Sprott Physical Gold Trust Announces Follow On, Will Sequester Another $300 Million In Physical; PSLV Next?

Tyler Durden's picture

It's a good thing that unlike the silver market, which continues to be in backwardation (see chart), the gold market is fully supplied. Otherwise the just released news from Sprott Asset Management that his Physical Gold Trust (PHYS) is pursuing a $300 million follow on would finally send gold breaking out to $2,000, where it will be sooner or later anyway. Amusingly, contrary to various other blogs' expectations that Sprott is top ticking the market with selling shareholder shelf statements, Sprott is doing just the opposite: "certain funds managed by Sprott Asset Management LP, have agreed to purchase no less than $115 million of Units in this Offering." So yeah, no top tick here. Still, the news that Sprott is about to mop up another $300 million in physical gold from the market will likely send gold quite higher. It appears to have already had an impact on silver, which jumped by $20 cents to another 31 year high on the news, as the market now likely expects a follow on offering in PSLV as well imminently.

The press release

TORONTO, ONTARIO--(Marketwire - 04/04/11) - Sprott Physical Gold Trust (the "Trust") (TSX:PHY.U - News)(NYSE:PHYS - News),
a trust created to invest and hold substantially all of its assets in
physical gold bullion and managed by Sprott Asset Management LP,
announced today that it has launched a follow-on offering of
transferable, redeemable units of the Trust ("Units") in an aggregate
amount of up to $340 million at a price of $12.54 per unit (the
"Offering"). Certain lead investors, including certain funds managed by
Sprott Asset Management LP, have agreed to purchase no less than $115
million of Units in this Offering.

The Trust will use the net
proceeds of this Offering to acquire physical gold bullion in accordance
with the Trust's objective and subject to the Trust's investment and
operating restrictions described in the prospectus related to this
Offering. Under the trust agreement governing the Trust, the net
proceeds of the Offering per unit must be not less than 100% of the most
recently calculated net asset value per Unit of the Trust prior to, or
upon determination of, pricing of the offering.

The Units are
listed on the NYSE Arca and the Toronto Stock Exchange under the symbols
"PHYS" and "PHY.U", respectively. The Offering will be made
simultaneously in the United States and Canada by Morgan Stanley and RBC
Capital Markets.