Sprott's hostile bid for Canada metal trusts gains ground-source

By Mike Stone
Aug 18 (Reuters) - Nearly a third of investors in precious
metals funds Central GoldTrust GTU_u.TO and Silver Bullion
Trust SBT_u.TO have agreed to a bid from Canada's Sprott Asset
Management SII.TO , a person familiar with the offer said on
Tuesday.
Sprott, a Toronto-based money manager, has been trying to
wrestle control of Central GoldTrust and Silver Bullion Trust
from Central Fund of Canada Ltd CEFa.TO in a rare example of a
hostile bid in Canada.
The two funds are backed by physical precious metal holdings
of over $750 million in gold and $44 million in silver
respectively.
A source told Reuters more than 30 percent of Central
GoldTrust's and Silver Bullion Trust's investors have already
tendered, or committed to tender in the offer, which will expire
on Sept. 18. It needs the support of two thirds of investors.
Typically, investors tender their shares or units only days
ahead of the close.
Sprott has launched a tender offer where investors in
Central GoldTrust can exchange their holdings for units of
Sprott's Physical Gold Trust PHYu.TO , an option that Sprott
says will give an immediate boost to the value of the
investments.
Sprott allows its investors to redeem their gold at net
asset value, an option the Central Fund of Canada funds do not
have.
Central GoldTrust trades at a 6.5 percent discount to its
net asset value while Sprott's Physical Gold Trust recently
traded at a 0.6 percent discount to net asset value.
If Sprott's tender for Central GoldTrust goes through,
investors will receive shares in Sprott's Physical Gold Trust
PHYu.TO , which currently manages $1.8 billion in actual gold.
Julian Klymochko, a portfolio manager at Ross Smith Asset
Management, a top 10 investor in both Central GoldTrust and
Silver Bullion Trust, said on Tuesday he would support Sprott.
"In order for units to trade in-line with the underlying
bullion, the unitholders require a physical redemption option at
net asset value," Klymochko said.
The top two investors in Central GoldTrust have already said
they would vote in favor of the Sprott offer.
Central GoldTrust and Silver Bullion Trust's parent, Central
Fund of Canada Ltd CEFa.TO , controlled by Canada's Spicer
family, has said in statements that Sprott charges higher
management fees, and is not offering guaranteed premium to unit
holders.
Central Fund of Canada Ltd did not respond to a request for
comment.