ETF liquidations soar since Lonmin rights offer

[miningmx.com] – LIQUIDATIONS of platinum- and palladium-backed exchange traded funds (ETFs) soared since Lonmin’s $408m rights offer was unveiled on November 9, said Barclays Capital analyst, Andrew Byrne.

Platinum-backed ETF sales totalled 397,000 ounces in just four days from November 9 while some 572,000 oz of palladium ETFs were sold. The liquidations represent 14% and 18% of total ETFs in each metal.

Investors flocked to ETFs because holding them underpinned a belief in the basic business case of the metal market without exposing them to the fortunes of the firms producing the metal where restructuring and job losses have been common.

“We believe many holders of the metal had expected a rational market reaction where the uneconomic ounces of Lonmin would be forcibly removed from the market through bankruptcy or market pressures,” said Byrne in a note dated November 12.

“We suspect the potential that this may not happen due to either shareholder support or government intervention (either directly or indirectly), has led many investors to conclude that the risk reward of owning PGM ETFs is negatively skewed and force acted as a catalyst to sell,” he said.

The Public Investment Corporation (PIC), a government-owned pension fund, said on November 13 that it would follow Lonmin’s rights issue in terms of its 7% shareholding and sub-underwrite up to 25% in the company.

Shareholders in Lonmin will decide on November 19 whether to allow the proposed rights offer to proceed. Without it, Lonmin’s banks will not permit Lonmin extra time to repay bonds which currently fall due in 2016.