ASA Limited: A Golden Opportunity

In the investment world it is easy to overlook some lucrative opportunities, especially ones that sell below their net asset value [NAV].

ASA (Bermuda) Ltd (NYSE:ASA) is an employee owned investment manager with approximately $537 millions in assets under management. The firm manages close ended funds for its clients.

It invests in the public equity markets across the globe. The firm primarily invests value stocks of companies engaged in exploration, mining, or processing of gold, silver, platinum, diamonds, and other precious minerals.

It also invests in gold, silver, and platinum bullion or securities that seek to replicate the price movement of gold, silver, or platinum bullion.

ASA (Bermuda) Ltd was founded in 1958 and is based in Buffalo, New York. As a closed-ended fund, the shares trade on the secondary market through their listing on the NYSE. The company was organized in Bermuda as an exempt limited liability company.

ASA is managed internally and doesn't have an outside investment adviser. Having experience as an investment company that specializes in precious metals and minerals for 50 years gives them a unique, mature perspective on those markets.

Incidentally, the majority of its directors and officers are U.S. citizens and residents. The company has evolved into a provider to investors of a vehicle to invest in a portfolio consisint primarily of the stocks and companies engaged in the exploration, mining or processing of gold, silver, platinum, diamonds or other precious minerals.

The directors and officers of the cmpany, including their 80-year-old Chairman, President and Treasurer Robert J.A.Irwin, believe in the long-term value of owning precious metals.

That's why ASA Ltd may also invest directly in gold, silver and platinum bullion or securities that replicate the price movement of these metals. Like any managed fund, the investment is guided by the experience and priorities of the company's leadership.

As of June 27, 2008 the net asset value (NAV) of the shares was $90.26 while the share price that day closed at $83.93, so the shares are selling at a discount to the NAV of over 7%.

As I write this on July 3rd, 2008, the share price is down to around $78.72 and so now the shares are selling at over an 8% discount to NAV.

Due to the fact that the shares often sell at a discount to NAV, the company seems to annually offer to purchase a percentage of the issued and outstanding common shares at a per per share, net to the seller in cash, equal to 98% of the NAV per sahre as determined by the company at the close of regular trading on a predetermined day.

This year they are offering to purchase up to 2,400,000 shares at a cash price equal to 98% of the NAV per share at the close of regular trading on the NYSE on July 11, 2008.

The maximum number of shares that the company will purchase in the tender offer represents 25% of the number of currently issued and outstanding shares.

This thoughtful offer will permit tendering shareholders to liquidate at least a portion of their shares at a price per share equal to 98% of the NAV while preserving the Company as an investment vehicle for long-term capital appreciation for shareholders who remain invested.

There are many reasons a closed-end fund company does this, and one is to encourage investors to keep investing regularly in ASA in spite of the fact that the shares often trade at a discount to their NAV.

The board of directors announced recently that ASA will proceed with a subsequent tender offer in 2009 and 2010 only if its shares have traded on the NYSE during a selected 12-week measurement period at an average discount to NAV of greater than 10%.

This practice also equates to the fact that the shares of ASA currently trade below their book value and in the most recent quarter the shares were trading at a price-to-book ratio of 0.86, which value investors can appreciate.

The company does pay a fluctuating dividend, sometimes structured as a capital gains payout, and has been known to do special cash distributions as well.

So here's an investment in a company that has a trailing-twelve-month Return-on-Equity of over 31%, a Profit Margin (ttm) that is an incredible 1,792% and an Operating Margin (ttm) of 69%, run by directors who want investors to get more than their money's worth.

Now I guess you could say the same thing for The Gabelli Gold & Natural Resource Income Trust (NYSE:GGN) which also operates as a closed-end fund, by if you compare apples to apples you can see that ASA has better results and more shareholder friendly policies.

ASA Ltd. makes sense to those of us who believe that gold and silver will be going much higher from here during this supercycle of stagflation. It isn't meant to replace investments like Barrick Gold (NYSE:ABX), Goldcorp (NYSE:GG) or Pan American Silver (Nasdaq:PAAS), but it certainly is a useful and potentially lucrative compliment.

We are also continuing to accumulate the Central Fund of Canada (AMEX:CEF) as a proxy for ownership of gold and silver bullion, but currently CEF is selling at an NAV premium of over 12%. We prefer NAV discounts to premiums any day.

So take a close look at ASA and see if it fits your investment objectives. It certainly has a lot going for it and has rewarded investors for many decades.

Disclosure: I am long all of the above companies except GG

Comments

[Carl Martin]

Very good article but I have a few comments to add. Having been in this fund for several years, I know it well. It used to trade at a much greater discount. The present discount has narrowed due to a lot of threatening noises from a powerful group of shareholders. The share buyback program is their idea. ASA was completely against it at first. They are very conservative by nature and mostly hold large cap stocks. They used to be heavily invested in S.A., to the general detriment of the fund's performance. I still own a small position as they are an easy way to get some exposure to PGM'S, however those companies are also in S:A. They tend to track the average and are thereby quite safe, however well known gold stocks have easily outperformed them. Try comparing the fund's performance to AU, GG, AEM and you'll understand. I think you should be aware of the information I have given you, before recommending it to others. I also find it odd that you don't include the top ten holdings, or any performance statistics. The readers have to do all the work that the author didn't do. I thought the deal was for the authors to do all the heavy work and leave the lighter work for the investors. There are also considerable capital gains involved, and some special tax considerations. If you had owned this stock even a short amount of time you would know all this. But I hope you keep up the good work.

[francisschutte]

ASA is like some other gold silver shares (AEM, ABX, GG, KGC,..) braking out of a triangle formatin. The next technical objective for ASA is $ 92. This is the time for accumulation.

[redbaron]

I also own these shares, and have owned them for many years in my IRA, which negates the tax consequences mentioned above. I think the article is well written and well presented, and if one wants to know the 10 largest holdings they are easily available at ETFConnect.com. Here they are from that site:


Newcrest Mining Limited -
AngloGold Ashanti Limited
Anglo American plc
Anglo Platinum Limited Gold Fields Limited
Impala Platinum Holdings Limited
Randgold Resources Limited ADRs
Compania de Minas Buenaventura ADRs
Goldcorp Inc.
Barrick Gold Corporation

Another closed end fund with a current buy-back offer, in a somewhat related field is DWS Global Commodities Fund (GCS). They also are offering to buy back shares at 98% of NAV, with a closing date just 3 days following the ASA offer, and GCS currently is trading at a discount to NAV of 11.5%. Their 10 largest holdings are:

ExxonMobil
Monsanto
Rio Tinto
BHP Billiton
Royal Dutch Shell
Schlumberger
BG Group
Suncor Energy
XTO Energy
streetTRACKS Gold Trust


I own both funds in my IRA, so tax consequences are essentially non-existent.

Buying closed end funds at large discounts is a good long term strategy, IMHO, and I agree whole heartedly with the authors general proposal; I would also advise investors to re-invest dividends and distributions to further accumulate additional shares. Using this concept, and adding other securities for both income and growth to this base, has been the heart of my investments for many years. And it has been very successful.

[deuxsous]

ASA has outperformed CEF both on a price only and on a total return basis (with dividends reinvested) over both the last ten and twenty years.

[deuxsous]

Two other comments on ASA:

1. It is one of the most tax-efficient funds of the past ten years, meaning that very little tax has had to be paid on it relative to returns. Thus there is no real need at all to hold it in a tax-deferred fund, compared to CEF which is taxed as a "collectable"... at highest US income tax rates.
See Morningstar: quicktake.morningstar....

2. Those of us who have been gold investors since the 1960's remember ASA fondly as an old friend and one of the few legal ways one could get off-shore gold exposure in the 1960's and 1970's. They were the pioneers and have performed well for 50 years.

[Ray45]

As a long term investor in the closed-end funds and in Gold and Silver, I would recommend not to buy any closed-end fund unless there is atleast 10% discount as an entry point.

[Carl Martin]

It seems like, well written articles call forth well written blogs. Perhaps, this article and blogs could serve as an example to others at this excellant website.

[reymond]

Dear sir,

We have in stock 1500 kilo of Gold dust + 22 carat to sell,our price per kilo is 15000 Us Dollar.

Thomas
[e-mail]