LONDON (Dow Jones)--Thomas Winmill may not claim to have the Midas touch, but his fund hopes to turn its investors' money into gold.
The independently owned Midas Fund was acquired by Winmill & Co. in 1995 and is predominantly invested in precious metals equities, with the remainder in other resource equities. Up 29.6% this year through Friday and nearly sevenfold since Winmill became portfolio manager in January 2002, the fund's weighting in precious metals is now 84%, although that percentage varies and has been under 50% at times. Year-to-date, the fund is 12 percentage points higher than its MSCI EAFE benchmark.
Winmill, who manages New York-based Midas Fund, aims to target stocks that "touch on resources or offer a hedge against inflation." The selection could include companies such as Tiffany & Co. (TIF) or gold producers such as Lihir Gold Ltd. (LIHR).
"As long as a company is active in mining, processing, fabricating, distributing or otherwise dealing in gold, silver, platinum or other natural resources, then we'll take at look at the securities," Winmill said.
The fund has $260 million in assets under management, and its top 10 holdings make up about 40% of the total. Minimum investment is $1,000.
But Winmill, a lawyer by background, isn't fanatical about gold in the way some investors are.
"Gold bugs make the market inefficient - they invest with their hearts, not their minds," he said. Adopting instead a fundamental, investment analysis approach to his picks, Winmill aims to use gold "as a tool to obtain capital appreciation."
His interest isn't in investing in gold through bullion - "future price movements aren't easy to predict," he said - but in finding stocks where growth prospects can be more accurately plotted out. Winmill said the fund hasn't owned gold in eight or nine years as bullion doesn't give any operating leverage.
"We approach mining companies as potential growth companies," he said. "We don't try to project where gold prices are going - the focus is instead on finding the stocks of companies with quality people, exciting projects and attractive pricing." |
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And these are the three factors around which Midas makes its stock picks. Winmill said the fund looks for quality people with a track record, projects with good potential, and shares priced to offer value relative to discounted cash flow. "This gives us the advantage over those investing emotionally," he said.
One of his top picks is Agnico-Eagle Mines Ltd. (AEM), although he said the stock is "at the high end of pricing right now," meaning Winmill won't be adding more of the company to the fund's portfolio.
Winmill says Agnico-Eagle has excellent management, potential for its production to grow more than fivefold by 2011, and a good dividend payment program. Also attractive he said is its "focus on finding precious metals projects in politically safe areas like Canada, U.S., Mexico and Scandinavia." Similarly, Lihir Gold has a "very healthy growth profile" and meets the investment criteria with acceptable political risk, he added.
Midas also invests in companies focused on natural resources such as iron, aluminum and copper, strategic metals like uranium and titanium, and hydrocarbons such as coal, oil and natural gas. The fund also looks at chemicals, forest products, real estate, food products and other basic commodities.
At present, gold prices are at near-record highs, with the credit crunch having helped kick-start a flight to safety by investors. Industrial metals, in contrast, have been suffering amid fears of contracting global growth.
According to Winmill, falling U.S. interest rates should have two strong, and positive, effects on U.S.-based gold mining projects.
First, lower U.S. rates will normally send the dollar lower. "Then companies will look for resources in places with U.S. dollar costs," he said. Second, as U.S. interest rates fall, "financing costs will decline as will the discount rates used to evaluate cash flow from mining projects."
It should get easier to raise finances as rates come down, Winmill said. "There's an enormous amount of liquidity out there, and plenty of demand; projects will get done," he said.
-By Andrea Hotter, Dow Jones Newswires; 44 (0)20 7842 9413
(Andrea Hotter, a news editor, covers commodities for Europe, Africa and the Middle East from London for Dow Jones Newswires.)
3 December 2007 15:00
Copyright © 2007 Dow Jones & Company, Inc. |
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