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Open Letter to U.S. Global Investors Board of Directors

Shareholder Group Urges U.S. Global Investors’ Board of Directors to Act on Behalf of Shareholder Interest and Reshape Capital Allocation Strategy

Dear Members of the Board,

U.S. Global Investors (the “Company” and “GROW”) is a boutique investment fund and fund manager overseeing the JETS and GOAU ETFs and the USLUX, USERX, UNWPX, PSPFX, USCOX, EUROX, NEARX, and UGSDX mutual funds. As of November 30th, 2021, the cumulative Assets Under Management (“AUM”) of the 10 investment vehicles managed by the Company was $3.9 Billion. By our calculation, the Company is likely to generate $12 Million to $15 Million in EBITDA annually from these assets.

Additionally, we believe by the end of the calendar year, the Company will have more than $12 Million in cash on the balance sheet, a mark-to-market investment in HIVE Blockchain Technologies (“HIVE”) worth between $25 Million and $30 Million, a $6 Million free-and-clear office building, and over $10 Million in other common stock, debt, and mutual fund investments including, but not limited to, stakes in USGIF, Goldspot Discoveries, Thunderbird Entertainment, and Network Media.

However, despite all this, the company is valued at a paltry $75 Million.

At roughly $5 per share, the market is valuing the Company’s legacy ETF and mutual fund management business at 2.5x our conservative assessment of annual free cash flow. As a comparison, other companies in the asset management industry typically trade at a price-to-earnings (“PE”) ratio of closer to 15x or higher – not 3x like U.S. Global Investors.

This tremendous discount to intrinsic value exists for a handful of rectifiable reasons:

  1. The Company’s Board of Directors has demonstrated poor shareholder alignment as made very clear by their lack of stock ownership.

  2. Management has allocated capital poorly by favoring HIVE amortization payments instead of converting the debentures into common stock with far more upside potential.

  3. Management has touted a $2.75 Million share buyback authorization while only purchasing roughly 60,000 shares over the last 12 months for less than $500,000.

These issues can be swiftly rectified and, with the right steps, result in substantial value for all stakeholders. Here’s how:

Create Shareholder Alignment by Purchasing Shares in the Open Market

Other than Mr. Holmes, board members don’t own a material stake in the company. This must change.

Mr. Rubinstein, Ms. Callicotte, Mr. Terracina, and Mr. Lydon own 105,118 shares – or less than 0.75% of the outstanding float. If Mr. Rubinstein owns a paltry 2,800 shares, how is he to make shareholder friendly decisions to drive value creation? Other than a handful of small purchases made by Ms. Callicotte and Mr. Holmes, other board members haven’t added to their position despite the business performing extraordinarily well. Do they not have confidence in the future? Are they not interested in shareholder alignment?

We implore Members of the Board to add considerably to their respective positions.

Convert the Convertible HIVE Debentures into Common Shares Immediately

In December 2020, the Company invested $15,000,000 into HIVE in exchange for 8% convertible debentures and 5,000,000 purchase warrants convertible into common shares at $2.34 USD. Those debentures have been trading in the money for quite sometime and should be converted into common stock immediately without hesitation. On May 10th, the Company shared the following excerpt in a press release:

“Converting the debentures and warrants into HIVE shares would result in the Company acquiring approximately 11 million shares of HIVE, which is approximately 0.7 of a share of HIVE for every one share of GROW.”

While we are happy management disclosed the Company’s HIVE exposure to shareholders in a clear, succinct way, the language provided is quite misleading. See, initially the HIVE $15,000,000 debentures and 5,000,000 were convertible into 11,410,256 shares of HIVE. Now, after HIVE has made three massive amortization payments, the debentures and warrants are now only convertible into 10,487,891. By the end of this year, after another amortization payment, they’ll be convertible into 10,167,379 shares. Despite having a massive cash hoard and nearly $4 Billion in AUM, management is forgoing hundreds of thousands – if not millions – of dollars in value by letting these convertible shares slip away.

We implore the Board to make the right decision and immediately convert the debentures into shares of HIVE to unlock tremendous value for shareholders. Do not let this opportunity slip away – at the heels of a crypto boom no less.

Return Capital to Shareholders Through a Special Dividend, Share Buyback, or Tender Offer

The Company has done a nice job increasing the dividend and buying back shares in response to the business’s success, however the overall shareholder return has been paltry in comparison to the bonuses and earnings the business has generated for its directors and managers.

As of October 23rd, 2020, there were 15,086,683 shares outstanding. As of November 15th, 2021, there were 15,023,942 shares outstanding. This share count reduction equates to an abysmal 0.4% reduction over the course of the year. Additionally, the current dividend yield is a paltry 1.6%. This equates to a mere 2% overall shareholder yield in one of the best years in company history.

The Board of Directors has a $2.75 Million share buyback authorization in place. Of that authorization, the Company has used less than $0.5 Million of it. This is unacceptable.

The Company will likely earn over $12 Million in EBITDA over the course of 2022. The cash hoard is substantial and the Company’s balance sheet is pristine. We urge the Board of Directors to exhaust the full authorization as soon as practical and allowable, conduct a tender offer to purchase 500,000 shares at $6 – or 4x EBITDA – and issue a $0.25 special dividend. The total cost of the operation would likely be less than $10MM and it would create a tremendous multi-fold greater impact per share for every single additional achievement of management underway.

We again advise the Board to represent shareholders well and act swiftly and prudently going forward.


Josh Klein

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Feb 25, 2022

Hi Josh, GROW today (2/25/2022) announced an increase in its annual share buyback to $5M. Do you have any further insights into this? Since the Company historically hasn't used the full amount of its buyback capacity (i.e., allocated amount) any thoughts if this time it may be different. Thanks!


Jan 02, 2022

Hi Josh, have you received an answer to this letter? What is your view on the board's course of action?

Jan 02, 2022
Replying to

I’ve spoken with Jerry Rubinstein a few times. We have a call scheduled for after the 10Q is released (hopefully this week). I’d like to see management more aggressively return cash to shareholders. If not, I’ve mentioned to him that myself and a large shareholder group would like to address some of the issues in a more public forum.

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