This article seems to suggest that he would know that at $6-$7 it would still be significantly undervalued - therefore, not sell:

Digging Deep for Gold: David Iben, Manager, Nuveen Tradewinds Value Opportunities Fund

IT TOOK A LOT OF DIGGING, BUT DAVID IBEN really struck gold this year.

As manager of the $574 million Nuveen Tradewinds Value Opportunities Fund (ticker: NVOAX), Iben scours the market for companies and industries where the consensus view looks wrong -- then jumps in with both feet. In 2005 and '06, when investors were buying the base metals attached to global economic growth, Iben was quietly swapping out of his holdings of those stock into less-popular gold shares like Barrick Gold (ABX) and Newmont Mining (NEM), which now are a big part of his portfolio. "Gold is now where copper, nickel and oil were a few years ago," he says.

Iben says it's easier to find value among stocks that others hate than to detect every overvalued name that's loved.

This contrarian has spent the past 26 years seeking out deep value. Says Phil Hoffman of Russell Investments in London, who began allocating capital several years ago to the institutional funds Iben has run since 1998 using the same strategy that underpins the three-year-old Tradewinds fund, "He is completely benchmark-agnostic; it doesn't matter to him that he's completely out of a sector if he thinks the outlook isn't good, or that he is overweight a group like gold that is a relatively small part of most indexes."

Iben, 50, however, does limit holdings in any one sector to 30% of the fund's capital; no industry can make up more than 25% of the fund; and holdings in a particular stock can't exceed 5%. But that still gives him lots of room to maneuver. Meanwhile, Tradewinds' one-year and three-year total returns through March 19 trounce the Russell Value 2500's performance in those spans (see table). Today, materials stocks are nearly 30% of the fund, with gold shares dominating. "We went looking for companies that could extract gold for $400 to $500 an ounce," Iben says. "If they could maintain their margins, then at the prices we found, we could buy them for about half of what they were really worth."

At the time, investors hated gold stocks, which had delivered nothing but decades of disappointment. But Iben, calculating the total cost of acquiring a stake in a company's reserves -- the company's market value, its debt, its capital-spending needs and operating costs -- determined that what he needed to pay for each recoverable ounce of gold these companies possessed was significantly less than the prevailing market price.

"Even today, at Lihir Gold, we figure the stock is trading at a level that is approximately equivalent to $454 per recoverable ounce of gold," he says, while gold futures are hovering near $1,000 per ounce. That made the timing of the production -- and the notoriously volatile price of gold bullion -- less crucial in his cost-benefit analysis.

Iben can keep up to 20% of the Tradewinds portfolio in American depositary receipts of foreign companies, and treats Canadian stocks on a par with those based in the U.S. Back in 2004, Iben's team of analysts calculated that Toronto-based Barrick's enterprise value was half of Newmont's. "Part of the picture was that Standard & Poor's decided not to have Canadian stocks in its index anymore," Iben says. "Barrick ended up being much cheaper because some people who were focused on the index decided not to hold it." That bet has paid off big: Shares of Barrick, which sold at 27 in late '05 were recently around 43.

Now Iben has shifted his attention back to Newmont. "If we have a chance to arbitrage peoples' opinions of the difference between Canadian and U.S. entities -- well, why not?" From a low of 38 last summer, Newmont shares now trade around 47.

Meanwhile, Iben has been snapping up shares of Kinross Gold (KGC), Anglogold Ashanti (AU) and the relatively obscure Lihir Gold (LIHR). Traded in Australia, the company is based in Papua New Guinea, where, Iben says, "they own what we think will be one of the biggest gold mines in the world. We think we're paying the equivalent of $450 per ounce of gold for their reserves."

And while he's unruffled by the volatility stemming from the credit crunch, Iben doesn't see the opportunities in financials -- he continues to shun them -- that he saw in gold: "Last July was a tougher time than any I have experienced in 26 years in terms of finding things to buy, and I ended up with a higher cash level than I would have liked." Indeed, in early 2007, cash levels averaged around 14%, and spiked as high as 22%. By year end, Iben had found enough value stocks to buy that he'd reduced cash to 6.7%.

SOME OF THAT CASH HAS been deployed in technology and health care, nontraditional value fare. Among them: Nippon Telegraph & Telephone (NTT), Japan's largest telecommunications company. "You have this dominant telecom provider from the second-largest economy on earth -- and it's got a market cap of only $67 billion!" exclaims Iben. He isn't rattled by the fact that NTT now has rivals and margins are slimming: "There's great value left in the franchise."

Online auctioneer eBay (EBAY), a "best-of-breed" growth company that trades at half its highs and offers a low P/E ratio, is a new addition. Tradewinds' top holdings also include Amgen (AMGN), a biotech giant whose stock price has fallen so much that "you don't need that much more growth to see the potential for an increase in value." He's also picked up another battered telecom, Alcatel-Lucent (ALU.France). So far, Tradewinds has lost money on that position. "But we took the chicken way in, buying the convertible stock [a 7.75% preferred-share issue], and so we've lost only a third of our money instead of two-thirds -- and we're getting a hefty yield of 13% now!" Iben isn't ready to walk away yet. "Sometimes the turnaround happens quickly; sometimes we have to wait longer for the market to recognize the stronger fundamentals."

But sometimes he leaves the party too early. "As a pure value investor, you're not going to pick the tops," Iben explains, noting that he gave up a lot of potential upside by leaving base-metals and other heavy-industry shares when he did for the gold miners. Among those he unloaded too soon were farm-equipment manufacturer Agco (AG) and Mosaic (MOS), a fertilizer company.

But Iben has bet on another part of the agricultural sector: food processors Tyson Foods (TSN) and Smithfield Foods (SFD). "These are strong franchises that provide protein for the world and have been big beneficiaries of global growth. As global [gross domestic product] rises, so does demand for protein. And they are cheap."

As Russell's Hoffman puts it, Iben's team "end[s] up in some unexpected places at some unexpected times, but so far, they have been on a winning streak."

http://online.wsj.com/article/SB1206...