S.Africa to launch platinum/silver product

Allan Seccombe | Wed, 25 Nov 2009 14:55
[miningmx.com] -- A new platinum and silver investment product will be launched in South Africa early next year following on the remarkably successful gold-backed exchange traded fund, which has ballooned.

The platinum and silver exchange-traded note (ETN) differ from the gold backed ETF, which has physical gold backing the paper issued by NewGold, said Vladimir Nedeljkovic, head of ETFs and Index Products at Absa Capital.

“We are busy preparing a platinum and silver product we intend to launch early in 2010,” Nedeljkovic told Miningmx. “We are not going to issue an ETF but an ETN, which is issued by a bank and carries the credit risk of the bank. So our product will be issued by Absa out of our ETN programme that we are busy preparing.”

“In our discussions with our investor base, we believe there is a demand for platinum product and silver as well,” he said.

The details have yet to be finalised, but the thinking is the ETNs will track a very short-term futures index which behaves in a similar way to the a spot price index. “For all intents and purposes, investors will track spot prices of precious metals,” Nedeljkovic said.

a positive impact on the demand in the precious metals

“It is backed by Absa’s balance sheet and Absa will have to hedge its exposure in the market. There are different ways to hedge it. That’s why we are using Absa’s balance sheet. It is to allow for more flexibility in the hedging,” he said.

Similar products are offered in the United States and Europe, giving investors exposure to metals and other commodities.

Asked whether it would take physical metal off the market, something which would contribute to reducing supplies and giving support to prices, he said: “We cannot guarantee that. We’ll hedge it in a slightly different way but we believe it will have a positive impact on the demand in the precious metals.”

There is a proposed platinum-backed ETF in the United States, which is working its way through the regulatory process and should be available in the next five months or so.

US platinum ETF

This could result in the offtake of another 200,000 oz a year of platinum and palladium, Mark Bedford, director of precious metals marketing at Johnson Matthey, said at a presentation in mid-November.

Alison Cowley, principal analyst at Johnson Matthey, pointed out some US investors may have already given themselves exposure to platinum and palladium through the European ETF products, making it difficult to predict how successful a similar offering in the US would be.

Johnson Matthey forecast investment demand for platinum this year at 630,000 oz, up from 555,000 oz last year, with ETFs in Switzerland and the UK providing the growth.

It’s not yet clear how big South African demand for platinum and silver is, said Nedeljkovic.

“We have been speaking to investors and it’s very early stages so I can’t give any estimates,” he said adding it would be the first product offering investments in platinum and silver in this country.

On the gold side, Absa’s NewGold has steadily increased in the number of new issues of ETFs as the dollar gold price regularly breaches fresh record highs, but the rand gold price remains obstinately mired in a relatively narrow band.

The NewGold fund stands at just over $2bn, with more than 53.5 tonnes or 1.7 million oz of gold in it. In rand terms, the fund is worth R15bn. In the first half of this year, the fund broke the $1bn mark for the first time.

Given the relatively small size of the South African market, it’s worth noting it is about 40% the size of the $5bn UK fund which launched shortly before the JSE-listed product.

“During this year, we’ve had the net creation of R7bn of assets, which is astonishing,” Nedeljkovic said. “If the strength continues we’ll see more creations going forward.”