Aimed at retail and institutional investors, the fund will make it easier to get exposure to the spot price of the precious metals, which have surged in value in the last decade, without the inconvenience and cost of taking delivery and storing them.
The fund, similar but not the same as those run by ETF Securities, will invest in the long term, rather than speculating on short-term price changes, the trust said in a preliminary prospectus to the US Securities and Exchange Commission yesterday.
Platinum prices, which closed at US$1,489.75 per oz yesterday, have increased threefold and palladium prices, ending the day at US$636.72 per oz, have doubled in the last decade due to falling supplies, from major producers such as South Africa and Russia, and rising demand from the jewellery and autocatalyst markets.
The details of the trust are the same as Sprott’s two other physically backed exchange traded alternative investment vehicles, which invest in physical gold and silver.
Bullish for prices
The removal of more physical metal from the market may help to boost prices further, market participants said. Many analysts attribute the rise in prices over the past two years in part to the rise in popularity of physically backed ETFs.
“It may drive investor demand. It’s basically the hoarding of platinum. If they’re going to be buying and storing platinum it will take industrial supply off the market,” said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management in Oregon.
The prospectus warned that purchases may affect prices, but the trust’s initial US$115 million purchase would be a fraction of global output based on current prices.
As part of its launch, the trust will issue 11.5 million shares worth US$10 each, representing US$115 million of physical metal.
Based on a platinum price of US$1,500 (RM4,695) per oz, that would represent just over 7,666 oz of platinum. Global output in 2010 was 6.05 million oz.
With a palladium price of US$630, it would be 18,200 oz of metal, out of global 2010 output of 7.36 million oz.
Based on data by Johnson Matthey, each 10,000 oz of physical palladium and platinum purchased by the trust would represent 0.13 per cent and 0.11 per cent, respectively, of total supply in 2010, the prospectus said.
Investors will be able to buy and sell those units in the closed-end mutual fund trust on the NYSE Arca and the Toronto Stock Exchange under the symbols “SPPP” and “PPT.U”, respectively.
The timing of the issue was not given in the prospectus.
Tracking sport prices
A glance at Sprott’s gold fund supports the view that shares track spot prices.
If an investor had bought shares when the Physical Gold Trust launched at US$10 in early 2010, they would have seen their shares rise by 60 per cent to above US$16 just as gold prices hit record highs in September.
This is the same per centage rise as the gold price, which peaked at US$1,920 per oz, compared with trading around US$1,200 in early 2010.
Shares were at US$14.48 per share yesterday, down 9 per cent from the peak, largely in line with the gold’s performance since then.
This would not be a net profit though as an investor would have to pay transaction fees on top.
Lower cost, more convenient
The fund will charge investors fees for any transactions, but they will be lower than the costs associated with buying and selling physical platinum and palladium bullion, as well as storing and insuring the metal, the prospectus said.
Investors will be able to redeem a minimum of 25,000 units on a monthly basis for physical platinum and palladium at an aggregate net asset value of the units, minus delivery and redemption fees.
The Sprott fund differs from traditional ETFs, which issue and redeem units daily. Sprott investors can redeem the physical metal, something that not all ETFs offer, it said.
Apart from the cash to pay expenses and cash redemptions, the trust will only own physical platinum and palladium bullion that is certified as Good Delivery Standard of the London Platinum and Palladium Market. The metal will be stored with the Royal Canadian Mint.
Morgan Stanley and RBC Capital Markets Corp will act as co-lead underwriters for the offering of the units in the United States. RBC Dominion Securities and Morgan Stanley Canada will act as co-lead underwriters for the offering in Canada.
The trust is a subsidiary of Sprott Asset Management LP, whose parent company is Sprott Inc. Eric Sprott is chairman of the parent. — Reuters
