Specialty Metals Group Indium IPO: Commodities Ponzi Scheme

Mar.28.08 | About: Specialty Metals (IND.U)

There is a difference between investing and hoarding. Investors and traders buy and sell equities and assets to make money. Hoarders pile up assets in the hope of values rising. Converting them back into money is often not a priority.

The commodities supercycle has taken hoarding to a professional level. Commodities funds have been buying up gold, metals, oil, sidelining them from the market, increasing demand while reducing available supplies.

Shell games like this have become increasingly popular as panicked investors are fleeing real estate and stock markets toward the presumed safety of gold, oil and metals. The more that pile in, the higher prices go. And the higher prices go, the more that pile in.

If this were real estate or internet stocks, people would call it a bubble. But since gold is involved, this is part of divine providence.

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Bubble business

Back in the 1990s, budding Internet entrepreneurs still required a cocktail napkin to write their business plan on before they issued an IPO. Today, a Post-It note is sufficient.

Take the upcoming IPO of Specialty Metals Group Indium Corp. (IND.U). They want to take the proceeds from their IPO, buy a stockpile of indium, sit on it for a couple of years, and hope to watch their stock price rise along with demand for indium. They won't even bother with actively speculating on price fluctuations.

Indium is actually a useful industrial metal that is used in the manufacture of flat panel displays, touch-screen interfaces, iPhones and solar energy.

IPO mania?

The company filed on February 27, 2008 and intends to sell 11 million shares at five bucks a pop. No IPO date has been set yet.

Sad to say that this commodities Ponzi scheme is probably going to be one of the hottest and oversubscribed IPOs coming down the pipeline this year. It will make plenty of money for the underwriter and the market maker. Hey, even in this market, two out of three ain't bad.

Instead of chasing this stock in the aftermarket, you might take an early position in a few of the publicly traded small indium miners that could be profiting from tight supply.

One of them, Avalon Ventures [TSE: AVL], trades on the Toronto Stock Exchange. Stock prices have seen better days, but for C$1.28, it seems like a worthwhile speculative position on the publication of the word "indium" through the Special Metals Group Indium IPO.

Buy it between $1.00 and $1.30 and get ready to sell a few days after the IPO for potential gains of up to 50%.

Disclosure: None