London Metal Exchange takeover vote a close call -survey

* Vote on sale to HKEx seen passing first hurdle on Wednesday

* Smaller shareholders still unhappy, votes carry weight

* More than one large shareholder undecided

By Veronica Brown and Susan Thomas

LONDON, July 23 (Reuters) - With the fate of the world's largest metals marketplace due to be decided in two days, London Metal Exchange shareholders are taking the 1.4 billion pound ($2.2 billion) decision on a sale to Hong Kong stock exchange down to the wire.

A Reuters survey showed that while half of respondents were clearly in favour of the deal, some smaller industrial users of metals such as copper, aluminium and nickel were against or had not made up their minds and, crucially, some heavyweight stakeholders were still undecided.

The anonymous survey with responses from 38 of the banks, funds and industrial users entitled to vote -- more than half of the total -- showed that most of those who had reached a decision would vote yes to a sale of the 134-year old exchange at the extraordinary general meeting.

That would get the vote past the first hurdle of a positive outcome from 75 percent of total shares in favour of the offer from Hong Kong Exchanges and Clearing that the LME board endorsed last month over a bid from InterContinental Exchange.

However, the LME's system of voting, designed to give a substantial voice to smaller shareholders, means that in a second part of Wednesday's process, when votes of those attending the meeting are counted, the overall outcome could still go either way if industrial users turn out in force.

The largest shareholders are banks, including top shareholder JPMorgan, with 1.4 million shares, and second-largest Goldman Sachs with 1.23 million.

Industrial users together hold around 500,000 shares with voting rights and they account for around 30 of a shareholder list that numbers around 70 but includes some owned by the same entities.

The industrial shareholders - metals plants and traders - have voiced objections to the takeover since the start of the process.

They fear a sale might alter the LME's low fees system and its unique, complex structure of futures trading, which still includes open outcry on a floor in London's Leadenhall Street, and which they value as an accurate way of establishing prices.

"The vast majority of the physical users of the exchange have clearly stated they are not happy with a change of ownership," one source close to the process said on Monday.

The Association of German Metal Traders (VDM), which includes Europe's largest copper smelter Aurubis AG and metals trader Wilhelm Grillo Handelsgesellschaft, sent a letter to the LME urging it not to sell.

In the Reuters survey conducted late last week, 19 of the 38 respondents said they would certainly vote yes, while the rest were undecided, declined to comment or were against.

The other shareholders declined to take part.

Some of those in favour of selling make no bones about what has swayed them in tough financial conditions.

"We're going to vote yes. Who knows what's going to happen in three years' time, who looks beyond three years these days? Better to just take the money and run," one European company with a small holding said.

The voices against continue to cite unease over the consequences of a sale, especially after HKEx's moratorium on changes to the LME's structure ends at the start of 2015.

"Hong Kong has given us all the assurances they could possibly give, but I'm not happy. They've tried to downplay the risks, but the Jan. 1 2015 deadline is not something I'm comfortable with," another shareholder at an industrial company said.

"Risk protection is extremely important to us. For the banks, price discovery is not a big issue, but for us it is."

DOWN TO THE WIRE

The decision is also proving difficult for some larger shareholders, with more than one company holding 300,000-plus shares still undecided as of Monday.

The LME board, which includes Goldman Sachs and major commodities trader Sucden Financial, voted unanimously in favour of HKEx's offering, not least because it is seen providing a vital gateway to China, which consumes 40 percent of the world's copper.

Sources close to the matter said late last month that JP Morgan was yet to be convinced of a sale, and if it voted "no" it could well influence others.

JP Morgan has kept publicly silent on its voting intentions while many other shareholders have declared their position.

In the event of the vote failing, a large chunk of the 1.4 billion pound valuation could crumble.

"If the sale doesn't go through there will be big destruction of value in the LME, maybe to about 500 million (pounds). We can't say no to Hong Kong and then go back to ICE and say do you want to put in another offer."

"The Hong Kong exchange is the best way to go, because of the opportunities in China, closer relations with the regulators and opportunities for warehousing."