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Number Cruncher

Grit, not glitter, behind golden returns Add to ...

What are we looking for?

What money managers are buying.

It’s worth checking their top holdings to get stock ideas, or to gain more insight into their investment funds. Today, we look at RBC Global Precious Metals at rbcgam.com.

More about the fund

The $1.4-billion precious metals equity fund has been managed by Chris Beer of RBC Global Asset Management Inc. since 2003. The fund, which gained 76.5 per cent for the year ended Oct. 31, has posted an average annual return of 29.4 per cent over five years.

Mr. Beer expects gold , which has surged to over $1,400 (U.S.) an ounce, to keep marching higher, but refrained from giving any predictions for the yellow metal. Declining real interest rates and concerns about global currencies – from the U.S. dollar to the euro – are among the reasons that have pushed gold higher yearly since it traded at about $270 an ounce in 2001, he said.

But the manager doesn’t rely on a rising commodity price to drive returns. Instead, he looks for firms that can boost profit through higher production or by lowering costs.

While returns of larger-cap stocks have lagged smaller companies as gold has rallied, “I do think that large caps will play a bit of catch-up,” Mr. Beer said. And companies with strong balance sheets and strong growth profiles will try to double their dividends just as Goldcorp Inc. , for example, has done recently. “I wouldn’t be surprised to see more dividend increases,” he said.

What did we find?

Three stocks – Silver Wheaton Corp. , Andean Resources Ltd. and B2Gold Corp. – have posted triple-digit gains this year. Among the top 10, Goldcorp, a large-cap stock, has been a laggard among the gainers.

But Goldcorp, whose deal to acquire Andean Resources is set to close this month, has more potential, Mr. Beer said. The stock is attractively valued at about 1.5 times net asset value compared with two times in the past, he noted. “The biggest part of its asset value is its Penasquito project in Mexico. That asset is ramping up, and will get to full production in the next three to nine months.”

He also likes junior miner Osisko Mining Corp. whose Quebec-based Canadian Malartic gold project is set to come on stream by mid-2011. “It is going to hit the sweet spot at these high gold prices,” he said. “Osisko is only trading at about 10 times cash flow and has a lot of growth in front of it. It also has another project called Hammond Reef in Ontario, and the market is not paying for that.”

Despite the runup in its share price, junior miner B2Gold has more upside, Mr. Beer suggested. The company is run by a seasoned management team led by Clive Johnson, formerly chief executive officer of Bema Gold Corp., he said. B2Gold has two gold producers in Nicaragua, including La Libertad mine which is “expanding production twofold,” he added. “We think [B2Gold’s] valuation at 1.25 times net asset value is also attractive for a growth company.”

 
  • GC-FT
  • G-T
  • SLW-T
  • AND-T
  • BTO-T
  • OSK-T
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