Golden Prospect Precious Metals (GPM) has been through quite a transformation over the past few months. What began with the unexpected resignation of the former portfolio managers has developed into an effective relaunch of the investment company, with a new management team, a more attractive fee structure, a substantially enhanced dividend policy and a move to the Main Market of the London Stock Exchange.

The catalyst was the departure of Keith Watson and Robert Crayfourd from CQS Manulife earlier this year to join Tufton Investment Management. Having delivered some exceptional returns for shareholders, particularly during the precious metals rally of 2025, the pair would have been the obvious choice to continue running the portfolio at their new home. Indeed, this was the route taken by CQS Natural Resources Growth and Income, since renamed City Natural Resources Growth and Income (CYN).

GPM’s board, however, had other ideas. Following a review of the available options, including proposals from Tufton and CQS Manulife, it opted to appoint precious metals specialist Baker Steel Capital Managers, which also manages Baker Steel Resources Trust (BSRT) and two larger open-ended funds.

At the time, we described the decision as a bold move. There was certainly an argument for retaining the managers who had generated such strong returns, and changing a successful investment team carries obvious risks.

We spoke to GPM’s chair, Monica Tepes, and new co-manager, Trevor Steel, to discuss the reasons behind the decision and what shareholders should expect under new management.

A good fit for both parties

Established in 2001, Baker Steel has built a strong track record in precious metals investing. Its gold and precious metals strategy returned 335.6% in sterling terms over the 10 years to June 2026, compared with 179.3% from the MSCI ACWI Select Gold Miners Index. While impressive, this is not directly comparable with GPM’s smaller company mandate, which carries a higher risk profile.

For Baker Steel, GPM fills a gap in its product range. The manager had already been considering launching a strategy focused on junior miners, having become increasingly constrained in its ability to invest in smaller companies through its larger open-ended funds. GPM’s closed-ended structure allows it to take longer-term positions in less-liquid companies, providing an opportunity to return to an area of the market where it has considerable historical expertise.

For GPM, the attraction is gaining access to an established specialist manager with a strong investment record and substantial research resources. Baker Steel’s experienced team, with backgrounds in geology, engineering and other geosciences, already follows most of the companies in GPM’s portfolio, having invested in many of them previously. The trust should also benefit from the manager’s well-established distribution capabilities, which the board hopes will help broaden its shareholder base.

Portfolio changes – evolution rather than revolution

Steel acknowledges the job done by his predecessors, stating that the inherited portfolio is in good shape, adding that he was not proposing a wholesale overhaul.

Baker Steel expects around 75% of the portfolio to remain broadly unchanged, although individual weightings will be adjusted. Initial plans include introducing around 14 new holdings, exiting 11 existing positions and changing the weightings of a number of others.

The investment objective is unchanged, but the emphasis will shift to reflect Baker Steel’s outlook for the sector.

Most notably, Baker Steel intends to increase exposure to development-stage companies (currently 21.7% of the portfolio), while reducing the allocation to established producers (currently 65.5%). Steel indicated that exposure to pre-development and development companies could increase by around 10 percentage points, with a modest increase in exploration exposure as well (12.8% of the portfolio).

The geographical mix will also change, with reduced exposure to Africa and an increased allocation to North America, particularly Canada, reflecting Baker Steel’s assessment of political risk and the potential for higher valuations.

Steel says: “We think the environment is one where larger gold companies are on the acquisition hunt, but projects need to be of sufficient scale to be of interest. We think those projects, particularly in North America and Canada, are likely to be the most sought after.”

The next leg of the gold rally

GPM’s NAV rose by 170.4% during 2025, benefitting from the surge in gold and silver prices and the resulting improvement in sentiment towards mining equities. However, the sector subsequently experienced a sharp correction, with GPM’s NAV falling 13.6% during the first half of 2026.

That was nevertheless slightly better than the 14.4% sterling decline recorded by the VanEck Junior Gold Miners ETF over the same period. Gearing detracted 2.1 percentage points from GPM’s return, although share buybacks enhanced NAV and helped narrow the discount, cushioning the impact on shareholders.

Steel regards the correction as a healthy consolidation rather than evidence that the cycle has run its course. His argument is that the fundamental drivers supporting gold remain firmly in place. Geopolitical uncertainty, central bank demand, concerns about the international monetary system and the use of the dollar as an instrument of economic policy all continue to underpin the attraction of gold as a strategic asset.

Steel argues that the investment case for mining equities does not depend on gold revisiting previous highs over $5,500 per ounce. The manager’s analysis suggests that gold mining shares are not even pricing in the sustainability of current bullion prices of around $4,000 per ounce.

Baker Steel’s valuation work suggests large-cap producers are pricing in a long-term gold price of around $3,500 an ounce and trade at about 0.75 times their spot net present value (NPV), while developers trade at about 0.4 times.

These figures are dependent on the manager’s assumptions, and development projects carry risks that established producers do not. Nevertheless, they suggest that there could be considerable upside for selected mining companies even if the gold price merely holds around current levels.

Despite the strength of gold prices, Baker Steel has seen relatively modest inflows into its open-ended precious metals funds, alongside periods of profit-taking. In Steel’s view, the sector remains under-owned, particularly among UK investors.

This leaves open the possibility of another leg to the rally if investors begin increasing their allocations to gold mining equities.

The attraction of developers

More interesting than its bullishness on gold is the opportunity to generate returns from individual mining projects progressing towards production, potentially independently of further increases in the gold price.

For an established producer, returns are often heavily influenced by movements in bullion prices and operating margins. A development-stage company has an additional potential source of value creation as its project advances through feasibility studies, permitting, financing, construction and ultimately production.

Each successful milestone can reduce the risks attached to the project, allowing investors to assign it a higher valuation.

This is where Baker Steel believes its research capabilities can provide an advantage. Its proprietary GenVal system models mining assets individually using discounted cash flow analysis, incorporating adjustments for development and political risk.

For example, the manager might apply a substantial discount to the theoretical value of an early-stage project, progressively reducing it as the project advances. The team also assesses management quality, permitting, financing requirements, environmental considerations and resource scale.

The objective is to identify companies offering the most attractive risk-adjusted returns, rather than simply those trading at the biggest apparent discount to asset value.

Baker Steel’s extensive research resources should be particularly valuable in the junior mining sector, where companies are often less well covered by the wider market.

Developers are inherently risky investments. Projects can encounter technical problems, cost overruns, permitting delays and financing difficulties, and some will never reach production. However, Baker Steel believes that current valuations more than compensate for these risks in selected companies.

Mining majors on the acquisition trail

A second potential route to realising value comes through takeovers. The strong gold price has transformed the financial position of many of the industry’s largest producers, with higher margins and healthy cash generation strengthening balance sheets.

At the same time, these businesses face the perennial challenge of replacing depleted reserves and maintaining future production. Acquiring advanced development projects can provide a quicker route to replenishing production pipelines than developing mines from scratch.

Steel believes that these conditions are particularly conducive to increased M&A activity. There have already been numerous transactions across the sector over the past couple of years, and Baker Steel expects consolidation to accelerate.

If that proves correct, GPM could benefit not only from the gradual de-risking of development projects but also from takeover premiums as larger companies compete for attractive assets.

A different approach to gearing

One area where shareholders may notice a more immediate change is gearing.

GPM has historically used borrowing tactically to enhance its exposure to precious metals equities, with gearing permitted up to 20% of net assets. This has helped performance during favourable markets but can amplify losses when the sector reverses, as demonstrated during the first half of 2026.

GPM currently has no borrowing facility following the change of custodian, and the cost of potential replacements has proved unattractive. Consequently, the trust looks likely to remain ungeared for the foreseeable future.

Baker Steel has never used gearing in existing funds. Steel does not regard borrowing as necessary to generate attractive returns, although he would like GPM to have access to a credit facility to provide short-term financing for investment opportunities.

The manager might also consider tactical borrowing following an unusually sharp market sell-off, but maintaining a geared position is unlikely to be central to the strategy.

Making GPM more attractive to investors

The board has also taken the opportunity to improve GPM’s structure and appeal to investors.

The first significant change was a reduction in management fees. Under the new agreement, Baker Steel receives 0.9% on assets up to £250m and 0.8% thereafter, calculated using the average of market capitalisation and NAV, capped at NAV.

Based on the trust’s size over the 12 months to September 2026, this would have represented an effective annual fee of around 0.83% of NAV, compared with 1.05% under the previous arrangement – a saving of just over 20%.

Baker Steel has also agreed to waive its fees during the remaining period for which CQS is entitled to payment, avoiding the expense of paying two managers simultaneously. Further fee waivers will contribute towards the costs of the transition.

The second major change is an enhanced dividend policy targeting annual distributions equivalent to around 6% of NAV, paid quarterly.

The dividends can be funded from capital rather than relying on income generated by portfolio holdings, allowing the managers to continue pursuing the most attractive investment opportunities without having to favour dividend-paying producers.

The board hopes that a more substantial and regular distribution will broaden GPM’s appeal to income-seeking investors and help support demand for its shares.

This is a distribution policy, not an additional source of return. Where dividends are funded from capital, the payment reduces the trust’s NAV correspondingly.

Nevertheless, there can be advantages for shareholders. A dividend allows capital to be returned at NAV rather than requiring investors to sell shares at a discount, and those wishing to maintain their exposure can potentially reinvest the proceeds at a discount.

The board has indicated that the enhanced dividend is intended to be an ongoing feature rather than a temporary measure to tackle the discount.

The third change is the move to the Main Market of the London Stock Exchange. GPM has historically been listed on The International Stock Exchange in Guernsey, alongside its London trading arrangements. Moving to a Main Market listing should improve its visibility and accessibility, while removing restrictions that have previously limited the amount of capital it could raise.

This could prove particularly useful if the trust’s annual subscription rights become exercisable at an attractive price.

More broadly, the board wants GPM to grow. A larger trust should offer improved share liquidity, potentially making it more attractive to wealth managers and institutional investors.

Baker Steel’s in-house distribution operation could play an important role here. The manager has a strong record of growing its assets through a combination of investment performance and investor engagement, and it sees scope to increase awareness of GPM among investors who are currently underexposed to mining equities.

A golden opportunity?

Lower fees are a clear benefit for shareholders, while the enhanced dividend, Main Market listing and greater emphasis on marketing could all help improve demand for the shares.

There are risks, too. Precious metals equities are notoriously volatile, junior miners are particularly vulnerable to financing and development setbacks, and the anticipated wave of consolidation may take longer to materialise than the manager expects.

Nor should shareholders assume that Baker Steel’s impressive record in larger mining companies will automatically translate into comparable performance further down the market cap spectrum.

However, the manager’s plan to increase exposure to developers and potential takeover targets is compelling, particularly given the valuation gap it identifies between development companies and established producers.

If the gold bull market has further to run, GPM should be well positioned to benefit. Even if steam comes out of the market, Baker Steel sees plenty of opportunity to generate attractive returns.

The board has provided the foundations for a successful relaunch. It is now down to Baker Steel to deliver the investment performance that will justify its confidence.