Embry Adding Junior Cos To Gold Fund
By Lynne Olver
Of DOW JONES NEWSWIRES
VANCOUVER (Dow Jones)--Fund manager John Embry expects the price of gold to
escalate so he's adding a few junior stocks for some extra bounce.
Embry rattles off the usual arguments to back his view that gold will break
out of its US$275-to-US$290-an-ounce range: there's a growing gap between gold
supply and demand; some big institutions could easily seek diversification away
from U.S. dollar-denominated assets; and the penalty for holding gold rather
than other assets is much lower now, because short-term interest rates have
fallen so far. He also says that a big number of speculative short positions is
"the French pastry" that completes his view, because any uptick in price should
spur a short-covering rally.
"I think there's potential for a major move in both gold and silver," said
Embry, manager of the C$135 million Royal Precious Metals Fund. "I can't say if
that's next week, next month or six months from now," he continued. "But it
will happen, and when it does, you'd better be positioned because it will
happen quick."
The Royal Precious Metals fund gleamed in 2001: its one-year return was
34.4%, versus 24.9% for the average Canadian gold fund, according to Globefund.
Over five years, the Royal fund lost 9.4% a year, versus the peer group average
loss of 12.9%, Globefund reports.
Embry tries to position the fund in those segments of the gold market that
are probably going to work best in certain periods. He had been out of junior
speculative stocks for many years as market interest vanished, but he's turning
to them once again.
Embry has been actively selling small amounts of mid-tier gold companies such
as Meridian Gold Inc. (MDG) and Goldcorp Inc. (GG), and using the cash to buy
juniors. He likes the greater risk/reward tradeoff that smaller companies
offer.
Juniors Add 'Zip' To Fund
He figures the portfolio can afford to have a few penny-stock losers, because
the successful speculative picks will overwhelm the losers. "If I'm right on
the gold price, you'll probably get doubles and triples on the big ones
(companies), but you'll get 10-baggers on some of these little ones," he
explained. "I just want to add a little more zip to the fund by doing that."
Embry looks for three key things in a company: a competent management group
with a history of discoveries; an ore body "with the right address and
geological features"; and the financial capacity to fund exploration and
growth.
Embry has increased his exposure to Novagold Resources Inc. (T.NRI), in part
because he was impressed with its chief executive, Rick Van Nieuwenhuyse, and
the Donlin Creek deposit in Alaska. "He's an old Placer (Dome) guy, so he knew
the properties up in Alaska," Embry said. He bought the stock at C$1.64 a share
and it's now trading near C$3.00. Novagold makes up about 3% of the fund.
Embry has bought "a big chunk" of Axmin Inc. (V.AXM), a Toronto-based firm
exploring in central Africa. The company was recently acquired by Asquith
Resources, which then kept the Axmin name. "I look for guys with a track record
of finding stuff, and these guys have had an excellent record in Africa," he
said of Axmin's executives.
Embry has also added to his position in Orvana Minerals Corp. (T.ORV), which
plans to produce gold, silver and copper from the Don Mario ore deposit in
eastern Bolivia. Orvana stock was at 20 Canadian cents when Embry bought it,
and now trades at about 30 Canadian cents. Compania Minera del Sur SA, a
Bolivian mining company, has just acquired a slight majority stake in Orvana
and will finance development of the deposit.
Embry bought Inmet Mining Corp. (T.IMN) about six months ago, although it's
predominantly a base-metals producer, because of its Troilus gold and copper
mine in northern Quebec. Inmet recently won an C$88 million court ruling
against Barrick Gold Corp. (ABX) over a failed 1997 deal to sell Troilus to
Homestake Canada. Homestake pulled out of the deal, Inmet sued, and Barrick -
which acquired Homestake's U.S. parent in December - got stuck with the
mid-January court decision.
Speaking of Barrick, Embry doesn't own it, or any other gold producer that
hedges its production. "If you don't believe the gold price is going up, then
the gold business is going to wither and die, and you shouldn't own a single
gold stock," he said. "None of them make sense at current prices in a
gold-price environment that is stagnant."
With Newmont Mining Corp.'s (NEM) expected acquisition of Normandy Mining
Ltd. (A.NDY) and Franco-Nevada Mining Corp. (T.FN), the combined entity will be
the fund's largest holding, at about 8%.
-Lynne Olver, Dow Jones Newswires; 604-669-1595; lynne.olver@dowjones.com
(END) Dow Jones Newswires 29-01-02
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