Whilst foraging around ASX-listed royalty companies for potential investment opportunities, the strange little case of Gullewa Ltd (ASX:GUL) popped up.

Gullewa trade with a 365-day VWAP of $0.074/share (longer term trend more like $0.06/share) and average daily volume of ~10,000 shares/day (i.e.: basically illiquid). They have $9.1mil cash in hand, $1.7mil in current assets and $8.1mil in non-current assets (a $3mil unsecured loan to a related company and a $5mil property development); and basically nil liabilities. The main income producing asset is a gold royalty from Silver Lake Resources returning ~$4million in revenue to GUL p.a..

So: a company that trades at a ~$13million market cap (below asset backing), with nearly $11million in current assets and a cash-cow royalty..?! What’s the catch..?

Well. The company is controlled by two executive directors who together control around 50% of the share register. The third-biggest shareholder has barely ~6%. And as anonymous HotCopper user “Stweeve” puts it:

“This is a really lovely business…. if you are employed by it!”

Over the past year, staff and corporate costs have averaged nearly 45% of receipts from customers..! Although to be fair to our two executive directors, they only are accounting for about 60% of the company’s total employee benefits expense ($550k total in FY2023/24).

The only way to release the “sum of parts” assets (and giant cash pile) (and delicious royalty stream) would be an off-market takeover, because as old mate “Stweeve” puts it, there’s “No liquidity for an activist play either”. A bid for the company at say $0.125/share (70% above VWAP!) would trigger all outstanding options ($0.069-0.122 strike) and cost a total of ~$32.2mil, which after deducing cash in hand, current assets and option exercise revenue, would cost a net ~$18million, or ~$12million if the purchasing company held a fire sale of the non-current assets at 75% of book value.

Given the illiquid nature of their holdings, I assume most smaller holders would elect to sell – if the two main directors could be convinced to sell. The two main GUL directors would walk away with $7.6mil and $6.0mil in cash from sale of their existing shares, plus an additional profit of $735k and $478k from exercise of their outstanding options. I also expect they could be interested buyers of the fire-sale non-current assets.

But are the two GUL directors looking for a way to immediately monetise their current shareholdings..? Who knows. I’ll be watching the GUL ASX announcements with interest in coming years.

Update: Gullewa announced a maiden dividend on April 4^th 2025 of $0.007, or about $1.5million of the cash pile.