.

Shares are not individually redeemable. Investors buy and sell shares of the Sprott Lithium Miners ETF on a secondary market. Only market makers or "authorized participants" may trade directly with the Fund, typically in blocks of 10,000 shares.

Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.

The Sprott Lithium Miners ETF seeks to provide investment results that, before fees and expenses, generally correspond to the total return performance of the Nasdaq Sprott Lithium Miners Index (NSLITP).

Nasdaq®, Nasdaq Sprott Lithium Miners™ Index, and NSLITP™ are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Sprott Asset Management LP. The Product(s) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).

Sprott Asset Management LP is the investment advisor to the Sprott Lithium Miners ETF. ALPS Distributors, Inc. is the Distributor for the Sprott Lithium Miners ETF and is a registered broker-dealer and FINRA Member.

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