* Gold falls 28 pct in 2013, gold miners shares down 53 pct
* Nine out of 10 worst UK funds in 2013 focused on gold
* Randgold is among fund managers' favourite stocks
By Clara Denina and Silvia Antonioli
LONDON, Jan 13 Gold stocks fund managers, who
lost as much as two thirds of their clients' money in 2013,
pledge they can do better this year by picking the few gold
mining firms that can weather sharply lower prices.
An era of expensive expansion projects and loose financial
controls has ended with the biggest annual gold price fall in 32
years in 2013. Investors expect miners to deliver on promises of
cost cutting and balance sheet discipline.
Bullion prices fell by 28 percent last year, bringing
an abrupt end to 12 straight years of gains. Gold mining stocks
fell by 53 percent on average..
It comes as no surprise then that nine of the 10
worst-performing funds in the UK in 2013, and six out of the 10
worst in the United States made bets on gold equities.
At the top of that list is the Junior Gold fund, which lost
almost 66 percent - a level that even its manager, Angelos
Damaskos, describes as "eye-watering".
"At the beginning of 2013, we were more focused on growth in
production rather than cost controls, which is what has been the
weakness of most investors in the gold sector. We did not expect
the gold price to drop so much," Damaskos said.
"The key criteria for us in 2014 is to make sure that the
investment companies have a sustainable all-in cost of around
$1,000 an ounce or less," Damaskos said.
Just behind Junior Gold were Ruffer Baker Steel Gold, which
dropped by 61 percent, and WAY Charteris Gold by 54 percent,
according to financial data provider Morningstar.
THE WHEAT AND THE CHAFF
Even during the boom years, gold mining stocks were already
In the 1995-2013 period, bullion returned 213 percent, while
gold mining stocks lost 36 percent, according to S&P indexes.
"Losses of the gold miners were bigger in the negative years
for gold and not as positive in the positive years for gold,"
Jodie Gunzberg at S&P Dow Jones Indices said.
Optimism about ever-rising gold prices in the good years led
companies to embark on acquisitions and ambitious expansion
plans, rather than focus on cost efficiency and debt control.
This led to multi-billion dollar writedowns in 2013 by
companies such as Barrick Gold Corp, Goldcorp Inc
, Newmont Mining Corp and Kinross Gold Corp
And for 2014, analysts forecast average gold prices will
decline further as the economic backdrop brightens.
"The gold industry has allowed its costs to go up at a
faster pace than the gold price itself. That's why they are in a
pickle today," said Neil Gregson, manager of the JP Morgan
Global Natural Resources fund.
"I think a low gold price is a great thing for the industry,
because it's going to sort out the wheat from the chaff. The
strong will survive, the rest will get closed down."
During the bear market for gold in the 1990s, larger
companies seemed to be the safest bet, offering low costs,
longer mine life and little debt.
This is no longer the case, according to fund managers, who
say they have to look across the spectrum to find the few
players that are capable of surviving lower prices.
One of Damaskos's favourite stocks for 2014, due to its low
cash costs, is Australia-listed Kingsrose Mining.
For Gregson, one favourite is New Gold, a low-cost
producer that also gets income from copper, a byproduct in its
mines, and owns undeveloped gold properties that could become
valuable should the price rise.
One of the stocks he has sold is Petropavlovsk due
to output targets he deemed too ambitious based on the assets
Most managers interviewed by Reuters favoured the larger
Randgold Resources, however, praising its strong
management and seeing it as one of the best positioned firms to
survive a tough price environment.
"We believe it is one of the very few companies that can
deliver margin improvement from an increase in its overall
grades," said Ani Markova, manager of the Smith & Williamson
Global Gold and Resources Fund.
WHAT'S YOUR PLAN FOR 1,000?
Gregson, whose fund includes energy and industrial metals
stocks, reduced exposure to gold stocks throughout 2013 to 10
percent now from 25 percent. He said the gold price outlook
remains fragile and that few miners still are prepared to face
the rough times.
"We all got caught out a little bit because companies said
they were going to restructure last year but they didn't. Now
they are sort of being dragged kicking and screaming into
rationalization," Gregson said.
"We have been asking gold companies for a year or two, 'What
is your plan for a 1,000 (dollar per ounce gold price)'? And
you'd be surprised (that) some of them still don't have one."
Other managers also say miners need to step up their efforts
Evy Hambro, manager of BlackRock's Gold and General fund,
which ranked fifth worst in the UK Morningstar list, said firms
have done "nowhere near enough" to improve margins, costs and
capital allocation in 2013.
"In previous years the gold price has kind of protected
management decisions, but now there is no escape," he said.
"They need to be more disciplined about the ounces they
produce. If they are not going to make a rate of return in
mining per ounce, then leave it in the ground. Wait for a day
when there is a better gold price."