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Scotia eyes new copper IPO


Copper's return to dizzying heights has revived hopes for an initial public offering of the ScotiaMocatta Physical Copper Fund.

The fund's backers filed paperwork this week to revive the IPO, which was mothballed last year.

Bankers at Scotia Capital originally filed a prospectus in July, 2009, at the time, billing the copper fund as the first to give investors a direct stake in physical copper.

However, the fund never got off the ground. Timing might have been an issue, with copper well off its highs at the time and investors still risk-averse and focused on income.

Investors may wish they had bought then. Copper is trading at levels not far off the highs set in the pre-recession bull market thanks to optimism about growth in China (which has been locking up copper supply for its power grid) and an economic rebound more generally around the world.

"I think we're going to see a renewal of the commodity boom," said Aaron Fennell, a senior market strategist and portfolio manager at commodity specialist firm Lind-Waldock. In fact, he argues, "it could be even hotter this time around" because the recession and credit crunch cut off a lot of mine development, trimming supply growth.

The fund, however, faces more variables than just the outlook for copper.

There are costs to running a copper fund. For one thing, there is the sheer space required to store the physical copper, which because it is a relatively cheap industrial metal can pile up in a hurry as compared to gold, another favourite of exchange-traded funds.

The Scotia banker who will run the fund, Brian McChesney, told The Globe and Mail last summer that the fund may have to consider buying its own warehouse. Mr. McChesney was away from his office yesterday and unable to comment.

Because of such costs, Mr. Fennell argues that investors are better off buying commodity contracts directly rather than investing in a fund. That's perhaps no surprise given commodity trading is his firm's main business.

"Our philosophy is that if you think copper's going up, buy copper."

© 2007 The Globe and Mail. All rights reserved.

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