| LONG BEACH, CALIF., March 21
LONG BEACH, CALIF., March 21Gold has been a
highly coveted asset for millennia, but its appeal lately has
been intermittent at best. The price of gold has climbed about
11 percent in 2014 through March 19, but is still 29 percent
below the all-time high of $1,895, set in 2011, after a dismal
run last year.
Investors could have done worse - by investing in mining
stocks, which lost about two-thirds of their value during the
decline in the price of gold.
Running a fund that concentrates on mining stocks is
difficult amid such a backdrop, but John Hathaway, lead manager
of Tocqueville Gold, and Joseph Foster, manager of Van
Eck International Investors Gold, have done it better
than most. Hathaway's fund was recognized at the 2014 U.S.
Lipper Fund Awards in New York on March 20 as the best
precious-metals fund for the second straight year and for its
five-year performance. The Van Eck fund was honored for its
The managers highlight several reasons for the decline in
gold, including reduced inflation expectations and a heightened
appetite for risk that made hedging against disaster an
"People weren't worried about risk anymore," Foster
observes. "They saw the economy getting back on track - no signs
of inflation, no adverse consequences of (Federal Reserve)
policies. If people aren't worried about risk, there's no need
There has been a renewed concern about risk lately. Russia's
military intervention in Ukraine in early March led to a nearly
2 percent spike in gold the next trading day, one of those
events that reminds investors why they own gold in the first
place - to prepare for some problem, economic or political, that
they have no idea they need to prepare for.
Hathaway considers mining stocks the best way to be prepared
because they're highly leveraged to the price of the metal. Any
move above or below a company's production costs can produce
significant changes in profitability and move its stock
Hathaway is not exactly a cheerleader for the mining
business. In his opinion, the people in charge are not the cream
of the managerial crop. But that makes it easier to spot the
"It's very easy to (outperform) because it's such a poorly
managed business," he says. "The differences lie in the ability
to get returns on capital and generate good cash flow. There are
huge amounts of differentiation there."
One example: Osisko Mining Corp., whose appeal is
its low risk profile, financially and politically, Hathaway
says. Osisko has a new, profitable mine in Quebec, one of the
safer places that gold mines are found, and the company recently
received a takeover bid - "a validation of everything we thought
about Osisko," he calls it - from Goldcorp Inc., which he
Other holdings that Hathaway highlights, in part because
they help limit risk, are so-called royalty companies, notably
Silver Wheaton Corp, Royal Gold Inc and
Franco-Nevada Corp. Royalty companies gain exposure to
an assortment of other companies' mining projects by providing
capital in exchange for the right to buy a portion of whatever
the mines produce.
Foster is less harsh than Hathaway in his judgment of mining
"There are risks in mining that you don't find in other
industries," he says. "They do business in remote parts of the
world, in different cultures and hostile climates. Things are
bound to go wrong." He also notes that costs in the industry
have risen substantially over the years.
Foster, a geologist by training, looks for companies with
promising deposits and management that he expects to be able to
exploit them. He also owns Osisko and its suitor, Goldcorp.
Other holdings include Randgold Resources Ltd, which he
says has done "a phenomenal job of discovering and developing
new deposits" in West Africa; Tahoe Resources Inc.,
which should reach full production this year on "a world-class
silver mine" in Guatemala; and Continental Gold Ltd.,
which is developing a mine in Colombia.
Foster sees investors focusing more on risk.
"There's risk in the financial system that will drive gold
much higher," he predicts.
Hathaway likewise sees enough potential banana peels in the
world to warrant a positive outlook on gold. He stresses,
though, that even if the world avoids slipping on them, exposure
to the metal is still prudent because some other perils will
come along soon enough.
"The reason you own gold is for things that are inherently
unpredictable," he says. "It's not something you trade; you have
it there as a diversifier."
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Editing by Lauren Young and Leslie Adler)