It is normally a bad sign when a company releases its FY results late in the afternoon, but the numbers from fully-listed Golden Prospect Precious Metals (GPM) at 4.26pm were quite reassuring. I wonder if it might have been better to wait for the following morning to avoid triggering cynics like me! There were three principal events during 2020 for me: Covid-19 and governments’ responses which led to a strong run for gold and (belatedly silver), the irrational exuberance in the general market after a flash panic crash which in part led to the current extended correction in the price of gold, and the messy market conditions during which Golden Prospect saw the deadline for paying up on its subscription shares.
The first half of the year saw NAV roof it as Mr Market piled into the safety of gold, and the subsequent correction has taken its toll on NAV as the yellow metal and gold-miners generally suffered. There is not much one can do to control market conditions and investor sentiment, which is why Golden Prospect’s NAV and share price have taken a bit in recent months. But there was a useful chart in the Annual Report which showed the relative performance of Golden Prospect’s NAV and share price against the price of Gold, the junior gold-miners ETF GDXJ and the NYSE Gold bugs index which can be seen on page 16 HERE and perhaps demonstrates the value of Golden Prospect’s approach, for top came the share price, closely followed by Golden Prospect’s NAV at an increase of over 60%, with Gold, GDXJ and the Gold bugs down at around 20-25%. Of course, as the Chocolate Teapots at the FCA would tell you, that is no guarantee of future performance but I would gently suggest that in the current environment of supportive fundamentals the odds are surely stacked in favour of this outperformance continuing. One of the advantages that Golden Prospect has is Chairman Malcolm Burne, who (being tactful) has seen it all before over very many years. So whilst there are some short-term concerns regarding bitcoin and rising longer bond yields indicating interest-rate hikes down the road, I would be inclined to focus on his closing sentence: Gold tends to perform better in the years after a crisis and as a conviction investor I am of the firm view that history will repeat itself yet again.
That was certainly true following the financial crisis, and remembering back to the bad old days of the oil crisis, the three-day week, the UK being bailed out by the IMF and runaway inflation of the 1970s, the gold price peaked rather after the event in 1980. The positioning of the portfolio is largely value-focussed with cash-generation a key. So only 11% of the fund is in explorers. Silver remains a large proportion at 23%, and there is a “useful” exposure (sadly unquantified) to platinum group metals (PGMs). With governments going green across the world, silver is expected to flourish from industrial demand but its monetary use is there too so it is hard to see this being a big loser (even if the Silver price is a bit of a wild tiger). Also of interest is that the fund has put the cash inflow from the conversion of subscription shares has been put to work already: out of £13 million raised we now see that the company has borrowed a further £2 million. With gold shares having declined sharply from the summer that looks very sensible (if one expects a recovery) but short term it is brave as a market turn is not yet recognised.
My view is that it will happen this year, and since you have to invest before the market goes up I am perfectly comfortable with that even though in the meantime you can look a bit of a Charlie - as I do, for the stock is down a little on my Christmas tip, for which I apologise. Golden Prospect offers a mix of 53 precious metals companies across markets in Australia, Canada, the US, the UK and Mexico with a gobal reach. As such – and with the highly experienced Malcolm Burne at the helm – it offers a great one-stop investment in the sector. With continuing favourable fundamentals which I expect to show through over the coming months I continue to rate Golden Prospect as a buy at the current 49.5p - a small discount to a NAV which will surely rocket. My target is for my shares to double from here.
Filed under: Golden Prospect Precious Metals, Iconic Labs, Tesco, Audioboom, Distil, TomWinnifrith.com
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