Andrew Bell

From Friday's Globe and Mail Published on Tuesday, Dec. 29, 2009

As King Ferdinand of Spain’s conquistadors set out for the New World, he told them:

“Get gold, humanely if you can, but at all hazards, get gold.”

TD Asset Management’s Margot Naudie has been making her unitholders rich without destroying Aztec palaces. Naudie’s $226-million TD Precious Metals Fund soared 101% over the 12 months ended Nov. 30, and has posted an average annual gain of 16.6% over the past five years. She told us how it’s done.

I’m not a gold bug. Gold is an asset, an investment like any other. There’s a time to own it and this is certainly the time.

The No. 1 reason gold is going up is investment demand, because of concern about the U.S. dollar, given their deficit situation and the huge amount of liquidity injected into the system.

The Claymore Gold Bullion Trust is one of my top 10 holdings. It’s very attractive for the fund because they hedge the U.S.-dollar price of gold back to Canadian dollars.

There’s concern about paper currencies in general and gold is fulfilling its traditional, historic role as a store of value.

When it comes to conspiracy theories about central banks conniving to keep the gold price down and so on, I’m agnostic. I’m happy to use that word.

Mine production has been falling since 2001. The gold price has quadrupled, but production is declining. It’s becoming increasingly difficult to find economic gold reserves in politically stable jurisdictions.

Many of the larger-cap companies are challenged in replacing their reserves and increasing production. Goldcorp is an exception. They have demonstrable production growth over the next few years from the Peñasquito mine in Mexico and other projects. I visited Peñasquito last summer and the ramp-up is going well.

The market tends to pay for growth so the mid-cap and the smaller companies tend to offer more appreciation because exploration can have a meaningful upside. We have exposure to the smaller companies on a diversified basis, so that no single position can unduly hurt the portfolio.

I go on buying less-established mining companies even after they’ve started going up. We tend to average up on smaller names as they meet milestones in terms of exploration and production development.

Stocks that haven’t worked out for me? There have been many, but because they were appropriately sized within the portfolio, no single position has killed performance.

The industry hasn’t had a history of generating meaningful free cash flow or dividends. Costs have been rising—energy is a big one—which is another reason to be ultimately positive on gold: The industry needs higher prices to generate cash flow, which attracts capital.

Freeport-McMoRan Copper & Gold is the largest publicly traded copper producer and a significant gold producer. I’ve visited their sites in Indonesia and the Congo. Freeport has a history of generating free cash and returning it to shareholders. We made a meaningful bet on Freeport at the start of this year, and it worked out very well.