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Somebody jumps through hoops to get real gold out of an ETF
By Rob Mackinlay
CityWire, London
Thursday, October 14, 2010
http://www.citywire.co.uk/money/etf-investor-turns-paper-into-gold-bulli...
A mystery investor has paid a L750 fee and turned shares in an exchange-traded fund (ETF) into physical gold. The ETF -- or exchange traded commodity (ETC) -- called Gold Bullion Securities, has a built-in facility that allows investors to swap their shares for gold but this has never been used before.
The timing of the first transaction of this sort is likely to be related to the price of gold, which has been hitting new highs on a daily basis. Investors who want to hold gold rather than shares in a gold ETF may be suspicious of global gold markets; have an industrial use for the metal like making jewellery; or have an investment strategy that requires holding physical gold.
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Sona Resources Expects Positive Cash Flow from Blackdome,
Plans Aggressive Exploration of Elizabeth Gold Property
On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia.
Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013."
For complete information on Sona Resources Corp. please visit: www.SonaResources.com
Whatever the reason for buying gold, an investor will pay a premium above the gold price to get his hands on it.
Gold broker ATS Bullion in the Strand in London said it would sell gold at a 4% premium to an investor buying a kilo bar. At the time of the conversation these bars were selling for L29,000, making the commission for buying a bar L1,160, more than the L750 flat fee from ETF Securities (although there are other costs).
Now that the facility has been used, it demonstrates the difference between traditional exchange-traded products and holding metal-backed ETFs. Investors holding these shares have a choice of selling them for cash or converting them into real assets like gold.
The size of the transaction and the identity of the investor was not disclosed by ETF Securities, who would say only that the transaction took place "recently."
Townsend Lansing, a director at ETF Securities, said: "As far as I know, this is the first time it has gone ahead. Generally, when it has been requested in the past, they (the clients) start looking at the costs and the process doesn't look as cost-effective as they had originally thought. But this one actually went through. They had made their own cost analysis and then took the required step."
Lansing said that anyone considering using this facility should factor in the cost of holding a London Bullion Market Association (LBMA) account, which is the required recipient of the redeemed gold. He said: "There are additional costs in moving the investment-grade gold into an account and form that an investor can conveniently hold."
Lansing also pointed out that most investors buy ETFs through brokers who then hold the shares on their behalf. This could cause initial problems for any investors hoping to turn their shares into gold as ETF Securities has to be able to identify which shares actually belong to the investor. Only when individual shares are matched up with the individual investor can the process of swapping them for gold go ahead.
ETF Securities offers the service in PHAU (gold) -- recommended in Citywire Selection -- as well as PHAG (silver), PHPT (platinum), PHPD (palladium), PHPM (basket of physical commodities), with a fee at L500 maximum per redemption of any size, while GBS (gold) has the same service at $750 per redemption of any size and its Australian gold product for AUS$1,000.
Lansing would not comment on whether ETF Securities' new physical ETFs for industrial metals would have a similar feature allowing investors to turn their shares into metals like aluminum, zinc, and copper.
Debbie Fuhr, ETF analysts at BlackRock, the owner of iShares, the largest ETF provider, said that investors redeeming gold would be faced with storage costs and would have to have the gold retested for purity if they wanted to return it to the market. She said: "I don’t see the benefit. I can't see why anyone would want to do it."
In 2008 US investors used the futures markets to make similar redemptions. They bought gold and silver futures contracts and waited for the contracts to expire before picking up bullion from warehouses.
The aim was to bypass high broker charges and shortages of physical metal. Gold and silver backing the futures markets is kept in warehouses in the US while most of the gold backing ETFs is stored in vaults in London.
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Prophecy to Become Coal Producer This Year
with 1.5 Billion Tonnes of Resource
Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen.
For Prophecy's complete press release about its production plans, please visit:
http://www.prophecyresource.com/news_2010_may11.php
