Golden Prospect Precious Metals (GPM) has reminded shareholders of their annual right to buy one new share for every five they own with next month’s subscription offer looking attractive after the share price soared 127% this year on the back of the gold rally.
The company’s policy is to allow shareholders to buy the new shares at their underlying net asset value (NAV) of the previous November. That means a subscription price of just 48p, which it points out is “materially below the current share price” following their impressive run this year.
This morning the shares jumped 3p to 83p, down from their 13-year peak of 103p on 9 October, having leaped 30.5% in September due to the fund’s 86% exposure to gold miners.
At their current level the shares stand on an 18% discount below their NAV of 101.8p.
The recent decline in GPM shares preceded a sell-off in gold which reached a record $4,366 an ounce on 21 October after an historic 67% rally this year fuelled by fears of inflation and US instability, exacerbated by the now month-long government shutdown.
It then fell over 10% to $3,903 on Tuesday but has since risen to $4,010.
In their latest fact sheet commentary released on 21 October, fund managers Keith Watson and Robert Crayfourd said gold was benefiting from inflows into exchange-traded funds (ETF) set up to hold the physical metal. Meanwhile central bank demand remained healthy, they said, a point highlighted in the half-year results in September, despite World Gold Council data suggesting some softening compared to the recent years.
“We believe there remains a strong incentive for central banks to diversify reserves away from US Treasuries [government bonds], though some softening in demand is not unexpected given recent precious metal price strength that can act to hold back purchasing in the near-term,” they said.
In his column on Citywire, QuotedData’s James Carthew, a shareholder, recently described GPM’s latest subscription opportunity as a “no-brainer”.
The issue is capped at €8m (£7m) so that the company does not have to go to the expense of printing a prospectus. Subscriptions above that level will be scaled back.
Shareholders who don’t take up the offer will see their holding in GPM diluted by the issuance of new shares, although the company seeks to mitigate that as our senior analyst Matthew Read explains below.
Our view
“Golden Prospect Precious Metals’ upcoming subscription offer gives shareholders another opportunity to increase their exposure at what looks like an attractive level. The subscription price of 48p is well below the current market price – 83p at the time of writing – which should make it appealing to existing holders. The mechanism – one new share for every five held – is a familiar feature for GPM and provides a useful way to raise new capital without disadvantaging long-term investors. Given that gold and silver prices have remained resilient amid ongoing geopolitical and inflationary uncertainty, it wouldn’t be surprising to see a decent take-up this time around.”
Read added: “It should be noted that the scheme is constructed so that shareholders that don’t take up their rights still benefit. Once the offer has completed, the company appoints a ‘subscription trustee’ who forms a view on whether it will be profitable to exercise the remaining rights. The trustee takes into account the prevailing share price and relevant costs and expenses of selling the shares, including its own fee. If the trustee considers the transaction will be profitable, the remaining options are exercised, the shares are sold in the market, and the proceeds are distributed pro rata to the shareholders who didn’t take up their subscription rights.
