ASA Gold and Precious Metals: A Golden Opportunity Lost Its Luster

Summary

• ASA Gold and Precious Metals provides exposure to difficult-to-access gold miners at a discount.
• The Saba catalyst is no longer a consistent tailwind.
• Although CEF Activism can unlock value, such is unlikely here.

ASA Gold and Precious Metals (NYSE:ASA) has long provided relatively liquid (and discounted) exposure to gold miners. And many large holdings within ASA are difficult or impossible for domestic investors to access individually with any scale. ASA's closed end fund structure allows for large holdings like Emerald Resources Ltd, G Mining Ventures Corp, Endeavor Mining PLC, Predictive Discovery Ltd, Calibre Mining Corp and SSR Mining Inc.

ASA has been subject to activist pressure from Saba Capital Management. While I am a shareholder and I have not voted yet, the more important point is that I do not expect anything to be accomplished for the benefit of normal ASA shareholders, no matter who wins. I have reduced my position and this article explains why.

Activism has frequently been the catalyst to unlock shareholder value of funds trading at persistent double-digit discounts to net asset value. Such outcomes can include ETF conversion, open ending into mutual funds, large scale tender offers, or distribution policies driving market price to NAV or above.

But activism also has risks. Activists sometimes only negotiate side deals to sell their own shares to affiliates of the Fund's advisor. Saba itself has recent history including selling shares above market value to affiliates of the advisor. (section 5.13 of Saba's 2023 standstill agreement with Kayne Anderson is one clear example).

Activists also sometimes simply have to give up. That appears the case most recently with Saba's efforts at Adams Express (ADX) where Saba disclosed withdrawing board nominees earlier this month. This appears the most likely outcome with ASA too.

Saba was ill positioned to attain sufficient proxy votes for its board nominees at ADX, and the same appears true for ASA's annual shareholder meeting in April. The main cause affecting both is that Saba's board nominees in the recent past have gained control of PPR (which is now BRW) and GIM (which is now ticker symbol SABA) and then failed to provide open endings, large scale tender offers. Rather, Saba's board nominees chose Saba as a new advisor and then shareholders (including Saba Capital Management in scale) approved Saba as the new advisor. There had been prior history in the closed end fund space of such reassignment to the activist. But not without first providing large scale liquidity events to all public shareholders. Consequentially, Saba no longer attracts the same tag along voters it attracted prior to reassigning those contracts.

In summary, the only unique benefits to owning ASA appear to be the less accessible gold miners and the likely ongoing opportunity to buy more at a discount. For me, that ASA is no longer a likely beneficiary of observed activism is a game changer, so I was a seller as Saba's prospects changed. ASA looks like a value trap, no matter which board is elected. I try and avoid value traps. So if I need gold miners with liquidity, perhaps I'll accumulate shares of the more accessible holdings in ASA's portfolio like Orla Mining (ORLA), Aya Gold & Silver (OTCQX:AYASF), Alamos Gold (AGI), and Barrick Gold (GOLD).

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.