Sprott Prices the Physical Silver Trust Offering at US$13.20

Sprott is bringing their deal out at the low end of the range. Quite a haircut for those who held the trust before the offering announcement, as I had warned. That thirty percent premium to NAV was completely undeserved and was most likely the result of a short squeeze.

It is a bullish deal for the silver market in general since it will take more than ten million ounces of silver out of the market and into the hands of longer term investment in the trust.

Sprott is giving the underwriters 15 percent of the offering in the over allotment if they choose to take it. They are Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada.

(RTTNews) - Sprott Physical Silver Trust (PSLV: News , PHS_U.TO) announced that it has priced its follow-on offering of 23 million transferable, redeemable units of the Trust at a price of US$13.20 per Unit.

As part of the Offering, the company said that it has granted the underwriters an over-allotment option to purchase up to 3.45 million additional Units.  (15 percent)

The gross proceeds from the Offering will be US$303.60 million or US$349.14 million if the underwriters exercise in full the over-allotment option.

The company stated that it will use the net proceeds of the Offering to acquire physical silver bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the 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.

Sprott Physical Silver Trust PSLV Brings Out Its Follow On Offering

As predicted.  The cash reserves of the Trust had fallen to less than $350,000 by my estimates.

Let's see how this affects the price of silver.

According to a message to the Sprott Private Wealth clients:

PRICING: will be between $13.10 to $13.75 USD, which is a 5.6% to 10.0% discount from last trade, but a 12.3% to 17.9% premium to the latest Net asset value per unit.

PSLV closed regular trading today at $14.56, but traded as low as 13.33 after hours.

And as anticipated those buying the Trust at those 30 percent premiums will take about a ten percent hit on this offering.   The premiums must have been indicative of a short squeeze and not of a shortage in physical silver per se.   And the premiums were clearly at the outer bound of the historic range.

Of particular interest will be the allotment if any to the underwriters and at what prices. I would be surprised if deliverable silver has not already been discussed and arranged if this is going to be a deal in size.  The trust may be attractive once again at a more normal premium according to historic standards.

Press Release
Sprott Physical Silver Trust Announces Follow-on Offering of Trust Units
TORONTO, Jan. 17, 2012

(NYSE: PSLV) (TSX: PHS.U), a trust created to invest and hold substantially all of its assets in physical silver bullion and managed by Sprott Asset Management LP, announced today that it has launched a follow-on offering (the "Offering") of transferable, redeemable units of the Trust ("Units").

The Trust will use the net proceeds of the Offering to acquire physical silver bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the 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.

From a Message Sent to Clients of Sprott Private Wealth

Sprott Physical Silver Trust (TSX: PHS.U, NYSE: PSLV) is issuing new units via an overnight follow-on offering. Anyone interested, please get back to me by 7:30 a.m. EST tomorrow (Wednesday, January 18) with their order quantity. Details are below.

The offering is expected to be for between $250 - $350 million USD. Eric Sprott will be participating as Sprott Inc., the Sprott Foundation and related entities or clients will invest at least $45 million in the offering.

PRICING: will be between $13.10 to $13.75 USD, which is a 5.6% to 10.0% discount from last trade, but a 12.3% to 17.9% premium to the latest Net asset value per unit.

Please note for Canadian investors, you can purchase silver at net asset value by buying the Sprott Silver Bullion mutual fund. Silver is Eric Sprott’s top investment thesis and as such, most of you already hold a substantial amount of silver through his Funds. As at December 30, 2011, 24% of the holdings in Sprott Canadian Equity Fund were silver bullion and for Eric’s Canadian hedge fund strategies, silver bullion makes up between 29-33% of the long portfolio.

If interested in this offering, if you have any questions or if you would like to take any other action with your portfolio, please send me an e-mail or call me.

Gold Daily and Silver Weekly Charts

Gold and silver are back in sync with equities.

The miners are struggling here.

SP 500 and NDX Futures Daily Charts - Manhattan Melodrama

There is quite a bit of 'tension on the tape' despite its calm outward appearance and rangebound trade.

They will either break this out into a new phase of the bubble, or the market will take a dive. I do not think we are more than a week or two away from a resolution to this, but it could drag on until the end of March and the final reckoning over Greece.

Whatever happens, go with the flow, because the pent up energy could provoke quite a move in either direction.

Or even better, get out and stay away until the situation clarifies in Europe and the Mideast unless you are an active, professional trader.

As may recall, the film Manhattan Melodrama was made famous by the introduction of the previously unrecorded song Blue Moon but with a different set of lyrics. It was such an attractive meldoy that the studio brought the song out afterwards with the original lyrics and a classic was born.

It was also the last film seen by John Dillinger before he was gunned down outside a Chicago theatre in the company of 'the lady in red' by Melvin Purvis and his G-men.