Caesar Bryan’s focus on mining stocks that can thrive even in a gold bear market has made him the top performer after his picks rallied following the industry’s “near-death experience.”
Bryan’s $272 million Gabelli Gold Fund has produced the best performance this year through Aug. 18, adjusted for price swings, among the 15 U.S.-based funds that invest in precious metals and mining companies, according to the BLOOMBERG RISKLESS RETURN RANKING. The fund combined the biggest absolute gain in the group with above-average volatility.
Bryan’s stock picks such as Randgold Resources Ltd. and Franco-Nevada Corp. have rebounded in 2014 after a two-and-a-half year slump that erased almost two-thirds of the value of the Philadelphia Stock Exchange Gold and Silver Index. The shares have benefited in 2014 from an increase in gold prices and a newfound commitment among the firms to cut costs and rein in expansion projects.
“This industry had a near-death experience,” Bryan, 59, said in a telephone interview from his office in Rye, New York. “I think you will see companies treat capital and shareholders with more respect.”
The slump in mining stocks was triggered by a plunge in the price of gold, which fell from above $1900 an ounce in August 2011 to less than $1200 an ounce in June 2013. Among those caught in the decline was billionaire hedge-fund manager John Paulson, whose dedicated gold fund fell 71 percent in 2013.
Gabelli Gold gained a risk-adjusted 1.4 percent this year. The fund produced an absolute return of 38 percent with a volatility of 27.3, compared with an average of 25.8 for the group of 15 funds.
The $1.6 billion Tocqueville Gold Fund ranked second with a risk-adjusted return of 1.3 percent. The $1.5 billion First Eagle Gold Fund ranked third, climbing 1.25 percent, adjusted for price swings, this year.
Bloomberg’s risk-adjusted return is calculated by dividing total return by volatility, or the degree of daily price-swing variation, giving a measure of performance per unit risk.
In addition to declining prices of bullion, mining stocks suffered from self-inflicted wounds, according to Bryan. When prices were rising, the companies spent money on new projects, many of which came in far over budget, he said. They also bought up rivals in an acquisition binge that failed to boost profits.
The mining firms responded to the slump by cutting budgets, selling less profitable assets and pledging to focus more on efficiencies. Bryan said that mining executives are beginning to talk about boosting their modest dividends, although some firms may have to pay down debt first.
“There is no doubt the mining industry is in a crisis,” Mark Bristow, chief executive officer of Randgold Resources Ltd., said in a February interview with Bloomberg Television. “The whole industry has to reinvent itself.”
Randgold, which is based in the Channel Islands, was the largest holding in Gabelli Gold as of June 30, according to the fund’s website.
The firm, whose shares accounted for 12 percent of the Gabelli fund as of mid-year, fits the mold of what Bryan is looking for in a mining business. Randgold also has no debt, a big plus for Bryan.
“If you are producing a commodity that is falling in price, debt is not your friend,” he said.
Randgold, with mines in Africa, can produce gold profitably even if the price of the metal falls to $1000 an ounce, Bristow said in a July interview with Bloomberg News. Gold currently sells for about $1,295 an ounce.
Randgold gained 33 percent this year in London trading after slumping 36 percent in 2013. In the 10 years ended July 31, its shares rose more than 10-fold, compared with a gain of about 14 percent for the gold and silver index, according to data compiled by Bloomberg. Bryan has owned Randgold since it became a public company in 1997.
Bryan calls the fund’s second-largest position, Franco-Nevada, a defensive play. Franco-Nevada, which climbed 47 percent this year in Toronto trading, fell 24 percent in 2013, about half the decline of the index.
“When gold crashed, it was a huge outperformer,” he said of the Toronto-based company.
Franco-Nevada owns royalties, which means in return for cash it gets a share of the production in a variety of mines. The strategy allows the firm to avoid the risks that come with soaring costs, while still benefiting if a mine produces more gold or silver than originally anticipated.
Bryan has managed the Gabelli fund since it was created in 1994. The fund has outperformed 72 percent of rivals over the past 15 years, according to data from Chicago-based Morningstar Inc.
Bryan is a buy-and-hold investor, trading stocks roughly one-tenth as often as managers of similarly managed funds, Morningstar data show.
Gold has gained 7.8 percent this year, driven, in part, by conflicts in Ukraine, Israel and Iraq roiling markets.
“Gold is being sought as a safe haven asset because of all the serious geopolitical developments,” said Jim Russell, who helps oversee $124 billion as a senior equity strategist at U.S. Bank Wealth Management in Cincinnati.
The metal’s price is not expected to change much in the next few years. Analysts surveyed by Bloomberg forecast a gold price of $1367 an ounce in 2018.
Bryan won’t even hazard a guess as to where gold prices will go. In his latest newsletter he said only that, “possibly the vicious bear market in gold and gold equities is over.”
His reticence to make a prediction, he said, is based on his long experience in the industry. He sticks to his focus on picking gold-mining companies with low costs and strong management teams.
“We think about the price of gold, but we are not in the business of forecasting it,” he said. “No good can come of it.”
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