Investment trust insider on gold – James Carthew: Golden Prospect subscription right is a no brainer
Shareholders will be foolish not to take the chance to buy shares in the top-performing trust at half price.
By some distance, the best-performing investment company in my pension fund this year has been Golden Prospect Precious Metals (GPM), which is up by about 180% year to date. I did not have a huge position in it, but it was larger than it might have been because around this time last year I opted to take up my subscription rights.
GPM has embedded subscription rights that, once a year, allow shareholders to buy an additional one share for every five that they hold at a price equivalent to the previous year’s net asset value. In November 2024, the exercise price was 35.94p. On 31 October 2024, the share price was 44p and it looked as though almost everyone would take advantage of the opportunity but, on 14 November, the shares had fallen to 37p and – as things turned out – just 45% of the available subscription rights were exercised.
This time around, the decision looks like more of a no brainer. The exercise price is 48p, around half the current share price and a 58% discount to the undiluted NAV. In fact, if shareholders do not take up their rights, they will be disadvantaged as the gap between the undiluted NAV and the diluted NAV (which assumes everyone takes up their rights) is about 9p per share.
This is the problem with the embedded rights structure. Were GPM to issue separately tradeable subscription shares instead, those investors could sell those subscription rights to people who did want to take them up, recouping most of the dilution impact.
It looks then as though in about six weeks’ time GPM will be about 20% bigger than it is now, giving it a market cap well in excess of £100m.
There is perennial pressure to merge away or wind up small investment companies but… read more here