Gold mining shares are better bets than gold - Franklin Templeton

(Reuters) - Investors who are bullish on gold should consider buying shares of gold miners to gain the additional returns from greater efficiency in extracting the metal as well as the discovery of new mines, a Franklin Templeton fund manager said on Monday.

Fears of a possible U.S. debt default and uncertainty over the euro zone's debt crisis have led investors to pile into safe haven asset, driving spot gold price to a record high above $1,622 an ounce on Monday.

Steve Land, portfolio manager of the U.S. fund manager's Franklin Gold and Precious Metals Fund, think buyers of physical gold or exchange-traded funds linked to the yellow metal can get even better returns by investing in gold miners.

"Some of the upside with equities that you don't get with commodities is the potential for exploration success. We think there's a lot of value to be created on that side of the business in the current environment," Land told reporters.

For instance, high gold prices mean miners are seeing margins of about 60 percent, allowing them to generate significant free cash to explore for new deposits, expand their operations and pay higher dividends.

Gold mining firms that Land is bullish on include Canada's Nevsun Resources and Osisko Mining Corp , which he described as "earlier stage companies" with "land blocs that they haven't thoroughly explored".

"It's the idea that you can grow your business faster than what's happening in the gold industry," he said.

Land's fund, which started in April last year, has gained 20.2 percent as at end-May, beating the FTSE Gold Mines Index's 12.8 percent rise over the same period.

His returns have, however, lagged spot gold prices that have surged about 30 percent over the same period.

As of the end of June, 4.6 percent of the Franklin gold and precious metals fund was invested in Nevsun Resources and about 4.4 percent in Osisko Mining.

Its largest investment is in Australia's biggest gold producer Newcrest Mining .

The Franklin fund also holds stakes in Randgold Resources and Goldcorp Inc , all of which enjoy above-average industry growth, Land said. (Reporting by Charmian Kok; Editing by Kevin Lim)