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Lawmakers Alert Watchdog on LME Warehousers
By Pratimi Desai
Reuters
Tuesday, May 24, 2011
http://uk.reuters.com/article/2011/05/24/uk-committee-metals-idUKTRE74N3...
LONDON -- Anti-competition authorities may probe activity by large traders on the London Metal Exchange that also own warehouses, including investment bank JP Morgan, after lawmakers raised concerns.
A parliamentary committee said in a report it was concerned that the same firms that trade metals were able to hold large amounts of metal stored on the LME, the world's top metals exchange, and alerted competition authorities.
Controversy has swirled in recent months after one party gained control of up to 80 percent of lead stocks at the same time as cash premiums for the metal soared.
The Office of Fair Trading (OFT) said it was considering a report by parliament's Science and Technology Committee that referred to allegations of anti-competitive behaviour.
... Dispatch continues below ...
Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon
Company Press Release, January 18, 2011
VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.
PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.
Following the transaction:
-- Prophecy will own approximately 90 percent of PCNC.
-- PCNC will consolidate its share capital on a 10 old for one new basis.
-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.
-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.
Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.
For the complete announcement, please visit:
http://prophecyresource.com/news_2011_jan18.php
"There is no formal investigation open, though as always we would consider any complaints we receive," an OFT spokeswoman said.
The LME denied any improper activity was taking place and said robust regulations were already in place regarding warehouses.
The concerns by the committee emerged in a report that was largely about the availability of strategic metals, but also touched upon the phenomenon over the past few years of metals warehouses being purchased by trading houses.
"We would be concerned if a dealer were undermining the effective functioning of the market and we look for assurance that the market is functioning satisfactorily," the committee said in the report.
"We heard that there were large companies dealing metals within the UK and an allegation was made ... that a company through a subsidiary may be behaving in an anti-competitive manner."
The report said there were four very large companies that own warehouses and named U.S. investment bank JP Morgan, which owns warehousing company Henry Bath.
"They are, therefore, a ring-dealing member of the exchange and they also own the warehouse. That is restrictive," the committee said.
U.S. investment bank Goldman Sachs owns Metro, commodity trader Trafigura owns NEMS, and Glencore, which has just listed in London, owns Pacorini.
JP Morgan, Goldman Sachs, and Trafigura declined to comment while Glencore was not immediately available for comment.
"There's been a dramatic change in ownership," said an analyst who declined to be named. "There's quite clearly, in banking terminology, scope for cross-selling."
The firms have said they have Chinese walls between their trading arms and the warehousing units.
But some traders worry that the trading houses are devising strategies based on information about who is holding physical metal and where it is going.
The LME in an emailed response said the assertion that ownership of a warehousing company implies anti-competitive behaviour was "unjustified and completely out of context."
"Ownership of warehousing by trading companies is not new and there are clear and robust regulations in place concerning this issue, regulations which are under constant review by the LME and our regulator the FSA to ensure the market operates in a fair, transparent and orderly manner."
The parliamentary report said the allegation about possible anti-competition behaviour was made by the Minor Metals Trade Association (MMTA), but the group said those were the personal views of its former chairman Anthony Lipmann, not the group itself.
The association said in a statement its position on warehouse ownership was clear: "The warehouse company should be neutral, not owned or associated with any trading company."
Last month, senior metal trading sources told Reuters that Glencore had moved lead stocks to LME monitored warehouses ahead of its flotation at the same time premiums for physical lead rose.
LME data showed that one entity controlled between 50 and 80 percent of inventories and the sources said Glencore was that entity.
Large holdings of LME stocks can occur unintentionally and are not unusual for large companies with many divisions and clients that delve into metals markets.
The LME can force holders of dominant positions to make metal available to other market players by imposing its lending guidelines, which are aimed at ensuring orderly markets.
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Wall Street Journal Publishes Lewis Lehrman's Call for the Gold Standard
In its April 26 edition The Wall Street Journal published an important essay by the Lehrman Institute's chairman, Lewis E. Lehrman, explaining why a gold-convertible dollar is critical to eliminating the shocking federal deficit.
"Experience and the operations of the Federal Reserve System compel me to predict that U.S. Rep. Paul Ryan's heroic efforts to balance the budget by 2015 without raising taxes will not end in success -- even with a Republican majority in both Houses and a Republican president in 2012. ...
"What persistent debtor could resist permanent credit financing? For a government, an individual, or an enterprise, 'a deficit without tears' leads to the corrupt euphoria of limitless spending. For example, with new credit the Fed will have bought $600 billion of U.S. Treasuries between November 2010 and June 2011, a rate of purchase that approximates the annualized budget deficit. Commodity, equity, and emerging-market inflation are only a few of the volatile consequences of this Fed credit policy."
To read more, and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:
http://www.thegoldstandardnow.org/gata
