Greg Orrell, Portfolio Manager of the OCM Gold Fund Interviews with the Wall Street Transcript: Investing in Gold Miners with Disciplined Capital Management
67 WALL STREET, New York - December 20, 2012 - The Wall Street Transcript has just published its Gold and Precious Metals Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investment and Central Bank Demand - Gold Producers vs. Gold ETF - Midcap and Small-Cap Consolidation Activity - The Rise of Gold ETFs - Central Banks as Net Buyers of Gold
Companies include: Goldcorp Inc. (GG), Gold Fields Ltd. (GFI) and many others.
In the following excerpt from the Gold and Precious Metals Report, an experienced portfolio manager discusses his investment methodology:
TWST: In general, how would you describe your investment strategy as it pertains to the OCM Gold Fund?
Mr. Orrell: Our first approach always comes from the macro standpoint of where we believe gold is going - what's gold doing? And then, we go from there to the individual issues. So looking at mostly in the mining stocks, we are predominantly in the gold miners, and we have what we call a tiered approach of having positions in major producers and immediate junior producers, and the exploration and development companies. And then, that percentage allocation in each group changes depending on our view of where we believe the value is. Further, we do believe that capital flows do run down to each segment, depending on where you are in various cycles in the gold market at that moment. So we like to have companies that are exhibiting strong fundamentals, from cash flow generation to reserve replacement to reserves per share, and we also are looking for companies that can create value through the drill bit.
TWST: Would you elaborate a little bit about the characteristics you're looking for in a gold mining company? And conversely, what would make a gold mining company an unattractive investment in your mind?
Mr. Orrell: What we're looking for are companies that are showing discipline. On the larger side, we're looking for companies that are showing a discipline in terms of their capital deployment, and that they're holding equity dear. That has certainly been an issue. Mining companies that have become serial issuers of equity; that's not what we're looking for. We know that it is a capital-intensive business, but there has to be a measured approach. So the companies that we focus on in our portfolio are companies that have exhibited an ability to manage their business in terms of doing what they say they are going to do - replacing reserves while also looking to grow their production portfolio with higher-quality assets. Basically, that's what we're looking for.
Conversely, companies that we're shying away from are companies that have exhibited a poor track record of execution - from reserve replacement to capital deployment. We avoid companies that are not investor friendly from the standpoint of realizing that shareholders need to see a return on equity through dividends. Companies that do put the shareholder high on that priority list, and that there is going to be a call on a portion of the cash flow from each operation because the mining business is a depleting resource business and the shareholders need to participate in each operation - we want companies where the management sees that. Otherwise, it's a fool's game for the investor where the only winners are engineers, geologists, suppliers and the tax man.
TWST: Would you give us three examples of gold mining companies currently in the fund and tell us what you like about each of them?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
