QuotedData’s James Carthew had a follow-up meeting with Adamas Finance after the publication of his article on the fund in Investment Trust Insider. The original article, like the vast bulk of James’s articles on that site, was written without the benefit of meeting the manager or its PR team beforehand – that’s because James wants to write free from bias. We often end up meeting some of these funds afterwards.
James’s conclusion in his article was that Adamas has an extraordinarily wide discount in a reasonably big fund but one with low transparency, a poor track record, an overly concentrated portfolio and a dominant shareholder. To counter the transparency problem, Adamas plans to release a lot more information than it has until now. NAVs will be published quarterly, they’ll be accompanied by some explanatory text from the manager that updates investors on developments within the fund and an effort will be made to get accounts published in a more timely fashion. That is great news we think.
The track record is what it is but the manager was keen to point out that write downs have related to investments that it inherited. This is the crux of the argument really, there could be a good fund in there hidden by the problems of yesteryear – time will tell.
In terms of broadening the portfolio, the plan is to work towards monetising all or part of the fund’s investment in Hong Kong Mining (which has a dolomite mine that has been mothballed for some time but which it is now bringing into production). This accounts for almost half the NAV, as things stand. One thing James misinterpreted from the available info was that Adamas chose to add to its position in this company rather than being obliged to. The manager believes, sensibly we think, that it will be much easier to drive the creation and release of value from the mining company if they are in control.
Lastly, we need to address the issue of the dominant shareholder. The manager says that this shareholder has no wish to reduce their holding and so should not be seen as an overhang – this is good news. However, the manager acknowledges that liquidity is an issue in this stock. It thinks the answer is to raise more money and dilute down the shareholder’s percentage ownership. Obviously this means issuing shares at a discount – something we would normally regard as a complete no-no. We have been thinking about the situation though. The manager believes it has plenty of opportunities to deploy additional capital profitably. If the existing minority shareholders in Adamas are also prepared to be diluted, then we could get our heads around a one-off issue of shares. Where we’d struggle is to accept regular ongoing dilution for investors and we doubt many would put up new capital if they thought that this was likely.
All in all, an interesting situation (hence why James wrote about it). If you want to know more, do read the full article via the link.