Here's something to think about. With Bre-X tanking...could DELGF be next?
Dow Jones Business News -- March 28, 1997
Many Funds That Held Bre-X Adjusted NAVs Prior To Dive
By CHRISTOPHER C. OSTER
AP-Dow Jones News Service
NEW YORK -- Gold fund shareholders who are too scared to open
Friday morning's newspapers in the wake of the nosedive of Bre-X
Minerals Ltd. (BXMNF) may take comfort this: The damage has
probably been done.
Bre-X's stock price fell more than 80% Thursday, to 1 31/32 from
11 3/8, on the news that its massive Indonesian gold discovery
was hugely overstated. But while trading in the stock was frozen
Wednesday, many of the mutual funds that held it adjusted their
net asset values that day to take a steep decline into account.
They included several funds at Fidelity Investments. 'When
securities halt trading, we take into consideration all the
information available at the time,' Fidelity spokeswoman Robyn
Tice. 'There were clear indications that shares of Bre-X and
related companies were worth significantly less.' So Thursday's
newspapers should have shown investors what sort of damage was
done to their funds.
Fidelity, the nation's largest mutual fund company, was the
largest institutional shareholder of the gold exploration stock
at the end of last year, according to Cary Krosinsky, vice
president of Technimetrics Inc., a firm that tracks institutional
holdings using Securities and Exchange Commission filings. But
Fidelity says it has cut back on its Bre-X. 'Our holdings are
significantly less in share terms,' says Tice.
Still, the NAVs of Fidelity Select American Gold, Fidelity Select
Precious Metals and Fidelity Canada fell 2.02%, 1.64% and 2.19%,
respectively. On the other hand, Fidelity Contrafund, which had
been Fidelity's largest holder of Bre-X, posted a gain of 0.44%
Wednesday, which may indicate much of its position in the stock
had been sold off.
Some other gold funds that suffered Wednesday were IDS Precious
Metals, down 2.6%, Invesco Strategic Gold, down 3.3%, and Morgan
Stanley Institutional Gold, down 6.4%, according to Lipper
Analytical Services Inc. All those funds showed significant
stakes in Bre-X in their latest holdings reports, according to
fund-tracker Morningstar Inc.
Bre-X said consultants have reported that the potential gold
resource at the company's Busang property in Indonesia, earlier
estimated by Bre-X at 71 million ounces or more, may have been
overstated 'because of invalid samples and assaying of those
samples.' Freeport-McMoRan Copper & Gold Inc. (FCX) - which had
recently reached an agreement to help develop the Busang property
- gave added weight to those reports when it said Wednesday that
it had discovered only 'insignificant' levels of gold at the
site.
But some gold fund managers say it's too early to write off
Bre-X. That group includes Victor Flores, whose U.S. Global World
Gold fund had nearly 2% of its assets in the stock before the
plunge. 'The due diligence is something that will take maybe two
months, not two days. To say after a handful of drill holes
there's no gold here is irresponsible.'
If further drilling confirms the find is a bust, 'then the whole
exploration sector will suffer,' Flores says. It's discoveries
like Busang, he says, that 'keep bringing people back to the
sector.'
Jean-Marie Eveillard, who runs the SoGen Gold Fund, says he
doesn't invest in exploration companies like Bre-X because 'it's
too speculative, as long as the gold is not taken out of the
ground.' He says there are 'very few people who do enough work to
get involved in exploration plays.'
'Having been burnt very badly in what was the major exploration
play in quite a while, I think investors will be more reluctant
to get involved,' Eveillard says. 'But people have short
memories.'
James Turk, strategic adviser to the Midas Fund, says he and
manager Kjeld Thygesen passed on Bre-X because the company didn't
meet meet their three criteria: people, project and pricing. He
declined to say which element was lacking. Midas usually keeps
about 25% of its assets in small exploration stocks. Not owning
Bre-X is 'going to help us,' Turk says. 'It shows our selection
process makes sense.' |
