Axel Merk: How Funding for the Junior Mining Sector is Under Threat

Axel Merk: How Funding for the Junior Mining Sector is Under Threat

we live in a fantasy world now reality
has been destroyed this is the time that
we really need to pay attention the
probabilities are overwhelmingly on
Gold’s
side that is the best environment to see
gold increase its
value welcome to Palisades Gold radio
I’m your host Tom bodick joining me
today is Axel MK he’s the founder CEO
and CIO of MK Investments where he
oversees the Investments of $1.2 billion
worth of gold and gold related assets
Axel thanks for joining me today great
to be with you again so this is a little
bit of a special episode of sorts we’re
we’re trying to highlight the importance
of certain types of funds and their
specific purpose so in this case the ASA
closed end Fund invests in Securities of
companies engaged in the mining sector
processing or exploration of gold silver
platinum diamond uh and other precious
metals so we’re going to discuss a lot
of the nuances of the market and funds
today as well as well as why it’s an
important funding mechanism for the for
the junior mining industry so tell us a
little bit about the ASA fund Axel and
what your involvement is with ite sure
and and to set it make it clear in the
beginning we’re not pitching any
investment here we haven’t offered
shares in many decades um this is a
closed end fund and Clos end funds are
special niche in the in the investment
environment um where at some point in
this case in 1958 a fund was
created that invests in the mining
sector and the nice thing about it is
that it allows one to have a more longer
term Focus because you don’t have the
daily liquidity that you have an ETF um
the flip side of it is that these funds
tend not to trade at the net asset value
as an ETF or a mutual fund would but
based on market demand and and often
discount so ASA found 1958 the reason it
it was found in South Africa of all
places um investing in the US as a
closed in fund um and accessible to us
investors in the US and mainly invested
in in South African mining companies
back then the the reason it was founded
in South Africa was that at the time it
was very difficult to invest in gold in
the US it was reincorporated Bermuda in
2004 so this is a fund with a long
history we most mostly have us
investors when am Investments was given
the mandate to manage this Fund in 2019
we repositioned this fund from an index
hugging fund into one that invests in in
junior mining companies and uh much more
Junior than even gdxj does we help fund
and
institutionalize um many of the small
development and exploration
companies and uh the idea here is and
and many in the audience of course know
the junior space is quite volatile but
the idea is that as these companies make
it make it bigger and obviously not all
of them will make it but there’s a
disproportionate value gain you can take
the multiples um on on the the ones in
the index are much higher than the small
companies and so forth obviously the
small ones may not have any earnings at
all it’s a different profile it’s a
space that’s very difficult to access
for retail investors and particularly we
participate in many of the funding
rounds um which most individual invests
cannot participate in so it’s a it’s a
unique vehicle that provides a unique
purpose um and provides unique access to
to to the space yeah and you know the
point you made at the beginning that
that we’re not trying to pitch this fund
or anything We’re just trying to you
know highlight this particular situation
because as we’ll as we’ll find out you
know there are there are some some you
know really interesting parts to the
story at this time but
a let’s focus for a little bit on you
know how this acts as a as a very
important funding vehicle for the junior
minding industry and what you mean by
you know institutionalizing some of
these miners yeah so first of all um a a
small developmental exploration company
they need to raise money
and based
from Mostly actually from investors
whove previously had success providing
Capital um there are few family offices
that provide money um mutual
fund good player but a very small one
mutual funds have daily liquidity and
got burned last decade during the
protected fair market what happens when
they have outflows they need to sell the
liquid Securities and tend to hold on to
the less liquid ones these Junior mining
companies tend to be rather IL liquid
and so they are a little gun shy to to
deploy Capital there and then of course
in the f space um that that space does
not allocate money to to to funding
round and so we this fund is about 370
million and uh we are able to
participate in funding rounds uh that
obviously that we choose to participate
in and help Provide Capital and when you
help Provide Capital in some spaces of
course when you issue shares the the
share price gets deluded that the the
share price would go down it’s different
in this space because you’re really
providing the capital for the next two
years or so and and that tends to
provide a pop in the share price and
then in two years down the road or so
they are presumably at the next stage of
the development and they can raise money
again and when we say we help
institutionalize it is we can go to to
help fairly small companies um by the
way we most invest in management teams
very similar to The Venture Capital
industry right venture capitalist
doesn’t invest necessarily in the best
idea they invest in the best management
team and so we’ve even invested in in
management teams where they didn’t have
the asset yet but we knew that based on
their track record they would find and
then develop an asset and so you develop
and um you you invest in the management
team and and as
one participates in these deals help
provide funding the next time around
they’re a little bigger and when they’re
a little bigger then types of investors
can join in and so it’s it’s part of
that that life cycle of the mining
company and and obviously if the early
funding isn’t available things will
never materialize and of course if ASA
were not around there might be others
but as I think many of your listeners
and viewers are aware um there is much
less capital in the space than there
used to be and so it is in our view very
important that that ASA is doing what
it’s doing now just to to take this a
step back our mandate is to
invest in the gold gold and precious
metals mining companies our mandate is
not to invest in the junior mining
companies the reason we have chosen to
invest on the junior space is to
differentiate ourselves because if we
were acting like an ETF an ETF is a more
costeffective structure you can invest
in an asset value and so forth so why
would you want to invest in a closed in
fund and the reason you want to do it is
because we’re taking advantage of part
of the the the unique aspects on the
positive side right that we can have
long-term capital um dedicated to to
companies and it’s a bit of a venture
capital approach where we spread the
money to to many Investments and we
believe that those will succeed will
more than make up for the ones that do
not yeah so are you basically providing
a vehicle um to to those that want
access in some ways to you know invest
that are almost available only to
accredited investors through you know
private placements things like this and
you
know making that available to the
average person in a way in in many ways
yes the uh in this space in order to
participate in these fundraising routes
you you need to have connections to the
right Brokers you need to you don’t need
to but it’s helpful to know other
investors that participate the reason
why that is helpful is because if you
know who else is participating you know
based on their history how they
historically behave because you want
them to be around at the next funding
route now all of this comes with a
caveat
um when companies need access to to
financing they are subject to the credit
conditions that are around and the
reason I mentioned this is because when
we took over the management in 2019 for
the next two and a half years or so um
a market that was favorable to Junior
miners this fund performed
extraordinarily well but in the
environment where the Federal Reserve
had a standed
goal of being quote unquote higher for
longer that restricted access to funding
and as many of your viewers know the
junior minor suffered so we of course
not immune from that um last October I
plac it at last October fet chaow gave
what I would dub a mission accomplished
speech where he said that he’s no longer
concerned about station of the 70s and
while the Federal Reserve hasn’t Cut
Rate that change in mindset provided a
signal to the market and funding got
easier not terribly easy but easier
relatively speaking and so ever since
then the junior miners have outperformed
again and I’m not saying that every
investor should always be have exposure
to the junior mining space but this
vehicle allows
investors exposure to the junior mining
space allows them to diversify and one
of the upsides of the very significant
volatility that comes with the junior
mining space is that you don’t need much
of a diversification to to have an
impact on your portfolio so a small
allocation to a fund like this can help
to to to provide diversification for
whatever else one might be investing
in yeah see seems like like an important
tool um when we have these These Times
of catalyst like you know as you
mentioned when when these Financial
conditions get eased by the market right
um but how do you see let’s say the the
financial conditions going forward or
the or the the monetary environment I
think is better way of saying it going
forward here you know I think that many
people didn’t um predict that we would
be able to sustain you know a a five and
a quarter overnight rate um for this
long so what how do you see the fed’s um
you know Behavior going forward from
here so first for full disclosure I was
somebody who said last year that I
cannot see how we cannot have a
recession this year and indeed my
forecast was that we the worst of the
recession would be just before the
election
can still happen I suppose that said the
role I see myself in and I hope that
many your viewers see many guests in is
it’s not about whether we are right or
whether we wrong it’s about assessing
the risks that are out there and then if
one assesses the risk well what do I do
about it and the reason why we Muse
about recessions or this or that is
especially in the gold mining space in
if you have a soft Landing
equities in the the S&P type of equities
tend to Discount that look through that
and tend to be okay if you have a quote
unquote hard Landing then the
traditional equities often do very
poorly and people more aggressively look
for diversification in both of these
scenarios the Federal Reserve tends to
ease of course in the hard Landing they
tend to ease far more aggressively and
gold and gold miners tend to be very
very sensitive to that and so the part
of the reason why quote unquote gold
Buffs tend to be negative on the economy
is because that then that supports the
view that you want to invest in the
minus right and and so that’s and I’m
putting this just out there for context
right the the more negative you are on
the economy the more it might make sense
to be invested in the space now I would
argue that in any environment the gold
miners um can provide value um over the
long term for example in when we since
we’ve started investing in 2019 um we
have managed to do quite well in this
fund now obviously there are segments in
there when when the fund has
outperformed indeed um done quite poorly
when the when the Federal Reserve was
aggressively hiking rates so if you
think we’re in an aggressive rate hike
environment in the coming months you
might want to be careful um I that’s not
what the market is thinking that’s not
what I’m thinking so I think I think the
question we are facing is is this
economy a little stronger than expected
is inflation a little higher than
expected and as inflation is higher than
expected will the Federal Reserve also
be more reluctant to to cut rates in
practice recessions are rarely ever
predicted especially not the extent of
them um and so it’s often some sort of
surprise that comes out of left field
and whatnot this recession that we’re
not experiencing was probably the most
forecast recession ever and guess what
it didn’t happen right um at the same
time my view if you’re asking me for my
crystal ball and take it for what it’s
worth I’m given what I said last year I
bet on the consumer and the consumer is
not doing great it’s holding up a tad
better I would have thought but
delinquency rates on credit cards have
been elevated they’ve been somewhat
stable now but they are more elevated
and so I I tend to bet on the consumer
because it’s two-thirds of the economy
so I still have a negative tint here as
to how this will work out um but the
Federal Reserve just is cooking with
salt right they will look at the data
and if I can go on here with my my
little rant here it used to be that the
Federal Reserve could look at the yield
curve and judge what the market is
thinking what has changed is that
because the Federal Reserve has been so
engaged in manipulating the me wheel
curve that they can only look in the
rear of your mirror and looking up some
data that are weeks and months old and
so they are kind of trying to fight this
from behind it’s very difficult for them
and they don’t know much more than or
anything more than than we do and so
they just have to look at the data and
and decide with hindsight and they’re
fully aware of course that that the
policy acts with a lag um Powell has
made it clear that he has an easing bias
now but it doesn’t mean that he’ll he’ll
cut rage
tomorrow yeah it’s
it’s such an interesting time and I
think you know many of these you know
traditional indicators have lost some of
their predictive value considering how
you know how how mixed up all of these
signals are at this point um and and you
know as as your comment at the end there
that that pow has an easing um you know
propensity now it it seems like that is
that is probably going to be the case
Cas um and and we have yet to see how
that ends up playing out and I think
that’s going to be based on um you know
inflation and and the and the data yeah
if I can just add to that there at least
two key key elements I think that that
make the current data more distorted one
is that if you think about what would
happened historically when the bit hikes
rates the housing market would be the
one to suffer used to be a huge part of
the economy after 2008 became a Lista
part but but on two sides of it those
that impact is muffled everybody knows
of course about people being quote
unquote locked into to the lower rates
but the other portion which I would not
underestimate is the protection that’s
been given to the small banks that
completely mismanaged the interest rate
risk um have had way too much exposure
to commercial real estate and so the
Federal Reserve stuffing of that that
issue which by the way they they’re
nudging the small Banks to get clean up
their act but
imagine had they had the Federal Reserve
allowed the small Banks to fail we would
have had a far worse economy and so they
have prevented that from happening the
other side of is of course and I’m sure
you’ve talked about it is the budget
deficit which serves as a stimulus and
so the on the fiscal side we we have a
significant stimulus in the pipeline and
so both of those have reduced the impact
of the of the rate hikes um and uh
making other economic data less less
useful um just keep in mind that of
course on the the commercial real estate
problems have not been resolved um and
on the on the deficit side that will
have an impact running such huge
deficits which historically um I would
allege um has been has been beneficial
to the prchase metal side obviously that
doesn’t mean they always go up in the
straight line but um but they are theoy
on the system that in the long run might
benefit
go yeah I mean you know taking yesterday
we’re we’re speaking here on the morning
of uh Tuesday April 23rd um taking
yesterday and as as an example um where
gold went down over $50 um you know it
you could definitely see that it doesn’t
go up in a straight line but you know
considering this environment it seems
like a um an important bet and an
important diversifier at this time keep
in mind that the price of gold has gone
up even though real interest rates based
on longer term measures have gone up and
and I mentioned that I’m sure many of
the audience always roll their eyes when
I mention long-term real interest rates
because who the hell knows what real
interest rates are in the long run I
100% agree that we have no idea what
they will be in the long run um but
Market perceptions and changes and
perception matters um we can measure
what the market says based on on tips
the inflation protected securities what
the market says real interest rates will
be doesn’t matter whether you believe in
a CPI or not it that provides kind of a
reference point
and as that reference point is changing
it does have a market impact and in
recent months the price of gold has
somewhat decoupled from that now one can
think about why that may have happened
the geopolitical context is likely a key
element of that foreign Central Bank
buying of course is is another one and
uh and of course the the price of gold
came down um just as there appeared to
have been a a lack of further escalation
let me phrase it that way in the in the
Middle East and so when the price of
gold moves ahead of some of these
indicators for an extended period we can
we can see significant Corrections and
and and it’s a good reminder that the
volatility in this space can be quite
severe absolutely and I I you know I’ve
had um a couple recent discussions on
let’s say how a geopolitical event like
the the chaos in the Middle East affects
the price of gold and you know it seems
that uh a good amount of of the guests
that I have spoken to about it um all
seem to agree that it’s not necessarily
A or that it is a a short-term driver
but not necessarily A sustained um
driver for the gold price yeah
historically I would have been firmly in
that camp I’ve become a tatma Nuance in
that view notably because I believe that
the relative peace we’ve had since World
War II has come to an end and the Middle
East and Ukraine are but symptoms of a
world that we’re entering and so I
happen to think we’ll have less
stability in the world going forward and
net that will give a a support to the
price of gold now obviously I can’t say
exactly how many dollars per ouns that
will be um but that’s part of the reason
why why the price of gold has been doing
quite well I
believe so getting back to the to the
ASA fund Axel explain you know the the
difference between a closed end fund
versus an open-end fund and let’s say
the advantages of
each so in in an openend fund which an
ETF is or a mutual
fund you decide to make an investment
and uh buy a new brokerage account with
a click of a button a mutual fund at the
end of the day ETF intraday key
difference is you you buy those at n
asset net asset value and then for the
funds themselves they have to adhere to
liquidity requirements and that
significantly influences what they are
ultimately investing in and uh in in
practice what that means I say in
practice because there are ways one can
work around some of these um in practice
what that means they tend to invest in
the largest companies that out there um
down to to a certain level whereas in a
Clos in fund you buy and sell based on a
market price which is based purely on
supply and demand and his historically
that’s often not necessarily but
typically at a discount and at the times
at a significant discount so ASA in
recent years has on average traded just
under 15% discount um many close in
funds trade at less of a discount but
they there there is no other closed in
mining fund those are fixed income
products and so it’s in in our view when
you have a much less volatile space it’s
only natural that the discount is is
much less indeed the discount that ASA
had has had has come down a little bit
over recent years and traded within
within in a reasonably um narrow range
but but yes it it does vary uh
importantly I think um there are very
few of any investors left from
1958 um and just about anybody has has
bought it at a discount might one day
sell the discount as far as Investments
is are
concerned we have much more ibility now
I’ve only I touched on South Africa and
Bermuda a little bit um part of that
reason that’s relevant um is because by
being a a foreign investment fund we are
what’s called a passive foreign
Investment Company those in the mining
space might actually know what that
means um it’s a it’s a tax treatment
that’s that’s somewhat disadvantageous
mining companies often have that um that
if you make more money with your
Investments and are corporate abroad
that the IRS gives you a little bit of a
penalty um one of
and you may have seen or some of you may
have seen that gdxj sometimes has very
high dividend payouts um it’s not that
these Junior companies that gdxj is
holding are paying dividends but by
paying they basically pay out the
capital gain as a dividend um in order
to make it easier for investors to
comply with the tax treatment of these
companies that are themselves considered
that for an investment company so I
probably lost half your audience now
with that explainer but but ASA itself
is what’s called a passive for an
investment company and uh that means
there are certain tax considerations to
be followed the short of it is if you
own it it’s easier to own it in your
retirement account otherwise don’t worry
about it I mention in this context
though is because because we create in
some ways not the best sort of income we
also don’t have to comply with some of
the rules um in order
to able to qualify for the better income
which means if we wanted to we could
take more concentrated positions than
you could do in an open-end product so
there there are some unique facets and
uh I if I confuse too many people here
um then then I apologize the short of it
is though that there are some unique
facets that come with Asa that we mostly
worry about as a manager um we do like
to manage as if it were um a broadly
Diversified product but we’re not
required to so there there there are
certain things we could do a little bit
differently in a a Clos in
structure yeah it’s interesting to
actually um when I was doing research
for um today’s chat to to see how
Diversified you guys are within within
the mining space um but as you say I I
think a good way to summarize it is it
it allows you that structure allows you
to really
make a lot of the a lot of strategic
Investments the way that you see fit
rather than having to abide by um
regulatory rules right well we have lots
of regulatory rules but they uh we we
don’t have the liquidity rule indeed we
can invest in private companies we do
have some private Holdings um one of the
things we do when we participate in
these funding rounds we tend to have
warrant issues issued to to us as well
and uh in our view warrants are helpful
to both the investor and the
management should a warrant come into
the
money we can exercise those warrants and
uh as an investor we make money but it
also provides more Capital to to to the
mining company and so they tend to be
beneficial to to both um some investors
that come in late don’t like it because
of the potential dilution but these
Junior mining companies they need
funding and uh if they don’t have the
funding they will dilute you and so the
getting diluted through the warrants is
is is one of the the better ways in our
view for for cap for for mining
companies to raise
money so explain to us a little bit
about the the situation that you’re now
facing at this point yes so part of the
reason we we jumped on this call here is
because we have what’s called a
contested proxy with a shelder meeting
on the 26th of of April so just in a few
days from when we’re talking basically
closed in
funds are subject to activists sometimes
coming in and what they try to do is
they try to have a shortterm gain in our
view at the expense of other
shareholders to quote unquote close the
discount and so I mentioned ASA we
traded 15% discount so in theory you
could say oh why don’t you close that to
now and it’s actually when you go from
100 to 85 back to 100 that is actually
more than a 15% gain and isn’t that
fantastic um by in theory maybe in
practice not so fast um first of all SAA
Capital Management that’s the the
activist investor last year they ran 64
campaigns um none of them of course in
the gold mining space they’re not
familiar with the gold mining space
certainly not with a junior junior space
and when they have succeeded then they
have closed the discount not entirely um
but only very very briefly and then it
blew right back out so unless you you
sell your shares um it doesn’t
work of course then the fund and they do
that through a tender offer so you
basically shrink the fund which also
means that the expenses the fixed costs
tend to be spread across the lower asset
base the more fundamental and and the
question is is Asa still sustainable um
and this these would typically be about
a third of the assets right is it it’s a
370 million fund or so um in a market
that’s somewhat favorable the last time
this happened in ASA the fund was 850
million um about a third of the assets
were were tendered and then there was a
protracted bail Market asset shrank down
to 175 million we came in at around 200
million just under 200 million and have
grown the fund back to about 370 million
um but if you did this again there’s a
serious question about long-term
sustainability but there are some other
bigger issues here one of them is if you
tell the market you’re going to sell
your stocks in a tender offer um other
Market participants are likely to front
run this in a in an IL liquid space and
we’ have seen that um Fidelity had a
fund manager Chang last year for example
and the new fund manager repositioned
that portfolio some of the less liquid
names were under significant pressure um
for for an extended period um it’s not
that we can’t sell any of our less
liquid Holdings but we like to do it
when we don’t report it so we can do
this very quietly whereas in what’s
happening theya is very public and so
the public would know what we will do
and that means these Junior mining
companies would presumably get a
significant hit um if that were to
happen and so you cannot capture that
discount so easily um the other way you
can capture the discount one other way
is to um to liquidate the fund we
actually think that is the most likely
scenario because they will look at other
options and they will see that none of
them really Mak sense in asa’s case but
you have the same issue the the front
running sort of issue and we happen to
think that most investors like ASA to
survive
um one other thing that historically um
is proposed to quote unquote close the
discount is to openend the fund meaning
to convert it from a Clos end fund to an
openend fund we don’t think that is
possible based on the Bermuda status um
to do it it would cost a fortune and by
the way anything that’s
unusual in any registered product that’s
ETF open end fund Clos end fund tends to
be very expensive and adding the Bera
status to a with Asa only amplifies this
and so researching these things would
also be very expensive shareholders
would have to pay for that um and so all
of these are are very very difficult
things one can do there are some other
things we can do the most effective
thing I think one can do is to get new
investors involved and indeed um while
we’re not issuing shares because it’s
based on supply and demand by spreading
the word about ASA that may help
increase demand that may reduce the
discount so to me that is one of the
most shareholder friendly ways One Can
Do It um and uh
and the what we are concerned about is
that if Zaba were to gain control of
this product that they are fixed income
managers increasingly they’ have been
taking over the management of the
products they manage and they state that
in their proxy statement that they might
do that it’s not their primary intended
goal um
we don’t think investors would want this
to become a fixed income product um and
also there are more cost efficient
structures to run a fixed income product
and so again we think that liquidation
would be the end game if if if sabba
were to gain
control so how is sabba trying to let’s
say Force these changes and what
percentage of the fund do they have to
own to be able to do this yes so the SAA
started buying shares in ASA late in
2022 they first showed up in filings in
2023 um early we reached out to them
very soon thereafter to engage them in a
dialogue we tried to talk to all our
shareholders including retail
shareholders by the way so if you want
to talk to us and you are a shareholder
please um feel free to reach out any
time um we finally were able to arrange
a meeting in the summer at which time we
were told they following the investment
process um in October we talked again
and uh at the same they again said
they’re just following the process in
December they said um that we don’t do
what’s in the sher’s interest the Board
needs to be replaced so there they
became aggressive without ever having
voiced what exactly they would want to
do so they never engaged in a in a
proper dialogue at that stage they had
about 16 little over
16% um of assets in the fund
and then they start what’s called a
proxy contest the proxy where they try
to convince
shareholders that their nominees are the
better ones than the current
nominees one of the challenges in the
space is that the activist has many
advantages they will obviously vote
their
16% at the other end of the spectrum
many retail investors are not engaged um
I’m just asking anyone in the audience
right how often do you read the
solicitation material you get in the
mail that says vote now do this or that
you throw the stuff away um worse so
investment advisors that invest in
behalf of their clients because the
rules of the SEC are cumbersome many
investment advisors are not voting their
client shares so they leave it up to the
clients now if you have your money
managed by an investment advisor you out
that to them right I wonder how engaged
are you in the companies that that that
your advis engaged in and will you vote
those shares well maybe if the advisor
nudges the the client to do that but
some advisers don’t even do that they
have a policy that they don’t touch that
and and that may work for for normal
things but in a contested proxy it means
that and and what we hear from some of
these advisers is that yes we like what
you do we love what you do but oh we
don’t vote the client shs and and and
so it’s it’s a system that is it is very
much biased in favor of the activist our
goal is of course to be able to reach as
many shareholders as possible and
importantly it’s not good enough to win
we need to send a strong message because
Saba has deep resources and uh just
because we win doesn’t mean they walk
away we need to show them that our
investors really like what we
do and that might entice them to to to
to walk away there there are some other
things that that we might be able to do
over time but it is very important if
anybody here is an ASA shareholder um
please vote and then you have to vote
the quote unquote white card um what
happens in these instances is that both
the activist and management sends their
own prod foxy whichever one you vote
last counts and it nullifies the other
vote so we’ve had it happen that um a
friendly investor um we noticed that
they voted against us and so we talk to
them and just says what do you mean well
they clicked on something in an email
and uh were were kind of led to click on
the wrong ballot um and of course they
they then change the vote um so if you
have voted please double check and
double check that you have voted and
this has happened to very experienced
investors this is not your 80-year-old
Grandpa who doesn’t quite know anymore
what they’re doing this happens to
people who are very sophisticated in the
market uh and it’s and again it’s a very
uh it’s it’s a process that let’s just
say has substantial potential for
improvement um ultimately it’s a process
not intended to help the retail investor
and the reason I I say all of this is
right we started out with that in the
beginning
we care about it of course we’re the
manager of Asa um we’re passionate about
the space but if sa were to gain control
it’s bad for the mining space more
broadly now obviously our mandate is not
to make sure that there’s funding
available for for these companies our
our man it is to make money for
investors for investing in the precious
metal space but for all the reasons that
I mentioned I think that this
strategy is one that’s very valuable to
our
investors and also happens to help the
space right and so that means anybody
who’s not invested can help spread the
word um obviously now we’re very tight
before the deadline but clearly um any
any vote in favor will matter and will
will count so it’s not the November
election that’s the most important one
it’s the one that happens this Friday if
you listening to it right after this
release absolutely it’s you know I think
from both sides it’s it’s kind of an
interesting situation right on one hand
you have investors that you know see the
value in this particular instrument and
that is exactly what they’re invested in
for that purpose and then on the other
hand you have a Capital management team
that comes in sees this discount to nav
sees a way to try to close that discount
to realize that gain
and you know in in some ways don’t
really care what it wrecks along the way
and if this is an important funding
mechanism for the junior my industry
that is already starved of capital this
is you know has could have very
detrimental effects yeah except of
course we have talked to other activists
right they’re not the only activists out
there they’re the biggest one um and
we’ve talked to other activists and they
have rolled their eyes at what zba is
doing here because of the unique
features I’ve touched on some of those
and uh I apologize again for having lost
some of your audience for getting a
little bit too much into detail one of
them there there are several of these
unique features that that Asa has that
just makes it very impractical and not
in the interest of of investors to
pursue this and so even if you have this
this very limited goal that you don’t
give it on about what ASA does you just
want to capture discount it doesn’t work
that way that easily with
Asa and uh and that’s where having a
dialogue a constructive dialogue would
have been so helpful I mean this entire
deal is also very expensive one of the
best ways to to create shareholder value
is to keep expenses low um and we we as
as the board has managed since we’ve
taken on management um by the way before
we took on management the fund was
internally managed and because the fund
has shrunk so much the fixed cost were
very high and so at least the advisory
fee that’s the fee that that we’re
getting as as the advisor is now in
basis points uh but of course there are
many other costs that are there as well
and so by by by working to keep expenses
low the long-term investor gets rewarded
now had SAA engaged with us we there
would have been a potential at least for
a constructive dialogue of what one can
do what one cannot do um explaining
things in detail instead what happened
is they didn’t
engage they aggressively bought we took
some protective measures and now have
this proxy contest all of that costs a
lot of money um we carry some of that
cost but the bulk of that cost is
carried by shareholders I’m by the way
I’m one of the largest individual
shareholders I’ve been an active Insider
buyer um through the end of last year
and so I I believe in the in in the
value here of Asa and I I of course just
like any other shareholder car s. cost
but it’s it’s one of these things where
um if one really had shareholder
interest top of the Mind
there would have been a much better way
to go about some of these things and and
try to address what concerns are real
and and what
aren’t so let’s say this this ends up
going through Axel what does the future
for the fund look like do you
think well
um we let’s assume for a moment that the
the existing Board gets
reelected our goal will be to continue
to be to engage the activist and uh find
a way to address some of their
concerns and at the same time make it
very clear to them that the things they
historically try to do don’t work now
that said if we’ve always said and we
continue to say it um if investors have
particular concerns they should talk to
us investors own this company absolutely
right and and Saba of course with 16%
also are an owner so their concerns are
are real um except of course if if
they’re the only investor that says
something and what they want to do is at
the detriment of others the board has to
look at all of those
concerns and the board has undertaken
certain steps in in recent months to try
to address some of these
concerns it’s a dialogue that must take
place um we are by the way very excited
about the sort of things we have in our
portfolio to just put that out there
right um there are some some things that
that we believe can be very very helpful
to to to the return for our investors
and so we have a plan of what we would
do now if we quote unquote lose and I
say we because I’m an interested
director at on the board as well um then
sa is in control they of course still
have a fiduciary
duty and uh and so we will still try to
explain things to them and see what is
possible we happen to believe then
liquidation is the most likely scenario
and uh our goal is to convince investors
to to kind of rally the troops and make
sure that that people vote their shares
so that we’re not going to be in that
situation obviously we’ll we’ll have to
quote unquote deal with it um the
challenge is that once a board is in
control it is much easier to induce
change now we can go and to the SEC and
and complain about certain things but
but one of the things they said is they
might want to change the investment
mandate well one of the things we’ve put
on the Mandate is to to increase the
threshold from changing the Mandate from
a simple majority of those who are
voting to
60% um of the shares outstanding and
it’s like the two-thirds majority that
the Senate has which makes it more
difficult to change the Mandate but not
impossible there may well be a reason
one day and we believe that’s
appropriate for fund um that
historically was founded to invest in
Precious Metals uh by the way not to
invest in junior mining companies but
just in the precious metal space right
and and so it’s that sort of thing what
we can do now and ask shareholders to
support so that the direction of the
fund will will remain the same um but
yes once you have a new board in place
they can of course do do a lot of things
that um we think many especially retail
showers May not appreciate including
also many institutions that um that
like to have this fund as is and
investing in this fund for What It
Is Well Axel we wish you we wish you
luck here um you know to be able to
continue the fund the the way that um
you know you you have had the the vision
to to try to build um is there anything
else that you’d like to leave our
listeners with before we wrap up well if
you’re on ASA shareholder and come to
asd.com where there’s information about
what’s what’s happening obviously
anybody else who’s interested in this
fund please also come to the site we
have a newsletter am investments.com is
our primary website from there you can
also get to it but yes follow what we do
get engaged and of course if you’re an
as sholder vote the white card if you’re
shareholder anywhere else if there is a
contested
proxy take it seriously and vote because
the vote does matter um the system is
not in favor of the ret investor and if
retail investors want to have a power
they need to take advantage of the power
that they’re given absolutely and of
course um you’re available excellent
Twitter follow as well Axel MK Axel
thanks so much for your time today and
um all the best of luck with the with
the propery vote my
pleaser this podcast is for General
informational purposes only nothing on
this podcast should be taken as
investment advice guests on this show
are not compensated for their appearance
listeners are urged to educate
themselves and make their own decisions
do not base any investment decisions on
the information contained to view our
full disclaimer please visit our website

Tom Bodrovics welcomes back Axel Merk, CEO of Merk Investments, who manages investments worth $1.2 billion in gold and related assets. They discuss the ASA closed-end fund, which invests in precious metals mining, processing, or exploration companies, and is unique due to its longer-term focus compared to ETFs. Merk took over management in 2019 and transformed it into an investment vehicle for junior mining companies. This fund helps small development and exploration firms by providing capital during funding rounds and increasing their share prices, making them more attractive to larger investors.

*Palisade Radio Links:*
► Website & Newsletter: https://palisadesradio.ca
► Rumble: https://rumble.com/c/c-1586024
► Odysee: https://odysee.com/@PalisadesGoldRadio:c
► BitChute: https://www.bitchute.com/channel/67kkt6EjYPJM/

Merk also talks about the potential impact of the Federal Reserve’s monetary policies on gold mining and equities during economic downturns or periods of easing financial conditions. He shares his past predictions for a possible recession in 2023 but acknowledges recessions are unpredictable. Merk believes that gold miners provide value over the long term, despite risks, and stresses the importance of risk assessment.

Axel discusses Saba Capital Management’s ongoing attempts to gain control over ASA Gold and Precious Metals Limited. If successful, this could negatively impact the mining industry due to potential cost-cutting measures or changes to the fund’s mandate. Despite expressing support for ASA as a fund manager, Axel encourages constructive dialogue between all parties. Axel highlights ASA’s unique features that make it difficult for activists like Saba to achieve their goals easily. The future implications include continued engagement with Saba or potential liquidation if they gain control, and the importance of shareholder votes in the outcome. Investors are encouraged to stay informed and vote in proxy contests.

Time Stamp References:
0:00 – Introduction
0:38 – ASA Closed End Fund
3:42 – Funding for Juniors
10:43 – The Monetary Environment
15:26 – Fed & Distorted Data
17:57 – Recent Moves in Gold
20:50 – Closed Vs. Open Funds
25:08 – Strategic Investments
26:42 – ASA Board Concerns
32:16 – SABA Contested Proxy
35:10 – A Call to Shareholders
37:30 – Friday Apr 26 Vote
41:06 – Future for the Fund?
44:33 – Wrap Up

Guest Links:
Twitter: https://twitter.com/AxelMerk
Website: https://www.merkinvestments.com/
Blog Post: https://www.merkinvestments.com/insights-and-reports/2024-03-18
Website: https://asaltd.com
LinkedIn: https://www.linkedin.com/in/axelmerk/detail/recent-activity/
Amazon Book: https://tinyurl.com/4ebpcaew

Axel Merk is the President and Chief Investment Officer of Merk Investments, manager of the Merk Funds.

Founder of the firm bearing his name, Merk is an expert on macro trends. He is a sought-after speaker, contributor, and author; Axel Merk’s book, Sustainable Wealth, describes how the greater economic universe works, how it might affect your finances, and how to manage those finances to seek financial stability. Axel Merk holds a B.A. in Economics (magna cum laude) and an M.Sc. in Computer Science from Brown University.

Axel Merk founded Merk Investments in Switzerland in 1994; in 2001, he relocated the business to California. He has grown Merk Investments into an investment advisory firm offering investment funds and advisory services on liquid global markets, including domestic and international equities, fixed income, commodities, and currencies.

Axel lives in the San Francisco Bay Area with his wife and their four children. Furthermore, he is a marathon runner and a private pilot.

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